Why Do So Many Recommend 70% - 100% Stocks?

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Ambitious994
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Why Do So Many Recommend 70% - 100% Stocks?

Post by Ambitious994 »

I wanted to get you guys' opinion on this. As you know from my prior posts I'm a relatively young investor (36) and it's a pet peeve of mine when people immediately default to telling me that I should be 70% to 100% in equities or I quote, unquote "will never retire".

It just makes no sense to me and it's starting to get me a little angry and I'll tell you why.

- Over the last 25 years, which is the vast majority of our investing time horizons until Retirement, The Vanguard S&P 500 based on a considerable investment process would look like this (https://www.portfoliovisualizer.com/bac ... ation2_1=0) and The Vanguard Total Bond Index would look like this (https://www.portfoliovisualizer.com/bac ... ion2_1=100)

- Yes, 2% - 3% though in return difference can be significant

- The issue here is that the people that keep talking about go 70% to 100% equities aren't factoring in market crashes and risk tolerance. Everything is perfectly fine with a 70% plus equities allocation during a Bull Market. But when you enter into a long Bear Market and have to endure 50% crashes along with multiple years of negative portfolio returns give or take, that is where panic comes in and people start selling off in a down market (which is bad).

I guess why don't a lot of people start with discussions on risk tolerance for asset allocation, rather than just immediately jumping to the "you must be heavy in stocks if you want growth" discussions, considering that for one we don't know that there will be significantly more growth in stocks v.s. bonds over the period and number two, no consideration whatsoever given to the person's tolerance of bear market crashes?

I believe my allocation is Moderately Conservative. That is basically no more than 40% stocks and the rest bonds. In addition, I make a good income so I'm putting a good amount away every year while also living a very minimalist lifestyle. If this still results in me "not being able to retire", then maybe retirement is just a luxury going forward for a select few and not a large majority?
Last edited by Ambitious994 on Sat Apr 04, 2020 11:04 am, edited 2 times in total.
OnLevel
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by OnLevel »

Where are you getting those numbers?
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climber2020
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by climber2020 »

Ambitious994 wrote: Fri Apr 03, 2020 5:47 pm I believe my allocation is Moderately Conservative. That is basically no more than 40% stocks and the rest bonds. In addition, I make a good income so I'm putting a lot of good amount every year while also living a very minimalist lifestyle.
Sounds like a good plan. Your asset allocation needs to match your risk tolerance. In your case it's low, and that's okay. My risk tolerance is much higher, and that's okay too.
Ambitious994 wrote: Fri Apr 03, 2020 5:47 pm But when you enter into a long Bear Market and have to endure 50% crashes along with multiple years of negative portfolio returns give or take, that is where panic comes in and people start selling off in a down market (which is bad).
There are many of us who don't do this. Some people panic and make poor decisions; others don't. As long as you know which type of person you are, you'll be fine.
aristotelian
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by aristotelian »

Try a few different timeframes. Stocks outperform most of the time (but not all).
retired@50
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by retired@50 »

I think asset allocation is a very personal decision. No one can speak for another on this issue. I'd urge you to look into investor questionnaires like the on at Vanguard in the link below. These "tests" attempt to tease out your true feelings on how investments perform, and how that performance makes you feel. The questionnaires can only serve as a guide, but perhaps better than nothing.

https://personal.vanguard.com/us/FundsI ... unds/tools

In an answer to your question, I think most folks are more willing to put money at risk in the stock market, than they are to save a higher percentage of their salaries. Think of it, if using historical market returns over a long time frame, a 100% stock investor could potentially save only 10% of pay, while a 50/50 investor may have to save 15% or more of pay to reach the same portfolio value. Of course this can't really be known in advance, and everyone uses historical returns to guide their thinking in some fashion.


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This is one person's opinion. Nothing more.
RadAudit
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by RadAudit »

If I were guessing, I'd suppose that some folks making these aggressive AA recommendations were risk takers, relatively young and highly vocal in expressing their view of the world about what everyone else in their situation should be doing. Personally, I'm not overly sure what I ought to be doing - much less anyone else. And, they didn't ask me anyway.

What I might hope is that these folks have figured out their need, willingness and ability to take the risks involved to meet their goals in the time they've planned to take to get there. That or they've adjusted their goals accordingly.

PS: If you are going to ask me what I think you ought to do
1. Think again and
2. Provide your info in this format. viewtopic.php?t=6212
Last edited by RadAudit on Fri Apr 03, 2020 6:13 pm, edited 1 time in total.
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averagedude
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by averagedude »

My pet peeve is people backtesting asset classes, factors, and market timing models to particular dates to predict future performance. Stocks are riskier than bonds, so according to modern portfolio theory, you should reap higher returns for taking higher risks. The forbes list is full of owners of business, but you will see very few loaners of business. That being said, their is nothing wrong with taking a conservative approach when it comes to stock/bond investing. Developing a reasonable plan to accomplish your personal goals is the most important part of being a successful individual investor over the long term.
shanefairman
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by shanefairman »

It really depends on what lets you sleep at night. I'm 100% equities but I am quite young at 34. I plan to stay 100% till I die. It's kinda nice never having to worry about adjusting my allocation and glide paths.

Seriously the sleep well at night thing is important. People make bad decisions that very negatively effect their retirement savings. If you suspect you will freak out and sell when the market is down 50% and go to bonds because you can't stand to lose too much you have failed.

Statistically stocks are going to earn more than bonds long term. The stock market would have a hard time enticing investors of they couldn't beat fixed income returns. Equities HAVE to outperform fixed income long term. Otherwise nobody would directly invest in companies.

There will be more volatility on the equities side of things. Adding bonds and fixed income will help balance this out. You will miss out on the big gains but also the big losses. Re balancing the portfolio adds value but even if your bands are 5%-10%. 5% bands don't happen as often as you would expect.

The thing is a simple 2 or 3 fund portfolio and an investment plan to re balance when the portfolio is too far off track performs pretty well too. The long term difference between picking 100/0, 80/20, 70/30, 60/40, 50/50, and 40/60 isn't really going to matter too much.

