Is it reasonable to have 100% in the stock market?

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thepianoman
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Is it reasonable to have 100% in the stock market?

Post by thepianoman » Mon Feb 13, 2017 8:03 pm

Hi everyone, I just found this forum and this is actually my first post, feels great to find this community :) I totally understand that having 100% in the market sounds really risky but I want to give a little context about my financial situation first.

Tax Filing Status: Single
Tax Rate: 39% Federal, 11% State (CA)
Age: 27

I am a young guy who has been fortunate enough to find success in music. I have always been conservative with money, and in 5 years I have gone from a broke college student playing the piano to having $1.2 million in a taxable account, and $185k in a 401k (I created a company for my music and set up the 401k through that and have maxed out my contributions for 3 years). I have no debt other than a mortgage for a modest condo I bought a year ago. I have very few expenses and no desire for expensive cars (I'm going to drive my used Camry until it gives out), fancy meals, vacations, etc.

I have no intention of touching the money I have saved anytime in the foreseeable future, I don't need to. I can easily pay all my expenses with the money I make and still have stuff to save. If I'm not touching this money for maybe 20+ years, is it reasonable to just invest it all in the market? For example, invest most of it in Vanguard total market index fund, some in an international stock index fund, etc. Over 20+ years one can expect the stock market to outperform bonds with reasonably high confidence (although of course not a certainty) so if I don't need to touch this money why not just invest 100% in the stock market? If the market goes down so be it, this money is invested the long haul. Also bond funds often have a high yield which tax-wise seems very inefficient to me. My marginal tax rate is really high, so it doesn't seem smart to own bond funds (unless I suppose I own them in my 401k). Would to hear what you guys think it best!

Just to add, I keep 3 months expenses in a checking account, but this is a very small amount of money compared to what I have saved (~1%).

petulant
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Re: Is it reasonable to have 100% in the stock market?

Post by petulant » Mon Feb 13, 2017 8:21 pm

Two things.

First, it's reasonable to hold 100% stocks in your shoes, although there are good reasons to do 80/20 or 90/10. I'm sure other commenters will share suggestions on why 80/20 is better--or you can look for threads on 80/20--but they're not going to throw you out of the bounds of reason. Again, that's given your situation--high income, low need, young age. Just make sure you can stomach a 50% drop before you commit.

Second, you would definitely be looking at municipal bond funds in a taxable account. The interest on a diversified California bond fund should be tax-free (consult your accountant), if you can stomach the risk of California bonds.

Wakefield1
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Re: Is it reasonable to have 100% in the stock market?

Post by Wakefield1 » Mon Feb 13, 2017 8:28 pm

Not really-no balanced fund? No bond fund? No bond fund money with employer plan?
No down payment in bank or credit union? No paid off house? No "Marie Curie" gold piece to look at?
Social Security eligibility (earned "PIA"waiting for delayed premium after age 66 ) or pension might or might not count as "less than 100% in stock market"

The Wizard
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Re: Is it reasonable to have 100% in the stock market?

Post by The Wizard » Mon Feb 13, 2017 8:35 pm

Going 80/20 or 90/10 will enhance your ability to buy low during the next crash.
But 100% stocks early on isn't so bad.
Check in again after the next crash and we'll revisit this...
Attempted new signature...

aristotelian
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Re: Is it reasonable to have 100% in the stock market?

Post by aristotelian » Mon Feb 13, 2017 8:38 pm

Sounds like you are doing well and you have an excellent plan. If there is literally zero chance you might need the money, and you are willing to weather the storm of a major downturn, then yes, I think 100% stock is defensible. I would still suggest some international diversification and a few defensive sector tilts such as Consumer Staples, Utilities, and Low Volatility to give you some protection from a 2008 type of event.

I think you should also have a plan for eventually getting out of the market. People here do not like "market timing" but at some point you may need to pick a moment where you decide enough is enough, and you are ready to focus on growth rather than income. That time is a long way off at Age 27.

The only caution is whether your have a regular source of income or if this was more of a windfall event. If the latter, it may be very tough to weather a downturn. For people who were hit by 2008, the way to come out on top was to keep contributing and buying stock when the economy was down. If you do not have regular income and the economy is bad, your portfolio has just lost half its value, and you may just be sitting around waiting for the economy to pick back up. Then you miss out on the opportunity to buy while stocks are cheap.

thepianoman
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Re: Is it reasonable to have 100% in the stock market?

Post by thepianoman » Tue Feb 14, 2017 3:41 am

aristotelian wrote:The only caution is whether your have a regular source of income or if this was more of a windfall event. If the latter, it may be very tough to weather a downturn. For people who were hit by 2008, the way to come out on top was to keep contributing and buying stock when the economy was down. If you do not have regular income and the economy is bad, your portfolio has just lost half its value, and you may just be sitting around waiting for the economy to pick back up. Then you miss out on the opportunity to buy while stocks are cheap.


Being in the music industry there is a lot of volatility to how much I may or may not make, but at least I'm at a point now where even if I don't do successful work again (knock on wood) I'll still likely be making $100k+ a year for the next 2 years just from royalties and sales of things that are out right now. The point that you and The Wizard both made about having money around to invest in the event of a stock market crash is a really good one. Maybe I should put 20% in a vanguard california tax exempt bond fund to hedge against that risk. If there is a serious market downturn in the future I could maybe use that as a moment to move money from a bond fund into a stock index fund.

I appreciate all the feedback!

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FIREchief
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Re: Is it reasonable to have 100% in the stock market?

Post by FIREchief » Tue Feb 14, 2017 3:59 am

I was 100% equities for decades. Not because of an educated strategy, but simply because I felt that the market would win long term and I had so much else going on in life that I really didn't want to be messing with more elaborate strategies. Sometimes simple is best. With the stock market for 20+ year horizons, simple (100%) has always been best. YMMV.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

ignition
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Re: Is it reasonable to have 100% in the stock market?

