19 (now 20 years old) 100% stocks AA review

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

Do you like my AA?

Ja, yes, not only is it acceptable, it is a good idea!
14
39%
Nein, no, I will explain below!
18
50%
neutral...I only wish I was investing when I was a young adult!
4
11%
 
Total votes: 36

Topic Author
no_name
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19 (now 20 years old) 100% stocks AA review

Post by no_name »

Emergency funds = ibonds @ 4.5%

Tax Filing Status: Dependent

Age: 19 (20 now)

Desired Asset allocation: (100% stocks)
Current AA: 100% Stocks (61% domestic/39% foreign)

Intl allocation: 35-40%

Current portfolio: low 5 figures

His Roth at Vanguard:
24.4% Total Stock Market Index
16.3% Small Cap Value Index
8.3% REIT Index
24.4% Total International Stock Market Index
16.3% FTSE All-World Small caps

His 403b:
5.2% State Street S&P 500 index (SVSPX) (.24)
5.2% Vanguard VIF Small Company Growth (VVA) (.43)

See: https://advisors.vanguard.com/VGApp/iip ... undId=0161


Company Match: No (until 21 years of age)


New annual Contributions
10% his 403b
$5k his Roth/ yr


Questions:
1. Does this sound good to you guys?
2. If you have any concerns over my 100% stock AA, please message me. I will explain my rationale. Thank you!

Key Points:
>Please DO NOT convince me to add bonds----yet.
>invested since I was a teen.
>College Student
> 100% index except VVA
>My 403b--the 2 I only picked have the lowest of the low er.
>When I am age 40+ or depending on the portfolio size, I plan to add Vanguard TotalBond Market (10%) and then to 60/40 AA.
> T0 add total bond market eventually convert some of the stock shares and its' dividends
to total bond market and contribute to it each year.
> retirement live off the total bond market dividends/SS/403b/ ect....
> credit to M* x-ray
>Thanks so much!

=============
Please help mom and dad AA: http://www.bogleheads.org/forum/viewtop ... 0#p1270930
Last edited by no_name on Sun Jan 08, 2012 5:40 pm, edited 2 times in total.
The Wizard
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Re: 19 (now 20 years old) 100% stocks AA review

Post by The Wizard »

I don't have a HUGE quarrel about 100% stocks at your age.
Key point is that you are way ahead of 95% of your peers.
The problem with being 100% is that you cannot take money out of stocks during periods of irrational exuberance.
And you can't rebalance significant amounts of money BACK INTO stocks after significant declines.
(Go back and review 2008-2009 for example.)
So you're in for a fun roller-coaster ride, that's all...
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YDNAL
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Re: 19 (now 20 years old) 100% stocks AA review

Post by YDNAL »

jumpin wrote:Emergency funds = ibonds @ 4.5%

Tax Filing Status: Dependent

Age: 19 (20 now)

Desired Asset allocation: (100% stocks)
Current AA: 100% Stocks (61% domestic/39% foreign)

Intl allocation: 35-40%

Current portfolio: low 5 figures
It doesn't much matter if low 5-fig turns to low 4-fig... does it?

When you have mid 6-fig it WILL matter much more if it turns to low 6-fig. :D

Congratulations on the early start!
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
texas_archer
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Re: 19 (now 20 years old) 100% stocks AA review

Post by texas_archer »

A 80/20 portfolio will give you close to the same return as a 100% portfolio but with less risk.
Last edited by texas_archer on Thu Jan 05, 2012 12:21 pm, edited 1 time in total.
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Midpack
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Re: 19 (now 20 years old) 100% stocks AA review

Post by Midpack »

texas_archer wrote:A 80/20 portfolio will give you close to the same return at a 100% portfolio but with less risk.
I was 100% equities, individual stocks only early on, until my early 40's and (luckily) did well, partly by virtue of the times I lived in then. However, 80/20 in (mostly) low cost broad funds would have been smarter in retrospect, with almost the same results...
Last edited by Midpack on Thu Jan 05, 2012 12:36 pm, edited 1 time in total.
You only live once...
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jeffro
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Re: 19 (now 20 years old) 100% stocks AA review

Post by jeffro »

Congrats on what you have done so far! Its good to see that there are some other college students using their brains! Im 21 and I am 100% equities as well. Hopefully that makes you feel a little better.
Topic Author
no_name
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Re: 19 (now 20 years old) 100% stocks AA review

Post by no_name »

Thanks everyone for their reviews.
madbrain
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Re: 19 (now 20 years old) 100% stocks AA review

Post by madbrain »

Guys,

Sorry to rain on your parade.
I started investing in a 401k very young as well, at 19 also, in 1996. I switched my AA to 100% equities around 1999, including both domestic and international. Total return has been negative for the life of my 401k. If I had to do it again, I would not do the same thing. Even though an index fund is diversified between many companies, stocks are still one asset class. There is a case to be made for having some other asset classes that don't directly correlate with equities, even if you are young.
golfallday
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Re: 19 (now 20 years old) 100% stocks AA review

Post by golfallday »

