As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stock?

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cogito
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by cogito »

Bfwolf wrote: Tue Aug 25, 2020 9:35 pm Seeing all the love for 100% stock portfolios makes me nervous. I don't remember anybody pushing those portfolios in 2009.
Lets be honest here, most of the 30 year olds in this thread advocating 100% equities were in the same place six months ago at the previous all-time highs, before their portfolios were nearly cut in half. Myself included. Have we already forgotten what has happened this year? Stay-the-course is the motto, and for a young person with a genuinely high risk-tolerance, there has been no better recent year to figure it out than this one.
novemberrain
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by novemberrain »

7eight9 wrote: Tue Aug 25, 2020 11:02 pm Japanese investors who were 100/0 in the Nikkei circa December 1989 probably wish they had some bonds. :happy
I have thought about this too. But please tell me whether my math is wrong.
My theory is that what you said is only true if the said Japanese investor invested the entire lump sum in one shot in 1989. If on the other hand, they had invested 100/0 DCA starting from say a decade before 1989 and leading up to 1989, they might still be better off than someone who invested 60/40 DCA in same period.

As I said, I have not put this through a calculator. But just something on back of mind.
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by Northern Flicker »

VartAndelay wrote: Tue Aug 25, 2020 5:17 pm
000 wrote: Tue Aug 25, 2020 5:14 pm I am currently holding cash + gold and no bonds.
Thank you. I really wish I had done that because I bought the bond fund a few weeks ago I believe. And I check and it seems like almost every day that fund is down meanwhile the stock market is up. I would have been better off if I had stayed in cash instead. I am already down several hundred dollars.
FUAMX is down 0.3% over the last month. The stock fund you exchanged out of to get into FUAMX could have dropped 50% over the same period. What is the basis of saying you have an extremely high risk tolerance?

FUAMX is an excellent intermediate treasury fund. It is not uncommon for intermediate treasuries lose some value when stocks do well because interest rates may go up a little at that time. You then have a little bit less asset value earning the new higher yield, which is not a terrible result as the higher yield from rates going up some with enable the bond fund to make up the losses faster.

But when stocks fall sharply, rates often fall, and the treasury fund will appreciate when rates fall. This helps offset some of the stock losses. Many bogleheads consider this tradeoff attractive. You give up some return but take less risk.

I assume you may have moved from 100% stocks to holding some bonds because of the turmoil in stocks in March. If so, you may want reconsider your perceived risk tolerance.
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DonIce
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by DonIce »

Why hold assets with negative expected real return?
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eye.surgeon
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by eye.surgeon »

SO many amusing comments in this thread.

I''m extremely risk tolerant but my bond fund is down a couple hundred dollars should I bail out ?

Only old people should hold bonds.

Why hold assets with negative expected real returns? But holds cash which of course has guaranteed negative real returns.


We must be at a market peak. How soon people forget. Human nature is fascinating.
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by Independent George »

I was 100% stocks in 2008 (age 31), and had no problems remaining at 90% stocks in 2020. If you genuinely have a high risk tolerance and can get through the volatility without panicking, then go ahead; you'll likely do better in the long run. I find that most people (even here at BHs) are really bad at gauging their actual risk tolerance, though, and tend to bite off more than they can chew.
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eye.surgeon
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by eye.surgeon »

Independent George wrote: Wed Aug 26, 2020 12:34 am I was 100% stocks in 2008 (age 31), and had no problems remaining at 90% stocks in 2020. If you genuinely have a high risk tolerance and can get through the volatility without panicking, then go ahead; you'll likely do better in the long run. I find that most people (even here at BHs) are really bad at gauging their actual risk tolerance, though, and tend to bite off more than they can chew.
Anyone with significant money in the market in the last five months has a pretty good idea of their risk tolerance. For many investors it will have been the biggest test of their nerves in their investing lifetime. There are numerous hysterical this time it’s different posts in March and April to prove it.
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minimalistmarc
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by minimalistmarc »

7eight9 wrote: Tue Aug 25, 2020 11:02 pm Japanese investors who were 100/0 in the Nikkei circa December 1989 probably wish they had some bonds. :happy
Not if they were smart and invested in the all world index instead of being so arrogant as to think their country would outperform the rest of the world forever.

100% equities is really not that much different to 60:40. My fear is missing out on gains but losses don’t worry me at all. I have the fallback of a recession proof job and pension.
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William Million
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by William Million »

I didn't do bonds until early 40s, now about 60 I'm at 50/50. I don't see much point in bonds for wage earners under 40. However, they're essential later.
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by dogagility »

Bfwolf wrote: Tue Aug 25, 2020 9:35 pm Seeing all the love for 100% stock portfolios makes me nervous. I don't remember anybody pushing those portfolios in 2009.
I was 100% stock in 2009 and distinctly remember wishing I had more money to invest in stocks. (but dry powder is a fallacy best discussed in another thread)
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
Olemiss540
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by Olemiss540 »

If you have 1/5 of your portfolio in cash you are not "100% stocks", but are 20% bonds. Just your bonds are the worst performing kind historically.

