The mix decides the ride
How you split money between shares, bonds and cash decides most of how bumpy the ride is.
What a study found
A 1986 study of 91 large US pension funds found the mix explained about 94% of how their returns moved up and down each quarter. Not 94% of the return itself, as it is often quoted, but most of the ride.
Each part has a job
Shares are there to grow. Bonds are there to steady the whole and to pay. Cash is there to spend and to wait. Change the share of each, and you change both the growth you can expect and the falls you will meet.
See it before you choose
The Lab lets you try mixes on past prices and see each one’s worst fall. Look at the fall, not only the growth: the mix you can hold through a bad year beats a better one you would sell in a panic.
No mix is right for all
Time to your goal, other income, and how you react to losses all change what fits. Nothing here says what yours should be. What matters is choosing it on purpose and writing it down.
Key takeaways
- The mix sets most of the ups and downs.
- Shares grow, bonds steady, cash waits.
- Choose a mix you can keep through a bad year.