The case for 100% equities

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stocknoob4111
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The case for 100% equities

Post by stocknoob4111 »

So here is my situation and i'm weighing various options - I am happy with my asset allocation with regard to equities but the allocation of bonds is what confuses me a bit. Mainly, I am on the fence whether to go 100% equities or not. I CAN handle risk, no issues with it.

I have a 401k with around $140k and my taxable has around $420k in it. A bit lopsided compared to others I know but that is due to my contribution history which is a longer story so will not get into it.

My annual contributions to my 401k are $20k or so a year and I contribute $36k a year to my taxable. I also do a backdoor to my Roth @ the max each year in addition to all this but that currently has only $12k in it since I just started last year.

Current asset allocation : 63/20/17 - Domestic Equities/International/Bonds. Domestic Equities and International is split (not equally) between my Taxable and 401k while the Bonds are 100% in my Taxable.

I just turned 45 and I am **HOPING** to retire at age 55. Here is my planned sequence of events (god willing):

- When I hit 55 I will start drawing on my 401k (using IRS Rule 55) at a rate of around $30k/yr. The goal is for the 401k to last me until I hit 65. Doing a Monte Carlo simulation on it indicates at the 10th percentile I should still have some money left starting from an estimated balance of $500k nominal (when I turn 55 at my current contribution rate).

- When I hit 65 I will start collecting SS. At that point I plan to withdraw from my taxable (if necessary) at no more than perhaps 2-2.5%. Doing a Monte Carlo simulation for 20 years on a 100% equities at 10th percentile gives me a balance of about $1.4M nominal (contributions for 1st 10 years then only growth for subsequent 10 years).

So, in terms of time horizons, I have 10 years for the 401k and 20 years for the Taxable. In my view I should be able to hold 100% equities in my taxable since that money is not going to be touched for 20 years.

In terms of my 401k I still have a 10+ year time horizon so 100% equities should still be good.

Note - that if I am not meeting my goals when I am closing in at 55 I can still work for 2-3 years extra to ride out the bad market so it's not such a big deal, what am I missing here?

Question - given these parameters - why should I not go 100% equities in BOTH accounts? Of course, I want a little peace of mind so I will hold an oversized EF, right now my EF is 4 months, perhaps I will hold 1 year of funds.
Last edited by stocknoob4111 on Fri Mar 15, 2019 8:57 pm, edited 1 time in total.
nix4me
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Re: The case for 100% equities

Post by nix4me »

You cannot put $20k in a 401k below age 50, maximum is $19k.
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stocknoob4111
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Re: The case for 100% equities

Post by stocknoob4111 »

nix4me wrote: Fri Mar 15, 2019 8:57 pm You cannot put $20k in a 401k below age 50, maximum is $19k.
Yes, I put the max + the rest is the Employer match, it's actually about $21k total
dcw213
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Re: The case for 100% equities

Post by dcw213 »

I could be wrong (and please forgive me if I am) but I have your name pegged as one that posts emotionally during declines in the market price of equities. If this is correct, please, for your own sake, do not tinker and keep your AA. Overthinking, especially as someone visibly impacted during volatility, is a recipe for disaster.

Of course do what you need to do to help you sleep at night but don’t constantly shift directions.
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Re: The case for 100% equities

Post by livesoft »

I think your emergency fund needs to be 100% equities for you to be really 100% equities. Semantics.
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Re: The case for 100% equities

Post by willthrill81 »

stocknoob4111 wrote: Fri Mar 15, 2019 8:53 pmOf course, I want a little peace of mind so I will hold an oversized EF, right now my EF is 4 months, perhaps I will hold 1 year of funds.
Keep in mind that you don't really need an EF. You need liquidity. Karsten at Early Retire Now has shown this very well.
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Re: The case for 100% equities

Post by averagedude »

People may disagree, but being 100% in equities is reasonable for some people. My only concern is why are you wanting to do it now, when you haven't been doing it in the past. If you had been 100% in equities all along, i think you would be fine continuing. Since you haven't been, I would recommend that you stay at the allocation that you are at. I believe people should make changes to their asset allocation rarely, and when they do change it, it should be to reduce risk and add bonds because they are getting older, and they shouldn't be assessing their asset allocation during market drawdowns. Being 45 years old, I don't see a lot of upside of going from a 80/20 AA to a !00% AA.
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Re: The case for 100% equities

Post by smarcus3 »

You need to be 100% sure you'll not panic and sell if the market drops 50%. Can you tolerate a loss of $250k?

