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John Waggoner: Why A Balanced Portfolio Of 60% Stocks, 40% Bonds Can Still Work For Investors
So alternative investments are being sold based on an urban myth? Maybe, but I'm not so sure. We live in interesting times. I don't believe such a situation has occured in the past ever where stocks are at all time highs and interest rates near rock bottom. If it has, then someone should present evidence what happened in the aftermath.
Vanguard balanced index fund is returning 6.3% as of Sept 16th - about the same as S&P500 index. Unless rates go up rapidly and more several times a year which I doubt, I think the 60/40 will do ok...
Have been reading D&C's most recent report for DODBX (probably from 2 months back). This typically 60/40 balanced fund was holding 71-72% equities (including preferred stocks) as of that report.
They see better value on the equity side than bonds at these rates. I dunno. Just found it interesting. FWIW
So alternative investments are being sold based on an urban myth?
I would say they're being sold more on a marketing myth. And people are buying it. There are so many definitions, formulas and types for alternative funds. It is a gamble to guess which will work and in what (changing) conditions they will meet their marking goals. Not many have succeeded so far.
"The top-performing balanced fund, Dodge & Cox Balanced (DODBX), has averaged a 10.95% annual return since 1976 ... with roughly 40% of its portfolio in bonds. You can't beat that with a stick." - Talk about over-simplifying things.
DODBX as of June 30 reported the following: 72% stocks, 27% bonds, and about 1% in cash. That's a substantially higher allocation to stocks and lower allocation to bonds than Mr. Waggoner states. Further, since I've owned the fund (about 15 years) the allocation to equities has normally been above 60%. That's not a criticism of the fund. Just a reminder that its risk profile is greater than the author might have us think.
Don't know what the fund's allocation was 40 years ago. May have been closer to the 60/40 target. However, 40 years ago the 10-year Treasury yielded around 7.5% - on its way up to 14.5%. Today it yields under 2%. http://www.multpl.com/10-year-treasury-rate/table/by-year.
Take that 10.95% return record he's flogging with a BIG grain of salt.
Comments
I've put James Bond on a short leash.
They see better value on the equity side than bonds at these rates. I dunno. Just found it interesting. FWIW
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Talk about over-simplifying things.
DODBX as of June 30 reported the following: 72% stocks, 27% bonds, and about 1% in cash. That's a substantially higher allocation to stocks and lower allocation to bonds than Mr. Waggoner states. Further, since I've owned the fund (about 15 years) the allocation to equities has normally been above 60%. That's not a criticism of the fund. Just a reminder that its risk profile is greater than the author might have us think.
Don't know what the fund's allocation was 40 years ago. May have been closer to the 60/40 target. However, 40 years ago the 10-year Treasury yielded around 7.5% - on its way up to 14.5%. Today it yields under 2%. http://www.multpl.com/10-year-treasury-rate/table/by-year.
Take that 10.95% return record he's flogging with a BIG grain of salt.