Shouldn't we all be 50/50

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stemikger
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Shouldn't we all be 50/50

Post by stemikger »

As many of you have probably seen, I posted various threads on Warren Buffett and others telling the average investor to get out of bonds. In Warren's case he said just put everything into an index fund that buys America and just keep adding to it.

Many Bogleheads disagreed and used the example of stocks falling 50 to 90%. If that is the case and agree bonds are for safety shouldn't we all be 50/50 or at the very least 60/40?

Also, if that is a real possibility and a way we look at stock market risk shouldn't we question why we invest in them at all? Also, do you look at 2008 as a once in generation event and the likelihood of it happening within the next 10 to 20 years is much more remote.
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cflannagan
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Re: Shouldn't we all be 50/50

Post by cflannagan »

We all have varying degrees of the need for safety. Right now I'm 70/30 stocks/bonds.
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Re: Shouldn't we all be 50/50

Post by Clivus1 »

I see tremendous risk in bonds as an accumulator in my forties. The risk lies in losing to inflation over my long timeline. With an investment horizon greater than 20 years I see little reason for bonds. Vanguard seems to agree as they have become much more aggressive in their target date products.

If I was nearing retirement or retired my concerns would be much different and my focus more on preservation rather than long term growth.
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Re: Shouldn't we all be 50/50

Post by Blues »

cflannagan wrote:We all have varying degrees of the need for safety. Right now I'm 70/30 stocks/bonds.
And we're just the opposite...30/70. Due to any number of individual circumstances, one size clearly does not fit all.
If I was nearing retirement or retired my concerns would be much different and my focus more on preservation rather than long term growth.
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Re: Shouldn't we all be 50/50

Post by magneto »

stemikger wrote:As many of you have probably seen, I posted various threads on Warren Buffett and others telling the average investor to get out of bonds. In Warren's case he said just put everything into an index fund that buys America and just keep adding to it.
Perhaps others with better memories will help me out here. Seem to recall that after a market peak and subsequent fall (can't remember which one) it turned out that Warren's personal investments were 100% bonds. This might have been due to his age. Presume he then went back into stocks when values looked compelling? Is there such a thing as an average investor?
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Re: Shouldn't we all be 50/50

Post by momar »

Why would being 50/50 follow from the observation that stocks could drop 50% or more?
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Re: Shouldn't we all be 50/50

Post by InvestorNewb »

I'm 100% stocks. Maybe I'll regret it when the next correction happens, since I've never been through anything major.

For now I am enjoying the nice returns that stocks are giving.
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Re: Shouldn't we all be 50/50

Post by MnD »

The perceived safety of bonds reflects recency bias 1982-early 2013. Bonds 1945-1981, (following the 25 year bull market 1920-1945) were a disaster.
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Re: Shouldn't we all be 50/50

Post by Kruid9403 »

Rule 1. Never doubt the markets ability to drop

This is true in all markets including the bond market. People think they are buying liquid assets but the problem right now is that when the FED starts to taper and the interest rates go up then the value of the bonds go down. If you have to sell them before they mature for any reason you will not be worth what they are today. You will be lucky to get 90 cents on the dollar when interest rate go back to normal. If you are buying bonds today I hope you are planning on holding to maturity.
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Phineas J. Whoopee
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Re: Shouldn't we all be 50/50

Post by Phineas J. Whoopee »

stemikger wrote:...
Also, do you look at 2008 as a once in generation event and the likelihood of it happening within the next 10 to 20 years is much more remote.
Hi stemikger,

I'm afraid that's an incorrect understanding of the meaning of a "once in a generation event."

Events will happen. Different events have different probabilities. For example, take a 100-year flood. That's an older way of speaking. All it means is the estimated probability of such an event in any given year is around 1%. You know that. I know that. The water doesn't know it. You could have had a 100-year flood last month, and have another next month.

Let's imagine a generation is 20 years (that's one of the ways it's measured). A once-in-a-generation event then has, to the best of our approximation, a 5% chance of happening in any given year. It doesn't mean if there was one, there won't be another for around 20 years.

