Stocks/Bonds 80/20 Portfolio: ETF allocation and returns (2024)

FAQs

Stocks/Bonds 80/20 Portfolio: ETF allocation and returns? ›

The Stocks/Bonds 80/20 Portfolio is a Very High Risk portfolio and can be implemented with 2 ETFs. It's exposed for 80% on the Stock Market. In the last 30 Years, the Stocks/Bonds 80/20 Portfolio obtained a 9.36% compound annual return, with a 12.51% standard deviation.

A 20% weighting in stocks and an 80% weighing in bonds has provided an average annual return of 7.2%, with the worst year -10.1% and the best year +40.7%. With a 30% allocation to stocks, you could improve your investment returns by 0.5% a year to 7.7%.

If you're a younger investor with a long time horizon and are comfortable taking on more risk, the 80/20 portfolio may be a good fit. However, if you're closer to retirement or prefer a more conservative approach, the 60/40 portfolio may be a better option.

So, if you think you could tolerate 100 percent stocks respect what you don't know. Build a portfolio with 80 percent stocks and 20 percent bonds. If you think you could tolerate a portfolio with 80 percent stocks and 20 percent bonds, build a portfolio with 70 percent stocks and 30 percent bonds.

"A newer investor with a modest portfolio may like the ease at which to acquire ETFs (trades like an equity) and the low-cost aspect of the investment. ETFs can provide an easy way to be diversified and as such, the investor may want to have 75% or more of the portfolio in ETFs."

For most retirees, investment advisors recommend low-risk asset allocations around the following proportions: Age 65 – 70: 40% – 50% of your portfolio. Age 70 – 75: 50% – 60% of your portfolio. Age 75+: 60% – 70% of your portfolio, with an emphasis on cash-like products like certificates of deposit.

A standard example of an aggressive strategy compared to a conservative strategy would be the 80/20 portfolio compared to a 60/40 portfolio. An 80/20 portfolio allocates 80% of the wealth to equities and 20% to bonds compared to a 60/40 portfolio, which allocates 60% and 40%, respectively.

A 70/30 portfolio is an investment portfolio where 70% of investment capital is allocated to stocks and 30% to fixed-income securities, primarily bonds.

This investment strategy seeks total return through exposure to a diversified portfolio of primarily equity, and to a lesser extent, fixed income asset classes with a target allocation of 70% equities and 30% fixed income. Target allocations can vary +/-5%.

Almost Retirement: Your 50s and 60s

Stocks: 50% to 60% Bonds: 40% to 50%

Should a 70 year old be in the stock market? ›

Conventional wisdom holds that when you hit your 70s, you should adjust your investment portfolio so it leans heavily toward low-risk bonds and cash accounts and away from higher-risk stocks and mutual funds. That strategy still has merit, according to many financial advisors.

Warren Buffett is no fan of the bond market even with the increase in yields this year. Berkshire Hathaway has a tiny bond allocation in its investment portfolio, which mostly supports its huge insurance business. This contrasts with most insurers, who keep the bulk of their assets in bonds.

This is commonly referred to as The 4% Rule. The Trinity Study found that you can 'safely' sell off 4% of your total ETF investments once each year, and they 'should' last the next 30 years before you run out.

Say an investor has retired with a $1 million portfolio. In her first year of retirement, under the 4% rule, she should withdraw 4% of that portfolio, or $40,000 ($1 million x 0.04). For each subsequent year, she should adjust the withdrawal amount for inflation.

A Classic Lazy Portfolio contains the main traditional asset classes, with the aim to achieve above-average returns while taking a below-average risk. A Modern/Alternative Lazy Portfolio can use particular assets/strategies, with the aim of obtaining an extra return.

The 80-20 Rule in Business and Investments

For business sales, 20% of a company's repeat customers should be responsible for 80% of the sales. Also, 20% of the employees are responsible for 80% of the results.

From 1926 through 2021, the average annualized return of an all-stock allocation was 12.3%. What might surprise you is the long-term effect of adding just a small allocation of bonds into the mix. Under this analysis, a portfolio of 70% stocks and 30% bonds would have achieved a 10.5% annualized return.

A good return on investment is generally considered to be around 7% per year, based on the average historic return of the S&P 500 index, adjusted for inflation. The average return of the U.S. stock market is around 10% per year, adjusted for inflation, dating back to the late 1920s.

There's a reason that 12% tends to be used as a benchmark, according to Blanchett. The average historical return from 1926 to 2023 is 12.2%, according to a monthly data set called stocks, bonds, bills and inflation, or SBBI.