Depressing



I believe in a simple portfolio allocation such as 60/40 stocks bonds, like Tad B has referenced a number of times in the last couple of years when he writes of Vanguard's 60/40 VBINX relatively fine performance in the last decade.
But I tend to think what David says above is true. Worse, it is hard to explain how, with interest rates at rock bottom (and AFAIC, in uncharted territory, historically speaking), investment grade (IG) bond funds will tend to see their NAVs lower as interest rates one day start to rise again. Yields will go up as NAV lowers, but one loses principal as the NAV declines.
ISTM the good and conventional wisdom is that the older one is, the more one should have in IG bonds. The thinking behind this has been to reduce risk so one's nest egg is safer. For many, "IG bonds" will mean IG bond funds. As much as I believe in buying and holding; sticking with an asset allocation plan; and staying the course, I find it very hard to tell someone today to make 40% of their portfolio an IG bond fund. Can folks chime in and explain the reasons for continuing with a high allocation in IG bond funds?
Note 1: I am not an adviser. It is more that I want to keep things straight in my mind. Granted in this odd interest rate environment there is maybe no keeping anything straight. Accepting the uncertainty (yet keeping a cool head, investing-wise) of the short-term is maybe the key.
Note 2: I have a sizable amount of Certificates of Deposit maturing in 2012, paying 4.5% right now. Naturally I would like to continue to keep this principal in a conservative place. I am resigned that I either have to throw it into relatively conservative, but by definition, riskier, blue chip stocks; take a much lower interest payment on new CDs; or keep it in cash and just relax. Responses to my query above will help reinforce (or not) my reasoning.
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iarwain;730978 Wrote:

You were inefficiently allocated, no more no less. Spend 5 minutes looking at how you were allocated in the past but spend much more time with how to allocate efficiently in the future. Not everybody lost big in 2008. Those who had an efficient allocation of stocks and bonds lost much less or even made a little bit.
The comparisons you were analyzing is wasted effort. It's all about ASSET ALLOCATION and keeping your emotions out of your investment decisions.
My answer lacks details but if you want to know more, contact me. Remember, over 90% of long-term investment returns come from asset allocation and the rest from selection and timing. The media nor Wall Street talks much about that because they want you to need them 365 days per year.
--
hoosieradvisor


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Try this for an alternative take on retirement investing. That's what I have been following the last few years (since 2008). I'm only in money market, TIPS, Treasuries, I-bonds, and savings accounts. The returns aren't all that great, but I sleep well at night. :) http://www.zvibodie.com/Worry_Free_Investing Maybe if the market takes off like a rocket, I'll regret it, but given the way the world economy is right now, I really doubt it.
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Guess what, ladies and gents? Turns out I am a first class buffoon. A complete idiot. I have suddenly realized I haven't lost money in my 401k after all.
Awhile back I rolled over some money out of my 401k and put it into my pension fund. This had completely slipped my mind for some reason. When you account for the money I had taken out, I actually made a fair increase. Yes, I am incredibly stupid.
I'd say this whole thread has been a waste of time but I do appreciate a few things I learned from it, so thanks for that. As Emily Litella would say: "Never mind".
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It's nice to read some good news. If the thread compelled a closer examination of things leading to this realization, then it served a good purpose.

Laughing here. :-)
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On 11/22/11 12:22 PM, iarwain wrote:

? Hardly. The discussion was good. It helped further the 'lost decade' dialog, which had value. It also serves as a reminder that deposits and withdrawals need to be carefully looked at when evaluating performance. Two thoughts come to mind. a) The Beardstown Ladies stunning performance (they had a best selling book) until deposits were accounted for. Actual performance? Average or a bit below. b) The articles talking about "average 401(k) balances growing X% over however many years." Given the pathetically low average balance, deposits alone are enough to make returns look decent even in flat years.
Happy Turkey Day, although you, sir, are no turkey.....
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