Post by ignition » Tue Feb 14, 2017 4:15 am

We're the same age (although you are a lot richer I must admit) and I'm also 100% stocks. No need for bonds if you don't need the money and can stomach the crashes imo.

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JoMoney
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Re: Is it reasonable to have 100% in the stock market?

Post by JoMoney » Tue Feb 14, 2017 4:43 am

I can't tell you if it's reasonable for you, but it sounds reasonable to me as long as you're certain you can stomach it. It certainly sounds more reasonable than being 200% in the market, there's no margin call on a 100% :wink:
... While I cannot give any investor a neat formula for risk control, I am comforted to share that inadequacy with the likes of Paul Samuelson, who tells us, “there is no way any professor of economics or any minister of the church can tell you what your risk tolerance must be.”
No, nor can any Wall Street seer, nor any money manager, nor any indexing advocate, nor even any grizzled veteran of 50 years in this wonderful business.
http://johncbogle.com/speeches/JCB_NE_Pension_4-00.pdf
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Re: Is it reasonable to have 100% in the stock market?

Post by Hockey10 » Tue Feb 14, 2017 9:48 am

I was 100% invested in stocks for over 30 years. I never bought any bonds until I was in my 50s. I am still heavily weighted to stocks / index ETFs now. The hardest thing is to stick with it when events like Black Monday, the Dot-Com Bubble, and the Great Recession happen. You have to ignore the naysayers who try to convince you that the world is coming to an end. No matter where the stock market is at any time, there will always be doom and gloom types out there who prey on your fears. Ignore them. It is impossible to time the market. My strategy has been to be fully invested at all times.

dbr
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Re: Is it reasonable to have 100% in the stock market?

Post by dbr » Tue Feb 14, 2017 9:53 am

The bottom line, as you might gather, is that it is possible for it to be reasonable and also possible for it to be most unwise. You should be looking for a little more knowledge about what might happen and what makes sense for you.

staythecourse
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Re: Is it reasonable to have 100% in the stock market?

Post by staythecourse » Tue Feb 14, 2017 10:04 am

I'll give the same advice I give all who are considering 100% equities. If you don't meet the requirements below either forget about 100% equities OR address the deficiency.

1. Recession proof job.
2. Long time horizon for the money (>10 years min)
3. No need for liquidity of money during that time frame above
4. EF at least 1 year if not 2.
5. Ability to stay the course

My concern with a cursory review of your posts have to do with 1, 3, and 4 above. That assuming 5 is okay (only you can say that). I would be concerned about your job. Looks like it is doing great, but a musician AND a business owner sounds to me not the most stable in a dowturn in the economy. Number 3 is always an issue for ANY business owner and you sound young so relationships and children will be something to think about going forward. Number 4 is the BIGGEST issue I see right now. Your a musician, business owner, and have a small EF. That is setting yourself up for failure. What happens WHEN (mind you I did not say IF) the market crashes we are in another recession and your gigs are not as plentiful? All the while you have to pay rent and run your business overhead with less monthly cash flow?

I am no music expert so take that advice as a grain of salt, but would AT LEAST beef up EF based on you being 100% equities AND running your own business.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

aristotelian
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Re: Is it reasonable to have 100% in the stock market?

Post by aristotelian » Tue Feb 14, 2017 10:22 am

thepianoman wrote: Also bond funds often have a high yield which tax-wise seems very inefficient to me. My marginal tax rate is really high, so it doesn't seem smart to own bond funds (unless I suppose I own them in my 401k). Would to hear what you guys think it best!


One more thing. Your marginal tax rate is high right now...but if you don''t receive the same type of windfall every year, it is possible you could go down to 25% or even 15%. If you don't like the idea of paying taxes on bonds, consider a combination of VTEB, VWITX, VWLTX, and CA-Tax Exempt, and/or hold your bond funds in your 401k with stock in taxable.

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Re: Is it reasonable to have 100% in the stock market?

Post by ruralavalon » Tue Feb 14, 2017 10:29 am

In my opinion an asset allocation around 80/20 or 70/30 might be more reasonable.
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willthrill81
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Re: Is it reasonable to have 100% in the stock market?

Post by willthrill81 » Tue Feb 14, 2017 11:49 am

thepianoman wrote:Hi everyone, I just found this forum and this is actually my first post, feels great to find this community :) I totally understand that having 100% in the market sounds really risky but I want to give a little context about my financial situation first.

Tax Filing Status: Single
Tax Rate: 39% Federal, 11% State (CA)
Age: 27

I am a young guy who has been fortunate enough to find success in music. I have always been conservative with money, and in 5 years I have gone from a broke college student playing the piano to having $1.2 million in a taxable account, and $185k in a 401k (I created a company for my music and set up the 401k through that and have maxed out my contributions for 3 years). I have no debt other than a mortgage for a modest condo I bought a year ago. I have very few expenses and no desire for expensive cars (I'm going to drive my used Camry until it gives out), fancy meals, vacations, etc.

I have no intention of touching the money I have saved anytime in the foreseeable future, I don't need to. I can easily pay all my expenses with the money I make and still have stuff to save. If I'm not touching this money for maybe 20+ years, is it reasonable to just invest it all in the market? For example, invest most of it in Vanguard total market index fund, some in an international stock index fund, etc. Over 20+ years one can expect the stock market to outperform bonds with reasonably high confidence (although of course not a certainty) so if I don't need to touch this money why not just invest 100% in the stock market? If the market goes down so be it, this money is invested the long haul. Also bond funds often have a high yield which tax-wise seems very inefficient to me. My marginal tax rate is really high, so it doesn't seem smart to own bond funds (unless I suppose I own them in my 401k). Would to hear what you guys think it best!

