Your Survival Guy

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In Your Retirement Life, This Matters the Most

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By Gevorg @ Adobe Stock

Remember, it’s not what you invest in but how you invest that matters most. With the mini pullback in stocks, look at how well-balanced portfolios have done. In The Wall Street Journal, Jon Sindreau explains that the last few months have shown (once again) the value of a balanced portfolio of stocks and bonds. He writes:

If you buy bonds, make sure you do it for the right reasons.

Whereas equity investors have had a bumpy few months, believers in the venerable 60/40 portfolio should be permitted a victory lap: As the S&P 500 delivered a negative 5.1% return between the end of July and Aug. 5, a portfolio consisting of 60% U.S. equities and 40% 10-year Treasurys lost only 2.6%. Then, the 4.2% stock drawdown that happened last week translated into only a 1.9% loss for the 60/40 portfolio.

“Fixed income has finally regained its traditional hedging property,” said Roger Hallam, global head of rates at Vanguard.

Nonetheless, the strongest reason to own bonds over the long term is an even simpler one: the income they generate.

Vanguard has long advocated for the benefits of mixing stocks and bonds. Such strategies hark back to the 1950s, when economist Harry Markowitz mathematically made the case that diversification improves risk-adjusted returns. The 60/40 mix has delivered negative total returns on only 23% of the years between 1872 and 2023, compared with 27% for the S&P 500, and shortened lengthy stretches of negative returns, according to calculations derived by data collected by Yale University professor Robert Shiller.

Modern investors intuitively understand why bonds—especially those issued by governments—are an effective diversifier: They rally whenever markets grow concerned about the economy and anticipate central banks cutting rates, which tends to make equities suffer. This is what happened this summer.

Action Line: When you want to talk about building a balanced portfolio of individual equities and bonds, I’m here. In the meantime, please click here to subscribe to my free monthly Survive & Thrive letter.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.

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