Tags: Vanguard | Bonds | Stocks

Vanguard: 50% Bonds, 50% Stocks is Perfect Portfolio Mix

Monday, 28 Nov 2011 08:28 AM

Despite the deepening debt crisis in Europe and the economically damaging political spats in Washington, investors shouldn't abandon risky assets like stocks altogether, according to a report from the investment firm Vanguard.

A good portfolio should consist of half stocks and half bonds.

Vanguard analysts studied a model portfolio split between stocks and bonds, and compared the returns in periods of economic expansion and recession.

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"The average real returns of such a portfolio since 1926 have been statistically equivalent regardless of whether the U.S. economy was in or out of recession," the study finds, according to the New York Times.

During the good times, the model portfolio had average real returns — factoring in inflation — of 5.6 percent, compared with 5.3 percent during recessions.

In short, on asset class tends to do well while the other tanks and vice versa.

"The results may seem counterintuitive," Joseph H. Davis, chief economist and head of the investment strategy group at the Vanguard Group and a co-author of the report tells the Times.

"You might think that it’s best for investors to avoid a recession, and in some ways, of course, it is. No one wants a recession. But the results suggest that as investors, rather than try to time the market, most people are best off with a diversified portfolio and just sticking with it over the long run."

Investors, meanwhile, are keeping an eye on Europe.

"We have some evidence of a stronger recovery, but it’s overwhelmed by ominous headlines in Europe and disturbing headlines in the U.S.," Paul Ballew, chief economist for Nationwide Insurance, according to MarketWatch.

"We are not going to get rid of those headlines anytime soon."

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