100% equities, anyone?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
SC Hoosier
Posts: 207
Joined: Mon Sep 03, 2012 5:38 pm
Location: South Carolina

Re: 100% equities, anyone?

Post by SC Hoosier »

steve r wrote:
SC Hoosier wrote:100% of invested dollars is in equities. ... I have an emergency fund in cash. It's not invested. ... I chose this strategy because 50% of my net worth is my paid for house ...
Circumstances matter ... Hoosier makes sense to me ... Mortgaging a home to the hilt (many discussions on this due to low rates) and being 100% in equities with emerging market and other tilts is a different matter.
Thank you, sir. I appreciate the endorsement.

SC Hoosier
I live in No Payment Land. It is wonderful, and I'd love for you to live here too.
cajunmike
Posts: 4
Joined: Wed Apr 17, 2013 3:29 pm

Re: 100% equities, anyone?

Post by cajunmike »

"I agree. Statistically, assuming that you do not sell during market downturns, the higher your fixed income allocation is, the lower your combined return is likely to be." ---- I do not agree. This depends on how much better stocks perform than bonds, and for how long...which I think we all agree not one of us can know going forward. You start adding in annual rebalancing, looking at long term returns, use 3 or 4 different asset classes, the 100% stock AA looks less and less desirable.

https://personal.vanguard.com/us/insigh ... ion_052013 --- I think what this article is saying, and what the poster above who originally copied it is saying, is that there are other reasons besides yield to have a bond allocation in a portfolio.
1. Bonds reduce volatility in the portfolio. That's important for risk, but also for another VERY KEY reason. Volatility depresses compound annual growth. It has been demonstrated that a portfolio with two asset classes can generate greater long term growth than the growth of either one of its constituent parts if they are non-correlated to each other. 1% or 2% over 20 years is alot of money.
2. When the stock market tanks, there is a "flight to quality". People pile into bonds, the price of the bonds trades up, you rebalance into stocks while they're low and bonds are high, that juices portfolio growth.

There is a "diversification effect" from having multiple non-correlated assets in a portfolio. Over time, multiple asset classes will PROBABLY do better. This is explained in Chapter 7 of "Asset Allocation, 4th edition" by Roger Gibson. There are alot of graphs in there, and this is all explained in terms of probability and standard deviation, using historical data. It's astounding.

Finally, I hear alot of this talk right now about how bonds are a bad idea because yields just HAVE to go up. Really? Why? And when? What if Japan defaults, and trillions of dollars go into US Treasuries? What if the Fed lowers rates/steps up QE? What if Congress hikes taxes on dividends and the stock market tanks? Or changes the laws on REITs and MLPs? What if we get a few years of deflation? What if bond yields go to 0? What if we get a wave of Muni defaults and there's a flight to treasuries? A lot of things can happen. Take a look at a chart of the stock market from '68-'72. If the S&P 500 doesn't go up from here, then what? What if it drifts down to 10,000 over the next 3-4 years? I'll stay allocated and rebalance annually.
nzk
Posts: 5
Joined: Thu May 09, 2013 12:40 pm

Re: 100% equities, anyone?

Post by nzk »

I am 90% equity and 10% cash. Stop losses are moved up as market moves up. If stop loss is triggered, I will reinvest when the market shows some recovery. Not perfect but not an insane strategy right?
User avatar
Candor
Posts: 1287
Joined: Sat May 28, 2011 4:25 pm

Re: 100% equities, anyone?

Post by Candor »

45 years old and my 401k is roughly 93% equities and has been 90+ since day one except for a brief period where it dipped a little below. Outside of retirement I'm 100% cash/equivalent which is about 13% of my NW and approx. 27% of my total savings/investments.
The fool, with all his other faults, has this also - he is always getting ready to live. - Seneca Epistles < c. 65AD
User avatar
InvestorNewb
Posts: 1663
Joined: Mon Sep 03, 2012 11:27 am

Re: 100% equities, anyone?

Post by InvestorNewb »

I'm about 80% equities and 20% cash.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
Carpe
Posts: 211
Joined: Tue Jun 16, 2009 3:38 pm

Re: 100% equities, anyone?

Post by Carpe »

UALflyer wrote:
Carpe wrote:
UALflier, here is an extract from the Bond page of the Bogleheads wiki which is more represtnative of Boglehead philosophy:

"Bonds are a key part of any portfolio. For instance, Graham's timeless advice was to never hold less than 25% of your portfolio in bonds (or more than 75%). Bogle recommends "your age in bonds"; for instance, if you are 45, 45% of your portfolio should be in high-quality bonds. "

http://www.bogleheads.org/wiki/Category:Bonds

What you are advocating does not fit within this recommendation or profile.
Blindly following general statements without understanding the assumptions that go into them is hazardous to your financial health. The reason that in general bonds are recommended is because of the loss aversion phenomenon that's both explained in my posts and is explained in Vanguard's study that's linked to your own article above. Further, in the past bonds used carry yields in the 7% range, so that during downturns they still provded very meaningful returns. That's no longer the case. Not only that, but since interest rates are so amazingly low now, we already know that when they do rise, prices of existing bond portfolios will drop, so you have substantial downside risks associated with current bonds and virtually no interest income (not to mention the fact that the interest income can be replicated by CD's, which are offering the same yield and none of the downside risks associated with bonds).

You don't have to take my word for any of it. It's all referenced in Vanguard's study linked to your own article above and has been extensively discussed here.
UALflier, based on such an extreme view (100% equities), I thought it only appropriate to provide to you the previous link to the Bond Section of the Bogleheads Wiki, to demonstrate to you in simple terms that Boglehead inspired investing involves Bonds.

I don't know what premise you use to justify your position of 100% equities. A higher expected return, of course, but there has to be more than that. There has to be a conviction along the lines of mean-reversion and that this will somehow restore what has been taken way within a useful timeframe, and then add some. Like the last few years perhaps! It is, however, entirely possible that the stock market may not revert to the mean after some future black swan event in a timescale that is useful to you. So, if you want to talk about blind following, you might consider re-examining the merits of your own assumptions. I for one believe that two or more disparate asset types within a portfolio are important and essential for the very reason that the future cannot be predicted.

As has also been pointed out, personal circumstances can also change - loss of job, disability, illness; serious things. Investment strategy is not always about maximizing returns without regard to its overall volatility or value at any specific period of time; individual asset classes that are volatile maybe, but an overall portfolio with lower composite volatility has advantages also. It is even possible that such a portfolio could outperform 100% equities.
Carpe: pick, pluck, pluck off, gather
otbricki
Posts: 102
Joined: Mon Apr 08, 2013 1:28 pm

Re: 100% equities, anyone?

Post by otbricki »

Chairman Ben had some interesting comments on this topic the other day:

“apparent tendency for financial market participants to take greater risks when macro conditions are relatively stable. Indeed, it may be that prolonged economic stability is a double-edged sword.” Stability “could … reduce the incentives for market participants to take reasonable precautions.”

