Monday, March 15, 2010

Bonds and Asset Allocation

I admit I never looked at a stock table, the WSJ or even knew what a mutual fund was until I finished my ob/gyn residency in 1994. Once out in the real world, the surgeon’s lounge had no text books or journals and only the WSJ to read between cases. I began reading books by John Bogle, Charles Schwab, Charlie Munger… I got addicted. The fact that the “tech boom” coincided with my peak accumulation years only fueled the fire. I socked away a ton in mutual funds and did well.

It's all about 'volatility-adjusted' returns. In the 90’s I rarely beat the market but it was okay because I had double digit returns year after year. I lagged the market returns but did so with very little volatility. When the crash happened in 2000 I survived because I had bought into Bogle’s principle of diversification with bonds which decreased my volatility. Since 2000 I’ve handily beat the market every year until 2009. This is ALL because of the bond allocation.

Nobody leaves the casino happy: the losers wish they never came and the winners wish they had put more on their bets. The important thing is to not worry about performance and comparisons… but enjoy the process. If I lose money but did everything correctly, oh well. When I stop enjoying the process– *the game*– then I’ll take my ball and go home… I can always dump my assets into a balanced fund (or follow Teresa Lo’s allocations) and go golfing.

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