Diversification - It’s Better Than Nothing
Several months ago, I wrote about how I was dividing up the money I’d put into ETFs in my rollover IRA after I left my previous job. While I wasn’t positive at the time, I’m now a strong believer in diversification including bonds - even at my relatively young age.
When I settled my allocation, I put 50% in a US total market index ETF; 40% in a World index ETF; 10% in a bond index ETF. At the time, a commenter wrote that he would cut out the bond portion. I couldn’t disagree. I’d wrestled with the idea myself. With hopefully about 25 to 30 years until retirement, I ’should’ have the great majority of my retirement assets in equities (and, at 90%, I do). So the inclusion of the bonds was just me following the standard advice, which I thought sensible if not optimum.
So how’d that work out?
Well, I’m now even more of a believer in diversification. While the total market ETF has returned -14.5% YTD, the international stock -14% and the bonds? Year to date almost 2%! Woohoo! Let’s hear it for not losing money!
Who would have thought earning not quite 2% would elicit a cheer? Go figure.
July 15th, 2008 at 10:12 pm
Diversification is good but people shouldn’t get too excited about 6 months, or even 1 or 5 years when looking at retirement investments with 20+ year horizons. Stocks will definitely have some bad years. But still, over the long term they have proven very sound investments.
I wouldn’t have anything in long term bonds unless I had less than 5 years to retirement (and even then not much at these interest rates). If I have to have something other than equities at that point I would rely largely on money market funds.