Examining 50 Years of Asset Allocation Strategies

Examining 50 Years of Asset Allocation Strategies

Senior Financial Advisors Rob McClelland and Mike Connon discuss an article written by Dr. Craig Israelsen entitled “50 Years of Asset Allocations”. The article traces asset allocation behaviour from 1972 and 2021. Rob and Mike examine these using 7 different strategies; cash, bonds, balanced portfolios, and diversified strategies beginning with the same base investment amount and see how it fares over 50 years. Join us to hear how it all turns out.



Rob (00:00):

Hello, this is Rob and Mike from The McClelland Financial Group of Assante Capital Management. And this is Think Smart with TMFG.

Rob (00:11):

Today on Think Smart with TMFG, Mike and I are going to review 50 years of asset allocation strategies that work and don’t work. Mike, this is going to be an interesting one. I came across a great article just recently by Craig Israelsen for Horsesmouth. Horsesmouth is a US service for financial advisors. Great articles, great tips for advisors to help them with their business. And so Craig did this amazing study on looking at 50 years of different strategies that you could have used for retirement. And so I thought it’d be interesting to compare some of these results. So first off, the data went back to 1972 to the end of 2021. Now, I was born in 61. I always get confused when I hear 50 years. I think it sounds like a really long time ago, but the 70s doesn’t seem that long ago to me. So I don’t know. I don’t know how it only goes back to 72. I would’ve thought it got went back to 1940, but not so lucky.

Mike (01:15):

No, you’re old.

Rob (01:17):

I guess I’m old. So what he did in this study is he looked at seven different strategies. Okay. The first strategy was 100% in cash. Second strategy was 50% in cash, 50% in bonds. The third strategy was what we would call the balance portfolio, which was 60% US stocks, 40% US bonds. The fifth one was a more diversified strategy more similar to what we use was seven different asset classes. So we would have cash and bonds and SU stocks and large companies and Canadian companies and international, et cetera. It works out to roughly a 30% bond, 70% stock mix. And then the final one was 100% in US stocks over that time period.

Mike (02:07):

So this is going from 72 all the way to now?

Rob (02:11):

All the way to now and looking at all the different 25 year periods that existed. So if you retired in 1977, how you did over the next 25 years using one of these different strategies.

Mike (02:24):

Yeah. And through this, there’s been many wars, there’s been pandemics, there’s been terrorist disasters. There has been massive inflation that we never dreamed would happen. And there has been… So there’s not much that you could think of. There’s been earthquakes, there’s been tsunamis. There has been-

Rob (02:43):


Mike (02:44):

Yeah. So there’s not much that hasn’t happened through this 50-year period.

Rob (02:47):

So here’s the game. You start with $250,000, which was a nice sum of money back in 1972. And every year you want to take out 5% of that, which is $12,500. But not only that, each year you want to get a raise with the rate of inflation of 3%. Okay. So pretty simple. So first year’s 12,750 or 12,500. Next year, you get 3% on top of that and so on. So you want your income rising in retirement so that you can keep up with inflation. Really straightforward. So how did the all cash portfolio do, Mike?

Mike (03:31):

I can see it didn’t last that long. So with your withdrawal plan, I believe if you started in 72, by 1987 you were basically out of money.

Rob (03:43):

So it worked for the first time period?

Mike (03:46):


Rob (03:47):

But it didn’t work after that. And that’s because of the time period cash earns what cash earns, close to inflation, but interest rates dropped from 72. Then they went up. Then they went down. And coming into the 90s, they went down dramatically. So even though bonds did really well, you ran out of money pretty quickly. In fact, you run out of money buy 1987. Well, you had $11,000 left, but that wasn’t even enough to pay for the next year. And every year after that you ran out of money. So cash is not the place to be. GICs is not the place to be for retirement, for a 25 year retirement.

Mike (04:28):

God, they call that safe don’t they?

Rob (04:29):

They call it safe.

Mike (04:31):

It doesn’t seem very safe.

Rob (04:32):

The next portfolio was half cash, half bonds. So bonds are supposed to give you a little more return than cash, still very safe and they’ll do well if interest rates are dropping, not so well if interest rates are going up. So that portfolio of the 50 years did relatively well for the first 20 of those time periods. Okay. But eventually you ran out of money. Eventually that money went to zero and your 250,000 that you started with disappeared. And once again, the longer or more recently you retired, the worse you did. So you could have survived in the 70s and 80s, but once you got into the 90s and the 2000s there wasn’t enough for 25 years.

Mike (05:17):

Yeah. And it could even be worse than that along the way too because the 3% average inflation rate goes through. But the reality is the 80s had a 14% inflation rate for much of them, which would’ve probably eaten in that capital even quicker at that time.

Rob (05:30):

Definitely. Definitely. So there were three strategies that were the winners. Now I have to correct myself. At the beginning of the podcast I said there were seven strategies. It’s actually simpler. There were only five strategies. So the third one was the most common, the 60/40 portfolio, 60% US stocks, 40% US bonds. Believe it or not every 50 year period or sorry, every 25 year period in the last 50 years, it worked out. On average your 250,000 ended up at 1.2 million. So not only did it work, but your capital grew as well to almost five times what you started with. The seven asset class portfolio also worked. Not quite as well as the 60/40, even though it’s a higher percent in equity and more diversified, the average balance at the end was about 1.1 million. But in each case except one, you ended up with at least your 250. So it worked 100% of the time. And Mike, what about the best strategy? What was the one that had the best return?