Just to add, I keep 3 months expenses in a checking account, but this is a very small amount of money compared to what I have saved (~1%).


First of all, congratulations on the great work. Also, kudos to you for not blowing it like so many others have done.

Second, considering that you've largely already 'won the game', it might not be worthwhile to be 100% stocks. Granted, over a 20+ year period, a 100% stock portfolio is likely to yield the highest possible returns, but does it really matter whether you experience annual returns of 5% instead of 6.5%? That's for you to decide.

If it was me, I would put a significant chunk of it, at least a third and maybe more, in something with more stability than the total stock market, likely Vanguard's Wellesley Income fund, VWINX. Over the last 47 years, it's only trailed the S&P 500 by about .4% each year on average, but it's volatility is far less.

I'm sure that you really feel that you will keep doing what you're doing now for a long time to come. And you really might. But don't discount the fact that many musicians fall off the scene after a relatively brief period and choose to do something else entirely, something that might not pay the bills by itself. For me, I'd gladly sacrifice some returns for the flexibility of being able to 'retire' whenever I wanted to.

petulant wrote:First, it's reasonable to hold 100% stocks in your shoes, although there are good reasons to do 80/20 or 90/10. I'm sure other commenters will share suggestions on why 80/20 is better--or you can look for threads on 80/20--but they're not going to throw you out of the bounds of reason. Again, that's given your situation--high income, low need, young age. Just make sure you can stomach a 50% drop before you commit.


Here's a thread where we have tossed around this exact topic.
viewtopic.php?f=10&t=210178

I'm 100% equities (with my retirement assets). But I have at least a 20 year investment horizon, so I'm fine with high volatility for at least the next decade.

The Wizard wrote:Going 80/20 or 90/10 will enhance your ability to buy low during the next crash.
But 100% stocks early on isn't so bad.
Check in again after the next crash and we'll revisit this...


Some might infer that you are suggesting that 80/20 or 90/10 with rebalancing could actually lead to better returns than 100/0. But it doesn't. Rebalancing doesn't improve returns; it keeps your risk where you want it to be.

FIREchief wrote:I was 100% equities for decades. Not because of an educated strategy, but simply because I felt that the market would win long term and I had so much else going on in life that I really didn't want to be messing with more elaborate strategies. Sometimes simple is best. With the stock market for 20+ year horizons, simple (100%) has always been best. YMMV.


:beer

"But...but...but...stocks are so risky, even over 20 year periods!!!" :wink:
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Re: Is it reasonable to have 100% in the stock market?

Post by msk » Tue Feb 14, 2017 12:25 pm

I have nil problems with 100% stocks, having been 100% stocks for decades, and I still do not own a single bond. My advice to my heirs (anything they inherit is simply gravy to them) is to keep everything in stocks forever. There is huge fear among BHs for a 50% fall. IMHO this fear is justified only if your savings are barely enough to sustain you now or in the very near future. So what if the market falls 50%, if you can cut your withdrawal rate also to 50%? You have no intention to have any withdrawals for 20+ years! Why on Earth would you want to lend somebody you do not know $300k (20% of your savings) at an interest rate of 1 to 2%? He is the one who is getting a fantastic deal. My attitude will be different at much higher interest rates. E.g. if bonds deliver 8% then stocks with the current P/E of 25 will be absurdly over-priced. But at today's 1 to 2%? I have been through all the crashes since the early 1980s. Tense and anxious? Yes! So I must admit I behave like an ostrich. When the market goes down I simply do not check my portfolio frequently. Until it starts going up again. The world is not going to end any time soon. Some countries may go belly up (e.g. such massive weakening of the currency that what the stock market does becomes almost irrelevant). I advise my kids to stay either in VT (Total World) or in 90% IWDA (Developed World) + 10% EIMI (Emerging Markets), depending on each kid's tax situation. And not to touch anything except for 5% withdrawal annually for a vacation or new car, etc. No rebalancing, nothing. Markets go up, the 5% goes up in $ or in Euros or whatever, market goes down, the 5% goes down in money terms. This way they will even be able to leave healthy amounts for their heirs. To the OP, your heir is yourself 20 years hence and you can start withdrawing the 5% then, having made as much as the world's economies have been able to deliver in the intervening two decades. My primary fears are that either Vanguard or Black Rock (iShares) might pull a Madoff, not that the world's economies will all collapse simultaneously. Even with a World War III there will also be winners and losers.

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Re: Is it reasonable to have 100% in the stock market?

Post by KyleAAA » Tue Feb 14, 2017 12:34 pm

Yes, 100% is reasonable in your situation. You don't have the need to take risks but you have the ability and desire. 50/50 is also reasonable in that you have the ability to take risks but not the need. Pick anything between those two extremes, stick with it through thick and thin, and it will almost certainly have turned out not to matter at all a few decades from now in your case.

staythecourse
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Re: Is it reasonable to have 100% in the stock market?

