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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flaccidsteele
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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: Thu Aug 27, 2020 12:50 am 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.
What could happen is everything

Japan is as irrelevant as anything else

Add meteorite strikes, catastrophic volcanic activity and an extinction event while you’re at it
Northern Flicker wrote: Thu Aug 27, 2020 12:57 am
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.
I did ask that

Right after I asked myself how they knew that the OP was Japanese and wanted Japanese stocks. Because otherwise it would be some undocumented irrelevant post. But it’s a pretty assumption

The chart was appropriate after that

NB: It’s also good to know that multiple posts demonstrate no volatility, risk, performance or simplicity benefits from adding bonds. Surprising, but OP will appreciate that. I know I do 👍
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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 »

Please note. The question is not "how have stocks and bonds performed in the past over long periods of time." The question is not "are there people in the world who will be happier with 100% stocks than with some other portfolio." The question is not "should a hypothetical 30-year old known to have extremely high risk tolerance hold any bonds?"

The question is not even "can you think of a situation in which someone would be unable to retire because they held 90/10 instead of 100% stocks?"

The question is whether VartAndelay should be holding bonds any more, whether they should be selling a bond fund they bought a few weeks ago that has lost money over the last few weeks, and how they should accurately evaluate their risk tolerance and decide on the asset allocation that is appropriate for them.
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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 Kelrex »

Risk tolerance is a funny thing, and I really hate that it's called "risk" when it should just be called "variance".

It is really easy to see oneself as "risk/variance tolerant" when looking at probable outcomes. It's easy to feel comfortable with huge swings when you expect to be able to retire with a relatively predictable amount.

Then there's reality. The truth is that market risk in isolation isn't likely to affect you unless you combine it with personal risk, which I find a lot of people neglect in their risk assessment. Personal risk of illness, injury, divorce, family crisis, burnout, trauma, etc, has just as much if not more impact on your risk tolerance as what the market does, and how the two can exacerbate each other is what's really critical.

I say this as someone who experienced a career ruining health crisis immediately followed by total shut down of my entire industry by Covid, followed by a jump into an even more lucrative career. Now THAT'S some personal risk and variance to adapt to.

I personally have a legitimately extremely high risk tolerance for my market investments, but that's because between pension and other investments, my market investments could literally drop to zero for the first decade of our retirement (ie: the highest "risk" period for low returns) and we would still be fine. On the flip side, that also means that there's no risk in having less optimal returns, so there's no need for a "higher risk" AA either. Honestly, I haven't settled on an AA yet, this new career reality is so new, I need to process it first before I can truly understand my new risk profile.

That's the funny thing about the tail ends of the the real risk distribution, the personal risk factors start playing a much, much larger role in variance tolerance and stop following simple "logical" rules just for "optimal" returns.

Are bonds right for you?
No one here can really tell you that. You have to look at your own life and your own risk factors. I recommend contemplating what scenario scares you most and building up resilience from there. If suboptimal long term gains is what scares you most, then 100% equities might be the way to go. If SORR and the risk of running out of money in retirement scares you most, a bond tent might be ideal. If having to liquidate substantial assets during an extended joblessness during a recession scares you most, then a significant bond allocation, or other better hedge might be worth considering.

What you haven't explained yet us why on earth you bought bonds in the first place? What assessment went into that decision?

Edited for spelling and clarity.
Last edited by Kelrex on Thu Aug 27, 2020 10:13 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 sandan »

nisiprius wrote: Thu Aug 27, 2020 7:10 am Please note. The question is not "how have stocks and bonds performed in the past over long periods of time." The question is not "are there people in the world who will be happier with 100% stocks than with some other portfolio." The question is not "should a hypothetical 30-year old known to have extremely high risk tolerance hold any bonds?"

The question is not even "can you think of a situation in which someone would be unable to retire because they held 90/10 instead of 100% stocks?"

The question is whether VartAndelay should be holding bonds any more, whether they should be selling a bond fund they bought a few weeks ago that has lost money over the last few weeks, and how they should accurately evaluate their risk tolerance and decide on the asset allocation that is appropriate for them.
I feel ya nisiprius. its almost counter-intuitive that these types of threads are popping up as a lower share of the population have pensions/annuities in the pipeline.
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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 Helo80 »

I'm 100% stocks as well. I have never bought a bond fund, or any bond for that matter.
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 »

The question is
Has VBTLX (or similar fund) outperformed VTSAX (or similar fund) over any 30 or 40 year period.

I believe the answer is no. But please correct me if I’m wrong
Last edited by novemberrain on Thu Aug 27, 2020 10:09 am, edited 1 time in total.
Bobby206
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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 Bobby206 »

As a 30 year old with extremely high risk tolerance it tells me you haven't lived through a prolonged bear market. A lot of us became a lot less risk tolerant back around 2000 and again in 2008. Certainly you should be weighted toward stocks but maybe do 80-20.

Don't use hindsight to get down on yourself about bonds and what you shoulda done. That's easy! Hindsight is 100% right every-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 RomeoMustDie »

Bonds are too complex of an instrument lately with a lot of macroeconomic risk.

I'd skip it.

Personally though, I own some international high yield.
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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 RomeoMustDie »

Bobby206 wrote: Thu Aug 27, 2020 9:41 am As a 30 year old with extremely high risk tolerance it tells me you haven't lived through a prolonged bear market. A lot of us became a lot less risk tolerant back around 2000 and again in 2008. Certainly you should be weighted toward stocks but maybe do 80-20.

Don't use hindsight to get down on yourself about bonds and what you shoulda done. That's easy! Hindsight is 100% right every-time!
We just lived through the Corona 19 crash. If he didn't panic sell then, he should be fine.

You shouldn't be liquidating your roths under any circumstances and if you need to you need to take another look at your financial management which is another tangent.

Bonds have been grossly overvalued by the retirement age crowd in discussions. Younger investors have different needs. Sentiments have also changed and investors are more risk tolerant and more likely to buy when things are low nowadays.
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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 »

novemberrain wrote: Thu Aug 27, 2020 9:36 am The question is
Has VBTLX (or similar fund) outperformed VTSAX (or similar fund) over any 30 or 40 year period.