Others calculate a generation as 25 years. Once-in-a-generation then is an estimated probability in any given year as 4%. From an individual investor point of view those two percentage estimates don't sound very much different.

As before, you may know and I may know how to do the math, but the market doesn't know.

To extend my response:

Once-in-a-generation is nowhere near once-in-a-lifetime. Let's call a lifetime 75 years. One out of 75 is still 1.33% for any given year. Does it sound overly precise? It is. And anyway, the market doesn't know it, and we don't have enough information even to say it might be statistically valid and won't for thousands of years during which time the economic system will likely change. Also, what happens if there's a medical breakthrough by which we can cheaply extend lifetimes to 110 years? Did the likelihood of a once-in-a-lifetime event go up or down? If a side effect is to extend fertility to 70 years did the likelihood of a once-in-a-generation event go up or down?

It is possible to flip heads 100 times in a row. Interestingly, to me at least, the most likely outcome, 50 heads and 50 tails in any order, has only about an 8% chance of happening.

The most likely outcome will happen in only 8% of the trials.

Be prepared for a market crash at all times. Also be prepared for a huge bull market at any moment. Don't predict. Don't panic. Just rebalance.

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Re: Shouldn't we all be 50/50

Post by Ged »

Blues wrote:
cflannagan wrote:We all have varying degrees of the need for safety. Right now I'm 70/30 stocks/bonds.
And we're just the opposite...30/70. Due to any number of individual circumstances, one size clearly does not fit all.
If I was nearing retirement or retired my concerns would be much different and my focus more on preservation rather than long term growth.
:beer
Exactly. I just retired am in a process which includes Roth conversion and delaying SS. So I'm down to 40/60 (and that 60 is mostly short term stuff) because I have big needs for cash over the next few years. Once I hit 70 I will likely start increasing my equity percentage.

:sharebeer
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Re: Shouldn't we all be 50/50

Post by YDNAL »

stemikger wrote:As many of you have probably seen, I posted various threads on Warren Buffett and others telling the average investor to get out of bonds. In Warren's case he said just put everything into an index fund that buys America and just keep adding to it.

Many Bogleheads disagreed and used the example of stocks falling 50 to 90%. If that is the case and agree bonds are for safety shouldn't we all be 50/50 or at the very least 60/40?
It never ceases to amaze me that we are continually trying to generalize and put things inside *boxes*.
  • We ALL should hold the Equity allocation, to meet goals & objectives, based on our personal Ability & Need to take risk.
  • If I'm not mistaken, I posted this similar table in another thread for you. The difference, for instance, between 60/40 and 40/60 is but 0.6% per illustration.

Code: Select all

		       Real hoped-for Return		
Stk	Bond	4%	     1%	   Total
75	  25	 3.00 	 0.25 	 3.25 
70	  30	 2.80 	 0.30 	 3.10 
65	  35	 2.60 	 0.35 	 2.95 
60	  40	 2.40 	 0.40 	 2.80 
55	  45	 2.20 	 0.45 	 2.65 
50	  50	 2.00 	 0.50 	 2.50 
45	  55	 1.80 	 0.55 	 2.35 
40	  60	 1.60 	 0.60 	 2.20 
35	  65	 1.40 	 0.65 	 2.05 
30	  70	 1.20 	 0.70 	 1.90 
25	  75	 1.00 	 0.75 	 1.75
MnD wrote:The perceived safety of bonds reflects recency bias 1982-early 2013. Bonds 1945-1981, (following the 25 year bull market 1920-1945) were a disaster.
[image deleted to save space and bandwidth]
Disaster, how ?... please be more specific.
http://pages.stern.nyu.edu/~ADAMODAR/Ne ... [code]YEAR Annual Return (Constant Maturity 10-year Treasury bond)
1945 3.80%
1946 3.13%
1947 0.92%
1948 1.95%
1949 4.66%
1950 0.43%
1951 -0.30%
1952 2.27%
1953 4.14%
1954 3.29%
1955 -1.34%
1956 -2.26%
1957 6.80%
1958 -2.10%
1959 -2.65%
1960 11.64%
1961 2.06%
1962 5.69%
1963 1.68%
1964 3.73%
1965 0.72%
1966 2.91%
1967 -1.58%
1968 3.27%
1969 -5.01%
1970 16.75%
1971 9.79%
1972 2.82%
1973 3.66%
1974 1.99%
1975 3.61%
1976 15.98%
1977 1.29%
1978 -0.78%
1979 0.67%
1980 -2.99%
1981 8.20%[/code]
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Leesbro63
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Re: Shouldn't we all be 50/50