Congrats on a very well thought out portfolio! Very solid fund choices and allocations. Wish I was in your financial shape 35 years ago. You need bonds, sorry. They really smooth out turbulence.
TRC
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Re: 19 (now 20 years old) 100% stocks AA review

Post by TRC »

Bonds have outperformed stocks for the last 30 years. http://www.usatoday.com/money/markets/s ... 52381380/1

I would hold some bonds, especially so you can rebalance when either bonds or stocks dip to take advantage of some bargains.
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Aptenodytes
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Re: 19 (now 20 years old) 100% stocks AA review

Post by Aptenodytes »

Just adding a small amount in bonds gives you a big reduction in volatility in exchange for negligible reduction in expected return. There's no good reason to be more than about 85-90% stocks, as I read the evidence.
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no_name
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Re: 19 (now 20 years old) 100% stocks AA review

Post by no_name »

TRC wrote:Bonds have outperformed stocks for the last 30 years. http://www.usatoday.com/money/markets/s ... 52381380/1

I would hold some bonds, especially so you can rebalance when either bonds or stocks dip to take advantage of some bargains.
LOL. USA news? That is not a reliable source.
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greg24
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Re: 19 (now 20 years old) 100% stocks AA review

Post by greg24 »

I don't see the point of your post if you are 100% equities yet don't want anyone to attempt to convince you to buy bonds.
vested1
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Re: 19 (now 20 years old) 100% stocks AA review

Post by vested1 »

The Wizard wrote: periods of irrational exuberance.
Is there any other period when you are 20/21 years of age? Ahh…. I (seem to) remember it well…

Good job on the early start. Keep it up!
kirent
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Re: 19 (now 20 years old) 100% stocks AA review

Post by kirent »

I personally don't think it matters all that much what his asset allocation is at this time, because he doesn't have much and I'm guessing his savings rate will probably have a bigger impact than his returns. I think at this age, the question should be what he is studying and what field he plans to go into.
Disclaimer: I am not a financial or legal expert and all information I provide is given for entertainment purposes only, at your own risk and with no guarantees of accuracy.
The Wizard
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Re: 19 (now 20 years old) 100% stocks AA review

Post by The Wizard »

greg24 wrote:I don't see the point of your post if you are 100% equities yet don't want anyone to attempt to convince you to buy bonds.
I think the point of his post is to allow us to ARM-WRESTLE him into doing things a bit differently...
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dratkinson
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Re: 19 (now 20 years old) 100% stocks AA review

Post by dratkinson »

The good news is that you are well ahead of me in when you began to invest. The bad news is that I believe you are making a mistake.

The short answer. If you have the academic background or operational experience to refute the experts, then do it your way. If not, then you are well advised to do it their way.



The long answer.

Benjamin Graham, The Intelligent Investor, recommended 50/50 stock/bond ratio.

William Bernstein, The Investor's Manifesto, "...suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a converse inverse range of between 75% and 25% in bonds. There is an implication here that the standard division should be an equal one, or 50-50 between the two major investment mediums."

If you want to be more aggressive, then "your age in bonds" (20%) is an acceptable starting point.

Your 403b seems to be the logical placement for your low-cost taxable bond fund(s).

The recommend bond funds are total bond market, intermediate-term treasury, and inflation protected securities.

You can also add $10K/year in US Savings bond, series I, if you exceed your tax-advantaged space.

Your international allocation should be based on your equity allocation (not your total portfolio.) Just hold this amount steady until the rest of your portfolio catches up. There is no reason to sell/create a taxable gain to rebalance. (The recommended international allocation is 30-50% of equities.)

Ditto your REIT allocation. (If you use this, then the recommended allocation is 10-15% of equities as you approach retirement.)



Good luck with whatever you decide.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
kirent
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Re: 19 (now 20 years old) 100% stocks AA review

Post by kirent »

dratkinson wrote:The good news is that you are well ahead of me in when you began to invest. The bad news is that I believe you are making a mistake.

The short answer. If you have the academic background or operational experience to refute the experts, then do it your way. If not, then you are well advised to do it their way.



The long answer.

Benjamin Graham, The Intelligent Investor, recommended 50/50 stock/bond ratio.

William Bernstein, The Investor's Manifesto, "...suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a converse inverse range of between 75% and 25% in bonds. There is an implication here that the standard division should be an equal one, or 50-50 between the two major investment mediums."

If you want to be more aggressive, then "your age in bonds" (20%) is an acceptable starting point.

Your 403b seems to be the logical placement for your low-cost taxable bond fund(s).

The recommend bond funds are total bond market, intermediate-term treasury, and inflation protected securities.

You can also add $10K/year in US Savings bond, series I, if you exceed your tax-advantaged space.

Your international allocation should be based on your equity allocation (not your total portfolio.) Just hold this amount steady until the rest of your portfolio catches up. There is no reason to sell/create a taxable gain to rebalance. (The recommended international allocation is 30-50% of equities.)

Ditto your REIT allocation. (If you use this, then the recommended allocation is 10-15% of equities as you approach retirement.)