I believe the answer is no. But please correct me if I’m wrong
No, wrong question.

The question is -- should VartAndelay sell Fidelity® Intermediate-term Treasury Bond Index Fund (FUAMX) bought a of couple weeks ago, because the NAV went down?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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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 »

ruralavalon wrote: Thu Aug 27, 2020 10:27 am
novemberrain wrote: Thu Aug 27, 2020 9:36 am The question is
Has VBTLX (or similar fund) outperformed VTSAX (or similar fund) over any 30 or 40 year period.

I believe the answer is no. But please correct me if I’m wrong
No, wrong question.

The question is -- should VartAndelay sell Fidelity® Intermediate-term Treasury Bond Index Fund (FUAMX) bought a of couple weeks ago, because the NAV went down?
No. He should sell it because it was a mistake to buy it in the first place

That fund added complexity to the portfolio and posters have subsequently shown that it adds no volatility, risk or performance benefit.
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 novemberrain »

ruralavalon wrote: Thu Aug 27, 2020 10:27 am
novemberrain wrote: Thu Aug 27, 2020 9:36 am The question is
Has VBTLX (or similar fund) outperformed VTSAX (or similar fund) over any 30 or 40 year period.

I believe the answer is no. But please correct me if I’m wrong
No, wrong question.

The question is -- should VartAndelay sell Fidelity® Intermediate-term Treasury Bond Index Fund (FUAMX) bought a of couple weeks ago, because the NAV went down?
Ok. Do you know whether
> Has VBTLX (or similar fund) outperformed VTSAX (or similar fund) over any 30 or 40 year period.

? I am curious to know the answer to that.

The above question is relevant to the OP's question in this thread. That is why I didn't start a new thread.
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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 Stef »

Why stop at 100%? 80% VTI + 20% SSO gives you 120% :mrgreen:
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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 »

Stef wrote: Thu Aug 27, 2020 11:03 am Why stop at 100%? 80% VTI + 20% SSO gives you 120% :mrgreen:
Is that a fair question though ? I mean isn't the opposite question is equally valid in that case? That is why stop at 20% bonds, why not 100% bonds or 120% bonds.
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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 »

Bobby206 wrote: Thu Aug 27, 2020 9:41 am As a 30 year old with extremely high risk tolerance it tells me you haven't lived through a prolonged bear market. A lot of us became a lot less risk tolerant back around 2000 and again in 2008. Certainly you should be weighted toward stocks but maybe do 80-20.

Don't use hindsight to get down on yourself about bonds and what you shoulda done. That's easy! Hindsight is 100% right every-time!
Odds say that you might be right

I was in my late 20s when I went through the dot com crisis without batting and eye and increased my buying of stocks but everybody is different
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 ruralavalon »

flaccidsteele wrote: Thu Aug 27, 2020 10:58 am
ruralavalon wrote: Thu Aug 27, 2020 10:27 am
novemberrain wrote: Thu Aug 27, 2020 9:36 am The question is
Has VBTLX (or similar fund) outperformed VTSAX (or similar fund) over any 30 or 40 year period.

I believe the answer is no. But please correct me if I’m wrong
No, wrong question.

The question is -- should VartAndelay sell Fidelity® Intermediate-term Treasury Bond Index Fund (FUAMX) bought a of couple weeks ago, because the NAV went down?
No. He should sell it because it was a mistake to buy it in the first place

That fund added complexity to the portfolio and posters have subsequently shown that it adds no volatility, risk or performance benefit.
Treasurys have been the best diversifier for an equity portfolio. That includes intermediate-term treasuries.
Morningstar (8/20/2019), "The Best Diversifiers for Your Equity Portfolio".

Correlations change over time. Currently the correlation between total stock market and Fidelity Intermediate-term Treasury Bond Index Fund (FUAMX) is negative , - 0.50%. Portfolio Visualizer, 2017-2020.

Edit: I recall quite clearly in the last quarter of 2008, when the stock market fell off the cliff, our Treasury STRIPs increased in value as everyone suddenly wanted the safety of Treasury bonds.
Last edited by ruralavalon on Thu Aug 27, 2020 11:54 am, edited 3 times 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 Fallible »

RomeoMustDie wrote: Thu Aug 27, 2020 10:05 am
Bobby206 wrote: Thu Aug 27, 2020 9:41 am As a 30 year old with extremely high risk tolerance it tells me you haven't lived through a prolonged bear market. A lot of us became a lot less risk tolerant back around 2000 and again in 2008. Certainly you should be weighted toward stocks but maybe do 80-20.

Don't use hindsight to get down on yourself about bonds and what you shoulda done. That's easy! Hindsight is 100% right every-time!
We just lived through the Corona 19 crash. If he didn't panic sell then, he should be fine. ...
Market crashes can differ greatly in severity and in length (e.g., '87, '00-'02, '08), plus personal risk tolerance is known to change often throughout a lifetime. One market drop can reveal something about one's tolerance, but the next drop...
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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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 »

Fallible wrote: Thu Aug 27, 2020 11:21 am
RomeoMustDie wrote: Thu Aug 27, 2020 10:05 am
Bobby206 wrote: Thu Aug 27, 2020 9:41 am As a 30 year old with extremely high risk tolerance it tells me you haven't lived through a prolonged bear market. A lot of us became a lot less risk tolerant back around 2000 and again in 2008. Certainly you should be weighted toward stocks but maybe do 80-20.

Don't use hindsight to get down on yourself about bonds and what you shoulda done. That's easy! Hindsight is 100% right every-time!
We just lived through the Corona 19 crash. If he didn't panic sell then, he should be fine. ...
Market crashes can differ greatly in severity and in length (e.g., '87, '00-'02, '08), plus personal risk tolerance is known to change often throughout a lifetime. One market drop can reveal something about one's tolerance, but the next drop...
Just as important during the COVID crash did VartAndelay continue regular contributions every pay period? Did VartAndelay make extra contributions? Did VartAndelay rebalance by exchanging bonds to stocks while stocks were in the tank?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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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 »

ruralavalon wrote: Thu Aug 27, 2020 11:20 am Treasurys have been the best diversifier for an equity portfolio.
Isn't treasuries just one part of the bond universe ? The 3 fund portfolio for example recommends VBTLX since picking individual bond funds like treasuries is difficult.

