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I'm 55. I retired when I was 49, although I continue to do a little part-time consulting. Currently, I'm 90% in equities and 10% in fixed assets.

I have read several studies (sorry, no link) based on the Ibbotson data which show that for the long term investor, loading up with bonds is a bad proposition. No less than 70% eqities is safer, no matter how old you are.


Cliff,

I think you may have the ratios backwards here.

First, the oft sited Ibbotson data (if we're thinking of the same thing) shows that between 1926-1998 (I using IAA by Bernstein for this p.43) adding up to 30% equities to a bond portfolio increased returns by 2% while maintaining a static SD (volatility or risk) of 9%. A 70% equity port was much riskier- a SD of 16%.

And while this pretty neat fact, it's misleading in that it ignores the fact that bonds can be held to maturity, in which case the (at least nominal) SD of their returns would always be zero, and it would be impossible to further reduce risk with stocks.

It's also misleading in that past data doesn't necessarily predict the future. Either from a return or risk perspective. As Dr. B likes to say, bonds could easily outperform stocks over the medium term at least.

You say for "long term investors, no matter how old they are"...this sounds like a contradiction since the older you are, the shorter your time horizon. If you're 55 and 6 years into retirement, and making a 5% withdrawal per year (for example), you could be wiped out with a 90%/10% allocation if P/E revert to the mean over the next few years. That allocation is extremely aggressive.

Nick
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