Personally I feel the way you two are looking at your investment approach to be all too common, of a mistake. The market doesn't care what year you are set to retire and with that approach you make it sound like you don't need to pay any attention to your investments until 10 years out and just HOPE that when you get to retirement its at a peak in the market instead of a valley. Thats no way to plan for retirement.
Well Sonny Boy (just kidding), I think we've been in the market for longer than you've been alive. The main lesson i've learned is that "experts" are as clueless about the future direction as the rest of us and all that really matters is asset allocation and fees. Minimizing fees is a 100% certain way to avoid costs which is equivalent to making money.
By the way, I also have an MBA in finance and a PhD in an engineering field that was basically about statistics and stochastic processes. Financial markets are stochastic processes - many of my classmates were economics PhDs and had I checked a couple of different boxes and took a couple of macro/micro classes instead of my engineering math I'd have an econ PhD instead. So I think I know what I'm talking about from the theoretical/academic side of things.
But that doesn't mean I haven't made a few practical mistakes. I certainly don't take offense at you saying we've made mistakes because we have. But it does scare me that you are in a position to advise people when you seem to have such a profound misunderstanding for why I did what I did.
We were mostly in the stock market for about 30 or so years because, on average, the stock market returns higher each year. But the cost of that extra return is higher risk (using various measures). We are moving some money out of the market because we want to reduce risk. Why? Because (1) we'll be withdrawing soon so we can't afford a huge drop, and (2) we've been lucky enough to accumulate enough money over a lifetime of investing that we don't need to take a lot of risk. So why not take everything out? Because we also expect to live a long time without a steady job income (by choice) so we need to make sure our nest egg continues to grow under various economic conditions. That means we need exposure to corporate earnings in the form of common stock claims. A lower equity exposure say 50/50 or 60/40 would probably be advised to most people but, again, we have a sizable government pension coming so we can afford to be a little more aggressive and maybe generate some extra returns for our heirs, for fun, and for the causes we support.
So yes, I know the market doesn't care about me and would crush me at the first opportunity. But I also think I know how to tread lightly around the market and only take the risks that are necessary without risking getting crushed.
The breakdown and split also don't matter when assets move in such high levels of correlation to each other. Pull up a 5 year chart of the AGG (Barclay's Aggregate Bond Fund" and SPX (S&P 500) you will see they are BOTH at long term highs and in 2008 they both crashed together. What protection by diversification are you really achieving?
There I agree with you. Assets have become highly correlated and that does make asset allocation less critical right now. But part of the reason bonds have become "volatile" is because they have seen dramatic price increases as interest rates have fallen. Very low interest rates also put pressures on corporate capital structures and mess up long term models/assumptions.
But, in the end we can reasonably predict how bonds will respond to interest rate changes while the responses of common stocks is more variable. So bond investments should still be lower risk. But we'll see.
Rotating in and out of certain asset classes is the only true way to make money and protect your money in the market. You must get out of stocks right before we crash again and look for appropriate assets to rotate into. Sometimes that might mean just sitting in cash or buying the SH and betting against the market.
Can you email us the day before the crash? That would be great. It would be even better if you promised to guarantee to reverse our trades if your prediction failed. Could you do that for us?