The one thing you can control is your savings rate. So pick an asset allocation that lets you sleep at night and then focus on your savings rate. A happy retirement can be made by finding answers to these two simple questions and putting things into action.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by tibbitts »

You have chosen one 25-year timeframe during which there has been an essentially unprecedented drop in interest rates, benefitting bond prices, and the "lost decade" for equities, and multiple major stock pullbacks, which is not typical for 25-year period.

But getting angry? Seriously?

Everyone is figuring in market crashes and everything else you mentioned. They are also figuring in the current near-zero real rates on fixed income investments. During much of the time I when I was in the accumulation phase, I could get significant real rates on fixed income investments, and because of that, never was that heavily invested in equities. A few percent real was good enough. I think today people are somewhat swayed by one of the few knowable elements, with is low real interest rates on fixed income. That doesn't mean stocks will do better, it means that success in fixed income (in terms relative to inflation, not necessarily equities) appears unlikley. Not impossible, but less likely than when fixed income was paying significant real rates.
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ram
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by ram »

Ambitious994 wrote: Fri Apr 03, 2020 5:47 pm I'm a relatively young investor (36) and it's a pet peeve of mine when people immediately default to telling me that I should be 70% to 100% in equities
Consider this alternative explanation:
Most people on this board are old and unless young people buy their equities their retirement is doomed. :)
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by patrick »

It looks like the examples you give include the additional contributions as part of the portfolio growth. If you remove them (set cashflows to none on that site) so as to see only the returns of the investments themselves, the annualized returns are 8.74% for stocks and 5.12% for bonds.

Bond yields are much lower now than at the start of 1994. The yield 30 year treasuries has fallen all the way from 6.41% down to 1.24%. As such one should expect much lower bond returns in the future than we saw from 1994 to the present . Of course stocks may also do much worse in the future than over that period (and indeed they should be expected to unless we see an unusually high equity premium).
RomeoMustDie
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by RomeoMustDie »

I think this discussion would have more weight if you estimated the funds needed in retirement and then forecasted the historical CAGR of your asset allocations over the next 25 years to see if you will meet your requirements.

You should also probably overshoot that amount to accommodate for changes to the cost of living in the future.

Fidelity has a free tool for this. You can also use portfolio visualizer for the asset allocation tests.
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bluquark
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by bluquark »

Ambitious994 wrote: Fri Apr 03, 2020 5:47 pm - Over the last 25 years, which is the vast majority of our investing time horizons until Retirement, The Vanguard S&P 500 has returned CAGR 19% (https://www.portfoliovisualizer.com/bac ... ation2_1=0) and The Vanguard Total Bond Index has returned CAGR has returned 17% (https://www.portfoliovisualizer.com/bac ... ion2_1=100)

- Yes, 19% is higher than 17% and that 2% difference can be significant
You made a mistake using portfolio visualizer. Set "contribution amount" to 0, otherwise most of the "CAGR" is actually just shoveling an extra $10K per year of savings into the market.

With that fix, I can see the actual nominal CAGRs over this period are 8.74% and 5.12% respectively. In real terms stocks have had more than double the CAGR over the period.

EDIT: looks like patrick beat me to it above. Anyway, looks like this is the main source of the difference in opinion. Now that you know bond returns are not miraculously a large multiple of what they yield, are you still so happy about having so many bonds dragging down your portfolio?
Last edited by bluquark on Fri Apr 03, 2020 7:09 pm, edited 6 times in total.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by StormShadow »

Ambitious994 wrote: Fri Apr 03, 2020 5:47 pm I wanted to get you guys' opinion on this. As you know from my prior posts I'm a relatively young investor (36) and it's a pet peeve of mine when people immediately default to telling me that I should be 70% to 100% in equities or I quote, unquote "will never retire".

It just makes no sense to me and it's starting to get me a little angry...”
Umm... chill dude.

I think most Bogleheads advocate having an asset allocation that matches your risk tolerance. That’s different for everyone. A popular rule is “age in bonds” for a moderately risky portfolio or “age - 10” for a slightly more aggressive portfolio. But yeah, you have folks that can handle 100% equities and stomach the swings of the market.

Personally, I’ve posited that too many people overestimate their risk tolerance... but that’s a topic for another conversation.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by vineviz »

Ambitious994 wrote: Fri Apr 03, 2020 5:47 pm I wanted to get you guys' opinion on this. As you know from my prior posts I'm a relatively young investor (36) and it's a pet peeve of mine when people immediately default to telling me that I should be 70% to 100% in equities or I quote, unquote "will never retire".
If your income level and savings rate are high enough, it's true that you don't need to invest in equities to fund your retirement. Very few people are in that camp, which is why the "default" recommendation for someone in their 30s is >70% in stocks.
Ambitious994 wrote: Fri Apr 03, 2020 5:47 pmIt just makes no sense to me and it's starting to get me a little angry and I'll tell you why.
You can get angry, or you can learn why you're getting the advice you're getting. I know which one I think is going to be more productive.

- Over the last 25 years, which is the vast majority of our investing time horizons until Retirement, The Vanguard S&P 500 has returned CAGR 19% and The Vanguard Total Bond Index has returned CAGR has returned 17%

- Yes, 19% is higher than 17% and that 2% difference can be significant[/quote]

I think the problems with relying on this historical record as a good estimate for the future have been well covered, yes?
Ambitious994 wrote: Fri Apr 03, 2020 5:47 pmThe issue here is that the people that keep talking about go 70% to 100% equities aren't factoring in market crashes and risk tolerance.
Of course those things are being factored in. 100% stocks for someone your age is already a moderate allocation. 70% is very conservative. That's why you're getting the range you're getting.
Ambitious994 wrote: Fri Apr 03, 2020 5:47 pmI guess why don't a lot of people start with discussions on risk tolerance for asset allocation, rather than just immediately jumping to the "you must be heavy in stocks if you want growth" discussions, considering that for one we don't know that there will be significantly more growth in stocks v.s. bonds over the period and number two, no consideration whatsoever given to the person's tolerance of bear market crashes?
A) it is true that if you want growth you have to take risk. Maybe even a truism.

