re: Stock vs Bond allocation in portfolio?

quote:

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held to maturity from the early 2000s have better risk adjusted returns than the S&P I'm trying to find an example.

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Well using the early 2000’s with two of the largest stock market crashes in history occurring within that decade (dotcom and housing) results in considerably worse returns for stocks as a result.

However, if you invested $10,000 in 30 year treasuries in February 1990 through January 2020 (exactly 30 years) or the S&P 500, the treasury CAGR would would have been 7.83% with a SD of 9.93% resulting in a Sharpe Ratio of 0.54 and Sortino Ratio of 0.90. On the other hand, the S&P 500 CAGR would have been 10.09% with a SD of 14.14% resulting in a Sharpe Ratio of 0.56 and Sortino Ratio of 0.82.

So the risk-adjusted return metrics are similar with one favoring the S&P 500 (Sharpe) and the other favoring the 30 year treasury (Sortino).

On the other hand, IMO, there is a flaw in risk-adjusted return metrics since they are essentially represented on a single-year basis (even if measured over many years) using the mean and SD and don’t account for the decrease in the standard error or an estimate (and thus risk) as the time horizon increases (larger sample size).

So I’ll take a little more risk on a year to year basis, knowing that over 30 years the risk will decrease significantly and $10,000 will become $178,935 with the S&P 500 instead of only $95,895 with the 30 year treasury.