Opinion: Putting all your money into stocks like a CNBC anchor advocates is a bad idea

MarketWatch | 12/24/2019 | Mark Hulbert
TimHyugaTimHyuga (Posted by) Level 3
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It’s still foolish to put all your eggs into one basket.

I rise, your Honor, in defense of the 60/40 portfolio.

Consensus - Asset - Allocation - % - Equities

I do so to counter the growing consensus that the standard asset allocation of 60% equities and 40% bonds is “dead.” Just last week, CNBC anchor Becky Quick added her voice to this chorus, saying that “you’re never going to make enough money if you have 40% of your money in bonds.” Earlier this fall, Bank of America declared the “end” of the 60/40 portfolio.

To be sure, no one is denying that the 60/40 portfolio has a stellar long-term track record. Consider its performance since 1926, according to calculations I made using data from Morningstar:

Words - Investors - % - Volatility - Risk

In other words, while immunizing investors from nearly 40% of the volatility or risk of an all-equity portfolio SPX, -0.02% , the 60/40 portfolio forfeited either 1.2 or 1.5 annualized percentage points (depending on whether the 40% bond portfolio was invested in long-term or intermediate-term Treasuries).

That’s not a bad trade-off, and the 60/40 portfolio far outperforms the all-equity portfolio on a risk-adjusted basis.

Reason - Portfolio - Favor - Course - Today

The reason the 60/40 portfolio has fallen out of favor, of course, is today’s rock-bottom interest rates. Bond prices will fall if and when interest rates rise.

Nevertheless, even though this narrative does have a certain superficial plausibility, it doesn’t withstand much scrutiny.

Record - Decades - Interest - Rates - Example

Let’s start by reviewing the historical record. In the decades following particularly low interest rates, for example, the 60/40 portfolio has performed quite well — as you can see from the table below.

To be sure, the current anti-60/40 rationale does receive some support in the data, since the return spread between the all-stock and the 60/40 portfolios is wider following years in which interest rates were particularly low. Nevertheless, the 60/40 portfolios still produced outstanding returns.

Way - Results

By the way, don’t dismiss these results on...
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