By "better balance" do you mean have a negative correlation to stocks? Because, yes, that's generally been true. But that's actually not what you want in a portfolio. You should rather have uncorrelated assets, not negatively correlated ones.international001 wrote: ↑Thu May 17, 2018 1:01 pmNo, because long term bonds typically balance better a heavy stock portofolio. Even if LT are worse in isolationGodelianKnot wrote: ↑Wed May 16, 2018 6:53 pmNo, the point remains. When you are constructing an SP500 + bonds portfolio, you'll need a higher bonds percentage to reach the same level of overall risk if you're using long term bonds, compared to short term. Thus your total returns (at the same level of risk) will be better with the stocks + short-term bonds portfolio, when the yield curve is flat.
Well, in theory anyway. In reality, it's tough to do this back-test because a flat yield curve almost always results in a stock market crash, so you end up actually doing better with fewer stocks for the years when the yield curve is flat. But that doesn't negate the bond term preference (it just maybe means you should also prefer to not be in stocks).
You can test it in portfoliovisualizer
So, if your long term bonds offset x% of your stocks by their negative correlation, then you're better off selling that x% of your stocks as well as your long term bonds (since they balance each other anyway), and replacing them with an equivalent amount of short term bonds (assuming a flat yield curve).
I want to reiterate that I'm not saying that short term bonds are always better than long term bonds. This is only really true when the yield curve is very flat (and especially so when it's very low and very flat). Otherwise, there are plenty of good reasons to have long term bonds in your portfolio. That is, the term-premium of long term bonds is typically what compensates you for having more risk with them.