I feel picking individual bond funds like treasuries and highlighting it's performance is a bit like picking individual stock sectors (like say nasdaq composite) and highlighting their performance.

That is why I was struggling to understand whether total-bond-index-fund beat total-stock-index-fund for any 30-40 years.
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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 »

novemberrain wrote: Thu Aug 27, 2020 11:02 am
ruralavalon wrote: Thu Aug 27, 2020 10:27 am
novemberrain wrote: Thu Aug 27, 2020 9:36 am The question is
Has VBTLX (or similar fund) outperformed VTSAX (or similar fund) over any 30 or 40 year period.

I believe the answer is no. But please correct me if I’m wrong
No, wrong question.

The question is -- should VartAndelay sell Fidelity® Intermediate-term Treasury Bond Index Fund (FUAMX) bought a of couple weeks ago, because the NAV went down?
Ok. Do you know whether
> Has VBTLX (or similar fund) outperformed VTSAX (or similar fund) over any 30 or 40 year period.

? I am curious to know the answer to that.

The above question is relevant to the OP's question in this thread. That is why I didn't start a new thread.
Here is an article that might be of interest about stocks and bonds: https://www.paulwinkler.com/investor-bl ... utperform/

Google might turn up an article somewhere that gives more data.
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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 »

The safest asset is Cash if we assume volatility is equal to risk. If you are having some emergency having 5-10% of Portfolio in Cash should be good idea.
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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 »

novemberrain wrote: Thu Aug 27, 2020 11:58 am
ruralavalon wrote: Thu Aug 27, 2020 11:20 am Treasurys have been the best diversifier for an equity portfolio.
Isn't treasuries just one part of the bond universe ? The 3 fund portfolio for example recommends VBTLX since picking individual bond funds like treasuries is difficult.

I feel picking individual bond funds like treasuries and highlighting it's performance is a bit like picking individual stock sectors (like say nasdaq composite) and highlighting their performance.

That is why I was struggling to understand whether total-bond-index-fund beat total-stock-index-fund for any 30-40 years.
The original questions were "Is FUAMX a good bond fund or not? Is it even worth holding anymore?"

The answer is yes to both, Fidelity® Intermediate-term Treasury Bond Index Fund (FUAMX) is a good bond fund worth keeping.

Responding to your inquiry about picking bond sectors, in my opinion just about any good credit quality, intermediate-term or short-term bond fund with a low expense ratio will do the job of reducing portfolio volatility. There are lots of ideas about what is best for different personal circumstances, a lot of personal opinion.
Last edited by ruralavalon on Thu Aug 27, 2020 12:13 pm, edited 1 time in total.
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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 »

novemberrain wrote: Thu Aug 27, 2020 11:58 am
ruralavalon wrote: Thu Aug 27, 2020 11:20 am Treasurys have been the best diversifier for an equity portfolio.
Isn't treasuries just one part of the bond universe ? The 3 fund portfolio for example recommends VBTLX since picking individual bond funds like treasuries is difficult.

I feel picking individual bond funds like treasuries and highlighting it's performance is a bit like picking individual stock sectors (like say nasdaq composite) and highlighting their performance.

That is why I was struggling to understand whether total-bond-index-fund beat total-stock-index-fund for any 30-40 years.
It is more like picking not sectors but asset classes based on thinking the factors that define those classes (size and value) actually have different returns. In the case of bonds the factors are duration and credit quality. There are lots of additional suggestions for factors. It is possible to get a computation of the size and value (Fama-French) factor loading of any given fund or stock portfolio in, for example, Portfolio Visualizer.

If the question is what bonds to pair with what stocks the theoretical issue is what is the correlation of returns between and among the different assets. The standard argument (or observation) is that Treasuries are less correlated with stocks than are corporate bonds. In that case the risk of the portfolio is less with Treasuries than with corporates. One can also attempt to optimize various figures of merit, such as Sharpe ratio or some utility function or another**

In the end one calculates the asset weighted expected return and the expected value of the asset weighted risk of the portfolio. Normally the definition and measure of risk is the standard deviation of annual returns. The expected return is the arithmetic mean of the annual returns. A different conversation addresses how arithmetic mean and compound annual average growth rate differ over time.

**This is something some people do. I don't do it myself. I just hold some stocks and some intermediate bonds that happen to be Treasuries and TIPS. But that is not a suggestion for anyone in particular and I make no claims for some special virtue in those choices.
Last edited by dbr on Thu Aug 27, 2020 12:16 pm, 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 Bobby206 »

flaccidsteele wrote: Thu Aug 27, 2020 11:06 am
Bobby206 wrote: Thu Aug 27, 2020 9:41 am As a 30 year old with extremely high risk tolerance it tells me you haven't lived through a prolonged bear market. A lot of us became a lot less risk tolerant back around 2000 and again in 2008. Certainly you should be weighted toward stocks but maybe do 80-20.

Don't use hindsight to get down on yourself about bonds and what you shoulda done. That's easy! Hindsight is 100% right every-time!
Odds say that you might be right

I was in my late 20s when I went through the dot com crisis without batting and eye and increased my buying of stocks but everybody is different
I didn't! Lol. As you say each of us is different. Similar age as you. I recall I, and everybody else, was a stock "expert" up until the dot come crash! Was so fun... until it wasn't fun at all! 2008 was different in that I had built up a decent amount of wealth by then. I had been raised with solid buy and hold financial principals, understood long term odds, etc... and I ALMOST cashed out my 401k when it was down 50%. I think I even logged into my account to do it in 2008 but I didn't pull the trigger and stayed invested. I think only the most disciplined truly buy when the market is down.
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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 »

Bobby206 wrote: Thu Aug 27, 2020 12:14 pm
flaccidsteele wrote: Thu Aug 27, 2020 11:06 am
Bobby206 wrote: Thu Aug 27, 2020 9:41 am As a 30 year old with extremely high risk tolerance it tells me you haven't lived through a prolonged bear market. A lot of us became a lot less risk tolerant back around 2000 and again in 2008. Certainly you should be weighted toward stocks but maybe do 80-20.

