Investors are gradually seeing that a higher than 10% allocation to real estate and timber works better than bonds alone. Ibbotson has done studies that show that adding 20% for REITS with a lower allocation to stocks & bonds added to returns and reduced portfolio volatility, for instance.
Petey
Petey, Zorba;
Not sure if you guys have ever looked at getting a mean variance optimizer and running lots of studies to find 'efficient frontier' for blends of assets you find in the range you could stomach, but it may be worthwhile. I did this with my DFA advisor a few years back, and we kept running different tweaks until we got a perfect soup.
Only other thing about any of these historical studies is they get skewed by history so the outstanding asset classes show up being overly big in explaining the success of recent portfolios, leading everyone to pile into possibly inflated asset classes. You could try to solve this by using really long historical series, but then you run into the problem that there are simply no long historical series for many of the more interesting (less correlated) asset classes. Sort of a pickle.
But Zorba ( I know you are not the troll) you are tight to be asking pointed questions about asset allocation, both for return, for volatility and for standing up to an SWR.
My intuition is that, if expected return is the same, lower volatility portfolios stand up to the steady withdrawals better than high-volatility ones (anybody know different please let me know). Got to also have an expected return of at least SWR + inflation + fees. This thing can't work with an all-bond portfolio yielding 5%.
Also, if it were possible to have an extra 1% of headway, it makes steering easier (in a boat, and I think in a long run SWR). In other words, don't plan to just land at stationary-in-real-terms targets, since the future is long, living standards rise, inflation could notch up, who knows what kind of bad stuff can happen. If you have an extra hpercent or so on your side, it can cover a lot of errors in the assumptions going forward.
My portfolio historically (20 years) returns 9.5% with Standard Deviaition around 7%. 60% SP500, 40% Treasuries returned 8.5% with S.D. of 9.2%, not a lot worse, and a heckuvalot easier to manage. For me, slicing it up (16 asset classes, fees under .4%) is fun and frankly makes me feel safer to have eggs more spread around, but you could probably do as well from the SWR survival p.o.v., at least within the limits of peering into the fog of the future, with a pretty simple diversification strategy..
Here is a portfolio and that comes pretty close to matching the asset allocation I use, all available out of Vanguard , 8 funds plus a money market:
30.0% VWELX Vanguard Wellington
4.0% VMMXX Vanguard Prime MM
5.0% VGSIX Vanguard REIT Index
20.0% VBIIX VG Intmdt. Bond Index
11.0% BEGBX Am Cent Foreign Bond
8.5% VTMSX Vanguard TM Small
5.5% VGTSX Vanguard Total Intl Index
10.0% VINEX Vanguard International Explorer
6.0% VEIEX Vanguard Emerging Markets Idx
Lacks just four other asset classes I own:
High Yield, Commodities, (easy to get with funds), private equity and market neutral hedge fund (harder to get without fees or legwork)
Haven't run all the numbers, but I think it would come in, in terms of yield and volatility, somewhere around 9% average return, and 8% standard deviation, with enough diversification to let you sleep well, low enough volatiliity to safely support a 4-4.5% swr, fees around .35%. Rebalance once a year, spend your time out fishing or figuring out what you like to do with your life and then doing it.
