Bank of America declares 'the end of the 60-40' standard portfolio

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nedsaid
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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by nedsaid » Thu Oct 17, 2019 7:00 pm

Grt2bOutdoors wrote:
Thu Oct 17, 2019 9:15 am
nedsaid wrote:
Wed Oct 16, 2019 6:31 pm
dharrythomas wrote:
Wed Oct 16, 2019 6:29 pm
nedsaid wrote:
Tue Oct 15, 2019 11:15 pm
The rumors of the death of the 60/40 balanced portfolio are greatly exaggerated.
+1
Actually, Mr. Bogle said that a 65% stock/35% bond portfolio was a good portfolio for most investors, even retirees. I guess 65/35 is the new 60/40. Bogle made comments that he felt most retirees were invested too conservatively particularly when they take into account Social Security.
Coincidentally, Wellington is a 65/35 portfolio!
Hmmm. Maybe that was behind Bogle's comment.
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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by UpperNwGuy » Thu Oct 17, 2019 7:26 pm

And keep in mind that John Bogle's 35% in bonds was probably heavily weighted towards corporate bond funds. He definitely wasn't a believer in the "take your risk on the equity side" advice that encourages investors to stick to Treasury bond funds.

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by fortyofforty » Fri Oct 18, 2019 4:26 am

JoMoney wrote:
Tue Oct 15, 2019 9:28 pm
vineviz wrote:
Tue Oct 15, 2019 8:49 pm
AerialWombat wrote:
Tue Oct 15, 2019 8:18 pm
vineviz wrote:
Tue Oct 15, 2019 3:33 pm
A real, inflation-adjusted return of 0% over the next decade for such a portfolio is entirely possible and maybe even likely.
Say whaaaat? I thought nobody knows nothin’. Do you know something? :)
I'm not making a prediction, but I can calculate an expected return.
Unfortunately, being able to calculate it doesn't make any more useful. An "expected return" is just one of a very broad range of possibilities, and anyone with a reasonable sounding model can come up with just about any story.
Based on historical returns, a 60% U.S. Stock / 40% U.S. Treasury portfolio having a decade of 0% real return would be somewhere in the bottom 10% of possible outcomes. We can add additional factors like CAPE valuation or Butter Production in Bangladesh to the model and pretend that adds precision, but most of these models have explanatory ability worse than a coin flip.
+1. Well said. Every time I think someone is smart enough to predict the future, however it's painted, they're proven wrong.

Anyone watching CNBC for a week or two will be treated to experts with access to the best predictive models money can buy arguing diametrically opposing positions on future returns of individual securities and entire asset classes. This article actually gives me even more faith in the 60/40 portfolio, the way stock market hand-wringing convinces me that we're not at a market top. But, nobody knows nothin', especially me.
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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by House Blend » Fri Oct 18, 2019 9:23 am

House Blend declares the end of Bank of America.

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by nedsaid » Fri Oct 18, 2019 10:38 am

oldzey wrote:
Thu Oct 17, 2019 12:47 am
OK then, 65-35...

https://www.youtube.com/watch?v=k6ra5POdsYg
OK then, Bank of America declares 'the end of the 65-35' standard Bogle portfolio.
A fool and his money are good for business.

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by Grt2bOutdoors » Fri Oct 18, 2019 12:04 pm

UpperNwGuy wrote:
Thu Oct 17, 2019 7:26 pm
And keep in mind that John Bogle's 35% in bonds was probably heavily weighted towards corporate bond funds. He definitely wasn't a believer in the "take your risk on the equity side" advice that encourages investors to stick to Treasury bond funds.
Coincidentally, Wellington is invested 35% in intermediate duration Corporates!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by nedsaid » Fri Oct 18, 2019 12:17 pm

Grt2bOutdoors wrote:
Fri Oct 18, 2019 12:04 pm
UpperNwGuy wrote:
Thu Oct 17, 2019 7:26 pm
And keep in mind that John Bogle's 35% in bonds was probably heavily weighted towards corporate bond funds. He definitely wasn't a believer in the "take your risk on the equity side" advice that encourages investors to stick to Treasury bond funds.
Coincidentally, Wellington is invested 35% in intermediate duration Corporates!
I suppose Larry Swedroe wrote John Bogle about why he was wrong about corporates! It seemed that Bogle was comfortable with lower volatility stocks coupled with corporate bonds. Not a bad strategy.
A fool and his money are good for business.

