On June 1, 2019, a new method I've been analyzing recommended rotating out of stocks and into bonds, in both tax-sheltered and taxable accounts, except for low-volatility stocks. The method was developed from 100 years of historical data for US stocks, treasury bonds, and inflation; 25 years of data for international stocks, bonds, and inflation; and 25 years of indexes for minimum volatility stocks worldwide. Here's a chart that illustrates how the method would have performed since 1919 in the US.
I'll call the new method "rotation" to distinguish it from rebalancing. In brief, rotation ...
- Does not try to pinpoint the top or bottom. In fact, it is ordinarily a bit late.
- Does not prevent drawdowns. But it greatly reduces them, by design.
- Can easily be calibrated to limit tax consequences. Monthly churn is not necessary.
- Can align with personal tolerance for risk. A 90-10 split is not the only option; others, in fact, are ordinarily better.
- Has been robust, historically, across periods of high or low inflation, trending or choppy markets, and growing, stagnant, or recessionary economies in developed countries.
- Offers guidance about when and for whom the method is advisable. Sometimes, for some individuals, rebalancing may be better.