The Argument for Bonds in Strategic Asset Allocation

28 Pages Posted: 24 Jul 2020

See all articles by Aron Gottesman

Aron Gottesman

Pace University - Lubin School of Business - Department of Finance and Economics

Matthew R. Morey

Pace University - Lubin School of Business - Department of Finance and Economics

Date Written: June 22, 2020

Abstract

A number of well-known practitioners such as Warren Buffett and Jeremy Siegel have long advocated a strategic asset allocation in which investors hold a majority of their assets in equities. However, in this simple straightforward study we find that in order to maximize the well-known Sharpe ratio, most investors over the period 1995-2019 would have been better off holding a majority of their assets in bonds rather than stocks. While interest rates have decreased during this twenty-five year period and thus enhanced bonds relative returns, our results are quite convincing. Even though our results are obviously ex post, investors very often make decisions on future investment based on past performance and thus our results could provide guidance to investors for future investing decisions.

Suggested Citation

Gottesman, Aron and Morey, Matthew R., The Argument for Bonds in Strategic Asset Allocation (June 22, 2020). Available at SSRN: https://ssrn.com/abstract=3640268 or http://dx.doi.org/10.2139/ssrn.3640268

Aron Gottesman (Contact Author)

Pace University - Lubin School of Business - Department of Finance and Economics ( email )

One Pace Plaza
New York, NY 10038
United States
212-346-1912 (Phone)
212-346-1573 (Fax)

Matthew R. Morey

Pace University - Lubin School of Business - Department of Finance and Economics ( email )

One Pace Plaza
New York, NY 10038-1502
United States
212-618-6471 (Phone)

HOME PAGE: http://webpage.pace.edu/mmorey/

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