“The risk is increased by the fact that the Treasury no longer has the power to guarantee investors’ holdings in money market funds, an authority that was critical for stopping the 2008 run.”

“More work is needed to better prepare investors and other market participants to deal with the potential consequences of a default by a large participant in the repo market.”

“Gains in household net worth have been concentrated among wealthier households, while many households in the middle or lower parts of the distribution have experienced declines in wealth since the crisis. Moreover, many homeowners remain ‘underwater,’ with their homes worth less than the principal balances on their mortgages. Thus, more detailed information clarifies that many households remain more financially fragile than might be inferred from the aggregate statistics alone.”

Be careful out there.
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: 100% equities, anyone?

Post by nedsaid »

Been there, done that, bought that T-Shirt.

Fortunately, I learned about asset allocation and portfolio theory before the 2000 crash and diversifed. Having 30% in bonds helped cushion the two bear markets that I experienced in the next decade. My losses each time were about 1/3 of the portfolio, which was easier to take than being down 1/2 or more in a 100% stock portfolio.

I have been over 90% in stocks before I diversified. It was too much risk. Not going there again.
A fool and his money are good for business.
Elysium
Posts: 4120
Joined: Mon Apr 02, 2007 6:22 pm

Re: 100% equities, anyone?

Post by Elysium »

inbox788 wrote:Are you saying the emergency cash is counted in the asset allocation or is this for a longer term unemployment beyond the 6 month emergency fund? If stocks crash, rebalancing from remaining bond funds into stocks to restore the desired ratio is in theory, the right strategy, but when stocks fall 50%, do you have the discipline to sell nearly half the bonds to buy depressed stocks? Easier said than done, and arguably, if you're all in stocks, and paralyzed, it winds up being the right thing to do nothing and avoid panic selling at the bottom.
I recall losing 40% of overall portfolio from Nov 2007 to March 2009, and buying at various points including March 2009. I also recall what it felt like losing a lot of money, sometimes in a very short span of time like 20% in month, 10% another month, so on. The realization that there is some safe part of my portfolio that is not going to lose money in a hurry because they were invested in high quality bonds made me understand the need to have this.

Will bonds lose some money when rate rise? sure, are they going to lose 20% in a month, heck no.

I did not sell any stocks during that time, only bought, my portfolio gained back over 40% from March 2009 by end of that year, and more than doubled in size since then. I am keeping my bonds, people seem so sure of bond crash, some are waiting for last 10 years, eventually they will be right. Unless someone is in long term treasuries it is nothing to worry.Losing 5% or 10% over an year or two is a walk in the park compared to losing 20% a month.

As I said before everyone is brave when there is bull market going on. May be this time will be different!
yukon50
Posts: 334
Joined: Thu Jan 13, 2011 7:23 pm

Re: 100% equities, anyone?

Post by yukon50 »

rkhusky wrote:
am wrote: I buy mostly with new money since am in accumulation phase.

My rebalancing bands make it so that this would be a rare event.

As far as buying stocks on the cheap during bears unless you keep rebalancing, it always seems that they will go lower and it is not clear when to buy exactly. I remember that I was still excited to buy during the last bear until stocks went below 7000. I started thinking that the world was ending. Bonds did not help. I stayed disciplined and kept buying. Boy did those invested dollars pay off!
If you are 100% equities, the only place to rebalance is between US and Int'l stocks. You don't have any bonds to rebalance between stocks/bonds.

Once you have a large enough portfolio, you won't be able to rebalance using only new money.

During a major decline, you rebalance when your bands are breached. You don't try to predict when the bottom has been reached.
At what point does your portfolio become too large, where you won't be able to rebalance using only new money? Is there a general portfolio/savings per year ratio?
yukon50
Posts: 334
Joined: Thu Jan 13, 2011 7:23 pm

Re: 100% equities, anyone?

Post by yukon50 »

nedsaid wrote:Been there, done that, bought that T-Shirt.

Fortunately, I learned about asset allocation and portfolio theory before the 2000 crash and diversifed. Having 30% in bonds helped cushion the two bear markets that I experienced in the next decade. My losses each time were about 1/3 of the portfolio, which was easier to take than being down 1/2 or more in a 100% stock portfolio.

I have been over 90% in stocks before I diversified. It was too much risk. Not going there again.
But 2013 doesn't compare to 2000.

In 2000 you could get a sweet 7% yield on low-risk bonds and stock valuations were a lot higher than today. It's a different risk/reward now in that you have to pay a steep price for safety.
User avatar
stemikger
Posts: 4950
Joined: Thu Apr 08, 2010 5:02 am

Re: 100% equities, anyone?

Post by stemikger »

nedsaid wrote:Been there, done that, bought that T-Shirt.

Fortunately, I learned about asset allocation and portfolio theory before the 2000 crash and diversifed. Having 30% in bonds helped cushion the two bear markets that I experienced in the next decade. My losses each time were about 1/3 of the portfolio, which was easier to take than being down 1/2 or more in a 100% stock portfolio.

I have been over 90% in stocks before I diversified. It was too much risk. Not going there again.
+1

This is exactley how I feel. I was all over the place with my AA. I was 50/50, 60/40, 65/35 and due to the fact that I recently paid off my mortgage I went to 70/30 and every year I will dial it down by 1 percent until I reach my final AA of 50/50. I personally feel the Target Retirement funds fixed AA of 30/70 (in retirement) is not enough if you want your money to out live you.

A bad day in bonds is not as scary as a bad day in stocks. Even with a paid off house I will soon be 49 years old and I don't think I can handle a 50% loss in my portfolio.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
4nursebee
Posts: 2663
Joined: Sun Apr 01, 2012 7:56 am
Location: US

Re: 100% equities, anyone?

Post by 4nursebee »

Couple 45/55. 100% equities
Pale Blue Dot
UALflyer
Posts: 1039
Joined: Thu Jan 17, 2013 9:42 am

Re: 100% equities, anyone?

Post by UALflyer »

cajunmike wrote:I do not agree. This depends on how much better stocks perform than bonds, and for how long...which I think we all agree not one of us can know going forward. You start adding in annual rebalancing, looking at long term returns, use 3 or 4 different asset classes, the 100% stock AA looks less and less desirable.
This has nothing to do with the discussion. There is a reason that probabilities are different from certainties. All that you are pointing out here is that investing in equities, which gives you the best probability of achieving the highest returns, isn't certain. Well, no kidding.

1. Bonds reduce volatility in the portfolio. That's important for risk, but also for another VERY KEY reason. Volatility depresses compound annual growth. It has been demonstrated that a portfolio with two asset classes can generate greater long term growth than the growth of either one of its constituent parts if they are non-correlated to each other. 1% or 2% over 20 years is alot of money.
While "volatility is bad," investment returns that are virtually guaranteed to be insufficient are much, much worse.

