Oh, I get that. I guess it never occurred to me to use that kind of arithmetic when looking at portfolio return, either for a year or cumulatively. I simply multiply prior period return by current period return to get cumulative return of a portfolio.
Well, that's mathematically incorrect. Hence my confusion regarding your statements. The real return will be increased if the "ups" are stronger than the "downs." I think this is what Sharpe Ratio and Sortino Ratio are trying to get at, though I have never paid much attention to them. And the fact is that real world value excursions are not centered on zero. If they were, the market would never go up. The history shows stronger ups than downs.
Well there are two flavors of portfolio income, as I tried to point out earlier. Income obtained by selling volatile assets aka equities is indeed risky/SORR. Income obtained by selling less volatile assets like the TIPS we own can finesse the risk during periods of low equity values. In our case we have been very forunate, so our fixed income tranche is probably enough to maintain us for the rest of our lives and never need replenishment. But we can replenish during periods of higher asset values without the necessity/impossibility of calling exact tops. That's what rebalancing is all about.
Of course corporate bonds are correlated to stocks! For that reason, it’s not wise to use mostly corporate bonds to diversify against stock downturns. You need to use bond funds that have a high percentage of govt-backed high quality debt for this purpose.