Post by Leesbro63 »

I pretty much have concluded that FOR MYSELF, (now age 53 with a substantial amount saved....enough to retire on a 2% SWR), 50/50 balances out the risks and rewards about as good as I can get. And I plan to say this way, more or less, forever. Since most of my stuff is taxable, I also plan to limit rebalancing to only when something becomes absolutely lopsided.

Anyway, everyone has their own situation but I've concluded that, yeah, 50/50 seems to be the perfect balance for a mature portfolio like mine that can support a very low SWR.
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Re: Shouldn't we all be 50/50

Post by matjen »

Leesbro63 wrote:I pretty much have concluded that FOR MYSELF, (now age 53 with a substantial amount saved....enough to retire on a 2% SWR), 50/50 balances out the risks and rewards about as good as I can get. And I plan to say this way, more or less, forever. Since most of my stuff is taxable, I also plan to limit rebalancing to only when something becomes absolutely lopsided.

Anyway, everyone has their own situation but I've concluded that, yeah, 50/50 seems to be the perfect balance for a mature portfolio like mine that can support a very low SWR.
Leesbro63, what does your fixed income look like? Mostly muni funds?
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Re: Shouldn't we all be 50/50

Post by dbr »

Leesbro63 wrote: Anyway, everyone has their own situation but I've concluded that, yeah, 50/50 seems to be the perfect balance for a mature portfolio like mine that can support a very low SWR.
Don't you mean that your WR (withdrawal rate) is very low and that you can support it because the SWR (safe withdrawal rate or sustainable withdrawal rate) is substantially more than your actual withdrawal rate?
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Re: Shouldn't we all be 50/50

Post by FlyingMoose »

Phineas J. Whoopee wrote:I'm afraid that's an incorrect understanding of the meaning of a "once in a generation event."

Events will happen. Different events have different probabilities. For example, take a 100-year flood. That's an older way of speaking. All it means is the estimated probability of such an event in any given year is around 1%. You know that. I know that. The water doesn't know it. You could have had a 100-year flood last month, and have another next month.
I disagree. I think an earthquake is a more apt analogy. After an earthquake has happened, it takes a while for the pressure to build back up for another one. In the same way, the banks will be much more careful about lending going forward for quite a while. So this would keep it from being random, like the weather.

If you look at the past, these credit chrises seem to happen on a fairly regular basis (last one was the S&L thing in the '80s). Eventually people forget the lessons, the debt builds back up, and it happens again.
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Re: Shouldn't we all be 50/50

Post by pkcrafter »

Also, do you look at 2008 as a once in generation event and the likelihood of it happening within the next 10 to 20 years is much more remote.
On average, we have had a >20% drop in the market (defined as bear market) every 5 years since 1929. Your quote reminds me of the woman in Nashville who lost her home in a flood earlier this year. She did not have insurance because 3 years earlier Nashville experienced what was termed the 100 year flood, so she reasoned that she didn't need insurance any more.

No, not everyone should be 50/50, but it is just plan wise to stay in the 75-25 equity allocation if for no other reason than very bad things can happen that haven't happened before. There is NO guarantee that the long term outcome will be as you expect.

