1nvest wrote:Bonds have been a beneficiary of 40 years of declining inflation and interest rates. It is really hard to see how the next 40 years will work for bonds, but my guess is that it will be more like the 1960s and 1970s, which were a disaster for bonds and the investors who relied on them.
20 year constant maturity bonds using US data for the run up from 2.5% yields to 14% yields resulted in a 60% (multi-year) GAIN. Not great, but equally such yield transition wasn't good for stocks either. Following such a transition holding bonds where many were bought at relatively long maturity and high yields they rewarded handsomely. In including bonds as part of a portfolio such purchases were more inclined to actually occur, in contrast to leaving it to 'timing' (manual).
A 60% return in 20 years would not work for me. I would not starve but my quality of life would be much worse.
I agree that a withdrawal rate of 4% a year is desirable and should be sustainable. Equities have been giving about twice that for so long now (about 100 years) that you would need a compelling reason to think that will change. And if that compelling reason is high inflation then that is bad for bonds, and shares can still grow at least in nominal terms.
Now I am not 100% in equities in the sense that I have cash (which you could view as short-dated bonds), a couple of properties, and three pensions when I finally decide to start taking them. But in terms of disposable funds after those then, yes, 100% in equities (although only a fairly small amount in UK shares as the FTSE-100 has basically done nothing in 22 years now, other than throw off barely-covered dividends).
Now, if I were convinced that shares were going to crash then I'd adjust the shares/cash mix. But bond yields would have to go up a lot for me to consider them as anything other than a short-term trading vehicle. I might still prefer 5% a year on savings accounts.