Formula Based Asset Allocation***
STOCKS *** BONDS *** GOLD *** CASH................................
GeoPolitics/Economics...Removing Theory from Conspiracies
Remarks made by J. Paul Getty concerning the overvaluation for the 1965 market. One year later the market peaked and went on a bear market (after inflation) lasting until 1982!
J. Paul Getty Quote!
Stock Market - "For as long as I can remember, veteran businessmen and investors - I among them - have been warning about the dangers of irrational stock speculation and hammering away at the theme that stock certificates are deeds of ownership and not betting slips.
The professional investor has no choice but to sit by quietly while the mob has its day, until enthusiasm or panic of the speculators and non-professionals has been spent. He is not impatient, nor is he even in a very great hurry, for he is an investor, not a gambler or a speculator.
There are no safeguards that can protect theemotional investor from himself."
DYI:As
of 5-6-2026 the dividend for the S&P 500 is 1.05% (VOO) this is ground
breaking level never seen before
since the inception of the index!Compare this to long term investment grade long term corporate bonds
(VCLT) yielding 5.87%!The yield
difference is now 459% greater!Market
participants are not just expecting higher prices they are demanding prices to propel higher and faster than dividend
increases!
When will this house of cards collapse?? I don’t know.Don’t be surprised one day when the NYSE
fails to open up on time due severe order imbalances to the downside.A 5,000 point drop in one day is not out of
the question for the Dow Jones Industrial average.
Individuals who started out as investors have now become speculators
purchasing future sales, earnings, and DYI’s most favorite dividends at ridiculous
levels since 2018!Let that sink
in!
Since 2018 the Shiller PE averaging in the low 30’s now graduating into
the low 40’s!Future returns since 2018 no
doubt have been spectacular, for a dollar cost monthly averaging till today’s
average annual return before inflation of 14.39%, after inflation a very
respectful average annual return of 10.47%.
However (you knew that was coming) when this bubble pops and it will, (I
simply have no idea when), there will be a trail of tears.I’m expecting a decade plus roller coaster
ride to the downside similar to the late 1960’s and most importantly the 1970’s
along with a boat load of inflation!
Very long term investors especially those drinking out of their sippy
cups watching Barney on TV who continue to buy 100% all stock portfolio will do
well upon reaching retirement. Those 30
plus year olds will lose precious time as returns over the next two decades
will be sub par at best barely out distancing inflation.
Is it possible for stocks to rocket upward from here (S&P 500 Shiller PE at 41.06)?? Anything is possible, however higher the Shiller PE purchases made then will experience lower future returns over the coming one to two decades out.
IMO (here it comes!) now is not the time to shoot for the stars! Its time to keep one's feet firmly on the ground holding on to your gains. Either by following my model portfolio or purchasing long term investment grade corporate bonds Vanguard - VBLTX (5.47%) or your closest comparison in your 401k, Roth IRA, Thrift Savings Plan etc. Please note this is only for those who have many years (10+) ahead to average in your yield until stocks valuations once again become eligible for purchase.
Those who are nearing (10 years or less) or retired capture those gains either use my model portfolio or purchase The Permanent Portfolio symbol PRPFX that historically has very low downside action and does well in almost any market condition (however in long term stock market bull markets will underperform by 3%).
All and all hold onto your head while everyone else is losing theirs!
Active Allocation Bands (excluding cash) 0% to 50%
48% - Cash -Short Term Bond Index - VBIRX
28% -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..."
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
%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 there is controversy regarding the divisor (Avg. PE10). The average since 1881 as reported by Multpl.com is 16.70. However, Larry Swedroe and others believe that using a revised Shiller P/E mean of 19.6 , the number since 1960 ( a 53-year period), reflects more modern accounting procedures.
DYI adheres to the long view where over time the legacy (prior 1959) values will be absorbed into the average. Also it can be said with just as much vigor the last 25 years corporate America has been noted for accounting irregularities. So....If you use the higher or lower number, or average them, you'll be within the guide posts of value. 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.
DYI:
IMO – as chief cook and bottle washer for this blog – this stock market
powered by a debt bubble so huge when it pops returns could very well be in the
range of the aftermath of 1929! Total
return from that era lasting from 1929 to 1949 inflation corrected total return
(dividends reinvested) was 0.2%! (See chart below).
Boomer’s and early Generational X’ers (early retired) maintaining
a 100% stock portfolio – if I’m correct – will experience a massive decline in
standard of living as stocks after this bubble bursts will continue their massive underperformance!
Individuals and families just starting out who have been
investing since 2018 in an all stock portfolio is buying into a massive
overvalued market. Returns going forward
will be either sub par (returns below inflation)
or outright negative over a very possible 2 decade long roller coaster type decline.
(See chart above).
If this comes to pass Boomer's, Gen X'es, Millennial's, even a portion of Gen Z's will end up having a total disdain for common stock buying seen as nothing less than a gambler's fate! Setting up the stock market at that time with massive undervalued bargains galore for the next generations yet to be named who will end up with superior returns going forward!
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 current valuation spike fits into a broader trend of "index concentration" that has been building for over a decade. The fact that the Q Ratio or Shiller PE has only been this high once before—during the 1999-2000 period—is a haunting precedent. During the Dot-com crash, the subsequent "normalization" resulted in a nearly 50% drop in the S&P 500 and a "lost decade" for equity returns. While the companies of 2026 are arguably more profitable and have stronger balance sheets than the "pets.com" era, the mathematical reality of high starting valuations remains:
High entry prices almost always correlate with lower 10-year forward returns.
This event also highlights a growing rift in regulatory and policy implications. With the market so highly valued, the Federal Reserve finds itself in a difficult position. Any hawkish tilt to combat lingering inflation could trigger a valuation collapse, while a dovish stance might further fuel an unsustainable bubble.
Historical comparisons to 1929 are frequently cited by bears, noting that while the economic "pipes" are different today, investor psychology and the mechanics of margin and leverage remain remarkably similar.
Furthermore, the ripple effects on global markets are profound. As the U.S. market reaches these "once-in-a-century" levels, capital is beginning to flow toward international markets that offer more reasonable valuations. European and emerging market indices are currently trading at a significant discount to the Shiller PE of the S&P 500, suggesting a potential multi-year shift in global asset allocation if the U.S. enters a period of stagnation or correction.
The ascent of the Shiller PE ratio to 40.58 is a historic milestone that signals extreme caution. For only the second time since the 1870s, the U.S. stock market is priced at a level that has historically preceded periods of poor returns and significant volatility.
The key takeaway for investors is that the "easy money" of the AI-led rally has likely been made, and the market is now entering a phase where risk management is paramount.
*************
*************
DYI's Model Portfolio
Updated Monthly
AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 4/1/26
Active Allocation Bands (excluding cash) 0% to 50%
51% - Cash -Short Term Bond Index - VBIRX
25% -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.
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.
