It would help to take a look at a historical comparsion betwen 50/50 Stock/Bond, 50/50/Stock Cash, and 60/40 Stock/Cash (I believe someone on this thread proposed to avoid bonds). The following is the link to portfolio visualizer from 1972 to present (LINK)Not sure I understand what a down market in cash looks like, unless you are referring to inflation.
I guess I am more of a total portfolio person. I care more about the how the whole portfolio work as a whole than its individual pieces. Down market risk with cash is actually higher than with bonds.
As you can see historically, you were better off in stock/bond then stock/cash. A 50/50 stock/bond has historically had a lower worst year than stock/cash. There was a false belief that stocks and bond were negative correlated, so that whenever stock fall, bonds will do the reverse and reduce the fall. Now due to 2022, their belief swing in the other direction and they believe stocks will always fall with bonds. In truth, stocks and bond have a low correlation and move somewhat independent of one another. As a result, sometimes it will move with stock and sometimes it will not. Going through the historical return, I feel that the stock/bond combo has worked out better in most downmarket than cash.
I also caution against raising the equity to compensate for the loss of return on switch from bond to cash. Now your maximum down has increased to -32% around 2008. If your goal is to just reduce risk, this is not the way to go unless you define risk is fixed income risk only as oppose to the whole portfolio.
Statistics: Posted by gavinsiu — Thu Nov 28, 2024 8:13 am — Replies 36 — Views 2081