I've been 100% equities since I first invested through a UTMA account with birthday money as a 10 year old. I have no plans on changing but I realize I'm an odd duck. I stomached the 2007 2008 emerging market drop of 50% with a shoulder shrug. I know many friends, family members who paniced during the great recession and haven't recovered.
Last edited by smarcus3 on Fri Mar 15, 2019 9:56 pm, edited 2 times in total.
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Re: The case for 100% equities

Post by stemikger »

dcw213 wrote: Fri Mar 15, 2019 9:01 pm I could be wrong (and please forgive me if I am) but I have your name pegged as one that posts emotionally during declines in the market price of equities. If this is correct, please, for your own sake, do not tinker and keep your AA. Overthinking, especially as someone visibly impacted during volatility, is a recipe for disaster.

Of course do what you need to do to help you sleep at night but don’t constantly shift directions.
Great advice. As someone who changed their AA more times than I care to admit because I was emotional and an overthinker, do yourself a favor, pick the proper AA for your risk tolerance and ignore everything else and that includes a limit on how many times you visit the Bogleheads.

Full disclosure I have been at 60/40 for a nice amount of time now and it has been the most peaceful time of my life. That is what happens when you find the right AA. I sleep like a baby who is diaper trained.

Good Luck!
Last edited by stemikger on Fri Mar 15, 2019 9:17 pm, edited 1 time in total.
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Re: The case for 100% equities

Post by smarcus3 »

Good advice. Just allocate new funds to 100% equities if that's the direction you want to go. This will make the change gradual though you'll always have some bonds.
This is my personal opinion. I'm an engineer not a financial advisor.
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Re: The case for 100% equities

Post by KlangFool »

OP,

Why do you think that you have the ability to take the risk of 100%?

You are 45 years old at 560K now. Your annual savings is 56K. So, your portfolio is at 10 years of savings.

A) If the stock drops 50% now and stays down, you need to save 5 years in order to recover.

B) If at 55 years old, the stocks drop 50%, you lose 20 years /2 = 10 years of savings. You need to save 10 years to recover.

Do you have the ability and the time to recover?

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Re: The case for 100% equities

Post by stocknoob4111 »

I am not saying I want to go 100% equities, I am trying to investigate if I should or shouldn't... as I said I am on the fence about it. From all the questions I have asked before and the materials that I have read I have a feeling people on both sides of the camp have strong feelings about it. Those that FIRE swear that you're "leaving money on the table" if you have 10+ years and don't go 100% equities. The other camp says that beyond 85/15 it isn't efficient since it just increases portfolio volatility for no tangible benefits.

I did my own simulations using Monte Carlo here. The asset allocation matches my taxable (i've included my EF here as well but it's irrelevant for the discussion).

https://tinyurl.com/y4q4lztb

Now, when I decrease the amount of bonds from 25% to 15% to 5%, the results are not exactly what I expected. The amounts don't go up much at all. And 100% equities is actually worse at the 10th percentile than 75/25. Using Monte Carlo I am not getting the results that the 100% equities camp are swearing on which is why it is giving me pause.
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Re: The case for 100% equities

Post by willthrill81 »

stocknoob4111 wrote: Fri Mar 15, 2019 9:52 pm I am not saying I want to go 100% equities, I am trying to investigate if I should or shouldn't... as I said I am on the fence about it.
If you're on the fence about it, then you probably shouldn't do it. It takes real conviction to hold on to an equity portfolio through something like 2008.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: The case for 100% equities

Post by smarcus3 »

Equities out pace bonds over time (historically) but at much higher volatility. Bonds have earned 5.4% per year over the last 100 years vs equities at 10% but if your not sure don't make a knee jerk decision.

