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> Investing 50/50 in S&P and Bizarro-S&P, substantially improves the amount of return you can access for the same risk. I can see how this would lower the vola

> Investing 50/50 in S&P and Bizarro-S&P, substantially improves the amount of return you can access for the same risk. I can see how this would lower the volatility of your portfolio. But how do you improve the return in this scenario? > This is the same reason that a 60/40 stock-bond portfolio has massively outperformed 100% stocks historically How is this possible? If I invest 100% in stocks, my return after 10 years is higher than 60/40 stock-bond. So why do you say the latter outperforms it?

londons_explore 6y ago
> I can see how this would lower the volatility of your portfolio. But how do you improve the return in this scenario? Leverage. You can translate reduced risk into greater returns by getting loans to invest more.
lultimouomo 6y ago
When the stock crashes, you can sell some bonds, which have not crashed, and buy stock on the cheap. When the stock recovers, you sell some stock and buy bonds. Rinse and repeat. (You don't need to try and time the market for this to work. You can have a threshold so that you rebalance when you deviate from your target allocation more than X%)
- koonsolo 6y ago
  I don't see how this would outperform 100% stocks over 10 years. Or in other words, show me the numbers.
  - Erwin 6y ago
    You can use a site like this to compare: https://portfoliocharts.com/portfolio/total-stock-market/ https://portfoliocharts.com/portfolio/total-stock-market/ versus https://portfoliocharts.com/portfolio/classic-60-40/ https://portfoliocharts.com/portfolio/classic-60-40/ Mixing bonds gives you a slightly higher safe withdrawal rate but you do lose 2 percentage points average yearly returns.
    - koonsolo 6y ago
      Yeah, that's what I thought. So I don't get how it can "outperform" it
  - lultimouomo 6y ago
    Are you asking if it can outperform total stock (it's pretty clear it can) or if it did? According to https://www.justetf.com/en/etf-strategy-builder.html https://www.justetf.com/en/etf-strategy-builder.html (click on "show simulation" and it will show the historical analysis) a 80/20 allocation slightly outperforms total stock over the last 20 years, while having lower volatility at the same time. I did not run the numbers myself. Considering only the last 10 years seems pretty limited, as you are ignoring both the dot-com bust and the 2008 crisis.

londons_explore 6y ago

> I can see how this would lower the volatility of your portfolio. But how do you improve the return in this scenario? Leverage. You can translate reduced risk into greater returns by getting loans to invest more.

lultimouomo 6y ago

When the stock crashes, you can sell some bonds, which have not crashed, and buy stock on the cheap. When the stock recovers, you sell some stock and buy bonds. Rinse and repeat. (You don't need to try and time the market for this to work. You can have a threshold so that you rebalance when you deviate from your target allocation more than X%)

koonsolo 6y ago
I don't see how this would outperform 100% stocks over 10 years. Or in other words, show me the numbers.
- Erwin 6y ago
  You can use a site like this to compare: https://portfoliocharts.com/portfolio/total-stock-market/ https://portfoliocharts.com/portfolio/total-stock-market/ versus https://portfoliocharts.com/portfolio/classic-60-40/ https://portfoliocharts.com/portfolio/classic-60-40/ Mixing bonds gives you a slightly higher safe withdrawal rate but you do lose 2 percentage points average yearly returns.
  - koonsolo 6y ago
    Yeah, that's what I thought. So I don't get how it can "outperform" it
- lultimouomo 6y ago
  Are you asking if it can outperform total stock (it's pretty clear it can) or if it did? According to https://www.justetf.com/en/etf-strategy-builder.html https://www.justetf.com/en/etf-strategy-builder.html (click on "show simulation" and it will show the historical analysis) a 80/20 allocation slightly outperforms total stock over the last 20 years, while having lower volatility at the same time. I did not run the numbers myself. Considering only the last 10 years seems pretty limited, as you are ignoring both the dot-com bust and the 2008 crisis.