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Is The 60/40 Stock/Bond Rule Stupid?

https://www.nasdaq.com/articles/is-the-60-40-stock-bond-rule-stupid-2020-01-21

Is The 60/40 Stock/Bond Rule Stupid?

Ron Surz
PUBLISHED
JAN 21, 2020 11:24AM EST
The 60/40 Stock/Bond Rule is ubiquitous, and that’s stupid because it’s just not right for everyone.
Asset allocation is the most important decision, and is designed to achieve objectives. Risk preference needs to be controlled by risk capacity.
It’s easy to be smarter than 60/40

Comments

  • I don’t know if 60/40 is stupid, but this “article” might be.

    “For decades, the “go to” asset allocation used by most investment advisors is 60% in equities and 40% in bonds”... There have been studies observing that certain allocations outperformed for periods of time, but how do you back the claim that “most advisors” blindly recommend it?

    And does asset allocation really “explain 100% of investment performance”?

    The statement about the average IRA allocation being 60/40 reminds me of the Dilbert comic where the supervisor suggests something nefarious is going on because 40% of employees’ sick days occur on Monday or Friday.
  • edited January 23
    “ The 60/40 Stock/Bond Rule is ubiquitous, and that’s stupid because it’s just not right for everyone. Asset allocation is the most important decision, and is designed to achieve objectives. Risk preference needs to be controlled by risk capacity. It’s easy to be smarter than 60/40”.

    Strikes me as a “straw man” argument. If you lead off with a dumb enough assertion, than it’s pretty easy to knock it down. I’m not familiar with what fee-only advisors might recommend, but doubt it’s as uniform as he asserts. I did have a commission-based advisor in the early going and he seemed to want me and everybody else he worked with in the most aggressive (all equity) investments available. Likely, that was because he continually skimmed a % of our portfolios off through some type of back load (12-1B perhaps?) for years into the future. Think about that. We, the investors, took the added risk. The adviser stood to profit more depending on the degree of risk we took.

    Most good fund houses today, like TRP, make-available a wide range of products across a wide risk spectrum. The classic 60/40 exists. It might even make a convenient starting point for a discussion of risk. But there’s nothing sacred about it. Nothing I’ve read in fund house literature today suggests that the 60/40 is right for everyone. Does John’s author even address the ultra-low bond yields today? That alone ought to make you think twice before plugging 40% into bonds - long dated ones anyway.
  • edited January 23
    Prob need to put everything in vanguard 2040 lifecycle and watch for 20 yrs... maybe not a 'stupid ideas in 20 yrs/smarter than 60/40 fund
  • @johnN
    You got it. Take a break, enjoy life; as it goes by much too fast.
    If one can look back since the market melt and discovers meddling with one's investments can't match a decent balanced fund; then perhaps it is time to do 90% of a portfolio into this area, and go "play" with the other 10%.
    Most of us, sooner or later will come to such a place in life.

    A chart look at VFORX , FBALX, and VBINX

  • @hank Are you referring to Class B shares which are back-loaded and include a contingent deferred sales charge and higher 12b-1 fees than A shares ?
  • edited January 24
    carew388 said:

    @hank Are you referring to Class B shares which are back-loaded and include a contingent deferred sales charge and higher 12b-1 fees than A shares ?

    @carew388 - Looks like a typo in my post above. Intended to say “12b-1 fee.

    My reference was to Class A shares of TEMWX (and later on TEGOX) back in the 70s and 80s. Those were sold to participants in a workplace 403 B with a 4% front load. I may be wrong, but think I recall seeing buried in the fine print back than than that a small % of our account balance was going into the pocket of the “advisor” / salesperson. It didn’t make a lot of sense to me than. But I’m guessing it was actually in the form of a 12b-1 fee (considered a part of the overall ER).The fund companies portray the 12b-1 as for “marketing & distribution” costs. But I think at least part of that fee finds its way into the pockets of the salespeople. Could be wrong.

    TEMWX was a fine fund in those days - managed by Sir John in the early going. But the salesman / advisor pushed us into the newer (higher cost) TEGOX after it came out - heavier in EMs. That was a mistake. (The fund has since been closed down by Franklin Templeton.)
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