The Fantasy of "Balanced Returns" Funding Retirement

Stocks, Long Term Bonds,

Cash and Gold

There’s a Bull Market Some Where!

The Fantasy of "Balanced Returns" Funding Retirement

The fantasy that a "balanced portfolio" yielding "balanced returns" will fund a stable retirement for decades to come is widely accepted as a sure thing: inflation will stay near-zero essentially forever, assets such as stocks and bonds will continue yielding hefty income and capital gains, and all the individual or fund needs to do is maintain a "balanced portfolio" of various asset classes that yield "balanced returns," i.e. some safe "value" lower-yield returns and some higher risk "growth" returns. 

This fantasy is based on the belief that yields will exceed real inflation for decades to come. That is, if inflation is 2%, and the average yield of a "balanced portfolio" is 6%, then the inflation-adjusted return is 4% annually--not great, but enough to secure retirement income. 

What few dare ask is: what happens if inflation is 7% and yields drop to 2%?  Then the retirement fund loses 5% of its purchasing power every year.  In a decade, the fund's value will decline by roughly half. 

What happens if the current "everything" asset bubble pops, and inflation starts running away from policy makers? It's worth recalling that declines on the order of 75% to 80% are common when bubbles finally pop--for example, the NASDAQ stock index post-2000.

DYI:  Governments may experience deflation from time to time but will NOT endure negative inflation for long periods of time.  If they have to they will do anything to get into a war such a WWII to gin up government spending with the Central bank purchasing a portion of the debt.  Good bye to deflation. And say hello to inflation.  This is why DYI advocates a 4 asset category model portfolio of stocks, long term bonds, cash [short term notes] and GOLD that is NOT fixed but changes as they move away from their respective fair value.

There’s a bull market out there!

These asset categories are dramatically different in how they respond to the economy over long term period of time [rolling 5 year time periods] and as such allow the investor time to build positions in the undervalued and reduce the overvalued.  Since the above article was geared towards inflation over time no matter how much governments will huff and puff gold will perform to the benefit to the investor only if he adjust his percentage to the prevailing valuation.  That is what DYI does with our math driven valuation formula.  And by the way my formula** is no secret all you have to do is click on the above page button for stocks, bonds, and gold and there it is.

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 8/1/18

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

58% - Cash -Short Term Bond Index - VBIRX

35% -Gold- Precious Metals & Mining - VGPMX

 7% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

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**DYI owes a debt of gratitude to John Kingham for his averaging formula. 

DYI