11-19-2018, 11:49 PM
I am a year away from retirement. Some financial advisors and researchers have been advocating that asset allocation is dynamic, rather than static and is most effective when customized to the investor's specific goals, time horizon and risk tolerance. The analysis I have read has two takeaways:
"First, 60/40 seems too heavily weighted to bonds for this point in the correlation cycle. Whether the optimal mix is 80/20 or 65/35 is a matter of risk preference. We tend toward the latter out of conservatism but understand it leaves little room for positive real returns if inflation accelerates.
Second, any blend of bonds and stocks will have lower future returns and higher volatility than the recent past. Stock valuations are historically high, and bond yields are still near all-time lows. Neither is the recipe for outsized future returns. That makes getting the weighting to each asset class right all the more important."
In market downturn, they suggest,
"The key is that you have to be willing to move out of bonds and into stocks when everyone is saying that is a really dumb idea. Even with pretty bad timing, it isn't so hard to break even with a stock only buy and hold strategy, but you have eliminated a lot of stress.
The greatest weakness of investors is their behavioral biases. It seems that to some investors, stocks are more attractive after the price has gone up. Yet, somehow, when the stock market has declined people want to sell and people want to buy when the market is roaring. The greatest ally to investors is time."
I have this contrarian view lately since 2008 downturn, and thus adjusted my 60/40 portfolio to 75/35 and now back to 60/40. after 2008. If there comes 30% or more stock market decline, I am planning to move back portfolio 75/35. I would like to hear your opinion?
"First, 60/40 seems too heavily weighted to bonds for this point in the correlation cycle. Whether the optimal mix is 80/20 or 65/35 is a matter of risk preference. We tend toward the latter out of conservatism but understand it leaves little room for positive real returns if inflation accelerates.
Second, any blend of bonds and stocks will have lower future returns and higher volatility than the recent past. Stock valuations are historically high, and bond yields are still near all-time lows. Neither is the recipe for outsized future returns. That makes getting the weighting to each asset class right all the more important."
In market downturn, they suggest,
"The key is that you have to be willing to move out of bonds and into stocks when everyone is saying that is a really dumb idea. Even with pretty bad timing, it isn't so hard to break even with a stock only buy and hold strategy, but you have eliminated a lot of stress.
The greatest weakness of investors is their behavioral biases. It seems that to some investors, stocks are more attractive after the price has gone up. Yet, somehow, when the stock market has declined people want to sell and people want to buy when the market is roaring. The greatest ally to investors is time."
I have this contrarian view lately since 2008 downturn, and thus adjusted my 60/40 portfolio to 75/35 and now back to 60/40. after 2008. If there comes 30% or more stock market decline, I am planning to move back portfolio 75/35. I would like to hear your opinion?