Why not go 100% stocks?

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masonstone
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Why not go 100% stocks?

Post by masonstone » Mon Jun 25, 2018 10:35 am

I'm relatively young, 35, and plan to work for the next two decades. I'm in a dual physician household and enjoy working and being productive. I don't really enjoy site-seeing and traveling as much. My household income is approximately 900K with approximately 120K of annual expenses.

My question is, why not keep 100% of my assets in stocks? The only thing holding me from putting 100% in stocks is to be able to take advantage of a market downturn. So for example if there's a recession, I can take advantage of it by shifting money from bonds to stocks in that scenario. If I'm 100% stocks I wouldn't be able to do that.

What do the bogleheads think? Your input is appreciated.

Jordan4FI
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Re: Why not go 100% stocks?

Post by Jordan4FI » Mon Jun 25, 2018 10:40 am

You have no reason to go 100% your income is crazy high, that is WOW!! You could just put $$ into a very conservative account and you will have 20 Million in 20 years time.. If you invest between 500K and 700K a year, you can only have anything you want later in life... Most of us are just trying to get our base expenses covered in 10 years so we can have options or walk away from the need to work...

I would play your hand safe, you are going to be so damn wealthy.. Just enjoy the fact you and your family are going to be fine. Do not put any kind of unneeded risk..

LiterallyIronic
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Re: Why not go 100% stocks?

Post by LiterallyIronic » Mon Jun 25, 2018 10:42 am

masonstone wrote:
Mon Jun 25, 2018 10:35 am
why not keep 100% of my assets in stocks?
Obviously the more you have in stocks, the riskier it is. Now, only you can determine what your asset allocation should be, based on need, ability, and willingness to take risk.

It sounds like you're willing to take the risk. With that kind of income versus expenses, it sounds like you have the ability to take the risk. Do you have the need to take the risk?

I'm a bit younger than you and I'm at 90/10, but I'd be at 100/0 if Target Retirement Funds started that aggressive. But that's because I need to be aggressive and hope things work out. For you, unless your goal is insanely high, you could reach your goals without requiring being aggressive and hoping things work out.
Last edited by LiterallyIronic on Mon Jun 25, 2018 10:43 am, edited 1 time in total.

bloom2708
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Re: Why not go 100% stocks?

Post by bloom2708 » Mon Jun 25, 2018 10:43 am

You sure can. Some do.

You have a huge income. If you save enough, any strategy will work.

Picture these scenarios and how you would feel in each:

1. Stocks $50k, drops to $25k in value (30 years to retirement)
2. Stocks $100k, drops to $50k in value (25 years to retirement)
3. Stocks $500k, drops to $250k in value (20 years to retirement)
4. Stocks $1 million, drops to $500k in value (15 years to retirement)
5. Stocks $2 million, drops to $1 million in value (10 years to retirement)

If it is the same level of comfort with a 50% drop in value during the next stock freefall, then you likely are fine with 100% stocks.

What if your portfolio drops 50% and you are 5 years to retirement? Bonds add safety/stability and some return. 10-20% doesn't dampen your overall return much. If stocks do -20% in a year and bonds do +3%, it isn't so bad to have some bonds.
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onourway
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Re: Why not go 100% stocks?

Post by onourway » Mon Jun 25, 2018 10:46 am

Right now stocks have been going up for most of a decade. Bonds are dropping in value. So the temptation to go all stock is high. I would argue if you feel this way, take it as a warning sign. How would you feel if your net worth were to drop by 50% in a matter of months? Are you sure you wouldn't panic sell? If you think you are sure, how do you really know, not having lived through it? It's easy to ignore the warnings of those who have lived through difficult times when skies are blue and the birds are chirping happily.

Jordan4FI
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Re: Why not go 100% stocks?

Post by Jordan4FI » Mon Jun 25, 2018 10:49 am

Second thought, you can go 100% no problem. You will likely have such an amount of $, that losing 50% or more you will still have 5 million... You took a good path for success, the only bad decisions would be to waste it on a private jet, sports cars, drugs and booze, and all the other temptations life has to offer high income earners..

272 Sheep
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Re: Why not go 100% stocks?

Post by 272 Sheep » Mon Jun 25, 2018 10:53 am

Benjamin Graham said that no one should be more than 75% stocks or less than 25% stocks.
Bill Bernstein said before age of 40 years, ones focus should be on amount saving is more
important than asset-allocation.
If you feel comfortable with going 100% stocks and don't mind losing 50% in a market downturn,
then go for it. You do have time to recover. At age 65, I wouldn't do it.

Best,
Carl W.

masonstone
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Re: Why not go 100% stocks?

Post by masonstone » Mon Jun 25, 2018 10:55 am

However the main disadvantage I see with going 100% stocks is an inability of taking advantage of a market downturn to buy stocks. In 2008 the Dow fell from ~16000 to ~6000. If I don't have any money in bonds I wouldn't be able to buy stocks at such a low cost other than with income generated.

onourway
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Re: Why not go 100% stocks?

