What is your "sweet spot'

[Greenroller]

Curious as to what what your sweet spot (ratio of) is in regards to stock/bonds? And why? Do you keep that ratio long term or change it up? What do you base it on?

[P0IS0N]

In my case, % of bonds = Age - 10. The rest is stocks.

[redcedar]

I have an argument with myself 2-3 times a year on diversification. Tons of research and sound advice say that I should have a higher % in bonds. I disagree for a few reasons:

• I hope to live to see 90 so my timeline is many many decades out
• I feel that I am an aggressive investor
• I have stayed the course for decades during many a downturn so a reduction in volatility has to be very large for me to feel the benefit of a higher % in bonds
• When rates are very low, I prefer to have more in cash equivalents to use in downturns to buy more stock funds
• I just don't like bond funds like I like stock funds. Fees, even in an index, are higher as a %. Maturity and duration are out of your control. I am considering buying actual bonds in the future.

Recommended sweet spot for me probably something like 65% stocks and 35% bonds.
I have historically been about 80% stocks, 10% bonds and 10% cash.
I am currently 85% stocks, 10% bonds, and 5% cash.
*Investment accounts. I am not counting emergency cash saving amount.

[AdrianC]

Assuming we're talking about something like the Vanguard Total Bond Market fund (BND).

Bonds never made sense to me. I wanted to get to FI as quickly as possible, stocks historically return more than bonds, why would I be in bonds?

According to Vanguard: BND is "Appropriate for diversifying the risks of stocks in a portfolio". I have real estate and cash for that.

But, as John Bogle likes to write, don't take my word for it:

Buffett, May 2015:

"Stocks are cheaper than bonds".

"I think that bonds are very overvalued, put it that way".

http://www.cnbc.com/2015/05/04/

[bacchi]

5% bonds currently. Allocation will increase to 10% after next year's ER.

[Kaspian]

I go high on bonds.  ...To the exact ratio Bogle's been spouting about for years.  Why?  Because I'm not smarter than him.

[LAGuy]

Bonds never made sense to me. I wanted to get to FI as quickly as possible, stocks historically return more than bonds, why would I be in bonds?

This has always been my take as well.

I saw this article over at Yahoo today. Kind of your standard bond breakdown article, but I liked the money quote at the end.

http://finance.yahoo.com/news/bonds-are-boring--but-should-you-own-them-162738219.html

“If you’re going to lock your money away for 5, 10 or 20 years, why do you want to be in credit over equity? The return per unit of risk on units of risky bonds versus safe bonds over long periods of time is not worthwhile…You’re better off in equities.”

[trailrated]

80/20 for me with re-balancing once it is 8% off.

[steveo]

I go high on bonds.  ...To the exact ratio Bogle's been spouting about for years.  Why?  Because I'm not smarter than him.

I love these comments. I always think it shows who the real smart one is.

[RFAAOATB]

For myself I am 100% stock ETF -- one fund per account usually tracking S&P 500.  Instead of bonds I get my guaranteed low interest return on paying my mortgage ahead of schedule. 

For other people, I bought my God-kids I bonds from treasury direct.  I'm guessing they are better than EE bonds.

As a followup question-- I've been hearing about REITs and am wondering if they should be added to the mix.  How much of a slice do they deserve and what makes them sexy compared to stocks?

[thedayisbrave]

As a followup question-- I've been hearing about REITs and am wondering if they should be added to the mix.  How much of a slice do they deserve and what makes them sexy compared to stocks?

REITs are not a bond, nor do they act bond-like.  They are stocks, and there are two different types of REITs: equity REITs (they own physical properties) and mortgage REITs (they own debt - mortgages).  Owning REITs is definitely a subjective decision, but they tend to throw off higher income as in order to avoid being taxed a partnership, at least 90% of their income has to be passed on to the stockholder.  Thus, they should really only be held in tax-advantaged (401K, IRA) accounts - ideally in a Roth IRA as they provide both income + growth.

Personally, 10% of my stock allocation are REITs.  YMMV.

[LAGuy]

REIT's are also already a component of the S&P 500, so keep that in mind if you choose to pick some (more) up.

For me, I don't really bother with that much extra complication and stick to my total market indexes, but I know some people like to goose their portfolios one way or the other by adding a bit of say, small cap, to their main total market fund holding. I do hold a bit more international right now, though (40%), as I believe there's some value to be had there.

[david51]

stocks 100%/never had a bond in my life

[dmn]

I am still very young, so 100% stocks for now. When I get closer to FIRE, I will add bonds to the mix. During FIRE, I aim for something like 80/20 in stocks/bonds.

However, I am somewhat flexible in that I would increase the bond allocation if bond yields should increase to the level of stocks earnings yields.