Holding all your money in cash or in CD's completely eliminates all volatility but also virtually guarantees insufficient returns. To me, volatility is just a by-product of using investment vehicles that are more likely to generate higher returns and that fit my investment horizon. Hence, the ultimate goal isn't to eliminate volatility but to come up with an investment mix that fits my overall objectives and risk tolerance, which requires me to accept and even embrace a certain amount of volatility.
2. When the stock market tanks, there is a "flight to quality". People pile into bonds, the price of the bonds trades up, you rebalance into stocks while they're low and bonds are high, that juices portfolio growth.
For your sake, I hope that you don't do things like that, because you just never know where the bottom is and you can't rebalance like that at every market dip. You should maintain your preferred allocations regardless of what the market is doing, which naturally means that you don't let you winners ride higher and higher. This is quite different from what you are suggesting, however.
Finally, I hear alot of this talk right now about how bonds are a bad idea because yields just HAVE to go up. Really? Why? And when? What if Japan defaults, and trillions of dollars go into US Treasuries? What if the Fed lowers rates/steps up QE? What if Congress hikes taxes on dividends and the stock market tanks? Or changes the laws on REITs and MLPs? What if we get a few years of deflation? What if bond yields go to 0? What if we get a wave of Muni defaults and there's a flight to treasuries? A lot of things can happen. Take a look at a chart of the stock market from '68-'72. If the S&P 500 doesn't go up from here, then what? What if it drifts down to 10,000 over the next 3-4 years? I'll stay allocated and rebalance annually.
Sure, and the earth could be square. It is highly improbable but is possible. If you want certainty, you stick your money under your mattress.

In all seriousness, bond yields don't even have to go up in order for bonds to represent a poor investment right now. For instance, CD's give you the same yield but eliminate issuer default risks.
Last edited by UALflyer on Sat May 11, 2013 11:53 am, edited 4 times in total.
UALflyer
Posts: 1039
Joined: Thu Jan 17, 2013 9:42 am

Re: 100% equities, anyone?

Post by UALflyer »

Carpe wrote:UALflier, based on such an extreme view (100% equities), I thought it only appropriate to provide to you the previous link to the Bond Section of the Bogleheads Wiki, to demonstrate to you in simple terms that Boglehead inspired investing involves Bonds.
Yes, and I just demonstrated in simple terms that you do not understand the concept. Your own Vanguard study has a crystal clear explanation of this. Remember that you aren't part of a cult and should stop taking general guidelines as gospel without understanding the assumptions that go into them, which will tell you when these guidelines are and aren't applicable.

You are also not at all following the explanation. If you are susceptible to the loss aversion phenomenon, you don't have to eliminate all fixed income from your portfolio. As many of us have pointed out several times now, bank CD's provide greater stability than bonds, offer the same yields but none of the downsides associated with bonds. Eliminating bonds doesn't have to mean that you've eliminated all cash and all fixed income.
Elysium
Posts: 4120
Joined: Mon Apr 02, 2007 6:22 pm

Re: 100% equities, anyone?

Post by Elysium »

Market has a funny way of proving prople wrong when they are so sure something is going to happen. Like some of our friends here who are so sure that bonds are such a poor investment right now. It will be interesting to bookmark this page and revisit in a few months or years to see what Mr. Market decided to do.

The good thing about not having to take any strong market timing predictions such as "bonds are surely a poor investment right now" is that you can stand in the sideline watch in amusement as one prediciton after another falls apart. That is the bueaty of having a plan and staying with it.
Clivus1
Posts: 32
Joined: Wed Feb 06, 2013 8:41 pm

Re: 100% equities, anyone?

Post by Clivus1 »

My invested portfolio is all in equities. I am 40 and in a very stable job. This exludes some cash reserves. The breakdown is as follows:
45% Domestic equities
55% International equities

Asset allocation is very personal and there is no single "correct" answer. My timeline is long and the data tells me there are no 20 year periods where bonds add return. Others interpret historical performance and see a different message. I experienced very large losses in the tech crash and the Great Recession, but have continued to buy equities in a systematic manner.

As I move closer to retirement my allocation will undoubtedly change. Currently reduced volatility and income are not priorities - so no bonds for me now.
Beardog
Posts: 116
Joined: Thu Mar 22, 2007 10:38 pm
Location: Arkansas

Re: 100% equities, anyone?

Post by Beardog »

50 years old. No mortgages. No debt. Married to the same woman for 30 years.

50% stocks with small/value tilt. 40% bonds. 10% cash. Everything at Vanguard in Admiral Index funds.

Savings amount is/has been much more important to us than exact percentage in each asset class.

Rebalance if more than 5%-10% outside of these percentage bands when I remember to take a look. Otherwise, set it and forget it.

Browse the Bogleheads forum every few days. Read new posts by Rick Ferri, Larry Swedroe, the "Boglehead" authors, and a few others here who I respect after several years of following their posts.

Keep it simple and enjoy life. Don't forget about Mother's Day tomorrow (keeps life simple and enjoyable).
Beardog
User avatar
ThirteenEleven
Posts: 24
Joined: Fri Nov 30, 2012 10:09 am
Location: Louisville, K.Y.

Re: 100% equities, anyone?

Post by ThirteenEleven »

Ages: 24/24
80 equities
13 bonds
7 cash

Equities mostly contains small value tilt and international exposure as well as Reits
Dishonest money dwindles away, | but whoever gathers money little by little makes it grow.
animule
Posts: 151
Joined: Sun Jan 06, 2008 11:29 am

Re: 100% equities, anyone?

Post by animule »

Age 50, wife 50 too.

House paid off. Three kids with one college education pretty much paid off. Net worth about $1.2 million w/o home value figured in.

68% stocks, 32% bonds. Bonds split about 50/50 in Ibonds/EEbonds/Stable value and bond index funds. Have shifted some of wife's funds into target date because the allocations are getting out of whack too easily.

One thing I learned from the dual crashes is that when markets go up quickly, to aggressively trim my buying of equities. New money currently going in 55% stocks, 45% bonds. Will change that to 50/50 soon.

Regarding the fear of a "bond bubble," if interest rates do eventually go up, bonds will get injured, but stocks will get maimed.
Scooter57
Posts: 2019
Joined: Thu Jan 24, 2013 8:20 am

Re: 100% equities, anyone?

Post by Scooter57 »

UALflyer,

CDs don't necessarily guarantee insufficient returns if a person has reached the stage where they have sufficient assets and are more concerned about preserving them than increasing them. CDs would have been a far better investment choice in 2000 than a significant investment in a NASDAQ index fund. And the nice thing about CDs is that if conditions alter radically you can withdraw the money and reinvest it without the kind of devastating losses you get when stocks or bonds are down.

