Thoughts on 100% stock allocation for 33 year old

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spliffyjones
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Thoughts on 100% stock allocation for 33 year old

Post by spliffyjones » Sun Jul 13, 2014 9:57 am

Hello,

I was seeking a second opinion on being 100% invested in stocks at age 33.

I have a government thrift savings plan account (the equivalent of a private sector 401(k)) which I max out every year. I also max out my IRA and a spousal IRA. Currently, I have about $110,000 in all my retirement accounts. My plan is to retire at age 57, hopefully earlier if I can scrounge up the savings. I'm 33 years old. I'm 100% invested in stocks. I'm 50% invested in US total market funds and 50% invested in international total market funds.

I know John Bogle recommends that my bond allocation should equal my age. On the other hand, Burton Malkiel and Charles Ellis in The Elements of Investing take a more aggressive approach. Mr. Malkiel advises 90/10 (stocks/bonds) for someone in their 20s and 30s, while Mr. Ellis recommends 100% stocks. It appears their disagreement is based on psychology: Mr. Malkiel reasons that investing 10% in bonds helps investors stomach a major market downturn.

For me, a major market downturn would be scary, but what would be even more scary is not having enough money to retire.
Last edited by spliffyjones on Sun Jul 13, 2014 11:04 pm, edited 4 times in total.

cmr86
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Re: Thoughts on 100% stock allocation for 33 year old

Post by cmr86 » Sun Jul 13, 2014 11:06 am

Personally I would advise against it, and I'm a 27 year old.

100% equities sounds appealing on the surface, but bonds help temper the volatility by providing an opportunity to rebalance. I.e. If there was a major crash tomorrow, and equities sunk like a ship, chances are bonds would not. Upon rebalancing, you would be able to immediately scoop up some more shares of your equity holdings and a reduced cost. This is a good thing once those funds go back up (and they will).

With a 100% equity allocation, you may not be able to take advantage of that, and really 10-20% in bonds isn't going to change your return that much.

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BolderBoy
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Re: Thoughts on 100% stock allocation for 33 year old

Post by BolderBoy » Sun Jul 13, 2014 11:20 am

spliffyjones wrote:For me, a major market downturn would be scary, but what would be even more scary is not having enough money to retire.
You are the one who has to sleep at night with the choices you make now. The research is pretty clear: 100% equities (widely diversified, such as Total Stock Market Index) only comes out a few percentage points ahead of a 50:50 AA of something like Total Stock and Total Bond over the long term (and at your age you are looking at "long term".)

If those few percentage points alone will make or break your retirement, you are cutting it too close anyway and need to make other moves now. Remember that the AMOUNT being saved is key and trumps the other measures. If you want to stretch for some yield, consider a 70:30 AA. We've heard countless stories of someone who was 100% in equities, watched 20% of it disappear, pulled it all out and missed the recovery and has been timid ever since.

My first foray into investing in 1980 resulted in that and I didn't get back in until 1992.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by ruralavalon » Sun Jul 13, 2014 11:27 am

Welcome to the forum :) .

Your question is a perennial one, often asked and always good for some debate.

My thought on 100% stock allocation for 33 year old: don't do it.

Its easy to overestimate your risk tolerance before you have actually experienced a market melt-down, so be careful about this.

Here are some general ideas, called "rules of thumb", to consider. "Any rule of thumb is only a starting point for decision making, not the end": wiki, on risk.

I think its important to know what people actually do, not just what they say to do, Here is a graph and chart summarizing what Bogleheads do: 2011 regression, "% Stocks vs Age". At age 33, something in the area of 80/20 or 75/25 would be typical.

Here is a graph of risk vs performance: "An Efficient Frontier: the power of diversification. Notice how even fairly small bond allocations greatly reduce risk, with only a little impact on expected gains.
Last edited by ruralavalon on Sun Jul 13, 2014 11:30 am, edited 1 time in total.
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Re: Thoughts on 100% stock allocation for 33 year old

Post by brigboy » Sun Jul 13, 2014 11:27 am

I'm 23 and I'm inclined to go 100% stocks (after all THESE ARE mutual funds....broadly diversified as it is, not like we're buying individual stock) but per the recommendation of a thread I made on my situation I was convinced to do 80-20 (stocks-bonds) in my 401(k), but I'm 100% equity in my Roth IRA.

I'm open to still doing 100% stocks (S&P500 - not even anything fun or exciting) but I suppose if the market tanks, I can convert all my bonds over to equity :).

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Re: Thoughts on 100% stock allocation for 33 year old

Post by Paul Basenberg » Sun Jul 13, 2014 11:43 am

I think I read somewhere ( don't have a link) that 80/20 stock/bond allocation is optimal for a young person. Rebalance periodically. The study said that 100% stock will get you little, if any, extra return. This is all based on the premise that you can stay the course until you are older, say in your 40's. Sorry I can't provide more detail.


