Are bonds really needed - why not 100% stocks?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
LIGuy82
Posts: 72
Joined: Mon Apr 16, 2018 12:51 am

Are bonds really needed - why not 100% stocks?

Post by LIGuy82 » Sun May 13, 2018 9:08 pm

I plan to retire in about 15 years, right about the same time my nephew will be starting college. My brother has a 529 for my nephew. In both my case and that of my nephew, the "advised" allocation is 75% stocks and 25% bonds. Given that bonds tend not to earn, and just smooth volatility, is there any downside to remaining in 100% stocks until a few years before retirement/beginning school. If one can stomach volatility and not panic sell, are there any advantages to holding bonds rather than stocks until a few years out from needing the money (assuming the market is in an upswing). If it is in a downswing, just hold and live off other funding streams, which we both can do without much of a problem, and wait for the recovery to reallocate and withdraw.

I would appreciate an explanation on why bonds should be included if one is willing and able to stomach volatility and has a 15 year time horizon. Thanks.
Last edited by LIGuy82 on Sun May 13, 2018 9:35 pm, edited 1 time in total.

drk
Posts: 853
Joined: Mon Jul 24, 2017 10:33 pm
Location: Seattle

Re: Are bonds really needed - why not 100% stocks?

Post by drk » Sun May 13, 2018 9:15 pm

LIGuy82 wrote:
Sun May 13, 2018 9:08 pm
I plan to retire in about 15 years, right about the same time my nephew will be starting college. My brother has a 529 for my nephew. In both my case and that of my nephew, the "advised" allocation is 75% stocks and 25% bonds. Given that bonds tend not to earn, and just smooth volatility, is there any downside to remaining in 100% stocks until a few years before retirement/beginning school. If one can stomach volatility and not panic sell, are there any advantages to holding bonds rather than stocks until a few years out from needing the money (assuming the market is in an upswing). If it is in a downswing, just hold and live off other funding streams, which we both can do without much of a problem, and wait for the recovery to reallocate and withdraw.

I would appreciate an explanation on why bonds should be included if one is willing and able to stomach volatility and has a 15 year time horizon. Thanks.
This is such a common question during bull markets that some on the board have suggested that it's a leading indicator of bubbles. There are even a series of videos on the wiki.

WanderingDoc
Posts: 1267
Joined: Sat Aug 05, 2017 8:21 pm

Re: Are bonds really needed - why not 100% stocks?

Post by WanderingDoc » Sun May 13, 2018 9:16 pm

LIGuy82 wrote:
Sun May 13, 2018 9:08 pm
I plan to retire in about 15 years, right about the same time my nephew will be starting college. My brother has a 529 for my nephew. In both my case and that of my nephew, the "advised" allocation is 75% stocks and 25% bonds. Given that bonds tend not to earn, and just smooth volatility, is there any downside to remaining in 100% stocks until a few years before retirement/beginning school. If one can stomach volatility and not panic sell, are there any advantages to holding bonds rather than stocks until a few years out from needing the money (assuming the market is in an upswing). If it is in a downswing, just hold and live off other funding streams, which we both can do without much of a problem, and wait for the recovery to reallocate and withdraw.

I would appreciate an explanation on why bonds should be included if one is willing and able to stomach volatility and has a 15 year time horizon. Thanks.
Someone recently posted a graph showing that a 60/40 portfolio with rebalancing performed similarly to a 100/0 portfolio, with lower volatility.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

User avatar
nisiprius
Advisory Board
Posts: 37048
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Are bonds really needed - why not 100% stocks?

Post by nisiprius » Sun May 13, 2018 9:21 pm

LIGuy82 wrote:
Sun May 13, 2018 9:08 pm
...Given that bonds tend not to earn, and just smooth volatility...
Why do you think "bonds tend not to earn?" Bonds tend to earn considerably more than bank accounts or money market accounts, tend to beat inflation, though they tend to earn less than stocks.

Are you, by any chance, looking at price charts, which ignore the interest payments from the bonds (which show up as mutual fund dividends in mutual funds?) This is a far worse error with bonds than ignoring the dividends from stocks.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

LIGuy82
Posts: 72
Joined: Mon Apr 16, 2018 12:51 am

Re: Are bonds really needed - why not 100% stocks?

Post by LIGuy82 » Sun May 13, 2018 9:32 pm

nisiprius wrote:
Sun May 13, 2018 9:21 pm
LIGuy82 wrote:
Sun May 13, 2018 9:08 pm
...Given that bonds tend not to earn, and just smooth volatility...
Why do you think "bonds tend not to earn?" Bonds tend to earn considerably more than bank accounts or money market accounts, tend to beat inflation, though they tend to earn less than stocks.

Are you, by any chance, looking at price charts, which ignore the interest payments from the bonds (which show up as mutual fund dividends in mutual funds?) This is a far worse error with bonds than ignoring the dividends from stocks.
I should not have worded it like that. I should have said that bonds earn significantly less than bonds over a period of time. As I get closer to retirement, I plan to increase my bond holdings - 20% when I am ten years out, and 30% when I am five years out. I plan to keep 60/40 stocks/bonds in retirement, as I will have a healthy pension, social security, and reliable rental income on the day I retire. My goal is to maximize earnings, and I do not plan to sell anything until I start making 4% withdrawals, if that much, fifteen years from now.

LIGuy82
Posts: 72
Joined: Mon Apr 16, 2018 12:51 am

Re: Are bonds really needed - why not 100% stocks?

Post by LIGuy82 » Sun May 13, 2018 9:34 pm

WanderingDoc wrote:
Sun May 13, 2018 9:16 pm
LIGuy82 wrote:
Sun May 13, 2018 9:08 pm
I plan to retire in about 15 years, right about the same time my nephew will be starting college. My brother has a 529 for my nephew. In both my case and that of my nephew, the "advised" allocation is 75% stocks and 25% bonds. Given that bonds tend not to earn, and just smooth volatility, is there any downside to remaining in 100% stocks until a few years before retirement/beginning school. If one can stomach volatility and not panic sell, are there any advantages to holding bonds rather than stocks until a few years out from needing the money (assuming the market is in an upswing). If it is in a downswing, just hold and live off other funding streams, which we both can do without much of a problem, and wait for the recovery to reallocate and withdraw.

I would appreciate an explanation on why bonds should be included if one is willing and able to stomach volatility and has a 15 year time horizon. Thanks.
Someone recently posted a graph showing that a 60/40 portfolio with rebalancing performed similarly to a 100/0 portfolio, with lower volatility.
If one can stomach the volatility and keep buying every paycheck, wouldn't their return be higer - assuming they don't start withdrawing while the market is in a slump?

