Asset Mix: What's the Right Recipe?

Savvy investors know that selecting the right mix of stocks, bonds and cash is key to meeting long-term goals. At least, that’s what we’ve been told — over and over and over.

But how have different combinations actually performed?

Mutual fund company T. Rowe Price (Stock Quote: TROW) has looked at five portfolios from the start of 1950 through the end of 2009, reaffirming the long-held belief that stocks are key to beating inflation and achieving maximum growth. Bonds and cash play supporting roles, stabilizing a portfolio during stock market gyrations and providing liquidity.

Over the 59 years, stocks provided the greatest return, averaging 11% a year. Bonds averaged 6.1%. The all-stock and all-bond portfolios duplicated those records.

Stocks, of course, are much more volatile, losing an average of 12.5% in the down years, for example, versus a 1.6% loss for bonds. Stocks had 14 down years, bonds had 8. Stocks' whipsaw performance was also reflected in standard deviation, a measure of an investment’s up and down swings. Stocks registered a high 18, bonds a much less volatile 6.4.

In addition to the all-stock and all-bond portfolios, T.Rowe Price looked at three with different asset mixes:

  • The most conservative mix held 40% stocks, 40% bonds and 20% cash. It returned 8.1% a year, lost 11.5% in its worst year and gave up 3% in its average down year.
  • A middle-of-the-road portfolio of 60% stocks, 30% bonds and 10% cash returned 9.2% a year, lost 20.4% in its worst year and surrendered 6.4% in its average down year.
  • An aggressive portfolio of 80% stocks and 20% bonds, returned 10.2% a year, lost 28.6% in its worst year and fell 8.8% in its average down year.

If you liked this article you might like

Why You May Not Want to Pay Cash, Own Your Home Free and Clear

Now You Can Get That Home Equity Loan in a Comfortable Hybrid

If Retirement Health Care Costs Look Scary, Try These Tactics

Why Buying Bonds With Negative Yield Isn’t as Weird as It Sounds

Investors Turning to Dividend-Paying Stocks See Benefits of Buybacks, But Must Heed Caveats