Working out % Equity allocation

Thrugelmir

JohnWinder said:

Thrugelmir said:

 The investment achieved it's set out goals. 

For the CGT you mention, 'to preserve, and over time to grow shareholders' real wealth'....'The Company does not have a formal benchmark'.
Cash achieved that goal over the last 50 years; it's not a very high standard to set yourself and expect investors to be pay whizz-bang managers higher fees for when we can get more for less.

Benchmarks are only measuring devices. I've always set my own objectives and never concerned myself with a benchmark. There'll always be markets that perform better over short term periods. That's how investors end up chasing pots of gold at the end of the rainbow. 

Personally when researching new investments I focus on the past 5 years. That's enough reading in itself. The world of investing was so very different 50 years ago. Not the array of global options that are available today. 

[Deleted User]

“ I think the old 60/40 portfolio is probably dead,”

I’ve been coming across this claim for as long as I’ve been following the markets and investment strategies. So far its very much alive and kicking a$$. 

Thrugelmir

Deleted_User said:

“ I think the old 60/40 portfolio is probably dead,”

I’ve been coming across this claim for as long as I’ve been following the markets and investment strategies. So far its very much alive and kicking a$$. 

Not very long then. 

The implications of low interest rates for Government bonds only became a topic of serious discussion 5/6 years ago. 

Ten years ago it was very much flavour of the month. In the same way that global equity funds are. Understandably retail investors select investments that have performed well more recently and by virtue of the cash invested continue the momentum. Hence the reason the same old mistakes get made over and over again by every new generation. All believe that This Time is Different. 

bostonerimus

Deleted_User said:

“ I think the old 60/40 portfolio is probably dead,”

I’ve been coming across this claim for as long as I’ve been following the markets and investment strategies. So far its very much alive and kicking a$$. 

I have too. I did 60/40 for 30 years and it worked out ok. Of course with interest rates so low bond funds aren't very attractive. Still if you plan to hold them and reinvest the distributions you will probably come out ok and they will at least have been a dampener on all the stock market volatility. But there is no obviously good solution here: stocks look over valued; bond prices will fall if rates go up; annuities give you very poor value for money and climate change and political instability are other worrying factors. But maybe there is a lesson to be learned from the Vanguard Wellington fund as it has been around since 1929 and has an average annual return of 8.42%...guess what its 60/40 and concentrates on blue chip dividend stocks and government and investment grade bonds.

[Deleted User]

Agreed. And I don’t like the maths for bonds right now, reinvestment or not.   As discussed, annuities seem very attractive in comparison. Then again, I have been prven wrong before and will be happy for it to happen again.

JohnWinder

Perhaps reports of 60/40's death are premature, or a bit late:

'I don't know if this is the earliest, but there is a thread more than ten years old saying Portfolio of 60% stocks and 40% bonds is dead.

I couldn't find the original article it refers to--it was quoting Bill Gross--but I found this article from 6/9/2009, Bill Gross and the New Normal, which says

Investors should be guided by a set of rules – Gross’ Seven Commandments:
1. Echoing views expressed by Peter L. Bernstein, Gross said that the policy portfolio is dead. A 60/40 allocation and the promotion of risky (equity) assets was how you got rich in the past, but past results don’t foretell future performance.

That was in 6/2009. If you had invested $10,000 in the 60/40 Vanguard Balanced Index Fund then, you would, today, have $28,582 and earned an average (CAGR) of 10% per year.

Source



Tune out the noise.

https://www.bogleheads.org/forum/viewtopic.php?t=319124

pip895

Looking back at how well bonds have done in the past is pretty pointless though.  Their not equity and at current valuations there is so little upside left and such a lot of potential downside.   

Having said that, I do have some bonds, but no way would I hold 40%, too risky IMO.

JohnWinder

I think that's a reasonable opinion to have; and plenty of us wouldn't want to hold 40% as bonds.

But when we pronounce 60/40 to be dead, the point of looking back in the past is to see what happened after people said 60/40 is dead. They may have been right 10 years ago, with much prescience, but it hasn't shown up yet. Eventually it will, and the prophecies will have been correct.

bostonerimus

If you are in the accumulation phase and have a 30 or 40 year time horizon I can see 60/40 as still being viable. The big problem comes if you are thinking about income generation from bond funds. In that case it would be good to have a "target maturity" bond fund ladder although the returns would be dismal and they aren't available in the UK yet. So maybe 60% dividend equities and a saving bond ladder for a 40% cash allocation. I went the rental property route for income and with bond/interest rates the way they are today I'm glad I only have around 20% in bonds and that I don't need to touch them.

pip895

bostonerimus said:

it would be good to have a "target maturity" bond fund ladder although the returns would be dismal and they aren't available in the UK yet.

I know you are quite keen on these target maturity bonds, but don’t you loose just as much investing in them if interest rates go up?  

I know you get back the cash amount you put in, but at the end of the day you would be in exactly the same position if you sold out at a loss and bought the better yielding bonds.  They are just something that allows people to think they haven’t lost money when they have. 

For me anything long/med dated (>5year) and yielding <1% seams pretty pointless. I would prefer to sit in cash and wait for better rates - if I’m wrong and rates don’t improve I haven’t missed out on that much!