What is the best stocks-bonds ratio?

Is to answer some of the most important questions that investors have can of regardless of what age you might be one what is answer by the ultimate buy and hold strategy what that Woody asset classes should we on format dialogue strategy we we advocate that because it’s necessarily right for each of you but because I think it is a reasonable compromise to expose myself my wife in and the family to do a combination of equal positions in large blending small blind and large value small value etc doing basically the same things overseas we know from their peers that that has produced better rate of return at virtually the same level of risk as one would have had over the last 49 years and with the S&P 500 I think big question the others fixed income should we have on our portfolio when it is all the possibilities there are my own particular case or case we are 50-50 stacks and bands in the Bible portion of our portfolio and that is driven by a Desire for a better than fixed income return and and and reasonable level of risk for our portfolio the second most important article that we update each year is the fine tuning your asset allocation article in that article we discuss the fine-tuning table in particular the article that we just published a Focuses on the S&P 500 into just on the S&P 500 next week I will do a podcaster that addresses other combinations at that one might have from equities 70% us 30% international the same combination of out of asset classes but 50 50 us and International value portfolio so that you can not only finding the right balance of a fixed income and equity but find that the approach to own in equities that is a most comfortable for you so in discussing table 1 various just about a combination of the S&P 500 and that’s if this happens to be about intermediate-term government Bans I would like you if you if you want to to download table 1 and be able to order a look at that is a printed copy or to look online and why you’re listening to this if you’re not out walking now you’ll be able to see the numbers and talking about in the layout here on this table those of you who don’t have this information to walk you through what I think it’s the most important lessons that we can learn thing to do comfortable with what the table is if we are looking for the right balance of equities and fixed income we are a traditional us investor your portfolio even if you don’t purchase it as a index of the S&P 500 most money in US equities is represented by the S&P 500 I think it’s approximately 85% of the value of Us equities and you have 60% equity in 40% fixed income more than likely it would look very much like what we see here for a combination of 60% in equities and 40% in fixed income the map through the stable because we have individual years here represented in about 11 columns these are columns that represent from 100% in bands to 100% in the S&P 500 and every 10% in between so hot Focus mostly just for the sake of comparison of what word 100% bands achieved return whilst over the last 49 years and and and and what would the risk of being during the worst of times 50/50 house that sounds that mentioned it before that’s the combination that my wife and I are portfolio thing or the amount of money and for the purpose of the money did we move on and and partly to others I take it to the extreme but only the extreme for somebody my age maybe not for your age if you’re in your 20s 30s in terms of return and risk if you had all of your money in the S&P 500 look at both of risk and return of the use 35050 stocks and bonds and all Instax and by the way the 100% S&P 500 return mixed with these other amounts of fixed income that has been reduced to buy one-tenth of 1% which reflects the cost of owning the S&P 500 guess I should mention that the 100% and does not include any fee this was Cinderella one-tenth of 1% from here as well year of the return of the last 49 years and the risk to be fair this may not like the next 49 years infected if they may be different in many ways if we just had about the 100% balance and what I’d like people who are trying to learn from this table to do is this take their thing and go down the year by year Returns as an asset class this particular case the well we can look at both ends of this 49 years could start by looking at the 1970 through 1979 and you’ll see that the worst return was again in 1977 or 3.1 the best return was a gain of 14.8 at the bottom of the sea at this particular table here in terms of the Returns year by year from 2000 through 2018 percent return and the worst was a glass of 3.6% what is the Lookout they really amazing 10-year period of body look from 1980 to 1989 were you had years of all over 20 or 15/10 of them huge ears in fact the compound rate of return of the intermediate term Bond from 1980 to 1989 was 11.4% having purchased a 5-year CD from the bank of Chicago paid 16% back in that. 16% for OCD compare that to the 2010 through 2018 return up to 0.1% huge difference what’s the reality look at the compound rate of return the annualized return a right below all of the calendar year returns and your notice for the 100% bonds that return was 6.9% is that something that it were investing today we could conclude that that’s what we might get for the next well let’s say the next 40 years what the answer is we have no idea things that happened from 1970 through 2018 that obviously lead to very high interest rates and very low interest rates xander cage at the very low the very high were those predicted happen do you know if we go further if we go back to 1928 the returns of the intermediate that term government Bond we find that a VAT return is about let’s say 5 to 5.5% so you might say just on the surface with more information that that 6.9% is probably overstated by 101 1/2 per cent for the future but there will not be a better estimate than than one that you might come up with looking at this data tyre Megane we started showing their stable decades ago and what we would say is probably best to not go up 2% of any of these particular Returns whether it’s all bonds or stocks are any combination take off 2% year not only for the S&P 500 but 100% so you can use that that finger point down these columns and therefore the purpose of this discussion as I said before I’m going to focus on 100% bonds 50/50 stocks and bonds and S&P 500100% Bond portfolio expected that is good and look at these decades I notice and that first decade there was not a year then in fact it was not until 1994 when it had a 3.2% loss 1% no losses during the by the way you would probably conclude that 2003/2004 a great time to be advance of the S&P 500 self lost about 1% a year including that the one-tenth of 1% expense ratio another loss in the 2010 through 2018. 4 – 3.6 move to the right from the 100% Barnes at 10% equity and then 20% equity and 30% equity the 50/50 we start to see some substantial losses if you start worrying that the finger her down the 50/50 harm your notice in 74 hours to 5% 10.4 M74 not seem like a big last to somebody who’s young retiree when they’re actually magazines with a cover that said it was us news and World Report the death of equities 8719 centre 50 50 strategy did not ever lost in the 80s and one less in the 90s of one little less than 1% 2001/2002 of 1.8 and 5.6% puppy member that’s compared to losses in 2009 to 2001 12% 2002 22.2% in the S&P 500 so you might have felt safe with a loss of 1.8 and 5.6 but in 2018 into the huge loss of this is 50 50 16.8% if you go down these columns and can you imagine that you are in fact living through the app and you have your money there to throw up with 4% 5% or 3% might have them like the problem is 4 hours is it when we know that we get to the bottom of the page sample page in terms of compound rate of return of the annualised return 10.1 the 50/50 was 8.8 that 100% bonds with 6.9 probably feel like something we could do worse depending upon our restaurants now 2% off of each one of those to be conservative we still particularly every living off the money they’re Returns were still possibly accept what does a part of the table that I think we need to dig even deeper stand that a number could even be a little misleading may give you a sense of security when you shouldn’t have it but I don’t want you to look at the very bottom 708 lines of the stable yes we have passed about the annualised return or the compound rate of return further we see the worst 3 months the worst 6 months the worst 12 months the worst 36 and 60 month periods and finally the worst driver ever that dramas is the bottom of a decline from a from a recent peak and the point at which point it turns round and goes back up to reach the last peak that itself from so that’s a big deal with that means at some point 1803 p500 interior Adidas and would have gone down to about 50000 before it turned around catastrophic event for most most retirees if they have all the money in the S&P 500 index has almost exactly the same return that’s because yes they told me market has a little bit of small and a little bit of milk app but it’s so small it doesn’t even move needle there may be a tenth of 1% which is not to be scoffed at the certainly isn’t a game changer when it comes to protecting against losses 51% people like my wife and myself would have had to have taken our 25.9%.

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