Balanced Portfolio for Retirement

Fund SYMBOL 2000 2001 Through 
Return 9/20/00 Return
 
Total Bond VBMFX 11.39 8.43%
Total Stock Market VTSMX -10.57% -20.70%

Here is an example of a 50:50 portfolio with rebalancing: Start with $1,000,000 allocated 50:50 between VTSMX:VBMFX on 12/31/99:

$500,000 x (1-.1057) = $447,150
$500,000 x (1+.1139) = $556,950

Rebalance to 50:50 on 1/1/01

$502,050 x (1-.2070) = $398,126
$502,050 x (1+.0843) = $544,372

Thus after 21 months your $1M portfolio is down a mere 5.7% in a horrid bear market! Losing 5.75% over 21 months in a total portfolio that is paying you enough income to live AND suffered through one of the worst bear markets on record short of the "Great Depression" is not worth losing sleep over.

In Conclusion

The conclusion is simple: "Go balanced and forget about the salesmen on the TV and Radio selling your market timing schemes."

This balanced portfolio calculation should give a CLEAR EXAMPLE of why I don't approve of market timing. IF you want to have a bit of fun, then by all means take a small percentage of this portfolio and "explore" where you can try to beat the core portfolio, but keep a core portfolio that you don't touch.

More Reading

I consider these articles must reads:

1. Asset Allocation and Diversification
2. Using Asset Allocation to make money in a Flat Market
3. Asset Allocation Review shows how asset allocation smoothes portfolio returns.

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DISCLAIMER: Answers & my words are general in nature, are not meant as specific investment advice, and do not necessarily represent the opinion of anyone but Kirk. Individuals should consult with their own advisors for specific investment advice.

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