Crackerjack Greenback Prudent Advice for a Prosperous Future

December 13, 2008

A Closer Look at a Diversified 60% Stock Portfolio

Filed under: Diversified Portfolios,Investing,Retirement Planning — Paul Williams @ Crackerjack Greenback @ 3:30 am

       In my example of what a diversified portfolio looks like, I used a 70% Stock portfolio as an illustration. To save you the time and math, I’ve started a series of posts that look at a range of diversified portfolios from 100% Stock to 0% Stock. I’ll break these portfolios down in 10% increments. Today we’ll look at a 60% Stock portfolio.

       Here’s a pie chart depicting the asset allocation for a diversified 60% Stock portfolio:

Allocation for 60% Stock Portfolio - Small

       Click here to learn how to invest in a diversified 60% Stock portfolio. Keep in mind that you’ll need $63,000 to meet the fund minimums for this particular portfolio. If you invest at Vanguard, the total expense ratio for this portfolio would be 0.24%.

       Here’s a chart showing the historical returns for this portfolio from 1927-2007:

Historical Returns for 60% Stock Portfolio - Small

Now for some quick facts about this 60% Stock portfolio:

  • The highest calendar year return for this portfolio was 52.1% in 1933.
  • The lowest calendar year return for this portfolio was -30.4% in 1931.
  • From 1927 to 2007, the average annual return for a diversified 60% Stock portfolio was 9.5%.
  • During any consecutive 3 years from 1927 to 2007, this portfolio lost money 8 times out of a possible 79 periods. In 2 of those 8 times, it lost less than 1.2% of its original value.
  • The two worst 3 year periods were 1929-1931 and 1930-1932 (Great Depression), when the portfolio lost about 46% of its original value.
  • During any consecutive 5 years from 1927 to 2007, this portfolio lost money 5 times out of a possible 77 periods.
  • During any consecutive 7 years from 1927 to 2007, this portfolio lost money only once out of a possible 77 periods. Even then, the portfolio only dropped about 3.45% from it original value.
  • This 60% Stock portfolio never lost money during any consecutive 10 year period from 1927 to 2007.
  • This portfolio never averaged less than a 7.1% annual return during any consecutive 30 year period from 1927 to 2007.
  • In 43 of the 52 possible consecutive 30 year periods from 1927 to 2007, this portfolio had a return higher than its historical average of 9.5%. For nearly 83% of the time, you would have had a higher than average return over a 30 year time period.

       My hope is that this information will prepare you for the possible risk of investing in a 60% Stock portfolio while giving you some perspective during tough times. I think it’s really important to emphasize those last two quick facts. If you have a time horizon of 30+ years, there is no historical period where you would have averaged less than a 7.1% annual return. (Even if you started just before the Great Depression!!!) And 83% of the time, you would have had a higher than average return over a 30 year time period. Take comfort in those facts when the media barrages you with doom and gloom news every day.

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