Friday, October 25, 2019

Short Takes: 60/40 Portfolio Dead, Asset Allocation ETFs, and more

I managed only one post in the past two weeks:

Time to Change Credit Cards

Here are some short takes and some weekend reading:

A Wealth of Common Sense wrote a tongue-in-cheek eulogy for the 60/40 portfolio after yet another declaration that it’s dead, this time from Bank of America. The eulogy is entertaining, and observes that “60/40 finished out its life strong, returning an astonishing 10.2% per year from 1980-2018 with just 5 down years over the past 39 years.” Some may hope for a repeat performance in the coming decades. However, in the last 39 years, U.S. interest rates dropped from about 20% to 2%. A repeat drop would get us to an absurd minus 16%. Lest you think I’m on the side declaring the 60/40 portfolio dead, the last 39 years saw the cyclically-adjusted price-earnings ratio of U.S. stocks roughly triple. It’s hard to see how it could triple again. Choosing a 60/40 portfolio is sensible enough – just don’t count on a repeat of the last 4 decades of returns.

Justin Bender just started the Canadian Portfolio Manager Podcast with a show about asset allocation ETFs. In addition to useful information, I enjoyed the sound clips he interjects into his explanations.

The Financial Independence Hub reprinted an article of mine about how fast to expect your portfolio to shrink in retirement. Some of this article was used by Jonathan Chevreau in a piece on the same subject.

Allan Norman answers a question about whether or not to take a lump-sum pension buyout. The answer is quite sensible as far as it goes, but it seems bizarre to discuss this subject without mentioning longevity risk. The biggest value of a defined-benefit pension is that it keeps paying even if you live much longer than expected. It’s very expensive to get the same level of protection investing on your own.

The Blunt Bean Counter details the steps you need to take when your spouse dies before you do. Few of the tasks are very difficult, but it’s not easy to remember them all at such a difficult time without a list.

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