The S&P 500 is a reasonable choice for the stock portion of your asset allocation, but where to invest the bond portion of your portfolio. Below is a table with 20 year performance and volatility for 2 bond ETFs and the S&P 500 ETF. There are significant differences between the 2 bond funds, one is a diversified general bond fund (AGG) and the other invests primarily in long-term US treasury bonds (TLT). Note that TLT is much more volatile and offset stock losses in 2008, but performed worse than stock market in 2022.
| Investment | 2008 Return | 2022 Return | 2004-2023 Standard Deviation (Risk/Volatility measure) | Value of $10,000 after 20 years (2004-2023) |
|---|---|---|---|---|
| AGG (iShares Core Aggregate US Bond) | 7.90% | -13.02% | 4.91% | $17,419.72 |
| SPY (iShares S&P 500 Stock) | -36.81% | -18.19% | 17.03% | $56,558.56 |
| TLT (iShares 20+ Year US Treasury Bond | 33.92% | -31.21% | 16.39% | $20,318.80 |
| 70% SPY / 30% AGG | -23.40% | -16.64% | 12.26% | $42,553.39 |
| 70% SPY / 30% TLT | -15.59% | -22.10% | 11.90% | $47,813.37 |
TLT outperforms AGG with less volatility, over the long term, when paired with SPY. Short term investors may consider substituting money market funds for bond funds.
