'60/40' portfolios are facing worst returns in 100 years: Bank of America

[Big_Hitter]

I was reminded to look at my wife's 401k Stable Value Fund.

For the last 2 weeks, it paid 4.6% annualized. It's better than I would expect.

the benchmark for that fund is likely 90 day tbills - about a year ago I rebalanced with half to the trowe stable value fund and half to various equity index funds. I don't think I'll rebalance my k plan this year LOL

that's also one huge reason NOT to rollover monies from a k plan with a stable value fund - those are almost always institutional

 

[copyright1997reloaded]

I was reminded to look at my wife's 401k Stable Value Fund.

For the last 2 weeks, it paid 4.6% annualized. It's better than I would expect.

Wow, that is super good. (almost too good?)

My ex-Mega corp stable value fund with over $9 billion in assets is currently doing about 2.5% annualized. It has traditionally and consistently done better than the Morningstar US CIT Stable Value Index.

Are you sure of those numbers? I am tracking mine every day (for the last month or so), watching it edge up from 2.3% (7/1) to 2.44% (8/1) to 2.45% (9/1) to 2.5% (as of yesterday).

 

[Big_Hitter]

Wow, that is super good. (almost too good?)

My ex-Mega corp stable value fund with over $9 billion in assets is currently doing about 2.5% annualized. It has traditionally and consistently done better than the Morningstar US CIT Stable Value Index.

Are you sure of those numbers? I am tracking mine every day (for the last month or so), watching it edge up from 2.3% (7/1) to 2.44% (8/1) to 2.45% (9/1) to 2.5% (as of yesterday).

no, those are what I would expect - the benchmark for that fund is likely 90 day tbills they had better beat that LOL

https://nb.fidelity.com/public/workplacefunds/summary/OACY#

 

[NW-Bound]

the benchmark for that fund is likely 90 day tbills - about a year ago I rebalanced with half to the trowe stable value fund and half to various equity index funds. I don't think I'll rebalance my k plan this year LOL

that's also one huge reason NOT to rollover monies from a k plan with a stable value fund - those are almost always institutional

When my wife rolled out her 401k to an IRA, she left behind the money in Stable Value Fund. I always wanted to have some cash in the AA, and that works out well.

Wow, that is super good. (almost too good?)

My ex-Mega corp stable value fund with over $9 billion in assets is currently doing about 2.5% annualized. It has traditionally and consistently done better than the Morningstar US CIT Stable Value Index.

Are you sure of those numbers? I am tracking mine every day (for the last month or so), watching it edge up from 2.3% (7/1) to 2.44% (8/1) to 2.45% (9/1) to 2.5% (as of yesterday).

My wife's 401k along with some of our accounts has no Quicken connection.

What I just did was to log into her account, looked up the quarterly statement showing the balance on 9/30, then the current balance as of 10/19. Compute the difference over 19 days, then annualize it. Got 4.565%. Checked my calculations twice.

I also looked at the balance on the 2021 year end statement. Gain YTD: 3.99%.

For kicks, I looked up 2020 year end statement. Gain in 2021: 4.99%.

Triple-checked my calculations.

How do they do it? Beats me. Their Web site does not even list the SEC yield. I computed these numbers myself, using the balance from account statements.

By the way, my wife's former employer is one of the Dow 30. The 401k is managed by an outside financial company. I hope it's not a Madoff spin off.

 

[NW-Bound]

... high levels of inflation has disastrous effects on capital allocation in an economy and societal impacts.

High inflation causes serious damages due to its compounding effects.

Let's say inflation runs 9% for 5 years. You draw 6% interest, but manage to live on just 2/3 of the income, or 4%, on consumables. Your house is paid for. In 5 years, things cost 1.54x more. Instead of spending $4, you now spend $6.15 at the end of the 5-year period.

If inflation stays high, you have negative cash flow after the initial years. Even if you have an initial margin, persistent inflation will eat into it, then some more.

 

[daylatedollarshort]

As politely as I can say this:
1) It is not all about you.
2) I am well aware of who the "winners' are in inflation, and was long aware of it before any of the articles you mention. With inflation, owners of real things and debtors with fixed rate debt are examples of "winners".

