Why a 60/40 Portfolio isn't Diversified

[Reub]

The Bogleheads are not going to be happy!

[Pointedstick]

I don't think they'll care. My experience there has been that a big part of their embrace of the 60/40 portfolio is their optimism about the economy. And indeed, it does well when the economy is booming.

It's actually a pretty good VP candidate, considering how the PP will lag during those times.

[goodasgold]

I don't think they'll [i.e., Bogleheads] care. My experience there has been that a big part of their embrace of the 60/40 portfolio is their optimism about the economy

Actually, many Bogleheads follow an "age in bonds" strategy (as I do). So the bond portion increases with age. Many Bogleheads divide the bond portion of their portfolio 50/50 between intermediate bonds and TIPS.

I am attracted to the PP primarily by the gold component, since I am persuaded by Craig R's argument that in bad times physical gold can outperform TIPs. So I am reducing my TIP funds and using the money to buy gold, kept in a bank safe deposit box. Makes sense to me.

[goodasgold]

Whoops. Just posted a message which failed to delineate Pointed Stick's comment from my own. I assume readers will know who is saying what in the message. First time I tried the "quote" option in this forum. - Wastenot.

[bluedog]

Just curious...

For all those Canucks out there...

Is there a CDN equivalent of TIPS?

[Gosso]

Just curious...

For all those Canucks out there...

Is there a CDN equivalent of TIPS?

Yes.  Real Return Bonds.  They have been around since 1992, which is longer than TIPS.  Although, I haven't seen them at iTrade's bond desk.  You can buy XRB, but the MER is 0.40%.  Also it has an average duration of 16 years, which means it is a long bond ETF, and will behave very similarly to long bonds.

Please don't out 60% of your portfolio into long term bonds. 

[bluedog]

Thx Gosso,

again only curious...

I keep hearing the Yankees speak of TIPs and was just wondering what we have up in the Great White North...

[frugal]

I don't think they'll care. My experience there has been that a big part of their embrace of the 60/40 portfolio is their optimism about the economy. And indeed, it does well when the economy is booming.

It's actually a pretty good VP candidate, considering how the PP will lag during those times.

10% is a good number for VP?

Considering it can fall 50%...

Tks

[Greg]

I don't think they'll care. My experience there has been that a big part of their embrace of the 60/40 portfolio is their optimism about the economy. And indeed, it does well when the economy is booming.

It's actually a pretty good VP candidate, considering how the PP will lag during those times.

10% is a good number for VP?

Considering it can fall 50%...

Tks

Any number can be good for your VP as long as you are comfortable with the thought of losing it. There are very few hard and fast rules with your actual investments. Many on this forum just happen to think the PP will do quite well but there are also plenty on here that think otherwise a bit (hence having a VP in the first place). It is all up to the individual what they think will work for them.

Also, the PP can fall 50% (unlikely), but it can, so stating that a VP can drop 50% is the same argument that the PP has going for it. All investing has risk.

[Kriegsspiel]

That's almost how I have my 401k set up (50-50 stock index and bond index), with my Roth and taxable holding my PP.

[ozzy]

That's almost how I have my 401k set up (50-50 stock index and bond index), with my Roth and taxable holding my PP.

Kriegsspiel - That's exactly how I have my holdings. Great minds think alike!

[k9]

I don't think they'll care. My experience there has been that a big part of their embrace of the 60/40 portfolio is their optimism about the economy. And indeed, it does well when the economy is booming.

It's actually a pretty good VP candidate, considering how the PP will lag during those times.

10% is a good number for VP?

Considering it can fall 50%...

Tks

Any number can be good for your VP as long as you are comfortable with the thought of losing it. There are very few hard and fast rules with your actual investments. Many on this forum just happen to think the PP will do quite well but there are also plenty on here that think otherwise a bit (hence having a VP in the first place). It is all up to the individual what they think will work for them.

Also, the PP can fall 50% (unlikely), but it can, so stating that a VP can drop 50% is the same argument that the PP has going for it. All investing has risk.

That's right. The PP can fall of 75% in the unlikely (but possible) event of a total financial armageddon wiping out all paper assets (examples : communist dictatorship, very hard war, domino effect of bankrupts of banks & other financial firms, etc.). Well, that won't be 75% since your last asset, gold, will compensate for some of the loss by skyrocketing. Hyperinflation will wipe out 50% of your assets (bonds&cash). Etc.

Some VPs will be quite safe. Debt-free landlording is not very volatile, for instance, but has huge liquidity issues, among other things.

[Albert2011]

Getting back to the AAII article - it suggested rebalancing when an asset class gets as high as 35% or as low as 15%.  Does anyone know what rebalancing philosophy was followed that resulted in the historical returns since 1971 as presented on the front page of this blog site?

[Pointedstick]

Getting back to the AAII article - it suggested rebalancing when an asset class gets as high as 35% or as low as 15%.  Does anyone know what rebalancing philosophy was followed that resulted in the historical returns since 1971 as presented on the front page of this blog site?

That one. 

[Kriegsspiel]

That's almost how I have my 401k set up (50-50 stock index and bond index), with my Roth and taxable holding my PP.

Kriegsspiel - That's exactly how I have my holdings. Great minds think alike!

Hah, no great mind here.  I just copy 'em.