Regards,
Paul

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Re: Thoughts on 100% stock allocation for 33 year old

Post by brigboy » Sun Jul 13, 2014 11:46 am

Paul Basenberg wrote:I think I read somewhere ( don't have a link) that 80/20 stock/bond allocation is optimal for a young person. Rebalance periodically. The study said that 100% stock will get you little, if any, extra return. This is all based on the premise that you can stay the course until you are older, say in your 40's. Sorry I can't provide more detail.


Regards,
Paul
Even if you're doing a vanilla S&P 500 or Total Stock Market Index?

I don't see how introducing bonds helping at all, if anything, it would lower the yields significantly no? I'm basing this off of S&P500's long term average growth (some 7% or whatever that number is).

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Re: Thoughts on 100% stock allocation for 33 year old

Post by BolderBoy » Sun Jul 13, 2014 12:32 pm

brigboy wrote:I'm open to still doing 100% stocks (S&P500 - not even anything fun or exciting) but I suppose if the market tanks, I can convert all my bonds over to equity :).
This is called, "Market Timing".

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Re: Thoughts on 100% stock allocation for 33 year old

Post by BolderBoy » Sun Jul 13, 2014 12:36 pm

brigboy wrote:I don't see how introducing bonds helping at all, if anything, it would lower the yields significantly no? I'm basing this off of S&P500's long term average growth (some 7% or whatever that number is).
Won't lower yields significantly over the LONG TERM. And the other side of "helping" is "not hurting".

Few people who claim courage BEFORE a big market meltdown, maintain that courage AFTER - by when it is too late.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by Ron » Sun Jul 13, 2014 12:46 pm

From the time that I/wife started investing for retirement (both at age 34), we held a 90/10 (90% equity) AA target.

A few years before actual retirement (for me at age 59, wife at age 64), we dropped our joint AA target to 60/40 (60% equity).

Now, at age 66 for both of us, and a few years of retirement under our belt (me 7+ years, wife 2+ years) our target AA is 50/50.

When you're young, investing, and have a job that supports your income needs you can take a risk to have more in equities - assuming it meets your personal risk profile.

Upon getting close to retirement (and in retirement), most folks will cut back on equities; however how much they cut back is based upon their own circumstances. In our case, while we still have a 50% equity target (which has gone to +53% due to recent gains), we can afford the risk since most of our retirement income sources have come on-line and we've gotten away from providing the great majority of our needed income from our respective retirement portfolios. In addition, since we're on Medicare, our medical expenses have been greatly reduced when compared to our pre-Medicare years.

FWIW,

- Ron

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Re: Thoughts on 100% stock allocation for 33 year old

Post by KyleAAA » Sun Jul 13, 2014 12:48 pm

You were presumably investing and were 100% stocks in 2008. How did you react then? If you shrugged it off, I say go for it. I was 90% stocks in 2008 and I barely even noticed when I was down 50%. Consequently, I feel extremely confident I will react appropriately during the next crash. The silver lining of 2 large crashes within a decade of each other is that most of us don't have to guess how we will react in a crisis: we know.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by berntson » Sun Jul 13, 2014 12:59 pm

BolderBoy wrote: The research is pretty clear: 100% equities (widely diversified, such as Total Stock Market Index) only comes out a few percentage points ahead of a 50:50 AA of something like Total Stock and Total Bond over the long term (and at your age you are looking at "long term".)
Well, it depends what you mean by "the research" and "a few percentage points." The last 35 years have been a bond investing Nirvana and have, I suspect, given investors unrealistic expectations for the performance of bond-heavy portfolios. Take a look at this graph from the 2013 Credit Suisse yearbook.

Image

Since 1980, the real return of 20-year bonds has kept pace with equities. So of course holding a 50/50 portfolio instead of a 100/0 portfolio didn't hurt returns much. Heck, with bond returns like that, who needs any stocks at all?

The problem, as the paper containing this chart shows, is that the spread between stocks and bonds has historically been much higher, since 1900 and across the 26 countries covered by the yearbook. There is no reason to expect the good luck for bond investors to continue.

The right side of the chart shows the authors' expected returns going forward (which, in my opinion, are very reasonable, if a bit on the low side). Given their expectations, a globally diversified 100/0 portfolio can be expected to return about 3.5% a year in real terms going forward. A 50/50 portfolio can be expected to return about 2%.

Assuming equal yearly contributions, that extra 1.5% yearly return translates into a portfolio that is about 15% larger after 25 years. Of course, there are no guarantees. But an extra 15% is nothing to sneeze at. It means that a retiree can have a lower (and hence safer) withdrawal rate in retirement. Myself, I would rather take more risk now, while I'm young, with the expectations of being able to take less risk in retirement.

Something you (the OP) might consider doing is "lumping" your finances. I'm in my 30s and hold basically a 90/10 portfolio, but the 10 includes all of my cash (my emergency cash, my spending cash, the cash in my wallet, the loose change in my couch...).