Post by onourway » Mon Jun 25, 2018 10:56 am

Having money in bonds to buy stocks during downturns is simply to keep your targeted asset allocation in check. It doesn't improve returns. In your case you'd be still buying plenty of depressed assets from new income.

MotoTrojan
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Re: Why not go 100% stocks?

Post by MotoTrojan » Mon Jun 25, 2018 10:59 am

masonstone wrote:
Mon Jun 25, 2018 10:55 am
However the main disadvantage I see with going 100% stocks is an inability of taking advantage of a market downturn to buy stocks. In 2008 the Dow fell from ~16000 to ~6000. If I don't have any money in bonds I wouldn't be able to buy stocks at such a low cost other than with income generated.
I believe it’s proven that longterm you benefit more from full stock exposure than having dry powder for a downturn. Maybe play with portfoliovisualizer.com with 100/0 and XX/XX allocations and quarterly or annual rebalancing through long time periods.

Japan is a reason why you shouldn’t do this.

I’m 26 and 100/0 FWIW.
Last edited by MotoTrojan on Mon Jun 25, 2018 11:00 am, edited 1 time in total.

KyleAAA
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Re: Why not go 100% stocks?

Post by KyleAAA » Mon Jun 25, 2018 10:59 am

Some do. You can, too.

livesoft
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Re: Why not go 100% stocks?

Post by livesoft » Mon Jun 25, 2018 11:07 am

As noted, you can do what you want, but I think it would be an ill-formed decision. It seems you are selecting 100% stocks because you think it will give you the highest return. It might, but it probably won't.

There are MANY periods where the total return of bonds actually beat the total return of stocks. This is discussed in many places, but a good easy place to read this:
https://books.google.com/books?id=Pajpj ... 22&f=false

The table shows that when looking at rolling 3-year periods, bonds outperformed equities at least 32% of the time.
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TravelforFun
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Re: Why not go 100% stocks?

Post by TravelforFun » Mon Jun 25, 2018 11:12 am

Sure. Go 100% stock if you:

- Don't need that money for 20-30 years
- Can still sleep well after your portfolio drops 20% in one day or 50% in one year then stay flat for a few years

I was 100% equity when I was in my 30s and 40s and came out fine.

TravelforFun

272 Sheep
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Re: Why not go 100% stocks?

Post by 272 Sheep » Mon Jun 25, 2018 11:25 am

Another point is that S&P 500 is getting more expensive. Even if you choose
a suitable drop in the market, you still may be buying at an expensive
(slightly relatively cheaper) price. Even on March 2009. the market was not
particularly cheap.

High quality bonds are looking better and better with the yields climbing.

Should look at Shiller's PE10 chart. I would continue using this forum's
recommended books to further educate yourself while trying to figure
this out. Whats the rush?

Carl W.

JW-Retired
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Re: Why not go 100% stocks?

Post by JW-Retired » Mon Jun 25, 2018 11:28 am

masonstone wrote:
Mon Jun 25, 2018 10:35 am
My question is, why not keep 100% of my assets in stocks? The only thing holding me from putting 100% in stocks is to be able to take advantage of a market downturn.
How do you know you will "take advantage" of a serious stock crash? No offense but I doubt you would. And with your large income what's the benefit even if you do? Chances are any sort of convervative AA is going to give you oodles of retirement savings anyway.

Also, the 50% drop in stocks mentioned is not a worst case. In the depression US stocks bottomed at a tenth of their 1929 high a couple of years later. Holding some useful level of bonds would be a huge help to getting through anything like this.
JW
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Alexa9
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Re: Why not go 100% stocks?

Post by Alexa9 » Mon Jun 25, 2018 11:40 am

100% stocks is not diversified. A long bear market is very possible. I think everyone should go at least 20% bonds. Obviously if you're very wealthy you can do whatever you want without much trouble.

wolf359
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Re: Why not go 100% stocks?

Post by wolf359 » Mon Jun 25, 2018 11:46 am

livesoft wrote:
Mon Jun 25, 2018 11:07 am
As noted, you can do what you want, but I think it would be an ill-formed decision. It seems you are selecting 100% stocks because you think it will give you the highest return. It might, but it probably won't.

There are MANY periods where the total return of bonds actually beat the total return of stocks. This is discussed in many places, but a good easy place to read this:
https://books.google.com/books?id=Pajpj ... 22&f=false

The table shows that when looking at rolling 3-year periods, bonds outperformed equities at least 32% of the time.
I'm reading your data and drawing the opposite conclusion.

1) Stocks are outperforming bonds almost 70% of the time when considering rolling 3 year periods.
2) OP is 35, and has an investing timeframe greater than 3 years. He states 20 years.