KlangFool
Posts: 10613
Joined: Sat Oct 11, 2008 12:35 pm

Re: Are bonds really needed - why not 100% stocks?

Post by KlangFool » Sun May 13, 2018 9:51 pm

LIGuy82 wrote:
Sun May 13, 2018 9:34 pm

If one can stomach the volatility and keep buying every paycheck, wouldn't their return be higer - assuming they don't start withdrawing while the market is in a slump?
LIGuy82,

1) Can you see the future? If not, how do you know that you will not need to withdraw while the market is in a slump?

2) You plan to retire in 15 years. Can you predict your future? If not, how do you know you will retire in 15 years?

3) Can you guarantee that you will be fully-employed for the next 15 years? Can you guarantee that you will not be unemployed long enough that you used up all your emergency funds and you have to sell?

4) Can you survive the next few recessions without any long period of unemployment?

5) The stock has a higher expected return. But, the real world does not have to meet expectation.

6) 100/0 has a lousy risk-adjusted return. Any numbers between 70/30 and 30/70 make a lot more sense.

https://personal.vanguard.com/us/insigh ... llocations

The average return for 100/0 is 10.2%
The average return for 70/30 is 9.1%
The difference is 1.1%

The worst year for 100/0 is -43.1%
The worst year for 70/30 is -30.7%
The difference is 12.5%

So, you are getting 1.1% extra average return for the possibility of losing 13% more any year. This is a lousy bet. You have to be lucky for 11+ years in order to get even with the return of 70/30. Are you that lucky?

KlangFool

livesoft
Posts: 62838
Joined: Thu Mar 01, 2007 8:00 pm

Re: Are bonds really needed - why not 100% stocks?

Post by livesoft » Sun May 13, 2018 9:56 pm

There are many time periods of up to 25 years in length when bonds outperformed stocks over those periods.
Wiki This signature message sponsored by sscritic: Learn to fish.

LIGuy82
Posts: 72
Joined: Mon Apr 16, 2018 12:51 am

Re: Are bonds really needed - why not 100% stocks?

Post by LIGuy82 » Sun May 13, 2018 10:02 pm

KlangFool wrote:
Sun May 13, 2018 9:51 pm
LIGuy82 wrote:
Sun May 13, 2018 9:34 pm

If one can stomach the volatility and keep buying every paycheck, wouldn't their return be higer - assuming they don't start withdrawing while the market is in a slump?
LIGuy82,

1) Can you see the future? If not, how do you know that you will not need to withdraw while the market is in a slump?

2) You plan to retire in 15 years. Can you predict your future? If not, how do you know you will retire in 15 years?

3) Can you guarantee that you will be fully-employed for the next 15 years? Can you guarantee that you will not be unemployed long enough that you used up all your emergency funds and you have to sell?

4) Can you survive the next few recessions without any long period of unemployment?

5) The stock has a higher expected return. But, the real world does not have to meet expectation.

6) 100/0 has a lousy risk-adjusted return. Any numbers between 70/30 and 30/70 make a lot more sense.

https://personal.vanguard.com/us/insigh ... llocations

The average return for 100/0 is 10.2%
The average return for 70/30 is 9.1%
The difference is 1.1%

The worst year for 100/0 is -43.1%
The worst year for 70/30 is -30.7%
The difference is 12.5%

So, you are getting 1.1% extra average return for the possibility of losing 13% more any year. This is a lousy bet. You have to be lucky for 11+ years in order to get even with the return of 70/30. Are you that lucky?

KlangFool
Thanks for the reply. I can for certain that my job is not subject to layoffs and I will reach the minimum retirement age in 15 years. The 1.1% difference amounts to around $400,000 after 15 years, given my current portfolio and projected contributions during that time frame. I can also collect my pension and social security supplement upon retirement, which will increase to full social security when I hit 62 - so I have a pretty secure safety net. Given the safety net, and a tolerance for volatility, I think I can take on more risk. I appreciate you spelling out the risk/return numbers.

LIGuy82
Posts: 72
Joined: Mon Apr 16, 2018 12:51 am

Re: Are bonds really needed - why not 100% stocks?

Post by LIGuy82 » Sun May 13, 2018 10:03 pm

livesoft wrote:
Sun May 13, 2018 9:56 pm
There are many time periods of up to 25 years in length when bonds outperformed stocks over those periods.
Thanks for the reply. Could you please let me know when those periods were?

livesoft
Posts: 62838
Joined: Thu Mar 01, 2007 8:00 pm

Re: Are bonds really needed - why not 100% stocks?

Post by livesoft » Sun May 13, 2018 10:07 pm

LIGuy82 wrote:
Sun May 13, 2018 10:03 pm
livesoft wrote:
Sun May 13, 2018 9:56 pm
There are many time periods of up to 25 years in length when bonds outperformed stocks over those periods.
Thanks for the reply. Could you please let me know when those periods were?
Please read "Nonprofit Asset Management" by Rice, DiMeo, and Porter. See Exhibit 2.10.

One example: September 1980 to August 2010 which is 30 years. That's S&P500 versus long-term government bonds.

You should not care not when they were in the past. And you cannot tell when they will be in the future.
Wiki This signature message sponsored by sscritic: Learn to fish.

KlangFool
Posts: 10613
Joined: Sat Oct 11, 2008 12:35 pm

Re: Are bonds really needed - why not 100% stocks?

Post by KlangFool » Sun May 13, 2018 10:08 pm

LIGuy82 wrote:
Sun May 13, 2018 10:02 pm
KlangFool wrote:
Sun May 13, 2018 9:51 pm
LIGuy82 wrote:
Sun May 13, 2018 9:34 pm

If one can stomach the volatility and keep buying every paycheck, wouldn't their return be higer - assuming they don't start withdrawing while the market is in a slump?
LIGuy82,

1) Can you see the future? If not, how do you know that you will not need to withdraw while the market is in a slump?

2) You plan to retire in 15 years. Can you predict your future? If not, how do you know you will retire in 15 years?

3) Can you guarantee that you will be fully-employed for the next 15 years? Can you guarantee that you will not be unemployed long enough that you used up all your emergency funds and you have to sell?

4) Can you survive the next few recessions without any long period of unemployment?

5) The stock has a higher expected return. But, the real world does not have to meet expectation.

