process
Hold both, within bands
The rule
Always keep some in stocks and some in safe bonds. Start near half and half, and never let either fall below a quarter or rise above three-quarters.
Where it flips
But one fixed split ignores your age, goals and how much risk you can take. The fix is to pick your own starting split and limits to suit you, then stick to them like a rule.
This rule guards you from your own moods. You fix how much sits in stocks and how much in safe bonds, with firm limits. Then you can never be fully in at the top or fully out at the bottom. The limits force you to always own some stocks and always hold some safety, whatever the market and your feelings are doing.
A worked example
Haridya keeps half in stocks, half in bonds. After a long rise, stocks swell toward three-quarters of her pot. The rule tells her to trim back toward half, selling some high, long before excitement could push her all the way to full stocks. [illustrative]
How to spot it
- ·a written target for stocks versus bonds
- ·firm lowest and highest limits
- ·never fully in or fully out
Benjamin Graham · The Intelligent Investor