No other asset class lives up to the long term returns of stocks. Despite that fact, most investors don’t stick it out long enough during the periods when stocks perform poorly and the big losing years tend to drive investors insane.
Of course, accepting that losses are inevitable helps to deal with the year to year results many investors obsess over. There are ways to invest, using different assets, that help make those stock losses more bearable. By combining two assets like stocks and bonds, you get a smoother ride over time because stocks and bonds don’t always move together.
Your allocation doesn’t need to be complex either. One of the most often cited allocations is a 60/40 Portfolio. It’s made up of 60% stocks and 40% bonds. How you choose to build each portion is up for debate. Continue Reading…
What happens when you combine a six year bull market in stocks with low interest rates and a persistent view the Fed will raise rates soon? You get a lot of speculation that stocks and bonds might both fall in value. The big concern lately is how will investors react if stocks fall and see the bond portion of their portfolio fall too.
It’s safe to say Buffett and Munger came through, as usual, with a wealth of information in this year’s Berkshire letter. Before I break down the letter into the many select quotes and lessons, there is a greater lesson throughout.