If you sleep well with 1 yr in cash and the rest in stocks, I sleep better with a vanilla 80/20 portfolio managed by whatever goon runs the target date fund desk only I don't have any preconceived notion I know the future returns of the bond market unlike most of the posters here.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by vineviz »

Steve Reading wrote: Tue Aug 25, 2020 10:50 pm This might come as a shocker to some of you but: Us folks that recommend 100% stocks to young accumulators do it because, long-term, it tends to be a much better choice, REGARDLESS of what the market is doing right now (gasp!)
+1
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by PicassoSparks »

eye.surgeon wrote: Wed Aug 26, 2020 12:45 am
Independent George wrote: Wed Aug 26, 2020 12:34 am I was 100% stocks in 2008 (age 31), and had no problems remaining at 90% stocks in 2020. If you genuinely have a high risk tolerance and can get through the volatility without panicking, then go ahead; you'll likely do better in the long run. I find that most people (even here at BHs) are really bad at gauging their actual risk tolerance, though, and tend to bite off more than they can chew.
Anyone with significant money in the market in the last five months has a pretty good idea of their risk tolerance. For many investors it will have been the biggest test of their nerves in their investing lifetime. There are numerous hysterical this time it’s different posts in March and April to prove it.
No they don’t.

I mean, you’re right that the hysterical posts certainly learned a lesson and hopefully they are changing their asset allocation.

But Bear markets are rarely measured in months. The dangerous part is because we all survived a very sharp drop and recovery we think we know we can handle the risks. But the risk of stocks means that there could be years or, occasionally, a decade where stocks underperform T-Bills. That grinding, nagging stress that maybe you made the wrong bet and maybe it’s never going to come back that stretches over a year or more is something very different from the rollercoaster ride of March that dropped us off back where we started.

March was just a taste of what could happen. It might be worth checking in on investors who believed that small cap value had mathematically superior returns to the whole market and did their asset allocations accordingly. They’ve had to endure a decade of underperformance compared to S&P 500 indexers, as have people with international exposure. That’s a whole other behavioral ballgame.
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by Johm221122 »

Your question can only be answered by you yourself. But I'd guess your risk tolerance isn't as high as you think it is. If your questioning your investment performance after a few weeks,100% stocks may be to aggressive for you
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by Anon9001 »

0% bonds if you are living in developed country. They are only good if you are elderly person.
minimalistmarc
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by minimalistmarc »

PicassoSparks wrote: Wed Aug 26, 2020 6:14 am
eye.surgeon wrote: Wed Aug 26, 2020 12:45 am
Independent George wrote: Wed Aug 26, 2020 12:34 am I was 100% stocks in 2008 (age 31), and had no problems remaining at 90% stocks in 2020. If you genuinely have a high risk tolerance and can get through the volatility without panicking, then go ahead; you'll likely do better in the long run. I find that most people (even here at BHs) are really bad at gauging their actual risk tolerance, though, and tend to bite off more than they can chew.
Anyone with significant money in the market in the last five months has a pretty good idea of their risk tolerance. For many investors it will have been the biggest test of their nerves in their investing lifetime. There are numerous hysterical this time it’s different posts in March and April to prove it.
No they don’t.

I mean, you’re right that the hysterical posts certainly learned a lesson and hopefully they are changing their asset allocation.

But Bear markets are rarely measured in months. The dangerous part is because we all survived a very sharp drop and recovery we think we know we can handle the risks. But the risk of stocks means that there could be years or, occasionally, a decade where stocks underperform T-Bills. That grinding, nagging stress that maybe you made the wrong bet and maybe it’s never going to come back that stretches over a year or more is something very different from the rollercoaster ride of March that dropped us off back where we started.