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Re: Thoughts on 100% stock allocation for 33 year old

Post by retiredjg » Sun Jul 13, 2014 1:22 pm

spliffyjones wrote:For me, a major market downturn would be scary....
This is the answer to your question. 100% stocks is not right for you. Or really anybody else - with the possible exception of someone who has gone all the way through a crash at something like 80/20 without even a care.

...but what would be even more scary is not having enough money to retire.
It is a mistake to believe that your comfort in retirement is related to being 100% stocks. It is not. In fact, the opposite may be true for many. Your comfort in retirement will be based on how much you save, how early you start saving, keeping your costs (including taxes) low, holding a stock to bond ratio that is comfortable in the good times as well as the bad times, and making optimal use of your tax-deferred savings opportunities.

There are some other things that contribute, but being 100% stocks is not one of them. If it were that simple, everybody could just own 100% stocks forever and everybody would have enough money to retire. I hope you know it does not work that way.

Here are two old threads from people like you asking the same question. One is particularly useful because it reflects the opinions of people who are just seeing the light at the end of the tunnel after a major stock crash.

http://www.bogleheads.org/forum/viewtopic.php?p=538014

http://www.rickferri.com/blog/investmen ... own-bonds/

By the way, you say "a major market downturn would be scary" as if it might not happen. Would be scary? No...it WILL be scary. This IS going to happen and it will happen more than once if you live a normal lifetime. Don't invest for the market as it is today. Invest for the next crash.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by billfromct » Sun Jul 13, 2014 1:59 pm

If you can stomach a 50% stock market down turn, at age 33, I would be 100% in equities in my retirement accounts. As you get closer to retirement (15 years or so) then you start to move to an appropriate bond allocation. Over the long term, bonds will provide the return of their interest rate. I wouldn't want to lock in 2.5% or 3.5% return for the next 10 or 20 years. You're not going to take this retirement money out for 25-30 years.

It's not like you're locking in 14% back in 1982. Treasury bonds went from 14% to a low of 1.5% or so over those 30 years (I'm approximating), I doubt that Treasuries will go from 3.5% to .5% in the next 30 years (again I'm approximating & I'm sure someone will come up with the real numbers).

At age 33 I would not be 100% equities in my non-retirement accounts because you want some stability there in case you need to get at your money. I would be 20%-30% in short term bonds, CDs, etc.

bill

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Re: Thoughts on 100% stock allocation for 33 year old

Post by spliffyjones » Sun Jul 13, 2014 2:00 pm

These responses are fantastic, thank you. I'm still digesting them. And I want to thank everyone for putting up with me as I try to figure this out. I've found asset class allocation to be one of the hardest subjects to understand.

It seems there are two overall reasons for why an investor with a long time horizon should invest in bonds.

The first is investor psychology. Bonds presumably provide a cushion in the event of a major market decline, which makes a person less likely to panic and sell. I agree that nobody should over-estimate how they will react in a market downturn. I'm human. I get scared and nervous. But would only seeing 80% of my portfolio evaporate, instead of 100%, make much of a difference? I mean, if I'm going to panic, sell, and screw everything up, wouldn't I do it in either scenario?

The second reason is asset class re-balancing, but I think this raises another question: does the financial benefit of asset class re-balancing outweigh the financial cost of not being fully invested in stocks at an early age?

Also, one other point which was raised, and which was also mentioned in a subsequent edition to The Elements of Investing, is that the bond market is likely going to be suppressed for some time. Malkiel and Ellis even advise retirees to invest in blue chip dividend stocks instead of bonds. I don't understand bonds very well. I guess it makes sense that rising rates would lower bond values, although I don't know if market speculation might affect those assumptions (i.e. the expectation of rising rates is already priced into bonds). Is all the talk about the bond market just "market timing"? Or should I be concerned about it?

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Re: Thoughts on 100% stock allocation for 33 year old

Post by John3754 » Sun Jul 13, 2014 2:06 pm

spliffyjones wrote:But would only seeing 80% of my portfolio evaporate, instead of 100%, make much of a difference? I mean, if I'm going to panic, sell, and screw everything up, wouldn't I do it in either scenario?
Well, presumably if you had 80%-100% in stocks then you wouldn't see 80%-100% of your portfolio evaporate, 40%-50% is more likely. The fact is though, that if you think you could possibly panic and sell in either scenario (80% stock or 100% stock), then perhaps even 80% stock is too much for you. You should have enough ballast in your portfolio so that if 50% of your stocks were to evaporate you won't panic, so if 80% might be too much for you to handle then 100% is definitely too much.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by livesoft » Sun Jul 13, 2014 2:18 pm

spliffyjones wrote:I was seeking a second opinion on being 100% invested in stocks at age 33.
So you were 26 years old back in 2008. How were you invested then? Can you remember that far back?
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Re: Thoughts on 100% stock allocation for 33 year old

Post by Dandy » Sun Jul 13, 2014 2:21 pm

There are respected people on both sides - I think most who favor 100% for the young often mean people in their 20's. Some analysis I believe indicate that is not even the best allocation for maximizing gains over the long run - that at least 20% in bonds (fixed income to me) is a nice balance of risk and growth for those who are youngish and aggressive.

