Which is Better: a 50/50 Stocks-Bonds or a 100% Stocks?

I just completed an interesting study where I looked at the monthly total returns for the S&P 500 Index and Corporate Bonds over 30-year periods from 1926 – 2011.

I set up the following five sceanarios:

100% Corporate Bonds
75% Corporate Bonds 25% S&P 500
50% Corporate Bonds 50% S&P 500
20% Corporate Bonds 75% S&P 500
100% S&P 500

The two I found interesting was the 50% Bonds 50% Stocks portfolio compared to the 100% Stocks portfolio.

Overall, the 50/50 portfolio did better when looking at the 57 rolling periods from 1926 – 2011. You can see this by clicking on the following graphic and downloading the handy PDF that I put together.

NOTE: The calculation was performed using the weighted average for the Corporate Bonds and S&P 500 based on the portfolio allocation so the data implies monthly rebalancing. What you’ll find on the two pages are the Average annual returns, personal rate of return (for dollar cost averaging), the value of a $100 per month investment, the end value of a $100 lump sum investment, and the standard deviation for the portfolios over each 30-year period.

50 50 vs. 100 S amp P 500 Portfolio

The average annual standard deviation for all the years was 14% for the 50/50 portfolio and 17.85% for the 100% S&P portfolio. Combine that with the fact that the average of the average total returns was 11.50% for the 50/50 portfolio and 11.21% for the 100% S&P 500 portfolio, it makes the 50/50 portfolio look superior.

I have not run the calculations based on government bonds.

2 thoughts on “Which is Better: a 50/50 Stocks-Bonds or a 100% Stocks?”

  1. I know that people dump on Bonds quite a bit (mostly the hypothetical losses if/when interest rates rise), but I love seeing those steady dividend payments. One thing that irks me is the charting provided by common online services (like finance.google.com). Their graphs imply that funds that pay regular dividends (ie: Bond Funds) are poor performers — they only graph the “fund price”, and don’t take into account the dividend distributions.

    Morningstar graphs it right though — they ignore the fund prices, and instead graph “Growth of 10k”, which is what an investor will see in their portfolio (dividends reinvested).

    For example, compare PIGIX on the sites: Google shows PIGIX with a 1.94% loss over the past month (shown in top right of their graph). Morningstar reports PIGIX with a slight positive return over the exact same timeframe.

    NOTE: Yeah I know PIGIX has a $1mil minimum investment amount, thankfully my 401k offers this as a fund choice and I utilize it heavily.

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