Post by staythecourse » Wed Feb 15, 2017 5:27 pm

msk wrote:I have nil problems with 100% stocks, having been 100% stocks for decades, and I still do not own a single bond. My advice to my heirs (anything they inherit is simply gravy to them) is to keep everything in stocks forever. There is huge fear among BHs for a 50% fall. IMHO this fear is justified only if your savings are barely enough to sustain you now or in the very near future. So what if the market falls 50%, if you can cut your withdrawal rate also to 50%? You have no intention to have any withdrawals for 20+ years! Why on Earth would you want to lend somebody you do not know $300k (20% of your savings) at an interest rate of 1 to 2%? He is the one who is getting a fantastic deal. My attitude will be different at much higher interest rates. E.g. if bonds deliver 8% then stocks with the current P/E of 25 will be absurdly over-priced. But at today's 1 to 2%? I have been through all the crashes since the early 1980s. Tense and anxious? Yes! So I must admit I behave like an ostrich. When the market goes down I simply do not check my portfolio frequently. Until it starts going up again. The world is not going to end any time soon. Some countries may go belly up (e.g. such massive weakening of the currency that what the stock market does becomes almost irrelevant). I advise my kids to stay either in VT (Total World) or in 90% IWDA (Developed World) + 10% EIMI (Emerging Markets), depending on each kid's tax situation. And not to touch anything except for 5% withdrawal annually for a vacation or new car, etc. No rebalancing, nothing. Markets go up, the 5% goes up in $ or in Euros or whatever, market goes down, the 5% goes down in money terms. This way they will even be able to leave healthy amounts for their heirs. To the OP, your heir is yourself 20 years hence and you can start withdrawing the 5% then, having made as much as the world's economies have been able to deliver in the intervening two decades. My primary fears are that either Vanguard or Black Rock (iShares) might pull a Madoff, not that the world's economies will all collapse simultaneously. Even with a World War III there will also be winners and losers.


Just curious if you would have the same opinion if you were fired, couldn't find a job, had to pay the mortgage and kids education, and all happening at the same time there is a bear market (which is no suprise is the reason many folks get fired and can't simply find another job)?

The market crashing and its volatility is not a big deal for most on this board as they know the story of volatility. The issue comes in the risk of losing your JOB the same time you have nothing to fall back on outside of a declining all stocks portfolio in a downswing economy.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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willthrill81
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Re: Is it reasonable to have 100% in the stock market?

Post by willthrill81 » Wed Feb 15, 2017 6:35 pm

staythecourse wrote:The market crashing and its volatility is not a big deal for most on this board as they know the story of volatility. The issue comes in the risk of losing your JOB the same time you have nothing to fall back on outside of a declining all stocks portfolio in a downswing economy.


That's why virtually everyone here recommends a healthy EF. Between that, unemployment benefits, and the potential ability to reduce expenses until a new job is obtained, you can have quite a lot to fall back on. And if all of that fails, you could still sell some equities if you really had to (not ideal, but the odds are very much against actually having to do it).

And a paper generated by authors working in the IRS and Fed. Res. showed that early withdrawals from retirement accounts only ticked up about 2% from 2004 to 2010, both in terms of the number of people doing it and the impact on their AGI.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Is it reasonable to have 100% in the stock market?

Post by burt » Wed Feb 15, 2017 6:52 pm

dbr wrote:The bottom line, as you might gather, is that it is possible for it to be reasonable and also possible for it to be most unwise. You should be looking for a little more knowledge about what might happen and what makes sense for you.


+1
Go 60/40 stock/bond.
Forget maximizing return on investments (risk and reward) and concentrate on your career.
Tomorrow may not be like yesterday.

burt

staythecourse
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Re: Is it reasonable to have 100% in the stock market?

Post by staythecourse » Wed Feb 15, 2017 8:02 pm

willthrill81 wrote:
staythecourse wrote:The market crashing and its volatility is not a big deal for most on this board as they know the story of volatility. The issue comes in the risk of losing your JOB the same time you have nothing to fall back on outside of a declining all stocks portfolio in a downswing economy.


That's why virtually everyone here recommends a healthy EF. Between that, unemployment benefits, and the potential ability to reduce expenses until a new job is obtained, you can have quite a lot to fall back on. And if all of that fails, you could still sell some equities if you really had to (not ideal, but the odds are very much against actually having to do it).

And a paper generated by authors working in the IRS and Fed. Res. showed that early withdrawals from retirement accounts only ticked up about 2% from 2004 to 2010, both in terms of the number of people doing it and the impact on their AGI.


I agree with that. That is why my original post on this thread mentioned 1-2 years of EF if one is considering 100% equities. If so, then the argument is that one is NOT 100% equities just using a bucket approach. I am 100% equities and 1 yr. EF, but do agree it is more mental accounting. So if that is the case, and what is responsible, then NO ONE should be 100% equities (with no EF).

That is the issue I have with the OP on this thread. He/ she is 100% equities with no/ little EF. And worse is doing it with a VERY unstable career (musician+ SBO).

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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willthrill81
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Re: Is it reasonable to have 100% in the stock market?

Post by willthrill81 » Wed Feb 15, 2017 8:07 pm

staythecourse wrote:I agree with that. That is why my original post on this thread mentioned 1-2 years of EF if one is considering 100% equities. If so, then the argument is that one is NOT 100% equities just using a bucket approach. I am 100% equities and 1 yr. EF, but do agree it is more mental accounting. So if that is the case, and what is responsible, then NO ONE should be 100% equities (with no EF).

That is the issue I have with the OP on this thread. He/ she is 100% equities with no/ little EF. And worse is doing it with a VERY unstable career (musician+ SBO).

Good luck.


I agree. Since the OP has largely (though maybe not completely as $1.2M results in $48,000 pre-tax each year, which might not be enough) already 'won the game', there's no point in being 100% equities. Considering that he might need to effectively 'retire' at any given moment, I think that something like a 60/40 portfolio for the long-term makes more sense. Alternatively, a couple of years' worth of cash plus 100% remainder in equities might fit the bill as well.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Is it reasonable to have 100% in the stock market?

Post by thepianoman » Thu Feb 16, 2017 6:01 am

Thanks for all the comments and feedback. I think I will keep an aggressive AA but not 100% stocks, 80/20 probably.

