The Death of The Balanced Portfolio

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For the last 200 years, it has always been safe to invest in a balanced portfolio of stocks and bonds, weighting more heavily towards equities at a young age, and more heavily towards bonds as the years pass. Over time, you could count on your wealth increasing and outpacing the cost of living, and leaving you in good shape to face your last decade or so of retirement.

That was then. This is now. We are facing a time when that traditional approach will fail miserably. When equities go through their inevitable correction – its a question of when they do that, not whether they will do it – investors will find no safety in bonds. Long term treasuries will drop by 30% to 60% , short-term bonds will drop a lot less, but still enough to cancel out two or three years of dividends.

Readers of this blog will not be shocked by this admittedly depressing and alarming assertion. A previous posting dealt with a number of warning signs I see forming on the horizon and explored this topic.

But my reasonings were not born in a vacuum. There is a saying that “true genius is built on the shoulders of giants”. More appropriate in my case would be Robert Burton’s saying that ” A dwarf standing on the shoulders of a giant may see farther than a giant himself.”

In that vein, let me point you to the musings and concerns of the very well-respected economist and newsletter writer John Mauldin, who brilliantly diagnoses the dismal economic corner the world has painted itself into, which can only end in tears.

Negative Rates Nail Savers

Be sure to read the follow on article:
Start Moving Some Dirt

A followup posting to this will suggest some concrete defensive steps you can take to protect and grow your portfolio in these challenging times.

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