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by Grt2bOutdoors » Fri Oct 18, 2019 3:15 pm

nedsaid wrote:
Fri Oct 18, 2019 12:17 pm
Grt2bOutdoors wrote:
Fri Oct 18, 2019 12:04 pm
UpperNwGuy wrote:
Thu Oct 17, 2019 7:26 pm
And keep in mind that John Bogle's 35% in bonds was probably heavily weighted towards corporate bond funds. He definitely wasn't a believer in the "take your risk on the equity side" advice that encourages investors to stick to Treasury bond funds.
Coincidentally, Wellington is invested 35% in intermediate duration Corporates!
I suppose Larry Swedroe wrote John Bogle about why he was wrong about corporates! It seemed that Bogle was comfortable with lower volatility stocks coupled with corporate bonds. Not a bad strategy.
I hold Wellington in my Roth. That eliminates the tax problem and the returns are decent but not as good at Total Stock Market due to large holding of fixed income.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by FIREchief » Fri Oct 18, 2019 5:15 pm

If the definition of insanity is to continue to do the same thing but expect different results; then is the definition of sanity to continue to do the same thing (aka stay the course) and expect the same results??? Just askin', because if this is true (or likely true), then I suspect that these reports of the death of the 60/40 to be greatly exaggerated. 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by FIREchief » Fri Oct 18, 2019 5:18 pm

BofA: "that 60/40 that has worked well for you won't work any more"
Investor: "but it's worked well for me since the last time the experts told me it wouldn't work well any more, what's changed?"
BofA: "it's complicated, you wouldn't be able to understand, just give me your money" :moneybag :moneybag :oops:
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by Firstname Lastname » Sat Oct 19, 2019 1:07 pm

Someone correct me if I'm wrong.

The journalist & the BofA analysts conflate two independent and separate things:
  • The a priori decision on how much risk to incur; and
  • The construction of an optimal portfolio consisting of multiple (hopefully) non-correlated asset classes for that level of risk (optimal in the sense that you can neither lower risk without also reducing expected returns nor increase expected returns without also increasing risk).
Their argument to increase equity holdings to 100% or thereabouts is for yield. It seems their prescription is twofold, but they mix them together as if they were one-and-the-same:
  • An investor should incur more risk
  • They should incur that incremental risk by going to 100% equities
It is indeed possible to increase expected return without going to 100% equities. For example, you can employ leverage.

Here's one article explaining the issue pretty well, although it is a bit dated. Others have updated it more recently and show it still to be true, but it is best to look at the original work.

https://www.aqr.com/Insights/Research/J ... --Equities
Whether a long-term investor should take more risk is a fascinating and sometimes contentious subject that I do not address. Instead, this article focuses on whether 100% equities is the best way to gain more exposure to risk. The answer, generally, is that it is not, because a portfolio of 100% equities ignores the benefits of diversification.

Investors willing to bear the risk of 100% equities may do even better with a diversified portfolio, particularly when they are willing to lever. A diversified portfolio historically delivers more return, while not increasing risk (measuring risk along several different dimensions).

Regardless of which portfolio is chosen, this article argues that deciding how much risk to bear, and building a set of portfolios with the most expected return for a given amount of risk, are separate tasks. Choosing a portfolio of 100% equities based on their historical realized return misses this separation.

A long-term investment in 60/40 may, or may not, take enough risk. An investment in 100% equities almost guarantees an inefficient portfolio.

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by GrowthSeeker » Sat Oct 19, 2019 6:27 pm

Declaring the end of the 60:40 portfolio is mostly a fear tactic to encourage the purchase of products from the experts at BoA.
Just because you're paranoid doesn't mean they're NOT out to get you.

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by glorat » Sat Oct 19, 2019 8:49 pm

Firstname Lastname wrote:

The journalist & the BofA analysts conflate two independent and separate things:

Their argument to increase equity holdings to 100% or thereabouts is for yield. It seems their prescription is twofold, but they mix them together as if they were one-and-the-same:
  • An investor should incur more risk
  • They should incur that incremental risk by going to 100% equities
It is indeed possible to increase expected return without going to 100% equities. For example, you can employ leverage.
I inferred the same as you. In order to obtain the same sort of returns as a 60/40 portfolio used to, you now need to take more risk, for example by going closer to 100% equities. Never mind your risk tolerance! So it's a bit odd.

