Holding bonds vs 100% equities

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irasymn10
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Holding bonds vs 100% equities

Post by irasymn10 » Tue Oct 29, 2019 11:21 am

Ive been doing some research and have had some discussions with some friends who are more investment-savvy than myself, about bonds. One of my friends said that you should always have some bonds no matter how risk tolerant one may be. Another friend said the same thing, that it doesnt make much sense to not hold any bonds at all.

The research is mixed, with some saying 100% equities is the way to go if you're young, others say there is not much of an advantage between 100 equities vs 90/10, 80/20, etc.

What are your thoughts on this?

Elysium
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Re: Holding bonds vs 100% equities

Post by Elysium » Tue Oct 29, 2019 11:27 am

irasymn10 wrote:
Tue Oct 29, 2019 11:21 am
Ive been doing some research and have had some discussions with some friends who are more investment-savvy than myself, about bonds. One of my friends said that you should always have some bonds no matter how risk tolerant one may be. Another friend said the same thing, that it doesnt make much sense to not hold any bonds at all.

The research is mixed, with some saying 100% equities is the way to go if you're young, others say there is not much of an advantage between 100 equities vs 90/10, 80/20, etc.

What are your thoughts on this?
Difference between 100% equities vs 90/10 is statistically insignificant, same goes for 90/10 vs 80/20. Each 10% reduction brings about incrementally lower risk though for a small percentage in returns. Some bonds are better than none, even a 95/5 is better than having 100.

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Mountain Doc
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Re: Holding bonds vs 100% equities

Post by Mountain Doc » Tue Oct 29, 2019 11:28 am

I think it is worth holding some bonds, because many people are less risk-tolerant than they believe.

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galeno
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Re: Holding bonds vs 100% equities

Post by galeno » Tue Oct 29, 2019 11:54 am

Between 80/20 and 20/80.

Personally we'd go 40/60 up to 60/40.

Currently at 40/60.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

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ruralavalon
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Re: Holding bonds vs 100% equities

Post by ruralavalon » Tue Oct 29, 2019 1:57 pm

irasymn10 wrote:
Tue Oct 29, 2019 11:21 am
Ive been doing some research and have had some discussions with some friends who are more investment-savvy than myself, about bonds. One of my friends said that you should always have some bonds no matter how risk tolerant one may be. Another friend said the same thing, that it doesnt make much sense to not hold any bonds at all.

The research is mixed, with some saying 100% equities is the way to go if you're young, others say there is not much of an advantage between 100 equities vs 90/10, 80/20, etc.

What are your thoughts on this?
I suggest including a bond allocation. If young and you have not been through a stock market crash, its easy to (incorrectly) assume you would not panic and sell at just the wrong time. Many people do sell in a panic, and miss out on the recovery from a stock market crash.

At age 31 I suggest about 20% in bonds or other fixed income investments (like CDs, savings accounts, money market fund). This is expected to substantially reduce portfolio volatility (risk), with only a relatively modest decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification". Please see:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk";
2) Wiki article, "Asset allocation"; and
3) Morningstar (8/10/2019), "The Best Diversifiers for Your Equity Portfolio".

If you are considering 100% stocks, you could reexamine your assumptions about bond performance. Don't be too certain that stocks will significantly outperform bonds. Morningstar (01/10/2019), "Experts Forecast Long-Term Stock and Bond Returns: 2019 Edition ". The author says that the forecasts "suggest that bonds will give U.S. equities a run for their money over the next decade."

Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

KlangFool
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Re: Holding bonds vs 100% equities

Post by KlangFool » Tue Oct 29, 2019 2:03 pm

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

OP,

Take a look at the above URL and ask yourself why 100/0 makes any sense? The additional risk brings you minimal average return. So, why bother?

Pick an AA between 70/30 and 30/70.

KlangFool

jello_nailer
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Re: Holding bonds vs 100% equities

Post by jello_nailer » Tue Oct 29, 2019 2:09 pm

KlangFool:
Great link. Absolutely agree.

I send that link out a lot. Its certainly counter-intuitive. So in today's environment, and we know cash is a position, does some cash count as some bonds? (Vanguard CJTXX MM fund)

anon_investor
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Re: Holding bonds vs 100% equities

Post by anon_investor » Tue Oct 29, 2019 2:14 pm

jello_nailer wrote:
Tue Oct 29, 2019 2:09 pm
KlangFool:
Great link. Absolutely agree.

I send that link out a lot. Its certainly counter-intuitive. So in today's environment, and we know cash is a position, does some cash count as some bonds? (Vanguard CJTXX MM fund)
I think in this lower interest rate environment "cash" (high yield savings, CDs, money market funds, treasury bills, etc.) is lumped in with bonds as part of "fixed income". So cash should be counted as part of the "bond" side of a equity/bond asset allocation.

jello_nailer
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Re: Holding bonds vs 100% equities

Post by jello_nailer » Tue Oct 29, 2019 2:23 pm

Agreed, that's what I do.

rich126
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Re: Holding bonds vs 100% equities

Post by rich126 » Tue Oct 29, 2019 2:23 pm

I may be in the minority but I think if someone is just starting out and it is money that won't be touched for 30+ years, I don't see any point to bonds. Sure the drops are more severe but so are the gains. Now as you accumulate more money and get closer to retirement, most don't want to ride those severe drops.

bgf
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Re: Holding bonds vs 100% equities

Post by bgf » Tue Oct 29, 2019 2:23 pm

100% equities makes sense to me. 90/10 does not. even 80/20 doesn't really make much sense to me. 70/30 starts making sense and on up from there. i don't think im going to hold any bonds until i hold about 40% in bonds. in other words, when i need bonds, im gonna own a good deal of them. when i dont need bonds, well, i wont own any bonds.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

rascott
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Re: Holding bonds vs 100% equities

Post by rascott » Tue Oct 29, 2019 2:35 pm

KlangFool wrote:
Tue Oct 29, 2019 2:03 pm
https://personal.vanguard.com/us/insigh ... ns?lang=en

OP,

Take a look at the above URL and ask yourself why 100/0 makes any sense? The additional risk brings you minimal average return. So, why bother?

Pick an AA between 70/30 and 30/70.

KlangFool


1.0% return difference between 100/0 and 70/30 is monumental over a lifetime in ending dollars.