If OP can handle the risk, 100% stocks is feasible for him. It isn't for most people, but he has:
1) A very high income. If stocks drop, his continued high income will still buy at depressed prices, so he will still be able to invest.
2) A relatively new portfolio. At 35, he has not accumulated a lot of assets relative to what he will accumulate over a lifetime. A 50% drop now is easily dwarfed by his high contribution rate.
3) A very stable income. He is likely to not lose his job during an economic downturn. He is very unlikely to have to need to tap the investments for living expenses.
4) A household with a very stable second income. Even if he loses his job, there is a second physician income as well. This makes it even more unlikely he would have to live off the investments in an emergency.
5) The high savings rate, high absolute dollar amount saved, and the low probability of needing to tap the investments combine to mean that he will probably have a very large portfolio that could cover his living expenses in the unlikely event he does need to tap it. Yes, even at 100% equities, in the middle of a Depression. All he has to do is invest in broadly diversified low cost index funds, especially Total Stock Market and/or Total International Stock Market. In this case, his investments may drop, but they will never hit zero. There should always be enough to live on.

The OP has the ability to take this risk, even if he doesn't have the need to take this risk. But, as he stated, why not?

Nice position to be in. This advice does not apply to most people.

dbr
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Re: Why not go 100% stocks?

Post by dbr » Mon Jun 25, 2018 11:56 am

You decide this kind of thing by looking at the consequences of different asset allocations and deciding what you want and what you don't want. The answer, of course, is up to you and nobody can tell you what you want.

One look at the consequences is to go into a planner like FireCalc with no spending but with contributions and print out (use the investigate tab) the range of various outcomes that could develop in different cases and see if you like it.

cj2018
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Re: Why not go 100% stocks?

Post by cj2018 » Mon Jun 25, 2018 12:10 pm

masonstone wrote:
Mon Jun 25, 2018 10:35 am
I'm relatively young, 35, and plan to work for the next two decades. I'm in a dual physician household and enjoy working and being productive. I don't really enjoy site-seeing and traveling as much. My household income is approximately 900K with approximately 120K of annual expenses.

My question is, why not keep 100% of my assets in stocks? The only thing holding me from putting 100% in stocks is to be able to take advantage of a market downturn. So for example if there's a recession, I can take advantage of it by shifting money from bonds to stocks in that scenario. If I'm 100% stocks I wouldn't be able to do that.

What do the bogleheads think? Your input is appreciated.
Hi masonstone, contrary to most folks here who will advise against it, i think given your income-level and age, go all in on equity is a sound decision as long as you are clear on the following principles:
  • only buy well-diversified equity index funds, no individual stocks
  • your portfolio is large enough that you only need the dividend stream, not the principle itself. So in order to cover 120k/yr in expenses, you need $6M in equity assets assuming 2% dividend yield (VFIAX or VTSAX)
  • you have 1-2 year of emergency fund handy so in case of a short-term drop in dividend yield, which wouldn't last for most than a few quarters, your living expenses are still taken care of

I'm personally 28yr and 100% allocated to equity, and the goal is to build a large enough nest egg to not care about market volatility since you only need to dividend payout. I believe most people will not be able to do 100% equity due to the following:
  • they need to rely on withdrawing the principle amount since their portfolio is not large enough, therefore they care about stock price, which make perfect sense because they have to sell at some point later in life
  • they don't really understand buying equity is buying piece of productive business, so they care about market price fluctuation. Again, i believe as long as you know what you are buying here (public equity = productive business), you know the benefit from it is the long-term cash flow from the business
Now, they only risk here i can see folks bringing up is that dividend payout might drop etc. Again, that's why you have a 1-2yr emergency fund to hedge this potential risk. In the worst possible case, you can still withdraw principle, but since your portfolio is built with the assumption to only withdraw dividend of 2%, withdrawing another 2% of principle actually puts you right on the SWR and that's assuming a 50% drop in equity.

JohnDindex
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Re: Why not go 100% stocks?

Post by JohnDindex » Mon Jun 25, 2018 12:11 pm


cj2018
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Re: Why not go 100% stocks?

Post by cj2018 » Mon Jun 25, 2018 12:12 pm

Jordan4FI wrote:
Mon Jun 25, 2018 10:49 am
Second thought, you can go 100% no problem. You will likely have such an amount of $, that losing 50% or more you will still have 5 million... You took a good path for success, the only bad decisions would be to waste it on a private jet, sports cars, drugs and booze, and all the other temptations life has to offer high income earners..
+1

wasting your wealth on private jet/sports cars are a sure way to blow through your fortunes fast! Of course, unless you bought these toys from the extra cash flow generated by your assets :sharebeer

CarpeDiem22
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Re: Why not go 100% stocks?

