Mr. Graham advised the investor to always hold bonds in his investment portfolio:
"We recommend that the investor divide his holdings between high-grade bonds and leading common stocks; that the proportion held in bonds be never less than 25% or more than 75% with the converse being necessarily true for the common-stock component."Combining Mr. Graham's recommendation with the concept of paired switching previously discussed, leads to the following long only application:
- Intermittently rebalance a basket of VTI (stocks) and TLT (bonds) and allocate 75% of capital to the best performing EFT and the remaining 25% to the other ETF.
- The rebalancing frequency may be set for example to quarterly or monthly.
- Performance is measured using total return over the prior quarter or prior three months.