Bonds make no sense for someone under the age of 40 (in most cases) , where the portfolio outcome is much more driven by savings rates than asset allocation.

Buy bonds when young if you want to end up poorer when old. Particularly today when they have negative expected real return (or close to it).
Last edited by rascott on Tue Oct 29, 2019 2:41 pm, edited 3 times in total.

Chrono Triggered
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Re: Holding bonds vs 100% equities

Post by Chrono Triggered » Tue Oct 29, 2019 2:40 pm

The answer to this question entirely depends on age, portfolio size, years until retirement, and most importantly, behavior.

deltaneutral83
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Re: Holding bonds vs 100% equities

Post by deltaneutral83 » Tue Oct 29, 2019 2:44 pm

I'd be curious to see what 2 years expenses in cash (where the amount will most likely increase year to year as life changes) and the rest in equities vs a 70/30 stocks/bonds allocation yields?

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1789
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Re: Holding bonds vs 100% equities

Post by 1789 » Tue Oct 29, 2019 2:56 pm

It depends if you count cash a sort of a bond like investment. Bond/cash/mm , you definitely need to have one of these to help you going in bad times.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

caklim00
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Re: Holding bonds vs 100% equities

Post by caklim00 » Tue Oct 29, 2019 3:08 pm

rascott wrote:
Tue Oct 29, 2019 2:35 pm
KlangFool wrote:
Tue Oct 29, 2019 2:03 pm
https://personal.vanguard.com/us/insigh ... ns?lang=en

OP,

Take a look at the above URL and ask yourself why 100/0 makes any sense? The additional risk brings you minimal average return. So, why bother?

Pick an AA between 70/30 and 30/70.

KlangFool


1.0% return difference between 100/0 and 70/30 is monumental over a lifetime in ending dollars.


Bonds make no sense for someone under the age of 40 (in most cases) , where the portfolio outcome is much more driven by savings rates than asset allocation.

Buy bonds when young if you want to end up poorer when old. Particularly today when they have negative expected real return (or close to it).
Surprised you didn't suggest Treasury Futures instead for bond allocation...

MotoTrojan
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Re: Holding bonds vs 100% equities

Post by MotoTrojan » Tue Oct 29, 2019 3:09 pm

I’m a 100/0 type guy myself. I do hold extended duration treasuries to offset a leveraged equity holding but that’s riskier than 100/0.

28 years young. I could see bonds coming in in my mid/late 30’s unless I get a windfall (have about a year of expenses saved up).
Last edited by MotoTrojan on Tue Oct 29, 2019 3:10 pm, edited 1 time in total.

DarkHelmetII
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Re: Holding bonds vs 100% equities

Post by DarkHelmetII » Tue Oct 29, 2019 3:10 pm

Mountain Doc wrote:
Tue Oct 29, 2019 11:28 am
I think it is worth holding some bonds, because many people are less risk-tolerant than they believe.
I'd say hold 10 - 20% for behavioral reasons. Ultimately a personal decision, but those 100% equity returns are "academic" in the sense they assume no tinkering. For me personally, in the context of a massive financial shock to equities I will have a much greater chance of "staying" the course if I have some bonds to buy equities at a "discount" rather than seeing my 100% equity portfolio implode.

KlangFool
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Re: Holding bonds vs 100% equities

Post by KlangFool » Tue Oct 29, 2019 3:14 pm

rascott wrote:
Tue Oct 29, 2019 2:35 pm
KlangFool wrote:
Tue Oct 29, 2019 2:03 pm
https://personal.vanguard.com/us/insigh ... ns?lang=en

OP,

Take a look at the above URL and ask yourself why 100/0 makes any sense? The additional risk brings you minimal average return. So, why bother?

Pick an AA between 70/30 and 30/70.

KlangFool


1.0% return difference between 100/0 and 70/30 is monumental over a lifetime in ending dollars.


Bonds make no sense for someone under the age of 40 (in most cases) , where the portfolio outcome is much more driven by savings rates than asset allocation.

Buy bonds when young if you want to end up poorer when old. Particularly today when they have negative expected real return (or close to it).
rascott,

A) <<1.0% return difference between 100/0 and 70/30 is monumental over a lifetime in ending dollars.>>

B) <<Bonds make no sense for someone under the age of 40 (in most cases) ,>>

(A) and (B) contradict itself. Unless a person held 100/0 for his whole life, it will not be a monumental difference. And, if someone held 100/0 for 10 years or less, it is possible that 70/30 may return higher than 100/0.

Let's assume that 100/0 win in the long run aka over 30 years. A person will not have 30 years until retirement forever. Let's assume that the person starts investing at 25 years old and retire at 65 years old (40 years period), the person is only 30+ years from retirement between 25 to 35 years old. The person could only be 100/0 for 10 years.

In summary, any normal investor will not hold 100/0 long enough for the difference to matter.

KlangFool

rascott
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Re: Holding bonds vs 100% equities

Post by rascott » Tue Oct 29, 2019 3:20 pm

KlangFool wrote:
Tue Oct 29, 2019 3:14 pm
rascott wrote:
Tue Oct 29, 2019 2:35 pm
KlangFool wrote:
Tue Oct 29, 2019 2:03 pm
https://personal.vanguard.com/us/insigh ... ns?lang=en

OP,

Take a look at the above URL and ask yourself why 100/0 makes any sense? The additional risk brings you minimal average return. So, why bother?

Pick an AA between 70/30 and 30/70.

KlangFool


1.0% return difference between 100/0 and 70/30 is monumental over a lifetime in ending dollars.


Bonds make no sense for someone under the age of 40 (in most cases) , where the portfolio outcome is much more driven by savings rates than asset allocation.

Buy bonds when young if you want to end up poorer when old. Particularly today when they have negative expected real return (or close to it).
rascott,

A) <<1.0% return difference between 100/0 and 70/30 is monumental over a lifetime in ending dollars.>>

B) <<Bonds make no sense for someone under the age of 40 (in most cases) ,>>

(A) and (B) contradict itself. Unless a person held 100/0 for his whole life, it will not be a monumental difference. And, if someone held 100/0 for 10 years or less, it is possible that 70/30 may return higher than 100/0.

Let's assume that 100/0 win in the long run aka over 30 years. A person will not have 30 years until retirement forever. Let's assume that the person starts investing at 25 years old and retire at 65 years old (40 years period), the person is only 30+ years from retirement between 25 to 35 years old. The person could only be 100/0 for 10 years.