Post by CarpeDiem22 » Mon Jun 25, 2018 12:13 pm

Two reasons for not going 100% stocks:

1. Adding some bonds increases your return while reducing risk (source: Intelligent Asset Allocator by William Bernstein)
2. During a financial crisis, assets like stocks and real estate go on sale. An investor who has the cash/bonds in this situation can buy these assets and reap good returns later when things normalise. Bonds don't dip so much, so an investor can convert bonds to stocks in such a scenario. Not having any bonds won't allow you to do so.

aristotelian
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Re: Why not go 100% stocks?

Post by aristotelian » Mon Jun 25, 2018 12:16 pm

The general recommendation is to consider your need, willingness, and ability to take risk. You obviously have ability and willingness, but I question the need. Why do you need more money? What are you hoping to achieve by working and investing? Anyway, you are so wealthy it doesn't matter what you do, you will be fine either way.

cj2018
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Re: Why not go 100% stocks?

Post by cj2018 » Mon Jun 25, 2018 12:17 pm

MotoTrojan wrote:
Mon Jun 25, 2018 10:59 am
masonstone wrote:
Mon Jun 25, 2018 10:55 am
However the main disadvantage I see with going 100% stocks is an inability of taking advantage of a market downturn to buy stocks. In 2008 the Dow fell from ~16000 to ~6000. If I don't have any money in bonds I wouldn't be able to buy stocks at such a low cost other than with income generated.
I believe it’s proven that longterm you benefit more from full stock exposure than having dry powder for a downturn. Maybe play with portfoliovisualizer.com with 100/0 and XX/XX allocations and quarterly or annual rebalancing through long time periods.

Japan is a reason why you shouldn’t do this.

I’m 26 and 100/0 FWIW.
+1 Good for you MotoTrojan.

Sure, having some bonds are useful to take advantage of "blood on the street" and buy low when equities are on sale. I think that's a valid point of holding some bonds in your portfolio for that specific purpose.

However, if this were a concern during the accumulation stage, your side-income/cash flow from job should be able to provide ammunition for taking advantage of the market downturn.

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knpstr
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Re: Why not go 100% stocks?

Post by knpstr » Mon Jun 25, 2018 12:18 pm

masonstone wrote:
Mon Jun 25, 2018 10:35 am
My question is, why not keep 100% of my assets in stocks? The only thing holding me from putting 100% in stocks is to be able to take advantage of a market downturn.
Given the information provided, the rational position would be 100% equities.
Your (presumably) huge savings rate will allow you to take advantage of market downturns naturally. Blindly contribute the same amount of money each and every month and it will automatically buy more shares when the market is low vs high. No extra thought required on your part.

For illustration, if you put in $10,000/mo and stocks are at say $1,000 you buy 10 shares, next month they drop to $500 and your $10,000 buys 20 shares. You'll naturally and automatically take advantage of downturns without trying to predict the unpredictable.
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mortfree
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Re: Why not go 100% stocks?

Post by mortfree » Mon Jun 25, 2018 12:23 pm

If I were to be in this situation:

I would save 100k per year in fixed income type accounts.

That would guarantee 2 million plus over 20 years.

Invest the rest as 100% stock.

However I think the real answer to YOUR question is:

because at your income/savings rate you do not have to be 100% stocks.

cj2018
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Re: Why not go 100% stocks?

Post by cj2018 » Mon Jun 25, 2018 12:24 pm

CarpeDiem22 wrote:
Mon Jun 25, 2018 12:13 pm
Two reasons for not going 100% stocks:

1. Adding some bonds increases your return while reducing risk (source: Intelligent Asset Allocator by William Bernstein)
2. During a financial crisis, assets like stocks and real estate go on sale. An investor who has the cash/bonds in this situation can buy these assets and reap good returns later when things normalise. Bonds don't dip so much, so an investor can convert bonds to stocks in such a scenario. Not having any bonds won't allow you to do so.
#2 is sound advice. Mechanically, It's the same as re-balancing to a target AA.

What about holding some gold to hedge against currency risk and also provide ammunition during market downturn. Would that be a good alteranative to bonds for this specific purpose? I guess the liquidity of converting gold -> cash -> equity during recession is not as good as bond -> cash -> equity.

jsapiandante
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Re: Why not go 100% stocks?

Post by jsapiandante » Mon Jun 25, 2018 12:30 pm

With that high savings rate, I don't see the need to go 100%. It all depends on how much you need in retirement to live comfortably. You'd only need $3 million to live on $120k/year expenses at 4% SWR. You can save $300-350k/year and reach your number within 10 years without investing at all. But to answer your question, yes, nothing wrong with going 100% stocks. In fact, I'm 100% stocks. I don't plan on changing that until I'm 10 years from retirement. My risk tolerance is very low though and my goal is maximize returns to reach my number faster. Granted, at that income, your need for that money is totally different than mine as I make a fraction of your income.

onourway
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Re: Why not go 100% stocks?

