This pattern of 15 good(ish) years (white portion of the box) followed by 15 years when you had better be a market timer (yellow portion) has worked all the way back to the 1830s.

The next yellow box starts about now.

See chart below!

Stocks

Next 10 to 15 Years

Sub Par Returns or Losses?

DYI’s Opinion?

YES!

%
Stocks & Bonds

Allocation Formula

6-1-2026
Updated Monthly

% Allocation = 100 x (Current PE10 – Avg. PE10 / 4)  ÷  (Avg.PE10 x 2 – Avg. PE10 / 2)]

Formula's answer determines bond allocation.

Current PE10.....42.66

Avg. PE10...........17.38

Core Bond Allocation:  147% 

% Stock Allocation     0% (rounded)
% Bond Allocation  100% (rounded)

Current Asset: Vanguard Short-Term Investment Grade Bond Fund   

Logic behind this approach:

--As the stock market becomes more expensive, a conservative investor's stock allocation should go down. The rationale recognizes the reduced expected future returns for stocks, and the increasing risk. 

--The formula acknowledges the increased likelihood of the market falling from current levels based on historical valuation levels and regression to the mean, rather than from volatility. Many agree this is the key to value investing.  

Please note:  I changed the formula when the Shiller PE10 is trading at it's mean - stocks and bonds will be at 50% - 50% representing Ben Graham's Defensive investor starting point; only deviating from that norm as valuations rise or fall.

Current Allocation:

Vanguard Short Term Investment Grade Bond Fund

Possible Allocations to Bonds vs Stocks:

Bonds %

100%+  Vanguard Short Term Investment Grade Bond Fund 

99% to 65% Wellesley Income Fund

64% to 35% 1/2 Wellesley Income Fund - 1/2 Wellington Fund

34% to 20%  Equity Income Fund

19% to 0%  Vanguard Small-Cap Value Index Fund

  

DYI

This blog site is not a registered financial advisor, broker or securities dealer and The Dividend Yield Investor is not responsible for what you do with your money.

This site strives for the highest standards of accuracy; however ERRORS AND OMISSIONS ARE ACCEPTED!

The Dividend Yield Investor is a blog site for entertainment and educational purposes ONLY.

The Dividend Yield Investor shall not be held liable for any loss and/or damages from the information herein.

Use this site at your own risk.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

The Formula.

A value based allocation strategy

February 19, 2010 by John Kingham

Ben Graham's Corner

 

Bubble

News!

The Bond Vigilantes have returned!

Chart above 30 year Treasury Bond yields.

The Bond Vigilantes are back demanding higher rates to compensate for inflation and the level of U.S. indebtedness!

The 30 Treasury bond has crossed over into the 5% range along with long term investment grade corporate bonds nearing the 6% handle.  At the same time the S&P 500 valuation matrix measured by the Shiller PE spouting massive overvaluation at (as of 7-17-2026) 41.52!

Benjamin Graham stated so eloquently "The danger to investors’ lies in concentrating their purchases in the upper levels of the market..."  To put it more bluntly the chances of having sub par average annual returns (underperforming bonds) for the U.S. stock market (measured by the S&P 500) is substantial. 

Below is Ben Graham’s Corner a monthly publication for this blog.  I’ve updated to todays data highlighting the vast overvaluation of the U.S. market.  

Ben Graham's Corner

Margin of Safety!

Central Concept of Investment for the purchase of Common Stocks.

"The danger to investors lies in concentrating their purchases in the upper levels of the market..."

Stocks compared to bonds:

Earnings Yield Coverage Ratio - [EYC Ratio]

Lump Sum any amount greater than yearly salary.

PE10  .........41.52
Bond Rate....5.59%

EYC Ratio = 1/PE10 x 100 x 1.1 / Bond Rate

2.00+ Stocks on the give-away-table!

1.75+ Safe for large lump sums & DCA

1.30+ Safe for DCA

1.29 or less: Mid-Point - Hold stocks and purchase bonds.

