[Marsymars]

I'd content that homeowners' insurance is quite cost-effective, because there isn't a cheaper alternative to hedge your risk.

I'm saying that for the cost of buying puts to hedge against equity downside in a retirement portfolio, for any given level of risk, you'd probably be better off just selling some of the equities and buying bonds instead.

e.g. try and find any equity-focused ETF with downside protection that generally outperforms a bog-standard stock/bond split total-market ETF for whatever measure of volatility/downside protection that you want.

[kipchak]

I think the risk for increasing your bond exposure as compensation would be if instead of a low growth/low inflation scenario (Bonds do well) there's a low growth+high inflation scenario (1940s, 1970s, 2022) and the negative correlation between stocks and bonds doesn't hold.

[Marsymars]

Yeah, but in the abstract that's just saying "if you time the market, you can beat it", and we know that generally, the only way people are able to time the market is with random luck.

And more specifically, it's not low growth/high inflation that kills bond portfolio returns, it's interest rates increasing that devalue bonds, i.e. the transition from low inflation to high inflation. So yeah, you can construct a portfolio that hedges against that... but I'd be surprised if you can do it without decreasing your risk-adjusted expected returns below a plain stock/bond index fund - whatever hedging method you use is either going to increase your interest-rate risk (bonds), or your inflation-rate risk (cash), or is going to limit your upside (buffer etfs), or is just going sap your upfront returns (protective puts).

[kipchak]

In that sense, isn't the 60/40 or Boglehead perspective also timing the market, in the sense that you are betting the regime of the past will continue into the near future?

To me the diversification hedge options (say GUNR) seem like they are helping you get closer to regime neutral. Or in other words you are giving up returns to cover more macro scenarios and betting less on what the future looks like.

[Marsymars]

In a macro sense, I agree with that, but it's very difficult to compete with Vanguard for the fees/overhead to hedge in more regime neutral ways.

It's effectively impossible to hedge against every possibility, including temporary drawdowns, while still having positive returns after inflation.

[intrasight]

>the only way people are able to time the market is with random luck.

No. With insider information.