In summary, any normal investor will not hold 100/0 long enough for the difference to matter.

KlangFool

I will likely hold 100% in the neighborhood of 25-30 years, personally (already have for 17+ years). And start ramping up bonds 5-10 years out from retirement.

I do hold a roughly a years worth of cash/ cash like instruments... so it's not pure 100/0. But close enough.

rascott
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Re: Holding bonds vs 100% equities

Post by rascott » Tue Oct 29, 2019 3:22 pm

caklim00 wrote:
Tue Oct 29, 2019 3:08 pm
rascott wrote:
Tue Oct 29, 2019 2:35 pm
KlangFool wrote:
Tue Oct 29, 2019 2:03 pm
https://personal.vanguard.com/us/insigh ... ns?lang=en

OP,

Take a look at the above URL and ask yourself why 100/0 makes any sense? The additional risk brings you minimal average return. So, why bother?

Pick an AA between 70/30 and 30/70.

KlangFool


1.0% return difference between 100/0 and 70/30 is monumental over a lifetime in ending dollars.


Bonds make no sense for someone under the age of 40 (in most cases) , where the portfolio outcome is much more driven by savings rates than asset allocation.

Buy bonds when young if you want to end up poorer when old. Particularly today when they have negative expected real return (or close to it).
Surprised you didn't suggest Treasury Futures instead for bond allocation...


It's not the worst idea :D

bgf
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Re: Holding bonds vs 100% equities

Post by bgf » Tue Oct 29, 2019 3:26 pm

KlangFool wrote:
Tue Oct 29, 2019 3:14 pm
rascott wrote:
Tue Oct 29, 2019 2:35 pm
KlangFool wrote:
Tue Oct 29, 2019 2:03 pm
https://personal.vanguard.com/us/insigh ... ns?lang=en

OP,

Take a look at the above URL and ask yourself why 100/0 makes any sense? The additional risk brings you minimal average return. So, why bother?

Pick an AA between 70/30 and 30/70.

KlangFool


1.0% return difference between 100/0 and 70/30 is monumental over a lifetime in ending dollars.


Bonds make no sense for someone under the age of 40 (in most cases) , where the portfolio outcome is much more driven by savings rates than asset allocation.

Buy bonds when young if you want to end up poorer when old. Particularly today when they have negative expected real return (or close to it).
rascott,

A) <<1.0% return difference between 100/0 and 70/30 is monumental over a lifetime in ending dollars.>>

B) <<Bonds make no sense for someone under the age of 40 (in most cases) ,>>

(A) and (B) contradict itself. Unless a person held 100/0 for his whole life, it will not be a monumental difference. And, if someone held 100/0 for 10 years or less, it is possible that 70/30 may return higher than 100/0.

Let's assume that 100/0 win in the long run aka over 30 years. A person will not have 30 years until retirement forever. Let's assume that the person starts investing at 25 years old and retire at 65 years old (40 years period), the person is only 30+ years from retirement between 25 to 35 years old. The person could only be 100/0 for 10 years.

In summary, any normal investor will not hold 100/0 long enough for the difference to matter.

KlangFool
so, when i don't need any bonds, im still supposed to own 30% bonds because "it is possible that 70/30 may return higher than 100/0"? no thanks.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

KlangFool
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Re: Holding bonds vs 100% equities

Post by KlangFool » Tue Oct 29, 2019 3:26 pm

rascott wrote:
Tue Oct 29, 2019 3:20 pm
KlangFool wrote:
Tue Oct 29, 2019 3:14 pm
rascott wrote:
Tue Oct 29, 2019 2:35 pm
KlangFool wrote:
Tue Oct 29, 2019 2:03 pm
https://personal.vanguard.com/us/insigh ... ns?lang=en

OP,

Take a look at the above URL and ask yourself why 100/0 makes any sense? The additional risk brings you minimal average return. So, why bother?

Pick an AA between 70/30 and 30/70.

KlangFool


1.0% return difference between 100/0 and 70/30 is monumental over a lifetime in ending dollars.


Bonds make no sense for someone under the age of 40 (in most cases) , where the portfolio outcome is much more driven by savings rates than asset allocation.

Buy bonds when young if you want to end up poorer when old. Particularly today when they have negative expected real return (or close to it).
rascott,

A) <<1.0% return difference between 100/0 and 70/30 is monumental over a lifetime in ending dollars.>>

B) <<Bonds make no sense for someone under the age of 40 (in most cases) ,>>

(A) and (B) contradict itself. Unless a person held 100/0 for his whole life, it will not be a monumental difference. And, if someone held 100/0 for 10 years or less, it is possible that 70/30 may return higher than 100/0.

Let's assume that 100/0 win in the long run aka over 30 years. A person will not have 30 years until retirement forever. Let's assume that the person starts investing at 25 years old and retire at 65 years old (40 years period), the person is only 30+ years from retirement between 25 to 35 years old. The person could only be 100/0 for 10 years.

In summary, any normal investor will not hold 100/0 long enough for the difference to matter.

KlangFool

I will likely hold 100% in the neighborhood of 25-30 years, personally (already have for 17+ years). And start ramping up bonds 5-10 years out from retirement.

I do hold a roughly a years worth of cash/ cash like instruments... so it's not pure 100/0. But close enough.
rascott,

1) The numbers do not add up. If you hold 100/0 for 17 years, you do not have another 30 years until retirement. So, how many years before you add any bond?

2) The other thing you probably did not mention is you did not have any significant period of unemployment over the past few recessions.

3) OP probably does not have 1 year's worth of the emergency fund.

KlangFool

retired@50
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Re: Holding bonds vs 100% equities

Post by retired@50 » Tue Oct 29, 2019 3:30 pm

rascott wrote:
Tue Oct 29, 2019 3:20 pm
KlangFool wrote:
Tue Oct 29, 2019 3:14 pm
rascott wrote:
Tue Oct 29, 2019 2:35 pm
KlangFool wrote:
Tue Oct 29, 2019 2:03 pm
https://personal.vanguard.com/us/insigh ... ns?lang=en

OP,

Take a look at the above URL and ask yourself why 100/0 makes any sense? The additional risk brings you minimal average return. So, why bother?

Pick an AA between 70/30 and 30/70.

