I like Batnick's final bullet point there -- "investing comes with few guarantees."It’s true, bonds might not help you in the short run when stocks fall. Now what do we do with this information? Investors have a few options.
- First and foremost, you can add assets outside the United States to your portfolio. You can also include things that are neither stocks nor bonds.
- If you want to include something in your portfolio that is not only not correlated to stocks, but negatively correlated, then you’re probably going to have to add something that has negative expected long-term returns, like a put option for example. These will expire worthless most of the time and will be a drag on your long-term returns, but they would rise when stocks fell.
- Hold more cash. Cash is a drag on long-term returns, but if you’re incapable of being fully invested in a balanced portfolio, then the drag from cash is nothing compared to the drag on selling into a decline.
- If you’re constantly worried, it’s probably a good idea to own less stocks and more bonds. But what about if stocks and bonds fall? Well, what do you want me to tell you? Investing comes with few guarantees.
Seems like what we have now (and perhaps for the near future, say, a couple of years) with bonds is lower downside than stocks but no more non-correlation. Just curious what Bogleheads are doing here, if anything at all. If you are doing a traditional 60/40 Three-Fund Port, say:
Vanguard Total Stock Market (VTSMX) - 40%
Vanguard Total International (VGTSX) - 20%
Vanguard Total Bond Market (VBTLX) - 40%
Would you consider breaking up VBTLX into something like:
VBTLX - 50%
VBIRX - 50% (Vanguard Short-Term Bond Index Fund Admiral Shares)
Or is this just not worth it? Just take the lumps and deal with the market doing what it does?