No. of Recommendations: 9
So instead of saying "bonds should be 30% of your portfolio" you SHOULD say "bonds should cover my expenses during a recessionary period". ... , have enough in bonds to cover 3 years of expenses

This runs into the commonly ignored problem I ran into when developing my "cash bucket" backtest. After you've spent it you have to replenish it so it's ready for the next time you need it.
But it turns out that there is no *successful* way to do that.

The thing where bonds have to be a certain percentage of your portfolio that's 100-your age? It's crap.

How long did it take for the DOW to recover after 1929? Till 1954? That's a bit more than 3 years. Try 2 1/2 decades

Well...after 2008, how long did it take for the market to recover to the same level? Hmmmm.......lot more than 3 years. Try 5 years! ...
..but your cost of living goes up right with inflation.

T, the standard is not perfection. The standard is the alternative.

Then 1929 hits with a 90% drop in the DOW in 3 years. You'd be moving oddles of money from bonds to buy really cheap stocks.......... then, as the market recovered, you'd move money back.. It turns out in 1929, it plummeted even more over 2 years to the low in 1932

This is a different world than pre-depression, for the stock market.

"In the 2009 crash it took me just 3 years to recover everything I "lost" during that time-frame, and I didn't actually lose anything because I wasn't dumb enough to sell equities, which is the point. I was back where I started by 2012. Then upward since then."

Now compute what would have happened, had you rebalanced in 2009 and 2010 and 2011, moving money from bonds into stocks! would have made a killing! buying stocks at 70% off!

oh well....

then after 2012, you would be back to your normal allocation again - moving money from stocks to bonds - and a LOT richer.

T, do you have a point or just like to snark?

As it so happens, I can backtest this with my spreadsheet.

Beginning with $10,000 on Jan 2008, ending 4 years later (Dec 31, 2011):
100% S&P500: B&H final value $9375. Lowest point: $5158. (2/2/2009)
60/40, rebalanced monthly: $10,344. Lowest point: $6906 (2/2/2009)

The OP's point was dead-on (depending on the exact starting date). Whether you rebalanced or remained completely in stocks, after 3 or 4 years the account was back to even, and had recovered from the ~45% loss.

Actually, if you had done the dead-simple market timing that's in the spreadsheet, in 4 years you were in about the same place--except the low point was around $9,500 insetad of $5,100 or $6,900.


To look at this another way, how much did you lose by having 40% or whatever in bonds, just sitting there doing nothing, while equities compound.
During that bear market period, not much---because, duh, bonds do better than stocks in a bear market.

But over a longer period, big difference.
Starting with $10,000 on 1/1/1960, for the 50 year period ending 12/31/2009:
Final value:
100% S%P500: $878,000
60/40 rebalanced monthly: $649,000
Difference: $220,000 or 35% more.

Not rebalanced:
$6000 in S&P500: $527,000
$4000 in bonds: $117,000
Total: $644,000

Rebalancing makes essentially NO DIFFERENCE in the long-term outcome. Rebalancing just reduces the volatility and moderates the dips along the way.

But the bonds lower your overall return by a LOT.

(BTW, timing adds a lot. 100/0 ends up $2M instead of $878K. 60/40 ends up $994K instead of $649K.)
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