Productivity of the 60/40 Split in Current Times

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Kendrick33
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Joined: Fri Dec 15, 2017 12:58 pm

Productivity of the 60/40 Split in Current Times

Post by Kendrick33 » Tue Oct 16, 2018 12:19 pm

I was reading the following article on the 60/40 split. Does anyone think that there's any validity to it when regarding a three fund portfolio with a 60/40 split?

https://www.investopedia.com/articles/f ... enough.asp

kadibex1
Posts: 35
Joined: Fri Sep 28, 2018 6:17 pm

Re: Productivity of the 60/40 Split in Current Times

Post by kadibex1 » Tue Oct 16, 2018 12:40 pm

Kendrick33 wrote:
Tue Oct 16, 2018 12:19 pm
I was reading the following article on the 60/40 split. Does anyone think that there's any validity to it when regarding a three fund portfolio with a 60/40 split?

https://www.investopedia.com/articles/f ... enough.asp
It's just noise. So tune it out! If it helps, over the last 20 years I've only used the Vanguard Balanced Index Fund VBIAX for all of my investing and it has served me well. Since the last crash we've all kinds of articles from these pseudo finance people talking about how the 60/40 is dead. When in fact the 60/40 has show to have the best risk to return or AA.
Last edited by kadibex1 on Tue Oct 16, 2018 12:43 pm, edited 1 time in total.

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galeno
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Re: Productivity of the 60/40 Split in Current Times

Post by galeno » Tue Oct 16, 2018 12:41 pm

Assume retirement at 60.

I like 80/20 until 50. 60/40 until 60. 40/60 thereafter.

30/70 is your best risk-adjusted return.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

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UpsetRaptor
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Re: Productivity of the 60/40 Split in Current Times

Post by UpsetRaptor » Tue Oct 16, 2018 2:27 pm

I read the article and the paper it referenced. If you plug a standard 60:40 portfolio and the author's recommended 30:30:20:20 Treasuries:TIPS:Equities:Bonds into portfolio visualizer, the 60:40 comes out ahead fairly easily over most time periods. The author acknowledges this but claims there's a large rebalancing bonus by holding the portfolio with the more diverse asset classes when one annually rebalances back to 30:30:20:20, which makes up the difference for that portfolio's lower total returns, resulting in essentially the same returns over time.

So even IF you buy the data, which going back to 1926 is based on simulations from "Bridgewater’s proprietary methodology" for some of the indexes, and you buy that the purported larger rebalancing bonus is indeed a thing and will persist, the end result to the individual investor would be more work for the same returns. So, seems like just more noise, mostly.

Edit: Also, the data was ran in 2010, if ran again now the 60:40 portfolio would probably come out ahead anyways, even after incorporating all the mumbo jumbo.

pyld76
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Re: Productivity of the 60/40 Split in Current Times

Post by pyld76 » Tue Oct 16, 2018 8:37 pm

Zero data to back this up, but I would be willing to wager that someone holding Vanguard balanced index and nothing else for their entire lifetime probably has better investing outcomes than a solid 80 to 85 percent of the US investing population.

InvMoney
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Re: Productivity of the 60/40 Split in Current Times

Post by InvMoney » Thu Oct 18, 2018 5:53 pm

Vanguard's Wellington fund (VWELX - Investor Shares) has a superior long-term return to that of Vanguard's Balanced Index fund (VBINX- Investor Shares).

Portfolio Visualizer data for the nearly 20 year period of January 1999 thru September 2018 follows.

Wellington (VWELX): September 2018 value of $100,000 invested on January 1, 1999: $426,518. Average Annual Return: 7.62%.
Balanced Index (VBINX): September 2018 value of $100,000 invested on January 1, 1999: $328,020. Average Annual Return: 6.20%.
Last edited by InvMoney on Thu Oct 18, 2018 5:58 pm, edited 1 time in total.

MotoTrojan
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Re: Productivity of the 60/40 Split in Current Times

Post by MotoTrojan » Thu Oct 18, 2018 5:57 pm

What are all of these people talking about when they compare risk-adjusted return to AA? 30/70 is best? 60/40? Huh?

How do you define risk? Using the basis of volatility vs. return only works for looking at what HAD the best risk adjusted return over a certain time period. Bonds of today will not behave anything like those that have had interest rates go from the high-teens down to the low single-digits in the last 30+ years.

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