Post by onourway » Mon Jun 25, 2018 12:40 pm

Just an example of 'the need to take risk'. As mentioned - at your income to expense ratio you can save enough money to retire entirely in fixed income in about 10 years. That would be the closest you can get to a guarantee that you would never run out of money because none of your money would be at risk. That's a very conservative path, but one that some people might choose to take in your situation. There is no 'need' to take risk because you can meet your goals through simple savings.

100% equities is the other end of that spectrum. More than likely this will end up providing you with a much higher total amount of wealth in the long-term. But there will be some gut-wrenching rides along the way where you will more than likely lose millions of dollars in just a few months. You may slowly increase your standard of living based upon the number that you believe you now have, thus, becoming more wedded to actually having it. Then, if a serious down-turn were to occur near to your planned retirement, you may find yourself working 'just a few more years' to get back to the number that you'd long been planning on.

The above could also, plausibly, turn into a situation where you lose almost everything for an extended period of time. Such a situation has not occurred previously in the US market, but that's not to say it couldn't. That's the tail-end of taking on so much unnecessary risk.

Most people will choose a path somewhere between those two extremes - and that's where carefully choosing an Asset Allocation comes in.

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Re: Why not go 100% stocks?

Post by mtn biker » Mon Jun 25, 2018 12:45 pm

I have been 100% stocks for a long time now.

I don't feel like rebalancing, and am comfortable with market corrections and changes, I won't need the money for a long time anyway.

I don't expect to time the market, I have no idea when the bottom is, when the top is, or anything in the middle. Keeping cash or bonds to buy the market when it is low is just another way to time the market, and I don't need that sort of stress. I like providing anesthesia, I don't like playing the market, so I just buy every month and hold a broad index.

YMMV, nothing wrong with some bonds, but it's 100% stocks for me right now.

marco49
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Re: Why not go 100% stocks?

Post by marco49 » Mon Jun 25, 2018 12:48 pm

Obviously, you are in a wonderful position financially. Congratulations. You don't mention the current value of your investment portfolio, which is an important piece of information.

It seems to me that you need to set a target for capital accumulation. With $120k of annual expenses, along with your outstanding "excess" income, I would suggest that 50 X 120,000 = $6,000,000 is a conservative and realistic target for accumulation. You will almost certainly be able to reach that target with 100% equities in a very reasonable period of time.

Once your target is reached, it's time to shift from the goal of capital accumulation to capital preservation. At that point, fixed income securities will become a valuable tool to decrease risk. If I were you, I would ultimately keep my inflation-adjusted target ($6M) in equities and put all excess portfolio money into fixed income.

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Re: Why not go 100% stocks?

Post by chevca » Mon Jun 25, 2018 1:29 pm

When one can save/invest hundreds of thousands of dollars a year like the OP, isn't that plenty of taking advantage of the down turns? I'd say, yes. Go for it if you want, OP.

livesoft
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Re: Why not go 100% stocks?

Post by livesoft » Mon Jun 25, 2018 1:31 pm

wolf359 wrote:
Mon Jun 25, 2018 11:46 am
I'm reading your data and drawing the opposite conclusion.
My conclusion was: Be 100% in stocks when they are the best performing, but be 100% in bonds when they are the best performing.

I don't think your conclusion is the opposite of my conclusion. :twisted:
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Re: Why not go 100% stocks?

Post by wolf359 » Mon Jun 25, 2018 1:45 pm

livesoft wrote:
Mon Jun 25, 2018 1:31 pm
wolf359 wrote:
Mon Jun 25, 2018 11:46 am
I'm reading your data and drawing the opposite conclusion.
My conclusion was: Be 100% in stocks when they are the best performing, but be 100% in bonds when they are the best performing.

I don't think your conclusion is the opposite of my conclusion. :twisted:
I believe that your data supports investing in stocks because 7 out of 10 times the stocks will outperform bonds in rolling 3 year periods.

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siamond
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Re: Why not go 100% stocks?

Post by siamond » Mon Jun 25, 2018 1:57 pm

The 'dry power' line of thinking is flawed, this can easily proven by backtesting. Whatever you can gain by buying stocks 'low' is lost (and more) by not being 100% stocks while stocks are doing good. Plus this creates all sorts of timing/psychological issues (when exactly do you decide to buy stocks, when are they low enough; a harder question: when do you decide to replenish your bonds 'dry powder'?). Forget about it...

OP, if you decide to go 100% (and yes, why not, given your circumstances), then please, oh please, hedge your bets, and invest with the world, not only with the US. Don't put all your eggs in the same basket, in other words.

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Re: Why not go 100% stocks?

Post by Cop51 » Mon Jun 25, 2018 2:03 pm

I am 100% equities in my investment accounts. When you factor in my emergency fund and whole picture I am not 100% equites. That being said all my investments are 100% equites and my wife and I are 32 years old. I have a pension that will payout 65% of my salary in 15 years. That is a big reason why I am 100% equities. Without that I would have bonds. At age 40 I’ll reassess our approach and add bonds.