B) it is true we don't know what the future holds but as it stands now the expected returns for bonds over your lifetime is about 2.5%. Can you retire comfortably if you only earn a compound growth rate of 2.5% for 30 years? If so, then more power to you. Most people can't manage that.
Ambitious994 wrote: Fri Apr 03, 2020 5:47 pmI believe my allocation is Moderately Conservative. That is basically no more than 40% stocks and the rest bonds.
For a 36-year old investor, I'd call that "Recklessly Conservative" instead of "Moderately Conservative". Does my opinion on that make you angry? If so, why do you think that is?
Last edited by vineviz on Fri Apr 03, 2020 7:00 pm, edited 1 time in total.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by patrick »

Note also that nominal bonds (such as those in total bond index) can lose purchasing power over 25 year periods. For example (according to the inflation calculator on https://data.bls.gov/cgi-bin/cpicalc.pl ... ar2=195512 and historical returns from http://pages.stern.nyu.edu/~adamodar/Ne ... retSP.html) an investor in 10-year treasury bonds would have lost 35% from the end of 1955 to the end of 1980 after adjusting for inflation.

There is no completely safe investment, but if you want something that comes close, it would be better to use inflation protected bonds.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by absolute zero »

<<it's a pet peeve of mine when people immediately default to telling me that I should be 70% to 100% in equities or I quote, unquote "will never retire". >>

I’ve read a lot of Bogleheads threads recently regarding AA. There are definitely posters who strongly advocate stocks, but I think that claiming “you will never retire” unless you have 70+% stocks is far from the typical response from the aggressive investors on this forum.

<<I believe my allocation is Moderately Conservative. That is basically no more than 40% stocks and the rest bonds.>>

Call it want you want. There are no set definitions. Personally, for your age, I would call your chosen asset allocation extremely conservative.

That being said, if your risk tolerance mandates no more than 40% stocks, then it sounds like it’s the right allocation for you. Your lack of risk tolerance most definitely wont prevent you from retiring. It will likely delay your retirement, but that’s not a foregone conclusion.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by bluquark »

So many posters in this thread aren't bothering to question OP's claim of 1994-2020 17% bond CAGR. Folks, use common sense before believing backtest results. We all know bond bull markets don't work that way...
Last edited by bluquark on Fri Apr 03, 2020 7:11 pm, edited 4 times in total.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by rich126 »

First you can only back test data and that may not remotely be accurate for the future. Interest rate has steadily gone down. They can’t go down much more although it is possible they may not go up. I can almost guarantee that the vast majority of investors 5 and 10 years ago would have said interest rates have to go up but they didn’t.

I don’t see rates going anywhere for a while but you are 36 so somewhere in the next 30 years they will.

In investing my view is that you have to adapt to the changing environment. That does follow the BH investing method.

Also 25 yrs ago the prime rate was 8%. Today 3.25. I don’t think it will drop another 5%.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by raven15 »

https://www.portfoliovisualizer.com/bac ... ion2_2=100

If I choose a starting value of $10,000 and invest $1,000 per month it looks like the S&P500 investor ended with $1.3M, while the Total Bond investor ended with $820k. Isn't that the objective? The S&P500's money weighted return was 3% higher annualized, which is significant.

Also note that at the start of the test bonds yielded around 6% compared to 2% for the S&P500. Now they are both around 2%. This is a better time for an investor with a long runway to buy stocks than bonds.

Of course, 45% US total market, 30% international, 25% bonds is still a reasonable allocation. No need to go for just one!
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by CobraKai »

vineviz wrote: Fri Apr 03, 2020 6:59 pm
Ambitious994 wrote: Fri Apr 03, 2020 5:47 pm I wanted to get you guys' opinion on this. As you know from my prior posts I'm a relatively young investor (36) and it's a pet peeve of mine when people immediately default to telling me that I should be 70% to 100% in equities or I quote, unquote "will never retire".
If your income level and savings rate are high enough, it's true that you don't need to invest in equities to fund your retirement. Very few people are in that camp, which is why the "default" recommendation for someone in their 30s is >70% in stocks.
Ambitious994 wrote: Fri Apr 03, 2020 5:47 pmIt just makes no sense to me and it's starting to get me a little angry and I'll tell you why.
You can get angry, or you can learn why you're getting the advice you're getting. I know which one I think is going to be more productive.

- Over the last 25 years, which is the vast majority of our investing time horizons until Retirement, The Vanguard S&P 500 has returned CAGR 19% and The Vanguard Total Bond Index has returned CAGR has returned 17%

- Yes, 19% is higher than 17% and that 2% difference can be significant
I think the problems with relying on this historical record as a good estimate for the future have been well covered, yes?
Ambitious994 wrote: Fri Apr 03, 2020 5:47 pmThe issue here is that the people that keep talking about go 70% to 100% equities aren't factoring in market crashes and risk tolerance.
Of course those things are being factored in. 100% stocks for someone your age is already a moderate allocation. 70% is very conservative. That's why you're getting the range you're getting.
Ambitious994 wrote: Fri Apr 03, 2020 5:47 pmI guess why don't a lot of people start with discussions on risk tolerance for asset allocation, rather than just immediately jumping to the "you must be heavy in stocks if you want growth" discussions, considering that for one we don't know that there will be significantly more growth in stocks v.s. bonds over the period and number two, no consideration whatsoever given to the person's tolerance of bear market crashes?
A) it is true that if you want growth you have to take risk. Maybe even a truism.

B) it is true we don't know what the future holds but as it stands now the expected returns for bonds over your lifetime is about 2.5%. Can you retire comfortably if you only earn a compound growth rate of 2.5% for 30 years? If so, then more power to you. Most people can't manage that.
Ambitious994 wrote: Fri Apr 03, 2020 5:47 pmI believe my allocation is Moderately Conservative. That is basically no more than 40% stocks and the rest bonds.
For a 36-year old investor, I'd call that "Recklessly Conservative" instead of "Moderately Conservative". Does my opinion on that make you angry? If so, why do you think that is?
[/quote]

Heh.
I don't recall if it were you, but someone on this forum told me that I am wrecklessly conservative for doing 60/40.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by averagedude »

OP, the reason why you may be getting some push back is because alot of people on this forum are older and have benefited from being an owner of business (stocks) or real estate, and they have significantly high net worths, compared to the ordinary world citizen. I would rather heed advice from people who have reaped the rewards of taking risk, than I would some gloom and doom pundit that you see on your favorite media outlet. I seriously doubt that I will ever meet anyone in the future who contributes their high net worth from buying 1.5% yielding long term bonds.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by warowits »

In April of 1995 the 10yr treasury was over 7%. If the US government offered that right now I would snap it up, and have a serious amount of my money in bonds.