6) 100/0 has a lousy risk-adjusted return. Any numbers between 70/30 and 30/70 make a lot more sense.

https://personal.vanguard.com/us/insigh ... llocations

The average return for 100/0 is 10.2%
The average return for 70/30 is 9.1%
The difference is 1.1%

The worst year for 100/0 is -43.1%
The worst year for 70/30 is -30.7%
The difference is 12.5%

So, you are getting 1.1% extra average return for the possibility of losing 13% more any year. This is a lousy bet. You have to be lucky for 11+ years in order to get even with the return of 70/30. Are you that lucky?

KlangFool
Thanks for the reply. I can for certain that my job is not subject to layoffs and I will reach the minimum retirement age in 15 years. The 1.1% difference amounts to around $400,000 after 15 years, given my current portfolio and projected contributions during that time frame. I can also collect my pension and social security supplement upon retirement, which will increase to full social security when I hit 62 - so I have a pretty secure safety net. Given the safety net, and a tolerance for volatility, I think I can take on more risk. I appreciate you spelling out the risk/return numbers.
LIGuy82,

<< The 1.1% difference amounts to around $400,000 after 15 years, >>

You are assuming that you do not hit -43% in any of those 15 years. If you do, you will not get your 1.1% extra return. In fact, you may earn a lot less than 70/30.

How do you know that you will be lucky over the next 15 years?

KlangFool

User avatar
whodidntante
Posts: 4304
Joined: Thu Jan 21, 2016 11:11 pm

Re: Are bonds really needed - why not 100% stocks?

Post by whodidntante » Sun May 13, 2018 10:10 pm

Of course bonds are not "really needed." Some of us prefer a gentler glide path towards retirement, and to take on less risk late in the game. If you would rather run hot and you understand the risk you are taking, speed on, brother.

LIGuy82
Posts: 72
Joined: Mon Apr 16, 2018 12:51 am

Re: Are bonds really needed - why not 100% stocks?

Post by LIGuy82 » Sun May 13, 2018 10:10 pm

KlangFool wrote:
Sun May 13, 2018 10:08 pm
LIGuy82 wrote:
Sun May 13, 2018 10:02 pm
KlangFool wrote:
Sun May 13, 2018 9:51 pm
LIGuy82 wrote:
Sun May 13, 2018 9:34 pm

If one can stomach the volatility and keep buying every paycheck, wouldn't their return be higer - assuming they don't start withdrawing while the market is in a slump?
LIGuy82,

1) Can you see the future? If not, how do you know that you will not need to withdraw while the market is in a slump?

2) You plan to retire in 15 years. Can you predict your future? If not, how do you know you will retire in 15 years?

3) Can you guarantee that you will be fully-employed for the next 15 years? Can you guarantee that you will not be unemployed long enough that you used up all your emergency funds and you have to sell?

4) Can you survive the next few recessions without any long period of unemployment?

5) The stock has a higher expected return. But, the real world does not have to meet expectation.

6) 100/0 has a lousy risk-adjusted return. Any numbers between 70/30 and 30/70 make a lot more sense.

https://personal.vanguard.com/us/insigh ... llocations

The average return for 100/0 is 10.2%
The average return for 70/30 is 9.1%
The difference is 1.1%

The worst year for 100/0 is -43.1%
The worst year for 70/30 is -30.7%
The difference is 12.5%

So, you are getting 1.1% extra average return for the possibility of losing 13% more any year. This is a lousy bet. You have to be lucky for 11+ years in order to get even with the return of 70/30. Are you that lucky?

KlangFool
Thanks for the reply. I can for certain that my job is not subject to layoffs and I will reach the minimum retirement age in 15 years. The 1.1% difference amounts to around $400,000 after 15 years, given my current portfolio and projected contributions during that time frame. I can also collect my pension and social security supplement upon retirement, which will increase to full social security when I hit 62 - so I have a pretty secure safety net. Given the safety net, and a tolerance for volatility, I think I can take on more risk. I appreciate you spelling out the risk/return numbers.
LIGuy82,

<< The 1.1% difference amounts to around $400,000 after 15 years, >>

You are assuming that you do not hit -43% in any of those 15 years. If you do, you will not get your 1.1% extra return. In fact, you may earn a lot less than 70/30.

How do you know that you will be lucky over the next 15 years?

KlangFool
I used the 10.2 and 9.1 average returns during the fifteen year period to calculate that number, so it would take into account the bad years. Granted, there is no telling that the next 10 years will be like the last 50.

KlangFool
Posts: 10613
Joined: Sat Oct 11, 2008 12:35 pm

Re: Are bonds really needed - why not 100% stocks?

Post by KlangFool » Sun May 13, 2018 10:15 pm

LIGuy82 wrote:
Sun May 13, 2018 10:10 pm
KlangFool wrote:
Sun May 13, 2018 10:08 pm
LIGuy82 wrote:
Sun May 13, 2018 10:02 pm
KlangFool wrote:
Sun May 13, 2018 9:51 pm
LIGuy82 wrote:
Sun May 13, 2018 9:34 pm

If one can stomach the volatility and keep buying every paycheck, wouldn't their return be higer - assuming they don't start withdrawing while the market is in a slump?
LIGuy82,

1) Can you see the future? If not, how do you know that you will not need to withdraw while the market is in a slump?

2) You plan to retire in 15 years. Can you predict your future? If not, how do you know you will retire in 15 years?

3) Can you guarantee that you will be fully-employed for the next 15 years? Can you guarantee that you will not be unemployed long enough that you used up all your emergency funds and you have to sell?

4) Can you survive the next few recessions without any long period of unemployment?

5) The stock has a higher expected return. But, the real world does not have to meet expectation.

6) 100/0 has a lousy risk-adjusted return. Any numbers between 70/30 and 30/70 make a lot more sense.

https://personal.vanguard.com/us/insigh ... llocations

The average return for 100/0 is 10.2%
The average return for 70/30 is 9.1%
The difference is 1.1%

The worst year for 100/0 is -43.1%
The worst year for 70/30 is -30.7%
The difference is 12.5%

So, you are getting 1.1% extra average return for the possibility of losing 13% more any year. This is a lousy bet. You have to be lucky for 11+ years in order to get even with the return of 70/30. Are you that lucky?

KlangFool
Thanks for the reply. I can for certain that my job is not subject to layoffs and I will reach the minimum retirement age in 15 years. The 1.1% difference amounts to around $400,000 after 15 years, given my current portfolio and projected contributions during that time frame. I can also collect my pension and social security supplement upon retirement, which will increase to full social security when I hit 62 - so I have a pretty secure safety net. Given the safety net, and a tolerance for volatility, I think I can take on more risk. I appreciate you spelling out the risk/return numbers.
LIGuy82,

<< The 1.1% difference amounts to around $400,000 after 15 years, >>

You are assuming that you do not hit -43% in any of those 15 years. If you do, you will not get your 1.1% extra return. In fact, you may earn a lot less than 70/30.

