AtlasShrugged? wrote: ↑
Thu Jun 14, 2018 6:27 am
On the actionability
front, I am wondering if that 50/50 stock to bond guidance should be modified. I am looking at that equity and bond graph and wonder if it is really a good idea to have 50% bonds. My IPS has me on a glidepath to a 50/50 allocation (over the next 15 years). No, I don't plan on living for centuries, but then again, I do not see real bond returns 'moving up' in the last 400 to 600 years. Seems pretty definitive to me.
If 50/50 is not the right allocation going forward, how would we go about determining what would be a better allocation, in your opinion [would love to hear siamond
chime in on this question as well]? Looking at the graph, it looks like ~200 years of decline, then leveling off, and another decline. If I am reading the graph right, it looks like we are about to level off for a long time at a very low rate of real return for bonds. That has some implications for retirement planning and bequest motives, no?
Well, personally, I don't think 50/50 was particularly wise in the past, nor should it be in the present, for accumulators or retirees. My point has little to do with Simplegift 'deep history' fascinating graph though, and is two-fold:
1. Asset Allocation is a very personal
decision. This strongly depends on your personal financial situation, on your primary financial goals, on your primary financial fears, and on your psychology/behavior. It would be foolish to push for a one-size-fits-all in this respect, 50/50 or whatever else.
2. A point I was trying to make in the past few posts is that although there seems to be a strong downwards trend for bonds returns in the 'deep history' (over centuries), the finer-grain trajectory of bonds (real) returns has been remarkably erratic in the 'modern history' (e.g. since 1870, over decades). I have absolutely no clue where bonds returns are going 20 or 30 years from now. While I have more of an inkling about stock returns. In other words, knowledge of the 'deep history' about bonds doesn't seem terribly actionable.
Then there are other considerations on how to properly define and then address meaningful risk factors, that should not
speak for a bonds-heavy allocation in retirement imho, but that would be side-tracking the OP's thread. And... again, this is a very personal decision.
PS. I love the 'thing to do' quote you have in your signature. Very meaningful for the topic at stakes!