Over a long time horizon equities will make you more money but with more stress 😀
This is my personal opinion. I'm an engineer not a financial advisor.
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Re: The case for 100% equities

Post by willthrill81 »

smarcus3 wrote: Fri Mar 15, 2019 9:56 pm Equities out pace bonds over time (historically) but at much higher volatility. Bonds have earned 5.4% per year over the last 100 years vs equities at 10% but if your not sure don't make a knee jerk decision.
The real difference in returns is bigger than that. If you subtract around 3% inflation from those returns, you get 2.4% for bonds vs. 7% for stocks. Compounded for a few decades, the difference in returns was phenomenal. And bonds are not likely to yield 2.4% real any time soon, although stocks don't seem likely to return 7% either, although they are definitely more of a wildcard.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: The case for 100% equities

Post by smarcus3 »

willthrill81 wrote: Fri Mar 15, 2019 10:00 pm
smarcus3 wrote: Fri Mar 15, 2019 9:56 pm Equities out pace bonds over time (historically) but at much higher volatility. Bonds have earned 5.4% per year over the last 100 years vs equities at 10% but if your not sure don't make a knee jerk decision.
The real difference in returns is bigger than that. If you subtract around 3% inflation from those returns, you get a 2.4% for bonds vs. 7% for stocks. Compounded for a few decades, the difference in returns was phenomenal.
Inflation eats at both equally (percent wise) though just as you stated compound exponential growth is huge at higher percentages. Who knows when the market will correct. Just keep calm and Bogle on. I couldn't care less about if the market corrects tomorrow will just keep investing.
This is my personal opinion. I'm an engineer not a financial advisor.
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Re: The case for 100% equities

Post by grabiner »

willthrill81 wrote: Fri Mar 15, 2019 9:55 pm
stocknoob4111 wrote: Fri Mar 15, 2019 9:52 pm I am not saying I want to go 100% equities, I am trying to investigate if I should or shouldn't... as I said I am on the fence about it.
If you're on the fence about it, then you probably shouldn't do it. It takes real conviction to hold on to an equity portfolio through something like 2008.
This is the reason for my usual recommendation: don't go over 80% equities unless you have already been through a bear market with a stock-heavy portfolio and know how you react.

And even though I have one of the most aggressive allocations on this forum, and have for 15 years, I believe in this advice myself. I had a conventional portfolio which was 80% stock in 2000, and lost a quarter of it, but had no problem rebalancing. Therefore, I knew that I could handle a riskier portfolio, and was 90% stock in 2004 with the risk of 100% stock because I overweighted riskier stock. And when this risk showed up and the 90% became 86% in October 2008, I rebalanced back to 90%.
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Re: The case for 100% equities

Post by smarcus3 »

Well said. As I said earlier I worry about people jumping off during a bad downturn and locking in bad losses. I've seen too many do it unfortunately. Probably one more reason why the average personal investor only gets 2% return and less
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Re: The case for 100% equities

Post by KlangFool »

stocknoob4111 wrote: Fri Mar 15, 2019 9:52 pm I am not saying I want to go 100% equities, I am trying to investigate if I should or shouldn't... as I said I am on the fence about it.
stocknoob4111,

Do you have the need to take the RISK?

A) What is your number?

B) At 560K and adding 56K per year, what is the return rate that you need to reach your number at 55?

