Great Post on Bonds and Stock Market Risk
October 22, 2012
Taylor Larimore over at the Bogleheads always has great things to say. Today he re-told a story I had forgotten about and it bears repeating. It’s about the importance of being diversified with high quality bonds and never investing 100% of your money in stocks no matter how the sector is sliced up.
Bonds Are For Safety
My Grandfather, Christopher Coombs, was one of the principals of the United Founders Corporation which was the dominating investment trust (now called a mutual fund company) during the Roaring Twenties. He was a multi-millionaire.
We moved into his Miami mansion in 1930 after my dad’s restaurant business failed in Massachusetts. A few year’s later, my Grandfather went bankrupt and we were forced to move to a small rental apartment. My Dad was lucky to get a job as manager of the Miami Beach Rod and Reel Club at $25 a week.
This is why you will never see me recommend a 100% stock portfolio.
“History may not repeat itself, but some of its lessons are inescapable. One is that in the world of high and confident finance little is ever really new. The controlling fact is not the tendency to brilliant invention; the controlling fact is the shortness of the public memory, especially when it contends with a euphoric desire to forget.” — Written by John Kenneth Galbraith in 1987
Taylor Coombs Larimore
Amen! I’ll go one further, I don’t put 100% of my money in any single investment. I don’t care what someone is saying about the asset or what I personally feel. The markets are full of surprises and I believe it is important to avoid the extremes and always diversify:
Avoid Extremes In Investing
Imagining Extremes is not a Good Investment Strategy