Good luck with whatever you decide.
I disagree with the notion of doing something just because the experts say so. If that were the case, what's stopping someone from following the Merrill Lynch experts?
Disclaimer: I am not a financial or legal expert and all information I provide is given for entertainment purposes only, at your own risk and with no guarantees of accuracy.
staythecourse
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Re: 19 (now 20 years old) 100% stocks AA review

Post by staythecourse »

stives wrote:I personally don't think it matters all that much what his asset allocation is at this time, because he doesn't have much and I'm guessing his savings rate will probably have a bigger impact than his returns. I think at this age, the question should be what he is studying and what field he plans to go into.
Bingo!!!

My biggest rub on this site are young folks thinking that 100% equities and just letting it compound over 40 years is going to make them rich. They have missed the first step in succesful investing and that is:

1. Get a good education.
2. Get the highest paying job you can that you like.
3. Lower and eliminate debt
4. Save, save, save, save....
5. LBYM

The 5 above will earn more with a 60/40 allocation then a 100% allocation where one is investing "whenever he has money". The key to being WEALTHY (obviously the goal of a 100% equity portfolio) is saving in 401k and IRA should be the MINIMUM and not the goal.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
Topic Author
no_name
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Re: 19 (now 20 years old) 100% stocks AA review

Post by no_name »

staythecourse wrote:
stives wrote:I personally don't think it matters all that much what his asset allocation is at this time, because he doesn't have much and I'm guessing his savings rate will probably have a bigger impact than his returns. I think at this age, the question should be what he is studying and what field he plans to go into.
Bingo!!!

My biggest rub on this site are young folks thinking that 100% equities and just letting it compound over 40 years is going to make them rich. They have missed the first step in succesful investing and that is:

1. Get a good education.
2. Get the highest paying job you can that you like.
3. Lower and eliminate debt
4. Save, save, save, save....
5. LBYM

The 5 above will earn more with a 60/40 allocation then a 100% allocation where one is investing "whenever he has money". The key to being WEALTHY (obviously the goal of a 100% equity portfolio) is saving in 401k and IRA should be the MINIMUM and not the goal.

Good luck.

The power of compounding is the greatest force in the universe.
Default User BR
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Re: 19 (now 20 years old) 100% stocks AA review

Post by Default User BR »

Aptenodytes wrote:Just adding a small amount in bonds gives you a big reduction in volatility in exchange for negligible reduction in expected return.
I don't believe this to be accurate. The typical risk/return curve over extended periods flattens considerably from about 50/50 on, but the extra return for the increased risk is not negligible.

That being said, I agree that at least 20% bonds makes sense



Brian
staythecourse
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Re: 19 (now 20 years old) 100% stocks AA review

Post by staythecourse »

jumpin wrote:
staythecourse wrote:
stives wrote:I personally don't think it matters all that much what his asset allocation is at this time, because he doesn't have much and I'm guessing his savings rate will probably have a bigger impact than his returns. I think at this age, the question should be what he is studying and what field he plans to go into.
Bingo!!!

My biggest rub on this site are young folks thinking that 100% equities and just letting it compound over 40 years is going to make them rich. They have missed the first step in succesful investing and that is:

1. Get a good education.
2. Get the highest paying job you can that you like.
3. Lower and eliminate debt
4. Save, save, save, save....
5. LBYM

The 5 above will earn more with a 60/40 allocation then a 100% allocation where one is investing "whenever he has money". The key to being WEALTHY (obviously the goal of a 100% equity portfolio) is saving in 401k and IRA should be the MINIMUM and not the goal.

Good luck.

The power of compounding is the greatest force in the universe.
That is only partly true. Let me ask you if I let you compound $10,000 over 40 years or $20,000 over 40 years which one would you choose? The answer is simple isn't it. Having as much money to invest is the key to being wealthy. The money saved the more that is exposed to the effects of compounding. People don't realize saving is the the lowest hanging fruit in improving dollar returns without increasing risk. As close to being a free lunch as you going to get in investing after diversification.

The reason young folks like to focus how much equities and time is it is easy. It requires A LOT more time and effort getting a better education and working hard on maximizing their human capital then it is to just repeat the 100% equity mantra for 40 years.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
A Devout Indexer
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Re: 19 (now 20 years old) 100% stocks AA review

Post by A Devout Indexer »

Unless you are one of those nervous nellies who gets worried every time the market goes down 5%, you shouldn't have any bonds. The benefit of being able to buy stocks at lower prices on occasion by rebalancing out of bonds is not a compelling enough reason to lower portfolio expected returns all the time. At your portfolio level, your ongoing savings will accomplish this same thing without the expected return drag.

For example, from 1928-2010, a 100% equity portfolio (60 tsm/40 sv) mix outpaced an 80/20 stock and bond (same equity allocation, 20% 5yr t-notes) by 0.7% per year. That's a big deal over 10 to 15 years on a compound basis. The future may not play out exactly like this, but more than likely it'll be because bonds fail to deliver their historical average returns, not stocks. On average, you'll see a negative return about once every four years (historically, the 100% equity has declined 23 times in 84 years) and through 2010, that loss averaged -15.5% vs. -11.2% for the 80/20. Trust me, if you are uncomfortable with -15%, you won't like -11% much better.