Don't use hindsight to get down on yourself about bonds and what you shoulda done. That's easy! Hindsight is 100% right every-time!
Odds say that you might be right

I was in my late 20s when I went through the dot com crisis without batting and eye and increased my buying of stocks but everybody is different
I didn't! Lol. As you say each of us is different. Similar age as you. I recall I, and everybody else, was a stock "expert" up until the dot come crash! Was so fun... until it wasn't fun at all! 2008 was different in that I had built up a decent amount of wealth by then. I had been raised with solid buy and hold financial principals, understood long term odds, etc... and I ALMOST cashed out my 401k when it was down 50%. I think I even logged into my account to do it in 2008 but I didn't pull the trigger and stayed invested. I think only the most disciplined truly buy when the market is down.
Yeah it was interesting times during the dot com boom and bust.

I’m only able to buy during downturns because I was completely indoctrinated by Buffett, Graham, Fisher as a teenager. If I read their stuff later, it might have been a different story

I even met Lawrence Cunningham over dinner in the late 1990s when he was launching his new book “Essays” compiling all of Buffett’s writings, and he gave me one of the first copies (the original simple yellow-covered version)
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 RomeoMustDie »

Fallible wrote: Thu Aug 27, 2020 11:21 am
RomeoMustDie wrote: Thu Aug 27, 2020 10:05 am
Bobby206 wrote: Thu Aug 27, 2020 9:41 am As a 30 year old with extremely high risk tolerance it tells me you haven't lived through a prolonged bear market. A lot of us became a lot less risk tolerant back around 2000 and again in 2008. Certainly you should be weighted toward stocks but maybe do 80-20.

Don't use hindsight to get down on yourself about bonds and what you shoulda done. That's easy! Hindsight is 100% right every-time!
We just lived through the Corona 19 crash. If he didn't panic sell then, he should be fine. ...
Market crashes can differ greatly in severity and in length (e.g., '87, '00-'02, '08), plus personal risk tolerance is known to change often throughout a lifetime. One market drop can reveal something about one's tolerance, but the next drop...
If the portfolio goal is long term. Bonds do nothing but dampen volatility.

If the portfolio goal is short term in nature there is a case for bonds.

If the OP intends to invest over a several decade time horizon the choice is clear.

If the OPs intention is to use the portfolio as a possible emergency fund the answer changes.

It was my impression that this is intended to be a long term buy and hold portfolio. In this case, bonds do nothing.

We can move goal posts all day, but there is a clear answer for each scenario.
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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 »

ruralavalon wrote: Thu Aug 27, 2020 12:11 pm Responding to your inquiry about picking bond sectors, in my opinion just about any good credit quality, intermediate-term or short-term bond fund with a low expense ratio will do the job of reducing portfolio volatility. There are lots of ideas about what is best for different personal circumstances, a lot of personal opinion.
Thank you. Yes, I completely agree with you that any good quality bond fund will reduce volatility. 100% agreed.
All I was asking is if you ignore volatility ; and ignore the propensity of a person with supposedly high risk tolerance to feel jittery and abandon stocks at the bottom of a stock market crash. If you do that , has VBTLX (or equivalent) beaten VTSAX (or equivalent) over any 30 or 40 year timeframe in history. Even with rebalancing. I have added a portfolio visualizer link below
Thanks again.
dbr wrote: Thu Aug 27, 2020 12:12 pm It is more like picking not sectors but asset classes based on thinking the factors that define those classes (size and value) actually have different returns. In the case of bonds the factors are duration and credit quality. There are lots of additional suggestions for factors. It is possible to get a computation of the size and value (Fama-French) factor loading of any given fund or stock portfolio in, for example, Portfolio Visualizer.

If the question is what bonds to pair with what stocks the theoretical issue is what is the correlation of returns between and among the different assets. The standard argument (or observation) is that Treasuries are less correlated with stocks than are corporate bonds. In that case the risk of the portfolio is less with Treasuries than with corporates. One can also attempt to optimize various figures of merit, such as Sharpe ratio or some utility function or another**

In the end one calculates the asset weighted expected return and the expected value of the asset weighted risk of the portfolio. Normally the definition and measure of risk is the standard deviation of annual returns. The expected return is the arithmetic mean of the annual returns. A different conversation addresses how arithmetic mean and compound annual average growth rate differ over time.

**This is something some people do. I don't do it myself. I just hold some stocks and some intermediate bonds that happen to be Treasuries and TIPS. But that is not a suggestion for anyone in particular and I make no claims for some special virtue in those choices.
Thanks for the very informative answer.

I did a https://www.portfoliovisualizer.com/bac ... tion2_3=40.

The above is from 1980 to 2020. And the 2 asset classes are
1. VTSAX (or equivalent)
2. VBTLX (or equivalent)

- starting with $10000
- monthly contribution of $1000 for all months from 1980 to 2020
- rebalance quarterly

And the results are summarized here
  • VTSAX (100%) + VBTLX (0%) = $4.044 Mil
  • VTSAX (75%) + VBTLX (25%) = $3.464 Mil
  • VTSAX (60%) + VBTLX (40%) = $3.088 Mil
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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 »

novemberrain wrote: Thu Aug 27, 2020 12:36 pm
  • VTSAX (100%) + VBTLX (0%) = $4.044 Mil
  • VTSAX (75%) + VBTLX (25%) = $3.464 Mil
  • VTSAX (60%) + VBTLX (40%) = $3.088 Mil
A game you should (can) play with those numbers is look at the standard deviation of annual returns in those same results. Divide that number by the square root of the number of years and then apply that to the CAGR as a range of uncertainty on the return, compound those boundaries back up as a range on the result. You can do it again with twice the SD. The point is to get a sense in a very sloppy statistical way of the range of possible outcomes from which your actual outcome will be one single choice handed you by fate.