Paul
Last edited by pkcrafter on Thu Oct 17, 2013 3:48 pm, edited 1 time in total.
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Re: Shouldn't we all be 50/50

Post by azanon »

Adust those nominal 1945-1981 bond returns for real return, and you'll have your disaster that he was referring to. I'd probably come out close to 0% real, or not far from it?
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Re: Shouldn't we all be 50/50

Post by zotty »

Here's my take:

The past isn't prologue, the distribution of returns will continue to surprise. If "stocks for the long run" were a given, that would remove risk and hence return. There is no guarantee, nor anything close to a guarantee.

Things can go bad and stay bad for longer than we can imagine. Just because it hasn't happened...doesn't mean it won't.

bonds may actually outperform stocks over any given period time including long periods of time. I own bonds so that i might be able to eat people food if things go really wrong.
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Phineas J. Whoopee
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Re: Shouldn't we all be 50/50

Post by Phineas J. Whoopee »

FlyingMoose wrote:
Phineas J. Whoopee wrote:I'm afraid that's an incorrect understanding of the meaning of a "once in a generation event."

Events will happen. Different events have different probabilities. For example, take a 100-year flood. That's an older way of speaking. All it means is the estimated probability of such an event in any given year is around 1%. You know that. I know that. The water doesn't know it. You could have had a 100-year flood last month, and have another next month.
I disagree. I think an earthquake is a more apt analogy. After an earthquake has happened, it takes a while for the pressure to build back up for another one. In the same way, the banks will be much more careful about lending going forward for quite a while. So this would keep it from being random, like the weather.

If you look at the past, these credit chrises seem to happen on a fairly regular basis (last one was the S&L thing in the '80s). Eventually people forget the lessons, the debt builds back up, and it happens again.
Your geological analogy about leveraging-led crises may or may not be more apt. My weather analogy may or may not be more apt. You claim weather is random but plate tectonics is not. I've not claimed weather is random. It isn't. It's chaotic. Wegener, whom I've read in translation, although excoriated in his day claimed geology is not random.

I've made no claim that all bear markets are over-leveraging-led. I believe history is on my side. Plenty of bear markets have happened for other reasons.

I won't try to argue over a metaphor. If my point is wrong I hurt nobody but myself. If it's right, all the metaphors in the world won't make a difference.

My thesis stands.

PJW
Last edited by Phineas J. Whoopee on Thu Oct 17, 2013 12:04 pm, edited 1 time in total.
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Re: Shouldn't we all be 50/50

Post by greg24 »

Phineas J. Whoopee, you're the greatest!
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Re: Shouldn't we all be 50/50

Post by Phineas J. Whoopee »

greg24 wrote:Phineas J. Whoopee, you're the greatest!
Why thank you, Tennessee.
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Re: Shouldn't we all be 50/50

Post by MnD »

YDNAL wrote: Disaster, how ?... please be more specific.
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Re: Shouldn't we all be 50/50

Post by jdb »

There was an earlier related post which can be summarized as saying that the 50-50 portfolio is not a balanced portfolio from a risk standpoint, it overweights stocks. With all due respect kind of a silly post, since portfolio allocation is dependant on so many variables, including earned income, size of portfolio, needed withdrawal rates, if any, estimated holding period, amount of estimated future contributions, not to mention risk aversion, also known as being able to sleep well at night. Personally am 35% in stock, mosty Vanguard index funds, which is enough for me. Some even go 100% fixed income, reminds me of story about Groucho Marx when at height of his show biz career he visited NYSE as celebrity visitor. When asked where he invested his money Groucho said he put it all in Treasury bonds. One of brokers said that didn't seem to give much income, and Groucho replied that it did if you had enough of them.
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Re: Shouldn't we all be 50/50

Post by Ketawa »

MnD wrote:Image
Approximately keeping up with inflation for a 50 year period that ends with hyperinflation is not a disaster for the safest possible part of your portfolio.
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Re: Shouldn't we all be 50/50

Post by IlliniDave »

Probably not. We all have different needs, plans, and aspirations. Investment approaches in some ways reflect that. I'm not sure there are any completely black/white, one size fits all recipes.
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Re: Shouldn't we all be 50/50