I was a moderate investor in my accumulation stage with a large allocation to a Stable Value fund in the early years and then as that base of fixed income and my compensation grew much more allocated to equities - never passing 60%. I was fortunate that interest rates on fixed income were high and we had a bull equity and bond market most of the time. Job security, pension and employer paid health benefits were also much better.

It is a tough choice - if you are not sure, it is better to be a bit more conservative and focus on what you can control: living below your means, staying out of unnecessary debt, saving in mid double digits in low cost diversified index funds.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by Dandy » Sun Jul 13, 2014 2:21 pm

There are respected people on both sides - I think most who favor 100% for the young often mean people in their 20's. Some analysis I believe indicate that is not even the best allocation for maximizing gains over the long run - that at least 20% in bonds (fixed income to me) is a nice balance of risk and growth for those who are youngish and aggressive.

I was a moderate investor in my accumulation stage with a large allocation to a Stable Value fund in the early years and then as that base of fixed income and my compensation grew much more allocated to equities - never passing 60%. I was fortunate that interest rates on fixed income were high and we had a bull equity and bond market most of the time. Job security, pension and employer paid health benefits were also much better.

It is a tough choice - if you are not sure, it is better to be a bit more conservative and focus on what you can control: living below your means, staying out of unnecessary debt, saving in mid double digits in low cost diversified index funds.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by Mordoch » Sun Jul 13, 2014 2:25 pm

spliffyjones wrote: The second reason is asset class re-balancing, but I think this raises another question: does the financial benefit of asset class re-balancing outweigh the financial cost of not being fully invested in stocks at an early age?
The answer on this one is the odds are clearly not, although this might reduce the likely disparity between bonds and stocks somewhat in the long run. (The key catch though is you have to be actually willing to re-balance by selling bonds and buying stocks after the market has possibly dramatically crashed though, which can end up being easier said now than actually done if this occurs.)

There is an additional general argument against 100% stocks though in that you run into issues if you suddenly have a need to spend more money than you expected after a market crash. (Presumably this approach starts with a significant emergency/general cash type fund outside of what you calculate as your investments, but if you have a need to go at all beyond this you can end up stuck selling stocks at a heavy discount rather than having any bond assets available as an option. Admittedly this is a less compelling argument with a 401k account and even with a Roth account touching this should be a last resort, but it certainly applies if you have any taxable assets on top of this.)

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Re: Thoughts on 100% stock allocation for 33 year old

Post by Toons » Sun Jul 13, 2014 2:28 pm

"For me, a major market downturn would be scary, but what would be even more scary is not having enough money to retire"

The biggest risk is running out of money before you run out of time. :happy

If I was 33 ,speaking for myself, with decades of investing ahead of me I would be 100% equities,and I would consider a downturn or extended bear market just another wonderful opportunity ,as we have seen in the past,
to buy shares at depressed prices. :happy
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Re: Thoughts on 100% stock allocation for 33 year old

Post by retiredjg » Sun Jul 13, 2014 2:42 pm

spliffyjones wrote: But would only seeing 80% of my portfolio evaporate, instead of 100%, make much of a difference? I mean, if I'm going to panic, sell, and screw everything up, wouldn't I do it in either scenario?
As mentioned, it might be only half of that.

So imagine you have $100,000 and a crash happens and you find you only have $60,000 left. Then a few months later you only have $50,000. Obviously having $60k left is better but that is not all that is involved.

Try to feel this....as the market sinks your money goes down and down and down and you hit $60k and it keeps going down and down and you approach $50k several weeks or months later. It is not just the loss of the extra $10k, it is also the stress of more and more weeks or months at a value that you simply cannot believe. Where the heck did my money go? How on earth did I get here?

Are you more likely to capitulate (sell your remaining stocks) at $60k or at $50k? You many not think there is a difference. But if you find yourself in this position, it may look very different to you then.

On the other hand, there are many people who would have little trouble with this drop to $50k. The trouble is you don't know if you are one of them or not.

There is one theory that new people should invest at 60% stocks/40% bonds until their first major crash. After the crash is over, you should know if you can be more aggressive or not. The beautiful thing about this idea is that it really doesn't matter much what your stock to bond allocation is when you are just starting out - so this idea fits in very nicely - there is little or nothing to lose by using this method.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by longinvest » Sun Jul 13, 2014 3:14 pm

ruralavalon wrote: Here is a graph of risk vs performance: "An Efficient Frontier: the power of diversification. Notice how even fairly small bond allocations greatly reduce risk, with only a little impact on expected gains.
Actually, this graph can be a little misleading to someone that doesn't fully understands what it presents, in that it overstates (somehow) the return of 100% equities. Let me explain.

