Originally Posted by DblDoc
Not true. If we were to see bond yields like that again it is because the market sees inflation. This is NOT a low risk situation
. I agree it is good to plan ahead with what ifs but diversification is the safest strategy that can possibly deal with a long term time frame. The only situation I could forsee being 80% bonds would be if I had way more money than I need for retirement. Even then I would sit at the efficient frontier of 80% bonds:20% equity.
The rates and (definitely the asset mix 20/80) was arbitrary. It is a little polarizing, but that get's the discussion started...
I am glad you commented. It is a bit of an academic discussion with some opinion thrown in.
Which risks? My comment was Treasury relative to stock (asset class).
Inflation risk is the thing that would trigger the rise in interest rate... But due to the longer-term nature of bonds and the guarantee against principle... it can create an opportunity (at a low relative risk). Of course, it would all depends on the health of country for the longer term... not a shorter-term turn of events.
BTW - I believe in MPT. I stick to it mostly because I do not believe I have superior knowledge or capability (compared to the market). But I also know that sometimes unique opportunities present themselves and a small investor can take advantage of it...
... kinda like brewer's move a while back.. jumping on the opportunity he saw probably reduced his risk (asset class) and made him some money.
If inflation kicked up... do you think it is permanent? Moving into Hyperinflation?
Now if you think our govt is going to fail... that presents a bunch of other problems... even for domestic companies. But I think that is a low probability in my life time.
I have read about people that locked in 30 year treasury bonds back in the late 70's and early 80's and made a killing... even though 30 treasury bonds were providing a lower coupon than 10 year notes.
If you believe in the 4% rule (which represents the past) and think it shows a fuzzy picture of the future... 15% would look pretty good.
Whether or not I would go to 20/80 would probably depend on a number of factors. However, I am not an "All-in" type of investor myself. But at 15% I would be buying treasuries directly and probably quite a bit of them. It would be a mix of 10, 20, and yes 30 yr. Because I believe it would be temporary!