Interesting. How would you practically react to this though?Graham had some basic math for suggested equity allocation based on earnings yield vs risk free rate:Yep. Great food for thought. Personally, I’m gliding down in equities with my Target date fund & adding ca muni bonds where appropriate. 1-2 years in muni bonds/cash and then 30% overall in bonds are my goals for the next few years.If I weight their numbers for US & ex-US, I get:Important discussion especially for those closer to retirement than not.
Global Equities: 5.69%
Better than US-only, but still not of a premium vs their middle-of-the-curve of 5.1% vs aggregate bonds.
That's only 59 bps of spread for the extra risk.
Granted, error bars are huge, but if the forecast is in the ballpark, that's not great extra compensation for equity risk.
Even just getting to 1/3 US equity, 1/3 non US equity, 1/3 Bond may be best and an easier goal to remember
Earnings Yield / (Earnings Yield + Risk Free Rate)
If you plug in those numbers now, using 3 month T-bills, you get:
3.51% / (3.51% + 5.30%) = 40%
Adjust AA any time earnings yield or risk free rate changes?
Statistics: Posted by Wannaretireearly — Wed Jul 31, 2024 3:13 pm — Replies 64 — Views 7539