First of all, just to be perfectly clear about this... yes, if I force PortfolioVisualizer to use 30-31% stocks and allocate the rest to intermediate-term and long-term Treasuries, it tells me
that the historical tangent portfolio (optimum by one set of criteria) was to use almost all intermediate-term Treasuries--65.15% intermediate and 3.85% long. And if I then insist on 70-71% stocks, it tells me
that the tangent portfolio was zero intermediate-term, and all long-term--29.96% of portfolio. So this is consistent with what the article and by implication Vineviz are saying.
1) "When investors need their equity-heavy portfolios to calm down in a sell-off, long-duration bond funds have been the best ballast."
The most aggressive choice mentioned in the article is 70/30, so I'll use that. It's not important but circa 2008-2009 Vanguard I think was using 30% international within the equity allocation so I'll use that, too: 49% US stocks, 21% international stocks, 30% bonds.
Specifically: Portfolio 1 (blue)
VTSAX Vanguard Total Stock Mkt Idx Adm 42.00%
VGTSX Vanguard Total Intl Stock Index Inv 28.00%
VBTLX Vanguard Total Bond Market Index Adm 30.00%
and for Portfolio 2 (red) we will swap in
VUSUX Vanguard Long-Term Treasury Admiral 30.00%
Did using long-term Treasuries perform as advertised? I have two answers. First, yes, qualitatively, over this time period it did exactly
what the article, and by implication Vineviz, suggested. Yes. It did. And specifically yes, it boosted the Sharpe ratio.
But, second, just how big a deal do you think this is? Remember, the specific pitch
was "...need their equity-heavy portfolios to calm down in a sell-off..." Other things could be listed on the pro and con side, but the article is talking about downside protection.
So, during 2008-2009, would it have affected your mood or your financial decisions all that much to see your portfolio drop 35.71% instead of 38.58%?
During a sell-off, your primary protection is not to be equity-heavy in the first place.
Having decided to be 70% equities, yes, most of us are going to feel great pain
(kidney-stone level) during a real "sell-off," and fine-tuning the particular blend of pain is not going to move the needle much
--not like having opted for a lower stock allocation in advance.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.