What is the ideal asset allocation?

[Jason Powell]

If you had a pot of money you have to invest that you needed to live off of for decades, how would you invest it? "Conventional wisdom", modern portfolio theory, and the typical asset allocation of high net worth individuals shows a balance between real estate, publicly traded stocks, private equity, and cash/fixed income.

How risky would it be to invest 100% in real estate? Could a prudent investor go all in on this asset class, assuming the investments were blended across the risk/return spectrum (i.e. some low LTV or debt free, some 1st lien loans, some higher LTV, etc)

I'm asking purely regarding a passive investing style, assuming no directly held real estate but rather only a syndication model as a LP. I'm also assuming one would still keep adequate cash on hand to cover emergencies and recessions where income may go down. 

[John Corey]

Warren Buffett explains that diversification is a tool used by Wall Street sales people to sell products. He does not believe in diversification in the tradition sense. He feels you should put all your eggs in one basket and then watch the basket. To use your skills and intelligence to create more value than you would receive from a diversified portfolio. The logic of diversification is to reduce the risks by reducing the returns.

If you do not have the time to focus on the basket and create value through your focused attention, Warren suggests you use an index fund. All in and focus or completely out and let the index produce the returns without any effort and tiny overheads.

Stated another way, Warren thinks you can create 'alpha' which is the premium you receive because of your skills and judgment. Something that takes time to build. If you can not add value, why even try to compete? In that case, go with the index.