If you cannot get there with 60/40, I doubt that 100/0 can help you either. Look at the average return of 60/40 versus 100/0.

https://personal.vanguard.com/us/insigh ... ns?lang=en

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Re: The case for 100% equities

Post by mikeyzito22 »

willthrill81 wrote: Fri Mar 15, 2019 9:08 pm
stocknoob4111 wrote: Fri Mar 15, 2019 8:53 pmOf course, I want a little peace of mind so I will hold an oversized EF, right now my EF is 4 months, perhaps I will hold 1 year of funds.
Keep in mind that you don't really need an EF. You need liquidity. Karsten at Early Retire Now has shown this very well.
Cmon Will. Let some people hold some cash.
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Re: The case for 100% equities

Post by smarcus3 »

An emergency fund becomes a tiny % of total portfolio anyway so the drag is minimal. But at some level it's unneeded. Warren buffet doesn't need one but a starting investor definitely does.
This is my personal opinion. I'm an engineer not a financial advisor.
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Re: The case for 100% equities

Post by KlangFool »

willthrill81 wrote: Fri Mar 15, 2019 10:00 pm
smarcus3 wrote: Fri Mar 15, 2019 9:56 pm Equities out pace bonds over time (historically) but at much higher volatility. Bonds have earned 5.4% per year over the last 100 years vs equities at 10% but if your not sure don't make a knee jerk decision.
The real difference in returns is bigger than that. If you subtract around 3% inflation from those returns, you get 2.4% for bonds vs. 7% for stocks. Compounded for a few decades, the difference in returns was phenomenal. And bonds are not likely to yield 2.4% real any time soon, although stocks don't seem likely to return 7% either, although they are definitely more of a wildcard.
willthrill81,

The OP only has 10 years. Not a few decades.

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Re: The case for 100% equities

Post by willthrill81 »

KlangFool wrote: Fri Mar 15, 2019 10:38 pm
willthrill81 wrote: Fri Mar 15, 2019 10:00 pm
smarcus3 wrote: Fri Mar 15, 2019 9:56 pm Equities out pace bonds over time (historically) but at much higher volatility. Bonds have earned 5.4% per year over the last 100 years vs equities at 10% but if your not sure don't make a knee jerk decision.
The real difference in returns is bigger than that. If you subtract around 3% inflation from those returns, you get 2.4% for bonds vs. 7% for stocks. Compounded for a few decades, the difference in returns was phenomenal. And bonds are not likely to yield 2.4% real any time soon, although stocks don't seem likely to return 7% either, although they are definitely more of a wildcard.
willthrill81,

The OP only has 10 years. Not a few decades.

KlangFool
Will he move completely out of stocks in 10 years?
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Re: The case for 100% equities

Post by smarcus3 »

Going 100% will yield on average an extra 15% of growth on the portfolio. Depending on the OP situation it may matter though unlikely. Personal choices for different people.

The time horizon is longer than 10 as the OP has 40 years until 85
Last edited by smarcus3 on Fri Mar 15, 2019 10:47 pm, edited 1 time in total.
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Re: The case for 100% equities

Post by KlangFool »

willthrill81 wrote: Fri Mar 15, 2019 10:44 pm
KlangFool wrote: Fri Mar 15, 2019 10:38 pm
willthrill81 wrote: Fri Mar 15, 2019 10:00 pm
smarcus3 wrote: Fri Mar 15, 2019 9:56 pm Equities out pace bonds over time (historically) but at much higher volatility. Bonds have earned 5.4% per year over the last 100 years vs equities at 10% but if your not sure don't make a knee jerk decision.
The real difference in returns is bigger than that. If you subtract around 3% inflation from those returns, you get 2.4% for bonds vs. 7% for stocks. Compounded for a few decades, the difference in returns was phenomenal. And bonds are not likely to yield 2.4% real any time soon, although stocks don't seem likely to return 7% either, although they are definitely more of a wildcard.
willthrill81,

The OP only has 10 years. Not a few decades.

KlangFool
Will he move completely out of stocks in 10 years?
willthrill81,

He will only be 100/0 for 10 years. Then, he hopes to market time perfectly and switch to something less than 100/0.

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Re: The case for 100% equities

Post by KlangFool »

smarcus3 wrote: Fri Mar 15, 2019 10:45 pm Going 100% will yield on average an extra 15% of growth on the portfolio. Depending on the OP situation it may matter though unlikely. Personal choices for different people.

