There’s always a lot of talk about the 60/40 portfolio when it comes to retirement, which would consist of 60% equities and 40% fixed income investments. Advisors recommend this composition for a retiree for several reasons. The view is that your money is safer in fixed income and less volatile during uncertain times.
However, this type of portfolio has been a poor performer over the past few decades, and as Investopedia recently quoted: “The things that drove 60/40 portfolios to work are broken. The old 60/40 portfolio did the things that clients wanted, but those two asset classes alone cannot provide that anymore. It was convenient, it was easy, and it's over. We don't trust stocks and bonds completely to do the job of providing income, growth, inflation protection, and downside protection anymore.” (Why The 60/40 Portfolio Is No Longer Good Enough)
It’s interesting that instead of the 60/40 portfolio, the article goes on to diversify a retirement portfolio even further. It’s a watering down of sorts, the more spread out your portfolio becomes, the less likely you are to lose money - or so the theory goes.
The fear is what sells the 60/40 portfolio, so retirees spread their wealth over great plains and probably all end up OK in the end. If you have a well-versed financial planner, and he/she chooses wisely, your money will likely outlive you, but… and it’s a big BUT… could you have ended up with more?
I’ve never been interested in buying bonds, mainly because I don’t want a large portion of my income to be “fixed”. Rather, I want to see my income grow month after month, and year after year.
In the same sense, I also don’t like great diversification. Everyone tells you it’s the thing to do but is it really?
I trust stocks (at least the historical dividend growers) to help increase my income over time. They provide a growing income and inflation protection but many investors are too scared to go all in. I’m not.
I’m comfortable with my 100% equity portfolio. I like buying companies that have increased their dividends over a decade or more (or for my oil and gas stocks, at least have boatloads of free cash). Those companies are enticing to me.
On the other hand, buying a 10 year government bond at 3.47% is not something I would entertain. First, it’s not going to keep up with inflation, nor will your income grow over those 10 years (that rate doesn’t change). It doesn’t even provide downside protection because your initial investment in 10 years time will have less buying power than it does today, thanks to inflation.
There are so many companies I could list that would earn more income for you in 10 years’ time. Soooo many.
Having a fixed term and a fixed rate is far too rigid for me.