Post by YDNAL »

MnD wrote:
YDNAL wrote: Disaster, how ?... please be more specific.
[ IMG deleted ]
Ahhhh!.. so your conclusion that "safety of Bonds is perceived" and "Bonds 1945-1981 were a disaster" is based on a period that includes the largest, and second largest, inflationary periods in US history (1968-1981, 1945-1951). [edit: to correct dates in this sentence]
MnD wrote:The perceived safety of bonds reflects recency bias 1982-early 2013. Bonds 1945-1981, (following the 25 year bull market 1920-1945) were a disaster.
[image deleted to save space and bandwidth]

Code: Select all

1945  2.3% 
1946  8.5% 
1947 14.4% 
1948  7.7%
1949 -1.0%
1950  1.1%
1951  7.9%
------------
1968  4.3%
1969  5.5%
1970  5.8% 
1971  4.3% 
1972  3.3% 
1973  6.2% 
1974 11.1% 
1975  9.1% 
1976  5.7% 
1977  6.5% 
1978  7.6% 
1979 11.3% 
1980 13.5% 
1981 10.3%
Not to worry, TIPS are available today (not then).
Last edited by YDNAL on Thu Oct 17, 2013 3:16 pm, edited 2 times in total.
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Re: Shouldn't we all be 50/50

Post by FFFollower »

I am roughly 75/25. I intend on keeping this with one-way rebalancing (stocks -> bonds) until I get 10 years out from retirement. Then re-evaluate. Essentially, I am growing a safe cash flow core position. I will rebalance both stocks and bonds with contributions, but only ever sell stocks to buy bonds.

That said, I am hanging out in short term bonds until the 10y moves over 3%. I am right now: 3% TBM, 9.5% iBonds, 12% short term / cash. My goal is to be 15% TBM, 10% iBonds by the time the 10y gets to 3.5%.
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Re: Shouldn't we all be 50/50

Post by Garco »

How come everyone assumes that there are only two asset classes? I know, it's reinforced in various ways here. But there are alternatives including real estate, commodities, precious metals, and cash, for example. I'm 50% in equities now (close to retirement), but just 20% in bond funds.
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Re: Shouldn't we all be 50/50

Post by greg24 »

MnD wrote:The perceived safety of bonds reflects recency bias 1982-early 2013. Bonds 1945-1981, (following the 25 year bull market 1920-1945) were a disaster.
Recency bias?

http://www.efficientfrontier.com/ef/402/2cent.htm
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Re: Shouldn't we all be 50/50

Post by dlw322 »

Leesbro63 wrote:I pretty much have concluded that FOR MYSELF, (now age 53 with a substantial amount saved....enough to retire on a 2% SWR), 50/50 balances out the risks and rewards about as good as I can get. And I plan to say this way, more or less, forever. Since most of my stuff is taxable, I also plan to limit rebalancing to only when something becomes absolutely lopsided.

Anyway, everyone has their own situation but I've concluded that, yeah, 50/50 seems to be the perfect balance for a mature portfolio like mine that can support a very low SWR.

This is the same reason I am 90/10. I have enough to support a very low SWR (<2%). I am thinking that I will need only dividends to live off. I think it will work as long as I have some flexibility in the budget so I can cut back when bad times hit and dividends get cut.
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Re: Shouldn't we all be 50/50

Post by Leesbro63 »

Garco wrote:How come everyone assumes that there are only two asset classes? I know, it's reinforced in various ways here. But there are alternatives including real estate, commodities, precious metals, and cash, for example. I'm 50% in equities now (close to retirement), but just 20% in bond funds.
Yes and no. Yeah, there is more than "stocks and bonds" But real estate, commodities, metals (which are commodities) are "equity". So there really are only two asset classes....equity and debt (cash is debt).
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Re: Shouldn't we all be 50/50

Post by Garco »