Speaking of alternatives, a recent Forbes article supports the BoA article but says that you should ditch bonds, go higher with equities but then "hedge" the equity portfolio by, I'm guessing, buying a bunch of call options as insurance. Of course I disagree give the sizable risk premium that the market is pricing into these things.

All in all, it seems like a bunch of articles designed to get investors to "do something". Let's not forget Wall Street makes its money from investors trading anything - they love volatility.

I'd still recommend doing as little as possible

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by prioritarian » Sun Oct 20, 2019 12:04 am

I choose to ignore AA advice from an institution that essentially went BK during the last recession.

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by JoMoney » Sat Nov 09, 2019 12:28 pm

On the topic of 60/40, I was playing around with BlackRock's capital market expectations tool
https://www.blackrock.com/institutions/ ... ssumptions
... I thought it was interesting to note, that the low-end estimate for a "Global 60/40" portfolio's expected return was the highest of any of the asset classes low-end/bottom quartile expectations over the next 10+ years.
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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by bgf » Sat Nov 09, 2019 12:59 pm

https://ofdollarsanddata.com/realistic- ... t-results/

interesting blog post shows how 100/0, 60/40, and 0/100 compare historically given consistent contributions, DCA.

also has a great chart showing why the Japan bubble story that is constantly thrown around here is really just propaganda. the chart given in the post is i think more realistic and more helpful. at least for me at this stage.
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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by arcticpineapplecorp. » Sat Nov 09, 2019 2:07 pm

indexlover wrote:
Tue Oct 15, 2019 3:20 pm
Thoughts on this bond "bubble" research note ?
people (Robert Pozen being one of them) have been saying we're in a bond bubble since at least Oct 9, 2016 (three years ago):
The global bond markets are verging on a bubble, which will likely result in a significant loss of principal value for major types of bonds by the end of 2017.
source: https://www.wsj.com/articles/is-the-bon ... 1476065220
how'd that work out in 2017 (total bond market ended UP 3.55% in 2017):

Image

Been up 11.62% from 2017 to present.

Image
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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by Taylor Larimore » Sat Nov 09, 2019 4:13 pm

indexlover wrote:
Tue Oct 15, 2019 3:20 pm
https://www.morningstar.com/news/market ... -portfolio

"The challenge for investors today is that both of those benefits from bonds, diversification and risk-reduction, seem to be weakening, and this is happening at a time when positioning in many fixed income sectors is incredibly crowded, making bonds more vulnerable to sharp, sudden selloffs when active managers rebalance," the authors wrote.

Thoughts on this bond "bubble" research note ?
indexlover:

Your link to Morningstar now states: "This page doesn't exist."

Perhaps your post, bond returns, and Boglehead Replies caused Morningstar to withdraw its silly story.

Best wishes
Taylor
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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by indexlover » Sat Nov 09, 2019 4:49 pm

Taylor Larimore wrote:
Sat Nov 09, 2019 4:13 pm
indexlover wrote:
Tue Oct 15, 2019 3:20 pm
https://www.morningstar.com/news/market ... -portfolio

"The challenge for investors today is that both of those benefits from bonds, diversification and risk-reduction, seem to be weakening, and this is happening at a time when positioning in many fixed income sectors is incredibly crowded, making bonds more vulnerable to sharp, sudden selloffs when active managers rebalance," the authors wrote.

Thoughts on this bond "bubble" research note ?
indexlover:

Your link to Morningstar now states: "This page doesn't exist."

Perhaps your post, bond returns, and Boglehead Replies caused Morningstar to withdraw its silly story.

Best wishes
Taylor
Jack Bogles Words of Wisdom: "Don’t do something...just stand there!"
Hello Taylor,

Thank you for your contributions to the forum. Here is another link :
https://www.marketwatch.com/story/bank- ... 2019-10-15
“If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle.” - Mr. Buffett - Berkshire Hathaway ’s 2016 annual report.

