Happiness through Asset Allocation Back to the Joneses. If the Joneses had looked at their total capital each December 31 and withdrawn six percent for the following year's income needs, the income stream would have been very favorable. Growth above the six percent income withdrawal is reinvested to provide an inflation hedge and long-term growth of capital. The healthy level of short-term bonds keeps us from having to consume stocks during market declines. The process of reallocation each year back to the original proportions will result in selling bonds following bad years, and stock following good years.
Reallocation actually contributes to total return, while holding the risk level constant.
The Joneses had a clear choice, and they could have gone the safe route. Rather than nibbling caviar and toasting champagne, the Joneses would be out cashing in McDonald's discount coupons. While they are there, they can check out employment opportunities behind the counter. Not all those smiling older faces are there just because they're bored with retirement. That million dollars didn't go as far as you might have thought if you simply put it in the bank 20 years ago.