March was just a taste of what could happen. It might be worth checking in on investors who believed that small cap value had mathematically superior returns to the whole market and did their asset allocations accordingly. They’ve had to endure a decade of underperformance compared to S&P 500 indexers, as have people with international exposure. That’s a whole other behavioral ballgame.
As a 100% I was disappointed by the sharp rebound. 100% accumulators like myself would generally prefer a prolonged drawdown (although without the misery it would cause others).
260chrisb
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by 260chrisb »

averagedude wrote: Tue Aug 25, 2020 8:41 pm I was always a 100% stock guy until just the last couple of years because I am close to retirement. I recommend it only to people who contribute at least monthly, have a long time horizon, and is the type of person who is more happy when stocks are down than when they are up.
Well stated and spot on but I'm not sure anyone is happier when stocks are down versus when they are up! :D Of course folks around here are often happy to see things on sale myself included. The issue and question of risk tolerance gets beat up a lot when the markets are turbulent by even the most disciplined followers to the BH theory. That said, many can and do keep the discipline but while looking at all the panicked posts back in February and March it's obvious many can't due to a misguided risk tolerance. It gets back to the "I've got to get the best return" aspect of investing. Some moderation over one's investing lifetime would save thousands from panic selling and loss. I'm not saying you should be ultra conservative, but perhaps dial it back a bit and accept a bit of a lower return.
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by nisiprius »

I'll add this much. Speaking personally as a risk-averse bond-loving stay-the-courser... I do not agree with those who think that 10% bonds make a huge difference. I don't think the difference between 90/10 and 100/0 amount to much in terms of risk tolerance. It is very unlike that the difference between a 45% loss and a 50% loss, say, is the difference between staying cool and jumping out of a window.

I always wonder about "100% stocks" though, because I think in some cases it is the result of emotional or magical thinking. Just as the difference in 90/10 and 100/0 in risk can't amount to much, neither can it amount to much difference in return. I suspect that at least some investors think in terms of "100% effort" or "100% commitment," and feel that stocks can tell whether you are cheating on them with some other asset class. Or, it is some attempt to overcontrol investment results and find some absolute optimum no-compromise maximum return.

In reality, though, all sorts of other investment decisions can make bigger differences in return than 90/10 versus 100/0. For example, for $10,000 invested from Jan 1997 - Jul 2020, the difference in final outcome between 100% Total Stock and 90% Total Stock/10% Total stock was $2,413, while the difference between 100% US (Total Stock) and roughly global weighting (50% Total Stock, 50% Total International) was $23,294. Source. In other words, the difference between US-only stock investing and global stock investing was almost ten times as important as the difference between 90/10 and 100/0.

Another issue is that if you have a small bond allocation, it is easy to keep adding to it over time, and develop a personal glide slope. There have, however, been postings from people who were 100% stocks and got close to retirement, realized they were now extremely uncomfortable with that allocation, but also extremely uncomfortable with the idea of adding a lot of bonds all at once at what might not be a "good time." So there is the possibility of getting psychologically locked into 0% bonds.

Finally, there is no magic optimum at 100%. There is a kink in the math due to the impossibility of borrowing at the risk-free rate, but 100% is not a no-brainer decision. It does not get you out of the job of assessing your own risk tolerance. Why 100% rather than 110% or 120%? I personally am strongly averse to leverage of any kind, but that's just me. Someone who claims "extremely high risk tolerance" should be asking "should I use leverage, how much leverage should I do, and should I use true leverage or the queasy, not-all-the-benefits-but-not-all-the risks of leveraged ETFs?" My suggested answer is "no, no, a thousand times no!" but, once again, for someone who really has extremely high risk tolerance there is nothing to say that 100.00000% stocks is the right number. You have to be able to state some kind of reason why 100% and not 110%.
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by vineviz »

nisiprius wrote: Wed Aug 26, 2020 7:28 am Finally, there is no magic optimum at 100%. There is a kink in the math due to the impossibility of borrowing at the risk-free rate, but 100% is not a no-brainer decision.
The "kink in the math" IS the magic: the ideal equity allocation for a young accumulator with average levels of risk aversion almost certainly greater than 150% and possibly even higher than that.

But borrowing constraints (including costs and 401k options) do introduce a friction, with the result that 100% equity for a young accumulator is MUCH more likely to be appropriate than 90% equity. The 90/10 allocation in target date funds is an artifact of archaic ERISA restrictions, not any sort of rational optimal.
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Steve Reading
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by Steve Reading »

nisiprius wrote: Wed Aug 26, 2020 7:28 am I always wonder about "100% stocks" though, because I think in some cases it is the result of emotional or magical thinking. Just as the difference in 90/10 and 100/0 in risk can't amount to much, neither can it amount to much difference in return. I suspect that at least some investors think in terms of "100% effort" or "100% commitment," and feel that stocks can tell whether you are cheating on them with some other asset class. Or, it is some attempt to overcontrol investment results and find some absolute optimum no-compromise maximum return.
There's not a huge difference between 90/10 and 100/0, you're right. But since 100/0 is technically a little closer to optimal, and would require less work (1-2 fewer funds), I don't see why you wouldn't just do that.
nisiprius wrote: Wed Aug 26, 2020 7:28 am Finally, there is no magic optimum at 100%. There is a kink in the math due to the impossibility of borrowing at the risk-free rate, but 100% is not a no-brainer decision. It does not get you out of the job of assessing your own risk tolerance. Why 100% rather than 110% or 120%? I personally am strongly averse to leverage of any kind, but that's just me. Someone who claims "extremely high risk tolerance" should be asking "should I use leverage, how much leverage should I do, and should I use true leverage or the queasy, not-all-the-benefits-but-not-all-the risks of leveraged ETFs?" My suggested answer is "no, no, a thousand times no!" but, once again, for someone who really has extremely high risk tolerance there is nothing to say that 100.00000% stocks is the right number. You have to be able to state some kind of reason why 100% and not 110%.
The optimal answer almost certainly is higher than 100% for most young accumulators. But there's a kink in the implementation of that as well. Leverage isn't trivial to work with and learn. Take it from someone using it to enact the optimal glidepath:
viewtopic.php?f=10&t=274390