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by Scooter57 » Sat Nov 09, 2019 9:41 pm

Bear markets for stocks imply recession, whic means earnings drop, the 50%+ of Corporate bonds that are rated BBB (or Baa) with weak covenants get downrated to junk, as there are questions about their issuers being able to keep paying. The hundreds of bond funds and ETFs that hold them have to dump them because they can't hold junk bonds. There are now more would-be sellers than buyers. NAVs drop. The financial media howl about a bond apocalypse. Fund and ETF shareholders all try to sell at once. Funds can't redeem shares because bonds are not liquid. Bond funds fail.

And then you do not end up with bonds going up. There are a lot of Baa rated bonds in Vanguard's Total Bond Market fund.

This is why the big institutions are getting nervous about bonds. There are far more of them issued than ever in history after a decade of suppressed rates. The covenants have been very weak, which means poorer protections for bond holders, and corporate debt has been used by many marginal companies to fund buybacks rather than to invest in new products and services that will increase profits. So where the money comes from to pay back the money borrowed by issuing those bonds is unknown.

This is a not all that far fetched a scenario.

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by Random Musings » Sat Nov 09, 2019 10:13 pm

Cuing Jim Morrison

This is the end
Beautiful 60/40 friend

RM
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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by fortyofforty » Sun Nov 10, 2019 6:57 am

Scooter57 wrote:
Sat Nov 09, 2019 9:41 pm
Bear markets for stocks imply recession, whic means earnings drop, the 50%+ of Corporate bonds that are rated BBB (or Baa) with weak covenants get downrated to junk, as there are questions about their issuers being able to keep paying. The hundreds of bond funds and ETFs that hold them have to dump them because they can't hold junk bonds. There are now more would-be sellers than buyers. NAVs drop. The financial media howl about a bond apocalypse. Fund and ETF shareholders all try to sell at once. Funds can't redeem shares because bonds are not liquid. Bond funds fail.

And then you do not end up with bonds going up. There are a lot of Baa rated bonds in Vanguard's Total Bond Market fund.

This is why the big institutions are getting nervous about bonds. There are far more of them issued than ever in history after a decade of suppressed rates. The covenants have been very weak, which means poorer protections for bond holders, and corporate debt has been used by many marginal companies to fund buybacks rather than to invest in new products and services that will increase profits. So where the money comes from to pay back the money borrowed by issuing those bonds is unknown.

This is a not all that far fetched a scenario.
Shouldn't those risks be getting priced in? Big institutions are nervous about bonds. Big institutions are nervous about stocks. Big institutions are nervous about stuffing cash into mattresses. But, you've got to invest somewhere.
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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by Amadis_of_Gaul » Sun Nov 10, 2019 7:47 am

bgf wrote:
Sat Nov 09, 2019 12:59 pm
https://ofdollarsanddata.com/realistic- ... t-results/

interesting blog post shows how 100/0, 60/40, and 0/100 compare historically given consistent contributions, DCA.

also has a great chart showing why the Japan bubble story that is constantly thrown around here is really just propaganda. the chart given in the post is i think more realistic and more helpful. at least for me at this stage.
Frankly, I do not gain any reassurance from that Japan chart! According to it, it took about 25 years for the investor to reach the same level of return that he would have received if he had "invested" his savings under the mattress. Indeed, there are no guarantees that the Japanese stock market will not again drop below mattress level. Also, these are nominal dollars. I don't think Japan experienced much inflation from 1980-2015, but what they did experience would only have made the result worse.

Have you read Siamond's "Investing in the World" series? It convinced me that the best way to avoid Japan-style risk is to invest a substantial amount of one's holdings in a global (rather than international) index fund. That way, if the US tanks in proportion to the rest of the world, your international holdings will rise automatically as the US portion of global market cap declines.

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by bgf » Sun Nov 10, 2019 8:04 am

Amadis_of_Gaul wrote:
Sun Nov 10, 2019 7:47 am
bgf wrote:
Sat Nov 09, 2019 12:59 pm
https://ofdollarsanddata.com/realistic- ... t-results/

interesting blog post shows how 100/0, 60/40, and 0/100 compare historically given consistent contributions, DCA.

also has a great chart showing why the Japan bubble story that is constantly thrown around here is really just propaganda. the chart given in the post is i think more realistic and more helpful. at least for me at this stage.
Frankly, I do not gain any reassurance from that Japan chart! According to it, it took about 25 years for the investor to reach the same level of return that he would have received if he had "invested" his savings under the mattress. Indeed, there are no guarantees that the Japanese stock market will not again drop below mattress level. Also, these are nominal dollars. I don't think Japan experienced much inflation from 1980-2015, but what they did experience would only have made the result worse.