KlangFool


1.0% return difference between 100/0 and 70/30 is monumental over a lifetime in ending dollars.


Bonds make no sense for someone under the age of 40 (in most cases) , where the portfolio outcome is much more driven by savings rates than asset allocation.

Buy bonds when young if you want to end up poorer when old. Particularly today when they have negative expected real return (or close to it).
rascott,

A) <<1.0% return difference between 100/0 and 70/30 is monumental over a lifetime in ending dollars.>>

B) <<Bonds make no sense for someone under the age of 40 (in most cases) ,>>

(A) and (B) contradict itself. Unless a person held 100/0 for his whole life, it will not be a monumental difference. And, if someone held 100/0 for 10 years or less, it is possible that 70/30 may return higher than 100/0.

Let's assume that 100/0 win in the long run aka over 30 years. A person will not have 30 years until retirement forever. Let's assume that the person starts investing at 25 years old and retire at 65 years old (40 years period), the person is only 30+ years from retirement between 25 to 35 years old. The person could only be 100/0 for 10 years.

In summary, any normal investor will not hold 100/0 long enough for the difference to matter.

KlangFool

I will likely hold 100% in the neighborhood of 25-30 years, personally (already have for 17+ years). And start ramping up bonds 5-10 years out from retirement.

I do hold a roughly a years worth of cash/ cash like instruments... so it's not pure 100/0. But close enough.
I think I agree with KlangFool. Many investors don't have the iron will needed to hold a 100/0 portfolio for over 25 years. In the forum setting, it may be more prudent to mention to posters, who we know little about, that using some bonds in a portfolio is typically seen as wise. The larger mistake would be to give up on investing altogether because the investor in question couldn't stomach the roller coaster ride of an all equity portfolio. Regards,

KlangFool
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Re: Holding bonds vs 100% equities

Post by KlangFool » Tue Oct 29, 2019 3:33 pm

bgf wrote:
Tue Oct 29, 2019 3:26 pm

so, when i don't need any bonds, im still supposed to own 30% bonds because "it is possible that 70/30 may return higher than 100/0"? no thanks.
bgf,

If you prefer to take more risks and get less return, it is your choice. Over the shorter period, 70/30 has a better return than 100/0.

You based on your decision of 100/0 with the historical record. But, the same historical record tells you that over the shorter period 70/30 is better. You have a choice. You either trust the historical record or you don't.

KlangFool

TheDDC
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Re: Holding bonds vs 100% equities

Post by TheDDC » Tue Oct 29, 2019 3:33 pm

I hold 100% VTSAX and have a cash portion equal to a few months expenses. I also have a pension, however, which some here might equate to a bond... That is sufficient for me. Pile it in with a pitchfork and don't look back. Sliding scale is how much cash you have versus how much in equities. You won't wan't to miss the next run up. As long as this is money you need 5+ years out I would invest in a good S&P or total stock fund. If less than keep it in cash. That goes for new or old money.

Happy bundling.

-TheDDC
Refreshingly, a double barrel shotgun blast of truth...

rascott
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Re: Holding bonds vs 100% equities

Post by rascott » Tue Oct 29, 2019 3:35 pm

KlangFool wrote:
Tue Oct 29, 2019 3:26 pm
rascott wrote:
Tue Oct 29, 2019 3:20 pm
KlangFool wrote:
Tue Oct 29, 2019 3:14 pm
rascott wrote:
Tue Oct 29, 2019 2:35 pm
KlangFool wrote:
Tue Oct 29, 2019 2:03 pm
https://personal.vanguard.com/us/insigh ... ns?lang=en

OP,

Take a look at the above URL and ask yourself why 100/0 makes any sense? The additional risk brings you minimal average return. So, why bother?

Pick an AA between 70/30 and 30/70.

KlangFool


1.0% return difference between 100/0 and 70/30 is monumental over a lifetime in ending dollars.


Bonds make no sense for someone under the age of 40 (in most cases) , where the portfolio outcome is much more driven by savings rates than asset allocation.

Buy bonds when young if you want to end up poorer when old. Particularly today when they have negative expected real return (or close to it).
rascott,

A) <<1.0% return difference between 100/0 and 70/30 is monumental over a lifetime in ending dollars.>>

B) <<Bonds make no sense for someone under the age of 40 (in most cases) ,>>

(A) and (B) contradict itself. Unless a person held 100/0 for his whole life, it will not be a monumental difference. And, if someone held 100/0 for 10 years or less, it is possible that 70/30 may return higher than 100/0.

Let's assume that 100/0 win in the long run aka over 30 years. A person will not have 30 years until retirement forever. Let's assume that the person starts investing at 25 years old and retire at 65 years old (40 years period), the person is only 30+ years from retirement between 25 to 35 years old. The person could only be 100/0 for 10 years.

In summary, any normal investor will not hold 100/0 long enough for the difference to matter.

KlangFool

I will likely hold 100% in the neighborhood of 25-30 years, personally (already have for 17+ years). And start ramping up bonds 5-10 years out from retirement.

I do hold a roughly a years worth of cash/ cash like instruments... so it's not pure 100/0. But close enough.
rascott,

1) The numbers do not add up. If you hold 100/0 for 17 years, you do not have another 30 years until retirement. So, how many years before you add any bond?

2) The other thing you probably did not mention is you did not have any significant period of unemployment over the past few recessions.

3) OP probably does not have 1 year's worth of the emergency fund.

KlangFool
Sorry if my wording was confusing....... but I intend to add bonds starting 10 years out from expected retirement. Which means my first 25-30 years of accumulating I will have been in 100% stocks. I have been working/accumulating for 17 years.... at 100% equity. So in roughly a decade more I will start looking at adding FI.

Obviously plans can/do change.... and if your career is highly levered to the whims of the economy, maybe you need higher cash cushions.

I just don't think volatility means much of anything to people in their first 15-20 years or so.... your savings rate is going to smooth out even the wildest of markets. This assumes they don't bail out and are saving at a good clip. But these are behavioral issues....

bgf
Posts: 1075
Joined: Fri Nov 10, 2017 9:35 am

Re: Holding bonds vs 100% equities

Post by bgf » Tue Oct 29, 2019 3:38 pm

KlangFool wrote:
Tue Oct 29, 2019 3:33 pm
bgf wrote:
Tue Oct 29, 2019 3:26 pm

so, when i don't need any bonds, im still supposed to own 30% bonds because "it is possible that 70/30 may return higher than 100/0"? no thanks.
bgf,

If you prefer to take more risks and get less return, it is your choice. Over the shorter period, 70/30 has a better return than 100/0.