1.00 or less: Sell stocks - Purchase Bonds

0.50 or less:  Stock Market Crash Alert!  

Purchase 30 year Treasury Bonds! 

Current EYC Ratio: 0.47(rounded)

As of  7-17-2026
Updated Monthly

PE10 as report by Multpl.com

Bond Rate is the rate as reported by

Vanguard Long-Term Investment-Grade Fund Investor Shares (VWESX)

DCA is Dollar Cost Averaging.

Lump Sum is any dollar amount greater than one year salary.

Over a ten-year period the typical excess of stock earnings power over bond interest may aggregate 4/3 of the price paid. This figure is sufficient to provide a very real margin of safety--which, under favorable conditions, will prevent or minimize a loss...If the purchases are made at the average level of the market over a span of years, the prices paid should carry with them assurance of an adequate margin of safety.  The danger to investors lies in concentrating their purchases in the upper levels of the market.....

Common Sense Investing:
The Papers of Benjamin Graham   

Financial War Report:

Nearly Half of U.S. Adults under 30 Live With a Parent

Federal Reserve survey found 49% of adults less than 30 years of age have lived with a parent last year, up 12 percentage points from 2019. The driving forces are inflation, housing costs or rents, car payments, student debt, and AI-driven entry-level job cuts. This is a 12-point jump in just 6 years, suggesting household formation could be delayed for a generation.

Action Steps:

Build a one month emergency fund.

Pay off all debts; if going to school cash flow from a job as much as possible.

Put 15% into a Roth IRA (DYI’s favorite Vanguard).  You must start as early as possible building wealth for retirement longer if it is put off will require far more dollars invested to retire.

Build 3 months of pay emergency fund.

Build move out money investing in low volatile funds (Vanguard’s Wellesley Income Fund VWINX or The Permanent Portfolio Fund PRPFX). 

Disclaimer

 

Investing in overvalued markets:

Dollar cost averaging (stocks) from the year January 1995 to December 2009 a 15 year time span results are as follows: 

Before inflation average annual return was 3.80%!

AFTER inflation average annual return 1.17%

Bonds during that same time period return for 100% bond buyer dollar cost averaging annual return was 7.17% and AFTER inflation was 4.69% or 275% greater return than stocks.

Once again were back in overvalued markets easily seen by any valuation based chart for the S&P 500.   

Future returns for stocks bought or held today over the next 10 to 15 years can expect the average annual return between negative 2% to a positive 2% BEFORE inflation.  Along the way expect massive drops in the area of 30% to 50% as the market roller coaster's its journey as economic and financial gravity regress’s valuations back to its mean.

The reason the Always Be Buying (ABB) crowd (S&P 500 index) is now so pervasive is due to recency (looking in the rearview mirror) as stocks have done wonderfully since 2009 with valuations starting BELOW their historical mean (S&P 500 Shiller PE at 15 mean is 17).  Today the Shiller PE is 42.18 average historical mean since 1871 is 17.39 doing a bit of arithmetic (41.43 - 17.39) ÷ 17.39 x 100 = 138.24% above the mean.

Buy and hold stocks at your own risks.  There's a time to hold, a time to fold, and a time to walk away. 

The unloved asset: BONDS

Long term investment quality corporate bonds currently (7-13-2026) yielding 5.95% (Vanguard's VCLT) that is unloved by the S&P 500 passive investing crowd.  Vanguard’s flagship fund the S&P 500 index fund symbol VOO dividend yield is a scant 1.03%!  VCLT bond yield is 478% higher than it counterpart VOO at 1.03%!  Simply put bonds are now unloved as they’ve ever been since 2020!   

Following the 1815 market panic after the Battle of Waterloo, Rothschild’s of France supposedly said, “Buy when there’s blood in the streets, even if the blood is your own.”

Find me a bull for bonds! 

You came up short?? 