To others gloating about their investments in bonds, the problem isn't one that would show up in a few months, but one that would arise sometime in the coming years. But once rates begin their rise it will be a longterm problem that locks current bondholders into extremely low returns for a decade or more--a decade where there will be more attractive yields that existing fund holders will miss out on.
User avatar
nisiprius
Advisory Board
Posts: 52211
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: 100% equities, anyone?

Post by nisiprius »

am wrote:We all live by the notion that the market will go up in the long run otherwise we would not invest.
"In the long run, we are all dead."--Keynes
So 100% equities will give us the highest return.
No. 100% equities will not necessarily give us the highest return. It just gives us a darn good chance at a darn good return. State lotteries are statistical losses, but individuals do win; 100% equities may be a statistical win, but it is possible to lose.
Since we are all bogleheads and are all disciplined, we will not touch our portfolios during bear markets.
Sorry, that's a hypothetical and you must show me the evidence for that. The long-term statistics for any long-term investment plan must be weighted by the probability that the investor will actually follow that plan. That is a huge hypothetical. I'd like to find the actual source but I've seen several throwaway statements that say most investors will sell if their portfolio drops 25%. You are saying that all Bogleheads are well above average. You are saying you, yourself are well above average.
If we are in the accumulation phase, than we will continue to buy more shares during bear markets even as the rest of our portfolio drops.
We may not have a choice. Either a) we may not have the money to buy stocks with, or b) nobody may have the money to buy stocks with. During the Depression it wasn't necessarily that people didn't want to buy stocks. It wasn't necessarily a failure of will or weakness of character.

In his diary, Benjamin Roth is constantly wringing his hands over the incredible bargains he sees if only he had money to buy them. But not only was he short of money, money itself was in short supply. People who had money often had them in banks that were refusing withdrawals. To get any money from their bank account, their only options were a) to wait for years, or b) to sell their bankbooks on the market that developed for them, at perhaps $0.30 on the dollar.
If we are in stable professions like medicine, tenured professor, etc. than 100% equities makes more sense since our human capitol is like a bond.
Nonsense. In the first, place, we do not own our jobs. In the second place, most people with money to invest--not all, but most--have always been in stable white-collar professions. So nothing has changed. This "discovery" of human capital may provide a different way of doing the internal accounting, but it shouldn't lead to a different answer. If it wasn't prudent for people in stable jobs to invest in 100% stocks five decades ago, then it still isn't. You can't say "those jobs weren't bonds before, but they are now, so the prudent stock allocation should increase." In fact, I think most doctors and tenured professors would probably say that there jobs are not as secure as they were five decades ago.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Carpe
Posts: 211
Joined: Tue Jun 16, 2009 3:38 pm

Re: 100% equities, anyone?

Post by Carpe »

UALflyer wrote:
Carpe wrote:UALflier, based on such an extreme view (100% equities), I thought it only appropriate to provide to you the previous link to the Bond Section of the Bogleheads Wiki, to demonstrate to you in simple terms that Boglehead inspired investing involves Bonds.
Yes, and I just demonstrated in simple terms that you do not understand the concept. Your own Vanguard study has a crystal clear explanation of this. Remember that you aren't part of a cult and should stop taking general guidelines as gospel without understanding the assumptions that go into them, which will tell you when these guidelines are and aren't applicable.
No cult here, lots of opinions and shades of grey on this board. The point is your position is not a shade of grey - it is more like binary, as in all or nothing. You advocating a extreme position of 100% just one asset class with 0% anything else. Cults are certainly dangerous, but so are extreme financial positions. As already stated, such a position suggests a certain assumption about future outcome. For most people, recognizing that their crystal ball is indeed cloudy, and pursuing a more measured (i.e. guarded) approach to financial planning is good practice.
You are also not at all following the explanation. If you are susceptible to the loss aversion phenomenon, you don't have to eliminate all fixed income from your portfolio.
The concept of loss aversion or risk tolerance is not new. For many on this board, they will have considered what their own risk tolerance is, and incorporate it in to their investment plan (ultimately their asset allocation mix). This will ultimately translate in to x% equities and y% bonds (or fixed income in general), and maybe some other stuff.

A well-known contributor to this board, Adrian Nenu, advocated a particular approach of maximum equities being no more than twice your maximum tolerable loss. I am not saying I follow the suggestion, but it is one approach that has been advocated here. You will find more on this issue on the Boglehead wiki for establishing a three fund portfolio (http://www.bogleheads.org/wiki/Three-fund_portfolio). The point is, 100% equities is a an extreme position. Extreme, as in 0% anything else. 0% safety net. I don't see the point of dressing this up as a loss aversion issue or problem.
As many of us have pointed out several times now, bank CD's provide greater stability than bonds, offer the same yields but none of the downsides associated with bonds. Eliminating bonds doesn't have to mean that you've eliminated all cash and all fixed income.
I think you will find that most Bogleheads will accept bank CDs as a proxy for bonds these days (at least in concept), and are also familiar with the concept of interest rate risk (and credit risk). The issue has certainly been discussed, and there are many supporters of CDs. Fixed income can be implemented in many ways, but if you are advocating 100% equities what's the point of discussing fixed income components? It just detracts from the central issue of how extreme a 100% equity position actually is.
Last edited by Carpe on Sat May 11, 2013 10:39 am, edited 2 times in total.
Carpe: pick, pluck, pluck off, gather
User avatar
EternalOptimist
Posts: 829
Joined: Wed Nov 07, 2012 11:21 am
Location: New York

Re: 100% equities, anyone?

Post by EternalOptimist »

I'm 63 yrs old with 50/50 but I do have a 71 year old friend who claims to be 100% in stocks :shock:
"When nothing goes right....go left"
grayfox
Posts: 5569
Joined: Sat Sep 15, 2007 4:30 am

Re: 100% equities, anyone?

Post by grayfox »

jay22 wrote:Just curious, how many Bogleheads here are 100% in equities (or 90-95%, if not 100) and have no fixed assets. I am excluding cash out of it. It'll be good to know the ages as well. Thanks.
I haven't read the whole thread so I might be repeating what was already said.

I am not 100% equities, but I can see a good argument for someone having the risk/growth portion of their portfolio 100% in equities. Especially now that yields on safe assets is so low**, the only place that offers a chance of a meeting your required return is stocks.

If you are accumulating for retirement 20+ years down the road, and have new savings every month, it would make sense to put 100% of the new savings all into stock index funds, rather than splitting between stocks and bonds. hat would offer the highest expected growth of the new money.

______________________________
**Yields on Safe Investments

Treasury Yields as of 10-May-2013
US Treasury 2 Year Yield 0.24%
US Treasury 5 Year Yield 0.81%
US Treasury 10 Year Yield 1.90%
US Treasury 30 Year Yield 3.09%

PenFed CD Rates as of 10-May-2013
Term Dividend Rate APY
6 Month 0.30% 0.30%
1-Year 0.500% 0.50%
2-Year 0.740% 0.74%
3-Year 0.940% 0.94%
4-Year 1.090% 1.10%
5-Year 1.140% 1.15%
7-Year 1.240% 1.25%
UALflyer
Posts: 1039
Joined: Thu Jan 17, 2013 9:42 am

Re: 100% equities, anyone?