Currently at less than 1% I will never lend the government money. I just wont. For bonds to do so well again the interest rate in 25 years would have to be NEGATIVE 6%. To me that seems unlikely. Far more likely in my estimation is that it will be above 3%, which is really going to hurt those bond returns.
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Ambitious994
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by Ambitious994 »

Guys, thanks a lot for all of the great responses! I'll include some additional notes to address some of the other comments/points made.

Portfolio Visualizer Modifications

Yes, I think the Portfolio Visualizer can be played around a bit, but in general it is showing that over that time period The S&P 500 Index returned 3% higher than The Total Bond Index.


S&P Index Should Outperform Total Bond Index

I completely agree that The S&P 500 Index should outperform The Total Bond Index from now until 2045 in 25 years. So for total maximized returns, one should go 100% in the S&P 500!


My Risk Tolerance

The only issue is that there's no way ever nor is it even possible, for me to "stomach" a 50% crash nor 2 to 3 years let's say of negative growth. I absolutely will end up pulling out at the bottom, which would be worse and defeat the entire purpose. So for someone like me, the most I can "stomach" is 30% to 40% stocks. So a huge crash like 2008, I might be negative for the year, but it won't be 40% or 50% or higher negative. My focus is on developing a plan that I can stick with for the long haul (25 years).


My Savings Rate/Income

Now, I will tell you guys this, my savings rate is very high. It's about 30% at minimum and I will at least average about $150,000 a year going forward give or take until Retirement in 25 years. So after paying taxes and personal expenses, I'm still putting away about $40,000 - $45,000 a year, every year. I don't have any kids right now but if I were to make them, it would be with a girl that is also making great income so overall, I would still have a relatively high savings rate. As a result, when you really look at it, I'm going to end up with a much higher invested principal balance in The S&P 500 than most people anyway, due to higher savings rate and income. At 40% allocation, I'm putting in $16,000 to $18,000 a year into The S&P 500.


Why Do I Get Angry?

In terms of why do I get a little angry? Well, case in point, let's take the current COVID 19 market crash. There's a significant amount of people my age range who have sold their stocks and are sitting in cash right now. They completely freaked out, panicked, got out, and never got back in. When I asked them about their allocations, they were all 75% or higher in stocks.

Every "financial adviser" told them that it would be absolutely "stupid" (yes, those words) for them to be any less of an allocation. Everything was perfectly fine during The Bull Market Run, but when the Bear Crash came in, that's when everybody freaked out! So the reason I get a little angry, is that (other than a couple Bogleheads every now and then) I absolutely rarely if ever, hear anybody talk about risk tolerance.

If my friends were educated on that aspect instead of being told how "stupid" they were for wanting to go less than 75% stocks, they would not be sitting in Cash right now. Most of them are afraid to ever get back in the market.


Why Am I All In On S&P 500 Index?

In terms of the types of equity portfolios, well, all of my equity investing is The S&P 500 Index. Reason being is that The Total US Stock Market is basically 80% plus The S&P 500 anyway and the performance is about the same give or take. With International, I just don't see the point of the additional diversification because it's more volatile than the S&P 500 and the returns aren't really better, it's just more risk for no reason from my viewpoint. I'm getting a good amount of international exposure seeing as though a lot of The S&P 500 companies get a good amount of international revenue.

Plus, if a situation occurred where the US went down in some capacity, well, because the US is the world's superpower, the world would in many aspects be in as much trouble so I just don't see the point of diversifying internationally. I'm pretty much all in on The S&P 500 Index. I understand it, I love the large chip companies, I know every single company in there, and the Index will rotate out the companies that are falling off a bit and automatically put in the companies next in line. It's just such a very good equity holding, I actually have a lot of passion for it lol.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by tibbitts »

Well, it doesn't make me angry, but amused, that for the longest time it seemed like everybody posting here was, as you say, 70/30 or more, and dismissing lesser allocations to equities.

Now lots of people posting is at 50/50 or less, and claim to have been that way all along. It's like they were afraid to admit it before!
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by absolute zero »

Ambitious994 wrote: Fri Apr 03, 2020 7:53 pm
In terms of why do I get a little angry? Well, case in point, let's take the current COVID 19 market crash. There's a significant amount of people my age range who have sold their stocks and are sitting in cash right now. They completely freaked out, panicked, got out, and never got back in. When I asked them about their allocations, they were all 75% or higher in stocks.

Every "financial adviser" told them that it would be absolutely "stupid" (yes, those words) for them to be any less of an allocation. Everything was perfectly fine during The Bull Market Run, but when the Bear Crash came in, that's when everybody freaked out! So the reason I get a little angry, is that (other than a couple Bogleheads every now and then) I absolutely rarely if ever, hear anybody talk about risk tolerance.
So you are venting about recommendations made by your friends financial advisors? Maybe you should have mentioned that in your OP. I think everyone assumed you were complaining about folks here at BH.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by Ambitious994 »

absolute zero wrote: Fri Apr 03, 2020 8:13 pm
So you are venting about recommendations made by your friends financial advisors? Maybe you should have mentioned that in your OP. I think everyone assumed you were complaining about folks here at BH.

Lol, yes, I wasn't referring to The Bogleheads, it's actually really just The Bogleheads that stress risk tolerance and I love it!

I want to show you guys another illustration and yes, I totally understand that we have no idea how the performance of Bonds will do going forward due to the lower rates, but note I am invested in The Total Bond Index not just individual Bonds, so there's multiple aspects of growth in that regard. But this is just an illustration to show you guys more into my own personalized risk tolerance/viewpoint.

https://www.portfoliovisualizer.com/bac ... tion2_1=70

So check out this 25 year example starting with $500k (about the amount I have in my investable accounts right now) and adding $25k each year. At 30/70 stocks over bonds, I end up at $4.5 million. I would have contributed a total of $1,125,000. I'm a Minimalist and I totally get that we don't know how inflation will do, but my withdrawal rate on this would be no higher than 1.5% every year. That's $68,000 I'm drawing down on without even factoring my Social Security payments (probably $25k a year) and the fact that I am allowed to still work while getting Social Security (capped at around $20k a year). So I will have literally $113,000 per year before taxes to play with for expenses. I have never in my life spent that much in one year and don't forsee ever spending that much in one year.

