For four decades, patient savers able to grit their teeth through bubbles, crashes and geopolitical upheaval won the money game. But the formula of building a nest egg by rebalancing a standard mix of stocks and bonds isn’t going to work nearly as well as it has.
I agree with most of what you’re getting at, but want to make a few clarifications where I think you’ve used loose language.
You missed one glaring benefit of bonds, though you hinted at it.
One of the main benefits of bonds is that they’re largely uncorrelated to stocks, and often negatively correlated (i.e. bonds often go up when stocks go down). So if you’re regularly rebalancing between stocks and bonds, the net impact should be a reduction in volatility (risk) over a long period.
Historically this strategy has underperformed 100% stocks over most periods, but that reduced volatility can also be a psychological benefit and reduce panic selling in a downturn. And apparently a lot of people choose to sell during downturns, so the general advice to include bonds in your portfolio is still likely good.
However, a 60/40 split is too conservative for most investors. I think most people will see some benefit in lower risk with 10% bonds, which also doesn’t cause much of a drag on investments. That said, I’m 100% stocks for now, and I intend to keep it that way until I’m closer to retirement, but I’ll always advise others to put some bonds in their portfolio.
This language is way too strong for me. The (over simplified) priority should be:
The 401k offers incredible tax benefits, but so does the IRA, and the IRA gives the investor more control. However, I will always recommend investing in a 401k beyond the match, but I’ll recommend an IRA to take priority.
Just go down the list with the money you can afford to invest. Don’t avoid investing in a 401k, but don’t prioritize it until you exhaust other tax advantaged options.
All good points. This is just my dumbed down for a more broad approach.