Risk & Aging Happen Fast

Let's start with Morningstar appearing to defend a traditional 60/40 portfolio. A lot of the article is devoted to the history of bonds helping balance out equity volatility during large declines which is of course correct. 

Unfortunately they don't dig into the changes that have occurred in terms of how unreliable the correlation between equities and bonds with duration has become. "Risk happened fast" starting in late 2021 inflicting pain that can't be recovered from. AGG is down 20% from its 2021 high so anyone who bought it then and still has it is waiting to make it back 4% per year...unless rates make another meaningful run higher from here would would make the loss worse. The Vanguard Bond Market Index Fund (BND) is in almost the identical spot as AGG. TLT is down 49% from its 2021 high. These are price levels that can't be regained. 

Individual issues are in a similar spot but they will get back to their respective par values. Collecting 2% for ten years waiting to get back to par though would be a tough way to make a living. 

Where we are talking about 40% into holdings to help manage equity market volatility, beyond bonds with essentially no duration, we've studied many different alternative strategies that do what I think people hope bonds will do which is have very little volatility and provide a boring return. There are easily ten different ones that all have different risks meaning that putting 4% into ten of them would diversify the diversifiers. It wouldn't even need to be all 40% into alts, not even close. Owning short dated individual issues and a few diversifiers would very likely be far more effective for whenever the next negative stock market event comes along.

The New York Times waded into the retirement withdrawal discussion acknowledging the emotional challenges of switching from putting money in to then taking money out. I think this will be difficult for me as well which probably contributes to why I spend a lot of time on how to create income streams beyond just relying on an investment portfolio (and Social Security obviously). 

They talk about the difficulties of sequence of return risk and the need to be adaptable but they miss an obvious solution. Bear markets typically last 18-30 months even though the last few have been shorter. The simplest technique is to just set aside some cash for whatever number of months you think you need to ride out a bear market without being forced to sell equities low. A less simple technique would be to have small exposure to holdings that should go up when stocks go down. If someone is using an inverse fund to hedge a large decline, there'd be less need to still hold it after a large decline so it could become a source of funds for withdrawals at that point. 

Lastly, an article from the Washington Post about mistakes people make with how they consume protein. There were some things I agree with and some I don't but there was an interesting point about older people needing more protein because As we get older, our muscle mass starts to dwindle, and this decline grows steeper after the age of 60. At the same time, our muscles become less responsive to protein as we get older, which makes it harder for our bodies to build and repair muscle tissue — a phenomenon known as anabolic resistance. “As people age, we have less and less muscle mass, which makes it even more important to protect the muscle that we have. 

I'm 59 so their reference to 60 caught my eye. The passage is consistent with a theory about aging cliffs that supposedly occur at 44 and then again at 60. Loss of muscle mass actually starts closer to 30 and my understanding is that it accelerates as we get older. 

It's too bad there isn't some sort of activity that could help people build muscle mass back up or at least offset muscle deflation. That's just wishful thinking, obviously no such activity exists. The importance of some sort of resistance training with weight (this includes bodyweight exercises) cannot be overstated. Leg strength, back strength and grip strength are crucial for every aspect of aging. Proper protein consumption allows us to get more benefit from the weightlifting and weightlifting allows us to get more benefit from the protein we consume. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.