You based on your decision of 100/0 with the historical record. But, the same historical record tells you that over the shorter period 70/30 is better. You have a choice. You either trust the historical record or you don't.

KlangFool
im sorry, which period are we talking about now that the 70/30 outperforms 100/0? im honestly not following you, unless you are saying that because the unlikely scenario exists during which some as yet undetermined time frame 70/30 will outperform 100/0 and that this unlikely future scenario is supposed to dominate all other reasons for determining my current asset allocation, in which case i do understand you, and i disagree with you.
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Re: Holding bonds vs 100% equities

Post by 305pelusa » Tue Oct 29, 2019 3:42 pm

irasymn10 wrote:
Tue Oct 29, 2019 11:21 am
Ive been doing some research and have had some discussions with some friends who are more investment-savvy than myself, about bonds. One of my friends said that you should always have some bonds no matter how risk tolerant one may be. Another friend said the same thing, that it doesnt make much sense to not hold any bonds at all.

The research is mixed, with some saying 100% equities is the way to go if you're young, others say there is not much of an advantage between 100 equities vs 90/10, 80/20, etc.

What are your thoughts on this?
it depends immensely on the nature of your income and how many years of it are left.
If you're young and your wages are uncorrelated with the market (most wages are), you should be 100% in stocks and ideally leveraged to the extent you can/feel comfortable.

That's the mathematically ideal. Psychologically, it might be different.

Moreover, if your wages are extremely correlated with the market (like Wall Street quant for instance), you'd hold mostly or even only bonds. You might even short the market.

The theory is all here:
viewtopic.php?f=10&t=274390

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Re: Holding bonds vs 100% equities

Post by Googliebear » Tue Oct 29, 2019 3:46 pm

I agree, it certainly depends on your risk tolerance, age and goals.

For me, I have no interest in bonds until maybe 3 - 5 years out from retirement. I've got at least 12 years until retirement.

My minimum stock allocation is 90% at all times. During the 2018 Christmas correction (down as much as 19%), I utilized nearly all of my cash stores to purchase more VTI which pushed my allocation to 98% stocks, 2% cash.

Since the beginning of the year, I've built up my cash stores back to nearly 5% with the goal of getting back to 10% to await the next correction. When it happens again, I'll start the whole process over.

With this strategy, I don't worry about my assets taking a dive, it gives me a reason to welcome a correction and makes me wish I had more cash to buy more of the index. Mind games maybe, but it keeps me buying when others are selling.

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Re: Holding bonds vs 100% equities

Post by KlangFool » Tue Oct 29, 2019 3:49 pm

bgf wrote:
Tue Oct 29, 2019 3:38 pm
KlangFool wrote:
Tue Oct 29, 2019 3:33 pm
bgf wrote:
Tue Oct 29, 2019 3:26 pm

so, when i don't need any bonds, im still supposed to own 30% bonds because "it is possible that 70/30 may return higher than 100/0"? no thanks.
bgf,

If you prefer to take more risks and get less return, it is your choice. Over the shorter period, 70/30 has a better return than 100/0.

You based on your decision of 100/0 with the historical record. But, the same historical record tells you that over the shorter period 70/30 is better. You have a choice. You either trust the historical record or you don't.

KlangFool
im sorry, which period are we talking about now that the 70/30 outperforms 100/0? im honestly not following you, unless you are saying that because the unlikely scenario exists during which some as yet undetermined time frame 70/30 will outperform 100/0 and that this unlikely future scenario is supposed to dominate all other reasons for determining my current asset allocation, in which case i do understand you, and i disagree with you.
bgf,

Over the long run (20 to 30 years), 100/0 outperforms 70/30. This is the basis of your decision. And, it is based on the historical record. Vice versa, for the same historical record, over the shorter period 70/30 had beaten 100/0 regularly in terms of actual return.

KlangFool

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Re: Holding bonds vs 100% equities

Post by Northern Flicker » Tue Oct 29, 2019 3:53 pm

Difference between 100% equities vs 90/10 is statistically insignificant, same goes for 90/10 vs 80/20. Each 10% reduction brings about incrementally lower risk though for a small percentage in returns. Some bonds are better than none, even a 95/5 is better than having 100.
The reduction in expected return is generally not commensurate with the reduction in risk, so that the case for always holding at least some bonds generally is strong. The low yields and low expected returns for bonds have probably weakened the case at least some though.

One point about holding say 10% bonds is the opportunity to try to capture some rebalancing premium.

Another point is that your investment horizon timeline is not guaranteed. Job losses, illnesses, disabilities, and other life surprises can throw a wrench in the best laid plans. While I’m not advocating for planning for the worst, picking an allocation from the range of reasonable allocations under the assumption of the best possible outcome may not be the wisest course of action either. A 90/10 allocation gives you a buffer for a margin of error in planning.
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Re: Holding bonds vs 100% equities

Post by KlangFool » Tue Oct 29, 2019 3:54 pm

rascott wrote:
Tue Oct 29, 2019 3:35 pm

I just don't think volatility means much of anything to people in their first 15-20 years or so.... your savings rate is going to smooth out even the wildest of markets. This assumes they don't bail out and are saving at a good clip. But these are behavioral issues....
rascott,

You are assuming that the person is fully employed during the recession. Not all of us can count on that.

<<This assumes they don't bail out and are saving at a good clip. But these are behavioral issues....>>

If a person is unemployed in a recession. he/she would need to sell the stock to feed the family. That is not a behavioral issue. It is a matter of survival.

KlangFool

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Re: Holding bonds vs 100% equities

Post by lukestuckenhymer » Tue Oct 29, 2019 3:56 pm

DarkHelmetII wrote:
Tue Oct 29, 2019 3:10 pm
Mountain Doc wrote:
Tue Oct 29, 2019 11:28 am
I think it is worth holding some bonds, because many people are less risk-tolerant than they believe.
I'd say hold 10 - 20% for behavioral reasons. Ultimately a personal decision, but those 100% equity returns are "academic" in the sense they assume no tinkering. For me personally, in the context of a massive financial shock to equities I will have a much greater chance of "staying" the course if I have some bonds to buy equities at a "discount" rather than seeing my 100% equity portfolio implode.
I am holding 10% for the same reasons. 100% equity returns are indeed "academic" and even a small allocation of bonds holds a purpose. 10% bonds won't save my portfolio in times of a crash, but the rebalancing bonus could be significant.