An alternative, which is real and not sloppy theory, is to run FireCalc with different asset allocations and note the range in end of run portfolio values. You can compare how much overlap there is across different choices. Keep in mind that the extremes are rare and you might want to look at the 10%-90% or 25%-75% percentiles. You can see everything easier by choosing to save in an Excel file on the investigate tab.

If you want theoretical rather than real data you can use the Monte-Carlo tool in Portfolio Visualizer. What you get is the percentile curves of the portfolio balance.

PS The fact that your actual result will be an uncontrollable outcome from a wide range of possibilities is why theoretical nuances in investment choices may not be very interesting in practice.

Here is an article on the question of what is the probability that a single outcome from one distribution will be higher than a single outcome from a different distribution. I have never seen anyone compute that comparison for two proposed portfolios: https://math.stackexchange.com/question ... be-greater
Last edited by dbr on Thu Aug 27, 2020 1:01 pm, edited 1 time in total.
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 »

novemberrain wrote: Thu Aug 27, 2020 2:35 am
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.
An intermediate-term treasury portfolio is not a custom bond portfolio or cherry-picking. Many investors prefer it to a total bond index fund. If anything, total bond takes more risk, and should be rewarded with a higher return. In fact, it is the treasuries in total bond that give it enough ballast to be a suitable 1-fund bond solution for the many investors who choose to use 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 phxjcc »

Definition of terms...
Define ‘risk tolerance’
If it means “I won’t lose sleep if my portfolio drops 40%”, then go 100% stocks.
If it means “I will be homeless and starve if my portfolio drops 40%”, keep some fixed income assets.
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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 »

nisiprius wrote: The question is not even "can you think of a situation in which someone would be unable to retire because they held 90/10 instead of 100% stocks?"
Yes. If in 2008/2009 it was the difference between being down 52% or 47%. If seeing treasuries appreciated and being able to rebalanced assuaged enough of the emotional churn enabled someone to stay the course instead of pulling the plug and selling when down 50%, it would have made a huge difference. Or if someone lost their job and had to withdraw 10% of the portfolio to meet expenses, withdrawing from the appreciated bonds would have meant it wax still a 10% hit after the market recovered, ivstead of bearing the sequence of return risk of withdrawing 10% from equities and then being short 20% after the recovery.

100% is riskier than 90%. If your point was that someone without the nerves for 100% equities often won't have the nerves for 90% either, I would agree.

But most investors who claim to be 100% stock have an emergency fund so that they are not actually 100% stock-- they just manage liquidity outside the portfolio.
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 novemberrain »

Northern Flicker wrote: Thu Aug 27, 2020 12:58 pm An intermediate-term treasury portfolio is not a custom bond portfolio or cherry-picking. Many investors prefer it to a total bond index fund.
Thanks. Not sure I agree with that 100%. Isn't that similar to a stock investor saying they prefer Nasdaq Composite instead of VTSAX.
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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 »

novemberrain wrote: Thu Aug 27, 2020 1:40 pm
Northern Flicker wrote: Thu Aug 27, 2020 12:58 pm An intermediate-term treasury portfolio is not a custom bond portfolio or cherry-picking. Many investors prefer it to a total bond index fund.
Thanks. Not sure I agree with that 100%. Isn't that similar to a stock investor saying they prefer Nasdaq Composite instead of VTSAX.
If you're going to insist on no judgement in picking beyond asset classes, why VTSAX and not VTWAX?

There are good reasons to prefer the 'riskless' asset (your local stable government's bonds) to a basket of bonds with a variety of risks and yields and durations. The optimal precise makeup of a bond portfolio is somewhat uncertain and linked to investing time horizons amongst other things. In the world of stocks you can also choose to factor tilt your portfolio to take on more risk than the cap-weighted market provides.
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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 2:15 pm If you're going to insist on no judgement in picking beyond asset classes, why VTSAX and not VTWAX?
Good question. I don't have a very good answer other than that I don't understand international stocks. I mean I am more familiar with America and so feel more comfortable in investing in America. I trust the financial markets in america more than any other country.
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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 »

dbr wrote: Thu Aug 27, 2020 12:52 pm
novemberrain wrote: Thu Aug 27, 2020 12:36 pm
  • VTSAX (100%) + VBTLX (0%) = $4.044 Mil
  • VTSAX (75%) + VBTLX (25%) = $3.464 Mil
  • VTSAX (60%) + VBTLX (40%) = $3.088 Mil
A game you should (can) play with those numbers is look at the standard deviation of annual returns in those same results. Divide that number by the square root of the number of years and then apply that to the CAGR as a range of uncertainty on the return, compound those boundaries back up as a range on the result. You can do it again with twice the SD. The point is to get a sense in a very sloppy statistical way of the range of possible outcomes from which your actual outcome will be one single choice handed you by fate.

An alternative, which is real and not sloppy theory, is to run FireCalc with different asset allocations and note the range in end of run portfolio values. You can compare how much overlap there is across different choices. Keep in mind that the extremes are rare and you might want to look at the 10%-90% or 25%-75% percentiles. You can see everything easier by choosing to save in an Excel file on the investigate tab.

If you want theoretical rather than real data you can use the Monte-Carlo tool in Portfolio Visualizer. What you get is the percentile curves of the portfolio balance.

PS The fact that your actual result will be an uncontrollable outcome from a wide range of possibilities is why theoretical nuances in investment choices may not be very interesting in practice.

