Subject: Re: Beating the market
However, if the goal is to outperform what you would get over the long-term with a fixed 100% stock allocation, then any bond allocation strategy - even if moving in and out strategically - is far more difficult than most investor realise.

For sure.

The hidden subtext of my suggested approach is that you will almost never buy any bonds : )

Bonds generally have poor real returns most of the time.
We have just seen a rare multi-year bull market, so many people think otherwise.
Consequently I find most bond allocation systems have a bond allocation all time time because they assume they'll see acceptable or good returns from it.
What the wise man does in the beginning, the fool does in the end.

If on average you the programme I describe above has you invested with 20% bonds, 80% stocks (it varies, but that is what you have on average), then the dynamic mix above will outperform the fix 20/80 mix. However both strategies will still underperform the 100% stocks / 0% bonds mix over multi-decade stretches.

No doubt.

But considering the problem in the general case, a dynamic mix can presumably increase long run returns relative to an all equity portfolio.
The last time I bought bonds personally they were German government bunds paying 8.5% around 2000.
They looked to have a better prospective return than equities at the time, so it made sense, and it worked out.
I imagine that any bond-versus-equities strategy tuning that is comparably picky about when to buy bonds will add to long run real returns when it occasionally does so, even relative to an all-equities approach.
I find that most bond investors aren't that picky, and most bond allocation strategies aren't picky at all.

I have done a lot of testing on equity/cash allocation strategies, with no bonds.
It doesn't seem too hard to come up with a system with a meaningful amount of cash on average, but roughly the same long run return as all-long all the time.
The problem is that it doesn't really give you a very smooth ride--the sensible time to have 100% allocation to equities is during a deep bear market, just when it's the wildest ride.
The risk is still lowered, since REAL risk is the risk of permanently losing money from overallocating to equities when they are temporarily overpriced.
But it doesn't feel like less risk.

Jim