Here Jack Bogle offers insight on asset allocation which can help you become a more successful investor Diversification is the cornerstone of a prudent investment program, but when you diversify, most often something in your portfolio is performing poorly when other assets you own are performing well. Many investors instinctively want to get rid of the under-performing assets and buy more of the assets that are going up. That would of course defeat the purpose of diversification.
As Jack notes here, he is invested about 50% in stocks and 50% in bonds and half the time he worries why he has so much in stocks and the other half of the time he worries why he has so little in stocks.
That’s the nature of diversification.
In a recent podcast with the Wall Street Journal, Vanguard founder Jack Bogle recommended a 50-50 stock/bond split for retirees, but Bogle went further in a May appearance at the Morningstar Investment Conference, discussing a letter he received from a nervous young man about proper asset allocation.
“The young man was talking about all the risks out there — global disease, pandemics, religious war, nuclear war, global warming … He said, ‘I don’t know what will happen. What should I do?’ ‘Look,’ I said, ‘you know as much about risks coming to fruition as I do, but you still should think about your asset allocation and you don’t want to abandon stocks; you just want to get something you can live with comfortably,'” Bogle said. “I’m about 50 percent stocks and 50 percent bonds and I spend half my time worrying about why I have so much in stocks and the other half worrying about why I have so little in stocks.”
“A 50-50 stock/bond allocation is fine, probably if you’re younger a little more aggressive,” Bogle said.
Bogle noted that value investing icon Ben Graham started with 50-50, but that was during an era when bonds yielded 7 percent and stocks only 5 percent. Both yield a lot less now — stocks 2 percent and bonds 2 to 3 percent. “Times are different now. … The answer is not simple. I think it’s better just setting your allocation somewhere between 70-30 and 30-70, maybe averaging 50 and just hanging on. As I’ve said more than once, stay the course.”
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