adrian2 wrote:Bottom line: I may be delusional, but I still can't justify any bonds in my portfolio.
If you figure you can stomach market volatility and there's no consequence to life plans, you're not delusional.
in hindsight, it would have been nice to have bonds,
Exactly. Tomorrow is the near future until tomorrow is today and then the future becomes hindsight. If you don't like nominal bonds, use real return bonds. I wasn't advocating buying bonds. In fact, someone who was using a diversified portfolio would have the difficult task right now of buying equities to rebalance. If someone was starting a diversified portfolio, they'd have a tough call to make right now. Sit on the sidelines and try to time it, jump in, dollar cost average, dollar value average.
For a couch potato portfolio, I have no objections of including bonds, once again for myself I have no regrets of owning none.
If you are in the accumulation stage and can stomach the volatility and replace the lost capital from current earnings, then it's not surprising that you have no regrets. I submit though that as you near retirement or are in retirement, you're playing with fire if you don't have a fixed income component in some form. A DB pension, which is effectively fixed income, that covers most of your living expenses would allow you to have a far greater equity component. Risk taking should give way to risk reduction and elimination as you age.
I'll argue that buying (instead of keeping) government bonds now is chasing the returns
And I'd agree with you but one still has to eat.
Taggart wrote:Sorry if I don't see much difference
There isn't. I'm not claiming anything original here.
Brix wrote:That said, reflecting on this now that a candidate 'perfect storm' is actually under way is a pretty extravagant case of bad timing. If I did happen to feel I had too much in equities for life-cycle reasons, I'd be very cautious about shifting the balance away from them at this point.
It's been said many times before, both here and elsewhere. I started the thread because there have been comments here that there was no place to hide. That's not true. I wasn't suggesting any immediate course of action but rather pointing out the importance of adequate age based diversification and commenting on how we get trapped into mistakes.
parvus wrote:Interesting results with gold and short-term bonds. The RRB results are something to chew over, however.
Be careful, it's a cherry picked 10 year period. Something more rigorous would involve perhaps using a rolling 10 year period to smooth the results. What I found interesting about gold was what it did to variability. I'd want to look at that over different periods.
Clock Watcher wrote:I can imagine realistic scenarios where bonds would get clobbered, and stocks would be flat to negative.
And I'd be interested in hearing them.
DanH wrote:For instance, your portfolio number 1 (50% ST Bonds, 20% TSX, 15% S&P, and 15% EAFE), you show a -10.19% decline for 2008 but that was not the biggest drop.
That wouldn't surprise me. I didn't go looking for the worst case.
The previously biggest drop was -15.21% (tech bust).
So what does the table that I presented look like during the tech bust? What happens with a 25/75 bond to equity mix? I can guess but I don't how exactly how much worse than -15.21% the results were.
What I did was a very specific cherry pick to look at the impact of diversification during a period when equity markets are a disaster. I was making the case for bonds in a diversified portfolio as a way of dampening equity market swings and as protection against shit happening.
Does it cover all scenarios? No. Norm's data doesn't cover a period of asset deflation. Nor does it cover a period of inflation higher than the teens.