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Is the 60/40 Balanced Portfolio Model Broken?

August 27, 2024 By E.J. Smith - Your Survival Guy

By vinzstudio @ Adobe Stock

You may have read the recent WSJ article on the perils of the 60/40 portfolio model, where 60% is stocks and 40% is bonds. Don’t believe it. Because what the article fails to mention is the arithmetic of losses and the emotionalism of investing. But first, let’s get into your spending habits.

Spending is one of the more difficult tasks an investor faces, and if interest rates decline, it doesn’t make it any easier to do. One exercise you want to do is to keep track of your spending. Understand your monthly, yearly, and three-to-five-year costs. This is not rocket science; it just gives you a better feel of what you spend money on, and yet it can also be a moving target.

Back to the WSJ article for a minute. What the article doesn’t get into is how long-term investors like Warren Buffett can hold 90% of their assets in stocks. News flash: WB’s 10% in cash or bonds is larger than the entire portfolio of the one percent of the one percent. He’s got some wiggle room. But for Main Street investors, it’s the anchor to windward of bonds that helps them get through disastrous stock corrections.

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As Ben Graham advised, investors should have a 70-30 mix of stocks-bonds or somewhere in between, but not less. Because when stocks fall, someone is selling and putting downward pressure on prices. But if you have income coming in from dividends and interest, you may be able to ride out the storm better than the investor who owns 90% in stocks.

Action Line: Remember the emotional side of price declines in stocks can make investors uneasy and create momentum in the wrong direction. A balanced portfolio can help weather the ups and downs of stocks. When you want help building a balanced portfolio, I’m here. In the meantime, click here to subscribe to my free monthly Survive & Thrive letter.

Originally posted on Your Survival Guy.

If you’re willing to fight for Main Street America, click here to sign up for the Richardcyoung.com free weekly email.

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E.J. Smith - Your Survival Guy
E.J. Smith - Your Survival Guy
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998.

E.J. has trained at Sig Sauer Academy in Epping, NH, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention.

E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris.

Please get in touch with E.J. at ejsmith@yoursurvivalguy.com

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