My advice, learn to be OK with temporary declines and stick with stocks.
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Kevin M
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Re: 19 (now 20 years old) 100% stocks AA review

Post by Kevin M »

jumpin wrote: His Roth at Vanguard:
24.4% Total Stock Market Index
16.3% Small Cap Value Index
8.3% REIT Index
24.4% Total International Stock Market Index
16.3% FTSE All-World Small caps

His 403b:
5.2% State Street S&P 500 index (SVSPX) (.24)
5.2% Vanguard VIF Small Company Growth (VVA) (.43)
I like the funds you are using, except VVA (the evidence I've seen does not support using small growth); I would dump that, and use only SVSPX in your 403b for now. You already have a significant tilt to small value in your Roth; I don't think you need more, but if you want more, use more SCV and less TSM in your Roth.

You are showing your colors as a heavy tilter (toward small, value and REIT); I assume you've done enough reading and thinking to convince yourself that this makes sense for you, and that you will stick with it for many years, even if there are long periods of underperformance relative to a total market portfolio.

Like some of the others, I would include at least 20% bonds, but I won't try to convince you to do so. If you lived comfortably through 2008-2009 with 100% stocks, then you at least have proven that you have the willingness to take this risk. As your portfolio grows, I would imagine you would want to scale back on the risk, perhaps earlier than you plan, but at least you plan to start adding bonds at some point, and end up with a less risky portfolio in your later years.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)
Dandy
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Re: 19 (now 20 years old) 100% stocks AA review

Post by Dandy »

What makes you feel you know something about allocations that most "experts" don't? The only "experts" that I know that recommned 100% stocks are ones that have a commissioned interest in having clients buy equities. Being young allows you to take on risk but not ingnore it.

At your age (sorry to play the age card) you have not seen many business/investment cycles so you might not fuly understand the risks involved or your actual risk tolerance. Studies show that being able to fully appreciate consequences of your actions doesn't peak in most adults until around 26 years of age. I am retired and spent most of my career in the financial services industry and didn't really appreciate the risks/rewards/tolerance until I was well into my career (way later than 26).

Maybe you are an exception. Being young also means you have time on your side so you don't need to start off at the highest risk level - you have the power of compounding on your side. The fact that you are investing at such an early age is wonderful. Keep saving/investing, reading and learning so that you don't learn any investment lessions the hard way. Good luck.
fulltilt
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Re: 19 (now 20 years old) 100% stocks AA review

Post by fulltilt »

OP, I get where you're coming from with your 100% stock allocation. I had an all stock allocation for the last ten years and it sucked. I thought more risk meant more reward. After a certain point it doesn't. It just means more risk.

I see in your plan you are thinking of buying bonds in your 40s. Are you going to rebalance to buy them? What happens if the Market is down at that time? Will you have the guts to follow your plan or will you try to time the market?

Is there a reason you are so set on 100%?
A Devout Indexer
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Re: 19 (now 20 years old) 100% stocks AA review

Post by A Devout Indexer »

I'm not aware of any experts who have given advice on stock/bond allocations to a 20 year old whose ongoing contributions currently make up the vast majority of their wealth and whose decision is being made in an environment where prevailing bond yield are at lows not seen in a century or more (the point being that the downside hedging properties are much different when yields are 1-2% than they were at 5-7% to start the decade) .

This "everybody needs bonds" idea is as bad today (and based on the same amount of recency bias) as "no one needs bonds" was in the late 90s.
Dandy
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Re: 19 (now 20 years old) 100% stocks AA review

Post by Dandy »

I think people should stop thinking bonds and start thinking fixed income. One of the main purposes of the fixed income side of the portfolio is stability e.g. taking the risk on the equity side. The fact that interest rates are so low may mean having more fixed income allocation in CDs/ savings accts, money markets, stable value accts and short term bond funds etc rather than bond or non short term bond funds.

In short, while there may be reasons for going to 100% equities I don't think current interest rates should be one of them. Hey not trying to start a fight just expressing my opinion. If 100% equities does well I will be very happy with my portfolio :)
JW-Retired
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Re: 19 (now 20 years old) 100% stocks AA review

Post by JW-Retired »

OP,
I voted "good idea" given your small nest egg. Saving is really all that counts now. In a few years when it adds up to real money you can't afford to take big losses in, then please consider adding some bonds. In the meantime, keep up the great work.

Just checking............ you did have the earned income to make these teenager IRA contributions, didn't you?
JW
Retired at Last
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no_name
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Re: 19 (now 20 years old) 100% stocks AA review

Post by no_name »

Kevin M wrote:
jumpin wrote: His Roth at Vanguard:
24.4% Total Stock Market Index
16.3% Small Cap Value Index
8.3% REIT Index
24.4% Total International Stock Market Index
16.3% FTSE All-World Small caps

His 403b:
5.2% State Street S&P 500 index (SVSPX) (.24)
5.2% Vanguard VIF Small Company Growth (VVA) (.43)
I like the funds you are using, except VVA (the evidence I've seen does not support using small growth); I would dump that, and use only SVSPX in your 403b for now. You already have a significant tilt to small value in your Roth; I don't think you need more, but if you want more, use more SCV and less TSM in your Roth.