If you're willing to learn about derivatives, maybe Interactive Brokers' interface (TWS), margin blend rates, and maintenance margin calculations, then by all means go past 100% and enact the truly optimal portfolio. But let's be realistic, most don't have any business doing that.

So 100% is a great compromise: It's the closest you can get to "optimal" for most young savers, while still having a portfolio as simple and foolproof as a BH likes it.
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by petulant »

Steve and vineviz have it right on this one. 100/0 has some advantages compared to 90/10 in that it is the highest, riskiest allocation one can make to stocks without introducing leverage, which has special risks and costs; it is also easier to manage than 90/10.

The other side is to combine this with an emergency fund. Young accumulators probably should not be "truly" 100/0 since they should have stable, liquid capital available for emergencies and other needs. But the process of creating an emergency fund is more direct and clear about the target amount to save in safe, liquid form, since it focuses on months of expenses for job loss and the needs that might arise not covered by insurance. The presence of an emergency fund highlights that 100/0 is not crazy, extremely risky, or off the reservation. It might just be correct.

For what it's worth, I am young, I have 100% stocks in retirement accounts, I have an emergency fund, and I rolled my eyes at the market downturn.
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by dbr »

What you should be doing is understanding the consequences of the possible choices of what to hold in a portfolio and then invest according to what you want. To decide because someone says something is a "bad" investment is not how this is done. (Except for the things that really are bad investments, but that is not bonds as a whole category, now or any other time.)
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by chassis »

VartAndelay wrote: Tue Aug 25, 2020 5:13 pm I recently put my non-stock money into FUAMX. I heard it was a good bond fund. But now I have been reading that some people say bonds are horrible investments these days because of the unique economic situation the world is now in. Is this true? Is FUAMX a good bond fund or not? Is it even worth holding anymore? I have lost money on it and would have been better off holding stocks or even cash instead.
@VartAndelay 100% US stocks for retirement accounts, plus 6 months of liquid cash for an emergency fund in a cash management account of your preference (checking, money market, etc.).
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by Fallible »

OP, 100% is right only if it is right for you, only if you have learned what is right for you. The good topic question you've posted and your replies show that you have more to learn about investing (don't we all?), about asset allocation, about risk tolerance and all that goes into deciding how much risk to take with your hard-earned money.

There's lots of good learning in the BH wiki under "Asset allocation" and "Risk tolerance," in particular "ability, willingness, and need to take risk." No matter what you decide about 100%, you'll want to learn as much as possible about these investing basics.

https://www.bogleheads.org/wiki/Asset_allocation
https://www.bogleheads.org/wiki/Risk_tolerance
https://www.cbsnews.com/news/asset-allo ... -you-take/
https://www.cbsnews.com/news/asset-allo ... tolerance/
https://www.cbsnews.com/news/asset-allo ... -you-need/
https://www.cbsnews.com/news/asset-allo ... ing-goals/
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by MillennialFinance19 »

At 33, my portfolio is ~15% bonds, all of that allocated in the "F Fund" in my TSP account. This year it has returned 6.88% as of yesterday. This is all relative. You only held the fund for a couple of weeks, what can you seriously expect?
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by ruralavalon »

VartAndelay wrote: Tue Aug 25, 2020 5:13 pm I recently put my non-stock money into FUAMX. I heard it was a good bond fund. But now I have been reading that some people say bonds are horrible investments these days because of the unique economic situation the world is now in. Is this true? Is FUAMX a good bond fund or not? Is it even worth holding anymore? I have lost money on it and would have been better off holding stocks or even cash instead.
Fidelity® Interm Trs Bd Index (FUAMX) ER 0.03% is a good fund to use to reduce portfolio volatility.
VartAndelay wrote: Tue Aug 25, 2020 5:17 pm
000 wrote: Tue Aug 25, 2020 5:14 pm I am currently holding cash + gold and no bonds.
Thank you. I really wish I had done that because I bought the bond fund a few weeks ago I believe. And I check and it seems like almost every day that fund is down meanwhile the stock market is up. I would have been better off if I had stayed in cash instead. I am already down several hundred dollars.
Sorry. I see no evidence that you have an "extremely high risk tolerance", looks more like low risk tolerance. A fixed income investment of some kind, to reduce portfolio volatility, makes sense in my opinion.
Last edited by ruralavalon on Wed Aug 26, 2020 11:21 am, edited 1 time in total.
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by Firemenot »