Post by UALflyer »

Dieharder wrote:Market has a funny way of proving prople wrong when they are so sure something is going to happen. Like some of our friends here who are so sure that bonds are such a poor investment right now. It will be interesting to bookmark this page and revisit in a few months or years to see what Mr. Market decided to do.

The good thing about not having to take any strong market timing predictions such as "bonds are surely a poor investment right now" is that you can stand in the sideline watch in amusement as one prediciton after another falls apart. That is the bueaty of having a plan and staying with it.
When you get in the car, do you fasten your seat belt? Why do you do that? Are you aware of the fact that there have been cases where not using a person's seat belt ended up saving that person's life? It doesn't happen often but it does happen.

You fasten your seat belt because statistically, this way you have a far, far better chance of surviving a car crash or not sustaining an injury. If you ever find yourself in a serious accident (I hope not) and are told after the fact that your injuries would not have been as serious if you had not been wearing a seat belt, will you think to yourself that wearing the seatbelt was a mistake?

Investing is very similar. You have to set goals and then assess statistical probabilities associated with different ways of getting there. As long as you've picked an optimal strategy at the outset, you don't look back after the fact and say "oh, hindsight is 20/20, so the fact that the most optimal strategy at the time ended up not working out means that it was a mistake to pick it." It is certainly appropriate and necessary to revisit and reassess your strategies to determine whether they really are optimal but you don't use the final result as conclusive evidence of anything.
Last edited by UALflyer on Sat May 11, 2013 12:01 pm, edited 2 times in total.
UALflyer
Posts: 1039
Joined: Thu Jan 17, 2013 9:42 am

Re: 100% equities, anyone?

Post by UALflyer »

Carpe wrote:Cults are certainly dangerous, but so are extreme financial positions.
You may want to re-read the Vanguard study, my posts as well as those of many other people here. You are arguing against imaginary points that noone has made, all because you are failing to understand objective data that's been presented to you.
Last edited by UALflyer on Sat May 11, 2013 11:50 am, edited 1 time in total.
cajunmike
Posts: 4
Joined: Wed Apr 17, 2013 3:29 pm

Re: 100% equities, anyone?

Post by cajunmike »

"While "volatility is bad," What if you could achieve your "overall objectives" with a lower volatility portfolio, though? Read the book and see what the diversification effect can do for you.
"This is quite different from what you are suggesting, however." No, it's not.
"It is highly improbable but is possible" None of the scenarios I put forward are "highly improbable". bond rates COULD go lower. You want to be right so bad, you refuse to accept that it's possible.
"CD's give you the same yield but eliminate issuer default risks" CDs have a lower yield, no chance of capital appreciation, and the SAME default risk as Treasuries--virtually none.

"Sure, and the earth could be square. It is highly improbable but is possible". Actually, no, the earth could NOT possibly be square. I think I see the problem here. Metaphysics and epistemology. You confuse what is possible and what is not, what you know and what you don't. And let me show you what I mean. You have yet to concede that bonds can go up when the stock market goes down, but that is a very possible outcome. You say over and over how bad it will be when bond rates rise, and that is why they're a "poor investment right now". That is the entirety of your argument. But let others suggest that bonds could possibly do otherwise (rates could drop), and you respond with sarcasm and derision. Let others mix into the discussion a scenario where the stock market goes down, you won't consider that either. Others bring information to the discussion, you misinterpret it or ignore it. It just doesn't fit your worldview. YOU are "blindly following" a script that YOU have created in YOUR mind without even admitting "the assumptions that go into them". I think THAT is "hazardous to your financial health". Here is the reality of the situation--stocks could go up or down, bond rates could go up or down, and you have no idea which of those will happen. You can't even say which of those is more LIKELY to happen over any time frame. There IS an upward bias in stock prices over very long periods of time. There MAY be an upward bias in prices over your particular investment time period. That is all you know.

There are many possible outcomes, they are no more improbable than the high rate environment that your crystal ball has decreed for your portfolio. Those of us that are building portfolios that can also respond to inevitable stock market downturns are prudent and reasonable. Those of us who see only yield, ignore and mischaracterize research, and posit that today's bond yield dictates tomorrows, are not.
garlandwhizzer
Posts: 3565
Joined: Fri Aug 06, 2010 3:42 pm

Re: 100% equities, anyone?

Post by garlandwhizzer »

I have done 100% stocks earlier in my life and even though I'm a risk taker by nature, that roller coaster got a bit too scary for me in the tech collapse of 2000-2003. I held on to all my equity positions until the market recovered, then shifted into some bonds, promising myself that I would never again under any circumstances allow bond holdings to be less than 30% of my total portfolio. Recently I have broken that promise, lowering it to 25% plus a minimum of 5% or more in Vanguard's Prime Money Market funds. I also got out of HYB, so all my bond holdings now are intermediate term and high quality, something that won't take a huge hit when equity holdings get hit which is inevitable in the market.

I still have a pessimistic view of bond returns going forward for the next decade or more (why I reduced to 25%). I strongly believe bond returns going forward from here will in the long term be much lower than stock returns. But bonds are the best diversifier. Nothing holds up to collapses in the equity market like bonds.

I do agree with Grayfox that for younger people in the accumulation phase of asset management, a 100% equity position is rational if they can take the long view and sleep at night when the market tanks.

Garland Whizzer
grayfox
Posts: 5569
Joined: Sat Sep 15, 2007 4:30 am

Re: 100% equities, anyone?

Post by grayfox »

I, too, was 100% stock for a long, long time. From when I started about 1980, when I read Random Walk Down Wall Street, until 2000 I was almost always 100% in a S&P500-style fund. Occasionally gambled on an individual stock. Once around '97 or '98 I tried some Muni bonds. Maybe I would keep down payment for house in CDs. But to us, investing always meant putting money at risk in the stock market.
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: 100% equities, anyone?

Post by nedsaid »

I wanted to respond to Yukon50.

You raised a couple good points. Yes interest rates were higher in 2000 and yes stocks were at higher valuations than today. No two time periods are exactly the same.

My main point is that pre-2000, I had assumed too much risk and the bonds and cash that I had after diversifying dampened my losses enough that I stayed the course. It didn't hurt that bonds had great returns during the 2000's. You also could get a decent yield for cash.

I find myself in the same dilemma a lot of people are experiencing. Just checked my asset allocation and my equities are up to 68% of my retirement and bonds and cash are just 32%. I have been thinking about rebalancing but I just can't get excited about 2% bond yields. What I am doing is that at least 40% of my new monies for investment go into bonds, the rest into stocks and REITS. I also am wondering if bonds will provide the downside protection that we all count on in our portfolios.