You are showing your colors as a heavy tilter (toward small, value and REIT); I assume you've done enough reading and thinking to convince yourself that this makes sense for you, and that you will stick with it for many years, even if there are long periods of underperformance relative to a total market portfolio.

Like some of the others, I would include at least 20% bonds, but I won't try to convince you to do so. If you lived comfortably through 2008-2009 with 100% stocks, then you at least have proven that you have the willingness to take this risk. As your portfolio grows, I would imagine you would want to scale back on the risk, perhaps earlier than you plan, but at least you plan to start adding bonds at some point, and end up with a less risky portfolio in your later years.

Kevin
Here is my new AA:

His Roth:
24.30% Vanguard Total Intl index
24.30 Vanguard Total Stock index
16.31 Vanguard FTSE All-Wl Foreign Small
16.20 Vanguard Small Value Cap
8.10 Vanguard REIT Index

His 403b:
10.80% State Street S&P 500 index (.24)

1) I will increase my REIT to 10%. :D
JW Nearly Retired wrote:OP,
I voted "good idea" given your small nest egg. Saving is really all that counts now. In a few years when it adds up to real money you can't afford to take big losses in, then please consider adding some bonds. In the meantime, keep up the great work.

Just checking............ you did have the earned income to make these teenager IRA contributions, didn't you?
JW
Yes. Thanks. :sharebeer
PreserveCapital
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Re: 19 (now 20 years old) 100% stocks AA review

Post by PreserveCapital »

I said "No" and I have a specific reason why I believe "no" you should not have all stocks.

You state you are listed as a "dependent" which means you are 1) either living with parent/s (?) or 2) they are providing you with a very significant portion of your living expenses/income (college student, perhaps?) and therefore your parents finances are, in effect, subsidizing your ability to invest in a 100% stock portfolio (actually not quite 100% as you have I bonds which must be considered part of your total allocation.)

If the assumption is that you are currently in college, but within two/three/four years will graduate and become independent, then 100% stocks is not the place for you to be. You should have a very substantial part of your portfolio devoted to safe/fixed income such as bonds, Cd's, or even savings accounts. What you should be aiming for as part of your goals at this time of your life and in the near/mid term is "IN"depdence as in, being able to support yourself and therefore not being claimed as a dependent on someone else's tax return.

Before deciding how much stocks/bonds/cash/fixed income is appropriate, you have to decide what your goals are. It seems to me that spreading your fledging wings and obtaining financial independence should take priority. That would suggest having enough fixed income/cash to cover say six months' to a year's worth of rent + living expenses (if possible) with you paying for all your own expenses.

Edit: I see on your other thread your parents have a seven figure portfolio, I guess that would make it a lot easier for you to be 100% stocks if you are their dependent. But in that case logically speaking your personal portfolio can't be viewed in isolation, it must be viewed as a subset of the entire family's portfolio. It sounds like your portfolio is only a couple of percentage points of your entire family's portfolio and therefore your personal asset allocation is entirely irrelevant. If your parents are back-stopping you, then you can take a lot more risk in your relatively trivially-sized personal portfolio than would otherwise be the case.

If you were completely out on your own, and you KNEW that you would have to rely on only your own personal portfolio without a parental lifeline or backstop, then you would probably look at things more cautiously.
epilnk
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Re: 19 (now 20 years old) 100% stocks AA review

Post by epilnk »

It's fine. It isn't an optimal long term allocation but you're just starting out, you don't need to have the portfolio fleshed out at your age. Consider adding some bonds over the next couple of years. But do your own reading - Bernstein and Swedrow both explain this well, but don't run out and buy a bond fund simply because the majority of the bogleheads consider it a no-brainer.
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grabiner
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Re: 19 (now 20 years old) 100% stocks AA review

Post by grabiner »

Did you have this portfolio in 2008? In the 2007-2009 bear market, every one of your funds lost half its value, and the portfolio as a whole lost more than 60%. I would say that you have the risk of a 110% stock portfolio, because you are overweighting the riskier stocks (REITs, small-cap).

If you lost half your portfolio in 2007-2009, and are still comfortable with this risky a portfolio, then it's probably right for you. But otherwise, I wouldn't recommend a portfolio like this until you have been through a bear market, lost a lot of your investments, and actually seen how you react.

I believe in this advice, as I followed it myself. I started investing in 1997 with a conventional 80/20 portfolio, lost 1/3 of my stock (and 25% of the total) in 2000-2002, confirmed that I could stick with the portfolio through a bear market, and have had a portfolio similar to yours since 2004. I lost my 60% in the 2007-2009 bear market, and in October 2008, I noticed that I had 14% bonds with a 10% target, and according to plan, sold bonds to buy more stock.