What I am trying to get across to you (unsuccessfully I guess as you keep repeating things about your personal situation and needless article references) is that high levels of inflation has disastrous effects on capital allocation in an economy and societal impacts. There were "winners" in the Weimar republic - at least until the society got so desperate they turned to a lunatic.

But do go on about how inflation makes you a winner and thus it is a good thing and "gets a bad rap".

p.s. my math skills and logical reasoning skills are pretty good, even at my older age. Perhaps not as good as my near perfect math SAT score, or my college grades, or my three patents in computer science...but still I do "personally understand the math".

Your earlier post stated, "One more time - if the inflation beast isn't tamped down soon, almost all will be losers, not winners.

History has shown this over and over.

Now you might just be that special one in a hundred that magically has no "personal" inflation, that magic low rate massive fixed mortgage, and living high on the hog as a result of rampid inflation. Some people in the Weimer republic did well even as the German people got wiped out.

However, the net result of that (hyperinflation) and in many other places (including just bad inflation) like Argentina, the French Revolution, during our own revolutionary era, during the civil war, Greece, Yugoslavia, Zimbabwe and Hungary...the results for the vast majority were not good.

So keep fooling telling yourself that it is a positive thing."

I'm not a special 1 in a 100. Inflation is advantageous to people with low rate mortgages and many others, including those who hold real estate. That include millions of people right there. Not almost everyone will be losers as you stated. That is untrue. The Khan article explained that. I never said it was all about me. I said I came out ahead with high inflation which is true. I didn't say inflation was a good event for everyone. I said there were winners and losers with inflation, which is true. The math of inflation holds true regardless of your SAT scores.


ETA: The Fed is raising interest rates monthly and has said they will continue to do so until inflation is at their 2% target. We are much more likely headed for a recession than hyperinflation.

 

[daylatedollarshort]

High inflation causes serious damages due to its compounding effects.

Let's say inflation runs 9% for 5 years. You draw 6% interest, but manage to live on just 2/3 of the income, or 4%, on consumables. Your house is paid for. In 5 years, things cost 1.54x more. Instead of spending $4, you now spend $6.15 at the end of the 5-year period.

If inflation stays high, you have negative cash flow after the initial years. Even if you have an initial margin, persistent inflation will eat into it, then some more.

What if inflation was 9% and your interest was 15%? For investors, isn't the real return more important than the inflation rate?

 

[Big_Hitter]

When my wife rolled out her 401k to an IRA, she left behind the money in Stable Value Fund. I always wanted to have some cash in the AA, and that works out well.

smart move

 

[NW-Bound]

What if inflation was 9% and your interest was 15%? For investors, isn't the real return more important than the inflation rate?

It would be nice to beat inflation by 6%. All problems solved. I am still looking for a way to earn that much.

In the past, it was easier to find investment returns of 8% when inflation was 2%. When inflation gets to double-digit, businesses start failing, people start to get laid-off. It's misery galore.

 

[Koolau]

Most of us are buying bonds to hold to maturity, including buying the bonds the funds are selling at a loss because they are forced to sell them early because of redemptions or their own fund rules.

Last time I bought individual bonds was a long time ago - and they all got called! YMMV

 

[daylatedollarshort]

Last time I bought individual bonds was a long time ago - and they all got called! YMMV

Okay, but I'm not sure what your point is in the context of this thread. Callable bonds still get redeemed at face value or more, and you know about the call risk part when you buy the bond: Callable or Redeemable Bonds | Investor.gov. - "When an issuer calls its bonds, it pays investors the call price (usually the face value of the bonds) together with accrued interest to date and, at that point, stops making interest payments. Sometimes a call premium is also paid. "

 

[Koolau]

Okay, but I'm not sure what your point is in the context of this thread. Callable bonds still get redeemed at face value or more, and you know about the call risk part when you buy the bond: Callable or Redeemable Bonds | Investor.gov. - "When an issuer calls its bonds, it pays investors the call price (usually the face value of the bonds) together with accrued interest to date and, at that point, stops making interest payments. Sometimes a call premium is also paid. "

All true. Just one more reason why I no longer buy individual bonds. Not a recommendation, just my thing so YMMV.