So how is it that I won't be able to "retire"? This is one of the reason I get a little frustrated because it's just too many people my age range thinking that unless they go 70% equities they are doomed.

Let me show you another illustration which would have messed up this entire 25 year period for me. Let's flip this to 70/30:

https://www.portfoliovisualizer.com/bac ... tion2_1=30

I end with $5.9 million after having contributed a total of $1,125,000 which is $1.4 million higher than the other allocation! So I should certainly go 70/30 right? Well, take a look at the following:

- 2000, 2001, and 2002: 3 years back to back no growth at all. Yes, the other allocation had no growth, but it's like it didn't move with the other allocation but with this one, it lost a bit more and it would show. Yes, I had some strong years prior, but I know ME and I would have been thinking that I needed to get out of equities during that period of time.

- 2008: Nearly 30% of my entire portfolio down. I would have flipped completely out, even at that point of having been a solid investor in the market for 14 years.

So that's how I got to the range of about 35% to 40%, maybe even 45% max, for stocks and the rest in bonds. There's also the small amount in Cash for emergencies but that's just to cover about 5 or 6 months of expenses.
Last edited by Ambitious994 on Fri Apr 03, 2020 8:31 pm, edited 1 time in total.
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bluquark
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by bluquark »

Ambitious994 wrote: Fri Apr 03, 2020 7:53 pm The only issue is that there's no way ever nor is it even possible, for me to "stomach" a 50% crash nor 2 to 3 years let's say of negative growth. I absolutely will end up pulling out at the bottom, which would be worse and defeat the entire purpose. So for someone like me, the most I can "stomach" is 30% to 40% stocks. So a huge crash like 2008, I might be negative for the year, but it won't be 40% or 50% or higher negative. My focus is on developing a plan that I can stick with for the long haul (25 years).
Risk tolerance doesn't work that way. You're making unwarranted assumptions about your own future behavior. Why not apply your creativity and self-knowledge instead to coming up a plan that you can stick with for 25 years that involves higher returns?

You know pulling out at the bottom is the worst thing you can do, so I think you actually wouldn't. If you increase your AA to 70% now and write an IPS saying "I will absolutely never sell after a market crash", I believe you would follow it. And you're likely to have something like double the money after 25 years for making that change.

If you really can't think of anything you might possibly want to do with double the money, then fine I guess. Personally I have many ideas for charitable giving and legacy, letting aside the extra safety margin at a time you'll need it much more than you do today...
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by Ambitious994 »

bluquark wrote: Fri Apr 03, 2020 8:31 pm
Risk tolerance doesn't work that way. You're making unwarranted assumptions about your own future behavior. Why not apply your creativity and self-knowledge instead to coming up a plan that you can stick with for 25 years that involves higher returns?

You know pulling out at the bottom is the worst thing you can do, so I think you actually wouldn't. If you increase your AA to 70% now and write an IPS saying you'll stick with it, I believe you would. And you're likely to have something like double the money after 25 years for making that change.

If you really can't think of anything you might possibly want to do with double the money, then fine I guess. Personally I have many ideas for charitable giving and legacy, letting aside the extra safety margin at a time you'll need it much more than you do today...
I know I can't stomach 70%, even in a Bull Market lol! Knowing that I have 70% of my investable assets in equities would make life a living hell for me over 25 years. That's just not going to work for me. 40% to 45% worse case is the max I can go for stocks.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by bluquark »

OK, well I for one (at 70/30 AA), got annoyed at my bonds during the bull market for sitting there and doing nothing, whereas today I am annoyed at my stocks for crashing and happy to have the bonds. I think that means my AA is right for me. I wager most Bogleheads are more like me and either don't stress out quite so much, or are equally capable of stressing out in a greedy way as a fearful one.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by Triple digit golfer »

A few comments:

You seem to be very aware and in tune with your own risk tolerance. That is great. You recognize that you don't have the stomach for a high equity allocation, and you invest appropriately. That will serve you well.

I think that for the vast majority of people, a high equity allocation will unfortunately be a necessity to have a decent chance of retiring at 65. For you, and likely many Bogleheads, it probably isn't. Most people make little and save little. That's the sad reality. Count your blessings!

I see a lot of posts like one of yours where people say they know somebody who went to all cash. I don't know of anybody who has done anything differently, although in my real non-internet life I don't talk a lot about money and finance, except with my wife. In my experience, though, most people say they invest in stock funds in their 401k and haven't checked it in a while. They usually have no idea what an index fund is and don't know what they're invested in. They just contribute each pay period and that's that. So I don't know who all these people are that so many talk to. Maybe I just know boring people!
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by Ambitious994 »

bluquark wrote: Fri Apr 03, 2020 8:38 pm OK, well I for one (at 70/30 AA), got annoyed at my bonds during the bull market for sitting there and doing nothing, whereas today I am annoyed at my stocks for crashing and happy to have the bonds. I think that means my AA is right for me. I wager most Bogleheads are more like me and either don't stress out quite so much, or are equally capable of stressing out in a greedy way as a fearful one.
Got it lol! Yes, for me it's been honestly the opposite and I think it's because when I think about retirement, I look at it with a number of variables included. I look at continuing to live below my means now and going forward, I look at maximizing my savings rate, I look at creating various forms of business income (outside of stocks/bonds related).

With the sample I posted above and yes, we have no clue what the next 25 years will do, but in terms of my contribution amounts those numbers will be just about spot on. So from putting away $1.1 million and that growing to $4.5 million, I'm all set! I will care nothing about the fact that I probably could have had nearly $6 million instead. All I will care about is that I lived a great life, had a great career, made solid relationships, and on top of the other streams of income I might have, I also have a $4.5 million portfolio from The S&P 500 Index and Total Bond Index waiting for me as well .