I’m mid 40s and have been 100 percent stock since about your age. Lots of ups and downs but zero regrets. You just need to become a bit of a market historian and be willing to ride the roller coaster without making changes. Mentally have to be ready for a 50 percent haircut at any time. And look at the bright-side when market tanks because at least you’re buying more shares.

That said, I never root for the market to tank given what it does to people’s lives.

EDIT: And I’m not truly 100 percent in stock as I do keep some liquid cash on hand so don’t have to manage budget too carefully. And have live of credit I could tap also.
Last edited by Firemenot on Wed Aug 26, 2020 11:21 am, edited 1 time in total.
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by KingRiggs »

I was 100% stocks until age 51. I auto-invested monthly and didn't think about it much.

Then one day, I looked at my account balance, and it was BIG. Seeing that I realized two things:

1) Paying my financial advisor 1% yearly was adding up to a decent amount - enough for a couple of really nice vacations per year.
2) I would be REALLY SAD if I lost half of that amount in a market downturn.

I fired my advisor and went to 70/30 stocks/bonds the next day.

Bonds may make absolutely no sense for you at this point in your investing career. But they likely will someday.

Keep on investing, no matter what. :sharebeer
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VartAndelay
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by VartAndelay »

retired@50 wrote: Tue Aug 25, 2020 5:58 pm
VartAndelay wrote: Tue Aug 25, 2020 5:51 pm
nisiprius wrote: Tue Aug 25, 2020 5:45 pm
VartAndelay wrote: Tue Aug 25, 2020 5:36 pm...I remember I bought this particular bond fund about 3 or 4 weeks ago. So that is the time period in which I have lost money. I would have been better off in stocks or in cash instead...
Over periods of weeks, in a bond fund with a duration of 6.48 years, of course you will sometimes lose money... even over periods of months or one or two years. Didn't you understand that?

But over any reasonable holding period in the past, you would not have been "better off in cash" (orange line, Fidelity money market fund). Over the life of FUAMX, it would have doubled your money, while the money market fund would have only added 20% to it.

Image
Yes, you are right. Here is what I am trying to say though. It's not that I am panicking because I am down a little bit and cannot take the risk. It is that I am questioning if it is even worth the risk of losing money considering it seems to also have almost no upside considering how low the interest rate already is. So basically I see it as holding something with some risk and almost no upside. That is why I am wondering if I should move it to stocks instead which also have risk but at least they have possible upside. What you say is true about the returns of the past for bonds but I am wondering if that is still realistic from now considering the unique situation.
Interest rates haven't changed much, if at all, from 4 weeks ago. If you've come to these conclusions now, it sounds like you didn't do adequate research before you purchased the bond fund. Live and learn I guess... Best of luck.

Regards,
You are right about this. I should have done more research and thought about this before I bought the bond fund in the first place but unfortunately I did not. And I have only myself to blame for it. But that is why now I am trying to correct my mistake.
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VartAndelay
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by VartAndelay »

Thank you to all for the great responses. You have really given me a lot of useful things to think about.

One thing I want to clarify though since a lot of people are saying they think I do not have high risk tolerance since I am worried about being down a little bit in bonds after a few weeks. I understand why you say that but I think it is only because I did not explain myself well. It is not that I am worried about being down after a few weeks. It is that I am worried about being down in an asset that I am questioning if it even has upside in the first place. Why take on risk of losing money if it has little upside in return? I am totally willing to risk losing money in stocks because at least there I have the possibility of high returns. So I do have an extremely high risk tolerance but only if that high risk is also met with at least the possibility of high returns.
rgs92
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by rgs92 »

I prefer to follow the efficient frontier approach rather than extreme allocations in any direction at any age.
(In deference to Taylor's recent post about using plain English rather than jargon, this means a mixed allocation of stocks and bonds at all times leads to the best long term balance of growth and volatility. I like Taylor's idea because I think it is good to make every opinion readable to the most people who read Bogleheads to learn something.)
Northern Flicker
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by Northern Flicker »

The ratio of portfolio size to annual contribution amount is an important consideration in risk capacity (which is the financial ability to bear the risk independent of one's emotional response to it).
Risk is not a guarantor of return.
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by ruralavalon »

VartAndelay wrote: Wed Aug 26, 2020 12:02 pm Thank you to all for the great responses. You have really given me a lot of useful things to think about.

