Does it make that much difference?
From Oct 2007 to Mar 2009, the S&P dropped more than 55% (down to 45 cents on the dollar), while BND (VG total bond index) was roughly flat. A 50/50 portfolio would be down to 72.5 cents on the dollar, while the 45/55 portfolio was 75.3 cents.
If we look at one of the worse corrections of all time it is bound to be scary.
What is the likelihood that you'd exit the market on time and get back in before the run up?
Is your retirement income limited to a portfolio that doesn't have dividends and interest?
Did they stop SS and pensions during that time?
Dow October 2007 1500
Dow today. 2100
Diff 600 or 40% gain in 9 years
Of course that's just based on price but, what about those dividends? Did you know dividends make up roughly 42 % of market returns. Now for a dividend centric guy like me it is probably 60%... My steady Eddies paid them just fine thank you. People still used electric and talked on the phone (probably calling me complaining about the market). Not as exciting as genetic engineering mind you but wonderful in their consistent dividends.
The total return s&p
2008 -36%
2009 +25%
2010 +15%
2011 + 2%
2012 +16%
2013. +32%
2014 +13%
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
I remember a phone call back then I received from a recently retired colleague in a panic over the market. Despite my suggestion to stay the course She undoubtably sold everything post dip. I don't keep my head in the sand but I don't pretend know when the next credit crisis will occur.
My plan is too live on my SS and portfolio income. The buying opportunity of the credit crisis made it possible.
The geometric average (calculates impact of big losses on capital better then a simple average) for the s&p total returns is roughly 7.5% for the last ten years. I think that's amazing given 2008. What it says also is if portfolio valuation is your concern AA is critical but if income and Long Term sustainability of same it appears equities and the market are better.
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