The vertical axis reports on Average Annual Returns. What a portfolio would have composed at is Average Annualized Returns, instead.

Here's a fun explanation of the difference: Average vs Annualized Gains.

An approximate value of Average Annualized Return can be calculated using the formula:

Annualized Return = Annual Return - (standard deviation^2)/2

So, this gives us, approximately:

100% equities: annualized return = 11.1% (was 12.5% average annual)
50% equities: annualized return = 10.3% (was 10.8% average annual)

See how the annualized returns are closer than the average annual returns: you get a modest 0.8% boost in returns from a significant increase in volatility.

This is what one would expect. On one hand, the riskier portfolio has higher returns and higher volatility. On the other hand, the more you steer away from the tangency portfolio (a balanced portfolio of stocks and bonds), the less you gain in returns relative to the increase in volatility.

I'll repeat this differently: You'll have to tolerate increasingly more volatility in order to gain modest returns above a balanced portfolio.

That's why our Bogleheads Investment Philosophy says to Never bear too much or too little risk and reminds us the advice of Benjamin Graham, a great investor: "We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequence inverse range of 75% to 25% in bonds."

When you start investing for retirement and you only have a small portfolio, volatility usually has very little impact on your portfolio, in that your regular contributions will probably be large enough to cover any loss incurred by your portfolio since the previous contribution. So, you'll end up only seeing an increasing balance. Nice! But, once your portfolio gets bigger, things change. If you have a $1,000,000 portfolio and it drops to $500,000, you can't expect your regular contributions to hide this kind of volatility.

That was just some additional food for thought.

Have a nice investment journey!
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Re: Thoughts on 100% stock allocation for 33 year old

Post by pkcrafter » Sun Jul 13, 2014 3:50 pm

Spliffy, at age 33 I think the decision to go 100% stock requires assumptions that aren't warranted.
For me, a major market downturn would be scary,

Someone making this statement should not even consider 100% stock.

Judging a portfolio based only on possible returns without also considering the attached risks is a big mistake.

Paul
Last edited by pkcrafter on Sun Jul 13, 2014 4:06 pm, edited 2 times in total.
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Re: Thoughts on 100% stock allocation for 33 year old

Post by SamB » Sun Jul 13, 2014 3:52 pm

If you had 33 years of experience to match your age, successfully navigating all of the financial land mines, and you rationalized 100% equities, I would say go for it. If you think this decision is about average rates of return for asset classes, or groups of asset classes you would be wrong. Mainly it is about survival. And obsessing about some particular return premium which has been inferred from the past is pure folly. Mainly you should be concerned that whatever you own has some kind of market value when you need to consume it. Where does that leave a 100% equity portfolio? Do you think you can predict your required consumption over the next thirty years? Good luck with that.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by berntson » Sun Jul 13, 2014 4:02 pm

longinvest wrote:
ruralavalon wrote: Here is a graph of risk vs performance: "An Efficient Frontier: the power of diversification. Notice how even fairly small bond allocations greatly reduce risk, with only a little impact on expected gains.
Actually, this graph can be a little misleading to someone that doesn't fully understands what it presents, in that it overstates (somehow) the return of 100% equities.
It's also misleading because the data is from the greatest bond bull markets (1980-2014) in human history. This is representative of bonds returns in the past and across markets and isn't representative of how they should be expected to return in the future.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by tld74 » Sun Jul 13, 2014 4:11 pm

Certainly as a government employee who is eligible for a pension, you are able to take on some more risk than others because you may want to consider the pension as part of your bond allocation. Just for the purposes of an example, if I suggested a typical 33 year old use a 70% stock/30% bond split then you could reduce that bond percentage based on the current value of your pension assuming you are already vested in it. Based on my example, if the current value of the pension is 30% or more of your total portfolio, you may be okay without having additional bonds. If it is less than 30%, you may want to make up the difference by investing in bonds. Figuring out the current value of the pension yearly in relation to your overall portfolio could cause you to adjust how much you invest in bonds on your own over time.

That is just an example if you choose to be more aggressive. Only you know what risk you are willing to take. I would be more conservative by nature. I would be worried that my expected pension could be reduced or eliminated (I realize that is unlikely) and I would be concerned that I could not rebalance if I had all of my money in stocks.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by berntson » Sun Jul 13, 2014 4:20 pm

Bonds (or at least nominal bonds) are not always the fail-safe that investors think they are. For instance, take the performance of a 50/50 portfolio in the UK. During the 1970s, it lost 60% of its value in real terms. Even investors with bond-heavy allocations should be prepared to lose half their portfolios in a crisis.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by Trader Joe » Sun Jul 13, 2014 4:20 pm

I think this is a good strategy. Time is on your side.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by spliffyjones » Sun Jul 13, 2014 4:35 pm

livesoft wrote:
spliffyjones wrote:I was seeking a second opinion on being 100% invested in stocks at age 33.
So you were 26 years old back in 2008. How were you invested then? Can you remember that far back?
In 2008, I had a Roth IRA with small and mid cap stocks. Maybe $30,000 or so. When the market tanked in October, I'm sure I lost a lot of value. But I didn't do anything. I was oblivious and quite passive. Since 2003 when it was set up, aside from making some contributions, I didn't have any account activity until last month (I decided to switch from all small/mid cap stocks to half US total market and half international total market).

