For 20 years, diversifying with bonds made sense—the spread between the S&P and bonds was near zero. But today, that spread is about 7% per year, meaning that over a 5-year period, you could be looking at a 35% opportunity cost. That’s equivalent to the largest S&P correction in the last 26 years, which has only happened once.

Many investors also see bonds as a way to reduce drawdown. While a 25% bond allocation may reduce drawdown by 25%, the Stars model’s buy-and-hold strategy boasts near 100% accuracy, meaning drawdown doesn’t equate to actual loss or true risk.

Beyond performance, bonds also pose liquidity risks during market downturns. Bond funds lose value in liquidation events, and holding individual bonds can lead to liquidity issues when you need to sell.

Given these factors, I prefer holding SPY over bonds to maximize returns and minimize unnecessary risk.