One thing I want to clarify though since a lot of people are saying they think I do not have high risk tolerance since I am worried about being down a little bit in bonds after a few weeks. I understand why you say that but I think it is only because I did not explain myself well. It is not that I am worried about being down after a few weeks. It is that I am worried about being down in an asset that I am questioning if it even has upside in the first place. Why take on risk of losing money if it has little upside in return? I am totally willing to risk losing money in stocks because at least there I have the possibility of high returns. So I do have an extremely high risk tolerance but only if that high risk is also met with at least the possibility of high returns.
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. Some reading about asset allocation may help you.

This graph describes what is called the efficient frontier, and the relation between risk and 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";
3) Morningstar (8/20/2019), "The Best Diversifiers for Your Equity Portfolio"; and
4) White Coat Investor (9/23/2016), "In Defense of Bonds".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Northern Flicker
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by Northern Flicker »

I think a young saver in the US who has the emotional risk tolerance to tolerate the market volatility of being 100% stocks and is focused on long-term returns, should be focused on long-term real (inflation-adjusted) returns. Adding some long-term TIPS to the portfolio will reduce the variance of long-term real returns. Variance of long-term real returns is an invisible risk and the most important risk a retirement saver takes. And while regular contributions to a portfolio helps reduce market risk (variance of short-term nominal, i.e. not inflation-adjusted returns), risks associated with long-term returns cannot be addressed in this way.

In this scenario, long-term TIPS fund should be considered as part of the equity allocation and a diversification opportunity similar to int'l stocks.

Thus, someone with rhe emotional tolerance for 100% stocks could choose to hold 90% stocks and 10% LTPZ instead. In many equity downturns, this will reduce the downdraft, but it almost certainly reduces the variance of long-term real returns. Here is a short backtest that shows how it also has reduced market volatility in the 11 years (existence of LTPZ).

https://www.portfoliovisualizer.com/bac ... tion2_3=20
Risk is not a guarantor of return.
dbr
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by dbr »

Northern Flicker wrote: Wed Aug 26, 2020 4:53 pm I think a young saver in the US who has the emotional risk tolerance to tolerate the market volatility of being 100% stocks and is focused on long-term returns, should be focused on long-term real (inflation-adjusted) returns. Adding some long-term TIPS to the portfolio will reduce the variance of long-term real returns. Variance of long-term real returns is an invisible risk and the most important risk a retirement saver takes. And while regular contributions to a portfolio helps reduce market risk (variance of short-term nominal, i.e. not inflation-adjusted returns), risks associated with long-term returns cannot be addressed in this way.

In this scenario, long-term TIPS fund should be considered as part of the equity allocation and a diversification opportunity similar to int'l stocks.

Thus, someone with rhe emotional tolerance for 100% stocks could choose to hold 90% stocks and 10% LTPZ instead. In many equity downturns, this will reduce the downdraft, but it almost certainly reduces the variance of long-term real returns. Here is a short backtest that shows how it also has reduced market volatility in the 11 years (existence of LTPZ).

https://www.portfoliovisualizer.com/bac ... tion2_3=20
I think it makes sense for the long term high stock investor to use long Treasuries or TIPS at that sort of allocation. Deciding that one does not want to take that level of risk is a different decision.
PicassoSparks
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by PicassoSparks »

Leverage is one way to go past 100%. Isn’t loading up on factors another? HmL and SmB are both well documented factors that outperform that market but carry much higher risk (as anyone with a small cap value tilt has experienced over the past decade). So presumably if your risk appetite was high but you didn’t want to lever up, you could just dive into factor investing?
Northern Flicker
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by Northern Flicker »

dbr wrote: Wed Aug 26, 2020 4:56 pm
Northern Flicker wrote: Wed Aug 26, 2020 4:53 pm I think a young saver in the US who has the emotional risk tolerance to tolerate the market volatility of being 100% stocks and is focused on long-term returns, should be focused on long-term real (inflation-adjusted) returns. Adding some long-term TIPS to the portfolio will reduce the variance of long-term real returns. Variance of long-term real returns is an invisible risk and the most important risk a retirement saver takes. And while regular contributions to a portfolio helps reduce market risk (variance of short-term nominal, i.e. not inflation-adjusted returns), risks associated with long-term returns cannot be addressed in this way.

In this scenario, long-term TIPS fund should be considered as part of the equity allocation and a diversification opportunity similar to int'l stocks.