Yep; long term bonds are in the dog house but as they say every asset category has its period of fame or shame.  IMO I’ll take the bonds for this cycle lowering my risk while achieving a reasonable return waiting for the next asset category to become gloriously undervalued.

Disclaimer

This blog site is not a registered financial advisor, broker or securities dealer and The Dividend Yield Investor is not responsible for what you do with your money.

This site strives for the highest standards of accuracy; however ERRORS AND OMISSIONS ARE ACCEPTED!

The Dividend Yield Investor is a blog site for entertainment and educational purposes ONLY.

The Dividend Yield Investor shall not be held liable for any loss and/or damages from the information herein.

Use this site at your own risk.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.                

Disclaimer

 Bubble

News!

No matter how anyone measures the U.S. stock market it remains massively overvalued!

Possible returns going forward:  Monies invested today in stocks or held from previous purchase – go to sleep like Rip Van Winkle – waking 10 years from here is your estimated averaged annual return.

Estimated 10yr return on Stocks

5.4% as the historical growth rate of dividends and 4.0% as the ending yield.

Starting Yield*---------return**

1.0%-----------------------(-5.7%) You are here!

1.5%-----------------------(-1.7%)

2.0%------------------------1.3%

2.5%------------------------3.8%

 

3.0%------------------------5.9%

3.5%------------------------7.8%

4.0%------------------------9.4%

4.5%-----------------------10.9%

 

5.0%-----------------------12.3%

5.5%-----------------------13.6%

6.0%-----------------------14.8%

6.5%-----------------------15.9%

 

7.0%-----------------------17.0%

7.5%-----------------------18.0%

8.0%-----------------------19.0%

 

*Starting dividend yield of the S&P 500

**10yr estimated average annual rate of return.

Disclaimer

This blog site is not a registered financial advisor, broker or securities dealer and The Dividend Yield Investor is not responsible for what you do with your money.

This site strives for the highest standards of accuracy; however ERRORS AND OMISSIONS ARE ACCEPTED!

The Dividend Yield Investor is a blog site for entertainment and educational purposes ONLY.

The Dividend Yield Investor shall not be held liable for any loss and/or damages from the information herein.

Use this site at your own risk.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

 How to Use this Blog

Four Uncorrelated Assets

1.)  Stocks

2.)  Long Term High Grade Corporate/Government Bonds

3.)  Short Term Notes (Cash)

4.)  Gold – Precious Metals Mining Companies

Four Assets Correlated to Four Economic Conditions

1.)  Prosperity

2.)  Deflation

3.)  Recession

4.)  Inflation

1.)  Prosperity: Stocks become a clear winner during conditions of increasing employment, rising wages tied to increasing productivity along with rising profits.  Junk bonds (they trade like stocks) are also winners in this environment despite their low quality; the economy is so good interest and principal payments are made – defaults are minimum – and a positive climate for refinancing.  High quality corporate/ government bonds are secondary winners as prosperity is noted for stable or slowly declining rates.  Gold is generally a loser in prosperity as inflation is minimized and investors seek higher returns in more traditional investments.

2.)  Deflation:  Deflation is the decease in the general price level of goods and services.  The Great Depression is a standout example of deflation.  The general cause is when excess debt is built up in the private sector that can no longer be increased and/or maintained resulting in massive bankruptcies.  This creates an environment of panic as businesses scramble to become profitable by firing employees and cutting hours of remaining workers.  In this deflationary episode interest rates decline, prices decline, and the almighty buck rises in value against softer currencies.

Long term high quality corporate bonds and long term U.S. government bonds are winners in this type of economy.  Stocks, gold, and junk bonds generally will fall in price along with interest rates on short term notes.

3.)  Recession:  For DYI's purposes recessions are a period of increasing interest rates engineered by the Federal Reserve in order to quell inflation by slowing down an over heating economy.  This condition is temporary as the economy will either adjust to the new economic environment bringing back prosperity or a deflationary period will begin.