Leesbro63 wrote:
Garco wrote:How come everyone assumes that there are only two asset classes? I know, it's reinforced in various ways here. But there are alternatives including real estate, commodities, precious metals, and cash, for example. I'm 50% in equities now (close to retirement), but just 20% in bond funds.
Yes and no. Yeah, there is more than "stocks and bonds" But real estate, commodities, metals (which are commodities) are "equity". So there really are only two asset classes....equity and debt (cash is debt).
Thanks. Not all commodities are metals (and not all metals are precious metals, e.g., there is also aluminum, copper). And not all equity is alike in content or form or investment methods or risk. That diversification would seem to me to be relevant, as we consider "why shouldn't we call be 50% equities" [which almost everybody here assumes means "stocks"] and 50% something else.
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Re: Shouldn't we all be 50/50

Post by Abe »

Garco wrote:
Leesbro63 wrote:
Garco wrote:How come everyone assumes that there are only two asset classes? I know, it's reinforced in various ways here. But there are alternatives including real estate, commodities, precious metals, and cash, for example. I'm 50% in equities now (close to retirement), but just 20% in bond funds.
Yes and no. Yeah, there is more than "stocks and bonds" But real estate, commodities, metals (which are commodities) are "equity". So there really are only two asset classes....equity and debt (cash is debt).
Thanks. Not all commodities are metals (and not all metals are precious metals, e.g., there is also aluminum, copper). And not all equity is alike in content or form or investment methods or risk. That diversification would seem to me to be relevant, as we consider "why shouldn't we call be 50% equities" [which almost everybody here assumes means "stocks"] and 50% something else.
I agree with what you are saying. I always thought it was generally accepted that there are three major asset classes, equities (stocks), fixed-income (bonds) and cash equivalents (money market instruments). Is cash under the mattress debt?
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Re: Shouldn't we all be 50/50

Post by Rodc »

Also, if that is a real possibility and a way we look at stock market risk shouldn't we question why we invest in them at all? Also, do you look at 2001 as a once in generation event and the likelihood of it happening within the next 10 to 20 years is much more remote.
I think you had a typo. You wrote 2008 but I think you meant 2001 when the largest bubble in US history popped and the market tanked something like 50%.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: Shouldn't we all be 50/50

Post by lloydbraun »

Here's a good definition of commodities if anyone is interested. http://www.youtube.com/watch?v=yoEflqTDd5c
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Re: Shouldn't we all be 50/50

Post by Toons »

cflannagan wrote:We all have varying degrees of the need for safety. Right now I'm 70/30 stocks/bonds.
+1 :happy
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stemikger
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Re: Shouldn't we all be 50/50

Post by stemikger »

jdb wrote:There was an earlier related post which can be summarized as saying that the 50-50 portfolio is not a balanced portfolio from a risk standpoint, it overweights stocks. With all due respect kind of a silly post, since portfolio allocation is dependant on so many variables, including earned income, size of portfolio, needed withdrawal rates, if any, estimated holding period, amount of estimated future contributions, not to mention risk aversion, also known as being able to sleep well at night. Personally am 35% in stock, mosty Vanguard index funds, which is enough for me. Some even go 100% fixed income, reminds me of story about Groucho Marx when at height of his show biz career he visited NYSE as celebrity visitor. When asked where he invested his money Groucho said he put it all in Treasury bonds. One of brokers said that didn't seem to give much income, and Groucho replied that it did if you had enough of them.
That's interesting JDB, but I wonder how true it is. I saw a documentary on the Great Depression and supposedly Groucho Marx who was a big fan of the stock market lost a large portion of his personal savings.
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Re: Shouldn't we all be 50/50

Post by stemikger »

Garco wrote:How come everyone assumes that there are only two asset classes? I know, it's reinforced in various ways here. But there are alternatives including real estate, commodities, precious metals, and cash, for example. I'm 50% in equities now (close to retirement), but just 20% in bond funds.
I think because most regular guy investors (like me) were only taught this way. Most of the people I admire that give out advice don't believe in the alternatives. John Bogle and Warren Buffet are two that come to mind.
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Re: Shouldn't we all be 50/50

Post by Peter Foley »

There have already been a lot of well reasoned posts as to why one size does not fit all and therefore we should not all be 50/50. I think it was Bernstein who said that we should be somewhere in the range of 75/25 to 25/75. That is more akin to my thinking.