For you it depends what your financial plan is and when you plan on implementing FIRE. You take risk if you need the reward. You do not need all that risk.

retiredjg
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Re: Why not go 100% stocks?

Post by retiredjg » Mon Jun 25, 2018 2:09 pm

masonstone wrote:
Mon Jun 25, 2018 10:35 am
My question is, why not keep 100% of my assets in stocks?
Because it can be unpleasant to see $1 million or more dollars just disappear. And it is totally unnecessary.

So for example if there's a recession...
Since the last great market downturn was accompanied by a recession, a lot of people think they are the same thing. They are not. It is not a recession you should be worried about. :D

I can take advantage of it by shifting money from bonds to stocks in that scenario. If I'm 100% stocks I wouldn't be able to do that.
After the last unpleasantness, many people made this comment - that one good reason to have bonds is to be able to buy stocks while the market is going down. I don't think it is the best reason, but if it gets you to buy at least 20% in bonds, that's good enough.

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Re: Why not go 100% stocks?

Post by Boglegrappler » Mon Jun 25, 2018 2:17 pm

I think the issue is behavioral.

Being 100% in stocks is going to put you, at some point, with certainty, at risk for not "staying the course'. Once you've decided to modify the 'stay the course' rule, then you are at sea and all bets are off.

Take a look at what happened in the late 60s til August of 1982 and reflect on whether you would have been able to just sit there in equities. the Dow hit 1,000 for the first and second times in 68 (I think) and 1972, and then fell all the way to about 450 ish in 74-75. It was still meandering around 800 ish in the early 1980s.

Look at this article cover story from Business Week in 1979 and consider whether you would have been staying the course.

http://ritholtz.com/1979/08/the-death-of-equities/

It took another three years before blast-off occurred starting the boom that we've been in since.

I'd be curious to hear from anyone who was 100% in stocks over that period. You won't find many.

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baconavocado
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Re: Why not go 100% stocks?

Post by baconavocado » Mon Jun 25, 2018 2:28 pm

wolf359 wrote:
Mon Jun 25, 2018 1:45 pm
livesoft wrote:
Mon Jun 25, 2018 1:31 pm
wolf359 wrote:
Mon Jun 25, 2018 11:46 am
I'm reading your data and drawing the opposite conclusion.
My conclusion was: Be 100% in stocks when they are the best performing, but be 100% in bonds when they are the best performing.

I don't think your conclusion is the opposite of my conclusion. :twisted:
I believe that your data supports investing in stocks because 7 out of 10 times the stocks will outperform bonds in rolling 3 year periods.
I think livesoft's data shows what we all know, that equities outperform bonds in the long run most of the time (95% of the time over a 20-y period). So if you have a very long time horizon, like the OP, it's better to be overweighted in equities (you can decide what overweighted means, but Bogleheads have some very clear recommendations).

The problem of course, is that nobody knows what the future brings. It could bring divorce, loss of a job, mental illness, black swans, foreign wars, civil war, and many other things that could significantly shorten the original time horizon and cause an immediate need for cash. That's why we diversify into bonds, to smooth out the hills and valleys and make sure funds are available when the unexpected happens.

MotoTrojan
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Re: Why not go 100% stocks?

Post by MotoTrojan » Mon Jun 25, 2018 3:54 pm

cj2018 wrote:
Mon Jun 25, 2018 12:10 pm
masonstone wrote:
Mon Jun 25, 2018 10:35 am
I'm relatively young, 35, and plan to work for the next two decades. I'm in a dual physician household and enjoy working and being productive. I don't really enjoy site-seeing and traveling as much. My household income is approximately 900K with approximately 120K of annual expenses.

My question is, why not keep 100% of my assets in stocks? The only thing holding me from putting 100% in stocks is to be able to take advantage of a market downturn. So for example if there's a recession, I can take advantage of it by shifting money from bonds to stocks in that scenario. If I'm 100% stocks I wouldn't be able to do that.

What do the bogleheads think? Your input is appreciated.
Hi masonstone, contrary to most folks here who will advise against it, i think given your income-level and age, go all in on equity is a sound decision as long as you are clear on the following principles:
  • only buy well-diversified equity index funds, no individual stocks
  • your portfolio is large enough that you only need the dividend stream, not the principle itself. So in order to cover 120k/yr in expenses, you need $6M in equity assets assuming 2% dividend yield (VFIAX or VTSAX)
  • you have 1-2 year of emergency fund handy so in case of a short-term drop in dividend yield, which wouldn't last for most than a few quarters, your living expenses are still taken care of

I'm personally 28yr and 100% allocated to equity, and the goal is to build a large enough nest egg to not care about market volatility since you only need to dividend payout. I believe most people will not be able to do 100% equity due to the following:
  • they need to rely on withdrawing the principle amount since their portfolio is not large enough, therefore they care about stock price, which make perfect sense because they have to sell at some point later in life
  • they don't really understand buying equity is buying piece of productive business, so they care about market price fluctuation. Again, i believe as long as you know what you are buying here (public equity = productive business), you know the benefit from it is the long-term cash flow from the business
Now, they only risk here i can see folks bringing up is that dividend payout might drop etc. Again, that's why you have a 1-2yr emergency fund to hedge this potential risk. In the worst possible case, you can still withdraw principle, but since your portfolio is built with the assumption to only withdraw dividend of 2%, withdrawing another 2% of principle actually puts you right on the SWR and that's assuming a 50% drop in equity.
You are going to be working longer than I plan to if you want to live off dividends. No thanks.

