Well done.

But while that's relevant to you, it's of little relevance to other investors looking for ways to invest their money in a low cost, fire & forget manner, which is what fund ranges like VLS and their competitors offer people.[/quote


Well I think you are conflating two things: client's expectations (low) and a fair return (fair).

So, for instance, 93% by this benchmark

https://www.hl.co.uk/fun...ndex-accumulation/charts

A quick update to add some extra months onto the table for Vanguard 80% returns:



In my first post I flagged that the standard deviation of long term annual returns was no different for the 80% and the 60% funds being 1% over 10 year periods.

I've now repeated the exercise for the 40% version and interestingly it's the same outcome for standard deviation over 10 year periods:



It appears that if you can hold for the long term you are giving up a lot of return in the VLS 40%. The mean return for the VLS 80% over 10 years is 8.8% and the the 40% is 5.2%. Why would you hold 40% for the very long term?

In other words, does "your age in bonds" make sense?

Context

Our financial projection runs on a very prudent assumption of 3% long term returns p.a. and when I started building this model in 2022 I was assuming that I would continue with a 50% / 50% asset allocation. I'm now thinking I should reconsider, especially as I've got a better handle on sequence of returns risk in my head.

If you assume (and this is contested by academics) that stock returns are normally distributed then the table above for 80% would suggest that in 99.7% of cases you will experience 6% annual returns as a minimum with the 80% fund.

Of course there are only 44 data points for the rolling 10 year periods and we have seen a significant bull market since LifeStrategy funds were launched. There is a debate to be had as to whether returns are actually normally distributed but the actual minima and maxima do sit within 3 standard deviations for time periods 3 years+ and for both funds.

Still early days in terms of data? Fair enough but even so, replacing the 3% in my model with say 5% is totally game changing ........

In the end does it just come down to”behavioural finance”?
We all know as investors that 100% equities is the way to get performance max but……….
It’s a hard investment policy for most amateur investors to stick with
The first hurdle is when you have accumulated a reasonable pot and then meet your first market drop
That wil set your personal stomach acid levels and /sleepless night syndrome -are you a conservative or aggressive investor or somewhere in between?
It’s all downhill from then on
Age in bonds minus 10 is one guideline for investors then thrashing about wondering where to set their “safe” asset % in thei portfolio -usually bonds and/ cash are then deployed
Retirement is probably the second hurdle-once you stop working there’s no way back to make up losses so “safe” assets rear their heads again to protect that retirement fund
No one answer for all investors but the first and second hurdles will impact you -how to deal with these hurdles is very personal but being aware of them is forewarned and hopefully forarmed
xxd09

Personally would expect SIGNIFICANTLY less volatility if the bond component is duration-matched.

Sounds to me like you may find value in having different pots rather than single pot.

In the last three years we have had a 5 stock bull market and rates going from nigh zero to 5% ish.
trying to read a lot out of the last few years about the relative positioning of stocks and bonds ignores the aberration in the equity indicies and, the fastest steepening in yields ever. all in one go.

Im not convinced we have a lot of good data..........we have QE and QT running from 2008 -and as a result a massive bull market in bonds that seemed to escape much comment. The Austrian 100 year bond........ie there will never be inflation again ever......Bizarre really how clever people can be soooooo stupid.