As a minor comment, I don't like the small-cap growth fund in your 403(b); you can put the 403(b) all in the S&P 500 index, and compensate for the large-cap overweight by replacing some of your Total Stock Market Index in your Roth IRA with Extended Market Index or Small-Cap Index.
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Jerilynn
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Re: 19 (now 20 years old) 100% stocks AA review

Post by Jerilynn »

Your AA is very similar to mine. I have more emerging market stuff.
Over time, it will outperform any AA with a bond component. It's a great idea for *SOME* people.

But, what often happens is that the market gets crushed and people sell some/most of their stocks.
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
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Re: 19 (now 20 years old) 100% stocks AA review

Post by Jerilynn »

texas_archer wrote:A 80/20 portfolio will give you close to the same return as a 100% portfolio but with less risk.
Very true and a good idea for a lot of people.

Personally, I'd rather have the extra risk and extra return.
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
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Re: 19 (now 20 years old) 100% stocks AA review

Post by Jerilynn »

TRC wrote:Bonds have outperformed stocks for the last 30 years. http://www.usatoday.com/money/markets/s ... 52381380/1

I would hold some bonds, especially so you can rebalance when either bonds or stocks dip to take advantage of some bargains.
What about the NEXT 30 years?

In this interest rate environment, I want nothing to do with bonds.
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
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Re: 19 (now 20 years old) 100% stocks AA review

Post by epilnk »

Jerilynn wrote:Your AA is very similar to mine. I have more emerging market stuff.
Over time, it may or may not outperform any AA with a bond component. It's a great idea for *SOME* people.
I corrected your typo for you. :wink:
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no_name
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Re: 19 (now 20 years old) 100% stocks AA review

Post by no_name »

YDNAL wrote:
jumpin wrote:Emergency funds = ibonds @ 4.5%

Tax Filing Status: Dependent

Age: 19 (20 now)

Desired Asset allocation: (100% stocks)
Current AA: 100% Stocks (61% domestic/39% foreign)

Intl allocation: 35-40%

Current portfolio: low 5 figures
It doesn't much matter if low 5-fig turns to low 4-fig... does it?

When you have mid 6-fig it WILL matter much more if it turns to low 6-fig. :D

Congratulations on the early start!
Thanks! You the man! When you speak--people listen! :sharebeer
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Re: 19 (now 20 years old) 100% stocks AA review

Post by madbrain »

Jerilynn wrote:
TRC wrote:Bonds have outperformed stocks for the last 30 years. http://www.usatoday.com/money/markets/s ... 52381380/1

I would hold some bonds, especially so you can rebalance when either bonds or stocks dip to take advantage of some bargains.
What about the NEXT 30 years?

In this interest rate environment, I want nothing to do with bonds.
You may not want anything to do with treasury bonds right now, but there are other bonds that can still be worthwhile, such as junk (high-yield) corporates, and municipal bonds.
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Noobvestor
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Re: 19 (now 20 years old) 100% stocks AA review

Post by Noobvestor »

The question is ... why 100% stocks?

If you're market timing, you're already not being Bogleheadish.

If you're thinking 'it's such a small amount, it doesn't matter' then either you're right, so you might as well have some bonds and get slightly less returns, or you're wrong and you might capitulate at the wrong time, thus scarring yourself toward future investment assessments.

If you're thinking 'it'll make a huge difference down the line!' history suggests it really doesn't ... adding 20% bonds barely dings returns while reducing volatility by a lot.

In short, I can't see a good argument for being 100% stocks, ever. Passing up the first and biggest free lunch of invesitng.
His Roth at Vanguard:
24.4% Total Stock Market Index
16.3% Small Cap Value Index
8.3% REIT Index
24.4% Total International Stock Market Index
16.3% FTSE All-World Small caps

His 403b:
5.2% State Street S&P 500 index (SVSPX) (.24)
5.2% Vanguard VIF Small Company Growth (VVA) (.43)
Small cap already has more REITs than the broad market - I'd say have REITs or small caps, not both, for simplicity. Not sure why you'd go with small growth, either - it has done well lately, but historically if you are considering FF models and wanting to tilt toward small/value, which it looks like you're doing, small growth isn't going to do you any favors.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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Re: 19 (now 20 years old) 100% stocks AA review

Post by pcola2234 »

OP,

How were you able to have a Roth eligible contribution as a teen? Part time work in family small business or work on the side? Just curious as I got dinged for making a Roth contribution from taxable scholarship money above the cost of attendance at college.

Also, How do you have access to a 403b in college? Not trying to be nosy, but I can't think of any part-time job anywhere at my state school that allowed a 401k or 403b contribution.
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Re: 19 (now 20 years old) 100% stocks AA review

Post by grabiner »

YDNAL wrote:
jumpin wrote:Current portfolio: low 5 figures
It doesn't much matter if low 5-fig turns to low 4-fig... does it?

When you have mid 6-fig it WILL matter much more if it turns to low 6-fig. :D

Congratulations on the early start!
Mathematically, this is correct. As long as this is your retirement portfolio, having $20,000 turn into $8,000 (which would have happened if this was your portfolio in 2007) will make almost no difference in your retirement standard of living; in the middle of your career, having $500,000 turn into $200,000 will have a significant effect. You have the ability to take this much risk.

