Andrew Hallam Speaks At Dubai College

 

A real stock market plunge feels a lot like bungee jumping…in a third world country.

But in some ways, it’s worse. On the way down, you have to wear a set of headphones.

Endless experts are telling you that the bungee cord is going to break. Having bonds in your portfolio represent an extra bungee cord. The drop still terrifies. But it provides some comfort.

Last night, after my talk at Dubai College, my wife (Pele) and I were enjoying an Indian restaurant dinner. We reflected on what went well and what I could improve.

The restaurant didn’t serve humble pie. But she put a huge dose on my plate. I had mentioned, at the talk, that our portfolio represents 60% stocks, 40% bonds.

Cavalierly, I claimed to select this particular bond allocation because, if I die first, Pele might want a portfolio with added stability.

She called me on my crap. The passing of time had warped my memory.

When I was 20 years old (and very single) I followed textbook portfolio allocation, where my percentage in bonds was similar to my age: 80% stocks, 20% bonds.

In the year 2000, when I was 30 years old, I had 70% stocks, 30% bonds.

Having 30% in bonds helped me to emotionally weather the 3-year crash (2000-2003).

It also allowed me beat index fund portfolios comprising 100% stocks from 2000-2019. Sometimes, bonds do more than help you sleep at night.

100% Global Stock Index vs. 70% Global Stock Index, 30% Bond Index
January 2000 – April 30, 2019

Source: portfoliovisualizer.com

In 2007, I had about 35% in bonds. As I mentioned during my talk, I wanted a market crash.

When stocks fell hard, in 2008, the world was calling for financial Armageddon. It represented that 3rd world bungee jump.

Like everyone else, I wore headphones that said, “This time it’s going to be different.”

Once again, having bonds helped me stay the course when global stocks dropped 40%.

Despite low bond yields, a portfolio with 60% global stocks and 40% bonds also edged a portfolio of 100% global stocks from 2008-2019.

100% Global Stock Index vs. 60% Global Stock Index, 40% Bond Index
January 2008-April 30, 2019

Source: portfoliovisualizer.com

 

Stocks beat bonds over long time periods. But sometimes, balanced portfolios (like mine) do just fine.

Your tolerance for market volatility might be greater than mine. It might be less than mine.

Everyone is different. I can’t recommend the perfect allocation for you. But here’s what I know:

If you choose a higher bond allocation, you might sleep better at night. If a higher bond allocation helps you stay the course, then do it.

You might earn lower returns over the next 30 years, but if it helps you stay on track, that’s far more important.

And… I should listen to my wife….

We have a portfolio with 40% in bonds because it matches my comfort level.

I’m glad she calls me out. 

Photos © Pele Hallam 

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Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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3 Responses

  1. Matthew Piercy says:

    Pele is not the only wife that calls her husband out. And we love em’ for it.

  2. JC says:

    Hello Andrew,

    Firstly, I really enjoyed reading your books. Thanks!

    Secondly, I have a quick question regarding investing in on the as a non-resident UK expat.

    I live in Singapore and I am from the UK. I am not sure where I will retire (looking less and less likely it will be the UK). I would like to know if I would be taxed or have to declare tax in the UK if I used a SG broker (like Saxo) to buy an ETF, such as VWRL/VWRD, on the LSE? I am assuming there will be no CGT but wasn’t 100% about dividend payments with regard to income tax?

    I am sure where to post this so sorry if it is he wrong place!

    Thanks so much.

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