For those who are saying they will be 100% equities until 5-10 years from retirement all I can say is good luck. I hope that 5-10 year period doesn't immediately follow a protracted downturn. This is what a glide path is for.

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Re: Holding bonds vs 100% equities

Post by rascott » Tue Oct 29, 2019 4:03 pm

KlangFool wrote:
Tue Oct 29, 2019 3:54 pm
rascott wrote:
Tue Oct 29, 2019 3:35 pm

I just don't think volatility means much of anything to people in their first 15-20 years or so.... your savings rate is going to smooth out even the wildest of markets. This assumes they don't bail out and are saving at a good clip. But these are behavioral issues....
rascott,

You are assuming that the person is fully employed during the recession. Not all of us can count on that.

<<This assumes they don't bail out and are saving at a good clip. But these are behavioral issues....>>

If a person is unemployed in a recession. he/she would need to sell the stock to feed the family. That is not a behavioral issue. It is a matter of survival.

KlangFool
Yep... and why my point about upping your cash position if you career/wages are heavily levered to the health of the economy (or your specific industry). I'm aware that my risk tolerance is likely different than many/ most here.

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Re: Holding bonds vs 100% equities

Post by TomCat96 » Tue Oct 29, 2019 4:52 pm

I'm 100% equities. I currently see no need for bonds. Age, late 30s.

Being 100% equities means greater risk, but greater rewards. The greater risk to you is not just increased volatility, but also the possibility that you will be forced to liquidate at inopportune times during a downturn. The size of this risk to you, the structural elements of your life, depends on factors personal to you.

I am single, have no financial obligations to others, no debt(car, mortgage, or student loans), recession proof job, vested pension, no plans for marriage anywhere close on my horizon. I report to no one. I can eat beans and chicken for days on end. I can work long hours. When I go home, I don't have a spouse wondering where I was. Working long hours doesn't ruin my personal relationships with a spouse of children. When I am finished with work, I head to the gym. I eat simple and clean. I wear button up dress shirts over 20 years old. I am as unattached as they come.

That being said, I have no problem being 100% equities. If I lose my job, I will find a new one.

That may not be the same if you have three children, have a mortgage, have parents to help out, have car payments, have student loan payments.

Only you can adequately assess the risks to yourself during a downturn.

That being said, there are rewards to be had for being 100% equities. These rewards are perceived as small, but are quite large over the course of several decades.

How large are these rewards?
https://personal.vanguard.com/us/insigh ... ns?lang=en

Let's use that website that people are citing.
If you had kept a 100% portfolio from the beginning and let it ride, a thousand dollars today would be:

100/0 : $8,472,429
80/20: $4,651,877
60/40: $2,333,477

In my view, the 100% stock portfolio which is more than 300% larger than the 60/40 portfolio reflects a very real cost in "not wanting to experience volatility" It is also a rebuke to the argument that would characterize the differences between portfolios as small.

It may be a bit unfair of me to use 94 years of compounding to reinforce my argument. But I'm not here to advocate in either direction, but to merely state the facts neutrally, and the fact is this:

Over small periods of time, the differences between having a bond allocation and not having a bond allocation are not substantial.
Over long periods, 20+ years, the difference can be substantial.

After all, 1% point difference over 20 years is at least 20% difference in final portfolio value is it not?
It is more precisely 1.01^20 or 22.02%

For 30 years, it is 34.78% difference in final portfolio value.

For the more dramatic 50/50, which a few bogleheads do hold, it is a near 2% (1.9) difference. The approximate difference between the cited 10.1 and 8.2 compounded over the course of 30 years is

1.019^30 is a whopping 75.88%

At that level of disparity, I could experience a major stock market crash twice, and be at parity with my friend who opted for the "safer" 50/50.

The point is not to overemphasize or underemphasize compounded gains. But to understand the nature of compounding. A large nominal difference can be masked in small numbers, geometrically compounded.

Needless to say for those who are older, say in their 60s, where holding 100% may not be viable for 30 year periods or 20 year periods, they will never realize the larger rewards of the gains of extra risk. But they will realize the increased psychological comfort and lower volatility immediately. It's a no brainer for the older crown to not be 100/0.

If you don't want to experience volatility by holding bonds, if you have decades to go you pay a price for such psychological comfort. Small in the interim, large over the long run. Such gains are contingent upon you staying the course for decades at a time. Only you know if you are capable of such things. But if you can, as I wrote, there are rewards to be had.
Last edited by TomCat96 on Tue Oct 29, 2019 4:59 pm, edited 1 time in total.

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Re: Holding bonds vs 100% equities

Post by ruralavalon » Tue Oct 29, 2019 4:56 pm

anon_investor wrote:
Tue Oct 29, 2019 2:14 pm
jello_nailer wrote:
Tue Oct 29, 2019 2:09 pm
KlangFool:
Great link. Absolutely agree.

I send that link out a lot. Its certainly counter-intuitive. So in today's environment, and we know cash is a position, does some cash count as some bonds? (Vanguard CJTXX MM fund)
I think in this lower interest rate environment "cash" (high yield savings, CDs, money market funds, treasury bills, etc.) is lumped in with bonds as part of "fixed income". So cash should be counted as part of the "bond" side of a equity/bond asset allocation.
Yes, it all (bonds, high yield savings, CDs, money market funds, treasury bills, etc.) counts as fixed income.

In my view "fixed income" is the better terminology than "bonds".
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Re: Holding bonds vs 100% equities

Post by illumination » Tue Oct 29, 2019 5:26 pm

In accounts that I see no reasonable case that I will be drawing down from for decades, I have 100% equities. My Roth IRA is a good example.

Also, I don't mix my "emergency/living expense savings" from what I consider designated to be "invested". I think sometimes people do, so when they say they are "100% stocks", the visualization may be literally pulling money out of the stock market to say buy a new heat pump for the house. Which is too risky for my taste.