So I continue to buy bonds with new monies but I haven't yet decided to rebalance by selling a small portion of my stocks to buy bonds. So I have reached a compromise with myself on this issue.

Big picture, I am certainly not selling any bonds and will not return to a 90% plus equity allocation. Too risky. But I am seeing the risk in bonds though I know they are not as risky as stocks.
A fool and his money are good for business.
inbox788
Posts: 8372
Joined: Thu Mar 15, 2012 5:24 pm

Re: 100% equities, anyone?

Post by inbox788 »

steve r wrote:
SC Hoosier wrote:100% of invested dollars is in equities. ... I have an emergency fund in cash. It's not invested. ... I chose this strategy because 50% of my net worth is my paid for house ...
Circumstances matter ... Hoosier makes sense to me ... Mortgaging a home to the hilt (many discussions on this due to low rates) and being 100% in equities with emerging market and other tilts is a different matter.
Well put about circumstances matter. One persons 100% allocation in strong financial footing is perfectly appropriate. Another's more balanced mix, might be all wrong. Everyone has different treatment of non-stock and non-bond factors, some of which are very large.

Not recommended, but you could achieve 200% or even 300% equity allocation buying a "market diversified" fund : FAS. So 100% is not the most extreme. On the bond side, a mortgage may be treated as a negative bond, while a pension may be considered a positive one. Home paid off or mortgage underwater? All factors that some include or ignore.

These days, other "extreme" allocations may have zero in other asset classes, like gold, other metals, oil, other commodities, currencies, derivatives, real estate, private equity, etc. Most people ignore these, but foundations and endowment funds make significant use, with presumably reduced risk and/or improved returns. Many of of these are not available in retirement accounts, but these days, very accessible. All these choices and additional information has made thing complicated and interesting, or you can just choose to ignore it all. What is more "extreme"? Don't answer, just a rhetorical question.
patrick
Posts: 2594
Joined: Fri Sep 04, 2009 3:39 am
Location: Mega-City One

Re: 100% equities, anyone?

Post by patrick »

cajunmike wrote: 1. Bonds reduce volatility in the portfolio. That's important for risk, but also for another VERY KEY reason. Volatility depresses compound annual growth. It has been demonstrated that a portfolio with two asset classes can generate greater long term growth than the growth of either one of its constituent parts if they are non-correlated to each other. 1% or 2% over 20 years is alot of money.
2. When the stock market tanks, there is a "flight to quality". People pile into bonds, the price of the bonds trades up, you rebalance into stocks while they're low and bonds are high, that juices portfolio growth.

There is a "diversification effect" from having multiple non-correlated assets in a portfolio. Over time, multiple asset classes will PROBABLY do better. This is explained in Chapter 7 of "Asset Allocation, 4th edition" by Roger Gibson. There are alot of graphs in there, and this is all explained in terms of probability and standard deviation, using historical data. It's astounding.
Volatility depresses compound annual growth compared to what? The historical numbers for compound annual growth of stocks already include the historical volality.

Adding assets with lower expected returns depresses compound annual growth. That's why the efficient frontier charts show 100% stocks as the highest return and 100% bonds as the lowest return -- because diversification can't overcome the lower average return of bonds. On the other hand, there is a benefit to diversification -- portfolios having a little bit in stocks turn out to have lower volatility then those in all bonds.
grayfox
Posts: 5569
Joined: Sat Sep 15, 2007 4:30 am

Re: 100% equities, anyone?

Post by grayfox »

An the funny thing is when we were all 100% in stock, bonds were actually offering decent yields. CDs were yielding 6, 7, 8 percent. But, like I said, CD's were only a place to park money that was going to house down payment or pay for a new automobile.

Now we thought it was taking a lot of risk when someone bought an individual stocks to try for a quick gain. For instance, I remember in late 1980's buying big bank stocks like Chase and Chemical Bank when they were yielding 8% because they lent too much money to Argentina. That was risky, but it paid off. :moneybag But then we went back to the the relative "safety" of S&P 500. :D Someone that was 60/40 was 60% in S%P 500 and 40% in individual stocks. :D

But the idea of having bond funds at that time was not even considered.

Now you may say, but what if the stock market drops 50%? Well in 1987, the S&P500 dropped 25% IN ONE DAY! How did we react? Easy come, easy go. We were laughing and joking about it at work that day. There was nothing else to do. At least get a few laughs out of it. I don't remember anyone saying, Oh we should have had some bonds. It never even came up. And we had secure jobs, or so we thought. Actually they closed our plant about a year later and fired everyone. :oops:
cajunmike
Posts: 4
Joined: Wed Apr 17, 2013 3:29 pm

Re: 100% equities, anyone?

Post by cajunmike »

"Volatility depresses compound annual growth compared to what? " Compared to simple average return.

Like I said, this all explained in Asset Allocation, 4th Ed. by Roger Gibson, Chapter 7. "The dampening of portfolio volatility in turn has a beneficial impact on the compound return of the portfolio relative to its components."

In chapter 13 he says why a single asset class portfolio, such as 100% stocks, is a buy and hold strategy that puts the investor at the worst possible asset allocation at market tops and bottoms. Then he goes on to explain the advantages of portfolio rebalancing.

Do efficient frontier charts take rebalancing into account? The ones I've seen don't. If you compare 2 portfolios, one all stocks, and another with stocks and something else like bonds, and do not rebalance, and the stocks returned more than bonds over the time period studied, then the all stock portfolio will return more and have higher volatility. But when you factor in rebalancing, maybe not. When you add multiple uncorrelated asset classes, probably not. Multiple Asset Class investing is almost always done with some kind of rebalancing routine.

It just seems to me that 100% stocks AA takes on more risk than is necessary for a dubious return premium. Does anyone doubt that it's a higher risk strategy? No. Can it be demonstrated that for the last 100 years it has underperformed many multiple asset class strategies that include rebalancing. Yes. And this is if we ONLY consider Compound Annual Growth as the sole benchmark. If we then add in some of the other considerations investors must face (stress, retirement drawdowns, tax efficiency, RISK, probability and expected returns), 100% stock allocation looks even less optimal.
Carpe
Posts: 211
Joined: Tue Jun 16, 2009 3:38 pm

Re: 100% equities, anyone?

Post by Carpe »

UALflyer wrote:
Carpe wrote:Cults are certainly dangerous, but so are extreme financial positions.
You may want to re-read the Vanguard study, my posts as well as those of many other people here. You are arguing against imaginary points that noone has made, all because you are failing to understand objective data that's been presented to you.
I do apologize. Given your resistance to my comments on 100% equities, I just assumed that you were advocating 100% equities. It was certainly a good opportunity to highlight some of the issues with such a strategy. I'm pretty comfortable with my understanding of the article, related mathematical concepts, and the comments of the other posts in this thread, but thanks for the suggestion.
Carpe: pick, pluck, pluck off, gather
inbox788
Posts: 8372
Joined: Thu Mar 15, 2012 5:24 pm

Re: 100% equities, anyone?