High quality corporate/government bonds, stocks, gold, and junk bonds are all losers in this scenario. Short term notes and money market funds are clear winner as their principal value remains steady plus the interest income improves with increasing interest rates.

4.)  Inflation:  Too much money chasing too few goods.  When Federal government liabilities become onerous from financing of war(s) and/or social programs that are too great to be paid by taxation governments will resort to money creation to pay the remaining costs.  After WWII, Korea, Vietnam and the war on Poverty inflation began slowly prices increased relentlessly (despite high taxes) as government liabilities expanded.  When President Richard Nixon closed the gold window (1971) the last vestige of inflationary controls were removed with inflation peaking in the high teens only until Paul Volker was appointed as Fed Chairman (August 79) who crushed inflation with high interest rates.

Stocks, high quality long term corporate/government bonds, junk bonds are all losers as inflation soars along with interest rate increases (despite the Fed's efforts to suppress them).  Cash (money market funds) or short term notes are neutral or slightly lag inflation rolling up to the higher interest rate quickly.

Gold is a winner when inflation breaks above 5%.  When inflation goes double digit gold is marked up in price to reflect the debasement of the currency.  Gold will also rise in price based upon fear of massive defaults as gold has no counter party risk.

 VALUATIONS DO MATTER

This investment approach is an offshoot of Harry Browne's Permanent Portfolio that maintains a fixed 25% invested in the above four asset categories listed above.  Harry's uncorrelated assets at the time was ground breaking.  Today it is taken for granted.  As much as I was impressed with Harry's work it always made me uncomfortable to always own 25% in each asset. When valuations are at extreme lows a greater percentage is called for and conversely at historical nose bleed levels significantly less (or none).

DYI’s approach working through our four assets and determining with a measure of accuracy the percentage invested depending upon long term valuations.  This is done by calculating our averaging formula for each asset.

If all three assets - gold, stocks, long term bonds, cash is our default position - are at fair or average value then each of the categories will be at 25% of the portfolio just like Browne's Permanent Portfolio.  However as prices move up or down from their respective mean our averaging portfolio will make the adjustment enhancing the overall return.  

Will DYI outperform the market??

Our primary goal is to outperform the Permanent Portfolio first.  Outperform the market?  Maybe? DYI's intentions is a 6% real return - as opposed to Browne's 4% - into your pocket with low volatility as opposed to our fully invested stock market investor.  In closing each of these assets stocks, long term bonds, gold and cash, all have their their moment of fame or shame.  Value players reduce or eliminate the overvalued assets and increase the undervalued; simple as that!     

DYI

 

U.S.

Stocks

18% Foreign Ownership

When the Going gets Tough Hot Money Flees?

 

National Debt

123% Debt to GDP!

The bull market for bond prices rising and interest rates declining that started on 9-30-1981 at the nose bleed level of 15.84% for the 10 year U.S. Treasury bond ended 8-4-2020 at 0.52%!  Since then rates are moving upward in a saw tooth manner.  Please note rates will increase higher during times of economic growth but will decline to HIGHER LOWS during recessions.

Spending by Congress’ and Presidents continue to be out of control for a soon to be 3 decades with zero talk of any kind for fiscal responsibility.  This is forcing the Federal Reserve to monetize (digital printing) an increasing share of the deficits.  The Fed’s balance sheet currently sits with 6.5 trillion dollars of Treasury securities all bought with digital money printing.  If they hadn’t interest rates would be higher chocking off the economy.

There is always trade offs, this money printing is where the vast majority of your price increases are coming from.

The remaining price increases is due to a supply and demand imbalances from high oil prices that is seeping through to all product chains.  Also corporations are increasing prices even higher in anticipation of future inflation to maintain after inflation profit growth...

Till Next time!   

Formula Increased Gold from 28% to 35%...Bonds & Stocks No Change...Cash Dropped from 48% to 41%

 

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 7/1/26

Active Allocation Bands (excluding cash) 0% to 50%

41% - Cash -Short Term Bond Index - VBIRX

35% -Gold- Global Capital Cycles Fund - VGPMX **

 24% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

** Vanguard's Global Capital Cycles Fund maintains 25%+ in precious metal equities the remainder are domestic or international companies they believe will perform well during times of world wide stress or economic declines.  

