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Frequent Contributor

Re: Is 60/40 Dead?


@SteadyEddy wrote:

Holiday - No question that it worked in the past. The question is "will it work in the future with zero interest rates and the more likely scenario of interest rates going up?" The yield will continue to drop as new bonds replace older bonds..


Many posters claim to have great tools for timing gradually or just in/out. So, why not stay with things that are working great now? 

I am sticking with allocation/balanced funds as my core funds until they stop working. 

FWIW, a modified name for them is target-risk funds [awkward static/strategic allocation didn't stick] and it has a hot cousin target-date funds [TDF], a mutual fund category with fast growth. This is because TDF are popular in retirement plans but are also available and used generally. But as many TDF are fund-of funds, they don't show up in lists of mutual fund categories by assets and many aren't aware of their fantastic growth.

So, dead? NO, they are doing quite fine.

YBB
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Participant ○○

Re: Is 60/40 Dead?

 

I model our portfolio on Vanguard Target Date 2020 Fund which is 50/50. 

We use 3 equity ETFs to make our own "VT" and 3 bond ETFs to make our own "BND" which has no MBS but instead has TIPS.

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Participant ○○

Re: Is 60/40 Dead?

I would be interested in which allocation/TDFs posters like/use.

I know of  VWENX, VLAAX, and VTMFX, moderate allocation. 

Other favorites?


@yogibearbull wrote:

@SteadyEddy wrote:

Holiday - No question that it worked in the past. The question is "will it work in the future with zero interest rates and the more likely scenario of interest rates going up?" The yield will continue to drop as new bonds replace older bonds..


Many posters claim to have great tools for timing gradually or just in/out. So, why not stay with things that are working great now? 

I am sticking with allocation/balanced funds as my core funds until they stop working. 

FWIW, a modified name for them is target-risk funds [awkward static/strategic allocation didn't stick] and it has a hot cousin target-date funds [TDF], a mutual fund category with fast growth. This is because TDF are popular in retirement plans but are also available and used generally. But as many TDF are fund-of funds, they don't show up in lists of mutual fund categories by assets and many aren't aware of their fantastic growth.

So, dead? NO, they are doing quite fine.


 

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Frequent Contributor

Re: Is 60/40 Dead?


@Sheryldell wrote:

I would be interested in which allocation/TDFs posters like/use.

I know of  VWENX, VLAAX, and VTMFX, moderate allocation. 

Other favorites?


@yogibearbull wrote:

@SteadyEddy wrote:

Holiday - No question that it worked in the past. The question is "will it work in the future with zero interest rates and the more likely scenario of interest rates going up?" The yield will continue to drop as new bonds replace older bonds..


Many posters claim to have great tools for timing gradually or just in/out. So, why not stay with things that are working great now? 

I am sticking with allocation/balanced funds as my core funds until they stop working. 

FWIW, a modified name for them is target-risk funds [awkward static/strategic allocation didn't stick] and it has a hot cousin target-date funds [TDF], a mutual fund category with fast growth. This is because TDF are popular in retirement plans but are also available and used generally. But as many TDF are fund-of funds, they don't show up in lists of mutual fund categories by assets and many aren't aware of their fantastic growth.

So, dead? NO, they are doing quite fine.



In a post that is now on page 1 of this thread, I had a link on how several moderate-allocation [target-risk] funds did since Feb 19 high [unfortunately, the timeframe defaults to 1 year after 1-2 days],    https://stockcharts.com/h-perf/ui?s=VWELX&compare=$SPX,BALFX,FBALX,JABAX&id=p82285765865

YBB
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Frequent Contributor

Re: Is 60/40 Dead?

Hi Eddie,

I think 60/40 will work as long as the correlation between the two investments remains negative.  It does not have to be perfectly negative to work. 

The Fidelity chart used AGG and SPY. I have not checked, but I think the relationship between TLT and SPY is a better one (more negative).

Rebalanced with minus 5% market return.jpg

The chart above was made by assuming $10k investments in two assets that had a negative price correlation.  Furthermore, the price for both investments declined by the same amount each time the portfolio was rebalanced. You will notice that the price of the securities held is trending downward while the account balance is trending upward.

The reason for this is the compounding of the total share count. The greater number of shares at a reduced price in this case resulted in a 5% (roughly) return. 

Rebalancing comparison.jpg

The top chart shows the compounding share balance along with the portfolio balance. The Red assumes a 0% change in prices, while the blue assumes a positive trending change in prices. The black staircase is the share count.

The bottom chart compares the rebalanced portfolio with the buy and hold portfolio. 

Owning a diversified portfolio will reduce volatility. The buy and hold strategy will deliver the market return because the share count remains a constant excluding dividends. The rebalanced portfolio increases the total share count even without dividends. 

So "diversification fails" can only mean that the correlation between the two investments shifted towards +1 which eliminates or reduces share count growth. The "rebalanced portfolio" becomes a "buy and hold" portfolio when "diversification fails". The portfolio balance becomes more volatile when diversification fails.

Portfolio failure is a different thing altogether and may or may not include diversification failure.