Landy makes a good point that, based on the illustration he provides, the difference between 40/60 and 60/40 is not huge in terms of average returns.
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Re: Shouldn't we all be 50/50

Post by Leesbro63 »

Abe wrote: I agree with what you are saying. I always thought it was generally accepted that there are three major asset classes, equities (stocks), fixed-income (bonds) and cash equivalents (money market instruments). Is cash under the mattress debt?
I guess this is a good question. What is "cash"? I always considered it part of my fixed income portfolio..."debt". But maybe it's not. I never worried about it because I have little...although I have a bit of short term bond funds which I consider a "near cash equivalent". I remember learning that you either own something (equity) or are owed something (fixed income). Just 2 asset types...with many sub-classes.
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Re: Shouldn't we all be 50/50

Post by Rodc »

Peter Foley wrote:There have already been a lot of well reasoned posts as to why one size does not fit all and therefore we should not all be 50/50. I think it was Bernstein who said that we should be somewhere in the range of 75/25 to 25/75. That is more akin to my thinking.

Landy makes a good point that, based on the illustration he provides, the difference between 40/60 and 60/40 is not huge in terms of average returns.
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Re: Shouldn't we all be 50/50

Post by bottlecap »

Stemikger:

I'm confused about your premise. Is it "because an all stock portfolio is volatile, one should hold 50% bonds"? Why 50%? Why not 100% bonds? It seems arbitrary.

You should familiarize yourself with modern portfolio theory. It will provide the answers you seek.

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Re: Shouldn't we all be 50/50

Post by MnD »

Ketawa wrote:
MnD wrote:Image
Approximately keeping up with inflation for a 50 year period that ends with hyperinflation is not a disaster for the safest possible part of your portfolio.
A real total return index that goes from $2-something ($2.5?) to $1-something ($1.2?) over 40+ years is not "keeping up with inflation".
My reference to recency bias reflects the fact that most current investors have never experienced a bear market in bonds and thus inflate their value as a place of safety and reliable returns. Most have not even experienced a neutral market in fixed income, where your return is the coupon and that's about it. Interest rates move in very long cycles on the order of an individuals active-investing lifetime. I would consider fall 2011 - spring 2013 a "1940" moment in time and while I don't foresee anything like the rise in rates we experienced at the tail end of last rising rate cycle (which was nothing remotely like hyperinflation by the way) , I don't find the idea of "we all" putting 50% of our portfolio in low yielding bonds to be a winning formula.
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Re: Shouldn't we all be 50/50

Post by jdb »

stemikger wrote:
jdb wrote:There was an earlier related post which can be summarized as saying that the 50-50 portfolio is not a balanced portfolio from a risk standpoint, it overweights stocks. With all due respect kind of a silly post, since portfolio allocation is dependant on so many variables, including earned income, size of portfolio, needed withdrawal rates, if any, estimated holding period, amount of estimated future contributions, not to mention risk aversion, also known as being able to sleep well at night. Personally am 35% in stock, mosty Vanguard index funds, which is enough for me. Some even go 100% fixed income, reminds me of story about Groucho Marx when at height of his show biz career he visited NYSE as celebrity visitor. When asked where he invested his money Groucho said he put it all in Treasury bonds. One of brokers said that didn't seem to give much income, and Groucho replied that it did if you had enough of them.
That's interesting JDB, but I wonder how true it is. I saw a documentary on the Great Depression and supposedly Groucho Marx who was a big fan of the stock market lost a large portion of his personal savings.
Hi stemikger. Could be apocryphal, I read it a number of years ago. Recall that it supposedly occurred in late '40's which would make sense if Groucho lost monies in stock market during Great Depression.
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