But by the same token, if you have a more conservative portfolio (80% stock) now, and your $20,000 turns into $36,000 rather than $40,000 in the next bull market, that will also make almost no difference in your retirement standard of living.

Thus, when you are getting started, the psychological concerns are more important. If the market crashes in 2012 and you get out of the market, that will cost you much more than the difference between 80% and 100% stock. How confident are you in your willingness to stay the course when the market drops 20% in a month (1998 and 2011), or 50% in a year (2007-2008)?
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Re: 19 (now 20 years old) 100% stocks AA review

Post by no_name »

madbrain wrote:
Jerilynn wrote:
TRC wrote:Bonds have outperformed stocks for the last 30 years. http://www.usatoday.com/money/markets/s ... 52381380/1

I would hold some bonds, especially so you can rebalance when either bonds or stocks dip to take advantage of some bargains.
What about the NEXT 30 years?

In this interest rate environment, I want nothing to do with bonds.
You may not want anything to do with treasury bonds right now, but there are other bonds that can still be worthwhile, such as junk (high-yield) corporates, and municipal bonds.

Livesoft in his own words, wrote beautifully on junk bonds:
livesoft wrote:I'm surprised that the following has not been added to this thread yet:

One owns bonds because they have a lower correlation to equities than other equities. That is, bonds are supposed to zig when stocks zag and vice versa. And while all this zig-zagging is going on, they are supposed to give one a nice return for the risk level associated with them.

One does not buy bonds for high yield or performance or high risk. One buys equities if they want high risk and performance.

So whenever someone becomes infatuated with high-yield junk bonds, I always wonder why they don't just go out and buy equities. Whenever someone writes, "I just got 10% in my high-yield junk bond fund!", I wonder why they didn't invest in the equities that returned 20% over the same time period. Whenever someone says, "I have 10% of my portfolio in high-yield bonds", I'm thinking that they are doing mental accounting and really have 10% less in fixed income and 10% more in equities.

Whenever someone asks "Junk bonds, time to get in?", I say the time to get into junk bonds is the same time to get into stocks. The time to get out of junk bonds is the same time to get out of stocks. Do you see that instead of zig-zagging, you are zig-zigging and zag-zagging?

So why even bother with junk bonds at all?
I don't think I will ever need junk bonds.

Noobvestor wrote:The question is ... why 100% stocks?

If you're market timing, you're already not being Bogleheadish.

If you're thinking 'it's such a small amount, it doesn't matter' then either you're right, so you might as well have some bonds and get slightly less returns, or you're wrong and you might capitulate at the wrong time, thus scarring yourself toward future investment assessments.

If you're thinking 'it'll make a huge difference down the line!' history suggests it really doesn't ... adding 20% bonds barely dings returns while reducing volatility by a lot.

In short, I can't see a good argument for being 100% stocks, ever. Passing up the first and biggest free lunch of invesitng.
His Roth at Vanguard:
24.4% Total Stock Market Index
16.3% Small Cap Value Index
8.3% REIT Index
24.4% Total International Stock Market Index
16.3% FTSE All-World Small caps

His 403b:
5.2% State Street S&P 500 index (SVSPX) (.24)
5.2% Vanguard VIF Small Company Growth (VVA) (.43)
Small cap already has more REITs than the broad market - I'd say have REITs or small caps, not both, for simplicity. Not sure why you'd go with small growth, either - it has done well lately, but historically if you are considering FF models and wanting to tilt toward small/value, which it looks like you're doing, small growth isn't going to do you any favors.
My AA is very similar to livesoft's stock AA.
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Re: 19 (now 20 years old) 100% stocks AA review

Post by Jerilynn »

madbrain wrote:
Jerilynn wrote:
TRC wrote:Bonds have outperformed stocks for the last 30 years. http://www.usatoday.com/money/markets/s ... 52381380/1

I would hold some bonds, especially so you can rebalance when either bonds or stocks dip to take advantage of some bargains.
What about the NEXT 30 years?

In this interest rate environment, I want nothing to do with bonds.
You may not want anything to do with treasury bonds right now, but there are other bonds that can still be worthwhile, such as junk (high-yield) corporates, and municipal bonds.
Junk bonds are more akin to stocks than to bonds, so I like to classify junk bonds as 'stocks' in my portfolio. So, technically I guess I do want something to do with bonds.
And when Vanguard comes out with the 2 new international bond funds, I may dabble in those, especially the emerging market one.
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
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Re: 19 (now 20 years old) 100% stocks AA review

Post by Jerilynn »

fulltilt wrote:OP, I get where you're coming from with your 100% stock allocation. I had an all stock allocation for the last ten years and it sucked. I thought more risk meant more reward. After a certain point it doesn't. It just means more risk.

I see in your plan you are thinking of buying bonds in your 40s. Are you going to rebalance to buy them? What happens if the Market is down at that time? Will you have the guts to follow your plan or will you try to time the market?

