Why Palisade Allocates its Client Portfolios Heavily Towards Stocks
Many investors spend their time searching for the next big thing, whether its junk bonds in the 1980s, or internet stocks in the 1990s, or mortgage-backed securities in the 2000s, or cryptocurrencies and private equity in the 2010s, or artificial intelligence and gold in the 2020s. Their investment advisors are all too happy to oblige, filling their clients’ portfolios with whatever happens to be the darling of the moment, hoping they’ve found an asset class that will outperform for decades to come.
In contrast, Palisade allocates its client portfolios heavily towards stocks due to their superior historical returns. No other asset class (bonds, cash, gold, real estate, etc) has come close to delivering the long-term historical returns of publicly traded equities:
Image source: Quantified Strategies
While the strong historical outperformance of equities should be reassuring to investors, an equity-centric investing strategy is not without its challenges: the constant ups and downs of the market can feel like a stomach-churning roller coaster for even the most seasoned investors. In order to weather short-term market volatility, a high degree of discipline and patience is required, something that is often hard for investors to do on their own.
Bonds form an important part of the portfolio for many investors, reducing volatility in the short term. However, a portfolio too heavy in bonds can significantly hamper long-term growth. Many advisors over-allocate to bonds to reduce volatility (often defaulting their clients into 60/40 stock/bond portfolio), but in doing so they give up significant returns in the medium to long term:
Historical Returns Of Different Portfolio Allocations, 1926-2020
| Asset Allocation | Average Annual Return | Years with a negative return | Worst year return | Growth of $100k from 1995-2025 |
|---|---|---|---|---|
| 100% stocks | 10.3% | 25 of 95 (26%) | -43.10% | $2.18M |
| 80/20 | 9.8% | 24 of 95 (25%) | -34.90% | $1.66M |
| 60/40 | 9.1% | 22 of 95 (23%) | -26.60% | $1.20M |
| 40/60 | 8.2% | 19 of 95 (20%) | -18.40% | $842k |
| 20/80 | 7.2% | 16 of 95 (17%) | -10.10% | $564k |
| 100% bonds | 6.1% | 19 of 95 (20%) | -8.10% | $363k |
Data source: Financial Samurai
Palisade builds portfolios with appropriate bond allocations for the client’s situation, especially to cover anticipated expenditures over the next several years, but avoids heavy bond allocations that would significantly reduce the client’s likelihood of achieving their long-term financial goals.
“Patient stock investors who can see past the scary headlines have always outperformed those who flee to bonds or other assets.”
