In the last blog post, we discussed the 2 questions on what should the allocation between stocks and bonds be and how frequent to rebalance. In this post, we'll discuss the next question on what type of stocks and bonds to buy. Again, we turn to sensitivity analysis to provide some clues on what type of stocks and bonds will provide the highest portfolio value. The assumptions in this sensitivity analysis is the same as those in the previous post, namely, an initial $10,000 is invested in a portfolio comprising 70% stock / 30% bond for 26 years since 1988, the stock component is invested in the Straits Times Index (STI) while the bond component is invested in an artificial Singapore Government Securities (SGS) bond created based on the present value of all coupons discounted at the longest SGS bond yield. The resultant portfolio is rebalanced whenever the allocation (Read more...)