Why Not Invest More Heavily In Bond Funds?

[bootyman]

 It seems like the general consensus here is to have a portfolio more allocated to stocks (like 70/30).  My question is why not go more into bonds like 50/50 or higher into bonds?  In my research it seems like the bond funds do nearly as well or better then stocks(especially when you consider timing -- not intentional timing but just luck of when you when you happen to deposit or happen to withdraw) and are far less volatile. 

I put some bond funds on a morningstar graph with the S&P 500 for the last 40 years (which is about what I have until retirement age).  The returns are about the same as the S&P 500 and faaaaar less volatile.  The way I see it investing more heavily in bonds (like 70% or higher in bonds) would save me some mental anguish (watching the volatility), and the returns would be more consistent should the unfortunate event occur that I need to withdraw

[Aphalite]

Because bonds are on a 40 year bull run from the continuous devaluation of the dollar (inflation) and a decreasing interest rate environment. Interest rates can't go any lower (literally) and inflation has been running 2-3% because of low interest rates.

[Dodge]

Over the long term, on average, bonds don't beat inflation as well as stocks.

[Dodge]

Interest rates can't go any lower (literally)

Interest rates definitely can go lower.

[bootyman]

Over the long term, on average, bonds don't beat inflation as well as stocks.

Could you please elaborate on this?  The graph I posted of the last 40 years shows bonds on par with stocks.  Perhaps I am missing something?

[Dodge]

Over the long term, on average, bonds don't beat inflation as well as stocks.

Could you please elaborate on this?  The graph I posted of the last 40 years shows bonds on par with stocks.  Perhaps I am missing something?

You're looking at a single 40 year period.  Look at this long-term chart and you'll see it doesn't always work out that way:



Compared to the S&P 500 (also inflation adjusted) over the same period:

[wtjbatman]

Could you please elaborate on this?  The graph I posted of the last 40 years shows bonds on par with stocks.  Perhaps I am missing something?

Bonds look great from the early 80's to the mid 00's. No doubt about it. That was the start and end of a massive bond bull market. So if you were incredibly lucky and went 50/50 starting in the early 80's, you've done pretty well for yourself overall!

I got another one for you. Over the last 10 years, Vanguard's Total Bond index has returned 4.5% annually. Over the same time period, Vanguard's Total Stock Market index has returned 8.2% annually. Looks like stocks return twice as much as bonds, time to go 100% stocks!

[Aphalite]

Interest rates definitely can go lower.

I think we're talking about two different things, I'm talking about treasury yields:
http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

Although I suppose 30 year rates could go from 2% to zero. My point is inflation is already outpacing interest rates - even if you assume inflation is 1%, the one year rate is .2

[TreeTired]

I'm talking about treasury yields:

I used to consider zero as the lower boundary for interest rates,  but after watching first inflation protected Treasury rates go significantly negative,  and now Swiss bond rates turn negative out to 10 yrs (!!!)   I can no longer feel so sure that US Treasury rates stop at a nominal zero rate.

[TreeTired]

Kind of scary, actually.

[RapmasterD]

http://www.vanguard.com/us/insights/saving-investing/model-portfolio-allocations