FYI: The 60/40 portfolio allocation has burned investors in the past.
Yikes.
Two sharp falls in a row is enough to get any investor a little nervous. Yes, so far the Dow Jones Industrial Average’s DJIA back-to-back plummets are still only a tremor on any longer-term view. Stock prices are higher than they were even one year ago. Nonetheless for many investors it’s an overdue reminder that stock prices can fall — and fall a long way — as well as rise.
That makes it a good moment, say experts, to take stock of your portfolio. Are you taking on more risk than you want? Worse, are you taking on more than you realize? You may well be. And your financial adviser, if you have one, may not realize it either.
A ‘balanced’ portfolio of stocks and bonds failed previous generations of U.S. savers, and badly, during at least two extended periods during the past century alone.
Regards,
Ted
https://www.marketwatch.com/story/your-portfolio-may-be-riskier-than-you-think-2018-10-11/print
Comments
Finance media has these types of articles on-file to trot out after any major volatility hits. Pretty much the same stories/opinons/'advice' --- they just change the dates and bylines. YAWN...
The article gives a couple of historical examples showing that you don't always win in the intermediate term with a 60/40 portfolio. Though it doesn't show that during these periods some other sane strategy (as opposed to, say, putting 100% into Krugerrands) would have done better.
So it never justifies saying that a 60/40 portfolio has more risk than other strategies, let alone excessive risk.
Its bottom line is in the middle of the column: " is there an alternative to the 60/40 portfolio that may help you sleep easy? 'There is no such thing,'"
In the immortal words of @rforno, YAWN...
Don’t you love these “may be“ statements? Hell - I “may be” the King of England.
I’ve never viewed 60/40 as a sleep-well combination. It might, however, be described as “sleep better”. The 60/40 has a couple strikes against it today. First, the equity portion is priced at near multi-year highs. Secondly, the interest rate on the bond portion is still low by historical standards. I don’t have an answer to that dilemma. It’s fodder for further discussion - but that’s about all.
I happen to like Dodge and Cox, But their very fine balanced fund, DODBX, did not stand up well during the ‘07-‘09 market rout. A couple of their equity funds lost more than 50% from peak to trough. Just guessing here - but DODBX did somewhat better, dropping perhaps 30-35% during that period. Like I said, Sleep a little better - but not well.
Maybe some creative minds would like to offer up alternatives to a 60/40 fund for jittery investors who need some long term growth but are frightened by today’s high equity valuations and still low interest rates. Despite the currently running thread on how well cash is doing these days, I just can’t get excited about 2.5% - especially if it means locking-up your money for more than a year.