Here is an article on the question of what is the probability that a single outcome from one distribution will be higher than a single outcome from a different distribution. I have never seen anyone compute that comparison for two proposed portfolios: https://math.stackexchange.com/question ... be-greater
Thank you for the deep analysis. I am intrigued by the math and will check it out this weekend.
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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 »

novemberrain wrote: Thu Aug 27, 2020 1:40 pm
Northern Flicker wrote: Thu Aug 27, 2020 12:58 pm An intermediate-term treasury portfolio is not a custom bond portfolio or cherry-picking. Many investors prefer it to a total bond index fund.
Thanks. Not sure I agree with that 100%. Isn't that similar to a stock investor saying they prefer Nasdaq Composite instead of VTSAX.
No, it is not at all the same. Nasdaq composite is not an asset class (what is its defining property?). Intermediate treasuries are an asset class. Moreover, there is no compelling reason that 42:37:21 is the optinal mix of the 3 bond asset classes treasuries, MBS, credit, and no compelling reason you should even hold MBS and credit if your only objective for holding bonds is to diversify equity risk.
Last edited by Northern Flicker on Thu Aug 27, 2020 5:23 pm, edited 1 time in total.
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 Fallible »

RomeoMustDie wrote: Thu Aug 27, 2020 12:33 pm
Fallible wrote: Thu Aug 27, 2020 11:21 am
RomeoMustDie wrote: Thu Aug 27, 2020 10:05 am
Bobby206 wrote: Thu Aug 27, 2020 9:41 am As a 30 year old with extremely high risk tolerance it tells me you haven't lived through a prolonged bear market. A lot of us became a lot less risk tolerant back around 2000 and again in 2008. Certainly you should be weighted toward stocks but maybe do 80-20.

Don't use hindsight to get down on yourself about bonds and what you shoulda done. That's easy! Hindsight is 100% right every-time!
We just lived through the Corona 19 crash. If he didn't panic sell then, he should be fine. ...
Market crashes can differ greatly in severity and in length (e.g., '87, '00-'02, '08), plus personal risk tolerance is known to change often throughout a lifetime. One market drop can reveal something about one's tolerance, but the next drop...
If the portfolio goal is long term. Bonds do nothing but dampen volatility.

If the portfolio goal is short term in nature there is a case for bonds.

If the OP intends to invest over a several decade time horizon the choice is clear.

If the OPs intention is to use the portfolio as a possible emergency fund the answer changes.

It was my impression that this is intended to be a long term buy and hold portfolio. In this case, bonds do nothing. ...
There is an often overlooked but important emotional role, a nod to human feelings about risk, that quality bonds can play in a portfolio - even for one who describes his risk tolerance as "extremely high." Here's an article from "Wealth of Common Sense" author Ben Carlson about tolerance and the importance of saving, although I don't think we know much about the OP's savings or other investments.

Carlson begins with this quote:

“We must base our asset allocation not on the probabilities of choosing the right allocation but on the consequences of choosing the wrong allocation.” ~Jack Bogle

And Carlson's opening:
One of the most important decisions investors have to make when constructing a portfolio is how to spread their investments between stocks, bonds, cash and other investments. Asset allocation plays a critical role in determining investment performance and risk tolerance.

Historically speaking, stocks have given investors the best odds at increasing their savings over the long-term while bonds have offered an option to reduce the risk of large short-term losses.

Generally the rule of thumb has always been that a stock-heavy portfolio is much more volatile than one that holds a higher weighting in bonds. Perception plays a huge role in how investors view portfolio risk, but lower volatility tends to make investors feel safer.
https://awealthofcommonsense.com/2014/0 ... ngs-rates/
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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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 »

Northern Flicker wrote: Thu Aug 27, 2020 4:42 pm
novemberrain wrote: Thu Aug 27, 2020 1:40 pm
Northern Flicker wrote: Thu Aug 27, 2020 12:58 pm An intermediate-term treasury portfolio is not a custom bond portfolio or cherry-picking. Many investors prefer it to a total bond index fund.
Thanks. Not sure I agree with that 100%. Isn't that similar to a stock investor saying they prefer Nasdaq Composite instead of VTSAX.
No, it is not at all the same. Nasdaq composite is not an asset class (what is its defining property?). Intermediate treasuries are an asset class. Moreover, there is no compelling reason that 42:37:21 is the optinal mix of the 3 bond asset classes treasuries, MBS, credit, and no compelling reason you should even hold MBS and credit if your only objective for holding bonds is to diversify equity risk.
Maybe I didn't word it correctly. What I intended to say was that nowhere in the 3 fund portfolio wiki do they talk about treasuries.
https://www.bogleheads.org/wiki/Three-fund_portfolio
All they mention is about "Total Bond Market Fund"; and "Total Stock Market Index Fund". So when the other posted brought up the topic of treasuries , which is a only one of the many parts of the bond universe, it is similar to picking one among the many sectors of the economy ; namely Technology. And concentrate on stocks of those companies. Yes, I don't dispute that Tech stocks and non-tech stocks are the same asset class. All I am saying is that I would be cherry-picking if I used tech stock performance as an example to prove the superiority of stocks in general.
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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: Thu Aug 27, 2020 6:16 am
Northern Flicker wrote: Thu Aug 27, 2020 12:50 am 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.
What could happen is everything

Japan is as irrelevant as anything else

Add meteorite strikes, catastrophic volcanic activity and an extinction event while you’re at it
That's just a copout, suggesting one need not worry about risk management by proposing extravagant risks we cannot control at all like cataclysmic disasters, wars, or invasion of earth by a more advanced civilization from another solar system.

There have been certain kinds of financial risks that are more than just theoretical because they have occurred before, in some cases many times. Some investors try to at least partially diversify these risks. And there are many investors who maybe have not experienced events like 2000/2002 or 2008/2009 with 15-20 years of savings at stake, and think risk is just a volatility blip from the monotonicly increasing market and from which the market quickly recovers.
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 RomeoMustDie »

Fallible wrote: Thu Aug 27, 2020 4:59 pm
RomeoMustDie wrote: Thu Aug 27, 2020 12:33 pm
Fallible wrote: Thu Aug 27, 2020 11:21 am
RomeoMustDie wrote: Thu Aug 27, 2020 10:05 am
Bobby206 wrote: Thu Aug 27, 2020 9:41 am As a 30 year old with extremely high risk tolerance it tells me you haven't lived through a prolonged bear market. A lot of us became a lot less risk tolerant back around 2000 and again in 2008. Certainly you should be weighted toward stocks but maybe do 80-20.

