The 100% Stock Portfolio

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centennialstate
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The 100% Stock Portfolio

Post by centennialstate »

Somebody posted about 100% stock portfolios a few days ago, specifically with reference to the current volatile market conditions:

viewtopic.php?f=10&t=305442&start=50

I'd like to elicit feedback about a 100% stock portfolio, from a more philosophical perspective. I've become convinced by Dave Ramsey and my own logic that 100/0 is the way to go for the long haul. This is probably based on my unique set of circumstances:
- I didn't start learning about investing until age 32 (age 36 now). Making up for lost time...
- I don't plan on retiring in the traditional, American sense. No "target date" to hit.
- I'm more concerned about my legacy and what I leave to my 5 kids, than I am about if my nest egg will feed me until I die.
-Conceptually, I tend to like the idea of owning businesses much better than owning somebody's debt (especially the government's debt).

And of course, who can argue with higher yields if you've got the stomach for the volatility that comes with them? Oh, and just for fun, thought I'd post this 7 minute video:

https://m.youtube.com/watch?v=iRtFDvGORQk

I'd love to hear the talking points from those of you who feel the same way I do, and I'd also welcome feedback from the critics who think we "peeps" are crazy...
"Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth." Ecclesiastes 11:2
SteveJones
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Re: The 100% Stock Portfolio

Post by SteveJones »

I tend to think anyone who is in their 20's, 30's, or 40's should be 100% equities. IMO you have to invest in tax advantaged retirement accounts with the mindset you won't touch them until you are at least 59.5. Be an adult and emotionally accept the ups and downs you will inevitably face.
jajlrajrf
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Re: The 100% Stock Portfolio

Post by jajlrajrf »

It would be overstating the case to say that I think you're "crazy", but I think some of your analysis is terribly naive. Let me go through a couple of points.
- I don't plan on retiring in the traditional, American sense. No "target date" to hit.
It's the first part of this sentence that is important: "I don't plan." You can make or not make whatever plans you want, but the fact of the matter is, you will likely retire at some point, by hook or by crook. You can retire having made a plan, or you can retire without a plan, but you are not in complete control of your retirement date. You may get sick. You may get hit by a truck. You may get fired. Planning to deal with your 70s with the assumptions that only apply to a 36-year-old is terribly unwise.

This brings me to the second point:
I'm more concerned about my legacy and what I leave to my 5 kids, than I am about if my nest egg will feed me until I die.
But this point isn't severable from the previous one! If you haven't made a plan, and you end up having to spend more than you intended, your nest egg will absolutely be damaged. So ironically the best thing you can do for your 5 kids is plan for your own retirement, dude.

I actually think a 100% stock plan could be a reasonable risk for a single-no-kids 36 year old to take - there's still plenty of time for that person before her or his retirement to deal with the unavoidable risk of such a plan, which is sequence-of-return risk. With 5 kids, I think the stakes are somewhat higher, and I personally wouldn't be comfortable having to talk to my kids and say "Well, kids, daddy thought he was really smart but due to a series of unexpected events I've lost literally everything." My rule of thumb is "add 3 years to your actual age for each kid you have, and asset allocate based on that."

I'll also point out that if ANY of your kids are going to college, and you are planning on using your investments to help pay for them, then you are now subject to sequence of returns risk sometime in the next few years. Which is another reason a 100% equities plan is unwise for you.
Conceptually, I tend to like the idea of owning businesses much better than owning somebody's debt (especially the government's debt)
This one I'm going to simply be blunt and say "You don't understand either debt or equities if this is how you think about it." It's a reasonable approximation to say that owning equities is just like owning someone's debt, with the difference that you have less security that the debt will ever be paid off. From the POV of the company it's just another financing tool, and if you squint at a stock issue you can reasonably wave your hands and describe it as just a debt issue with terms that are exceedingly stupid for the lender.
Last edited by jajlrajrf on Thu Mar 05, 2020 7:42 am, edited 3 times in total.
Pikel
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Re: The 100% Stock Portfolio

Post by Pikel »

The problem is that a fairly significant number of 100/0 people are incorrectly evaluating their risk tolerance, and will not be able to stay at 100/0 in a long term bear market.

I also think that if you were high adrenaline last week, wanting more or less in the market, that is a bad sign. If you were 90/10 and selling bonds to buy stock - I believe that is a bad mental wellbeing sign for a long term bear market.

Last thing, the mental accounting of bonds vs emergency fund. Are you really going to put everything into the market? What if you lose your job or have some other unexpected life expense? If you have a 2 year emergency fund, and you count that is 'risk free' investment, what is your AA then?
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fredflinstone
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Re: The 100% Stock Portfolio

Post by fredflinstone »

I can understand the reluctance to own government bonds that offer a negative real return. I would only caution you that many people overestimate their risk tolerance. They say they will hold stocks for the long term, but panic-sell after sharp declines. We've seen some of this here on this Forum during the past two weeks. A well-diversified portfolio makes it psychologically easier to weather stock market declines. A 80/10/10 equity/bond/gold portfolio may have lower long-term returns than a 100/0/0 one. But if the 80/10/10 portfolio prevents panic-selling, it's the superior choice.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8
dbr
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Re: The 100% Stock Portfolio

Post by dbr »

If you are in fact planning to take withdrawals from your portfolio then it could be that a 100% stock portfolio does not give the best probabilities for wealth accumulated when you die, but it depends on the details. The overall average expectation would be more wealth with more in stocks, but it does not have to come out that way. The higher in stocks the more uncertain the outcome. The better possible outcomes for a more conservative portfolio can be greater end point wealth than the lesser outcomes for an aggressive portfolio. You can view some examples of how this spreads out by looking at the detailed charts in FireCalc, and other planners sometimes present distributions or data on percentiles of the results.

