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No. of Recommendations: 8
Hmmm...that table sounds like it was written by someone very fond of bonds. Or in the business of selling them.

If this is an income portfolio, presumably the holding periods of individual securities are pretty long.
Other than for short term holds, the risk from an equity position isn't a decline in the stock price, but a deterioration of the underlying business.
If a firm does well, the income from it (dividends, or even periodic liquidations) will hold up well over very long periods. If not, it won't.

Separately:
Long term, the risk from a portfolio is having low, rather than high, purchasing power after many years.
Which is to say, there is a large risk in having a portfolio with a low or negative long run real total return.
If you need 5% to avoid eating dog food when you're 85, getting 3% is a big risk even if the portfolio balance is really steady until dog day.
So, bonds with zero real total return--most bonds these days--can be extremely risky long term even if they are government issued.
With no actual return, it's easy to go broke.

Those two observations together would give a whole lot higher emphasis on the equity choices than the "risk" table would suggest.


Since it's a quant board---

If I wanted an income portfolio, I'd skip bonds entirely and probably do something like this
Market cap top 1500
Dividend yield top N
Five year average ROE top 50
Hold till drop at the dividend yield step. Maybe trade quarterly.
https://gtr1.net/2013/?h63i126f.4::mcp:tn1500:cdy:tn100:roea...
(not a very well constructed URL...I haven't put in any junk filters)
The thinking is simple: high ROE firms are usually the stronger ones, so business deterioration problems are less likely, meaning both yield and portfolio value will probably hold up adequately.


N=100 gives a better average dividend yield--no calendar years yield<4.6% 2000-2019, but at the expense of poorer long run total return. Avg year yield ~7.4%.
N=400 gives a lower average dividend yield--no calendar years yield<3.1% 2000-2019, but with better long run total return. Avg year yield ~5.0%.
Maybe 2.2%/year difference in total return.
It's easy to tune between the two extremes, but the smart thing would be to go for the total return.
If you've been doing 2%/year better on the portfolio value for years, and there is a low dividend year, you can always sell a bit of stock.

Jim
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