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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by bluquark »

Are you sure about that 4.5 million projection? That is what would've happened in a bond bull market which is behind us. Almost everyone agrees we need to plan in case we get lower returns moving forward. How would you feel if the choice was between 1.5 million and 3 million instead?
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by raven15 »

Also, side note: Right now bonds have been nice and tame for a good long time. In the past, and in other countries, there have been times when bonds were absolutely terrifying! I would not be able to own more than 50% bonds because I have read history and am too scared.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by averagedude »

It is good to know your risk tolerance. If 40% equities seems comfortable for you, great. With a high savings rate, I have no doubt you will be fine. One thing that I have a difficult time wrapping my head around is with people who are risk averse with their asset allocation, but they have no problem with putting all of their money in one country. Everyone should agree that we all have biases, and country bias in investing is a world wide phenomenon. I sincerely recommend that you leave your 40% in US equities, but put 20% in International equities and leave the other 40% in bonds. For someone young, from an asset allocation and diversification approach, this seems more reasonable.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by Ambitious994 »

bluquark wrote: Fri Apr 03, 2020 8:53 pm Are you sure about that 4.5 million projection? That is what would've happened in a bond bull market which is behind us. Almost everyone agrees we need to plan in case we get lower returns moving forward. How would you feel if the choice was between 1.5 million and 3 million instead?
That's a good point, I'm not sure if I will end up with such a small amount because remember I'm still starting with $500,000 and putting in another $600,000 a least over the 25 year period. So I'm still putting in $1.1 million in total. So ending up with just $1.5 million doesn't seem plausible. Worse case maybe I'm only at $3 million? Fine. My withdrawal rate on that would still only need to be 2% worse case.

Also keep this in mind, when you look at the actual principal amounts invested, I'm still going to have a significant amount of money put into The S&P 500. Most likely far more than most people will ever actually put in, even if their allocation is at 60% to 70%. For example: The $25,000 put away every year number is very low, it should actually be around $40,000 give or take. So if I'm averaging going forward $40,000 a year to go into investable assets, that's $14,000 to $15,000 give or take that I'm putting into The S&P 500 Index every single year. That's most than a lot of people will be putting in and that's only 35% allocated.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by Ambitious994 »

averagedude wrote: Fri Apr 03, 2020 9:04 pm It is good to know your risk tolerance. If 40% equities seems comfortable for you, great. With a high savings rate, I have no doubt you will be fine. One thing that I have a difficult time wrapping my head around is with people who are risk averse with their asset allocation, but they have no problem with putting all of their money in one country. Everyone should agree that we all have biases, and country bias in investing is a world wide phenomenon. I sincerely recommend that you leave your 40% in US equities, but put 20% in International equities and leave the other 40% in bonds. For someone young, from an asset allocation and diversification approach, this seems more reasonable.
Well, I know historical returns can't predict go forward performance, but I just took a look at this Vanguard International Stock Market Fund and it just doesn't look pretty:

https://www.portfoliovisualizer.com/bac ... ion1_1=100

https://investor.vanguard.com/mutual-fu ... view/vtiax

It's more volatility than The S&P 500 Index and those returns from 1997 to now, are completely horrible for an equity investment. From my view, adding this does nothing but just eat away at total portfolio performance returns. I'm just not interested in this fund at all. For me it's S&P 500 Index all the way. The 508 largest blue chip companies in America that are the benchmark of the centerpiece of the global economy (America) and also hold a good sizable amount of international revenues.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by bluquark »

Ambitious994 wrote: Fri Apr 03, 2020 9:12 pm That's a good point, I'm not sure if I will end up with such a small amount because remember I'm still starting with $500,000 and putting in another $600,000 a least over the 25 year period. So I'm still putting in $1.1 million in total. So ending up with just $1.5 million doesn't seem plausible.
Depends on whether we're talking about nominal terms or in real terms. Bonds having zero real return is the expected result, they're yielding less than 1% now and inflation has been around 1-1.5%. So you're putting your trust in $350k in stocks, expecting them to increase by 6x in real terms in 25 years seems very optimistic. So I wouldn't plan for ending up with $3 million of purchasing power in 2020 dollars when you retire at this AA. You are.on the path to a middle-class, but relatively frugal retirement needing to keep housing and enjoyable activities within a careful budget.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by jjface »

If you can't trust yourself in down markets then yes you need less stocks and work on improving your income, savings rate and reducing expenses. Your risk tolerance is fairly low which is fine.

Most people ought to be able to follow a simple plan to have a diversified portfolio and stay the course.

Some tips which may help to increase your stock allocation:

Don't look at your balances often

Invest in an all in one fund to temper the stock portion volatility from sight.

Draw an IPS and stick to it no matter what

Think crashes equals stocks on sale and turn it into a positive thing. Be excited about buying stocks this year at a lower price.

Learn how to tax loss harvest and how this can give you something beneficial to do during crashes.

Remember you have 40+ years of investing. Even if you retire at say 65 you still will have your money invested and won't spend it all as soon as you turn 65.

You can derisk as you get closer to retirement.

etc.

I would certainly consider 60:40 as a nice middle ground.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by Ambitious994 »

bluquark wrote: Fri Apr 03, 2020 9:29 pm
Depends on whether we're talking about nominal terms or in real terms. Bonds having zero real return is the expected result, they're yielding less than 1% now and inflation has been around 1-1.5%. So you're putting your trust in $350k in stocks, expecting them to increase by 6x in real terms in 25 years seems very optimistic. So I wouldn't plan for ending up with $3 million of purchasing power in 2020 dollars when you retire at this AA. You are.on the path to a livable, but relatively frugal retirement.
That's a good point, but here are my questions to you:

- Who is to say Stocks are going to perform well over the next 25 years? We hope they will and by investing in The S&P 500 Index I'm clearly in the right equity investment to where if they perform well, I'll benefit.....but we don't know.

- Total Bond Index went up 9% last year. It's been averaging around 3% the last 5 years (before inflation). Who is to say there isn't a solid CAGR on Total Bond Index of 5% going forward? You get not just the income value side but they are also trading the bonds in the fund as well.

- Also yes, inflation has to be considered, but inflation is just one general measurement. Wouldn't you agree that you have to also take into account one's own "personal economy/expenses"? Inflation has been averaging 2% every year but my personal expenses have not been increasing every year to the same tune unless it's just additional recreational spending I wanted to do (but didn't have to do).