Don't use hindsight to get down on yourself about bonds and what you shoulda done. That's easy! Hindsight is 100% right every-time!
We just lived through the Corona 19 crash. If he didn't panic sell then, he should be fine. ...
Market crashes can differ greatly in severity and in length (e.g., '87, '00-'02, '08), plus personal risk tolerance is known to change often throughout a lifetime. One market drop can reveal something about one's tolerance, but the next drop...
If the portfolio goal is long term. Bonds do nothing but dampen volatility.

If the portfolio goal is short term in nature there is a case for bonds.

If the OP intends to invest over a several decade time horizon the choice is clear.

If the OPs intention is to use the portfolio as a possible emergency fund the answer changes.

It was my impression that this is intended to be a long term buy and hold portfolio. In this case, bonds do nothing. ...
There is an often overlooked but important emotional role, a nod to human feelings about risk, that quality bonds can play in a portfolio - even for one who describes his risk tolerance as "extremely high." Here's an article from "Wealth of Common Sense" author Ben Carlson about tolerance and the importance of saving, although I don't think we know much about the OP's savings or other investments.

Carlson begins with this quote:

“We must base our asset allocation not on the probabilities of choosing the right allocation but on the consequences of choosing the wrong allocation.” ~Jack Bogle

And Carlson's opening:
One of the most important decisions investors have to make when constructing a portfolio is how to spread their investments between stocks, bonds, cash and other investments. Asset allocation plays a critical role in determining investment performance and risk tolerance.

Historically speaking, stocks have given investors the best odds at increasing their savings over the long-term while bonds have offered an option to reduce the risk of large short-term losses.

Generally the rule of thumb has always been that a stock-heavy portfolio is much more volatile than one that holds a higher weighting in bonds. Perception plays a huge role in how investors view portfolio risk, but lower volatility tends to make investors feel safer.
https://awealthofcommonsense.com/2014/0 ... ngs-rates/
I can link you a more recent article discussing market participation in the covid 19 crash and investors becoming more risk tolerant over time.

Long story short, do your own research and invest in bonds at your own peril.
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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 »

novemberrain wrote: Fri Aug 28, 2020 12:39 am Maybe I didn't word it correctly. What I intended to say was that nowhere in the 3 fund portfolio wiki do they talk about treasuries.
https://www.bogleheads.org/wiki/Three-fund_portfolio
All they mention is about "Total Bond Market Fund"; and "Total Stock Market Index Fund". So when the other posted brought up the topic of treasuries , which is a only one of the many parts of the bond universe, it is similar to picking one among the many sectors of the economy ; namely Technology. And concentrate on stocks of those companies. Yes, I don't dispute that Tech stocks and non-tech stocks are the same asset class. All I am saying is that I would be cherry-picking if I used tech stock performance as an example to prove the superiority of stocks in general.
Bogle preferred total bond. His feeling was that he didn’t like concentrating all your “riskless” assets in the US Govt. and since the entire point of index investing is not extracting every last penny but about giving ordinary people like us a good enough solution “just get 60% stocks and 40% total bonds” is fine. Bogle also didn’t like non US stocks. He was a gentle jingoist about it and figured that foreign stocks weren’t worth the hassle.

Both of these attitudes inform the 2 or 3 fund portfolio advice. The wiki page you link describes some of the problems with total bond fund; it leaves out the perennial discussions on these boards about holding treasury vs total bond but I guess that would just be up to a new editor to add in the discussion. In general, since most of the action on our portfolios is meant to come from stocks, we focus our attention there

There are good theoretical reasons to prefer treasury to total fixed income (it’s not at all clear that corporate bonds offer much diversification benefit since they also fail when companies start to fail). Those reasons happen to have been borne out in the backtest. A small amount of fixed income can offer a diversification benefit over 100% stocks that is worth considering even if you are a maximum risk/return investor. And as many have pointed out in this thread, if you want to maximize your risk, you have options like leverage or factor tilting to go further than 100% (factor tilting has its own set of complications and now we are straying very far from three fund territory).
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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 catchup »

100% stocks isn’t bad if you don’t have much invested and therefore don’t have much to lose. If you see your life savings plummeting and have a family to look out for, it doesn’t take long to see that such an investment strategy can be painful if not irresponsible.

I think it makes sense to diversify, build an allocation that you can stick with for the long term. Then, think in terms of total return for your portfolio rather than how your 1 bond fund is doing.

By diversifying, you generally get more return for the same amount of risk, and less risk for the same 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 PicassoSparks »

Northern Flicker wrote: Fri Aug 28, 2020 1:01 am There have been certain kinds of financial risks that are more than just theoretical because they have occurred before, in some cases many times. Some investors try to at least partially diversify these risks. And there are many investors who maybe have not experienced events like 2000/2002 or 2008/2009 with 15-20 years of savings at stake, and think risk is just a volatility blip from the monotonicly increasing market and from which the market quickly recovers.
I need to stop getting so emotionally invested in the wellbeing of complete strangers on a finance forum, because this terrifies me on their behalf. I don't think that people really understand what it means when they are asked "do you have a high risk tolerance?" Since high risk has meant higher expected returns, I think a lot of people think that means higher risk = higher returns. Period. Full stop. And it really doesn't.

It has taken me a lot of time to get a clear understanding of what kind of risks we are taking on. There is a lot of material out there to argue for buy and hold outperforming active management. To make its point, it tends to focus on time periods where buy and hold looked scary but paid off handsomely in the end. Rhetorically understandable, but somewhat misleading. As your signature points out: risk does not guarantee return.

I think a lot of people have come to understand risk tolerance as being the equivalent of strong moral character: Do you have the courage to hold fast while others are panic selling? And I wish more people understood that risk tolerance meant: For a chance at better returns, are you able to recover from significant losses and do you want to?

The reason that we say that young people can afford to have a higher risk appetite is because you have more time to work off a shortfall if you invested during one of the periods where stocks underperform T-bills. You take a bigger risk now because there's a chance that you'll have an easier time later and you're ready to take on the chance that you have a much harder time later. This is relevant to the OP who expressed some regret at the bonds falling slightly during the period they were holding them. Do you truly understand how much of your portfolio you stand to lose if stocks should have a bad time? Remember: gains compound but so do losses.

