The C/C Ratio and The A-A Decision were two mutually constrained independent controllers until 2020. After 2020, a well-diversified ETF portfolio was replaced by the online savings accounts, so the new system became “The C/C Ratio with the Shadow A-A Decision.”
“The C/C Ratio And The Shadow A-A Decision As Of Dec. 2” on Table 2 (From 5 Years)
“The C/C Ratio And The Shadow A-A Decision As Of Nov. 25″ on Table 2 (From How To Manage)
“The C/C Ratio And The Shadow A-A Decision As Of Nov. 18″ on Table 1 (From A Single system)
“Thanks for your awesome reply! I’ll be honest, you are way above my understanding of things.
I know that people who say “it’s different this time” are pretty much never right and look silly in hindsight. However, the interest rate environment coming out of the financial crisis until recently has also been unprecedented. Never in history were rates that low for that long. So, if the facts change as they say, so should our thinking.
So, it seemed reasonable to me that deviating from the traditional 60/40 that made so much sense in the past no longer made sense when the 40 was earning near or around 0% interest. Bonds in the past would act as an anchor for a portfolio when equities fell. But, in recent years, bonds seemed to have fallen as well. So, it seemed reasonable to question what their purpose was.
Now that interest rates are climbing to something more reasonable, I find myself as a new investor needing to revisit the bond idea. It am still very confused. If something like $BND yields 2.67% then why not just put my money in Tbills yielding 4+ percent? It’s not like bonds are rising as stocks are falling……so, what is their purpose again? BND is down 13.53% YTD. So, how are they helping to steady the ship vs 100% equities?” (Source)
LakeOZ boater joined, with his complete and flawless advice to long-term (5 years or longer):
“While you are doing your due diligence to determine what asset allocation will work specifically for your unique circumstances, we can share some high-level generalities.
Most stock fund investors actually achieve lower long-term returns than the funds they invest in because they get scared out of them. And the reason they get scared out of them is because they have overestimated their risk tolerance.
1. Smart guys like Andrew Lo of MIT have looked at investor behavior and found most small investors abandon their long-term investing plan when losses near and/or exceed (-20%).
Based on that (-20%) observation as a starting point, Vanguard has model portfolio results from the last 95 years. (1926-2021; see link). Based on Vanguard’s historical data here are some of the historical maximum losses….
Equity (stock) exposure———— Maximum Historical Loss20%……………………………………….(-10%)30%………………………………………(-14%)40%……………………………………….(-18%)50%………………………………………..(-23%)60%………………………………………..(-27%)70%………………………………………..(-31%)80%………………………………………..(-35%)100%……………………………………….(-43%)
2. A very good value investor, who was Warren Buffett’s professor and mentor, was named Benjamin Graham. Graham wrote a book on investing for laymen called The Intelligent Investor. It is available in a paperback on Amazon. IMHO: It should be a cornerstone in your investment book library.
-Referring to the maximum loss table above, when the book was written, and before there was a formal area known as “behavioral finance”, Graham advised the average investor to run a 50% S / 50% B portfolio as a starting point.
-Only deviating from that 50/50 norm as valuations rise or fall. (Graham never recommended 100% stocks nor 0% stocks, i.e., “timing”.) Instead, he suggested tactical asset allocation of no more than +/- 25% movements in either direction.
-Notice how close that 50/50 starting point is to Lo’s modern-day observation from investor behavior of (-20%.).
3. Why should you have any bonds or cash in your portfolio? You should consider market history if your crystal ball is foggy. There have been very long periods when the S&P 500 underperformed One-Month Treasury Bills…
15 Years: 1929-194317 Years: 1966-198213 years: 2000-2012
FYI… that’s about 1/2 of the last 91 years in which stocks returned less than cash.
Hope these provide a stake in the ground for further research.”
As shown in “Is There A Bond Conundrum?”, NextGenInvest and LakeOZ boater were the integral part of an innovative insight in a long-term (5-7 years) with the associated “equities” ETFs .
I believe this great opportunity, introduced in my articles such as “Stock Market And The U.S. Economy, clearly opens a smooth avenue to reach your goals in a very long term.
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