Have you read Siamond's "Investing in the World" series? It convinced me that the best way to avoid Japan-style risk is to invest a substantial amount of one's holdings in a global (rather than international) index fund. That way, if the US tanks in proportion to the rest of the world, your international holdings will rise automatically as the US portion of global market cap declines.
certainly a bubble and crash is not good for a market, but the chart itself is more realistic than what posters often do here, which is magically lump sum someone's entire wealth at the very top of the market.

also, look at US returns starting in 1950. over thirty years (!!!) inflation beat 100% equities, 60/40, and even 100% bonds.

yes, i own a global ETF (VT) for the gross majority of my holdings.
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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by Stormbringer » Sun Nov 10, 2019 9:16 am

The idea of a bond bubble seems a little odd to me. If I hold a bold until maturity, I will get exactly what I signed up for.
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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by abuss368 » Sun Nov 10, 2019 9:44 am

I am not sure why any fiduciary of investors assets would recommend such reckless strategies.
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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by abuss368 » Sun Nov 10, 2019 9:45 am

Maybe the bank sees risk in bonds in general? I believe this "risk", which may or may not show up, is perhaps why Vanguard no longer recommends U.S. bonds only but also includes international bonds.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by bgf » Sun Nov 10, 2019 10:07 am

abuss368 wrote:
Sun Nov 10, 2019 9:45 am
Maybe the bank sees risk in bonds in general? I believe this "risk", which may or may not show up, is perhaps why Vanguard no longer recommends U.S. bonds only but also includes international bonds.
i could buy vanguards intermediate bond fund and hope to make 2-3% moving forward. it has averaged ~5% since inception, pays ~2%, and is up over 13% just this year. or i could take on quite a bit of interest rate risk and volatility with long term bonds like EDV.

neither of those sounds that appetizing.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by PolarInvest » Sun Nov 10, 2019 10:52 am

Amadis_of_Gaul wrote:
Sun Nov 10, 2019 7:47 am
bgf wrote:
Sat Nov 09, 2019 12:59 pm
https://ofdollarsanddata.com/realistic- ... t-results/

interesting blog post shows how 100/0, 60/40, and 0/100 compare historically given consistent contributions, DCA.

also has a great chart showing why the Japan bubble story that is constantly thrown around here is really just propaganda. the chart given in the post is i think more realistic and more helpful. at least for me at this stage.
Frankly, I do not gain any reassurance from that Japan chart! According to it, it took about 25 years for the investor to reach the same level of return that he would have received if he had "invested" his savings under the mattress. Indeed, there are no guarantees that the Japanese stock market will not again drop below mattress level. Also, these are nominal dollars. I don't think Japan experienced much inflation from 1980-2015, but what they did experience would only have made the result worse.

Have you read Siamond's "Investing in the World" series? It convinced me that the best way to avoid Japan-style risk is to invest a substantial amount of one's holdings in a global (rather than international) index fund. That way, if the US tanks in proportion to the rest of the world, your international holdings will rise automatically as the US portion of global market cap declines.

I personally take comfort from the chart. At the peak, the P/E on Japanese equities was conservatively about 80, possibly higher from what I have read. Given that the P/E on the SP500 is about 23, our equivalent of a Japanese style bubble would be the SP500 about at 10,750 right now with the same earnings base (3083 * 80 /23). If the SP500 were at 10,750 right now with current earnings, 25 years of 0% returns sounds like a minor victory! And in the last 4 years from 2015-2019, Japanese equities have done well and still have a low-ish P/E ratio. If that is the worst case, it doesn't sound so bad.