Margin of Safety!

Central Concept of Investment for the purchase of Common Stocks.

"The danger to investors lies in concentrating their purchases in the upper levels of the market..."

Stocks compared to bonds:

Earnings Yield Coverage Ratio - [EYC Ratio]

Lump Sum any amount greater than yearly salary.

PE10  .........41.72
Bond Rate....5.43%

EYC Ratio = 1/PE10 x 100 x 1.1 / Bond Rate

2.00+ Stocks on the give-away-table!

1.75+ Safe for large lump sums & DCA

1.30+ Safe for DCA

1.29 or less: Mid-Point - Hold stocks and purchase bonds.

1.00 or less: Sell stocks - Purchase Bonds

0.50 or less:  Stock Market Crash Alert!  

Purchase 30 year Treasury Bonds! 

Current EYC Ratio: 0.49(rounded)

As of  7-1-2026
Updated Monthly

PE10 as report by Multpl.com

Bond Rate is the rate as reported by

Vanguard Long-Term Investment-Grade Fund Investor Shares (VWESX)

DCA is Dollar Cost Averaging.

Lump Sum is any dollar amount greater than one year salary.

Over a ten-year period the typical excess of stock earnings power over bond interest may aggregate 4/3 of the price paid. This figure is sufficient to provide a very real margin of safety--which, under favorable conditions, will prevent or minimize a loss...If the purchases are made at the average level of the market over a span of years, the prices paid should carry with them assurance of an adequate margin of safety.  The danger to investors lies in concentrating their purchases in the upper levels of the market.....

Common Sense Investing:
The Papers of Benjamin Graham
Benjamin Graham

%
Stocks & Bonds

Allocation Formula

7-1-2026
Updated Monthly

% Allocation = 100 x (Current PE10 – Avg. PE10 / 4)  ÷  (Avg.PE10 x 2 – Avg. PE10 / 2)]

Formula's answer determines bond allocation.

Current PE10.....41.72

Avg. PE10...........17.39

Core Bond Allocation:  143% 

% Stock Allocation     0% (rounded)
% Bond Allocation  100% (rounded)

Current Asset: Vanguard Short-Term Investment Grade Bond Fund   

Logic behind this approach:

--As the stock market becomes more expensive, a conservative investor's stock allocation should go down. The rationale recognizes the reduced expected future returns for stocks, and the increasing risk. 

--The formula acknowledges the increased likelihood of the market falling from current levels based on historical valuation levels and regression to the mean, rather than from volatility. Many agree this is the key to value investing.  

Please note:  I changed the formula when the Shiller PE10 is trading at it's mean - stocks and bonds will be at 50% - 50% representing Ben Graham's Defensive investor starting point; only deviating from that norm as valuations rise or fall.

Current Allocation:

Vanguard Short Term Investment Grade Bond Fund

Possible Allocations to Bonds vs Stocks:

Bonds %

100%+  Vanguard Short Term Investment Grade Bond Fund 

99% to 65% Wellesley Income Fund

64% to 35% 1/2 Wellesley Income Fund - 1/2 Wellington Fund

34% to 20%  Equity Income Fund

19% to 0%  Vanguard Small-Cap Value Index Fund

  

DYI

This blog site is not a registered financial advisor, broker or securities dealer and The Dividend Yield Investor is not responsible for what you do with your money.

This site strives for the highest standards of accuracy; however ERRORS AND OMISSIONS ARE ACCEPTED!

The Dividend Yield Investor is a blog site for entertainment and educational purposes ONLY.

The Dividend Yield Investor shall not be held liable for any loss and/or damages from the information herein.

Use this site at your own risk.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

The Formula.

A value based allocation strategy

February 19, 2010 by John Kingham