This is particularly relevant because of the strange period of history we are living in (every period of history is strange). In 2012, AQR released a paper that showed that when the Shiller PE ratio was higher, expected returns for the coming decade were lower. Here's the table.

Image

I encourage the OP to read it carefully as it gives a sense of the range of outcomes that a 100% stocks strategy can offer over a decade of commitment. Overall, it's a good strategy but notice that there is a not insignificant number of situations where stocks have lost money over 10 years.

At the time, they were raising a concern since the Shiller PE was quite high (the highlighted band). Guess where the Shiller PE is now

Image

There's a lot of good reason to question the Shiller PE's predictive power and there's a wide range of possible outcomes for the future even if you do think it is a strong indicator. But I think anyone going 100% stocks should think carefully about the expected returns of that asset allocation in an environment where valuations are already at historic highs.
Last edited by PicassoSparks on Fri Aug 28, 2020 8:16 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 RobLyons »

Go 100% stock and don't look back until 45 or 50 (or 10-15 years from retirement, whenever that may be for you). I'm currently 39 and hold less than 15% bonds and my only regrets are not putting more into 403b earlier, and not going 100% from the start. Cheers young man! :sharebeer
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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: Fri Aug 28, 2020 1:01 am There have been certain kinds of financial risks that are more than just theoretical because they have occurred before, in some cases many times. Some investors try to at least partially diversify these risks. And there are many investors who maybe have not experienced events like 2000/2002 or 2008/2009 with 15-20 years of savings at stake, and think risk is just a volatility blip from the monotonicly increasing market and from which the market quickly recovers.
From my perspective, and as far as the US market is concerned, it is a volatility blip to accumulate more

No need to invent fears to scare the OP
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 snowman »

OP, your main issue is that you invested your money in a financial product you did not fully understand. That's one of the main tenets of successful investing career - never put your hard earned money into something you do not understand. The good news is that the lesson learned didn't cost you much, if anything. You learn and you move on.

I would suggest you read one of the classic investment books - Winning the loser's game by Charlie Ellis. It's the best investment book IMO, and it will clearly explain to you how bonds work, and the risk associated with them. Since you are young, it will help you develop long term investment strategy tailored to your risk tolerance.

Having said that, I did not start buying bonds until my 50s. I told my kids to not even think about bonds until they hit 40. At 30, with your risk tolerance, I would stay 100% equities, assuming you have emergency fund. I would keep the bond fund you already have for educational purposes - you will have years to watch it go up and down, pay monthly dividends, and almost always behave in a way no economist predicts. When the time comes to start putting new money into bonds, you will be ready.

Good luck!
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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: Fri Aug 28, 2020 6:18 am Bogle preferred total bond. His feeling was that he didn’t like concentrating all your “riskless” assets in the US Govt. and since the entire point of index investing is not extracting every last penny but about giving ordinary people like us a good enough solution “just get 60% stocks and 40% total bonds” is fine. Bogle also didn’t like non US stocks. He was a gentle jingoist about it and figured that foreign stocks weren’t worth the hassle.

Both of these attitudes inform the 2 or 3 fund portfolio advice. The wiki page you link describes some of the problems with total bond fund; it leaves out the perennial discussions on these boards about holding treasury vs total bond but I guess that would just be up to a new editor to add in the discussion. In general, since most of the action on our portfolios is meant to come from stocks, we focus our attention there
Thank you.
PicassoSparks wrote: Fri Aug 28, 2020 6:18 am There are good theoretical reasons to prefer treasury to total fixed income (it’s not at all clear that corporate bonds offer much diversification benefit since they also fail when companies start to fail). Those reasons happen to have been borne out in the backtest.
Thank you very much. Got it.
PicassoSparks wrote: Fri Aug 28, 2020 6:18 am A small amount of fixed income can offer a diversification benefit over 100% stocks that is worth considering even if you are a maximum risk/return investor. And as many have pointed out in this thread, if you want to maximize your risk, you have options like leverage or factor tilting to go further than 100% (factor tilting has its own set of complications and now we are straying very far from three fund territory).

And as many have pointed out in this thread, if you want to maximize your risk, you have options like leverage or factor tilting to go further than 100% (factor tilting has its own set of complications and now we are straying very far from three fund territory).
Thank you. Yes I agree. A way to visualize this is if we consider risk as a linear spectrum with left being less risky and right being more risky. Then yes 120% would be further right on that line than 100%. And 75% would be the left of 100% and 0% stocks would be further left. And I don't know whether negative 20% is even possible (ie borrow money to invest in bonds). If if such a thing was possible, then negative 20% would be to the left of 0%. So we have this linear spectrum of choices
-20% , 0% , 50% , 75%, 100% , 120%
On that spectrum, which point you chose is based on your own perceived risk tolerance. A person could claim that they are "extremely high risk tolerance" and prefer 100% over 75%. And as you (and others) pointed out, a question to ask is why stop at 100%, why not 120%. It is a valid question. But a equally valid counter question going to the other direction in the spectrum would be why stop at 75% bonds, why not go 100% bonds (and 0% stocks). I believe the answer to that is it is based on supposed risk tolerance.

PS. Now whether a high-risk-tolerant person would get jittery and abandon stocks at the worst possible time (at the bottom of a crash) is another point entirely. I don't want to go there since it is an un-necessary distraction.

Actually I went back and re - read your earlier post
viewtopic.php?p=5458084#p5458084
and the VUSTX / VUSUX portfolio analyzer https://www.portfoliovisualizer.com/bac ... tion3_3=10

I must admit my mind was blown when I saw the 30 year performance. I never expected a portfolio with so much treasuries to beat a total stock portfolio. Thanks for posting that
Last edited by novemberrain on Fri Aug 28, 2020 11:53 am, edited 2 times in total.
atdharris
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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 atdharris »

I've held ~10% in TLT for a while in my taxable account, but with the current monetary policy, I am leaning towards just dumping it for more stock. I am 31 years old and have plenty of time ahead of me.
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