How do you know that you will be lucky over the next 15 years?

KlangFool
I used the 10.2 and 9.1 average returns during the fifteen year period to calculate that number, so it would take into account the bad years. Granted, there is no telling that the next 10 years will be like the last 50.
That average number is over 90 years: 1920 to 2016. It is not over 15 years. And, there is no guarantee that the future will look the same.

KlangFool

User avatar
Clever_Username
Posts: 1068
Joined: Sun Jul 15, 2012 12:24 am
Location: Southern California

Re: Are bonds really needed - why not 100% stocks?

Post by Clever_Username » Sun May 13, 2018 10:18 pm

LIGuy82 wrote:
Sun May 13, 2018 9:32 pm
I should not have worded it like that. I should have said that bonds earn significantly less than bonds over a period of time.
That sounds tricky. How does that work? ;-)
LIGuy82 wrote:
Sun May 13, 2018 9:32 pm
As I get closer to retirement, I plan to increase my bond holdings - 20% when I am ten years out, and 30% when I am five years out. I plan to keep 60/40 stocks/bonds in retirement, as I will have a healthy pension, social security, and reliable rental income on the day I retire. My goal is to maximize earnings, and I do not plan to sell anything until I start making 4% withdrawals, if that much, fifteen years from now.
Do you plan to just suddenly move from 0% to moving one-fifth of your investments into bonds quickly? I'd be uncomfortable with such a sudden change in asset allocation.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_

LIGuy82
Posts: 72
Joined: Mon Apr 16, 2018 12:51 am

Re: Are bonds really needed - why not 100% stocks?

Post by LIGuy82 » Sun May 13, 2018 10:21 pm

Clever_Username wrote:
Sun May 13, 2018 10:18 pm
LIGuy82 wrote:
Sun May 13, 2018 9:32 pm
I should not have worded it like that. I should have said that bonds earn significantly less than bonds over a period of time.
That sounds tricky. How does that work? ;-)
LIGuy82 wrote:
Sun May 13, 2018 9:32 pm
As I get closer to retirement, I plan to increase my bond holdings - 20% when I am ten years out, and 30% when I am five years out. I plan to keep 60/40 stocks/bonds in retirement, as I will have a healthy pension, social security, and reliable rental income on the day I retire. My goal is to maximize earnings, and I do not plan to sell anything until I start making 4% withdrawals, if that much, fifteen years from now.
Do you plan to just suddenly move from 0% to moving one-fifth of your investments into bonds quickly? I'd be uncomfortable with such a sudden change in asset allocation.
Am I incorrect in saying that bonds tend to under perform equities? Regarding reallocation, I would move 2-4% a year into bonds, beginning ten years from retirement, with the goal being 20%. My pension, SSI, and rental income would put me right around where I am now in terms of income, so any investment gains would just be gravy.

22twain
Posts: 1595
Joined: Thu May 10, 2012 5:42 pm

Re: Are bonds really needed - why not 100% stocks?

Post by 22twain » Sun May 13, 2018 10:40 pm

LIGuy82 wrote:
Sun May 13, 2018 10:21 pm
Clever_Username wrote:
Sun May 13, 2018 10:18 pm
LIGuy82 wrote:
Sun May 13, 2018 9:32 pm
I should not have worded it like that. I should have said that bonds earn significantly less than bonds over a period of time.
That sounds tricky. How does that work? ;-)
Am I incorrect in saying that bonds tend to under perform equities?
Read your first quote again, carefully! :wink:

(It's easy to skip over one's own typos. I'm very familiar with this phenomenon.)
My investing princiPLEs do not include absolutely preserving princiPAL.

visualguy
Posts: 869
Joined: Thu Jan 30, 2014 1:32 am

Re: Are bonds really needed - why not 100% stocks?

Post by visualguy » Sun May 13, 2018 10:45 pm

Many don't feel comfortable with the bond part of the Boglehead portfolio. I'm certainly one of them...

Having a large amount of money in the bond index fund seems very weak to me... If you have a 60/40 portfolio of $4M, for example, you have $1.6M in bonds which have negative post-tax real return. That's way too much money to be sitting there stagnating.

What's the alternative? You could put a big chunk of that in the stock market. That's not very appealing either because it makes it even harder to deal with potential huge drops in the market, and also you can't rule out a scenario where the market drops a lot and doesn't recover for too many years.

My view is that using much of that money to acquire rental properties is a reasonable alternative. That's what most of the people I know do... I don't know anyone personally who has seven figures in bonds, at least not in taxable money. I know it's common on this forum, but I haven't personally encountered it. Tax-deferred accounts are a different story since you can't use that money to acquire real estate.

LIGuy82
Posts: 72
Joined: Mon Apr 16, 2018 12:51 am

Re: Are bonds really needed - why not 100% stocks?

Post by LIGuy82 » Sun May 13, 2018 10:56 pm

22twain wrote:
Sun May 13, 2018 10:40 pm
LIGuy82 wrote:
Sun May 13, 2018 10:21 pm
Clever_Username wrote:
Sun May 13, 2018 10:18 pm
LIGuy82 wrote:
Sun May 13, 2018 9:32 pm
I should not have worded it like that. I should have said that bonds earn significantly less than bonds over a period of time.
That sounds tricky. How does that work? ;-)
Am I incorrect in saying that bonds tend to under perform equities?
Read your first quote again, carefully! :wink:

(It's easy to skip over one's own typos. I'm very familiar with this phenomenon.)
Well, I guess some bonds outperform others :)

LIGuy82
Posts: 72
Joined: Mon Apr 16, 2018 12:51 am

Re: Are bonds really needed - why not 100% stocks?

Post by LIGuy82 » Sun May 13, 2018 10:58 pm

visualguy wrote:
Sun May 13, 2018 10:45 pm
Many don't feel comfortable with the bond part of the Boglehead portfolio. I'm certainly one of them...

Having a large amount of money in the bond index fund seems very weak to me... If you have a 60/40 portfolio of $4M, for example, you have $1.6M in bonds which have negative post-tax real return. That's way too much money to be sitting there stagnating.

What's the alternative? You could put a big chunk of that in the stock market. That's not very appealing either because it makes it even harder to deal with potential huge drops in the market, and also you can't rule out a scenario where the market drops a lot and doesn't recover for too many years.