- To your final point, I get it, but hey if I don't retire then I just don't retire lol. If I get to retirement age with $2 million let's just say in investable assets and I can't do some sort of respectable retirement from that, in combination with Social Security and maybe even working up to the limit while collecting Social Security, then hey I guess I'm just not retiring then lol.

I'll still be way better off than well over 90% of my peers at that time though lol!

Buddy check this out, right now only about 16% of retirees have $1 million (https://www.thebalance.com/how-many-ret ... es-4766880). The median wealth of retirees today is only $200,000. So this includes Baby Boomers who honestly just had some pretty great decades of stock market returns, they had the Auto Industry, they didn't have to go into mountains of student loan debt......and only about 16% of them have $1 million right now lol.

My Generation (Millennials) are going to be far worse than this when we start hitting retirement. So hey, I can't tell you what life will be like in 25 years but at the rate I'm going, I'll be better off than 90% of my peers :D. If that still means I can't truly retire, then fine, retirement might not be even really a "real thing" for folks after The Baby Boomer Generation anyway if you think about it.

We can talk about stock/bond allocations all day, but if you aren't putting away at least $10,000 in stocks every year, it really won't matter. You won't have enough to retire anyway.
Last edited by Ambitious994 on Fri Apr 03, 2020 9:52 pm, edited 1 time in total.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by averagedude »

Ambitious994 wrote: Fri Apr 03, 2020 9:21 pm
averagedude wrote: Fri Apr 03, 2020 9:04 pm It is good to know your risk tolerance. If 40% equities seems comfortable for you, great. With a high savings rate, I have no doubt you will be fine. One thing that I have a difficult time wrapping my head around is with people who are risk averse with their asset allocation, but they have no problem with putting all of their money in one country. Everyone should agree that we all have biases, and country bias in investing is a world wide phenomenon. I sincerely recommend that you leave your 40% in US equities, but put 20% in International equities and leave the other 40% in bonds. For someone young, from an asset allocation and diversification approach, this seems more reasonable.
Well, I know historical returns can't predict go forward performance, but I just took a look at this Vanguard International Stock Market Fund and it just doesn't look pretty:

https://www.portfoliovisualizer.com/bac ... ion1_1=100

https://investor.vanguard.com/mutual-fu ... view/vtiax

It's more volatility than The S&P 500 Index and those returns from 1997 to now, are completely horrible for an equity investment. From my view, adding this does nothing but just eat away at total portfolio performance returns. I'm just not interested in this fund at all. For me it's S&P 500 Index all the way. The 508 largest blue chip companies in America that are the benchmark of the centerpiece of the global economy (America) and also hold a good sizable amount of international revenues.
International stocks haven't been all that great in the past, which could be more reason to invest in them in the future due to reversion to the mean. Also your chart shows that this asset class has had a real return of 1.52%. Vanguard, Blackrock, Fidelity, and just about all brokerage houses are predicting high real returns for International equities over the next 10 years, while predicting flat real returns for the bond markets. If we have 2% inflation with yields at 1.5%, do you think bonds will exceed 1.52% real returns over the next 10 years? I do acknowledge and I have the same belief as you, that anyone who had sold US equities short over the long term, have come out on the losing side of the trade. Many people agree with your take on International equities, but I was just recommending a way for you to get higher returns by having a more aggressive asset allocation, while minimizing geography risk. I would also caution you on the limitations of backtesting. I promise that the future results of backtesting will be different than what they are today.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by TheDDC »

I would recommend 100% stocks if you expect to have a passive income source in retirement other than investments such as a pension, rental properties, etc. You need to "raise capital" during a down market if you are entirely dependent on investment performance, which is much easier to so when you're contributing and not taking. I am 100% stocks and I am 37 and have a passive income source for the rest of my life after I retire (pension). It would be silly of me not to be 100% stocks in this situation.

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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by Ambitious994 »

averagedude wrote: Fri Apr 03, 2020 9:50 pm International stocks haven't been all that great in the past, which could be more reason to invest in them in the future due to reversion to the mean. Also your chart shows that this asset class has had a real return of 1.52%. Vanguard, Blackrock, Fidelity, and just about all brokerage houses are predicting high real returns for International equities over the next 10 years, while predicting flat real returns for the bond markets. If we have 2% inflation with yields at 1.5%, do you think bonds will exceed 1.52% real returns over the next 10 years? I do acknowledge and I have the same belief as you, that anyone who had sold US equities short over the long term, have come out on the losing side of the trade. Many people agree with your take on International equities, but I was just recommending a way for you to get higher returns by having a more aggressive asset allocation, while minimizing geography risk. I would also caution you on the limitations of backtesting. I promise that the future results of backtesting will be different than what they are today.
Got it, I don't know buddy, I just don't feel comfortable nor "right" with International Stocks. When I look at The S&P 500, these are large blue chip companies that the entire globe knows. If those companies go down, then not just America but give or take, the world goes down (give or take). Many of those Companies in the International Stock Fund I have never heard of before.

If I do anything in terms of increasing allocation, it would be to increase allocation to The S&P 500 Index. Sort of like jjface said, I think if I do anything I might eventually go for a 60/40 mix. But I'm not sure. I do think that this COVID 19 crash has made me a better investor in terms of stomaching risk a little bit more and even further understanding the deeper aspects of everything. So I might go up a bit later down the line, but not sure yet. Right now my perfect allocation is 35% to 45% stocks.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by KEotSK66 »

try calculating how much your current lifestyle is going to cost you in retirement, at min have enough money (t) going into retirement to cover retirement, then between now and retirement invest to get to t

you don't invest to satisfy risk tolerance, you invest to satisfy goals

once you know the return needed to achieve the goal you assume the corresponding level of risk, end of story. you can't stuff your money in the mattress and expect it to grow at 6% per year
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by bluquark »

Ambitious994 wrote: Fri Apr 03, 2020 9:49 pm - Who is to say Stocks are going to perform well over the next 25 years? We hope they will and by investing in The S&P 500 Index I'm clearly in the right equity investment to where if they perform well, I'll benefit.....but we don't know.

