Based on thinking and discussion in this thread, the following are my updated retirement allocation guidelines in order of importance:
1. At least 50% of portfolio should be stocks.
2. Not more than 50% of portfolio should be US stocks.
3. At least 10% but not more than 40% should be bonds.
Those are the ones I think are most important. If you stray from those ranges, I think you are taking some combination of a lot of unnecessary extra risk and/or greatly lowering expected returns.
Some people argue that bonds will only drag you down in the end. I think there is a 90% chance those people are correct, which I why I think at least 10% bonds is a good idea. Additionally, most backtests for bonds are very simple because that is the only option. If you expand "bonds" to include FDIC certificates of deposit, I-bonds, longer term bonds, or even gold bullion (this seems a lot like the long term bonds issued in many parts of the world now, even the US) you can probably come up with something that has a better chance of being useful in more situations. Take the CD's for example. If you redid the backtests using CD's with a 1% higher yield than treasury bonds, that would have shown bonds to be a lot more useful.
Upgraded aspects of my OP which I still agree with but don't feel are as critical now:
- The optimum allocation seems to be in the area of 45% US stocks, 30% International stocks, and 25% bonds, plus or minus 10% to each. The optimum 3:2 ratio of US to international was fairly persistent.
- If you want a higher ending $$$ value similar to 100% stocks, do not eliminate bonds. Instead, keep the bond allocation and take more risk on the stock side by including, for example, more emerging markets stocks, small cap stocks, and value stocks in accordance with the first three guidelines. If stocks generally have higher returns than bonds because they have more risk, then riskier areas of the stock market should also continue to have higher returns, though to a lesser degree.
- Use
https://portfoliocharts.com/portfolio/financial-independence/ to make sure your portfolio supported at least a 3.7% sustainable past withdrawal rate.