My view is that using much of that money to acquire rental properties is a reasonable alternative. That's what most of the people I know do... I don't know anyone personally who has seven figures in bonds, at least not in taxable money. I know it's common on this forum, but I haven't personally encountered it. Tax-deferred accounts are a different story since you can't use that money to acquire real estate.
Interesting take. I own one rental property, and will consider using what I save in the next three years in my taxable accounts to acquire another one. The tax incentives alone made it the first one a good move.

PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: Are bonds really needed - why not 100% stocks?

Post by PFInterest » Sun May 13, 2018 11:40 pm

drk wrote:
Sun May 13, 2018 9:15 pm
LIGuy82 wrote:
Sun May 13, 2018 9:08 pm
I plan to retire in about 15 years, right about the same time my nephew will be starting college. My brother has a 529 for my nephew. In both my case and that of my nephew, the "advised" allocation is 75% stocks and 25% bonds. Given that bonds tend not to earn, and just smooth volatility, is there any downside to remaining in 100% stocks until a few years before retirement/beginning school. If one can stomach volatility and not panic sell, are there any advantages to holding bonds rather than stocks until a few years out from needing the money (assuming the market is in an upswing). If it is in a downswing, just hold and live off other funding streams, which we both can do without much of a problem, and wait for the recovery to reallocate and withdraw.

I would appreciate an explanation on why bonds should be included if one is willing and able to stomach volatility and has a 15 year time horizon. Thanks.
This is such a common question during bull markets that some on the board have suggested that it's a leading indicator of bubbles. There are even a series of videos on the wiki.
It's that time!

JustinR
Posts: 775
Joined: Tue Apr 27, 2010 11:43 pm

Re: Are bonds really needed - why not 100% stocks?

Post by JustinR » Mon May 14, 2018 2:44 am

LIGuy82 wrote:
Sun May 13, 2018 10:02 pm
Thanks for the reply. I can for certain that my job is not subject to layoffs and I will reach the minimum retirement age in 15 years. The 1.1% difference amounts to around $400,000 after 15 years, given my current portfolio and projected contributions during that time frame. I can also collect my pension and social security supplement upon retirement, which will increase to full social security when I hit 62 - so I have a pretty secure safety net. Given the safety net, and a tolerance for volatility, I think I can take on more risk. I appreciate you spelling out the risk/return numbers.
If you can guarantee that you will never be laid off and are cool with losing all your saved money, then you can do whatever you want including go 100% in stocks.

Eric76
Posts: 149
Joined: Fri Nov 07, 2014 4:02 am

Re: Are bonds really needed - why not 100% stocks?

Post by Eric76 » Mon May 14, 2018 3:38 am

Wouldn't Jack say that the value of a (safe) defined benefit pension and social security be included in the bond side of retirement allocation?

ignition
Posts: 201
Joined: Sun Dec 11, 2016 11:28 am

Re: Are bonds really needed - why not 100% stocks?

Post by ignition » Mon May 14, 2018 3:44 am

If you have the appropriate safeguards, which you seem to have, nothing wrong with 100% stock imo. Of course, nothing is guaranteed... Bonds could outperform even though I think this is unlikely at current rates.

Valuethinker
Posts: 36614
Joined: Fri May 11, 2007 11:07 am

Re: Are bonds really needed - why not 100% stocks?

Post by Valuethinker » Mon May 14, 2018 5:11 am

LIGuy82 wrote:
Sun May 13, 2018 9:08 pm
I plan to retire in about 15 years, right about the same time my nephew will be starting college. My brother has a 529 for my nephew. In both my case and that of my nephew, the "advised" allocation is 75% stocks and 25% bonds. Given that bonds tend not to earn, and just smooth volatility, is there any downside to remaining in 100% stocks until a few years before retirement/beginning school. If one can stomach volatility and not panic sell, are there any advantages to holding bonds rather than stocks until a few years out from needing the money (assuming the market is in an upswing). If it is in a downswing, just hold and live off other funding streams, which we both can do without much of a problem, and wait for the recovery to reallocate and withdraw.

I would appreciate an explanation on why bonds should be included if one is willing and able to stomach volatility and has a 15 year time horizon. Thanks.
There are periods of dreadful stock performance over 15 years.

Implicit in your thinking is, I think, the assumption that equity markets always recover in that time frame. But 1929-1944 they did not, fully, and 1966-1981 (or probably until around 1986) they did not do so. Also there are numerous examples in international markets, Japan most notably, where they did not so. The US is the absolute winner of stock market performance in the last 15 years (probably in the last 38 years).

In behavioural economics that's called Recency Bias. I think you cannot imagine a world where such a recovery was not true?

The bitter reality is that stock markets can go down, a lot, and may not recover quickly-- even if the postwar pattern is largely of fairly quick recoveries (but not from a 1968ish peak).

DragonJoey3
Posts: 12
Joined: Wed Apr 18, 2018 8:52 am

Re: Are bonds really needed - why not 100% stocks?

Post by DragonJoey3 » Mon May 14, 2018 5:53 am

A little perspective for those who perhaps haven't experienced a bear market: viewtopic.php?t=25126

chevca
Posts: 1935
Joined: Wed Jul 26, 2017 11:22 am

Re: Are bonds really needed - why not 100% stocks?

Post by chevca » Mon May 14, 2018 6:20 am

This reminds me of a thread where someone was bragging about being 100% stocks in retirement.... but, oh wait, they had a pension that more than covered their expenses and they didn't even need to worry about dipping into the portfolio other than a vacation here and there....

OP, you have a secure job, pension, SS, and rental income to look forward to for about the same income you live on and save from now. You may never need to dip into your portfolio. Go ahead and be 100% stocks.

A better question is why you think your nephew's college savings should be 100% stocks. What if the stock market is on a downswing just before or during their college years?

SelfEmployed123
Posts: 186
Joined: Sun Apr 15, 2018 8:57 pm

Re: Are bonds really needed - why not 100% stocks?

Post by SelfEmployed123 » Mon May 14, 2018 6:29 am

DragonJoey3 wrote:
Mon May 14, 2018 5:53 am
A little perspective for those who perhaps haven't experienced a bear market: viewtopic.php?t=25126
Thank you for posting that. Reading reactions to the markets in real time is invaluable (kind of like the book Great Depression: A Diary).