Maybe I should start a new thread for this question, but if you are in a high tax bracket, live in California, and are investing inside a taxable account, why would you invest in a total bond fund instead of a california tax-exempt bond fund like VCAIX? I understand that a total bond fund may be more diversified, but the advantage of a tax-exempt bond fund seems HUGE if your marginal tax rate is close to 50%. Would love some of your boglehead wisdom, is there something I'm missing?

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Re: Is it reasonable to have 100% in the stock market?

Post by aristotelian » Thu Feb 16, 2017 7:30 am

thepianoman wrote:Thanks for all the comments and feedback. I think I will keep an aggressive AA but not 100% stocks, 80/20 probably.

Maybe I should start a new thread for this question, but if you are in a high tax bracket, live in California, and are investing inside a taxable account, why would you invest in a total bond fund instead of a california tax-exempt bond fund like VCAIX? I understand that a total bond fund may be more diversified, but the advantage of a tax-exempt bond fund seems HUGE if your marginal tax rate is close to 50%. Would love some of your boglehead wisdom, is there something I'm missing?


You are missing the risk of default. The risk is concentrated if you are holding bonds from one state as opposed to a total bond market index. California is higher risk than most. I am out of room in my 401k so I do hold some tax exempt bonds from my state as well as a national muni bond index in my taxable.

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Re: Is it reasonable to have 100% in the stock market?

Post by rakornacki1 » Thu Feb 16, 2017 7:51 am

With regard to 'risk-adjusted returns', yes, a 100% equities portfolio is possible. You appear to accept the downside effects to achieve the upside gains.
However, I would recommend that you not simply extrapolate your current income stream. Unfortunate events do happen in life which can derail or even obliterate your job/income today.
Good luck & great profits!

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Re: Is it reasonable to have 100% in the stock market?

Post by malabargold » Thu Feb 16, 2017 8:53 am

I've done it since the 1960's.
Worked out ok.

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Re: Is it reasonable to have 100% in the stock market?

Post by core5 » Thu Feb 16, 2017 8:58 am

IN my 401(k), I hold about 15% bonds in case the stock market indexes I'm holding crash (go on sale). If S&P500 were to drop 10-20% over the course of few days, I would dump the bond allocation and buy into stocks and let my future paycheck contributions rebuild my bond position.

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Re: Is it reasonable to have 100% in the stock market?

Post by Toons » Thu Feb 16, 2017 9:08 am

" I have no debt other than a mortgage for a modest condo I bought a year ago. "

Pay it off ,
Be Done with it.
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Re: Is it reasonable to have 100% in the stock market?

Post by KlangFool » Thu Feb 16, 2017 9:17 am

OP,

You had won the game. So, why would you take the unnecessary risk?

<< Tax Rate: 39% Federal, 11% State (CA)
Age: 27

I am a young guy who has been fortunate enough to find success in music. I have always been conservative with money, and in 5 years I have gone from a broke college student playing the piano to having $1.2 million in a taxable account, and $185k in a 401k >>

The numbers do not add up. What is your annual income?

<< Being in the music industry there is a lot of volatility to how much I may or may not make, but at least I'm at a point now where even if I don't do successful work again (knock on wood) I'll still likely be making $100k+ a year for the next 2 years just from royalties and sales of things that are out right now.>>

And, you had said this. You made a lot of money but if things do not work out, you will only be making 100K+ a year for the next 2 years. Then, what? You may need to use your money from your taxable account.

<< I have no intention of touching the money I have saved anytime in the foreseeable future, I don't need to. I can easily pay all my expenses with the money I make and still have stuff to save. If I'm not touching this money for maybe 20+ years,>>

So, this statement is not true. If things do not work out, you need to touch this money in 10 years or less.

IMHO, stick with 70/30 for now.

KlangFool

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Re: Is it reasonable to have 100% in the stock market?

Post by Tamalak » Thu Feb 16, 2017 10:14 am

If you're in it for the long haul, and you're fine with seeing your net worth cut in half without bailing, go for it!

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Re: Is it reasonable to have 100% in the stock market?

Post by nedsaid » Thu Feb 16, 2017 10:18 am

100% stock is reasonable for a very young investor but that is assuming that young investors all have high risk tolerances. I started out as a very cautious investor, my IRA was in FDIC Insured Certificates of Deposit until a friend went into the brokerage business. I moved my account to him and it was off to the races buying my very first stock, AST Research. But even then, I bought a brokered CD and three zero coupon treasuries paying 8% for my brokerage IRA. When the stock market crash hit in October 1987, I lost a few hundred dollars and I was devastated emotionally. Do you really have a high risk tolerance? I know I did not at age 27.
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Re: Is it reasonable to have 100% in the stock market?

Post by ruralavalon » Thu Feb 16, 2017 12:17 pm

thepianoman wrote:Thanks for all the comments and feedback. I think I will keep an aggressive AA but not 100% stocks, 80/20 probably.

Maybe I should start a new thread for this question, but if you are in a high tax bracket, live in California, and are investing inside a taxable account, why would you invest in a total bond fund instead of a california tax-exempt bond fund like VCAIX? I understand that a total bond fund may be more diversified, but the advantage of a tax-exempt bond fund seems HUGE if your marginal tax rate is close to 50%. Would love some of your boglehead wisdom, is there something I'm missing?

I think perhaps the better solution is 1/2 of the bond allocation in Vanguard California Intermediate-term Tax-exempt Bond Fund (VCAIX) and 1/2 in a more diversified bond fund such as Vanguard Total Bond Market Index Fund.

You mentioned $185k in a 401k which you set up at your company. What are the bond fund choices available in your 401k?
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Re: Is it reasonable to have 100% in the stock market?

Post by Lobster » Thu Feb 16, 2017 10:37 pm

thepianoman wrote:Thanks for all the comments and feedback. I think I will keep an aggressive AA but not 100% stocks, 80/20 probably.