I don't think it was enough money for me to care. It was 30,000 dollars locked up in some account somewhere which I couldn't touch anyway. It didn't even feel like money. It's probably the same with the $100,000 or so I have now. If I lost $50,000, $60,000, or $90,000 overnight, so what? It's not like I can retire on it. I can't even withdraw most of it (I guess I could take a premature distribution on the IRA and get nailed with taxes/penalties, which I would have to be crazy to do because I'm in a high tax bracket).
Last edited by spliffyjones on Sun Jul 13, 2014 5:17 pm, edited 1 time in total.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by conlius » Sun Jul 13, 2014 4:49 pm

I'm 29 and I run 20% bonds. I like the idea of my portfolio auto-rebalancing into equities if they drop significantly. I like having 10% BND and 10% TIPS, then another 10% in REITs because most of those do not correlate perfectly with each other or with the other 70% of my portfolio in a 60/40 split with US/Ex-US.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by John3754 » Sun Jul 13, 2014 4:52 pm

spliffyjones wrote:For me, a major market downturn would be scary...
spliffyjones wrote:If I lost $50,000, $60,000, or $90,000 overnight, so what?
So which is it, would a major market down turn scare you, or would you say "so what"? You say you have $100,000 now, what if you had $300,000 and lost $150,000...or what if you had $500,000 and lost $250,000, would you still say "so what", or would you be scared?
Last edited by John3754 on Sun Jul 13, 2014 4:53 pm, edited 1 time in total.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by grabiner » Sun Jul 13, 2014 4:52 pm

spliffyjones wrote:
livesoft wrote:
spliffyjones wrote:I was seeking a second opinion on being 100% invested in stocks at age 33.
So you were 26 years old back in 2008. How were you invested then? Can you remember that far back?
In 2008, I had a Roth IRA with small and mid cap stocks. Maybe $30,000 or so. When the market tanked in October, I'm sure I lost a lot of value. But I didn't do anything. I was oblivious and quite passive. Since 2003 when it was set up, aside from making some contributions, I didn't have any account activity until last month (I decided to switch from all small/mid cap stocks to half US total market and half international total market).
And that is the test. If you can stick with 100% stock after losing half your portfolio value, then it is a reasonable strategy. But if you weren't paying attention then, I would be concerned about your reaction now that you are paying attention. (Did you make your regular Roth IRA contribution in January 2009, for example? That would indicate that you were paying enough attention to the portfolio to put more money into stock at the bottom of a bear market, which is the right strategy.)
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Re: Thoughts on 100% stock allocation for 33 year old

Post by SJCX » Sun Jul 13, 2014 4:52 pm

I'm actually in close to the same boat as you but I'm 43. Me and my wife both have TSP accounts we max out, we both max out Roth IRAs with Vanguard and we have a joint taxable account with Vanguard(50% VTI-50%VBK). I''m 100% equities and have been since I started investing in 1994. I went through 9-11 and the 08 crash and it really didn't bother me at all knowing how much time I had left. Since you have a TSP account I'm guessing you'll also get a pension? I'd argue that a pension eases the fear of 100% equities and somewhat replaces bonds. I'm also completely debt free and have a paid off house and can live on a very low income.

As I get closer to retirement I am planning on putting a few 100K in the G fund and rolling the rest over to an IRA that I can slowly roll into our Roth IRAs each year(holding off on SS as long as possible). Although I'll need to talk to an accountant I was planning on getting monthly withdraws from our G funds and not even touch the equities unless we want to make a large purchase or travel etc.... I plan on letting my nest egg grow and continue to invest through retirement and leave it to my heirs.

If you get a pension and control your debt I do not believe 100% equities is a problem at all.

I'm 100% in index funds and ETFs to also lessen to risk.

