![]() ![]() Note, however, that the annual returns are not as disparate when you risk-adjust the returns when you take the standard deviation into account. From our historical results above, this compares to 9.1% and 9.3%, respectively.įuture expected returns are lower for a modern 50/50 portfolio than historical returns. (A Modern Portfolio with a conservative 50/50 Asset Allocation)įirst, note the annual return of 6.9% and standard deviation of 8.8% in the bottom right corner of figure 1. Let’s look at one version of the modern portfolio and see what a conservative 50/50 portfolio looks like. There are many ways to skin a cat and allocate your assets. Today’s 50/50 asset allocation likely includes the modern portfolio theory. History is nice to understand, lest we repeat it. The historical numbers above are based on the S&P 500 and treasury bonds. Modern Portfolio and 50/50 Portfolio Historical Returns Note how these returns compare to the other listed portfolios. Since 1970, a 50/50 portfolio had a 3-year return of -6.8% and a 5-year return of -2.1%. ![]() ![]() Worst 36- and 60-Month Annualized Returnsįinally, note the worst 3- and 5- year periods. Maybe that is a consideration for when to be greedy (when others are fearful) during corrections. But, again, after a dreadful six months, the market does not go down much more after that. Again, the worst drawdown is the percentage decrease from the top of the market to the bottom. Look now at the bottom of the figure next. On average, it doesn’t get much worse after a terrible six months. Note how similar the worst 6- and 12-month returns are. You can look at these numbers yourself to compare the different asset allocations. Are you surprised that the difference isn’t more significant? Worst 3-, 6-, and 12-Month Return This compares to 9.7% for 70/30 historical portfolio returns and 8.5% for a 30/70 portfolio historical returns. The annualized return (since 1970) for a 50/50 portfolio is 9.1%. Our least aggressive asset allocation (30/70) avoided 2 of the five negative years, but both the 50/50 and the 70/30 suffered from negative returns in all 5 of the years. Note that there are 5 of 18 years when equities had negative returns.Ī 100% treasury portfolio avoided all of those negative years but had a year (2013) with negative returns. Also, most of us can remember this time well, so recency bias is substantial given the two significant recessions in this short period. This is a great way to study expected future comparative returns of a 50/50 portfolio and less and more aggressive asset allocations. In the middle, asset allocations are 30/70, 50/50, and 70/30. We start with 0% equities (100% treasury bills) on the left and end with 100% equities (S&P 500) on the right. In addition, see the annualized returns, standard deviations, the worst 3-, 6-, and 12-month returns, and the worst drawdowns. See the top of the figure with returns since 2000. (50/50 Asset Allocation recent returns, annualized return, and worst drawdown) We can compare this to 0% and 100% equities and 30/70 and 70/30 portfolios. If you are going conservative- de-risking-then a 50/50 portfolio is an excellent place to start. Look at recent history and see how a 50/50 asset allocation performs. While there are many ways to mitigate sequence of returns risk, one tried and true method is to make your asset allocation more conservative. In brief, if you are drawing down on a portfolio with negative equity returns, there is a good chance of running out of assets in your retirement. Please click the links if you need a definition for Sequence of Return Risk or for Asset Allocation. This is for moderately advanced investors. Is it time to invest conservatively, given the historical returns of different asset allocations? Let’s start by discussing just what asset allocation means to you. If retiring in the next 5-10 years, you need to mitigate Sequence of Return Risk by de-risking. That’s a good place to start when talking about conservative investing in retirement. If you are retiring soon, you might wonder: how conservatively should I invest? What asset allocation should you have given sequence of return risk?įirst, let’s look at a 50/50 portfolio’s historical returns. How to Invest Conservatively for Retirement ![]()
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