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steve roy
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Re: Why not go 100% stocks?

Post by steve roy » Mon Jun 25, 2018 4:08 pm

Go the Warren Buffett route:

90% S & P 500; 10% bonds.

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Re: Why not go 100% stocks?

Post by emlowe » Mon Jun 25, 2018 4:47 pm

steve roy wrote:
Mon Jun 25, 2018 4:08 pm
Go the Warren Buffett route:

90% S & P 500; 10% bonds.
Specifically 10% in "short-term government bonds"

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)"

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Re: Why not go 100% stocks?

Post by Dottie57 » Mon Jun 25, 2018 4:53 pm

masonstone wrote:
Mon Jun 25, 2018 10:35 am
I'm relatively young, 35, and plan to work for the next two decades. I'm in a dual physician household and enjoy working and being productive. I don't really enjoy site-seeing and traveling as much. My household income is approximately 900K with approximately 120K of annual expenses.

My question is, why not keep 100% of my assets in stocks? The only thing holding me from putting 100% in stocks is to be able to take advantage of a market downturn. So for example if there's a recession, I can take advantage of it by shifting money from bonds to stocks in that scenario. If I'm 100% stocks I wouldn't be able to do that.

What do the bogleheads think? Your input is appreciated.
The next 10 years may not be as good to investors as the last 10 years. To me it seems like you have recency bias. You were 25 when the bull market had its beginning. You haven’t been in a really bad pull back.
Last edited by Dottie57 on Mon Jun 25, 2018 9:17 pm, edited 2 times in total.

viz
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Re: Why not go 100% stocks?

Post by viz » Mon Jun 25, 2018 4:53 pm

masonstone wrote:
Mon Jun 25, 2018 10:35 am
I'm relatively young, 35, and plan to work for the next two decades. I'm in a dual physician household and enjoy working and being productive. I don't really enjoy site-seeing and traveling as much. My household income is approximately 900K with approximately 120K of annual expenses.

My question is, why not keep 100% of my assets in stocks? The only thing holding me from putting 100% in stocks is to be able to take advantage of a market downturn. So for example if there's a recession, I can take advantage of it by shifting money from bonds to stocks in that scenario. If I'm 100% stocks I wouldn't be able to do that.

What do the bogleheads think? Your input is appreciated.
I think you should. Our household income is not crazy high as yours and we are few years older than you. We are 95% stocks. 5% bonds is not for safety, it is to learn and keep it in my spreadsheet. You have a very high safety buffer.
Based on what you have said, if you get to 120K x 40 = 4.8M investment then at a withdrawal rate of little over 2% (accounting for taxes), you have achieved FI. You can probably get that just from dividend income.
You didn't mention anything about taxes so I assume you pay around 45% total. This would still 375K in savings per annum or 12.5 years to get to 4.8M just in savings. Even if you hit a recession, on average lasts 18 months so you have enough income to ride it out.
If you don't hit big decline then you get FI much sooner.
If you want to be safe, put one years savings in bonds. It will last you 3 years based on your expenses. Historically, it is enough time for stocks to mostly recover in case of a steep decline.

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Re: Why not go 100% stocks?

Post by viz » Mon Jun 25, 2018 5:21 pm

viz wrote:
Mon Jun 25, 2018 4:53 pm
masonstone wrote:
Mon Jun 25, 2018 10:35 am
I'm relatively young, 35, and plan to work for the next two decades. I'm in a dual physician household and enjoy working and being productive. I don't really enjoy site-seeing and traveling as much. My household income is approximately 900K with approximately 120K of annual expenses.

My question is, why not keep 100% of my assets in stocks? The only thing holding me from putting 100% in stocks is to be able to take advantage of a market downturn. So for example if there's a recession, I can take advantage of it by shifting money from bonds to stocks in that scenario. If I'm 100% stocks I wouldn't be able to do that.

