That's why you only want to invest in stocks with money you won't need for at least five (or more) years. In other words, be a long-term adherent of fundamental investing, where you focus on the companies in which you're a part-owner through your shares, keeping up with their progress and assessing factors such as their market share, profit margins, track record of growth, prospects for further growth, sustainable competitive advantages, debt and cash levels, and so on. Intuitively, I understand that bear markets always come back over the long term, and I understand that I must invest in risk assets if I hope to beat inflation. The barbell is an investment strategy often used in fixed-income portfolios, with the portfolio split between long-term bonds and short-term bonds. Rick Ferri has proposed a two-fund portfolio consisting of the following asset classes: Ferri suggests a US total market bond index fund/ETF for the fixed income selection. My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. As Warren Buffett has explained about his own (wildly successful) investing style: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.". The charts below reflect different asset allocations. Investors may also find that employer-provided retirement plans will use collective investment trusts as investment vehicles. Enjoy :) At the time, he allocated 60% of the stock portion of his portfolio to the Vanguard Total Stock Market Index (VTSMX) along with some combination of the Vanguard 500 Index (VFINX) and the Vanguard Extended Market Index (VEXAX) to provide additional small- and mid-cap exposure. But if you select the high-cost program, your ratio would be 75 percent stocks and 25 percent bonds.” In other words, investors would need to increase their risk exposure by 2.5 times to earn the same return with a high-cost portfolio. Last year, with the 10-year treasury yielding above 3%, that seemed to be doable with virtually no risk. That's not even his most important accomplishment; he's also known as the father of index funds, and advocated for them for many decades. Click for complete Disclaimer. The gurus listed in this website are not affiliated with GuruFocus.com, LLC. Asset Allocation Guide: Dealing with conflicting goals, Asset Allocation guide: U.S. vs. international equity, Asset Allocation Guide: Small-cap vs. large-cap, Beginners' Guide to Asset Allocation, Diversification, and Rebalancing, Re: Wiki comments requested: The importance of asset allocat, Strategic Asset Allocation - Definition of Strategic Asset Allocation on Investopedia, Recessions and balanced portfolio returns. Semi-retired at 43 – nice. Yes that’s the whole crux. Therefore, we can afford to take on more risk when we hit 70. Clearly, such a rule must be adjusted to reflect an investor's objectives, risk tolerance, and overall financial position. Both excellent funds. I have 20 hehe -that’s the risk averse part of me. While his words feel very contemporary and relevant in the current environment, Peter L. Bernstein wrote his seminal article all the way back in 2002. Initially, most of us would have assumed that fund fees of even 2% would be relatively insignificant, but Bogle showed the effects were very significant, even to the point of completely wiping away risk premiums. From book recommendations to investing tips and more, Jack Bogle offered his thoughts on all the latest trends. To read more, and reviews of other important investing books, go to this page.). In my case, that would mean 45% of my portfolio should be allocated to stocks. Enter John C. Bogle and the 50/50 Allocation. Rick points out that a 60/40 split would fall 27% during a 16 month period from November 2007 to February 2009. An Example: If you are 30 years old, 80% should be allocated to stocks and 20% to bonds, (80/20). It may be changed due to life events, but it should not be changed due to market conditions. Half the time, I wish I had more equities, and the rest of the time I am glad I don’t have more equities. The most important element during the distribution phase of a retirement portfolio is the sustainability of income, not the growth of the portfolio like long term investors stress upon. We are rapidly approaching the end of the accumulation phase of our portfolio and approaching the distribution phase. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. Vanguard offers investors a US Balanced Index Fund, which consists of a 60/40 stock/bond allocation using a total US stock market index allocation and a total US bond market index allocation. His allocation is roughly half in intermediate-term bonds and half in shorter-term bonds. In addition, he found the lowest-cost groups could achieve superior performance without taking on more risk than the balanced-fund averages. Seems to working out just fine so far even though we are paying just over 30% for our health insurance. The founder of Vanguard built his fund empire based on his core principles of investing. Jim Otar’s Retirement Income Planning course, How To Construct a TIPS Ladder For Retirement, Here’s Why You Are Not Financially Ready for Retirement, Review of Wade Pfau’s “Safety-First Retirement Planning”, Rental Properties as Retirement Income: The Fixed Income Alternative. In this case, expenses are very consequential. This is very hard to accurately assess before you have already gone through a bear market. Getting more specific, Bogle argued that long-term investors should focus more on the allocation between equity and bond funds than on which particular stock or bond funds to buy. But you can’t go wrong with Bogle’s Advice. The Brinson 93.6% Hoohah, or, The Fable of the Blind CFAs and the Portfolio. Once you set your asset allocation, stick to it no matter how greedy or scared you become. Would you then buy a mutual fund with an expense ratio of 2% plus transaction costs of 0.5%? Investor's can also use a treasury money market fund, or an ETF investing in 1 to 3 month bills for access to the treasury bill market. — William J. Bernstein, The Four Pillars of Investing, pg 244, McGraw Hill. Yeah 30/70 is my preferred allocation. The Ascent is The Motley Fool's new personal finance brand devoted to helping you live a richer life. Bogleheads typically divide bond allocations between just two categories: nominal bonds such as the Vanguard Total Bond Market Fund[14], and U.S. Treasury Inflation Protected Securities (TIPS) such as the Vanguard Inflation Protected Securities Fund.