I've been wondering myself about 100% stocks as a strategy as I'm young, haven't ridden through a bear market with sizable assets, and used to the ultra low interest rates we've had. At the end of the day you have to ask yourself if you really have what it takes. That's easy to say when markets are at an all time high! It seems like the upside gain of 100% stocks is not worth the downside risk of panic selling at the worst possible moment.
"Get what you can, and what you get hold, 'Tis the stone that will turn all your lead into gold." | -Benjamin Franklin

Bacchus01
Posts: 2046
Joined: Mon Dec 24, 2012 9:35 pm

Re: Are bonds really needed - why not 100% stocks?

Post by Bacchus01 » Mon May 14, 2018 6:38 am

I use very little bonds because I have the desire and ability to take on risk

Bonds are also not tax efficient for me. In taxable it’s hard to find a decent tax managed fund with decent return and low fees. In tax advantaged accounts, the ERs are often many multiples of a broad S&P type fund, eating a lot of the tax benefits

3funder
Posts: 781
Joined: Sun Oct 15, 2017 9:35 pm

Re: Are bonds really needed - why not 100% stocks?

Post by 3funder » Mon May 14, 2018 6:49 am

15 years isn't all that long. Throw in historically high valuations, and you could wind up not sitting as pretty as you would have liked.

Jags4186
Posts: 2596
Joined: Wed Jun 18, 2014 7:12 pm

Re: Are bonds really needed - why not 100% stocks?

Post by Jags4186 » Mon May 14, 2018 6:56 am

What do you mean by 100% stocks? 100% SP500? If your reasoning for being 100% stocks is because over history, it has performed significantly better than bonds, then you should consider not getting rid of your bonds and using a different asset allocation.

https://paulmerriman.com/wp-content/upl ... ldwide.pdf

Paul Merriman keeps his “fine tuning tables” of his Ultimate Buy and Hold portfolio going back to 1970. You can see that you could have between a 60/40 stock/bond and 50/50 stock/bond and still have outperformed the S&P 500 with considerably less risk. I would look at that before going 100% S&P 500.

22twain
Posts: 1595
Joined: Thu May 10, 2012 5:42 pm

Re: Are bonds really needed - why not 100% stocks?

Post by 22twain » Mon May 14, 2018 7:02 am

Valuethinker wrote:
Mon May 14, 2018 5:11 am
Implicit in your thinking is, I think, the assumption that equity markets always recover in that time frame. [...] 1966-1981 (or probably until around 1986) they did not do so.
1966-1981 almost exactly covered my days in high school, college and graduate school. When I got my first college-teaching job after grad school, the only two choices in my TIAA 403(b) plan were the TIAA Traditional Account (stable-value) and the CREF Stock Account which nowadays behaves much like a 70/30 mixture of a total (domestic) stock index fund and a total international stock index fund. I figured the former would be "safe" and the latter might turn out to give me something extra, so I split them 50/50. I have the impression that was a rather common choice for TIAA participants in those days.
My investing princiPLEs do not include absolutely preserving princiPAL.

RickBoglehead
Posts: 1180
Joined: Wed Feb 14, 2018 9:10 am

Re: Are bonds really needed - why not 100% stocks?

Post by RickBoglehead » Mon May 14, 2018 7:08 am

Some of us have been through multiple market crashes.

I worked in the industry in 1987, in fact started just before Black Monday. Came into work, and a red light was flashing on the wall. I was told to get my things and go to a ballroom in a nearby building. In that building hundreds of stations were setup with phone lines and terminals, and I was answering phones for 3 days as investors called, most saying something similar to "When the market went down, I sold my investments. Now it's going back up, how do I get my principal back?" Many were crying.

I'm less than ten years from retirement. My perspective has changed as my assets have grown. When you have $XXX, and it's inadequate to retire on, you lean more towards growth provided by equities, even if you know you should be more into bonds. When you have adequate funds to retire on just in your bond portfolio, you have to fight greed (equity returns) mentally. I let the crash of 1987 and the internet bubble bursting remind me that I'm not smart enough to know the future, and continue to shift from equities to bonds each year.

I just moved some funds to my retirement accounts, and 100% of the funds will go into bonds. As of mid-April (last time I checked my allocation), I'm 68% stock, 25% bond, and 7% cash/CDs.

mptfan
Posts: 4779
Joined: Mon Mar 05, 2007 9:58 am

Re: Are bonds really needed - why not 100% stocks?

Post by mptfan » Mon May 14, 2018 7:09 am

LIGuy82 wrote:
Sun May 13, 2018 10:21 pm
Am I incorrect in saying that bonds tend to under perform equities?
You said "bonds return significantly less than bonds." That is tricky.

mortfree
Posts: 1318
Joined: Mon Sep 12, 2016 7:06 pm

Re: Are bonds really needed - why not 100% stocks?

Post by mortfree » Mon May 14, 2018 7:40 am

RickBoglehead wrote:
Mon May 14, 2018 7:08 am
Some of us have been through multiple market crashes.

I worked in the industry in 1987, in fact started just before Black Monday. Came into work, and a red light was flashing on the wall. I was told to get my things and go to a ballroom in a nearby building. In that building hundreds of stations were setup with phone lines and terminals, and I was answering phones for 3 days as investors called, most saying something similar to "When the market went down, I sold my investments. Now it's going back up, how do I get my principal back?" Many were crying.

I'm less than ten years from retirement. My perspective has changed as my assets have grown. When you have $XXX, and it's inadequate to retire on, you lean more towards growth provided by equities, even if you know you should be more into bonds. When you have adequate funds to retire on just in your bond portfolio, you have to fight greed (equity returns) mentally. I let the crash of 1987 and the internet bubble bursting remind me that I'm not smart enough to know the future, and continue to shift from equities to bonds each year.

I just moved some funds to my retirement accounts, and 100% of the funds will go into bonds. As of mid-April (last time I checked my allocation), I'm 68% stock, 25% bond, and 7% cash/CDs.
Interesting. As I was reading this I never would have imagined that you are basically 70:30. My current aa at 41.

Thought you might be 50:50 or 40:60.

RickBoglehead
Posts: 1180
Joined: Wed Feb 14, 2018 9:10 am

Re: Are bonds really needed - why not 100% stocks?

Post by RickBoglehead » Mon May 14, 2018 7:47 am

mortfree wrote:
Mon May 14, 2018 7:40 am
RickBoglehead wrote:
Mon May 14, 2018 7:08 am
Some of us have been through multiple market crashes.

I worked in the industry in 1987, in fact started just before Black Monday. Came into work, and a red light was flashing on the wall. I was told to get my things and go to a ballroom in a nearby building. In that building hundreds of stations were setup with phone lines and terminals, and I was answering phones for 3 days as investors called, most saying something similar to "When the market went down, I sold my investments. Now it's going back up, how do I get my principal back?" Many were crying.