Is there a reason you are so set on 100%?
10 years is not nearly enough time. More risk does equal more reward over the long run.
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
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Re: 19 (now 20 years old) 100% stocks AA review

Post by Watty »

You might want to Google "modern portfolio theory" and see what it says about asset allocation. In a nut shell the historical numbers show that adding some bonds can give you the same return while making the portfolios less prone to suddenly swing in value. Unfortunately interest rates are at historical lows and bonds have been in a decade's long bull market. For what it is worth I am not comfortable with bonds right now either and most of my bond money is in TIPS and iBonds to help mitigate the risks.

There are a few qualifications that would make me feel more comfortable with you using 100% stocks;

1) A clear qualification that the money is retirement money that will not be needed for at least 30 years.

2) A commitment to be making continual future contributions. If this stock market does go down then future contributions will "dollar cost average" and help you eventually recover.

3) Use the money that would have been in bonds to overweight stocks and REITs that are paying a good dividends.
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Re: 19 (now 20 years old) 100% stocks AA review

Post by Jerilynn »

Watty wrote:You might want to Google "modern portfolio theory" and see what it says about asset allocation. In a nut shell the historical numbers show that adding some bonds can give you the same return while making the portfolios less prone to suddenly swing in value. Unfortunately interest rates are at historical lows and bonds have been in a decade's long bull market. For what it is worth I am not comfortable with bonds right now either and most of my bond money is in TIPS and iBonds to help mitigate the risks.
In what scenario will TIPS (or inflation protected bond funds) get clobbered?
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
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Re: 19 (now 20 years old) 100% stocks AA review

Post by no_name »

grabiner wrote:
YDNAL wrote:
jumpin wrote:Current portfolio: low 5 figures
It doesn't much matter if low 5-fig turns to low 4-fig... does it?

When you have mid 6-fig it WILL matter much more if it turns to low 6-fig. :D

Congratulations on the early start!
Mathematically, this is correct. As long as this is your retirement portfolio, having $20,000 turn into $8,000 (which would have happened if this was your portfolio in 2007) will make almost no difference in your retirement standard of living; in the middle of your career, having $500,000 turn into $200,000 will have a significant effect. You have the ability to take this much risk.

But by the same token, if you have a more conservative portfolio (80% stock) now, and your $20,000 turns into $36,000 rather than $40,000 in the next bull market, that will also make almost no difference in your retirement standard of living.

Thus, when you are getting started, the psychological concerns are more important. If the market crashes in 2012 and you get out of the market, that will cost you much more than the difference between 80% and 100% stock. How confident are you in your willingness to stay the course when the market drops 20% in a month (1998 and 2011), or 50% in a year (2007-2008)?
EmergDoc wrote:11K? 22 yo? 100% stocks? Go big or go home, right? Why not 100% emerging markets? Just kidding, kind of. In reality your AA doesn't matter too much so don't sweat it. If I were you (and I was just a few years ago) I'd just stick it into a target retirement fund and concentrate on your savings rate until you hit $50-$100K.

http://www.diehards.org/forum/viewtopic ... 8544b9e8d9

It took me just over 3 years of investing to break 6 figures and less than 2% of that represents investment returns (it was a higher percentage a couple of months ago, but with the market tanking and some new money on Jan 2 that is the real figure.) The rest is just brute savings. 5 years from now your AA will matter. 20-30 years from now it will matter A LOT. For now, it simply doesn't matter, so pick any reasonably diversified asset allocation and quit worrying about it.

I agree with the comment about maxing out the 401K before investing in taxable. 20 years from now you'll want that tax-protected space. Live off the UGMA money and set your 401K withdrawal rate high enough to max it out, effectively converting taxable money to tax-protected money. Even if you don't get a match or have good, low-cost options, you'll probably change jobs in a few years and can roll it over to an IRA then. 4 decades of tax-deferral is huge.
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Re: 19 (now 20 years old) 100% stocks AA review

Post by DoWahDaddy »

Just let it be. 19/20 year olds learn the same way we all did, by making mistakes. I started investing in college. I was brilliant. But then I was overinvested. I was underinvested. I was underdiversified. I was overdiversified. Now I'm better, but I'm probably still brilliant. When the US defaults, or Index funds are exposed for frauds, we'll all learn a little bit more.

but yeah, the investment selection looks good.
"I've worked in the private sector. They expect results." - Dr. Raymond Stantz
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Re: 19 (now 20 years old) 100% stocks AA review

Post by Liquid »

The Wizard wrote:I don't have a HUGE quarrel about 100% stocks at your age.
Key point is that you are way ahead of 95% of your peers.
The problem with being 100% is that you cannot take money out of stocks during periods of irrational exuberance.
And you can't rebalance significant amounts of money BACK INTO stocks after significant declines.
(Go back and review 2008-2009 for example.)
So you're in for a fun roller-coaster ride, that's all...
If you wanted to try your hand at market timing you could easily rebalance into underperforming stock sectors / countries. Additionally, when most say 100% stocks they are excepting cash / emergency funds / real estate, all of which could be adjusted in irrational exuberance.
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