The time horizon is longer than 10 as the OP has 40 years until 85
smarcus3,

This is not supported by historical data.

The average return of 100/0 is 10.3%
The average return of 60/40 is 8.8%

https://personal.vanguard.com/us/insigh ... ns?lang=en

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Re: The case for 100% equities

Post by smarcus3 »

KlangFool wrote: Fri Mar 15, 2019 10:50 pm
smarcus3 wrote: Fri Mar 15, 2019 10:45 pm Going 100% will yield on average an extra 15% of growth on the portfolio. Depending on the OP situation it may matter though unlikely. Personal choices for different people.

The time horizon is longer than 10 as the OP has 40 years until 85
smarcus3,

This is not supported by historical data.

The average return of 100/0 is 10.3%
The average return of 60/40 is 8.8%

https://personal.vanguard.com/us/insigh ... ns?lang=en

KlangFool
Rough approximation of the difference between the two times by 10. Due to compounding it would be higher.

Should be 16% higher due to compounding of a 1.5% Delta for 10 years.
This is my personal opinion. I'm an engineer not a financial advisor.
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Re: The case for 100% equities

Post by drk »

KlangFool wrote: Fri Mar 15, 2019 10:50 pm smarcus3,

This is not supported by historical data.

The average return of 100/0 is 10.3%
The average return of 60/40 is 8.8%

https://personal.vanguard.com/us/insigh ... ns?lang=en

KlangFool
Is your concern that 10.3% is actually 17% higher than 8.8%? That’s even better than 15%.
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Re: The case for 100% equities

Post by KlangFool »

smarcus3 wrote: Fri Mar 15, 2019 10:51 pm
KlangFool wrote: Fri Mar 15, 2019 10:50 pm
smarcus3 wrote: Fri Mar 15, 2019 10:45 pm Going 100% will yield on average an extra 15% of growth on the portfolio. Depending on the OP situation it may matter though unlikely. Personal choices for different people.

The time horizon is longer than 10 as the OP has 40 years until 85
smarcus3,

This is not supported by historical data.

The average return of 100/0 is 10.3%
The average return of 60/40 is 8.8%

https://personal.vanguard.com/us/insigh ... ns?lang=en

KlangFool
Rough approximation of the difference between the two times by 10. Due to compounding it would be higher.
smarcus3,

Then, it is 15% over 10 years which would not matter to OP. But, if the market drops 50%, it would matter.

It is a lousy bet. If you win over 10 years, you get 15%. If you lose any time over the 10 years, you lost 50%. You have to be lucky for 10 years.

KlangFool
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Re: The case for 100% equities

Post by TropikThunder »

stocknoob4111 wrote: Fri Mar 15, 2019 9:52 pm The other camp says that beyond 85/15 it isn't efficient since it just increases portfolio volatility for no tangible benefits.
........................................................
Now, when I decrease the amount of bonds from 25% to 15% to 5%, the results are not exactly what I expected. The amounts don't go up much at all.
Which means you've demonstrated to yourself that "beyond 85/15 it isn't efficient".

Then again, I'm not sure how usable your simulation is for most people since (unless I'm reading it wrong) you have 35.5% in SCV vs 13.6% Large Cap Blend . In a 75/25 portfolio, having almost half of your stock allocation in domestic SCV is a GINORMOUS tilt (industry term).
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Re: The case for 100% equities

Post by KlangFool »

drk wrote: Fri Mar 15, 2019 10:53 pm
KlangFool wrote: Fri Mar 15, 2019 10:50 pm smarcus3,

This is not supported by historical data.

The average return of 100/0 is 10.3%
The average return of 60/40 is 8.8%

https://personal.vanguard.com/us/insigh ... ns?lang=en

KlangFool
Is your concern that 10.3% is actually 17% higher than 8.8%? That’s even better than 15%.
drk,

It won't matter. The impact of the result is asymmetric.

Gaining 17% would not matter. Losing 50% matters.