I do think though that just like tax laws change and people invest accordingly, the new "normal" of ultra low interest rates means people should make changes to the "old" rules. A 40 year old having 40% of their investments in bonds 20 years ago made perfect sense, in this environment is just throwing money away for a long term investor (imo) . I personally am not comfortable investing in bond funds, just securities that can't lose principal, so I only look at the yield and it just seems to me to be signing up for dead money long term (but I still do it)

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Re: Holding bonds vs 100% equities

Post by Wiggums » Tue Oct 29, 2019 6:16 pm

this is just a general statement about asset allocation.

When it comes to investing, choosing the right asset allocation is the hardest thing you’ll do.

KlangFools chart is great. It convinced me to stop to 70/30 when I retired. Bonds are just one type of fixed income. I mix and match. I prefer to have a more conservative AA where I’ll stay the course.

I think 100% equities is ok for young people that will not sell in a big downturn, who have a good emergency fund, low debt and good cash flow. I.e., someone can survive a bad sequence of events. It’s definitely a risk/reward thing. You win some AND you lose some. Keep that in mind.

I have a positive view of the US markets. However, it’s possible that things will return to the mean at some point. Too bad we don’t have a crystal ball. My personal view is that people will good cash flow will be better prepared.

Be flexible. Interest rates are low now. At some point taxes will revert. Medicare and social security programs both have shortfalls. I don’t how this will be addressed, but I hope something like this is not the catalyst that scares the investors away.

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Re: Holding bonds vs 100% equities

Post by caklim00 » Tue Oct 29, 2019 6:44 pm

I plan on moving from 85/15 to 70/30/-15(cash) in the near future. I exclude emergency funds and funds needed to do some of my day to day activities from this.

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Re: Holding bonds vs 100% equities

Post by OrangeMoney » Tue Oct 29, 2019 8:18 pm

As a 57-year old who was a bit late out of the gate in getting his retirement investing/planning going, here is what I came up with.

From immigrant pension parents who did not venture into individual retirement investing, to my 8-year Euro move and going through a divorce, I finally started focusing on things about 5-7 years ago. I never maxed out US retirement opportunities, usually just contributing to get the maximum 401k employer match (e.g. 6% + 3-6% match). While that was better than $0, it wasn't great. Throw in a divorce panic moment and loss of 40+% of my savings and it left/leaves a bit to be desired. Even my current employer limits 401k contributions to $15,500 (up from $11,500 last year) due to a low employee participation rate (most are in the US on visas)... I do add an extra $6k as an "oldie".

JL Collins got me into the 100% equities game (until retirement, then 75/25) followed by some Bogleheads reading and some recent Merriman brainwashing. :D

I'm now at:
  1. Age-40 in bonds (VBTLX in IRA) [I'll likely cap this at 25 or 30%]
  2. 10% International (split between VTIAX in IRA and an international fund in a previous employer's 401k) I am open to increasing this a bit
  3. 10% Small Cap Value (VSIAX in IRA)
  4. the rest in Total Stock Market (or similar) (remainder of IRA in VTSAX, 100% of current 401k in S&P, remainder of prev 401k in BlackRock total stock market fund (expense ratio of only 0.0176%))
Many will claim that this is much too risky. In addition to future social security benefits (both working) there are some some small foreign pensions that will help pay the utilities. For us to live the retirement life that we'd prefer, we need to add a bit more to the pot, hence the asset allocation. If it means we need to work a few more years to ride through an upcoming dip then so be it.

In addition, at retirement the house will be paid off, there will be an emergency fund and at least a year's worth of expenses in cash to absorb some of the withdrawal risks in case our retirement timing sucks.

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Re: Holding bonds vs 100% equities

Post by Northern Flicker » Tue Oct 29, 2019 9:57 pm

Yep... and why my point about upping your cash position if you career/wages are heavily levered to the health of the economy (or your specific industry). I'm aware that my risk tolerance is likely different than many/ most here.
Cash, like bonds, is fixed income. If you are increasing it to be “100% stocks” then you are not 100% stocks. That is a discussion of cash vs bonds, not a discussion of 100% stocks vs a high stock allocation with some bonds.
Last edited by Northern Flicker on Wed Oct 30, 2019 12:38 pm, edited 1 time in total.
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Re: Holding bonds vs 100% equities

Post by JoMoney » Tue Oct 29, 2019 10:27 pm

The right allocation for your risk tolerance is up to you.
While employed with a regular paycheck I don't see the need for bonds.
Some people that include bonds in their investment portfolios are effectively in a 100%+ equity position if you offset by debts, mortgages, student loans, etc..
Even after employment some will have social security, pensions, annuities, CD's and Money Market accounts... which I believe could alleviate the need/desire for the fixed-income of proper "bonds".
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Holding bonds vs 100% equities

Post by MotoTrojan » Tue Oct 29, 2019 10:31 pm

KlangFool wrote:
Tue Oct 29, 2019 3:49 pm
bgf wrote:
Tue Oct 29, 2019 3:38 pm
KlangFool wrote:
Tue Oct 29, 2019 3:33 pm
bgf wrote:
Tue Oct 29, 2019 3:26 pm

so, when i don't need any bonds, im still supposed to own 30% bonds because "it is possible that 70/30 may return higher than 100/0"? no thanks.
bgf,

If you prefer to take more risks and get less return, it is your choice. Over the shorter period, 70/30 has a better return than 100/0.

You based on your decision of 100/0 with the historical record. But, the same historical record tells you that over the shorter period 70/30 is better. You have a choice. You either trust the historical record or you don't.

KlangFool
im sorry, which period are we talking about now that the 70/30 outperforms 100/0? im honestly not following you, unless you are saying that because the unlikely scenario exists during which some as yet undetermined time frame 70/30 will outperform 100/0 and that this unlikely future scenario is supposed to dominate all other reasons for determining my current asset allocation, in which case i do understand you, and i disagree with you.
bgf,

Over the long run (20 to 30 years), 100/0 outperforms 70/30. This is the basis of your decision. And, it is based on the historical record. Vice versa, for the same historical record, over the shorter period 70/30 had beaten 100/0 regularly in terms of actual return.

KlangFool
What is a shorter period, 5 or 10 years? What are the average rolling short-period returns for 70/30 vs. 100/0? You are telling me 70/30 is higher, or just that sometimes 70/30 is higher?

This is a truly absurd argument. 100% bonds frequently outperforms 100% equities over shorter-term periods; why aren't you suggesting 100% bonds?

