- The standard 60% stocks, 40% bonds allocation is extremely dangerous as bonds and stocks move together more often than not.
- If something is overvalued, it doesn’t mean you should immediately invest in something that looks undervalued as it might just be less overvalued. If you think as a business owner would, it’s easy to know whether an asset is over or under valued.
- Yearly rebalancing has the same effect as quarterly rebalancing, therefore it’s more time effective.
The Usual Stocks, Bonds 60/40 Rebalancing
I hate when I see fixed rules in how a person should approach a portfolio, and find the 60/40 rule—that says you should hold 60% of your portfolio in stocks and 40% in bonds—the dumbest of all because there is no causality between stock and bond prices.
The investing 101 theory says that stocks do well in economic booms while bonds do well in recessions. However, the correlation between stocks and bonds has been very variegated in the past. More →