I definitely encourage you to take time (lets say 3-6 months) to do enough research to truly settle on your AA. There are cases to be made for 100/0 and for 80/20 and it's worth being confident in your choice. This will help you stay the course, which may prove more important than which decision you choose!

Re: bonds in taxable, consider your entire portfolio and pick the best location for your funds for tax efficiency. In your case it means bonds in your 401k and tax efficient index funds in taxable. If your bond allocation overflows your 401k, you can use munis (like CA intermediate tax exempt). Munis are historically safer than similarly rated corporates, but CA has had some trouble in the past.

20% of $1.4m is $280k. After allocating your $185k in the tax advantaged account, you can consider tax exempt munis in taxable for the remaining $95k. However, do not sell index funds in taxable in order to rebalance toward your aa!. At your marginal tax rate you'll take a substantial haircut. Given your age it's better to allocate new funds and trend towards your target aa. It's okay to move towards your target over a few years given how long your horizon is.

Good luck! :sharebeer
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Re: Is it reasonable to have 100% in the stock market?

Post by Miriam2 » Thu Feb 16, 2017 11:15 pm

nedsaid wrote:100% stock is reasonable for a very young investor but that is assuming that young investors all have high risk tolerances. I started out as a very cautious investor, my IRA was in FDIC Insured Certificates of Deposit until a friend went into the brokerage business. I moved my account to him and it was off to the races buying my very first stock, AST Research. But even then, I bought a brokered CD and three zero coupon treasuries paying 8% for my brokerage IRA. When the stock market crash hit in October 1987, I lost a few hundred dollars and I was devastated emotionally. Do you really have a high risk tolerance? I know I did not at age 27.

Nedsaid, really appreciate so much your stories of your past life 8-) Great wisdom for all of us.

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Re: Is it reasonable to have 100% in the stock market?

Post by itstoomuch » Fri Feb 17, 2017 1:16 am

ruralavalon wrote:In my opinion an asset allocation around 80/20 or 70/30 might be more reasonable.

I would subscribe to this.
Why, because sometimes you can discover opportunities and having a uncommitted money you can access that opportunity.
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Re: Is it reasonable to have 100% in the stock market?

Post by sperry8 » Fri Feb 17, 2017 6:09 am

KlangFool wrote:OP,

You had won the game. So, why would you take the unnecessary risk?

<< Tax Rate: 39% Federal, 11% State (CA)
Age: 27

I am a young guy who has been fortunate enough to find success in music. I have always been conservative with money, and in 5 years I have gone from a broke college student playing the piano to having $1.2 million in a taxable account, and $185k in a 401k >>

The numbers do not add up. What is your annual income?

<< Being in the music industry there is a lot of volatility to how much I may or may not make, but at least I'm at a point now where even if I don't do successful work again (knock on wood) I'll still likely be making $100k+ a year for the next 2 years just from royalties and sales of things that are out right now.>>

And, you had said this. You made a lot of money but if things do not work out, you will only be making 100K+ a year for the next 2 years. Then, what? You may need to use your money from your taxable account.

<< I have no intention of touching the money I have saved anytime in the foreseeable future, I don't need to. I can easily pay all my expenses with the money I make and still have stuff to save. If I'm not touching this money for maybe 20+ years,>>

So, this statement is not true. If things do not work out, you need to touch this money in 10 years or less.

IMHO, stick with 70/30 for now.

KlangFool


I don't understand why everyone is saying this "you already won the game". $1.2 million in California is not a won game. Not by a long shot. Now, if OP invests in the market over 30 years... he likely will win due to compound growth on equity returns. But surely $1.2mm now is not already done. OP, you can think of it however you want but I agree only that your emergency fund should be 2 years. So that means... ~$200-$250k in EF. However, I'd split that... 1/2 in bonds and the other half in cash. So ultimately thinking of it this way makes you 80/20. And I'd stay aggressive with that 80%. So SCV tilt both internationally and domestic.
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Re: Is it reasonable to have 100% in the stock market?

Post by Gary Guss » Fri Feb 17, 2017 7:00 am

At your age I would have no problem with 100% stock, but get ready for the next downturn, you can wait it out but it will be gut wrenching when 1/2 your equity goes up in smoke. I would pay off that mortgage yesterday with that amount of savings. Use some tax deferred investments maybe instead of that meager mortgage deduction. Might want to consider some real estate for creating passive income also

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Re: Is it reasonable to have 100% in the stock market?

Post by KlangFool » Fri Feb 17, 2017 8:31 am

sperry8 wrote:
I don't understand why everyone is saying this "you already won the game". $1.2 million in California is not a won game. Not by a long shot. Now, if OP invests in the market over 30 years... he likely will win due to compound growth on equity returns. But surely $1.2mm now is not already done. OP, you can think of it however you want but I agree only that your emergency fund should be 2 years. So that means... ~$200-$250k in EF. However, I'd split that... 1/2 in bonds and the other half in cash. So ultimately thinking of it this way makes you 80/20. And I'd stay aggressive with that 80%. So SCV tilt both internationally and domestic.


sperry8,

Then, don't stay in California. Just because this may be an issue for you, it does not make it a necessity for OP.

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Re: Is it reasonable to have 100% in the stock market?

Post by KlangFool » Fri Feb 17, 2017 8:32 am

`Gary Guss wrote:At your age I would have no problem with 100% stock, but get ready for the next downturn, you can wait it out but it will be gut wrenching when 1/2 your equity goes up in smoke. I would pay off that mortgage yesterday with that amount of savings. Use some tax deferred investments maybe instead of that meager mortgage deduction. Might want to consider some real estate for creating passive income also


Gary Guss,

With an unsteady job at the music industry? Would you do that?

