Why The Stock Market Is Riskier Than You Think...

Why A Portfolio Mix of Stocks & Bonds Is Best...

In the last 30 calendar years (1981-2010), a 70/30 mix of stocks to bonds (with annual rebalancing) produced an average annual total return of +10.5% (before-tax) with the worst year being a -24.3% loss in 2008.

A 100% stock portfolio produced a +10.7% average annual total return (before-tax) with the worst year being a -37.0% loss in 2008.

Thus the stock/bond combination produced 98% of the return of the all-stock portfolio with less volatility.

Source: BTN Research

    

Stock / Bond Ratio Protects Your A$$ets from Bear Markets!

The following will give you a historical and visual perspective of why, at the end of November 2007, we SOLD Stocks and BOUGHT Bonds.

In the chart below we compare the performance of Stocks versus Bonds…

Charts courtesy of www.StockCharts.com

After the RED line crosses ABOVE the BLUE line, we become BULLISH on Stocks. We SELL Bonds and BUY Stocks.

After the RED line crosses BELOW the BLUE line, we become BEARISH on Stocks. We SELL Stocks and BUY Bonds.

1. SELL Stocks and BUY Bonds...

From November 30, 2007 to June 30, 2009, the RED line trades below the BLUE line and the S&P drops from 1481 to 919, a gut-wrenching -37.9% plunge and an ENTIRE bear market is AVOIDED!


2. SELL Bonds and BUY Stocks...

From June 30, 2009, to October 30, 2009, the RED line trades above the BLUE line and the S&P jumps from 919 to 1036, a rally of +12.7%.  

Buy-&-Hold-&-Hope S&P 500 investors are still down -30% from November 30, 2007, through October 30, 2009.

This long-term trend indicator has repeatedly done an exceptional job of filtering out all the noise and keeping us on the right side of the market.