I won't dwell on the ability to stay the course, but that concern should not be forgotten.

Also, if the investing is done in a taxable account and the plan is for someone else to inherit everything, taking the return as unrealized capital gain avoids taxes on much of the wealth as the basis will be stepped up at your death.

If you are investing for heirs the risk assessment is for them rather than for you. That may or may not result in a choice for a 100% stock portfolio.
Last edited by dbr on Thu Mar 05, 2020 8:19 am, edited 2 times in total.
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Third Son
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Re: The 100% Stock Portfolio

Post by Third Son »

You still have the luxury of time and can probably weather most storms at your age. As you get older your stamina may weaken.
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frugalmama
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Re: The 100% Stock Portfolio

Post by frugalmama »

I am currently 100% stocks...I think there are different factors that can make you decide whether 100% stocks are for you and depending on how you answer the questions will determine what kind of risk you are setting yourself up for with that allocation.

1) Age. There will be a time which I expect I will no longer be 100% stock due to my age.

2) Bond-like income? Do you have an income source that functions much like a bond? For example, do you expect to have a secure pension? (i.e. the likelihood of it being able to pay out is extremely high?) That may reduce your need for bonds.

The one other thought is that perhaps your asset # is so large compared to your expenses that you expect to only need a small percentage of your portfolio. If so, it functions much like "play money" - i.e. you don't need it. Someone who has 10 million may lose 40% in the market and may not notice a considerable difference in their lifestyle as at some point, their spending wouldn't change. That point is different for each person.

I think at 32, time is probably on your side. As you get older, that becomes less and less true. You also may not have any control over when you retire, so that is something to factor in. What are your plans if your spouse dies unexpectedly - i.e. do you have good life insurance? What are your plans if your family has some sort of medical emergency? I do not agree that based on the # of kids you have that you should become more and more conservative - It has nothing to do with number of kids you have but rather what your income and expenses are. For someone that has a chronic medical condition in their small family and large medical expenses, they may need to be much more conservative and have a larger emergency fund than someone whose family is twice the size, extremely healthy, and has very low expense . One thing is a must thought...If you are 100% stocks, you need to have a good plan and understanding of your risk tolerance in a down market. Would you start to stress if your portfolio was cut in half? If you aren't ok with it, 100% stocks probably isn't for you.
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Mullins
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Re: The 100% Stock Portfolio

Post by Mullins »

I started investing in my early 30's as well.

And the only thing I knew at that time was to buy stocks and stay in them until retirement.

So I was 100% invested in stocks. Up markets, down markets, for the past 30 something years.

In hindsight my advice would be, it's better to have that 100% be the total stock market index or S&P 500 index simply because of less individual stock risk, etc.

That's the key to being invested 100% in stocks.
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1789
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Re: The 100% Stock Portfolio

Post by 1789 »

Mullins wrote: Thu Mar 05, 2020 10:38 am I started investing in my early 30's as well.

And the only thing I knew at that time was to buy stocks and stay in them until retirement.

So I was 100% invested in stocks. Up markets, down markets, for the past 30 something years.

In hindsight my advice would be, it's better to have that 100% be the total stock market index or S&P 500 index simply because of less individual stock risk, etc.

That's the key to being invested 100% in stocks.
I liked your reasoning. Keeping all stocks in US TSM or SP500 is a great option imo. Individual stocks are waste of time/energy and money, i think.
"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)
valuables
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Re: The 100% Stock Portfolio

Post by valuables »

I don't think it's crazy. Some years Bonds actually perform better than stocks, so I think any well diversified portfolio should also include Bonds, but anywhere from 100-50 percent of your portfolio in stocks is fine as long as you can stay the course.
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beyou
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Re: The 100% Stock Portfolio

Post by beyou »

Aren't we past the market top :-)

I suggested to my newly graduated son to go 80-90 % stocks in his 401k/Roth IRA accounts, not 100%.

Long bonds are a deflation hedge, even at low rates they provide some downside protection in an equity correction.

I wanted him to get in the habit of having the discipline to review his account and "rebalance" annually.
I will coach him towards end of the year as to the mechanics of rebalancing his index funds, and explain that when he's older,
he should increase bonds but keep the same practice of rebalancing, just to a different target.
Lifelong habits of discipline can be instilled by introducing the concept of risk management, riding out the markets and sticking to a plan.
Just going 100% to set it and forget it, is a different kind of lesson, and if you prefer that, go into a target date fund that is close to 100% now.
I steered him to one of those at Vanguard for a Roth created while in college.
Now working, with a 401k that has low fee index funds, and higher fee Target Date funds, more time on his hands,
so now is the time to learn about AA, rebalancing (vs market timing).

I don't see how 100% portfolio makes sense, but maybe close to it in your 20s.
vipertom1970
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Re: The 100% Stock Portfolio

Post by vipertom1970 »

OP, 100% in equities took me to the financial promise land at the age of 50 after 25 years of investing since 1996 and I just retired at 50 with over 375% gains. Get your debt down to zero with zero mortgage then go for it.
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