November 7, 2020
The WSJ published a thought-provoking article in which the author lists doubts about commonplace investing truths.
Doubt #1: The Safety of U.S. Bonds
The author writes,” for many years I’ve assumed bonds will buffer the fluctuations of stocks. In 2008-09 and again for most of this year’s pandemic panic, prices of high-quality bonds like U.S. Treasurys went up as stocks fell. Now, with interest rates close to zero, investors no longer buy bonds for income. So far, they are still flocking to them for safety. If that changes—as it could if inflation flares up—bonds might no longer cushion a crash in the stock market.”
Doubt #2: Maximize 401(k) Contribution
“Massive government spending, including the stimulus to combat the pandemic, will presumably have to be paid for at some point. Withdrawals from a 401(k), taxable during retirement at your ordinary income rate, would shrivel in net value if future tax rates rise (unless your income then is very low).”
Doubt #3: Allocating 40% to International Stocks
The author opines, “I’ve long advocated that U.S. investors should have a big commitment to international stocks. After all, almost half the world’s stocks by market value, and more than half by number, are outside the U.S. Yet the S&P 500 has outperformed the MSCI World Ex-USA index by an average of 8.7 percentage points annually over the past five years and by 4.5 points annualized over the past 25 years.”
Source: “Blown Election Calls, the Stock Market and You,” Jason Zweig, Nov. 6, 2020 11:03 am ET
https://www.wsj.com/articles/blown-election-calls-the-stock-market-and-you-11604678591