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by abuss368 » Sun Nov 10, 2019 12:35 pm

bgf wrote:
Sun Nov 10, 2019 10:07 am
abuss368 wrote:
Sun Nov 10, 2019 9:45 am
Maybe the bank sees risk in bonds in general? I believe this "risk", which may or may not show up, is perhaps why Vanguard no longer recommends U.S. bonds only but also includes international bonds.
i could buy vanguards intermediate bond fund and hope to make 2-3% moving forward. it has averaged ~5% since inception, pays ~2%, and is up over 13% just this year. or i could take on quite a bit of interest rate risk and volatility with long term bonds like EDV.

neither of those sounds that appetizing.
Do you invest in Vanguard's International Bond fund?
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by bgf » Sun Nov 10, 2019 12:48 pm

abuss368 wrote:
Sun Nov 10, 2019 12:35 pm
bgf wrote:
Sun Nov 10, 2019 10:07 am
abuss368 wrote:
Sun Nov 10, 2019 9:45 am
Maybe the bank sees risk in bonds in general? I believe this "risk", which may or may not show up, is perhaps why Vanguard no longer recommends U.S. bonds only but also includes international bonds.
i could buy vanguards intermediate bond fund and hope to make 2-3% moving forward. it has averaged ~5% since inception, pays ~2%, and is up over 13% just this year. or i could take on quite a bit of interest rate risk and volatility with long term bonds like EDV.

neither of those sounds that appetizing.
Do you invest in Vanguard's International Bond fund?
no, i dont own any bonds at all. im still not sure how i will invest in bonds when it comes to that. maybe currency hedged global bonds like BNDW or maybe just US intermediate. i have no idea. equity index investing is super simple. bonds are a lot more difficult for me to wrap my head around.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by abuss368 » Sun Nov 10, 2019 12:54 pm

bgf wrote:
Sun Nov 10, 2019 12:48 pm
no, i dont own any bonds at all. im still not sure how i will invest in bonds when it comes to that. maybe currency hedged global bonds like BNDW or maybe just US intermediate. i have no idea. equity index investing is super simple. bonds are a lot more difficult for me to wrap my head around.
The general advice on the forum is that any good short or intermediate term investment grade bond fund that is low cost and diversified will provide safety and income to a portfolio. This has worked well for us.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by longinvest » Sun Nov 10, 2019 1:16 pm

bgf wrote:
Sun Nov 10, 2019 12:48 pm
i dont own any bonds at all.
I suggest reading this post: The Mathematics of Retirement Investing. Good luck!
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by bgf » Sun Nov 10, 2019 1:49 pm

longinvest wrote:
Sun Nov 10, 2019 1:16 pm
bgf wrote:
Sun Nov 10, 2019 12:48 pm
i dont own any bonds at all.
I suggest reading this post: The Mathematics of Retirement Investing. Good luck!
we have two incomes. we have an emergency fund in a savings account. we have a much larger taxable account. we have retirement accounts (roth and tax deferred) that are much larger than taxable.

our emergency fund only has flows in or out when necessary. our taxable account only has flows when there is money left over after maxing out all other tax benefited options. our roth and tax deferred accounts have contributions monthly.

we will not need to withdraw money from the taxable and tax benefited accounts to meet our expenses for at least 20 years.

i dont see why i need to own any bonds, ie, loan money for a promise to pay me 2.5% for 10 years. thanks for the offer Mr. Bond Market, but i'll pass.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by garlandwhizzer » Sun Nov 10, 2019 2:00 pm

I think it's reasonable to question formulas that are touted to be for all investors in all situations all the time. 60/40, the historical default portfolio, may be the right choice for many but certainly not all investors all the time IMO. I believe Ben Graham said never hold more than 75% equity, never less than 25%, and keep the rest in bonds. That gives a very wide range of stock/bond exposures. I think the posted article makes a good point. Expected real returns for bonds going forward are close to zero. It would be a serious mistake IMO to assume that backtesting bond returns over the past 40 years of declining interest rates and declining inflation are going to continue for the next 4 decades. l believe when you're making predictions for future bond returns going forward the most important input is the current interest rate and our current rates globally are at or near all time lows. It would be preposterous to assume the same robust bond market risk adjusted return going forward for the next 4 decades as has been the case in the past 4 decades. Bond future returns, unlike equity future returns, are very closely related to their initial yields with a much narrower range of outcomes than equities. Backtesting often leads to flawed conclusions that don't work in the future and this is a prime example.

