Charlie Ellis & Burton Malkiel say 0% bonds OK under 50

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jay22
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Re: Charlie Ellis & Burton Malkiel say 0% bonds OK under 50

Post by jay22 » Tue Apr 23, 2013 10:20 am

Austintatious wrote:I remembered seeing this somewhat dated table on returns for various allocations, having recently read Bogle's 2010, revised Common Sense on Mutual Funds. Ch. 3, On Asset Allocation includes, in table 3.2, page 83,annualized total returns from 1971 -2009:

100/0 9.6%
80/20 9.7%
60/40 9.7%
40/60 9.6%
20/80 9.2%
0/100 8.7%

The allocations were rebalanced annually. I don't have anything more recent.
That's a great table. I know there are other variables involved, but just by looking at it I wonder why would anyone want to go with (let's say) a 100/0 instead of a 80/20. I wouldn't do that even if the returns crossed 10.5%. I'll be happy with 9.7% since it'll let me sleep better.

YDNAL
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Re: Charlie Ellis & Burton Malkiel say 0% bonds OK under 50

Post by YDNAL » Tue Apr 23, 2013 10:46 am

jay22 wrote:
Austintatious wrote:I remembered seeing this somewhat dated table on returns for various allocations, having recently read Bogle's 2010, revised Common Sense on Mutual Funds. Ch. 3, On Asset Allocation includes, in table 3.2, page 83,annualized total returns from 1971 -2009:

100/0 9.6%
80/20 9.7%
60/40 9.7%
40/60 9.6%
20/80 9.2%
0/100 8.7%

The allocations were rebalanced annually. I don't have anything more recent.
That's a great table. I know there are other variables involved, but just by looking at it I wonder why would anyone want to go with (let's say) a 100/0 instead of a 80/20. I wouldn't do that even if the returns crossed 10.5%. I'll be happy with 9.7% since it'll let me sleep better.
Jay,

From what you said, then eveyone should be content with 60/40 or even 40/60 (not 80/20) to get identical [past] return. Note that I'm not defending an undiversified 100/0 allocation.
  • I AM suggesting NOT to be misled by historical data - notice the end-date which includes the precipitous drop by March 9, 2009.
  • Expected return from Equities, to compensate for risk taken, should be higher than lower-risk investments. Otherwise, NO ONE will take Equity risk.... right?
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

jay22
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Location: Sacramento, CA

Re: Charlie Ellis & Burton Malkiel say 0% bonds OK under 50

Post by jay22 » Tue Apr 23, 2013 11:18 am

YDNAL wrote:
jay22 wrote:
Austintatious wrote:I remembered seeing this somewhat dated table on returns for various allocations, having recently read Bogle's 2010, revised Common Sense on Mutual Funds. Ch. 3, On Asset Allocation includes, in table 3.2, page 83,annualized total returns from 1971 -2009:

100/0 9.6%
80/20 9.7%
60/40 9.7%
40/60 9.6%
20/80 9.2%
0/100 8.7%

The allocations were rebalanced annually. I don't have anything more recent.
That's a great table. I know there are other variables involved, but just by looking at it I wonder why would anyone want to go with (let's say) a 100/0 instead of a 80/20. I wouldn't do that even if the returns crossed 10.5%. I'll be happy with 9.7% since it'll let me sleep better.
Jay,

From what you said, then eveyone should be content with 60/40 or even 40/60 (not 80/20) to get identical [past] return. Note that I'm not defending an undiversified 100/0 allocation.
  • I AM suggesting NOT to be misled by historical data - notice the end-date which includes the precipitous drop by March 9, 2009.
  • Expected return from Equities, to compensate for risk taken, should be higher than lower-risk investments. Otherwise, NO ONE will take Equity risk.... right?
Which is exactly why I said there are more variables involved to make that decision - I probably should have worded my comment better.

Perhaps, the link on from Taylor's post on the last page gives a better picture: https://personal.vanguard.com/us/insigh ... llocations

80/20 is 9.4% returns from 1926-2012. 100/0 gives 10%. Hardly a huge difference and certainly not worth considering the risk involved.

YDNAL
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Location: Biscayne Bay

Re: Charlie Ellis & Burton Malkiel say 0% bonds OK under 50

Post by YDNAL » Tue Apr 23, 2013 12:54 pm

jay22 wrote:
YDNAL wrote:Jay,

From what you said, then eveyone should be content with 60/40 or even 40/60 (not 80/20) to get identical [past] return. Note that I'm not defending an undiversified 100/0 allocation.
  • I AM suggesting NOT to be misled by historical data - notice the end-date which includes the precipitous drop by March 9, 2009.
  • Expected return from Equities, to compensate for risk taken, should be higher than lower-risk investments. Otherwise, NO ONE will take Equity risk.... right?
Which is exactly why I said there are more variables involved to make that decision - I probably should have worded my comment better.

Perhaps, the link in Taylor's post on the last page gives a better picture: https://personal.vanguard.com/us/insigh ... llocations

80/20 is 9.4% returns from 1926-2012. 100/0 gives 10%. Hardly a huge difference and certainly not worth considering the risk involved.
Historical data is what it is - thus the reason for my response to you in the first place.

The image I provided provides a clear picture of this expected return/risk conundrum.
  1. We can slide from point A to point B as we wish, based on our personal circumstances and the level of risk we wish to undertake. This, knowing full well that risk may be UNcompensated or improperly compensated, and there are no guarantees.
  2. Bottom line, it is up to each of us individually to strike the Asset Allocation balance that fits our circumstances.
Image[/quote]
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

lostInFinance
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Re: Charlie Ellis & Burton Malkiel say 0% bonds OK under 50

Post by lostInFinance » Tue Apr 23, 2013 10:03 pm

letsgobobby wrote:
Not to mention all the many stock markets of the world which have effectively returned zero - or worse - in the last century. Argentina, Greece, Peru, Columbia, South Africa, New Zealand, Spain, Belgium, Portugal - all according to Bill Bernstein in The Four Pillars of Investing.

According to the Dimson, Marsh, and Staunton data, South Africa returned 7.25% real, Belgium 2.4%, and Spain 3.74% from 1900-2005. At least in Argentina, I don't think you would have been safe in 100% domestic bonds either, given their high, maybe even hyper, inflation levels.

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Liquid
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Re: Charlie Ellis & Burton Malkiel say 0% bonds OK under 50

Post by Liquid » Wed Apr 24, 2013 7:11 pm

Call_Me_Op wrote:I think people tend to forget that there really is a chance that things can get really bad like 1929 again at some point in the future. I would be an emotional wreck if I lost 90% of my life savings and didn't know whether I was going to lose even more - or if it would ever come back. I'll keep by bonds and cash, thank you.
Seems to me people would be far better off if they actually realized how their "life savings" compared to the paper value of their investments in a downturn.

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