I'm less than ten years from retirement. My perspective has changed as my assets have grown. When you have $XXX, and it's inadequate to retire on, you lean more towards growth provided by equities, even if you know you should be more into bonds. When you have adequate funds to retire on just in your bond portfolio, you have to fight greed (equity returns) mentally. I let the crash of 1987 and the internet bubble bursting remind me that I'm not smart enough to know the future, and continue to shift from equities to bonds each year.

I just moved some funds to my retirement accounts, and 100% of the funds will go into bonds. As of mid-April (last time I checked my allocation), I'm 68% stock, 25% bond, and 7% cash/CDs.
Interesting. As I was reading this I never would have imagined that you are basically 70:30. My current aa at 41.

Thought you might be 50:50 or 40:60.
Ideally I'd want to be lower. Each year I maximize retirement and all that goes into bonds. As the market increased in the past few years, it kept shifting my ratio higher and higher even with me pushing all retirement into bonds. I also fight the "greed" impulse, each year I do make additional investment into Primecap, a fund I've been in for a very long time that has returns that have been simply amazing. That moves me a point or so up, and then I shift a few points back down. I had planned on being 60/40 at the end of the year, and would have been had the market not increased as much as it did. I balance selling equities to shift to bonds with the taxable gain since 68% of my assets are taxable.

Based on my projected retirement expenses, just our bond investments can cover ten years, so I figure any market correction will have worked itself out by then. But I continue to move a point or two each year towards bonds.

cjcerny
Posts: 212
Joined: Sat Sep 15, 2007 12:47 pm

Re: Are bonds really needed - why not 100% stocks?

Post by cjcerny » Mon May 14, 2018 8:34 am

I'm of the opinion that not everyone needs bonds. But, I would also caution that thinking you can stomach the volatility of a 100% stock portfolio and actually doing it are two totally different things. If you have any doubt at all about whether you can, or you have enough money already to where you don't need the extra return of an all stock portfolio to make ends meet, owning a good chunk of bonds in a tax advantaged account will likely make your retirement a lot less stressful.

ponyboy
Posts: 605
Joined: Fri Feb 06, 2015 10:39 am

Re: Are bonds really needed - why not 100% stocks?

Post by ponyboy » Mon May 14, 2018 8:50 am

KlangFool wrote:
Sun May 13, 2018 9:51 pm




https://personal.vanguard.com/us/insigh ... llocations

The average return for 100/0 is 10.2%
The average return for 70/30 is 9.1%
The difference is 1.1%

The worst year for 100/0 is -43.1%
The worst year for 70/30 is -30.7%
The difference is 12.5%

So, you are getting 1.1% extra average return for the possibility of losing 13% more any year. This is a lousy bet. You have to be lucky for 11+ years in order to get even with the return of 70/30. Are you that lucky?

KlangFool
^this. I knew I saw this somewhere before. A 1% difference isnt worth the risk imo. Simply softens the blow.

Grt2bOutdoors
Posts: 19477
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Are bonds really needed - why not 100% stocks?

Post by Grt2bOutdoors » Mon May 14, 2018 9:01 am

Get your hands on copies of the WSJ, NY Times from September 2008 to March 2010. Read them from cover to cover, then let us know why bonds are important to have in a portfolio.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

selters
Posts: 616
Joined: Thu Feb 27, 2014 9:26 am

Re: Are bonds really needed - why not 100% stocks?

Post by selters » Mon May 14, 2018 9:01 am

KlangFool wrote:
Sun May 13, 2018 9:51 pm
The difference is 1.1%
Which is huge.

Taylor wrote a post a few days ago where he said that one should own some bonds, if only to learn about them. I can agree with that. But the volatility dampening effects of bonds are pretty small at low bond allocations, and your bond allocation is going to be low when you're young anyway. Also, while stock returns are very unpredictable, bond returns are more predictable. There is no way the bond allocation today is going to get the same return boost from falling interest rates as bonds did from 1982-2016. Furthermore, the portfolio of an investor will be comparatively low in years 1-10 compared to close to retirement. The behavioral risks are not that great early in the accumulation phase either, because the annual contributions to portfolio size ratio is a lot smaller. I'd say the case is strong for a high equity allocation until (roughly) age 40, and then a gradual increase of the bond allocation until you reach something like age in bonds at age 70. Which is pretty much what Vanguard does. If the stock allocation is 90 or 100 until age 40 is probably not that important.

KlangFool
Posts: 10613
Joined: Sat Oct 11, 2008 12:35 pm

Re: Are bonds really needed - why not 100% stocks?

Post by KlangFool » Mon May 14, 2018 9:37 am

selters wrote:
Mon May 14, 2018 9:01 am
KlangFool wrote:
Sun May 13, 2018 9:51 pm
The difference is 1.1%
Which is huge.
selters,

<<Which is huge.>>

As compared to what? In OP's case, it is 400K of gain. It would not change his life at all. 400K in a portfolio of 4 million would not matter. But, the 40% to 50% loss would be 2 million or more. That will make a hell of a difference.

So, why would someone gamble in this situation?

A) Even if he wins, it won't matter.

B) But, if he loses, it will hurt badly.

Don't gamble when even if you win, it does not matter. It is a lousy bet.

KlangFool
Last edited by KlangFool on Mon May 14, 2018 10:47 am, edited 1 time in total.

stimulacra
Posts: 375
Joined: Wed Dec 21, 2016 3:50 pm
Location: Houston

Re: Are bonds really needed - why not 100% stocks?

Post by stimulacra » Mon May 14, 2018 9:39 am

Grt2bOutdoors wrote:
Mon May 14, 2018 9:01 am
Get your hands on copies of the WSJ, NY Times from September 2008 to March 2010. Read them from cover to cover, then let us know why bonds are important to have in a portfolio.
I wish more folks were 100% stocks. I'll stay 70/25/5 however.

KlangFool
Posts: 10613
Joined: Sat Oct 11, 2008 12:35 pm

Re: Are bonds really needed - why not 100% stocks?

Post by KlangFool » Mon May 14, 2018 9:43 am

selters wrote:
Mon May 14, 2018 9:01 am
KlangFool wrote:
Sun May 13, 2018 9:51 pm
The difference is 1.1%
your bond allocation is going to be low when you're young anyway.
selters,

I disagreed with that statement. In fact, I believe the AA should be between 70/30 to 30/70 all the time.