Bonds have returned so well in a risk adjusted manner in the since 1980 because the inflation monster of the late 1970s and early 1980s has died a gradual ongoing death for death for 4 decades while both stocks and bonds have boomed. Now we have incredible wealth concentrated in an aging investor class that flocks to low risk bonds which is why rates are so incredibly low. That is unlikely to change going forward. The appetite for bonds will continue. The most serious risk to the bond market going forward IMO is that inflation will rise from its grave, something that no one now expects. If that happens at some point in the future this era will be viewed in retrospect as the greatest global bond market bubble in history. Important to realize that bubbles become clear to both amateurs and experts only after they pop. One of the hardest things to do in the world of investing is to perceive a bubble when you're inside it. There are always convincing reasons given by experts as it keeps inflating telling you why it will last forever So it was with the tech bubble (this time it's different) so when analysts tell you now that inflation is dead forever it's important to realize that that their advice may of may not be true. Analysts, experts, and talking heads as a group are notoriously blind to black swans until they sail up and hit them. Recall that Jim Cramer recommended buying Lehman stock at more than than $50 a share less than a week before Lehman declared bankruptcy and the stock became worthless. It's not just Cramer who was a well intentioned Harvard grad, Goldman Sachs big wig and hedge fund manager. No one saw the greatest world wide financial disaster since the Great Depression
until it exploded. Then suddenly the massive financial risk from all those insane loans, collateralized debt obligations, leverage, etc., became clear to everyone. The same may in enough time turn out to be the case with the current wisdom that inflation is a thing of the past and will never rise again.

This doesn't mean that you shouldn't own bonds. You definitely should because dollar for dollar nothing else provides the safety and diversification from equity collapses that quality bonds do. When the storm is most severe they are the only anchor that works. What it does mean is that in financial planning for the future it's best to use realistic return assumptions for portfolio returns rather than plug in rosy bond market backtesting results to make you feel better about an equity light portfolio. For many of us that will turn out to be different than 60/40.

Garland Whizzer

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by Scooter57 » Sun Nov 10, 2019 4:15 pm

fortyofforty wrote:
Sun Nov 10, 2019 6:57 am

Shouldn't those risks be getting priced in? Big institutions are nervous about bonds. Big institutions are nervous about stocks. Big institutions are nervous about stuffing cash into mattresses. But, you've got to invest somewhere.
The idea that everything is priced in is comforting, but not likely true, because the armies of fiduciary advisers buy bonds using those pat formulas that ignore what bonds yield and what is happening in the bond market.

Institutions hungry for yield buy up all kinds of crap, bundle it up, and sell it to the next victim, who, of course, assumes they can sell it to someone else before the bottom falls out.

Bonds have been so safe for so long, but there have never been so many bonds issued paying such pathetic rates for so long.

The private, non- institutional buyer is well advised to stick to investments that don't lure the big boys. CDs and well rated munis are my choice, with most of my fixed income in a high yield CD ladder.

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by Smith1776 » Sun Nov 10, 2019 5:16 pm

The best way to combat this is to diversify, diversify, diversify.

Buy international and emerging markets. Add tilts to small caps, quality, momentum, and value. Add some commodities. Have foreign bonds and real estate while you're at it.

Look into non-traditional investments like reinsurance and alternative lending as per Swedroe's excellent writings. It's as good a defence against a low return world as any.

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Re: Bank of America declares 'the end of the 60-40' standard portfolio

Post by fortyofforty » Sun Nov 10, 2019 5:31 pm

Scooter57 wrote:
Sun Nov 10, 2019 4:15 pm
fortyofforty wrote:
Sun Nov 10, 2019 6:57 am

Shouldn't those risks be getting priced in? Big institutions are nervous about bonds. Big institutions are nervous about stocks. Big institutions are nervous about stuffing cash into mattresses. But, you've got to invest somewhere.
The idea that everything is priced in is comforting, but not likely true, because the armies of fiduciary advisers buy bonds using those pat formulas that ignore what bonds yield and what is happening in the bond market.
Those same arguments can--and are--made about equities and index funds. However, few have been successful trying to exploit perceived imbalances and mis-pricing over the long term. I don't understand bonds well enough to know the truth, so I am content to let Vanguard try--at low cost--to construct a basket that represents the entire bond market.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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Garland's post

Post by Taylor Larimore » Sun Nov 10, 2019 6:36 pm

garlandwhizzer:

Excellent post!

Thank you and best wishes.
Taylor
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