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Real life results from the balanced fund approach as you approach retirement

realityspeaks
in Other Investing
I am 66 years old and have managed my own fund choices since 2018 and I have dutifully followed the advice of lowering my exposure to the stock market as I get closer to retirement. So, since June of 2018 I have been very close to a 50-50 Stock Bond portfolio with the stocks weighted towards the value end vs the growth end. The bond portfolio was weighted to the short end of the duration. Almost all of my fund choices can be found in the Great owls or the Honor Roll as described on this website. I just did an analysis of my past 5.75 years relative to if I had just left everything invested in the S&P 500.

The results are disappointing, and I do not understand the reasoning now of the balanced fund approach etc. So my overall return in this time period was 32% which works out to be 5.54% annually. The S&P 500 returned 84.09% or 14.62% annually. In real dollars I went from 660K to 871K. The S&P 500 would had taken me to 1.44Million.

In the up markets I got on average 61% of the return of the S&P 500 which I am okay with because I was not exposed as much to the market.

It's the down market. I managed to capture 85% of the down market, The Bond portfolio failed to moderate the losses. In 2022 in a down market I captured 107% of the loss suffered by the S&P 500 I was invested at 52% stocks and 48% the whole time period in 2022.

I am slowly learning that almost all financial advisor advice is BS sorry for my French.

Comments

  • larryB
    Clarification please. Do you mean you employed one or more “Balanced Funds”? Or a group of equity and bond funds to have a 50/50 asset allocation? One could be 50/50 holding Wellesley and Wellington or the same allocation with lots of moving parts.
  • realityspeaks
    Multiple Funds with the overall allocation at the 50-50 ratio. Again almost all my choices on the funds have been from the Great Owls or honor roll listed within this website.
  • AndyJ
    It matters a lot what the specific investments were. Value equity has done poorly compared to growth, and your bonds were probably whacked since 2021 (especially if your sector allocation was index-y, and duration was about the index/aggregate or longer).
  • larryB
    @realityspeaks. If you are familiar with portfoliovisualizer.com (it’s great) input VWINX 50% and VWELX 50% and set the appropriate dates and your dividend reinvestment plan. Then compare to your collection. Just because something is a great owl or 5 stars /gold at Morningstar doesn’t make it so. Or make it so for your situation or mix. IMHO.
  • racqueteer
    AndyJ has the right of it. I have always been a strong proponent of balanced funds, but they needed to be curtailed for exactly the reasons listed. Hard and fast 'rules' for investing are not an optimal approach for everyone.
  • Sven
    edited March 29
    An annual return of 5.54% is quite respectable for a 50/50 allocation for the past 5.75 years. Think you are not having a balance between growth and value stocks. Realistically you need to have both and make small adjustments in rebalancing. For example, S&P500 index returned 26% in 2023 while the value index returned 9.2%. The use of Great Owl or Honor Roll would be a starting point. The overall allocation and individual choices could make a sizable differences.

    You made the correct decision on short duration bonds in a rising rate environment (2022-2023). What you planning to do when the FED cut rate in June/July? Moving to intermediate term bonds incrementally would be appropriate to take advantage of increase bond prices.
  • Old_JoeOld_Joe
    "Hard and fast 'rules' for investing are not an optimal approach"

    Exactamente. Flexibility to adjust investments is necessary to agree with the medium to long-term financial environment. Nothing always works "best" all the time.
  • larryB
    edited March 29
    Using portfoliovisualizer again you can compare 3 different 50/50 portfolios starting June 2018. An example of DODIX and SCHD had a CAGR of 7.65 % with a worst year of -7.04%.
  • davidrmorandavidrmoran
    But that’s so far out
  • larryB
    Opps
  • larryB
    Thanks David
  • catch22catch22
    edited March 29
    The most simple of a lazy portfolio (2 holdings) having a 50/50 mix using a Total U.S. equity and Total U.S. bond funds for holdings. The account has an auto re-balance once a year, as is required. This data (except the dollar amount) is an active 529 account. The CAGR over the time frame you suggested, of 6.90% is fully acceptable. There were not any withdrawals or additions to the account during this time frame.
    NOTE: the formatting is a bit clunky.
    Personal summary/note: one doesn't need to be excessively involved in a complex portfolio to have a decent return over time.
    Of course, this portfolio would not be a money maker or not a likely suggestion from an adviser. 
    Portfolio performance statistics

    Portfolio Initial Balance Final Balance CAGR Stdev Best Year Worst Year Max. Drawdown	Sharpe Ratio Sortino Ratio Market Correlation
    Portfolio 1  $10,000	$15,176 	6.90% 	10.59%	19.81%	-16.32%	-19.72% 	00.73	               0.97
  • MikeMMikeM
    Personal summary/note: one doesn't need to be excessively involved in a complex portfolio to have a decent return over time.
    Agree @catch22, though it's more fun thinking we are actually steering the ship:) Often investing reminds me of my grandson a few years back at the amusement park, riding in one of those little cars that just goes around in a circle. He would be jerking that steering wheel feverishly as if it was making a difference.
  • JD_co
    We can't help but tinker. That's why we post here.