With the return of 8.8% over 10 years, the final number is 2.144 million
With the return of 10.3% over 10 years, the final number is 2.398 million
That additional 250K does not matter. It will not change the OP's life.

But, losing 50% aka 1 million will change OP's life.

KlangFool
Last edited by KlangFool on Fri Mar 15, 2019 11:06 pm, edited 1 time in total.
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Re: The case for 100% equities

Post by smarcus3 »

If I was cutting it close and near retirement you have to reduce risk as you approach retirement. If you're significantly above your number it's not a concern. If your significantly below you need the market assistance even of that means working longer.

If you don't need the returns and don't want risk clearly you should derisk your portfolio however this entire line of discussion is off the topic of why you would want to be 100% equities originally asked by the OP.

Taxable horizon is 20 years. Lots of time to get almost 3 doublings.

Plus the OP has this attitude "I can still work for 2-3 years extra to ride out the bad market so it's not such a big deal, what am I missing here?" A few years of working will heal market losses.
This is my personal opinion. I'm an engineer not a financial advisor.
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Re: The case for 100% equities

Post by KlangFool »

smarcus3 wrote: Fri Mar 15, 2019 10:59 pm
what am I missing here?" A few years of working will heal market losses.
smarcus3,

The OP did not do the calculation. How could he recover 10 years of savings in a few years?

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Re: The case for 100% equities

Post by drk »

KlangFool wrote: Fri Mar 15, 2019 10:59 pm drk,

It won't matter. The impact of the result is asymmetric.

Gaining 17% would not matter. Losing 50% matters.

KlangFool
I don’t disagree that OP has no business going 100% stocks, but I’m allergic to specious and slippery reasoning, and this makes no sense. The average annual return data includes all of the major crashes over the last century. Is your argument really that we should expect -50% real returns for stocks over the next decade?
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Re: The case for 100% equities

Post by KlangFool »

drk wrote: Fri Mar 15, 2019 11:09 pm
KlangFool wrote: Fri Mar 15, 2019 10:59 pm drk,

It won't matter. The impact of the result is asymmetric.

Gaining 17% would not matter. Losing 50% matters.

KlangFool
I don’t disagree that OP has no business going 100% stocks, but I’m allergic to specious and slippery reasoning, and this makes no sense. The average annual return data includes all of the major crashes over the last century. Is your argument really that we should expect -50% real returns for stocks over the next decade?
drk,

No. If you have 100% stock, you face the RISK of losing 50% at any time. So, unless you are lucky, how could you know that it would not drop 50% right before you change your AA? Or, right before you retire?

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Re: The case for 100% equities

Post by willthrill81 »

KlangFool wrote: Fri Mar 15, 2019 10:59 pm
drk wrote: Fri Mar 15, 2019 10:53 pm
KlangFool wrote: Fri Mar 15, 2019 10:50 pm smarcus3,

This is not supported by historical data.

The average return of 100/0 is 10.3%
The average return of 60/40 is 8.8%

https://personal.vanguard.com/us/insigh ... ns?lang=en

KlangFool
Is your concern that 10.3% is actually 17% higher than 8.8%? That’s even better than 15%.
drk,

It won't matter. The impact of the result is asymmetric.

Gaining 17% would not matter. Losing 50% matters.

With the return of 8.8% over 10 years, the final number is 2.144 million
With the return of 10.3% over 10 years, the final number is 2.398 million
That additional 250K does not matter. It will not change the OP's life.

But, losing 50% aka 1 million will change OP's life.

KlangFool
Yet again, you're making spurious attacks on a 100% stock allocation. An additional quarter million dollars is nothing to sneeze at, and you're ignoring that even with an allocation like 75/25 that you like, a 50% drop in stocks would still result in a portfolio decline of 37.5% (assuming that bonds didn't drop as well). Whether that is meaningfully different from a -50% decline is up to the individual investor to determine.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
drk
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Re: The case for 100% equities

Post by drk »

KlangFool wrote: Fri Mar 15, 2019 11:14 pm drk,

No. If you have 100% stock, you face the RISK of losing 50% at any time. So, unless you are lucky, how could you know that it would not drop 50% right before you change your AA? Or, right before you retire?