What do the bogleheads think? Your input is appreciated.
I think you should. Our household income is not crazy high as yours and we are few years older than you. We are 95% stocks. 5% bonds is not for safety, it is to learn and keep it in my spreadsheet. You have a very high safety buffer.
Based on what you have said, if you get to 120K x 40 = 4.8M investment then at a withdrawal rate of little over 2% (accounting for taxes), you have achieved FI. You can probably get that just from dividend income.
You didn't mention anything about taxes so I assume you pay around 45% total. This would still 375K in savings per annum or 12.5 years to get to 4.8M just in savings. Even if you hit a recession, on average lasts 18 months so you have enough income to ride it out.
If you don't hit big decline then you get FI much sooner.
If you want to be safe, put one years savings in bonds. It will last you 3 years based on your expenses. Historically, it is enough time for stocks to mostly recover in case of a steep decline.
To add, you take advantage of downturn by making sure that you keep investing 375k a year when the downturn comes

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Re: Why not go 100% stocks?

Post by CaliJim » Mon Jun 25, 2018 5:33 pm

masonstone wrote:
Mon Jun 25, 2018 10:35 am
I'm relatively young, 35, and plan to work for the next two decades. I'm in a dual physician household and enjoy working and being productive. I don't really enjoy site-seeing and traveling as much. My household income is approximately 900K with approximately 120K of annual expenses.

My question is, why not keep 100% of my assets in stocks? The only thing holding me from putting 100% in stocks is to be able to take advantage of a market downturn. So for example if there's a recession, I can take advantage of it by shifting money from bonds to stocks in that scenario. If I'm 100% stocks I wouldn't be able to do that.

What do the bogleheads think? Your input is appreciated.
Stuff happens and you may not be able to continue making so much money down the road.

(Stuff: ischemic attack, car wreck, cancer, divorce, death... to one or the both of you)

Having a downturn in income at the same time as a down turn in the market is a situation where bonds are helpful.... very very helpful.

Build a floor for safety, add stocks on top.

Also... if your making that much... share a bit more with your staff... they are probably struggling.
-calijim- | | For more info, click this Wiki

gpburdell
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Re: Why not go 100% stocks?

Post by gpburdell » Mon Jun 25, 2018 7:52 pm

Dottie57 wrote:
Mon Jun 25, 2018 4:53 pm
The next 10 years may not be as good to investors as the last 10 years. To me it seems like you have regency bias. You were 25 when the bull market had its beginning. You haven’t been in a really bad pull back.
This. You gotta love the 100% stock threads when the market is at an all time high. The OP should go back and looks at posts in 2008.

It seems easy to say 100% stocks with the amount of income surplus vs expenses. How long has the OP been in this situation? I can't imagine there won't be some kind of lifestyle creep.

averagedude
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Re: Why not go 100% stocks?

Post by averagedude » Mon Jun 25, 2018 8:05 pm

Although there are reasons for you to have bonds, having them to buy stocks when they go on sale in a bear market isn't one of them. Looks like you are going to have a real high savings rate so you will be dollar cost averaging in the market anyway. I would recommend that you determine your asset allocation with a high percentage in stocks and stick with it. If you do want to get cute, whenever stocks go on sale in a downturn, dollar cost average by buying stocks only.

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Re: Why not go 100% stocks?

Post by youngpleb » Mon Jun 25, 2018 8:15 pm

masonstone wrote:
Mon Jun 25, 2018 10:35 am
I'm relatively young, 35, and plan to work for the next two decades. I'm in a dual physician household and enjoy working and being productive. I don't really enjoy site-seeing and traveling as much. My household income is approximately 900K with approximately 120K of annual expenses.

My question is, why not keep 100% of my assets in stocks? The only thing holding me from putting 100% in stocks is to be able to take advantage of a market downturn. So for example if there's a recession, I can take advantage of it by shifting money from bonds to stocks in that scenario. If I'm 100% stocks I wouldn't be able to do that.

What do the bogleheads think? Your input is appreciated.
I think you can look at yourself one of two ways:

1) I'm rich and invest so much that it doesn't matter if I get cut in half going 100/0 in the market

2) I'm rich and invest so much that the slightly diminished returns I get from having X% of bonds in my portfolio doesn't hurt me

Good luck in this very tough decision :sharebeer
27. Always learning.

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Re: Why not go 100% stocks?

Post by JW-Retired » Mon Jun 25, 2018 8:42 pm

gpburdell wrote:
Mon Jun 25, 2018 7:52 pm
Dottie57 wrote:
Mon Jun 25, 2018 4:53 pm
The next 10 years may not be as good to investors as the last 10 years. To me it seems like you have regency bias. You were 25 when the bull market had its beginning. You haven’t been in a really bad pull back.
This. You gotta love the 100% stock threads when the market is at an all time high. The OP should go back and looks at posts in 2008.
Yes, and 2008 is very recent history. Anything might happen going forward.

In my perspective's not-so-long-ago 1930's, all investors like those here were saying that if they had only owned some treasury bonds they would have been OK. But few had anything but equities so they lost everything.
JW
The Great Depression: a diary by Ben Roth
https://www.amazon.com/dp/B002TJLEVE/re ... TF8&btkr=1
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