Mike (06:43):

Tough one to do, but all equities particularly in this study, because this is more of a US study. So US equities over the last 50 years have been phenomenal, right? Think of all the companies in the US. You ended up with about 1.5 million by sticking to an all equity approach. Which seems good, but again, for the amount of risk and volatility you have in there, I don’t know if I’d prefer to end up with 1.2 million and be able to sleep at nights rather than have 100% equity portfolio and go through 2001, 2008, all of these crashed on the marketplace with 100% equity portfolio. You probably wouldn’t live the full 25 years.

Rob (07:22):

You go through 2008 and you’re down 50% and at one point in February, it was down almost 60% from where you were. That’s tough to stomach.

Mike (07:32):

Yeah. So for a lifestyle I might choose to be in one of the other mixes.

Rob (07:38):

So what are some of the lessons that you learn from looking at a study like this? And this isn’t the type of study that I expect my clients to ever look at. I think our clients expect us to look at these studies to make sure the strategies is still sound. To me the first lesson is that sticking with cash bonds, GICs in retirement is a certain way of lowering your standard of living. Every year you’re going to be able to spend less. Now, maybe you’re okay with that. Maybe you’re comfortable. You don’t go out to restaurants anymore. You don’t travel anymore. Maybe you had a good five years in retirement and then you just sort of shutter down, downsize your home and lower your standards all the time. You talked about the all equity portfolio. Do you think you could stomach that?

Mike (08:28):

I might be able to at this stage, but I’m sure at a certain stage I don’t want to. I can stomach now when I’m making money and just putting money away. I think if I was ever in the state where I started withdrawal of money from my portfolio, I move away from that.

Rob (08:41):

So then we go to the two portfolios in the middle, the 60/40, or what we would call the 70/30 globally diversified portfolio. Both of those had great results. They both worked in every 25 year over that 50 year period, which is a substantial amount of time. Now, obviously some 25 year periods were better than others. That going to happen. That’s never going to change. We have clients that some who started with us 20 years ago and some who started 25 years ago. The clients who started 25 years ago did better than the clients who started 20 years ago. The clients who started 10 years ago have actually done pretty well. So your start date has a lot to do with that. But the 60/40, the 70/30 had been great portfolios and I think they’ll continue to be great portfolios. The next 10 to 20 years, at least the next 10 could be very interesting. You may need even an 80/20 portfolio or an all equity.

Mike (09:43):

Yeah. It’s funny when people… Some people don’t realize what they can stomach. They always tell us to when you’re going through a loss, tell people losses in percentages and gains in dollar amounts. And a lot of people if you say, “Can you take a 40% loss,” go, “Yeah, I can deal with that.” And say, “So if I have a million dollars and tomorrow is worth 600,000, I couldn’t deal with that.” Right. It’s very different when you look at the actual number change in things. So that’s the one thing. The 100% equity portfolio does seem great. And if you’re working, I can agree with people. If you’re making money, you’re not going to need to draw off your portfolio you can withstand all those times within that 100% equity portfolio. But when you’re in retirement and you need that for income, taking those big losses is just too much.

Rob (10:25):

So you mean you’re deceptive with your clients? So a year like last year you would’ve told them you made $350,000?

Mike (10:31):

Yeah, absolutely.

Rob (10:32):

And this year when they’re down a little bit, you say, “Oh, you’re only down 2%”?

Mike (10:35):


Rob (10:37):

I got it. Okay. That’s a good trick, Mike. I’ll have to remember that. We’re still believers in the globally diversified portfolio. We’re still believers in having a diversified portfolio to begin with. That brings us to the end of another week. This is Rob and Mike with Think Smart from The McClelland Financial Group of Assante Capital Management reminding you to live the life that makes you happy.

Assante Capital Management (11:15):

You’ve been listening to The McClelland Financial Group of Assante Capital Management Limited. Assante Capital Management Limited is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Insurance products and services are provided through Assante Estate and Insurance Services Incorporated. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources. However, no warranty can be made as to its accuracy or completeness. Before acting on any of the previous information, please make sure to see a professional advisor for individual financial advice based on your personal circumstances. The opinions expressed are those of the authors and not necessarily those of Assante Capital Management Limited.


Related articles

Top 5 Tax-saving Tactics Every Gen-Xer Should Know

Tax-Saving Tactics for Gen-Xers   In this week’s article, we’re exploring five essential tax-saving strategies explicitly tailored for Gen Xers. Born between 1965 and 1980, ...
Read More →

Episode 263: Overcoming Resistance – Key to Successful Financial Planning

Welcome to another episode of "Think Smart with TMFG," your weekly dose of relevant financial insights for everyday Canadians. In this episode, Senior Financial Advisor ...
Read More →

CPP Contributions: Pros and Cons

Working past age 65? Consider the pros and cons of contributing to the CPP.     As the population ages and many Canadians choose to ...
Read More →

Financial Planning Advice from Canada's Top Financial Advisors

Sign Up To Receive Email Updates On The Financial Industry And Complimentary Workshops.

By providing your e-mail address you provide The McClelland Financial Group of Assante Capital Management Ltd. with your express consent to send you electronic communications. If you choose to discontinue receiving e-mails, you may withdraw consent by contacting tmfg@assante.com.


Get actionable financial insights from the Top financial planners in Toronto.

Toronto's Top Financial Advisors
Copyright Assante Wealth Management. © 2024

Disclaimer | Assante advisory services are offered through Assante Capital Management Ltd. Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. The services described may not be applicable or available with respect to all clients. Services and products may be provided by an Assante advisor or through affiliated or non-affiliated third parties. Some services and products may not be available through all Assante advisors. Services may change without notice. Insurance products and services are provided through Assante Estate and Insurance Services Inc.

We have a team of advisors each specializing in varying portfolio sizes. Please let us know the approx. amount of your investable assets to help us to direct you to the advisor that is best suited to you.