Is a 60/40 portfolio split up still the way to go?
What's the ideal mix for your retirement savings?
The rule of thumb for retirement portfolios has long been 60/40: 60 per cent in stocks and 40 per cent in bonds. That’s supposed to be approximately the ideal combination of growth and safety.
That’s not just an arbitrary split either. Mutual fund giant Vanguard went back and ran simple model portfolios based on the 60/40 rule and found that, since 1926, an investor with that allocation could have expected an 8.7 per cent annual return, with losses in 21 out of 87 years.
That doesn't sound too bad, although there's lots of debate as to whether those types of returns are feasible with interest rates being so low.
An all stock portfolio certainly juiced the returns a bit further, to 10 per cent — but the volatility was greater, with losses in 25 of the years. An all bonds portfolio reduced that volatility sharply, with losses in just 13 years, but the overall return dropped to an average of just 5.5 per cent.
The trouble is, most investors simply don’t have the stomach to lose a third of their nest egg during a sustained drop in the market, and today’s low yields on bonds and GICs make it virtually impossible for bonds to deliver the same price appreciation they enjoyed over recent decades.
Here's one recent study that looks "under the hood" to help determine which components of average returns may be expected to repeat in the future and, more importantly, which ones may not.
If it's at all accurate, a 60/40 'balanced' portfolio would likely deliver about two thirds of what it has provided historically.
What does your portfolio look like? What adjustments have you made in recent years?
By Gordon Powers, MSN Money
Posted by: ZREXER | Jul 24, 2021 10:57:36 AM
Have close to 100% in bonds currently other than a few GIC's that are maturing in the next year. Took advantage of a company stock program as they add a 25% top up to what I put in.
I don't worry about the fluctuation in the value of my bonds as I keep all of them to maturity. I have them lattered with maturity dates ranging from this year to the next 15 yearr or so.
I don't trust the market anymore. The small investor can't win as the big institutions manipulate the markets.
Markets are up this year, but I predict a big correction where small investors will get cleaned ouit again just like they did in 2008.
I will take steady returns over huge swings up and down.