    Lazy portfolio? That's for other investors.
  • MikeMMikeM
    Exactly @JD_co. There will always be the latest and greatest fund we need to buy. We researched it meticulously!
  • catch22catch22
    @MikeM Yes, I agree. Your example, of your grandson, speaks to our human nature to control things, eh?:) One supposes it is how we learn about our capabilities.
  • yogibearbullyogibearbull
    edited March 29
    Determination of whether to buy 60-40 or 100-0 should be made before the purchase. No point analyzing the results in hindsight, just as it's pointless to analyze races that have been run, or games that have been played. If we had time machines, we would all be in NVDA or MSTR (why just stop at SP500?).
  • Old_JoeOld_Joe
    "it is how we learn about our capabilities"

    I now know enough about my financial capabilities to know that they are almost non-existent. No more tinkering !!!
  • realityspeaks
    Thanks for the comments. The comments about value vs Growth is well appreciated. and I will use the portfolio visualizer as suggested to see how well I actually did using a more realistic view based upon my actual exposure of value vs. growth.
  • Derf
    @yogibearbull above you said, "No point analyzing the results in hindsight, just as it's pointless to analyze races that have been run, or games that have been played.

    I agree on the first part, but from just as it's pointless to ..... I'm of the opposite thinking.
    When it comes to sports, ever team try's to figure out how to stop the other team from scoring or how to score on the opposition. Right now the process is taking place in the NCAA men's & women's basketball championship.
    Just saying, Derf
  • WABACWABAC
    Derf said:

    @yogibearbull above you said, "No point analyzing the results in hindsight, just as it's pointless to analyze races that have been run, or games that have been played.

    I agree on the first part, but from just as it's pointless to ..... I'm of the opposite thinking.
    When it comes to sports, ever team try's to figure out how to stop the other team from scoring or how to score on the opposition. Right now the process is taking place in the NCAA men's & women's basketball championship.
    Just saying, Derf

    It's certainly part of baseball. They're doing fascinating new things with statcast technology. And it's all about finding an edge for the next game.

    As for the rest of life, a little reflection on how you got where you are isn't a bad thing. As Plato quotes Socrates: "The unexamined life isn't worth living."
  • hank
    edited March 30
    5.75 years is far too short a time frame to characterize your investment prowess. (If it will make you feel any better, famed investor John Hussman has managed an annualized return of 0.09% over the past 5 years with his flagship fund, HSGFX, according to M*.)

    The others are spot-on. The S&P has been on a romp for many years. Value stocks have suffered. Most of us reach an age where not losing money becomes more important than out-running the indexes. So a defensively positioned investor should not expect to beat the market. Plus, indexes are just that. They do not reflect the impact of management fees, trading costs, record keeping and other “real world” expenses. Take all fund ratings with a grain of salt. Sometimes they’re indicative of future performance. But not always.

    You are correct that most balanced funds didn’t protect in 2022. With the 10-year sitting somewhere around 1 or 2% bonds were a dicey proposition in the years preceding ‘22. I’m not even confident the 4.2% today is attractive - but it’s a lot better than a few years ago. That said, I think 2022 was a bit of an outlier in terms of the carnage bond funds suffered.

    All depends on needs and your own risk tolerance, but for future reading you might take a look at alternative funds. They’ve received a lot of press in recent years owing perhaps to the issues with balanced funds you mention. Like any sector - some good ones and plenty of bad as well.
  • Sven
    And it's all about finding an edge for the next game.
    Investing is analogous to sport in many aspects - finding the business with compelling underlying value at the right time. That is Warren Buffet’s approach. For most of us, investing in S&P500 index would capture most of the recent tech sector advancement. Some active managers did an excellent job in navigating the market. Bonds are more tricky in my opinion.
  • realityspeaks
    did the portfolio visualizer analysis as suggested above and it came in at 5.9% vs. my 5.54% return so maybe it's not so bad after all.
  • yogibearbullyogibearbull
    @realityspeaks, PV results are linkable (see below) and then you can play around with the inputs. This PV run is from 06/2018 - now with 3 sample funds VWINX, VWELX, VTMFX.
    https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=4vhQGHbukxEcsI0ZPsyD7X
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