Sam, from the Financial Samurai wrote an excellent blog on how asset allocation depends on risk tolerance. I highly encourage everyone to read it. It’ll give you an idea what your stock to bond portfolio ratio should be according to your risk tolerance.

Synopsis of Sam’s Article. Bonds have returned an average of 5.4% annually over the past 90 years. Bonds are considerably less volatile than stocks. During corrections, bear markets, and recessions, stocks generally drop between 10-50%. As you get older you may become less and less comfortable with the risk of your investment portfolio losing 50% of its value. For this reason a good stock to bond mix will help curtail some of that volatility. Your annual return will be smaller, but you won’t lose as much in the recessionary years.

There’s an asset allocation rule of thumb for people that have a set it and forget it attitude towards their finances. That rule is that your allocation should equal your age. So if you’re 40 years old then your investment portfolio should be 40% bonds and 60% stocks.

In addition to Sam’s article, there’s been a lot of talk about the Golden Butterfly portfolio. This portfolio allocation is 20% each into Total Stock Market, Small Cap Value, Long Term Bonds, Short Term Bonds, and Gold. Data on this type of portfolio is very interesting because it seems like the Golden Butterfly gains nearly as much as more risky portfolios while at the same time protecting you from the downside risk/loss.

I’ve recently started investing using a strategy that is similar to the Golden Butterfly portfolio. The main difference is that instead of investing in Gold, I’ll invest into fine wine through Vinovest. I’m also planning on investing in RE rental properties, once the eviction moratorium and mortgage forbearance programs expire.

Why not gold? Well, Warren Buffett makes the case that gold lacks usefulness. Gold is dug out of the ground, melted into bars and jewelry, and then stored in a safe or worn. Unlike a business or real estate it doesn’t produce any value to society. Wine on the other hand is produced, stored, and then highly enjoyed by consumers. I consider it one of the most enjoyable parts of life.