I'll be interested to see if the short-term average return in-fact is higher for 70/30, but I won't believe it until I see it.

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Re: Holding bonds vs 100% equities

Post by grabiner » Tue Oct 29, 2019 10:40 pm

Mathematically, 100% equities is likely to be optimal if you are a long way from retirement.

However, I recommend only 80% equities until you have been through a bear market with a stock-heavy portfolio, so that you actually know your risk tolerance. Many investors pulled out of the stock market in 2007-2009, and didn't get the slight theoretical benefit of their 100%-stock portfolios.
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Re: Holding bonds vs 100% equities

Post by KlangFool » Tue Oct 29, 2019 10:56 pm

MotoTrojan wrote:
Tue Oct 29, 2019 10:31 pm

What is a shorter period, 5 or 10 years? What are the average rolling short-period returns for 70/30 vs. 100/0? You are telling me 70/30 is higher, or just that sometimes 70/30 is higher?

This is a truly absurd argument. 100% bonds frequently outperforms 100% equities over shorter-term periods; why aren't you suggesting 100% bonds?

I'll be interested to see if the short-term average return in-fact is higher for 70/30, but I won't believe it until I see it.
MotoTrojan,

1) 0/100 has the same problem as 100/0. It has more years with a loss than 20/80. It is riskier than 20/80.

2) Nisi had shown the complete statistic of each AA with a loss across each time period.

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

3) A simplistic way to look at this.

A) 70/30 had an average return of 9.1% and the worst possible loss of 35%.

B) 100/0 has an average return of 10.1% and the worst possible loss of 50%.

The difference between the average returns is 1%. The difference between the worst losses is 15%. In summary, if you hit a recession aka worst possible loss, it will take about 15 years to make up the difference. Historically, there are at least one US recession every 10 years.

So, it is a bad bet to take 70/30 against 100/0 unless you have 15 to 20 years to make up the difference.

KlangFool
Last edited by KlangFool on Tue Oct 29, 2019 10:59 pm, edited 1 time in total.

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Re: Holding bonds vs 100% equities

Post by KlangFool » Tue Oct 29, 2019 10:58 pm

grabiner wrote:
Tue Oct 29, 2019 10:40 pm
Mathematically, 100% equities is likely to be optimal if you are a long way from retirement.

However, I recommend only 80% equities until you have been through a bear market with a stock-heavy portfolio, so that you actually know your risk tolerance. Many investors pulled out of the stock market in 2007-2009, and didn't get the slight theoretical benefit of their 100%-stock portfolios.
grabiner,

May I know what is your definition of a long way? 20 years? 10 years?

KlangFool

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Re: Holding bonds vs 100% equities

Post by MotoTrojan » Tue Oct 29, 2019 10:59 pm

KlangFool wrote:
Tue Oct 29, 2019 10:56 pm
MotoTrojan wrote:
Tue Oct 29, 2019 10:31 pm

What is a shorter period, 5 or 10 years? What are the average rolling short-period returns for 70/30 vs. 100/0? You are telling me 70/30 is higher, or just that sometimes 70/30 is higher?

This is a truly absurd argument. 100% bonds frequently outperforms 100% equities over shorter-term periods; why aren't you suggesting 100% bonds?

I'll be interested to see if the short-term average return in-fact is higher for 70/30, but I won't believe it until I see it.
MotoTrojan,

1) 0/100 has the same problem as 100/0. It has more years with a loss than 20/80. It is riskier than 20/80.

2) Nisi had shown the complete statistic of each AA with a loss across each time period.

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

3) A simplistic way to look at this.

A) 70/30 had an average return of 9.1% and the worst possible loss of 35%.

B) 100/0 has an average return of 10.1% and the worst possible loss of 50%.

The difference between the average returns is 1%. The difference between the worst losses is 15%. In summary, if you hit a recession aka worst possible loss, it will take about 15 years to make up the difference. Historically, there are at least one US recession every 10 years.

So, it is a bad bet to take 70/30 against 100/0 unless you have 15 to 20 years to make up the difference.

KlangFool
How many years of 1% outperformance does it take to make up for the 15% difference in drawdown?

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Re: Holding bonds vs 100% equities

Post by JAZZISCOOL » Tue Oct 29, 2019 11:02 pm

Vanguard and many other firms offer target date retirement funds which are essentially balanced portfolios between stocks/bonds (some throw in a few more asset classes but let's keep it simple for this discussion.)

If you look at Vanguard's asset allocation glide path, they began to add about 10% bonds early in your 20's and gradually increase the % of bonds until retirement age around 65. This is one example.

EDIT: Vanguard Target Retirement 2055 Fund (VFFVX) - if one is 30 today and retires in about 35 years around 2055, Vanguard has about 10% in bonds so they begin the bond allocation fairly early based on their portfolio modeling. The 2065 fund is also around 10% in bonds (2065 is example retirement year for someone in their 20's.)

I think it is wise to take some risk off the table as you age (i.e. increase bonds.) But as others have noted, risk tolerance is an individual decision. If you are young, you have more time to save and grow your portfolio.

If you have not lived through a market downturn e.g. 2008, IMO, you may not truly know your ability to withstand a ~40% -ish drawdown in your portfolio, e.g. 100% stocks. Those of us who have lived through market cycles are probably more cautious. :?

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Re: Holding bonds vs 100% equities

Post by AznSaver » Wed Oct 30, 2019 12:00 am

OP, I would agree with the advice given your friends that said it is advantageous hold bonds/fixed income assets.

The chart that KlangFool linked to has alot more information than what people are pointing out...
These are reviews of past performances however;
As you increase the percent of equities you are also increasing the number of years with a loss from 14-26 (0/100 vs 100/0)
All AAs with over 30% equities posted their best and worst 86 and 88 years ago respectively.

With the common usage of average return it's easy to have someone think the 1% in higher average would always be bring you a larger final portfolio balance, but that's not how things work in a non-static environment... I don't know if there is a term for it but I think of it as a "sequence of returns risk in accumulation"...

If someone feels like it they can do the math on the recovery time in years to see when you "higher average" brings you back from your highest downdraw... Over time you are likely, however not guaranteed, to recover. You better hope that occurs when you need it otherwise your jump into bonds later in life might just be you doubling down on your losses...

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