Post by inbox788 »

cajunmike wrote:Do efficient frontier charts take rebalancing into account? The ones I've seen don't. If you compare 2 portfolios, one all stocks, and another with stocks and something else like bonds, and do not rebalance, and the stocks returned more than bonds over the time period studied, then the all stock portfolio will return more and have higher volatility. But when you factor in rebalancing, maybe not. When you add multiple uncorrelated asset classes, probably not. Multiple Asset Class investing is almost always done with some kind of rebalancing routine.
Excellent point. I've looked for rebalancing and efficiency frontier, but haven't come across a study that really looks at this combination over the long run. Those showing diversification benefit for rebalancing have been limited time periods where the stocks have unperformed bonds, and don't look at mostly stock holdings, but more balanced portfolios. Similarly, 100% equities studies have often looked at periods where average stock returns exceed bond returns. I'm guessing that looked over all long term historic periods, say rolling 20 or 30 year annual periods, we would see more years where stocks outperform, but by small margins. Frequency of rebalancing may also play a large role in performance. For the most part it's probably a wash and an academic matter that just needs to be referenced or researched.

For the current bond environment, I'm in the CD camp for the next few years, but the returns there are just as paltry with no chance of upside. With bonds, interest rates could potentially go lower.
patrick
Posts: 2594
Joined: Fri Sep 04, 2009 3:39 am
Location: Mega-City One

Re: 100% equities, anyone?

Post by patrick »

cajunmike wrote:"Volatility depresses compound annual growth compared to what? " Compared to simple average return.

Like I said, this all explained in Asset Allocation, 4th Ed. by Roger Gibson, Chapter 7. "The dampening of portfolio volatility in turn has a beneficial impact on the compound return of the portfolio relative to its components."
Simple average (presumably meaning arithmetic mean) is not something I often look at for investment returns. Historical returns are already quoted as compound annual growth. That is, the 9% or more per year that we see as the historical US stock market return is what it returned after being "depressed" by volatility -- and it is still much higher than bonds!
cajunmike wrote:In chapter 13 he says why a single asset class portfolio, such as 100% stocks, is a buy and hold strategy that puts the investor at the worst possible asset allocation at market tops and bottoms. Then he goes on to explain the advantages of portfolio rebalancing.

Do efficient frontier charts take rebalancing into account? The ones I've seen don't. If you compare 2 portfolios, one all stocks, and another with stocks and something else like bonds, and do not rebalance, and the stocks returned more than bonds over the time period studied, then the all stock portfolio will return more and have higher volatility. But when you factor in rebalancing, maybe not. When you add multiple uncorrelated asset classes, probably not. Multiple Asset Class investing is almost always done with some kind of rebalancing routine.

It just seems to me that 100% stocks AA takes on more risk than is necessary for a dubious return premium. Does anyone doubt that it's a higher risk strategy? No. Can it be demonstrated that for the last 100 years it has underperformed many multiple asset class strategies that include rebalancing. Yes. And this is if we ONLY consider Compound Annual Growth as the sole benchmark. If we then add in some of the other considerations investors must face (stress, retirement drawdowns, tax efficiency, RISK, probability and expected returns), 100% stock allocation looks even less optimal.
Just to be clear: When you talk about "multiple asset class" are you talking about adding cash and/or bonds? Or are you suggested some other asset class would be added as well?

If you did mean cash and/or bonds, why not go ahead and demonstrate the advantage? Tell us what percentage of stocks, bonds, and cash you could have used to get better performance than 100% stocks over the past 100 years in the US?

I don't have a 100 year table on hand, but looking at the data from 1928 through 2012 (http://people.stern.nyu.edu/adamodar/Ne ... retSP.html), here are the CAGR results I see with an annually rebalanced portfolio:

9.31% for a 100% stock portfolio
9.21% for a 95 stock, 5% bond portfolio
9.12% for a 95% stock, 5% cash portfolio
9.10% for a 90% stock, 10% bond portfolio
9.02% for a 90% stock, 5% cash, 5% bond portfolio
8.93% for a 90% stock, 10% cash portfolio
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: 100% equities, anyone?

Post by dbr »

I agree. I don't know anywhere that anyone believes adding cash and/or bonds to 100% stocks actually increases the return. It is totally plausible that the risk is significantly reduced relative to the reduction in return by doing this. As a generalization you can't benefit from non-correlation unless the added asset classes have both significant return and significant volatility. Bonds have neither and cash even less so (as seen in the numbers above).

At the opposite end of the efficient frontier it is well known that adding stocks to all bonds increases the expected return (as it should) but can also reduce the risk (not necessarily obvious at first thought).
inbox788
Posts: 8372
Joined: Thu Mar 15, 2012 5:24 pm

Re: 100% equities, anyone?

Post by inbox788 »

patrick wrote:If you did mean cash and/or bonds, why not go ahead and demonstrate the advantage? Tell us what percentage of stocks, bonds, and cash you could have used to get better performance than 100% stocks over the past 100 years in the US?

I don't have a 100 year table on hand, but looking at the data from 1928 through 2012 (http://people.stern.nyu.edu/adamodar/Ne ... retSP.html), here are the CAGR results I see with an annually rebalanced portfolio:

9.31% for a 100% stock portfolio
9.21% for a 95 stock, 5% bond portfolio
9.12% for a 95% stock, 5% cash portfolio
9.10% for a 90% stock, 10% bond portfolio
9.02% for a 90% stock, 5% cash, 5% bond portfolio
8.93% for a 90% stock, 10% cash portfolio
Thanks for providing the link with data. I see the annual stock and bond returns, but how did you get the annually balance the portfolio? Is it across the entire data timeframe?
User avatar
mickeyd
Posts: 4898
Joined: Fri Feb 23, 2007 2:19 pm
Location: Deep in the Heart of South Texas

Re: 100% equities, anyone?

Post by mickeyd »

In my crazy years I was about 95/05 and really got beat up a number of time because of this aggressive AA. I saw a number of peaks and valleys in that time, but it taught me a very valuable lesson that I shall never forget~ The stock market ALWAYS comes back better than it was before and it was all about time horizon.

I now sit here with a saner 60/40 AA and living with the Boglehead philosophy 24/7. Wiser than I was then.
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle
inbox788
Posts: 8372
Joined: Thu Mar 15, 2012 5:24 pm

Re: 100% equities, anyone?

Post by inbox788 »

mickeyd wrote:In my crazy years I was about 95/05 and really got beat up a number of time because of this aggressive AA. I saw a number of peaks and valleys in that time, but it taught me a very valuable lesson that I shall never forget~ The stock market ALWAYS comes back better than it was before and it was all about time horizon.

I now sit here with a saner 60/40 AA and living with the Boglehead philosophy 24/7. Wiser than I was then.
Did you rebalance? How often when you had 95/5? How about now?
tj-longterm
Posts: 592
Joined: Tue Apr 10, 2007 10:10 am

Re: 100% equities, anyone?