KlangFool
Ah, so you were comparing two completely different and unrelated numbers. Why stop there, though? You actually face the risk of losing nearly 100% at any time.
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smarcus3
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Re: The case for 100% equities

Post by smarcus3 »

KlangFool wrote: Fri Mar 15, 2019 11:09 pm
smarcus3 wrote: Fri Mar 15, 2019 10:59 pm
what am I missing here?" A few years of working will heal market losses.
smarcus3,

The OP did not do the calculation. How could he recover 10 years of savings in a few years?

KlangFool
Average bear is 14 months.

Longest ever is 60.

3 or so years of new contributions and no spending down the nest egg will heal the portfolio plus it's grown larger due to higher yield. A 50% loss isn't 50% as the two portfolios have diverged by 16% in our theoretical worst cast example of a 50% market loss the day after you retire.

Assuming you have just 25x living expenses, the equities path will get that up to 29-30 instead allowing you to withdrawal 3.whatever instead of 4% which is great for an early retirement.
This is my personal opinion. I'm an engineer not a financial advisor.
TomCat96
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Re: The case for 100% equities

Post by TomCat96 »

I'm about as pro 100% equities as you're going to get. But if you plan on making withdrawals within 10 years from your 401k, I think the issue is less about your ability to take risk and more about your exposure to market downturns. It looks like you're perceiving of your taxable and 401k allocations as distinct entities. That's probably fine. Going 100% in your taxable is probably fine for now given your timeline there.

But if I were starting withdrawal within a decade, i would certainly want my portfolio to be a little more market agnostic. I would weigh the ability to execute my plan as intended more heavily than valuing additional growth.
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ruralavalon
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Re: The case for 100% equities

Post by ruralavalon »

stocknoob4111 wrote: Fri Mar 15, 2019 8:53 pmjust turned 45 and I am **HOPING** to retire at age 55. Here is my planned sequence of events (god willing):
willthrill81 wrote: Fri Mar 15, 2019 9:55 pm
stocknoob4111 wrote: Fri Mar 15, 2019 9:52 pm I am not saying I want to go 100% equities, I am trying to investigate if I should or shouldn't... as I said I am on the fence about it.
If you're on the fence about it, then you probably shouldn't do it. It takes real conviction to hold on to an equity portfolio through something like 2008.
If on the fence, then don't do it. Don't even consider it.

What did you do during the dot.com crash in 2000, and during the housing bust in 2008?
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smarcus3
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Re: The case for 100% equities

Post by smarcus3 »

As always ask for advice from others, understand the information then decide for yourself. Don't blindly trust strangers on the internet. :twisted:
This is my personal opinion. I'm an engineer not a financial advisor.
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willthrill81
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Re: The case for 100% equities

Post by willthrill81 »

smarcus3 wrote: Sat Mar 16, 2019 3:20 pm As always ask for advice from others, understand the information then decide for yourself. Don't blindly trust strangers on the internet anyone. :twisted:
Fixed that for ya. :wink:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
drk
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Re: The case for 100% equities

Post by drk »

^ And especially not the ones on TV.
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smarcus3
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Re: The case for 100% equities

Post by smarcus3 »

Trust but verify.

But really trust very very few.
This is my personal opinion. I'm an engineer not a financial advisor.
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wander
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Re: The case for 100% equities

Post by wander »

grabiner wrote: Fri Mar 15, 2019 10:16 pm
willthrill81 wrote: Fri Mar 15, 2019 9:55 pm
stocknoob4111 wrote: Fri Mar 15, 2019 9:52 pm I am not saying I want to go 100% equities, I am trying to investigate if I should or shouldn't... as I said I am on the fence about it.
If you're on the fence about it, then you probably shouldn't do it. It takes real conviction to hold on to an equity portfolio through something like 2008.
This is the reason for my usual recommendation: don't go over 80% equities unless you have already been through a bear market with a stock-heavy portfolio and know how you react.

