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There is a lot of knowledge (mostly outdated?) that we (individual investors) should rebalance portion of money they allocate in stocks vs bonds.

In the past decade, investing in bonds would have been a foolish choice.

How much of this advice is still applicable now? (Not disputing that rebalancing is bad. I realize that past performance is not indicative of future performance.).

  • "investing in bonds would have been a foolish choice." why? – D Stanley May 17 '18 at 21:40
  • Returns on S&P500 were far higher than bonds. – user462455 May 17 '18 at 21:43
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    Did you know that 10 years ago? Returns on AAPL were higher than the S&P 500 - does that make the S&P 500 a foolish choice? – D Stanley May 17 '18 at 21:45
  • Not meaning to pick on you; just making sure you're not jaded by past performance. – D Stanley May 17 '18 at 21:53
  • Keep in mind that rebalancing is virtually the precise opposite of speculating, so... – Beanluc May 18 '18 at 19:13
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Bonds help diversify an equity portfolio, which reduces risk (the amount of swing up or down that you can expect from a portfolio). Yes, historically equities have a higher average return than bonds, but over short periods of time they can also have much higher losses than bonds.

So if you have a relatively short investment horizon (less than 5 years) and can't afford to (or don't want to) risk large losses, then bonds can be used to reduce your risk.

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Yes. If you look at the extremely significant timeframe of the past 10 years, which incidentally came right after a global financial crisis where stocks lost most of their value, bonds do look foolish.
If you look at the past 12 years, it doesn't look quite that bad.

In any case you're better off balancing towards more risky and higher yield investment options if you're looking for long term investing and less risky if you're looking for short term investment options.

However ! You should probably include both in your portfolio if you're looking for long term growth just to mitigate risk. Or at the very least rebalance your portfolio when you get closer to needing the invested money (retirement, etc.).

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