Thus, someone with rhe emotional tolerance for 100% stocks could choose to hold 90% stocks and 10% LTPZ instead. In many equity downturns, this will reduce the downdraft, but it almost certainly reduces the variance of long-term real returns. Here is a short backtest that shows how it also has reduced market volatility in the 11 years (existence of LTPZ).

https://www.portfoliovisualizer.com/bac ... tion2_3=20
I think it makes sense for the long term high stock investor to use long Treasuries or TIPS at that sort of allocation. Deciding that one does not want to take that level of risk is a different decision.
Long-term treasuries probably increase variance of long-term real returns.
Risk is not a guarantor of return.
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by nisiprius »

VartAndelay wrote: Wed Aug 26, 2020 12:02 pm... It is that I am worried about being down in an asset that I am questioning if it even has upside in the first place...
You are probably aware of the difference between dividend-paying and non-dividend-paying stocks. They make about the same amount of money but they make it in different ways. In a non-dividend-paying stock, all of the money is made through capital appreciation (increase in the share price). In a dividend-paying stock, some money is made through capital appreciation and some is made through dividend payments.

In bonds, from the point of view of a long-term investor, all of the return is made through coupon interest payment, none of it from capital appreciation. It's like a dividend stock only much more so. It's true that the market-driven fluctuations of bond prices, mostly related to interest rate changes, can be exploited in a speculative way but that isn't what ordinary Bogleheads are doing.

I'm going to plot a stock and a bond fund on the same axis so that we aren't fooled by the way charting tools adjust the vertical scale so that all fluctuations look the same size. In a high-quality bond fund, the price per share of the fund is essentially level over time. It is never going to look like a good investment if you only look at price per share. That's because it doesn't make its money by growth in price per share.

Source

Over this time period, the price per share of the stock fund increased by over 700% while the price per share of the bond fund was essentially flat. But that's because we are ignoring the fund dividend payments, which are the source of virtually all of the bond fund's return.

Image

But if we look at total return, including the fund dividend payouts, we see that over the same time period, the bond fund more than quadrupled the money invested in it, and it did so with relatively few booms and busts. It is true that the stock fund multiplied the money invested in it almost 15X, far more than the bond fund, but it did so at the cost of considerably more risk.

Image

The bond fund was a good investment for some purposes, despite never having any significant upside. Over the whole time period shown, the price per share of the bond fund started at $9.49 per share and never went above $11.65 but it quadrupled your money anyway.
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by Bfwolf »

I think any young investor who thinks they understand their risk tolerance because of what happened this year is fooling themselves. 2008/9 was much worse. Bear Sterns and Lehman failed. Many of the giants of the financial industry were in deep trouble. A total collapse of the entire economy seemed possible. Some people freaked out this year with their investments, but to me it was obvious that the economic issues were all self-imposed. We had the economic fix available any time we wanted--it just resulted in more people dying. So if you think a sharp 4 month dip and recovery means you can take anything, well I think that's wishful thinking. The next drop could take 5, 10, or 20 years to recover from.

It's possible you guys have the risk tolerance you think you do. But being comfortable with what happened this year doesn't prove it.
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by flaccidsteele »

7eight9 wrote: Tue Aug 25, 2020 11:02 pm Japanese investors who were 100/0 in the Nikkei circa December 1989 probably wish they had some bonds. :happy
US investors who had bonds in circa December 1989 probably did better if they were 100% US stock index until today :happy

Image
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by flaccidsteele »

Bfwolf wrote: Wed Aug 26, 2020 9:55 pm I think any young investor who thinks they understand their risk tolerance because of what happened this year is fooling themselves. 2008/9 was much worse. Bear Sterns and Lehman failed. Many of the giants of the financial industry were in deep trouble. A total collapse of the entire economy seemed possible. Some people freaked out this year with their investments, but to me it was obvious that the economic issues were all self-imposed. We had the economic fix available any time we wanted--it just resulted in more people dying. So if you think a sharp 4 month dip and recovery means you can take anything, well I think that's wishful thinking. The next drop could take 5, 10, or 20 years to recover from.

It's possible you guys have the risk tolerance you think you do. But being comfortable with what happened this year doesn't prove it.
+1 agree and a completely underrated post
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
Northern Flicker
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by Northern Flicker »

flaccidsteele wrote: Wed Aug 26, 2020 10:25 pm
7eight9 wrote: Tue Aug 25, 2020 11:02 pm Japanese investors who were 100/0 in the Nikkei circa December 1989 probably wish they had some bonds. :happy
US investors who had bonds in circa December 1989 probably did better if they were 100% US stock index until today :happy

Image
The point of 7eight9's posting was concerned with mitigating risk, not trying to predict which asset class would win. Here is another example comparison:

https://www.portfoliovisualizer.com/bac ... tion2_2=10
Risk is not a guarantor of return.
mikeyzito22
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by mikeyzito22 »

