Hm, after reading more on the 3 fund idea on bogleheads, how do you guys feel about it, if you use it? I forgot the thread since I read a few, but someone pointed out that they wanted a 50/50 split because they are in the US so they wanted half their stocks in home country. But someone pointed out that if they were in the UK, would they insist on having a 50 UK/50 world split? It didn't seem to get answered, but it brought my attention to why do I want US stocks at all in this case? If the world market has US stocks as well, wouldn't a 2 fund portfolio of World stocks + bonds be better? I'm still trying to decide if I want dividends vs bonds for stability though. This is something I'll research more into.
I also just don't know "why" bonds are more stable than stocks? I understand stocks are volatile by nature, but a government/company that issues bonds has to be on good standing to be trusted. If I bought that company's stock, if it goes bankrupt, the bond would go up in smokes too right? While I understand governments don't go under as easily, with local ones filing bankruptcy, are they still "stable"? Since a national government will do what it can to save it's stock market, I don't see a stock market going broke any more than if a government went under. But yes, I could see losing half my stock's value if I didn't hold bonds... but if the stock market fell 50%, I'd still have 50% left. If I had a 50 stock/50 bond ratio, the drop would mean I only lose 25% assuming the bonds didn't change at all (which would as well), I'd have 75% of the investment instead of 50%. But does 25% difference mean a lot to me? At my current level, 25% would mean about $18k difference. Since I'm holding that much as emergency cash, I fail to see myself needing that 25% "safety" net. Unless the stock market is going to be down for another decade that is... And even then, I'm holding down a job and not relying on the bonds to contribute to my income.