KlangFool

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Re: Is it reasonable to have 100% in the stock market?

Post by willthrill81 » Fri Feb 17, 2017 12:50 pm

Lobster wrote:However, do not sell index funds in taxable in order to rebalance toward your aa!. At your marginal tax rate you'll take a substantial haircut. Given your age it's better to allocate new funds and trend towards your target aa. It's okay to move towards your target over a few years given how long your horizon is.


I personally don't think that one should let potential capital gains taxes drive the AA bus. Your AA is what it is because you want to keep your risk in check, and failing to do this can have more drastic consequences than capital gains taxes. I agree that it's better to buy funds in order to get your AA squared up when you can, but that might not be possible with large portfolios.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Is it reasonable to have 100% in the stock market?

Post by willthrill81 » Fri Feb 17, 2017 1:04 pm

sperry8 wrote:I don't understand why everyone is saying this "you already won the game". $1.2 million in California is not a won game. Not by a long shot. Now, if OP invests in the market over 30 years... he likely will win due to compound growth on equity returns. But surely $1.2mm now is not already done.


Once he decides, for whatever reason, that he wants to 'retire', he can easily go to another state, one with lower or no taxes as well as a far lower cost of living. $48,000 a year (4% WR) in many places in the country can buy a respectable lifestyle. If wants to stay in CA, I agree that he could easily need much more (i.e. double or more). Even a 60/40 split would, historically, on average would double the real value of his portfolio in around 13 years (less with a small/value tilt).

sperry8 wrote:OP, you can think of it however you want but I agree only that your emergency fund should be 2 years. So that means... ~$200-$250k in EF.


If he wants to be 100% equities, I agree that a 2 year EF is a nice round number.

sperry8 wrote:However, I'd split that... 1/2 in bonds and the other half in cash. So ultimately thinking of it this way makes you 80/20. And I'd stay aggressive with that 80%. So SCV tilt both internationally and domestic.


I agree with the SCV tilt, but a year's worth of cash is a guaranteed 1-3% loss every year. Personally, I have no problem keeping my EF in Vanguard's Wellesley since the worst year it's ever had was a loss just under 10% (2008, and it more than recovered in 2009). And even if he needed some money in a down year, he wouldn't need all of a 2 year EF at once. Alternatively, he could put it in TIPS and be guaranteed to at least keep pace with inflation.

I have to admit, though, that research has shown that having a healthy amount of cash in a checking or savings account leads to greater life satisfaction, even if the cash isn't 'needed'.
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Re: Is it reasonable to have 100% in the stock market?

Post by aqan » Fri Feb 17, 2017 1:55 pm

The Wizard wrote:Going 80/20 or 90/10 will enhance your ability to buy low during the next crash.
But 100% stocks early on isn't so bad.
Check in again after the next crash and we'll revisit this...

Thumbs up.. thats my #1 reason for not having 100% in stocks.

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Re: Is it reasonable to have 100% in the stock market?

Post by WhiteMaxima » Fri Feb 17, 2017 1:58 pm

80/20 is not much difference from 100/0.

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Re: Is it reasonable to have 100% in the stock market?

Post by bigred77 » Fri Feb 17, 2017 2:08 pm

sperry8 wrote:
I don't understand why everyone is saying this "you already won the game". $1.2 million in California is not a won game. Not by a long shot. Now, if OP invests in the market over 30 years... he likely will win due to compound growth on equity returns. But surely $1.2mm now is not already done. OP, you can think of it however you want but I agree only that your emergency fund should be 2 years. So that means... ~$200-$250k in EF. However, I'd split that... 1/2 in bonds and the other half in cash. So ultimately thinking of it this way makes you 80/20. And I'd stay aggressive with that 80%. So SCV tilt both internationally and domestic.


The clock hasn't hit zero yet but the OP has an insurmountable lead if they don't do any self inflicted damage.

If the OP can invest the money and not touch it for about a decade, it's likely they will be able to replicate California's median household income with a 3% withdrawal rate.

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Re: Is it reasonable to have 100% in the stock market?

Post by runner3081 » Fri Feb 17, 2017 2:11 pm

staythecourse wrote:If you don't meet the requirements below either forget about 100% equities OR address the deficiency.

1. Recession proof job.
2. Long time horizon for the money (>10 years min)
3. No need for liquidity of money during that time frame above
4. EF at least 1 year if not 2.
5. Ability to stay the course

These are great things to think of. I don't think the OP is out of line for going 100% in stocks. My wife and I are in our mid-30's and haven't left the 100% stock allocation either.

Of course, we do meet all 5 guidelines.

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Re: Is it reasonable to have 100% in the stock market?

Post by BrandonBogle » Fri Feb 17, 2017 2:45 pm

willthrill81 wrote:
Lobster wrote:However, do not sell index funds in taxable in order to rebalance toward your aa!. At your marginal tax rate you'll take a substantial haircut. Given your age it's better to allocate new funds and trend towards your target aa. It's okay to move towards your target over a few years given how long your horizon is.


I personally don't think that one should let potential capital gains taxes drive the AA bus. Your AA is what it is because you want to keep your risk in check, and failing to do this can have more drastic consequences than capital gains taxes. I agree that it's better to buy funds in order to get your AA squared up when you can, but that might not be possible with large portfolios.


I think Lobster was using that to mean/lead to that if you must sell taxable stock index funds to rebalance (and not change the AA), don't sell and just use some stock index funds in the 401k alongside the municipal bonds in taxable, since the bond total for certain allocations would be larger than the 401k currently is. The 401k can then be strictly bond purchases going forward and whatever necessary in taxable to maintain the AA.

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Re: Is it reasonable to have 100% in the stock market?

