Error message

Deprecated function: mysql_connect(): The mysql extension is deprecated and will be removed in the future: use mysqli or PDO instead in include() (line 40 of /var/www/upgraderfunds/htdocs/sites/default/

4 Secrets to Finding the Right Balance

How we allocate our portfolios to stocks and bonds matters. Our asset allocation isn’t only about stocks and bonds, it’s about how we try to balance our need to fund long-term investment goals and counter inflation with our desire to manage risk and participate in potential market gains.

We looked back at how stocks, bonds and a balanced portfolio that was 60% stocks and 40% bonds, as measured by the S&P 500 and Barclays Aggregate Bond Indexes, performed over every rolling 10-year period since 1925. (Rolling time periods offer a comprehensive picture of many different outcomes, regardless of when investors happened to start investing.) And we found that a balanced portfolio may help you balance your long-term needs and goals.

10-Year Rolling Returns:
1925-2013 Stocks vs. Bonds vs. Balanced 60%/40%

1.Staying Invested
A balanced portfolio may help you stay invested long enough to reach your goals.

Many of us invest in order to fund long-term goals, like retirement. But it can be difficult to stay invested  long term. In an attempt to benefit from up markets and avoid downturns, some investors add money to stocks near market highs and pulling money out of stocks during market lows – effectively buying high and selling low.

A portfolio that holds both stocks and bonds may be able to help us stay invested through the market’s inevitable ups and downs. Over the 10-year rolling periods since 1925, a balanced portfolio lost less than stocks in down markets, and it had better average returns than bonds. This may help us stay invested long enough to reach our goals.

2. Consider the Impact of Inflation
A balanced portfolio frequently beat inflation.

Inflation erodes our purchasing power over time and this can hinder our ability to fund our long-term goals. To counter inflation, we need our investments to outperform inflation.

In our study, we found a balanced portfolio beat inflation in almost every 10-year period since 1925. Out of the thousands of rolling 10-year time periods, there were just two periods when inflation beat a balanced portfolio.

3. Take Risk into Account
Like bonds, a balanced portfolio never had a negative 10-year period since 1925.

In order to stay invested, we need to manage risk. Stocks had higher average returns over the rolling 10-year periods since 1925, but stocks were also volatile. Returns ranged from a high of 21.43% to a low of -4.95%. Investors may not be able to stay invested in a portfolio that lost -4.95% over a 10-year period.  

The balanced portfolio never lost money over any of these rolling 10-year time periods, and it had a narrower range of returns than stocks, meaning its returns were somewhat more predictable. (Bonds also never lost money over these 10-year periods, but they had lower average returns than the balanced portfolio.)

4. Participate through Market Cycles
A balanced portfolio has been effective over many market cycles.

Markets change, and we want to be able to participate in different market cycles. A 60%/40% portfolio has been effective in many kinds of market environments.

Since 1925, there have been periods of high inflation and low inflation; there have been bull and bear market conditions and periods of higher and lower interest rates.

Performance of the S&P 500, Barclays Aggregate Bond Indexes and standardized performance can be found here: Standardized Performance. Index performance is not indicative of fund performance. One cannot invest directly in an index. Past performance does not guarantee future results.

Publication Date: