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THE MOST FAMOUS expression at Vanguard is to ‘stay the course.’ It’s meant to suggest that investors should remain steadfast and not sell stocks in a downturn.
This has proven great advice over the decades, but I’ve not been staying the course lately. I’ve been selling stock funds and buying bond funds this summer. Yet I think my actions would have the blessings of Vanguard founder Jack Bogle, who made the phrase ‘stay the course’ famous.
Mr. Bogle used to have lunch with the crew in the cafeteria, called the Galley in keeping with Vanguard’s nautical naming style. There, he would dispense wisdom to all comers. Bogle advised keeping investing as simple as possible (though not too simple), and this included his ideas about asset allocation.
During one lunch conversation, he said that the adage that you should own your age in bonds was generally correct, but he might make one adjustment. I’m 69 years old, so if I followed the traditional rule, I would invest 69% of my portfolio in bond funds and 31% in stocks.
Bogle suggested tweaking the formula by subtracting your age from 110 and owning that percentage of stocks. By this adjustment to the rule, I would invest 59% bonds and 41% stocks.
At summer’s start, 70% of my retirement assets were in stocks. I’ve profited from being overweight in stocks. So, why not let it ride? Well, I don’t need to make more money in the market. I do need to protect what I’ve got.
When the market briefly corrected earlier this year, I admit I had regrets. After it recovered, I felt I was offered a do-over. I didn’t stay the course. After a season of selling, I’ve whittled my stock holdings down to roughly 45%. The remainder is in bonds and money market funds.
I will earn less with this more conservative allocation. I’ll admit I will probably regret it if the stock market continues its historic climb. But taking less risk also appeals to me now that I’ve begun to depend on my retirement savings.
The point of having fixed income assets in your retirement portfolio is to provide assets that could be sold to fund your retirement during periods of depressed equity prices which occur during market downturns. How would you fund a perhaps 12+ year downturn like the 1929 to WWII time frame? If you look at life expectancy assuming retirement at SS max (70) how much would you need in fixed income to support your lifestyle until age 82? Well, the larger your portfolio, the smaller will be the % of assets necessary to reach this threshold. Simplistically, you might need around $1M in fixed assets to support an $80k annual budget. With $2M in assets this would be 50%. $3M in assets would suggest a 33% allocation to bonds.
If you take a portion of your assets and purchase an annuity to support a portion of your need, your allocation to bonds could be a smaller % of your assets.
When advisors do Monte Carlo simulations they are looking at all the possible results of various allocations based on historical market downturns. There are models available that would allow you to do your own simulations. The old rules of thumb were created in a world without modern day computer models….,
I would argue that you did stay the course. All you’ve done is rebalance your portfolio to a more comfortable, personal risk level. Not staying the course would have been if you had sold during a market correction; instead, you’ve simply rebalanced to a lower risk profile during a market high.
I feel that money in bonds is like sand on the beach gradually eroding into the sea. The return on bonds usually trails inflation, especially after taxes. And even when you are standing still in today’s world, it seems like you are falling behind where you should be.
I understand the need for some short term safety in the event of a major downturn, and that drives my allocations more than anything else. But my presumption is that I should be in stocks as much as I can bear it.
I recently read Bill Bengen’s new book, and currently have 75% in stocks and 25% in DIPSX, which is all US Treasury Bonds and Notes. I figure if he’s happy with up to 75% in stocks, that’s good with me.
I’m leaving it as-is until we retire and can move my 401(k) to Fidelity. We plan on waiting until 70 to claim Social Security, which will more than cover our needs at that point.
What about replacing bonds with an annuity? Let’s say you own an an annuity which could generate $4000/mo through age 95. Wouldn’t this be a sure thing (assuming the company remains solvent)?
What about inflation? My pension is worth about half what it was twenty five years ago.
I purchased a ten year term annuity. Before buying I worked out my essential spending that the annuity is going to cover, I then inflation adjusted the amount through five years and purchased the fixed income at the five year amount. At the moment the excess is reinvested into a money market fund and will be used to help augment the year 6 to 10 annuity cash flow. I admit this is only for a ten year time frame and would be too costly over a longer period.
Valid point about inflation and annuities. I have never known anyone to do the following, but couldn’t people build an annuity ladder? Occasionally purchasing additional ones as income needs change.
I’m belt and braces on that. I have a collapsing bond ladder for “wants” spending and an annuity for “essential” spending.
I suppose the answer to this problem in part depends on how much you have to invest. Like you, I have been raising some cash over the last year as my confidence in the economy wanes. At age 77, I am reasonably certain that my wife and I have enough to last us the rest of our lives – absent some major economic or other catastrophe.
I remain mindful, however, that one of us could live another 10-15 years and need extensive care at some point. I have also factored in that our son will likely receive a considerable amount from our unused IRA balances that he will be able to withdraw over a 10 year period. Given this time horizon, equities will need to remain an important part of our asset allocation in order to combat the effects of inflation.
Greg, thanks for a good article. I’ve likewise been considering taking a little risk off the table.
One question re:
Bogle suggested tweaking the formula by subtracting your age from 110 and owning that percentage of bonds. By this adjustment to the rule, I would invest 59% bonds and 41% stocks.
Should that be: Bogle suggested tweaking the formula by subtracting your age from 110 and owning that percentage of stocks? (Your next sentence suggests that’s what you intended.)
Greg wrote: “Bogle suggested tweaking the formula by subtracting your age from 110 and owning that percentage of bonds. By this adjustment to the rule, I would invest 59% bonds and 41% stocks.”
In the first sentence, I think Greg meant “owning that percentage of stocks” because in the next sentence the resulting 41% in stocks is the difference between 110 and his age of 69. Otherwise, the percentage of less risky bonds would decrease as one got older.
Yes, you are correct. Thank you for calling it to my attention, Fred. I’ve made the change.
Greg wrote: “Bogle suggested tweaking the formula by subtracting your age from 110 and owning that percentage of bonds.” Using Bogle’s formula as stated here would result in an increasingly lower percentage bond ownership as one grew older, thus increasing risky stock ownership with increasing age.
I think Greg meant to write: “subtracting your age from 110 and owning that percentage in stocks” because he then states: “By this adjustment to the rule, I would invest 59% bonds and 41% stocks.” 110-69=41, which is the percentage of stocks Greg says he should now own. I think the article should be edited to make this correction.
It seems to me that any discussion about asset allocation needs to include a consideration of asset location (i.e. – account types (taxable, tax deferred and tax free). For example, if your plan shows that you are fortunate enough to most likely never have to tap your Roth, then perhaps the equity weighting in your Roth would be quite heavy (maybe even 90-100%?). Conversely, if you are living off of your taxable account before you need to start RMDs, it makes sense to me for that account to be heavily weighted toward safer investments like cash and short term bonds.
Having an overall stock/bond ratio that you like does not ensure that the ratios within your various account types are appropriate for the timing and duration of their intended use.
Jay you are absolutely right. Excellent input!
As an example we are converting my wife’s traditional IRA to a Roth. Her Roth is 100% Vanguard Total World Stock (VT). Some may question this allocation but I look at that account as part of our entire portfolio. That allocation is 45/45/10. My plan is her Roth will never be touched. If my retirement account, which is twice as much as hers, were to get too low then her Roth will start to contain bonds. Hopefully her Roth will never contain bonds, nor be touched and will stay 100% equities for 35 years, then my children will not touch it for another 10 years. Based on the average return of the world markets over the past 50 years of nearly 8% the balance will increase 32 times.
But location doesn’t affect the overall allocation. Yes, my small Roth IRA is 100% stocks, but that just means I hold less in stocks elsewhere. Equally, I prefer to hold bonds in my IRA for tax reasons, but I have enough in taxable to fund me for several years. None of that affects my 50% stock allocation.
I started investing in 1985 and have been 100% in equities for decades, guided by the ideas of Warren Buffett, Charlie Munger, Benjamin Graham and other value investors. The power of compounding is almost unbelievable, but you have to be uncommonly patient and frugal. About two years ago I slowly and opportunistically started selling equities. I am now 40% equities with the remainder of my portfolio in hand-picked Treasuries, preferred bank shares, energy pipeline/transmission partnerships like EPD and MPLX, closed end income funds and Nuveen municipal bond funds. I’ve experienced several market cycles and drops in individual stocks of 50% or more. I fully expect a correction and intend to then shift a sizeable amount of money into a S&P 500 index because the historical average annual return of the S&P 500 generates more return than I need. In fact, the current income generated by the 60% of fixed income is more than I spend, so there doesn’t appear to be any rational reason to risk what I have, for stuff I don’t need. Yes, I fully intend to invest opportunistically in the future, but will continue to be guided by Warren Buffett who said “I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out.” I’ll collect income while I wait and I’ll continue to own fixed income assets going forward. This financial position of independence, of not having to worry about money has taken me decades to achieve, and I value it more than shiny bling.
On reading the comments I’m struck by the psychology at play.
Fear of Missing Out (FOMO) seems to be a serious motivator.
I’ve often thought that most investors would be better off if they didn’t listen or read market statistics. Simply open their statements and observe how their portfolio is doing.
Case in point. My spouse isn’t interested in market statistics, at all. She began contributing to a retirement plan using dollar cost averaging. I suggested two Vanguard Target Date Funds and she said “okay”. Over about three decades she branched out, but to this very day she doesn’t pay any attention to the S&P 500, the DOW or whatever. On occasion we do discuss companies and macro events, but her eyes glaze over after a couple of minutes.
In 2007 with the bank fiasco looming on the horizon I told her that shortly there were going to be a lot of unhappy, angry people, including those she knew. I suggested “Don’t look at your reports for a few years” and she didn’t.
About once a year we walk through her portfolio and mine. She’s delighted by the long-term results, and that is all that truly matters. We discuss preparedness, too.
Keeping our emotions in check is very important. So too is knowing our various capacities and acting accordingly.
I felt the same about the “do over” and also adjusted to increase fixed and decrease equities. It seems consistent with the Vanguard Research paper from December 2024. “Elevated interest rates and high starting equity
valuations continue to imply a narrow equity risk
premium. Accordingly, our valuation-aware time-
varying asset allocation (TVAA) is underweight
equity and overweight fixed income relative to a
60/40 benchmark…….Our TVAA results in expected returns slightly
higher than would be expected of the 60/40
benchmark, with lower volatility.”
Vanguard’s time-varying asset allocation (TVAA) was most recently at 70% fixed income vs. 30% equities. Vanguard’s Capital Markets Model expects this allocation to return similarly to a 60% equities/40% fixed income over the next 10 and 30-year periods.
If I know the future of the stock market I would also adjust my balance every time it seemed like ships are going to turn into “the big one”. But I don’t, so I won’t. I’m not a market timer. I’m diversified so I’m comfortable with the markets. The one thing I do know is the market goes up and the market does down
It seems a good moment for taking some risk off the table, if only to rebalance back to your targets. U.S. stock prices are quite rich, some say priced for perfection and optimistically extrapolated into the future.
Our plan uses a less risky stock allocation target until our larger Social Security benefits start in four years.
Greg,
Your timing for this post is fortuitous for me.
On 10/1 I will be performing my quarterly update of my portfolio on Morningstar as well as updating my net worth, with possible rebalancing.
For the past few years I have had an allocation of 45/45/10 after reading an article by Morningstar’s Christine Benz stating that with the higher interest rates you could still get a similar return with less volatility with lower exposure to equities. Now that equities have become “frothy” I am nearly 5% heavy on stocks. I too have been the type to be satisfied and happily take the “profits” from increasing stock positions by shifting the proceeds to bonds.
I do wonder however if this quarter I should do nothing. Is it correct to be shifting 5% to my bond ETF position with a most likely decreasing interest rate scenario going forward?
What would you do?
I admit mine comes more or less from JL Collins.
Most of my investments were in S&P 500 till last year’s end, with full year expenses in Vanguard cash plus account to “ride out the storms.” Those are expenses not covered by my SSB.
This year, I cashed significant portion in my IRA and moved to Vanguard Money Market fund and have no intention of putting them back into S&P.
Bottom line (for me):
a. I can safely do what I have done without drastically changing my expectations and outlook.
b. I think the market is overvalued, downside risks are high and I expect steep drops just like what we saw back in April.
c. I equate my SSB as my bond stabilizer. Also admit JLC had a point of giving up on bonds, or so I recall. Over the last ten years, VTSAX performance has been ~935% vs VBTLX at ~ 200%. So my money market move is not for stability, but personal plans for larger expenditures.
So, learn from everyone, but do what fits your needs is my take. And of course, due to moving funds to MM recently, I have lost some steep returns in the mean time. Comes with the territory.
SSB? JLC? Really wish we’d leave out acronyms that are not in common usage.
I am sorry. JLC strands for JL Collins and SSB for Social Security Benefits.
I’m pretty sure JLC is in reference to JL Collins, a semi-well known writer and financal spokesman he mentioned earlier in his comments. I have idea about SSB.
I still haven’t figured out what SSB is lol.
I figured out SSB is “social security benefit”, but don’t know what JLC is. From context it sounds like someone’s initials.
I’m honestly really impressed with this decision. You’ve decided to take profits at a historically great time to do so and moved to bonds at a time when it was advantageous to you. I think that was gutsy.
I enjoyed this article, and would have loved to have had lunch with Bogle. I recall he was an advocate of the US Bond Index, whereas I like Jonathan’s advice of keeping with short to intermediate term Treasurys, split evenly between regular and TIPS.
It’s been said before, and I’ll say it again, you have won the race, so why keep running.
My other thoughts are that your bonds should do fine with the coming interest rate cuts.
I also tend to think that stocks have been defying gravity. Perhaps a new geopolitical shock or extreme weather event will be the excuse for a nasty selloff.
Wealth Defense is always prudent. S&P statistics indicate that staying the course over very long periods of time is prudent, but not always in the short term and “lost decades” have occurred.
Today the S&P 500 P/E ratio is 30.67. Is this significant?
S&P 500 earnings multiples prior to recent bear markets:
1987 crash, approximately 18x.
2000 (Dot Com) bear market, approximately 30-40x.
2007-2008, approximately 18-20x.
2020 (covid), approximately 22x.
2022 (inflation), approximately 23x.
What are stock market risks? They include high valuations (such as occurred 2000) which can signal vulnerability. Lower P/E ratios also occur during earnings collapses (recessions) and this makes P/E ratios misleading. Other factors include interest rates, inflation and geopolitics. Valuation is merely one of a number of factor, but by historical measures the current S&P 500 ratio is high.
I reach age 75 in 2025. I also decided to reduce my allocation to stocks earlier in 2025. I did not stay the course but my decision was largely driven by my concerns over ongoing changes in family health. Your statement “I do need to protect what I’ve got” expresses the key factor of how I was feeling when I pulled the trigger on my asset allocation changes.
A good and growing portion of my bond allocation are in individual TIPS, mostly 10 year duration, bought at auction, that are protected from unexpected inflation as I understand how TIPS work. I wonder about the factors you considered in deciding upon bond funds as I worry about a repeat of future high inflation hurting the value of my bonds.
Thanks for this article.
Thanks for sharing your thoughts Greg. I’m almost the same age and find I’m in a similar position as you, overweight in stocks. Based on an HD comment I’ve been looking at Vanguard’s Life Strategy Funds as an example of a Vanguard based 60/40 allocation. It’s the inverse of the 40/60 recommended by the 110-age rule of thumb for our age. Numerous recent posts and articles about Bill Bengen’s latest research seem to indicate a slightly higher stock allocation provides higher safe withdrawals with lower risk. From what I’ve read it seems a range of allocations provides similar results. I think the key is your sense that you have “enough” and are at a stage where preservation is more important to you.
I reread the article by Adam called “Risky Business” from 8/30/2025. He referenced Bengen’s research which showed a stock allocation between 45 and 75% was optimal for success when retired and taking annual withdrawals. I have enough, yet I feel a twinge of regret like most others when the stock market keeps climbing higher, and I hold “only” 50%. But, I remember my goals in my seventh year of retirement, and rule number one is don’t run out of money.
I’m all for staying the course, but not for the “age in bonds” theory. We all age at different rates, so why one rule for everyone? And more recent theories suggest your expenses will go up as you get older. I set my allocation at 50% stocks some years back, and at 78 I have no plans to change it.
Agree 1000%. An AA based on age is the tail wagging the dog. IMO, a better approach is a real $$$ analysis of short term requirements (after you decide what short-term is) which you dedicate to cash, short to mid term bonds, etc. The remainder goes to stocks. The percentages is what they is. The existence of pensions, annuities, spouse income/benefits are all going to affect this. I’m almost 66 and arguably somewhat aggressive at 65/35 by arbitrary age based guidelines. But I have an untapped social security benefit which, when turned on will, in all likelihood, reduce my portfolio draw to next to nothing. So, am I really aggressive or am, in fact, conservative? Age says aggressive. $$$ say conservative. IDK.
Excellent point about one rule for everyone. I have a similar allocation and I am 72.