Just how risky are the markets?


Investor ignorance plays right into the hands of the sharks


crashThe sharks who are trying to sell you expensive products and services such as annuities, life insurance, gold, market timing services, limited partnerships, non-traded REIT's, alarmist literature and other crap are world famous for ignoring diversification into bonds. They know full well that most of the general public is ignorant about how bonds smooth out stock market volatility. When stocks fall, money runs to the safety of bonds, and vice versa. Money has to go somewhere! But don't expect Mr. Salesman (who calls himself an "adviser") to educate you about modern portfolio theory.


And if you're ignorant about the 4% rule, don't expect Mr. Salesman to explain to you that with a 30 year time horizon you should only be drawing no more than 4% of your savings per year.


With a 20 year time horizon (at perhaps age 80) you can safely take out between 5.1 and 5.5% according to research.


Instead Mr. Salesman carries on about how senior citizens had to go back to work at McDonald's after the 2008 - 2009 market crash, never mentioning why that happened. Was it the stock market's fault? No! As we shall see below, it was a failure to diversify into bonds and / or a failure to observe the 4% rule in retirement.


So let's back-test a portfolio of 28% S&P 500 index and 72% 10-Year Treasuries. Why 28/72? Because according to Ibbotson this was the lowest risk allocation ratio from 1970 to 2010. This is no secret to insurance companies because they invest anywhere from 70% to 90% in bonds.



Below we have selected the 3 worst time periods to enter retirement and start drawing from your savings: 1929 (start of great depression), 1969 (low returns and high inflation) and 2000 (recession).


It should be noted that the stock market of today is not the stock market of 1929. A stock market crash of 90% would seem highly unlikely. Click here to learn about the causes of the 1929 crash and you'll agree.

1929 - 1949

Back testing 28% S&P 500 index / 72% 10-Year Treasuries

with calendar rebalancing and 4% withdrawals pegged to inflation




1969 - 1988

Back testing 28% S&P 500 index / 72% 10-Year Treasuries

with calendar rebalancing and 4% withdrawals pegged to inflation




2000 - 2014

Back testing 28% S&P 500 index / 72% 10-Year Treasuries

with calendar rebalancing and 4% withdrawals pegged to inflation




And here's a year by year performance history of a 28/72 portfolio



Before you run out and adopt a 28/72 allocation for your portfolio be sure to consider what your appetite for risk is. Speak to a fee-only fiduciary adviser on a one-time or one-task basis or visit this page if you do-it-yourself.


Historical rates of inflation


Stock / Bond market data



Disclaimer and Waiver - Nothing on this consumer advocate website is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy, hold or sell, or as an endorsement, of any company, security, fund, product or other offering. This website, its owners, affiliates, agents and / or contributors are not financial or investment advisors or broker / dealers and assume no liability whatsoever by your reliance on the information contained herein. The information should not be relied upon for purposes of transacting securities, assets, financial products or other investments. Your use of the information contained herein is at your own risk. The content is provided 'as is' and without warranties, either expressed or implied. This site does not promise or guarantee any income or particular result from your use of the information contained herein. It is your responsibility to evaluate any information, opinion, advice or other content contained. Always hire and consult with a professional regarding the evaluation of any specific information, opinion, or other content.