P.S.
In the office I work in we all talk pretty openly about retirement etc.... and I, followed closely by my wife have the largest TSP amounts by a very large margin, and some have worked a lot longer than us but they are afraid and have large portions in Bonds and the G funds.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by spliffyjones » Sun Jul 13, 2014 5:40 pm

grabiner wrote:
spliffyjones wrote:
livesoft wrote:
spliffyjones wrote:I was seeking a second opinion on being 100% invested in stocks at age 33.
So you were 26 years old back in 2008. How were you invested then? Can you remember that far back?
In 2008, I had a Roth IRA with small and mid cap stocks. Maybe $30,000 or so. When the market tanked in October, I'm sure I lost a lot of value. But I didn't do anything. I was oblivious and quite passive. Since 2003 when it was set up, aside from making some contributions, I didn't have any account activity until last month (I decided to switch from all small/mid cap stocks to half US total market and half international total market).
And that is the test. If you can stick with 100% stock after losing half your portfolio value, then it is a reasonable strategy. But if you weren't paying attention then, I would be concerned about your reaction now that you are paying attention. (Did you make your regular Roth IRA contribution in January 2009, for example? That would indicate that you were paying enough attention to the portfolio to put more money into stock at the bottom of a bear market, which is the right strategy.)
You're right, I wasn't really paying attention. I knew that I had a Roth which was probably losing money, but that was it. I didn't make any contributions in 2008 or 2009.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by Peter Foley » Sun Jul 13, 2014 5:52 pm

ruralavalon wrote:
My thought on 100% stock allocation for 33 year old: don't do it.

Its easy to overestimate your risk tolerance before you have actually experienced a market melt-down, so be careful about this.
I agree. In addition, as cmr86 stated
bonds help temper the volatility by providing an opportunity to rebalance
I feel you don't really appreciate your true risk tolerance until you go through a market downturn with a significant portion of your net worth in the market. While rebalancing is primarily a diversification tool, it also has the potential to increase your return.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by Trailbreaker1 » Sun Jul 13, 2014 6:03 pm

Elements of investing is a great book! I'm 100% stocks and feel good about it since I have 25+ years to invest. Put your investments on autopilot every month and stay the course. Focus more on working, family and find some hobbies you enjoy to keep you pre occupied instead of watching CNBC during the next downturn.
My portfolio | Vanguard TSM index (40%), Vanguard TISM index (20%), Vanguard small cap value index (20%), Vanguard EM index (10%), Vanguard REIT index (10%).

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Re: Thoughts on 100% stock allocation for 33 year old

Post by Professor Emeritus » Sun Jul 13, 2014 6:11 pm

As I have said previously talking about portfolio asset allocation is a total complete waste of time unless you analyze your entire financial structure.
What are your non portfolio assets and liabilities?
E.g. Virtually everyone in T SP ALSO has a FERS DB pension.

My DW's FERS pension and social security are worth just about the same as her TSP portfolio.
I also have a DB pension and we own a house.
As a result we are very comfortable with 100% stock in they TSP
But no one should ever analyze portfolio asset allocation first.

That is putting the horse manure before the horse and far before the cart.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by grabiner » Sun Jul 13, 2014 6:18 pm

Professor Emeritus wrote:As I have said previously talking about portfolio asset allocation is a total complete waste of time unless you analyze your entire financial structure.
What are your non portfolio assets and liabilities?
E.g. Virtually everyone in T SP ALSO has a FERS DB pension.
Normally, I would agree with this. However, the OP's decision whether to hold 100% stock or not is a psychological decision, not a mathematical decision. Mathematically, 100% stock is fine at his age (particularly with his bond-like human capital and pension), but only if he sticks with 100% stock if the market crashes next year.
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Re: Thoughts on 100% stock allocation for 33 year old

Post by chameleon » Sun Jul 13, 2014 6:23 pm

I'm a little bit older than the OP and I second and third many of the comments on here advising against 100% equity. I decided on a 60/40 mix myself but bumped that up slightly to 65/35. The reason for my relatively conservative allocation is that the market is fairly high right now. While we won't know how long the bull run will last a correction down the road is inevitable. It's better not to get too greedy with the allocation.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by jasonv » Sun Jul 13, 2014 6:24 pm

Consider what recent research has shed on this topic and decide for yourself:

http://wpfau.blogspot.com/2011/06/getti ... ement.html

Looking at Part B of the first table (35 year olds), does changing the stock allocation percentage from 80% to 100% make a significant different in the predicted retirement age? It is entirely up to you whether or not it is worth staying 100% in stocks.

It is also worth noting that if you are able to reach 4x your anticipated retirement expenses by age 35 and sustaining a 15% savings rate (the table assumes expenses will be 50% of income), then you will be right on track for retiring at 56!

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Re: Thoughts on 100% stock allocation for 33 year old

Post by MrMatt2532 » Sun Jul 13, 2014 6:30 pm

I personally think it is fine for most people under 40. Consider the following:
Say you are planing to retire at 65 spending around $80k per year or around $2M in financial assets. Typically, in retirement, around a 50/50 stock bond mix is held. So in this retirement scenario, you would be putting $1M in stocks, or putting $1M in high risk assets. I would argue that, if your current financial assets are less than $1M, then they should all be in stocks, as it would be no more risky than the risk you would be planning to take at retirement.