 

[Chuckanut]

An article in today's WSJ (01/07/23) by Jason Zweig suggests that for some people the 60/40 stategy may offer a great opportunity going forward. The article must be read completely, IMHO. From what I can tell it pertains more to people still in the accumulation stage and far less to older people in the draw-down state.

https://www.wsj.com/articles/asset-allocation-60-40-portfolio-11673020720?page=1

Again, a paywall is in place, so I will offer some selective quotes that I hope are balanced. But, IMO, the article should be read entirely. Also, note that the author is talking about actual bonds not bond funds. I only one the word 'fund' once and that was referring to a value stock funds.

Historically, the minority position in bonds provided the ballast for a 60/40 portfolio if the majority stake in stocks took a hit.
Last year, though, bonds lost 13%, with long-term Treasurys slumping more than 29%—far worse than the 18% fall in the S&P 500.

That may sound like cold comfort if you just got creamed, and if you’re deep in retirement you might not have time to recover. But early retirees and younger investors should regard the recent calamity as an opportunity.

Instead of being ballast for a balanced portfolio, bonds turned into a torpedo. A typical 60/40 portfolio lost about 15% last year; if its bonds were long-term, the losses were even steeper.

We could already be in a radical new era of rising interest rates and raging inflation. The more sensible assumption, though, is that a once-in-a-blue-moon bad year for bonds doesn’t invalidate decades of data showing that, on average, they can effectively diversify the risks of stocks.

One clear caveat: A balanced portfolio of stocks and bonds is “fraught with the opportunity to underperform” again if inflation remains high,

The investment theorist Peter Bernstein, who died in 2009, liked to call 60/40 “the center of gravity” for long-term investors. That’s because, over long periods, its 60% stake in stocks has tended to produce returns not much lower than a 100% position, while the 40% in bonds has usually blunted the sharp declines that stocks deliver along the way.

 

[FREE866]

An article in today's WSJ (01/07/23) by Jason Zweig suggests that for some people the 60/40 stategy may offer a great opportunity going forward. The article must be read completely, IMHO. From what I can tell it pertains more to people still in the accumulation stage and far less to older people in the draw-down state.

https://www.wsj.com/articles/asset-allocation-60-40-portfolio-11673020720?page=1

Again, a paywall is in place, so I will offer some selective quotes that I hope are balanced. But, IMO, the article should be read entirely. Also, note that the author is talking about actual bonds not bond funds. I only one the word 'fund' once and that was referring to a value stock funds.

The last point:


"The investment theorist Peter Bernstein, who died in 2009, liked to call 60/40 “the center of gravity” for long-term investors. That’s because, over long periods, its 60% stake in stocks has tended to produce returns not much lower than a 100% position, while the 40% in bonds has usually blunted the sharp declines that stocks deliver along the way."


Is just blatantly false. A 100% stake in stocks has returned substantially higher returns than a 60/40 portfolio, and by a landslide once you get to 15, 20, 30 year time frames. More volatile? sure, but that's the price you pay for those outstanding returns.

 

[Markola]

Bond index fund prices are up 3.4% since that article was written in October, likely by a broke journalist.

 

[FREE866]

Bond index fund prices are up 3.4% since that article was written in October, likely by a broke journalist.

haha...Zweig I think is an OK journalist, but I hear you.....


All these predictions are just so ridiculous....and that applies to columnists, economists, "strategists" , etc



Nobody knows what the future holds.....

 

[Koolau]

Is just blatantly false. A 100% stake in stocks has returned substantially higher returns than a 60/40 portfolio, and by a landslide once you get to 15, 20, 30 year time frames. More volatile? sure, but that's the price you pay for those outstanding returns.

I think that's probably true - if you don't need to pull from the stash. Set and forget at 100% for 50 years would leave your heirs very wealthy in most cases. Now if you retire at 44 and live to 94 and take 4% then 100% COULD be problematic. I think THAT is where the 60/40 comes from. IOW it's for those who don't necessarily want to maximize their final number but want to reduce their chances of running out of money due to SORR. Obviously, YMMV.