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<<Neuberger & Berman has completed a study of investment returns by varying risk between the Standard & Poor's 500 Index and 5-year Treasury Notes. The results of the study are very significant for investors seeking ways to reduce exposure to future stock market risk while retaining most of the higher return stocks deliver. The study covers the 37-year period from 1960 through 1996 inclusive. For example, a balanced investor with 50% of assets invested in the S & P 500 Index and 50% in 5-year Treasury Notes earned an annual compound rate of return of 9.36% for the 37-year period. This balanced approach returned 84% of the total return of 11.1% generated by the S & P 500 Index for the same period.>>

Pixy, using his Ibbotson database, ran the numbers for the same period using the S&P 500 total return and 30-day T-bill data (perhaps the safest investment in the world) as reported by Ibbotson. The same investor using the same 50-50 split in that investment would have received a compound annual return of 7.86%, or 71% of the 11.05% generated by the S&P for the same period. Adjusting for inflation, the real rate of return would have been 3.73%, or 61% of the inflation-adjusted 6.11% generated by the S&P over the same period.

The question remains: With what level of risk are you comfortable? After you decide on that, you will have a general idea of the return you can expect.

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