VartAndelay wrote: Tue Aug 25, 2020 5:25 pm
Grt2bOutdoors wrote: Tue Aug 25, 2020 5:21 pm
VartAndelay wrote: Tue Aug 25, 2020 5:17 pm
000 wrote: Tue Aug 25, 2020 5:14 pm I am currently holding cash + gold and no bonds.
Thank you. I really wish I had done that because I bought the bond fund a few weeks ago I believe. And I check and it seems like almost every day that fund is down meanwhile the stock market is up. I would have been better off if I had stayed in cash instead. I am already down several hundred dollars.
In your lifetime you will see swings of thousands and tens of thousands on a daily basis. This is good training for you now. If you think bond funds are bad, just you wait, equities can go down a lot more than that and stay down. Ponder that...
You are right, thank you. But here is the difference. I actually already saw my stock funds go down thousands a day back a few months ago, and it did not bother me at all. The reason it did not bother me is because at least with the stocks I know I am taking a risk but I am also hoping for the possibility of nice returns. Whereas with bonds it seems to me like I only want them in case the stocks crash then I would have more dry powder to buy stocks with, but in that case why should I not just hold cash instead? At least the stocks are high risk high reward. It seems like the bonds are medium risk (because I am already down compared to cash) low reward.
Total Bond Admiral shares are up %8.96 for a one year return. So....
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by flaccidsteele »

Northern Flicker wrote: Wed Aug 26, 2020 10:35 pm
flaccidsteele wrote: Wed Aug 26, 2020 10:25 pm
7eight9 wrote: Tue Aug 25, 2020 11:02 pm Japanese investors who were 100/0 in the Nikkei circa December 1989 probably wish they had some bonds. :happy
US investors who had bonds in circa December 1989 probably did better if they were 100% US stock index until today :happy

Image
The point of 7eight9's posting was concerned with mitigating risk, not trying to predict which asset class would win. Here is another example comparison:
They weren’t trying to predict which asset class would win...they just thought that they were responding to someone who lives in Japan? Or someone who wants to invest in Japanese stocks? Or someone who enjoys irrelevant random Japanese trivia? :confused

I missed the OP’s interest in Japan
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by PicassoSparks »

Northern Flicker wrote: Wed Aug 26, 2020 10:35 pm The point of 7eight9's posting was concerned with mitigating risk, not trying to predict which asset class would win. Here is another example comparison:

https://www.portfoliovisualizer.com/bac ... tion2_2=10
That chart gets more interesting if you do it with long term treasuries

https://www.portfoliovisualizer.com/bac ... tion3_3=10
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by flaccidsteele »

Wow 100% US index wins on simplicity alone. Better than I thought would happen especially during a 50 year bond bull. Not even a volatility management benefit 👍🔥

Glad I didn’t muddy the water with bonds
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by PicassoSparks »

Look again.

https://www.portfoliovisualizer.com/bac ... tion3_3=40

And if we’re going to be even more reasonable, look what happens if you’re contributing regularly.

https://www.portfoliovisualizer.com/bac ... tion3_3=40
Northern Flicker
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by Northern Flicker »

The point is about risk. If what happened in Japan in the 1990's were to happen in the US in the future, being 100% stock will not be pretty. Risk mitigation is about what could happen, not necessarily what will or did happen.
Risk is not a guarantor of return.
Northern Flicker
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by Northern Flicker »

flaccidsteele wrote: Wed Aug 26, 2020 10:25 pm
7eight9 wrote: Tue Aug 25, 2020 11:02 pm Japanese investors who were 100/0 in the Nikkei circa December 1989 probably wish they had some bonds. :happy
US investors who had bonds in circa December 1989 probably did better if they were 100% US stock index until today :happy

Image
You also might question what total return indices in the chart existed in 1802. Hint: none. You also might ask which companies you would have been holding in 1802 still exist today. Do any? If not, the graph is of some undocumented active management strategy that you would not have been able to implement. But it is a pretty graph.
Risk is not a guarantor of return.
novemberrain
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Re: As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stoc

Post by novemberrain »

PicassoSparks wrote: Thu Aug 27, 2020 12:49 am Look again.

https://www.portfoliovisualizer.com/bac ... tion3_3=40

And if we’re going to be even more reasonable, look what happens if you’re contributing regularly.

https://www.portfoliovisualizer.com/bac ... tion3_3=40
I feel that is cherry picking. I mean you picked a custom bond portfolio to compare against a generic total market stock index . If you need a fair comparison I feel you should substitute VBMFX instead of the treasury funds you mentioned. I.e. Use a portfolio consisting of
VTSMX - total stock market
VBMFX - total bond market
I have https://www.portfoliovisualizer.com/bac ... tion4_3=40.
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