For many investors, they intuitively understand this and have the time horizon and confidence that stocks will ultimately reward them.
-Matt Scales, product management, Columbia Management
Building portfolios to meet individual objectives is or should be a customized exercise, so this article should not be considered advice for any individual. Instead, it is an alternative philosophy to how investors have traditionally approached building portfolios. For the vast majority of us, we allocate our capital to asset classes with the highest expected returns. The most common result of this process has been the 60/40 portfolio (60% stocks, 40% bonds). The problem is that allocating capital is very different than allocating risk (which we define as volatility). Because stocks, on average, are more volatile than bonds, the risk in this portfolio is almost entirely concentrated in stocks.