A Balanced Approach: Less Risk, But Lower Potential Return
The annual return of the S&P 500 index has been 10% or higher in more than half the years from 1926 through 2010. However, in more than a quarter of the years for this period, the index delivered a negative return.
But an allocation to bonds has tended to dampen the volatility of an all-stock portfolio—while only somewhat limiting positive outcomes.
For example, a balanced portfolio, composed of 60% stocks and 40% bonds, delivered annual returns above 10% almost as frequently as the S&P 500, but provided negative returns in slightly fewer than a quarter of the years.
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