re: Stock vs Bond allocation in portfolio?

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You get some global exposure via the SP500 since most of these firms are international in nature.

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Yet you pay a huge premium for those companies in the US. International stocks are very cheap, have been cheap for some time & may stay cheap for a while... but valuation tells the story about returns over a long period of time.

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s bond yields are low, but the 100% stock crowd is suffering from recency bias IMO.

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But is it a recency bias or are recent trends more reflective of the realities of the assets and their returns now and in the future? In particular as it relates to bonds, not only are the returns much lower post-housing crash than in the distant past (e.g., total US bond market has had 3.54% annual returns over last 10 years compared to 6.87% over previous 23 years), it appears that this trend is going to continue, especially with low interest rates (negative in some cases) and low inflation.

So unless there are signs that bonds returns are going to revert back toward their historical levels, wouldn't we expect the allocation to stocks instead of bonds to continue? Specifically, there have been reports for large pension funds (e.g., CalSTRS) investing in stocks instead of bonds like they had previously because the yields are so low that they can't meet the gains necessary to maintain their viability.

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When you are going through a true market meltdown, those government bonds look like the only thing worth having.

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While true, that's why one's time horizon is so important. But whether an 80/20 or a 100/0 allocation, the drawdowns haven't been that significantly different (e.g., 5 to 10 percent worse for 100/0) despite bonds having better gains during those periods than now. Even then, when the drawdowns invariably end, the 100/0 funds then rebounds much quicker. So again, as long as one has a long enough time horizon, then what "looks good" when things are bad, is not that important if there is enough time to benefit off of what "looks good" when things are good.

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wutangfinancial

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100% in TSLA?

LMAO would have worked out well the last decade.

If you include monetary debasement my guess is the returns on 30 year bonds 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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Yeah its better to buy Coca-Cola, dividends offer a better yield and more reliable.

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Coca Cola dividends are more reliable than interest payments of US debt?

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I'm 42 and 100% in stocks.

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It sucks because central banks have pretty much driven all of us into overexposure of stocks. Bond yields will revert at some point when they can't control corporate spreads but that could be decades away.

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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.

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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.

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Unfortunately you don't know that.
Bond ROI stinks right now.
Treasury ROI stinks.
S&P associated risk for retirees stinks.
Real estate bridges the gap somewhat.

Young folks should not remotely consider bonds at these levels. Nor should 40-somethings IMO. However, past that, the stock:bond ratio becomes very dicey. Current ROI drives the equation HEAVILY to stocks/realestate

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We are being forced to speculate. It's the only thing that offers any sort of decent return.

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Well one of the reasons bond yields are low, is because inflation is low, so a lower return is not as problematic as it would be historically. In addition, low yields, also means lower interest rates to borrow money (especially something like a mortgage) which many people are benefiting from with lower payments and more to invest in whatever.

And I don’t understand this notion of being “forced” to speculate for a decent return as if we’re entitled to some decent risk-free return and that is somehow preferable in a market based economy that relies on risk, competition, and advancement, none of which are work very well playing “it safe.”

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Unfortunately you don't know that.

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Well considering my figures are based on backtested historically data and is in response to a post about historical returns, I know these things for a fact since I’m not arguing that these are what will happen over the next 30 years.

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S&P associated risk for retirees stinks.

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S&P risk is at historically low levels now at least. And since future risk is unknowable, I don’t see any reason to believe that it will be any more than historically.

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Current ROI drives the equation HEAVILY to stocks/realestate

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Well and I think real-estate (like REIT’s) represents an asset that has replaced bonds as stocks and funds with high dividend yields have taken their place.

Personally I think we’re just seeing a change to the investment paradigm, and I won’t think it’s necessarily good or bad, just different. With the shift away from more expensive actively managed funds, a shift away from defined benefit retirement plans to defined contribution plans, and globalization (e.g., easier access to foreign markets) and technology eliminating many investment barriers (e.g., eliminating fees to trade, easier and quicker access to the market, research tools to make decisions, and fractional shares to be able to buy anything with essentially any amount available) I think these changes are just a natural function of societal changes.