Obviously you can redo the example with your own numbers and goals, but the point still holds. Also, I agree with others in that, there is a psychological factor to consider as well. If you will sell after a big crash, this plan isn't for you. But maybe thinking about the problem and the risks in a different light as I have done in this example may put your mind at ease.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by hoppy08520 » Sun Jul 13, 2014 6:37 pm

longinvest wrote:
ruralavalon wrote: Here is a graph of risk vs performance: "An Efficient Frontier: the power of diversification. Notice how even fairly small bond allocations greatly reduce risk, with only a little impact on expected gains.
Actually, this graph can be a little misleading to someone that doesn't fully understands what it presents, in that it overstates (somehow) the return of 100% equities. Let me explain.....
Great explanation, thank you!

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Re: Thoughts on 100% stock allocation for 33 year old

Post by tainted-meat » Sun Jul 13, 2014 6:51 pm

I believe there is a hidden opportunity cost to owning bonds over stocks in the long-term.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by pkcrafter » Sun Jul 13, 2014 8:38 pm

Professor Emeritus wrote:
As I have said previously talking about portfolio asset allocation is a total complete waste of time unless you analyze your entire financial structure.
What are your non portfolio assets and liabilities?
E.g. Virtually everyone in T SP ALSO has a FERS DB pension.
This is a good reminder that choosing an AA is a complex decision based on many factors, so it pretty hard to pull a number out of a can--it ultimately comes down to each investors personal situation. But I also agree with grabiner that the OP seems to have some emotional feeling about risk, as most do, and he has not been tested sufficiently. Oddly, not knowing much about risk can prevent an emotional reaction, while understanding the risk can cause fear and trigger a reaction.



Paul
Last edited by pkcrafter on Mon Jul 14, 2014 9:18 am, edited 1 time in total.
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by Professor Emeritus » Sun Jul 13, 2014 9:26 pm

pkcrafter wrote:Professor Emeritus wrote:
As I have said previously talking about portfolio asset allocation is a total complete waste of time unless you analyze your entire financial structure.
What are your non portfolio assets and liabilities?
E.g. Virtually everyone in T SP ALSO has a FERS DB pension.
This is a good reminder that choosing an AA is a complex decision based on many factors, so it pretty hard to pull a number out of a can--it ultimately comes down to each investors personal personal situation. But I also agree with grabiner that the OP seems to have some emotional feeling about risk, as most do, and he has not been tested sufficiently. Oddly, not knowing much about risk can prevent an emotional reaction, while understanding the risk can cause fear and trigger a reaction.

Paul
FWIW His edited comments include I'm married with no kids. I have delayed buying a home because I might need money for fertility treatment (if it's going to cost more than $50K, I'm giving up, I'm not going to take money from the retirement accounts). My wife doesn't work.

I am going to limit my comments to saying that he has many more complex risk problems than the stock market.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by LongerPrimer » Sun Jul 13, 2014 11:06 pm

Saw DS's (29) home loan application. where he declares assets. It pays to be 100% equities. Go VTI and VUG.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by clevername » Sun Jul 13, 2014 11:32 pm

I'd like to point out that nobody ever asked any questions like this in 2008-2010 and it's a sign of the times that this question is popping up now here and in other circles. Anyone who is seriously considering adjusting their AA to 100/0 is operating under the same emotional influences that made many other people cut and run in the Recession and the turbulence afterward. Does anyone remember this classic thread? http://www.bogleheads.org/forum/viewtopic.php?t=79939

OP's question and today's market is the exact inverse of those rocky years not too long ago. OP should read it only switch the word "jitters" for "confidence" and understand that it is aimed at those who are feeling very comfortable.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by ogd » Mon Jul 14, 2014 2:48 am

These 100% stocks threads are getting exasperating.

Listen, there are two HUGE reasons other than psychology (itself not to be underestimated) to have some bonds:

1) you might need the money during a crash. As in, you get fired or get ill, both for the long term. The forced sale will be devastating and may well be the difference between the poor house and some degree of comfort. Do you really want to trade that in exchange for "more money if stocks do well", a situation in which you're already in good shape?

2) there are no guarantees that stocks rebound after any amount of time. Compare a stock certificate with a Treasury bond, no guarantees in sight for the former. If someone tells you that it's a certainty because of history blah blah, ask them for a written, notarized guarantee backed by THEIR personal fortune. Only then can you rightfully sleep well.

So don't do 100%. Add 20 or 30 percent bonds, which won't hurt your returns too badly and will be there for you when times generous. Unlike others above, I won't qualify this to depend on your worldview or vitamin levels. Just don't.

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Re: Thoughts on 100% stock allocation for 33 year old

Post by ofcmetz » Mon Jul 14, 2014 6:42 am

I'm 34 and would not recommend a 100% stock allocation. It's way to easy to overestimate ones tolerance for risk. Of course, I'm reading Benjamin Roth's diary about the great depression right now. I personally keep 20% in fixed income and 10% in the TIAA Real Estate Fund.
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