It is the zig and the zag of the price movements that is diversification. Share compounding will overcome some "negative yield".

Thank you,

Holiday

 

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Participant ○

Re: Is 60/40 Dead?

Galeno,

It would benefit me to learn which bond etfs you are using both in the taxable accounts and in the retirement accounts.  I find the bond portion difficult to understand and manage. High yield bond funds don't do well in crisis situations. 

SRT

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Participant ○

Re: Is 60/40 Dead?

YBB,

Is there any reason you left out PRWCX and VLAAX? They seem to done better in this crisis assuming that the starting point is from April 14, 2019 or so.

SRT

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Frequent Contributor

Re: Is 60/40 Dead?

Holiday wrote:

"Portfolio failure is a different thing altogether and may or may not include diversification failure."

Well said.  And, man. does that distinction get blurred in far too many "bonds suck" ramblings.

I highly recommend the interview this morning with Mark Kiesel on Bloomberg--e.g., buy what the Fed is buying.

https://www.bloomberg.com/news/videos/2020-04-02/pimco-says-focus-on-top-tier-of-investment-grade-bo...

Bob

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Frequent Contributor

Re: Is 60/40 Dead?


@sthanga wrote:

YBB,

Is there any reason you left out PRWCX and VLAAX? They seem to done better in this crisis assuming that the starting point is from April 14, 2019 or so.

SRT


Stockcharts allows only 5 tickers in a chart and one spot was used up by SP500 for reference. You can replace tickers. PRWCX is closed and not available unless one owns it already.

YBB
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Frequent Contributor

Re: Is 60/40 Dead?

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Frequent Contributor

Re: Is 60/40 Dead?


@GLI2019 wrote:

Holiday wrote:

"Portfolio failure is a different thing altogether and may or may not include diversification failure."

Well said.  And, man. does that distinction get blurred in far too many "bonds suck" ramblings.

I highly recommend the interview this morning with Mark Kiesel on Bloomberg--e.g., buy what the Fed is buying.

https://www.bloomberg.com/news/videos/2020-04-02/pimco-says-focus-on-top-tier-of-investment-grade-bo...

Bob


Your PIMCO interview is 2 April, old, and misses some things.  PIMCO says fed is not buying high yield; that has changed.

So should we really buy high yield now??  

Fed has driven high yield up to pre-crisis NAV Values/fund prices.  I can't make any case why anyone should hold high yield funds at pre-COVID levels.  

For example, fund HYG traded between 81 and 89 for at least last half decade.  Then COVID.  HYG drops into low seventies, then rebounds.  Fed announces program to buy hi yield.  HYG goes 77 to above 82.

It's like a gift from heaven to me.  Thanks fed.  I exited.

R48

 

 

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Frequent Contributor

Re: Is 60/40 Dead?

Kiesel took a similar stance this morning on Bloomberg. 

I'm sure you can find it if you wish.

A different Bob 

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Re: Is 60/40 Dead?


@GLI2019 wrote:

Holiday wrote:

"Portfolio failure is a different thing altogether and may or may not include diversification failure."

Well said.  And, man. does that distinction get blurred in far too many "bonds suck" ramblings.

I highly recommend the interview this morning with Mark Kiesel on Bloomberg--e.g., buy what the Fed is buying.

https://www.bloomberg.com/news/videos/2020-04-02/pimco-says-focus-on-top-tier-of-investment-grade-bo...

Bob

 


It appears that Dan Fuss, another smart person, has different thoughts on higher-quality investment-grade corporate bonds. He seems less enthused. Is this your take away too?

https://marketwatch.com/story/disappointment-on-corporate-earnings-could-undermine-hopes-for-fed-to-...

 

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Re: Is 60/40 Dead?

Hootz:

Those differences are what makes markets.

I am glad the balanced funds I hold incline in Kiesel's direction.

Bob

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Frequent Contributor

Re: Is 60/40 Dead?


@Hootz wrote:

@GLI2019 wrote:

Holiday wrote:

"Portfolio failure is a different thing altogether and may or may not include diversification failure."

Well said.  And, man. does that distinction get blurred in far too many "bonds suck" ramblings.

I highly recommend the interview this morning with Mark Kiesel on Bloomberg--e.g., buy what the Fed is buying.

https://www.bloomberg.com/news/videos/2020-04-02/pimco-says-focus-on-top-tier-of-investment-grade-bo...

Bob

 


It appears that Dan Fuss, another smart person, has different thoughts on higher-quality investment-grade corporate bonds. He seems less enthused. Is this your take away too?

https://marketwatch.com/story/disappointment-on-corporate-earnings-could-undermine-hopes-for-fed-to-...

 


Why not...+1

R48

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Re: Is 60/40 Dead?

I have Wellington for half of our stuff just because I also figure the managers will do a better job of managing the funds than I could. Our other half is in a large company sponsored plan managed by ML and is about 50/50 AA and all dispersed across several categories from SC to LC to bond and Stable Value. That is on my wife’s account so I tend to be a little more conservative. She wanted to go all SV but I said we’re in the for long haul. We’re retired and don’t ever touch any of these funds. 

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