Post by tj-longterm »

I sat through the 2008 crash with 100% equities and didn't do any selling other than tax-loss harvesting into other funds. I slept fine, even though it's a fairly good amount that's invested. I am also young and won't be touching the money for 30+ years.

I do/did wish I had some bonds to rebalance away from during stock market crashes, but I think yields are too low to bother to use them to simply try to claim a rebalancing bonus. I'm also primarily in taxable accounts -- and I suspect that the tax costs of rebalancing minimize any rebalancing bonus.
User avatar
mickeyd
Posts: 4898
Joined: Fri Feb 23, 2007 2:19 pm
Location: Deep in the Heart of South Texas

Re: 100% equities, anyone?

Post by mickeyd »

inbox788 wrote:
mickeyd wrote:In my crazy years I was about 95/05 and really got beat up a number of time because of this aggressive AA. I saw a number of peaks and valleys in that time, but it taught me a very valuable lesson that I shall never forget~ The stock market ALWAYS comes back better than it was before and it was all about time horizon.

I now sit here with a saner 60/40 AA and living with the Boglehead philosophy 24/7. Wiser than I was then.
Did you rebalance? How often when you had 95/5? How about now?

I don't recall much rebalancing in those days because I was so undisciplined. I now rebalance regularly according to my written IPS.
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle
inbox788
Posts: 8372
Joined: Thu Mar 15, 2012 5:24 pm

Re: 100% equities, anyone?

Post by inbox788 »

mickeyd wrote:
inbox788 wrote:
mickeyd wrote:In my crazy years I was about 95/05 and really got beat up a number of time because of this aggressive AA. I saw a number of peaks and valleys in that time, but it taught me a very valuable lesson that I shall never forget~ The stock market ALWAYS comes back better than it was before and it was all about time horizon.

I now sit here with a saner 60/40 AA and living with the Boglehead philosophy 24/7. Wiser than I was then.
Did you rebalance? How often when you had 95/5? How about now?

I don't recall much rebalancing in those days because I was so undisciplined. I now rebalance regularly according to my written IPS.
Guilty of being undisciplined here as well. Also of being lazy about rebalancing. With small percentage change and low improvement or harm to performance from small addition of bonds, it was another excuse not to do it. Furthermore, the total account value was relatively low, so even if there was a difference, the actual dollars less so. As account value grows, discipline is ever more important. Figured 10% increments was adequate vs 5% or even 1%. Will have to verify how often those target date funds rebalance. I thought it was annually, but according to a a vanguard study quoted around here, it seemed that quarterly was optimal/maximal overall past return.
Elysium
Posts: 4120
Joined: Mon Apr 02, 2007 6:22 pm

Re: 100% equities, anyone?

Post by Elysium »

If we can market time out of bonds into CD's based on bond market valuations, isn't that same as market timing out of equities into fixed income based on stock market valuations? may be someone can explain how it is different, is fixed income market not efficient as much as stock market? Or this is not marke timing, but prudent tactical asset allocation? another name used by some for market timing. Lastly, how do we go about buying CD's in our 401(k) accounts and IRA accounts?
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: 100% equities, anyone?

Post by grabiner »

Dieharder wrote:If we can market time out of bonds into CD's based on bond market valuations, isn't that same as market timing out of equities into fixed income based on stock market valuations? may be someone can explain how it is different, is fixed income market not efficient as much as stock market?
The difference is that some investments are not marketable, and some investments have different market values to different investors. If a five-year CD offers a higher return than a five-year Treasury bond, and you know that you won't need the money for five years, the five-year CD is a better investment as long as you are within the FDIC insurance limit. If you work for the US Goverment, the TSP G fund, which is not available to the general public, may be your only bond investment, as it has the same return as an intermediate-to-long Treasury fund but none of the risk. With the current 0% yield on I-Bonds and negative yields on all but the longest TIPS, I-Bonds are a better investment for most purposes.
Wiki David Grabiner
michaelsieg
Posts: 625
Joined: Mon Jan 07, 2013 10:02 am

Re: 100% equities, anyone?

Post by michaelsieg »

cajunmike wrote
"Volatility depresses compound annual growth compared to what? " Compared to simple average return.
dbr wrote

I agree. I don't know anywhere that anyone believes adding cash and/or bonds to 100% stocks actually increases the return.
Patrick wrote
Simple average (presumably meaning arithmetic mean) is not something I often look at for investment returns. Historical returns are already quoted as compound annual growth. That is, the 9% or more per year that we see as the historical US stock market return is what it returned after being "depressed" by volatility -- and it is still much higher than bonds!
There was a recent interesting discussion about the influence of volatilty on compound annual growth (http://www.bogleheads.org/forum/viewtop ... 0&t=116038)- the initial image shows 3 curves with identical annual return but different volatility that leads to different compound returns. So reducing the volatility drag can have a real impact on your portfolio performance - after reading the above quoted discussion, even an aggressive investor (which I am not) but someone like UALflier, who has a really high risk tolerance and a long time horizon, could consider to have "bonds or bond equivalent" assets in his portfolio with the aim to reduce portfolio volatility and rebalance according to an IPS, the risk will be lower and returns could be nearly the same as an 100% equity portfolio. But in extreme downward market swings one could get way ahead with a more balanced strategy.
sadie wess
Posts: 320
Joined: Wed Jan 19, 2011 8:42 am

Re: 100% equities, anyone?

Post by sadie wess »

Random Musings wrote:
Grt2bOutdoors wrote:No and after today's WSJ article about the record levels of margin being used ($379.5 billion) just shy of the record reached in 2007 prior to the crash, I would decline to be that exposed.
It will be different this time. Really. Margin is being used in a more responsible way.

My cab driver Ben told me.

RM
You are cracking me up, RM. Thanks.

Regards,

Sadie
Trev H
Posts: 1896
Joined: Fri Mar 02, 2007 9:47 pm

Re: 100% equities, anyone?

Post by Trev H »

Considering Cash (other than immediate spending needs)...

My emergency fund is (4 months) in cash - some at local bank (2 months), then another 2 months in a web bank (earns a bit higher interest) then my last 2 months is actually invested in Wellesley Income fund at Vanguard.

My 403b and rollover IRA and Roth are at 100% Equities, spilit 50/50 US/International, 50/50 Large/Small, 50/50 Market/Value.

My Wife's IRA is setup 60% Equities, 40% Bonds (small portion of our retirement savings).

So over all (considering all of that) very small % of cash/bonds - somewhere in the 5% range.

But then I own 230 acres of timber land which is timber rich (nice mature hardwood timber, white, red, oaks mostly) and this serves my needs for something fixed.

In the future when I do sell timber or land I will #1 wipe out the only debt I have (home mortgage which I around 60% equity in now) and #2 will also adjust my regular retirement savings by adding more bonds.

Trev H
Post Reply