When someone is young, his/her portfolio is small and he/she has a small emergency fund. It is easier for someone to be totally wiped out if he/she is unemployed for a short period in a recession. The person cannot afford to be 100/0 unless his/her employment is totally secured.

KlangFool

Grt2bOutdoors
Posts: 19477
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Are bonds really needed - why not 100% stocks?

Post by Grt2bOutdoors » Mon May 14, 2018 9:46 am

stimulacra wrote:
Mon May 14, 2018 9:39 am
Grt2bOutdoors wrote:
Mon May 14, 2018 9:01 am
Get your hands on copies of the WSJ, NY Times from September 2008 to March 2010. Read them from cover to cover, then let us know why bonds are important to have in a portfolio.
I wish more folks were 100% stocks. I'll stay 70/25/5 however.
I could have made alot of money being 100% equity, I could have lost my shirt too. What's worse is losing one's mind as their total portfolio is blowing up and at the same time they've lost their job, business practice and health. Following that, many relationships were lost too, families broken up. Many, many people went through that and still have not yet totally recovered from it, 10 years later. Bad decisions, compounded over time will sink you. If you want to succeed, don't forget the lessons learned by others, lest you want to experience it first hand.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Valuethinker
Posts: 36614
Joined: Fri May 11, 2007 11:07 am

Re: Are bonds really needed - why not 100% stocks?

Post by Valuethinker » Mon May 14, 2018 4:33 pm

Grt2bOutdoors wrote:
Mon May 14, 2018 9:01 am
Get your hands on copies of the WSJ, NY Times from September 2008 to March 2010. Read them from cover to cover, then let us know why bonds are important to have in a portfolio.
The technical term for this advice is "wisdom" ;-).

Experience is a very good teacher.

From memory, it was really the period from summer of 2008 (say about when FNMA and FMAC got nationalized) to March 2009 that it really felt like the end of the world, with particular focus on 13 Sept 2008 (Lehman) to 9 October 2008 (Gordon Brown & Alastair Darling's decision, announced on the steps of Reuters, to bail the British banks). That was the month of raw, total, terror - -we glimpsed financial and economic oblivion in way probably no one had even in the dark days of the 1970s- -really no one had since 1929.

Gordon Brown was no orator. But I would summarize this speech as:

- Things are bad
- They may get worse
- We shall take whatever measures are necessary
- If those measures prove to be insufficient, we shall take more measures

The movie Darkest Hour about Winston Churchill in May-June 1940 is a load of cornball: Winston was not an inspired Parliamentary speaker, and the speech "Blood, sweat and tears" did not bring the House of Commons to its feet, cheering. Nor did Winston Churchill wander up the District Line Tube train polling members of the ordinary public as to the appropriate response to the suggestion that they pursue peace with Hitler. Nor were Chamberlain and Halifax so duplicitous (although the film catches an essence of Chamberlain - a dying man whose herculean efforts for peace had failed).

Just as the Gettysburg Address landed as a damp squib in delivery (Lincoln apparently had a reedy voice, and the wind was blowing so most did not hear his words), so too the impact of "Blood, sweat and tears" would be felt in the cold written word more than the delivery. On the cold page, and especially to the dawning realization in the United States of America (without whom, victory was impossible-- a central realization of Churchill's war strategy from the very beginning) that Britain and its Empire meant to see this thing through, those words meant a very great deal. Churchill's long career of terrible vanity and awful mistakes could be forgiven for those words.

Gordon Brown and his speechwriters were no such wordsmiths. History does not remember him as a successful Prime Minister. But I think we can use, of the moment, the word "Churchillian".

I can still almost hear the Spitfire engines coming to life ...

kaeltor
Posts: 101
Joined: Sat May 12, 2018 11:20 am

Re: Are bonds really needed - why not 100% stocks?

Post by kaeltor » Mon May 14, 2018 5:42 pm

WanderingDoc wrote:
Sun May 13, 2018 9:16 pm


Someone recently posted a graph showing that a 60/40 portfolio with rebalancing performed similarly to a 100/0 portfolio, with lower volatility.
What's the timeline here though?

WanderingDoc
Posts: 1267
Joined: Sat Aug 05, 2017 8:21 pm

Re: Are bonds really needed - why not 100% stocks?

Post by WanderingDoc » Mon May 14, 2018 6:06 pm

I think it was around 30 years. Hopefully someone could dig it up...

kaeltor wrote:
Mon May 14, 2018 5:42 pm
WanderingDoc wrote:
Sun May 13, 2018 9:16 pm


Someone recently posted a graph showing that a 60/40 portfolio with rebalancing performed similarly to a 100/0 portfolio, with lower volatility.
What's the timeline here though?
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

visualguy
Posts: 869
Joined: Thu Jan 30, 2014 1:32 am

Re: Are bonds really needed - why not 100% stocks?

Post by visualguy » Mon May 14, 2018 6:11 pm

WanderingDoc wrote:
Mon May 14, 2018 6:06 pm
I think it was around 30 years. Hopefully someone could dig it up...

kaeltor wrote:
Mon May 14, 2018 5:42 pm
WanderingDoc wrote:
Sun May 13, 2018 9:16 pm


Someone recently posted a graph showing that a 60/40 portfolio with rebalancing performed similarly to a 100/0 portfolio, with lower volatility.
What's the timeline here though?
I've seen such studies, but not sure what conclusion to draw since bonds provided better returns during those periods than they do now.

User avatar
jadd806
Posts: 267
Joined: Mon Aug 17, 2015 4:34 pm
Location: New England

Re: Are bonds really needed - why not 100% stocks?

Post by jadd806 » Mon May 14, 2018 6:32 pm

Jags4186 wrote:
Mon May 14, 2018 6:56 am
What do you mean by 100% stocks? 100% SP500? If your reasoning for being 100% stocks is because over history, it has performed significantly better than bonds, then you should consider not getting rid of your bonds and using a different asset allocation.

https://paulmerriman.com/wp-content/upl ... ldwide.pdf

Paul Merriman keeps his “fine tuning tables” of his Ultimate Buy and Hold portfolio going back to 1970. You can see that you could have between a 60/40 stock/bond and 50/50 stock/bond and still have outperformed the S&P 500 with considerably less risk. I would look at that before going 100% S&P 500.
This is a fairly misleading statistic, given that roughly 80% of the time period used here encompasses one of the greatest multi-decade bond bull markets in US history.

Interest rates on the 10 year Treasury dropped from ~15% in the early 1980's to ~3% today. One doesn't need to be a clairvoyant to see that the performance of bonds over this period will not be repeated for today's bond investors.

Post Reply