Simplest ever rebalancing investment strategy - Your thoughts - And how to back-test?

[loyek590]

High yields are almost proxy for stocks, their correlation is pretty high. In case of downturn both of them will go down at the same time.

If one wants to earn credit and term premium, it is better to with investment grade corporates. I would rather prefer muni's

I hear ya, it's a scary world out there in bonds. Munis? Who knows what municipality out there is going to go broke next trying to pay their pensions. I did allright long term in the Vanguard Total Bond Index for the last ten years, but those days are gone. I'd rather be in cash. I sold the last of my bonds a few weeks ago.

But just for arguments sake, what do you think about a 60/30/10 allocation over time? Like a long time. Like from when you are 30 years old until you are 60 years old.

So let's just say SPY and some kind of diversified bond portfolio.

 

[scr12]

60-40 is classic portfolio, there is nothing wrong with that. Eventhough slightly conservative for 30 year old. I personally don't like to keep cash. Cash creates drag in the portfolio. Money is fungible, CD ladder or short duration bonds are ok in place of that.

 

[loyek590]

60-40 is classic portfolio, there is nothing wrong with that. Eventhough slightly conservative for 30 year old. I personally don't like to keep cash. Cash creates drag in the portfolio. Money is fungible, CD ladder or short duration bonds are ok in place of that.

I agree, I advise all my children to go 100%. But we were just talking over time. Someone was talking about back testing. I was just curious what a 60/30/10 would look like today if you started in 1987.

 

[scr12]

The link i posted in previous page can answer that.

Anyway this is for 60% total stock market, 30% Total bond market, 10% T-bill portfolio since 1990

 

[scr12]

Same portfolio since 1987

 

[loyek590]

thanks scr, as you saw, I went back and edited from 1990 to 1987. I guess the starting point can always be cherry picked.

When I started out you could get 10% in a money market, sometimes 13% in a muni, and who knows what all in a cd. Just save and double your money every 7 years. After 2000, we said, estimate about 6%. Now we say estimate about 4% (on a diversified 50/50 portfolio.)

 

[scr12]

Ya, probably closer to 4.5% for 50/50 portfolio, with expected inflation around 2.2% real returns of 2.3% not great, but not bad either

 

[loyek590]

Ya, probably closer to 4.5% for 50/50 portfolio, with expected inflation around 2.2% real returns of 2.3% not great, but not bad either

what is your opinion of bonds vs cash in todays world? I know you said cash is a drag. I'm getting to the end of my life and cap preservation is an issue. The way I see it, I have almost zero possibility of cap appreciation in bonds, and the yield between bonds and cash has gotten almost negligible. I'm willing to lose a small amount in cash due to inflation just to keep things stable. And that gives me the freedom to go a little heavier in stocks.

 

[scr12]

I am with you. It is tough position for seniors and i am glad i do not have to make that decision.

That being said bonds still have place in portfolio Bonds (govt) does not loose money if hold till it matures. Most of the expert this year said avoid bonds or move it to shorter durations. Both of them have proved wrong. Shorter duration have rallied, where as long term have done better.

Most of the experts missed that when yield curve is steep, it is better with longer duration because of term premium.

There is no right or wrong answer to your question, just the risk tolerance is different. Atleast i would build CD ladder instead of cash.

 

[loyek590]

I am with you. It is tough position for seniors and i am glad i do not have to make that decision.

That being said bonds still have place in portfolio Bonds (govt) does not loose money if hold till it matures. Most of the expert this year said avoid bonds or move it to shorter durations. Both of them have proved wrong. Shorter duration have rallied, where as long term have done better.

Most of the experts missed that when yield curve is steep, it is better with longer duration because of term premium.

There is no right or wrong answer to your question, just the risk tolerance is different. Atleast i would build CD ladder instead of cash.

ok, thanks for the reply.