40-60% Funds Worried

JohnWinder

I’d imagine an advisor would prefer to have a relationship with a client they could discuss things  with who has a decent understanding of what the discussion is about, rather than seeing someone’s eyes glaze over; or……and that leads to uncharitable thoughts.

adindas

Warren Buffett Portfolio asset allocation is as follows:

• 90% is in Equities
  
• Only 10% or less Short-Term Treasury Bonds

Many active hedge-fund managers dislike bonds for obvious reason.

safe_hands2

masonic said:

safe_hands2 said:

Just wondering - with funds like LifeStrategy 20 and 40, is the average bond duration about 9 years too? Aren't these sold as lower 'risk' which can be held for shorter length of time, say 5-7 years? Is that then potentially problematic?

In the coming years I'll be looking to de-risk as I get closer to wanting to access money. Is this something I'll need to consider?

They can be held for a shorter length of time with a low probability of sustaining a loss over those 5-7 years. The risk is never zero, but the extent of your loss over that timeframe would be relatively small. VLS 20 over 5 years has now delivered an annualised return of +1.7%, down from nearly 4% just 6 months ago. It may not have quite bottomed out, but even over this particularly bad time it has performed only a little worse than fixed term cash.

It is something that you should consider in so far as it is probably not the best place for money you will need to spend in the next year or two. It would be a shame for someone to be forced into selling units right now. The ability to fund a couple of years spending from a rolling ladder of fixed term savings can come in useful in situations like this. Chances are things will look rather better by that time.

That makes sense thanks. Yes, have plan to make cash available with 2 years to go. Just thinking ahead for how to adapt my LS60 in the few years before converting to cash. 

JohnWinder

  To me I do not own any bond, no intention to own them. I have owned VLS for a few years and it has always been 100% equity. I prefer VLS100%, Index funds, plus hand picks individual stocks.

My Bonds (similar function) are my saving accounts,

Food for thought but not sure how to evaluate it, particularly without knowing your risk appetite, investing horizon and liquidity needs. And you can’t be 100% equities if you have enough cash to act as bonds, rather than enough cash to buy the milk tomorrow. Any useful backtesting would need to use 99/1 (equities/cash) or 80/20 etc, whatever yours is.
But, bonds are riskier than cash, and so should have better long term returns. I think they have too. But you’ve gone higher in equities than 60/40, so the returns should be better.
Backtesting on portfoliovisualizer over the last ‘few years’ you said, shows your 90/10 and my 60/40 are not that different in returns, but yours is more volatile and had lower risk adjusted returns. Over the last 50 years you’d have lost out to about 0.5%/year in returns.

anonmoose

So Adindas, are you saying that you dip into your savings accounts at particular times to take advantage of timing the market?  Because otherwise your savings account presumably wouldn't be performing better than bonds during a bull market?  So does your risk profile move within where we are in the market cycle?

I am trying to get more understanding of bonds going forward and possibly change direction of my strategy.  But I wouldn't have the experience to time the market but would like a better solution to my LS60.

bostonerimus

adindas said:

Warren Buffett Portfolio asset allocation is as follows:

• 90% is in Equities
  
• Only 10% or less Short-Term Treasury Bonds

Many active hedge-fund managers dislike bonds for obvious reason.

But Buffett isn't investing to fund his retirement. If that's what you are doing then a very high equity allocation is ok if you have sources of income like DB pensions and a cash buffer to insulate you from sequence of returns risk and the volatility inherent in an equity heavy portfolio. Right now my equity portfolio is down by double digits YTD, but I don't have to sell or worry about it as I get my retirement income elsewhere.

Aminatidi

Exactly.

The way a billionaire recommends his widow invest their wealth probably isn't relevant to most people on this forum trying to protect and grow theirs.

adindas

anonmoose said:

So Adindas, are you saying that you dip into your savings accounts at particular times to take advantage of timing the market?  Because otherwise your savings account presumably wouldn't be performing better than bonds during a bull market?  So does your risk profile move within where we are in the market cycle?

I am trying to get more understanding of bonds going forward and possibly change direction of my strategy.  But I wouldn't have the experience to time the market but would like a better solution to my LS60.

Partially.

We are in the bear market. The bear market in average take about 10 months, the longest one was during the great depression 61 months. I have posted this statistics before.

Keep in mind you could get RSA paying 5%, 3.5%, 1.75% the lowest one 1.5% how much return did you get with your bonds. We take advantage of flexibility and you could deploy it to equity anytime you want to. In the long run equity has always outperformed bonds. That is why the people like Warren Buffet, Peter Lynch dislike long time bond.

In the "bear market", DCA (e.g drip feeding) beat lump-sum. I have posted the statistics before. But even without statistics it is very easy to see as this is a general truth that in the bear martlet the probability of the the stock price will fall more than it rises.

With money in the saving account you could do DCA rather than Lump-sum. No need to time the perfect bottom, the area around that is enough.But with uncertainty and also statistically proven you are better off with DCA rather than Lump-sum in the bear market.

Many hedge funds are currently holding reasonable amount of cash at the moment to strike when the market is close to capitulation. But these people understand the stock market well, read the news  regularly, and have a good technical analytical skills. But doing DCA especially enhanced selected DCA, selected buying on the red days during the bear market will be better than Lump-sum.

Once the bear market is over, less volatile (the VIX), the inflation is under control (The FED), The Fear start to turn to Greed (Fear and Geed index) you could start deploying lump-sum rather than DCA. Some people also do technical analysis to identify the oversold, overbought, capitulation.

The S&P500 P/E ratio is already down significantly.

This might not be a good plan (certainly noone could be 100% sure) but I have been doing this since a few weeks ago with S&P500 a few the hand-pick stocks such as AMD, Alphabet, Facebook, Micron Technology, Barclays, Unilever, Royal Mail, SMT, Microsoft, ABB, WMT.

anonmoose

I keep reading articles/forum posts saying that 60/40 is no longer relevant going forward. What has changed? 

Is it because they think inflation and interest rates will be high for a sustained period? With house prices so high a long period of high interest rates would mean many people are no longer able to keep a roof over their head.  Surely that would be avoided at all costs. 

anonmoose

Thanks Adindas for the explanation.  Funnily enough I was looking at the S&P 500 a few weeks ago and nearly bought some but was put off by an article saying it will drop much further.  It's not as easy as it looks making investment decisions and I think you are right drip feeding is the way to go.  At least it makes it easier to sleep at night if I am only making small mistakes