About the ratio of stock and bonds in a portfolio
I'm wondering a lot which ratio of bonds and stocks should be in my retirement portfolio. Should stay 100% stocks, go 80-20 or 60-40?
It needs to be understood what's the purpose of each asset class in the portfolio. Stocks are there to preserve the value of the money as its value tend to grow faster than inflation. Bonds are there so you don't have to sell your stocks at low.
In general you want to have enough stocks such that their value is enough to cover your current lifestyle until the end of your expected lifespan. So during your active years this means you are in 100% stocks. Once you have enough money in stocks that can fund your lifestyle during retirement, you start to put money into bonds until the desired ratio is achieved. When you retire, the you aim to manage whatever ratio you want to have.
When the stock market is rising, the weight of stocks increases, so you sell stocks to cover your living expenses. When the stock market is down, you sell the bonds to cover your living expenses in order to avoid selling stocks when it's down. If the ratio goes out of certain threshold, you may want to sell stocks and buy bonds, or vice versa to restore it.