Post by willthrill81 » Fri Feb 17, 2017 3:39 pm

BrandonBogle wrote:
willthrill81 wrote:
Lobster wrote:However, do not sell index funds in taxable in order to rebalance toward your aa!. At your marginal tax rate you'll take a substantial haircut. Given your age it's better to allocate new funds and trend towards your target aa. It's okay to move towards your target over a few years given how long your horizon is.


I personally don't think that one should let potential capital gains taxes drive the AA bus. Your AA is what it is because you want to keep your risk in check, and failing to do this can have more drastic consequences than capital gains taxes. I agree that it's better to buy funds in order to get your AA squared up when you can, but that might not be possible with large portfolios.


I think Lobster was using that to mean/lead to that if you must sell taxable stock index funds to rebalance (and not change the AA), don't sell and just use some stock index funds in the 401k alongside the municipal bonds in taxable, since the bond total for certain allocations would be larger than the 401k currently is. The 401k can then be strictly bond purchases going forward and whatever necessary in taxable to maintain the AA.


That makes sense, but that would mean that he can't go lower than 80% into equities without incurring some capital gains. It seems, though, that this is his new goal anyway.
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Re: Is it reasonable to have 100% in the stock market?

Post by ponyboy » Fri Feb 17, 2017 3:50 pm

Not really...100/0 doesnt outperform 80/20 by much. Around 1% or so. Whats the point?

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Re: Is it reasonable to have 100% in the stock market?

Post by sperry8 » Fri Feb 17, 2017 5:58 pm

KlangFool wrote:
sperry8 wrote:
I don't understand why everyone is saying this "you already won the game". $1.2 million in California is not a won game. Not by a long shot. Now, if OP invests in the market over 30 years... he likely will win due to compound growth on equity returns. But surely $1.2mm now is not already done. OP, you can think of it however you want but I agree only that your emergency fund should be 2 years. So that means... ~$200-$250k in EF. However, I'd split that... 1/2 in bonds and the other half in cash. So ultimately thinking of it this way makes you 80/20. And I'd stay aggressive with that 80%. So SCV tilt both internationally and domestic.


sperry8,

Then, don't stay in California. Just because this may be an issue for you, it does not make it a necessity for OP.

KlangFool


So now you've got the guy moving out of CA? The OP didn't say he wanted to move. Perhaps he likes CA? And $1.2 million is not winning the game in CA especially if he lives in SF or LA. Look - with your viewpoint one can win with $1 million because one can then move to Thailand. I assume people live where they live for a reason. They like it there. He didn't win, yet.

willthrill81 wrote:
sperry8 wrote:I don't understand why everyone is saying this "you already won the game". $1.2 million in California is not a won game. Not by a long shot. Now, if OP invests in the market over 30 years... he likely will win due to compound growth on equity returns. But surely $1.2mm now is not already done.


Once he decides, for whatever reason, that he wants to 'retire', he can easily go to another state, one with lower or no taxes as well as a far lower cost of living. $48,000 a year (4% WR) in many places in the country can buy a respectable lifestyle. If wants to stay in CA, I agree that he could easily need much more (i.e. double or more). Even a 60/40 split would, historically, on average would double the real value of his portfolio in around 13 years (less with a small/value tilt).


Easily go? Everyone always talks about picking up and moving so easily. People live where they live for a reason. I assume the OP likes Cali. He owns a condo. Has friends there. Possibly family. Now because he made $1.2 million you've got him moving so he can "win the game". For many that isn't winning. That would be called losing (i.e., forced to move from a place you like to go to another place you may or may not like as much). My point is simply that the OP didn't say he wants to move. So the advice should be predicated on where he is now. As I described above using your logic, almost everyone has won the game. There are places in America and surely the World where $1 million wins the game and perhaps even half that. But desiring to move there may not be an option for those people with roots in the area they are in now.

I don't understand this sort of advice and I've seen it many times on Bogleheads. People advise someone to pick up and move so they can achieve their SWR or "win the game". Money is only one consideration. Family, friends, lifestyle, etc are the rest. Unless an OP specifically asks for advice re moving or how to stretch their money - I think this sort of advice is out of bounds.
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Re: Is it reasonable to have 100% in the stock market?

Post by willthrill81 » Fri Feb 17, 2017 7:13 pm

sperry8 wrote:Easily go? Everyone always talks about picking up and moving so easily. People live where they live for a reason. I assume the OP likes Cali. He owns a condo. Has friends there. Possibly family. Now because he made $1.2 million you've got him moving so he can "win the game". For many that isn't winning. That would be called losing (i.e., forced to move from a place you like to go to another place you may or may not like as much). My point is simply that the OP didn't say he wants to move. So the advice should be predicated on where he is now. As I described above using your logic, almost everyone has won the game. There are places in America and surely the World where $1 million wins the game and perhaps even half that. But desiring to move there may not be an option for those people with roots in the area they are in now.

I don't understand this sort of advice and I've seen it many times on Bogleheads. People advise someone to pick up and move so they can achieve their SWR or "win the game". Money is only one consideration. Family, friends, lifestyle, etc are the rest. Unless an OP specifically asks for advice re moving or how to stretch their money - I think this sort of advice is out of bounds.


I certainly haven't advised him to leave, only suggested it as a possibility. And many, many people move when they retire, and many, many people move well before that time as well. I've made two moves myself in the last eight years (both job related) that were both over 1,500 miles, so I know full well what's involved, and I would imagine that others do as well.

If the OP wants to stay in CA, then he will, regardless as to what anyone here says. But if he now or in the future determines that he wants to call it quits, it's not unreasonable to offer moving as a possibility.

And yes, many of us could instantly pack up and move to another country where the cost of living is a fraction of wherever we are now, but inter-country moves are rare compared to intra-country moves, so the former is seldom suggested.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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