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60/40 split

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  1. #1

    60/40 split

    Read an article recently https://www.bloomberg.com/news/artic...n-into-trouble and wondering in the long term, is the 60/40 split still a good option?



    The above graph takes into account 100% North American equity and a fund which has a 60% International equity (35% US) split with 40% bonds (created in 2017).

    If you are in the market short term, is switching between 100% equity for growth and 100% bonds during a recession to maximise growth compared to a 60/40 split the better option?

    If you are in the market long term, is 100% equity always the best option?


  2. #2

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    Quote Originally Posted by periphery831:
    Read an article recently https://www.bloomberg.com/news/artic...n-into-trouble and wondering in the long term, is the 60/40 split still a good option?



    The above graph takes into account 100% North American equity and a fund which has a 60% International equity (35% US) split with 40% bonds (created in 2017).

    If you are in the market short term, is switching between 100% equity for growth and 100% bonds during a recession to maximise growth compared to a 60/40 split the better option?

    If you are in the market long term, is 100% equity always the best option?
    1. Based on the questions you are asking, I believe you need a proper financial adviser.
    2. Switching = timing, and there is nothing to indicate the average individual can do that profitably.
    3. The future is not the past, and without the ability to forecast both your initial observation/entry point (e.g dotcom mania), and your intended end point (what, to you is long-term), nobody can say 100% equity is always, and in all circumstances, the best option. Historically though, in most rolling ten-year periods, equities did outperform. That’s again assuming “best” means performance, and not the most settled stomach or some other goal.
    4. Again, you seem to need proper financial advice, starting from the very basics of your financial targets, resources, risk tolerance etcetra.
    periphery831 and Kowloon72 like this.

  3. #3

    Indeed I do, that's why I'm perusing this forum. Not actually intending on buying stocks but learning something new. There are countless threads here and books recommended, so I'm trying to get my head around things as I've not got much else to do working from home.

    You say it's impossible to gauge when things dip or grow, 100% and I'm not pretending I'm in any way knowledgeable about the market but I was pretty confident (as with many others) when C19 hit, the markets would crash and if I was in the position to have switched all my equity to bonds during that time, I would've bought back equity when it hit around the same low in the latter part of 2018.

    That's not to say the next major pandemic will have the same effect but it seems there is a strong correlation between global catastrophy and the markets.

    Obviously no one is a mind reader but the old adage, buy low, sell high will always be apt. If I switched to bonds a few weeks after C19 hit and sold roughly around May, I'd still be much better off. At least, this time around.


  4. #4

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    I think it’s great you’re trying to learn, and you’re right that this forum is a valuable resource. It simply feels to me that if you are going to go the self-education route, some structure might be helpful.

    I think I was careful not to say that it is impossible to gauge market fluctuations (*at least ocassionally). As you have perceived, there may be limitations to doing so reliably, especially when you have actual assets at risk. It is always easier, to look backwards after any particular event, and realise your strategy would have been the correct one, since out of the many people making the assessment at the time, those few that got it right would be the ones feeling that sense of validation now, and thinking how can they capitalise next time.

    Not inviting a full-on discussion, but why would you have picked the 2018 lows and not some other benchmark, and what would have been your response if there wasn’t central bank bond-buying and fiscal stimulus? My point here is capable market players can and will have got this and past events wrong, why do you think you would consistently do better?

    If you have the interest, then your tactical asset allocation might be repaid in entertainment rather than outperformance. If you don’t, then why create more work while possibly doing worse than necessary? That’s the larger point to think about.

    https://www.sciencedirect.com/scienc...1463501730117X
    Random link, with many others you can use search engines to find in a similar vein.

    I wish you good fortune with your financial education.

    periphery831 likes this.

  5. #5
    Quote Originally Posted by AsianXpat0:
    Not inviting a full-on discussion, but why would you have picked the 2018 lows and not some other benchmark, and what would have been your response if there wasn’t central bank bond-buying and fiscal stimulus? My point here is capable market players can and will have got this and past events wrong, why do you think you would consistently do better?

    If you have the interest, then your tactical asset allocation might be repaid in entertainment rather than outperformance. If you don’t, then why create more work while possibly doing worse than necessary? That’s the larger point to think about.

    I wish you good fortune with your financial education.
    Cheers bud, appreciate it.

    Where did I say I will consistently do better? As stated, I believe, "this time around" as the next time an event such as C19 happens, I could be wrong. The 2018 trade war was just an example of a global disaster (at least economically) and at least some way to gauge an economic recession. The markets could've dropped more or not dropped at all, but a reasonable guess as to how bad the markets could get. I also had faith in the markets rebounding with Trump being a economic man.

    As you can see, I'd make a terrible investor but that's why all this is purely hypothetical. I'm just trying to gauge the what if's of such events. There is plenty of money pumped into market research and billion dollar companies still can't make heads or tail, again I'm not pretending to be a crystal ball here.

    I have the interest to be more knowledgeable about the market and the ins and out but I don't intend to actually invest money. Knowledge ultimately being power.

    Thanks for the heads up.
    AsianXpat0 likes this.

  6. #6

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    Quote Originally Posted by periphery831:

    I have the interest to be more knowledgeable about the market and the ins and out but I don't intend to actually invest money.
    No. Of course not. That would be crazy.
    periphery831 likes this.

  7. #7
    Quote Originally Posted by Kowloon72:
    No. Of course not. That would be crazy.
    In the stock market. Got enough passive income to tide me over.

    What did you say earlier today to get your post banned by mods? PM me.

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  9. #9

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    Just for the record, I had the same question as you about the higher fees. I have a fund that charges an outrageously high TER. However, it's vastly outperforming other funds.

    I've seen the maths about how charges eat into your profit over time, but if the total return is sky high, should I not keep my money there (whilst assessing monthly to check the returns are still good)?

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  10. #10

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    Quote Originally Posted by Flapster:
    Just for the record, I had the same question as you about the higher fees. I have a fund that charges an outrageously high TER. However, it's vastly outperforming other funds.

    I've seen the maths about how charges eat into your profit over time, but if the total return is sky high, should I not keep my money there (whilst assessing monthly to check the returns are still good)?
    then you have to look into the reason why it has high returns, and whether the outrageous fee you are paying is really worth the money..

    if the reason for the sky high return is because they are taking excessive risk (high volatility, or leveraged stock picks) and got it right this round, then probability of hitting it wrong next round is high..
    shri, AsianXpat0 and periphery831 like this.

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