- Total Bond Index went up 9% last year. It's been averaging around 3% the last 5 years (before inflation). Who is to say there isn't a solid CAGR on Total Bond Index of 5% going forward? You get not just the income value side but they are also trading the bonds in the fund as well.
To get a sense of the likelihood of these outcomes, I recommend reading Bernstein's "investing for adults" series of pamphlets, particularly 3 and 4 (you don't have to read them in order): https://www.amazon.com/portal-migration ... =1&ie=UTF8 . Bernstein covers centuries of history over dozens of countries as well as fundamentals of how stocks and bonds work to answer precisely questions like this.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by Mountain Doc »

I'm certainly a believer in considering one's own risk tolerance when deciding on an asset allocation. However, this thread reminds me of something Phil Demuth said:

“Even if risk tolerance existed and could be measured accurately, why would it be an important factor to consult when considering how to invest? You should invest in the way that has the greatest prospect to fulfill your investment goals. That might mean taking more or less risk than you would prefer. If you are a sensitive soul who can brook no paper losses, the solution is to get a grip, not to invest ‘safely’ if that locks in running out of money when you are old.”

It sounds like you are confident you can reach your retirement goals without a higher stock allocation. That's great, and I hope you're correct. There are many who need the expected return of stocks to reach their goals, and it's probably better for them to build some moxie than to retire poor because of overly conservative investments.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by JSPECO9 »

1-) Angry? Damn chillax dude it's just stocks LOL

2-) You conveniently picked 25 years to compare stocks vs bonds, in which stocks still outperformed bonds. Why didn't you do 5 years? 10 years? 40 years? 50 years? I think you get the point. Stocks will do better than bonds over the long run.

As others have said, you do NOT need to have 70-100% stocks. You need to pick your risk tolerance, and stick with it.

40/60, 50/50, 60/40, 100/0. Pick your AA, and stick with it. You will be fine.
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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by pkcrafter »

Ambitious994 wrote: Fri Apr 03, 2020 5:47 pm I wanted to get you guys' opinion on this. As you know from my prior posts I'm a relatively young investor (36) and it's a pet peeve of mine when people immediately default to telling me that I should be 70% to 100% in equities or I quote, unquote "will never retire".

It just makes no sense to me and it's starting to get me a little angry...
Maybe I can help you make sense of it. It bothers me a bit too, but the problem is you and those posters who blindly recommend 100% stock don't understand that some investors have a risk-taking gene, and the rest don't. Therefore, those with a risk-taking gene may recommend very high equity allocations without considering that most investors don't think the way they do. The fact is most investors can't stay with their high stock allocation during a shock-drop like we are seeing now. So, consider the source.

New investors also need to be aware that risk and asset allocation questionnaires aren't very good at providing a correct AA to untested investors because new investors probably don't know their true risk tolerance and they usually take the test when the market is showing strong performance and they are excited about getting in (only see the up side).

https://patch.com/california/paloalto/a ... -investing

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2634960/

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Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by lgs88 »

Ambitious994 wrote: Fri Apr 03, 2020 5:47 pm I believe my allocation is Moderately Conservative. That is basically no more than 40% stocks and the rest bonds. In addition, I make a good income so I'm putting a good amount away every year while also living a very minimalist lifestyle. If this still results in me "not being able to retire", then maybe retirement is just a luxury going forward for a select few and not a large majority?
Ambitious994,

Your allocation works for you -- bravo. You have identified the proper allocation for your need, willingness, and ability to take risk. Don't let anybody here talk you out of it!

The crew at Bogleheads tends to be eternally bullish on stocks, which is a reasonable position to take if you believe that companies are going to continue to make money. I think they will; that's why I hold 75% of my assets in stocks. The other 25% are in the highest-quality bonds, for safety.

HOWEVER -- I think we should note that Bogle himself invested for his grandchildren with VBIAX -- Vanguard's 60/40 balanced index fund. Benjamin Graham, the grandfather of value investing, suggested a range between 25/75 and 75/25. You're in that range! Keep saving and investing, and you'll do just fine.

lgs88
merely an interested amateur
TheDDC
Posts: 1123
Joined: Mon Jan 08, 2018 11:11 am

Re: Why Do So Many Recommend 70% - 100% Stocks?

Post by TheDDC »

pkcrafter wrote: Fri Apr 03, 2020 11:03 pm
Ambitious994 wrote: Fri Apr 03, 2020 5:47 pm I wanted to get you guys' opinion on this. As you know from my prior posts I'm a relatively young investor (36) and it's a pet peeve of mine when people immediately default to telling me that I should be 70% to 100% in equities or I quote, unquote "will never retire".

It just makes no sense to me and it's starting to get me a little angry...
Maybe I can help you make sense of it. It bothers me a bit too, but the problem is you and those posters who blindly recommend 100% stock don't understand that some investors have a risk-taking gene, and the rest don't. Therefore, those with a risk-taking gene may recommend very high equity allocations without considering that most investors don't think the way they do. The fact is most investors can't stay with their high stock allocation during a shock-drop like we are seeing now. So, consider the source.

New investors also need to be aware that risk and asset allocation questionnaires aren't very good at providing a correct AA to untested investors because new investors probably don't know their true risk tolerance and they usually take the test when the market is showing strong performance and they are excited about getting in (only see the up side).

https://patch.com/california/paloalto/a ... -investing

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2634960/

Paul
100% stock is a great idea if you know you will realistically be contributing and not withdrawing for most of your life. I advocate passive wealth options in retirement. A large stock allocation in good growth stock funds with *regular* contributions will grow, and if you are contributing and not taking out when the markets drop then you shouldn't have to worry about sequence of returns risk.

I don't like the standard AA ratio model thrown around on here and do not include the emergency fund or short term sink funds as part of my AA. I prefer to only keep cash for X number of months/years worth of expenses.

Risk taking happens on the bond market, too, so we shouldn't pretend you're out of the woods with high bond allocation in one specific allocation even in Vanguard Total Bond. If someone wants to go skinny dipping into the bond lake then I would recommend Wellesley or Wellington as no one really knows what bonds/fixed income investment is good to invest in at the present time. I have no problem paying 16 bps to allocate bonds properly in a risk averse portfolio in the case of my mother, for instance, so that is invested in Wellesley. Me, I am 100% VTSAX/FSKAX for all investment ready assets.

-TheDDC
Rules to wealth building: 90-100% VTSAX piled high and deep, 0-10% VIGAX tilt, 0% given away to banks, minimize amount given to medical-industrial complex
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