And even though I have one of the most aggressive allocations on this forum, and have for 15 years, I believe in this advice myself. I had a conventional portfolio which was 80% stock in 2000, and lost a quarter of it, but had no problem rebalancing. Therefore, I knew that I could handle a riskier portfolio, and was 90% stock in 2004 with the risk of 100% stock because I overweighted riskier stock. And when this risk showed up and the 90% became 86% in October 2008, I rebalanced back to 90%.
I agree with grabiner. I was 100% stock during 2008; however, our portfolio in 2008 was many times smaller than what we have now so we don't think we can handle 100% again. Got to have some bonds now. :happy
yogesh
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Re: The case for 100% equities

Post by yogesh »

Thus a case for Vanguard Tax-Managed Lifestrategy Income (20/80), Conservative (40/60), balanced (50/50) funds which would help tamper the volatility, automatically rebalance and let you focus on contributions instead. Target Retirement funds have been a boon for investors in tax deferred accounts but no one except robo advisors is thinking of taxable accounts with a single fund portfolios that help take away investor emotions.
Emergency: FDIC | Taxable: VTMFX | Retirement: TR2040
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Nate79
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Re: The case for 100% equities

Post by Nate79 »

Can you withstand a Great Depression stock loss (-85%) and takes a decade to recover fully plus high chance of job loss? If not you may want to rethink 100% equities.
pward
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Re: The case for 100% equities

Post by pward »

Going 100% equities with only a 10 year timeframe seems awfully risky to me. I am younger than you (37) on a 10 year timeframe as well, and am personally erring on the side of a conservative portfolio with more dependable returns. In all the simulations I've run savings rate is the most important variable by a long shot, so a dependable and diversified portfolio paired with a high savings rate lets me sleep well at night knowing I can count on hitting my goal within a couple year window regardless of what the stock market does. The bonus, is my current portfolio is also the same portfolio I will hold in retirement, there's no glide path or changing of anything required (aside from normal rebalancing). I just can't picture exposing myself 100% to a single asset class, especially with only a 10 year time frame. More risk does not mean a guarantee for more returns, especially in a short time frame. Stocks have had a wonderful run to be sure, don't let recency bias fool you into thinking that this is the way it always will be going forward.

In the Great Depression stocks lost almost 90% of their value and didn't recover for over 20 years. What if this happens again?
Thesaints
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Re: The case for 100% equities

Post by Thesaints »

Buffett could be 100% stocks. Even if he loses 80% he still doesn’t have to worry. He also does not need an emergency fund, nor any insurance.
abc132
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Re: The case for 100% equities

Post by abc132 »

It's a matter of trade-offs, and what works for you. The best way to approach this is to lay out the potential trade-offs.

If I compare a 100% stock portfolio at 10.3% annual growth to a 60/40 (stock/bond) portfolio with your annual contributions of 20k/36k/6k (401k/taxable/backdoor Roth) until age 55, I get 2.26 million for the 100% stock portfolio and 2.03 million for the 60/40 portfolio.

In the scenario of a 50% drop in stocks at age 55 (assuming 0% drop in bonds), the 100% stock portfolio would be 1.13 million and the 60/40 portfolio would be 1.42 million.

In your current case with 17% bonds and 83% stocks (9.65% growth historically), you would expect 2.16 million by 55 and 1.22 million after a 50% drop.

There is some good advice in this thread on both sides.

Can you put a plan in place that you will stick to regardless of what happens in the market? It looks like you already created such a portfolio by your current allocations, and that your desire to tinker with your portfolio might be too high to sustain a big market drop without dumping stocks at the worst possible time.

With 100% stocks, you are trading off the potential to retire earlier with the reality that you might have to work longer in a bad sequence of events.

Keeping some amount of bonds moves you closer to your goal of age 55.

Weighing all these factors, I like your current allocation better than your proposed allocation.
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