Dividends and It is time to rethink the 60-40 asset mix

In a recent opinion piece Frederick Vettese former chief actuary at Morneau Sheppell and author of Retirement Income for Life: Getting More Without Saving More, asked for the past half century for pension funds the go to asset mix has be 60-40 or 60% in stocks and 40% in fixed income. Investment professionals will tell you that long term success in investing is all about the asset mix. It is therefore important to get that right.

Mr. Vettese compared two portfolios and to see how they would have done in the past 20 years.

Stocks to Bonds Mix %                   Worst Case             Medium Case         Best Case

Scenario %              Scenario %             Scenario %

60-40 mix                                          3.1                                5.6                          8.3

70-30 mix                                          3.1                                 5.9                          9.0

One would have thought that the 60-40 mix would have been better than the 70-30 mix in the worst case and not as good in the best case. The results for Mr. Vettese is 70-30 mix is something to seriously consider (Bridgewater Associates has a 80-20 ratio).

Linking to dividend paying stocks, a number of years ago, my parents had a bank allocation model for seniors and it was heavily orientated towards fixed income. Unfortunately the results in a very low interest rate environment meant low returns and the asset mix was changed to allowed for more growth at low risk. Much of the growth came from dividend stocks and index funds – the dividend stocks only invested in companies which pay dividends and index funds toss out the losers. Over the long run invested for different reasons lead to higher returns with low risk.

There are more questions than answers, till the next time – to raising questions.

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