But why not 100% stock index fund?

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Heyolshan
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But why not 100% stock index fund?

Post by Heyolshan » Sun Jul 13, 2014 5:25 pm

I'm new to this forum, though I have been reading posts for a while. A member further down posted for advice regarding 100% stock allocation in his retirement accounts, and most of the replies advise against it. However, almost all the negative votes have included some type of "panic" factor in the event of a market downturn. So it seems to me the biggest purpose of keeping bonds in a long-term investment is because you don't trust yourself to stay the course in a bear market. You could actually allocate a few percent more to stocks and hold the remainder in cash, and accomplish the same thing; the cash would buffer a market downturn, and the stocks would return better in the long run.

I don't see why the most Bogle-ish advice out there shouldn't be to invest 100% in an S&P 500 index fund and make continuous contributions to it through all market conditions, with the caveat that when you near retirement you need to begin moving some portion of it into a less volatile investment or cash.

Now, set me straight (I would put a smiley face emoticon here if I didn't hate emoticons so much).

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LAlearning
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Re: But why not 100% stock index fund?

Post by LAlearning » Sun Jul 13, 2014 5:33 pm

:oops:

100% of anything is usually not the best. Not saying you have to have a lot of fixed income, but it's purpose is not to provide returns. It provides decreased volatility, ballast, and something to re-balance out of. By using it strategically, you can come out ahead of 100% S&P. (hint, look at M* 2000-2010).
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brigboy
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Re: But why not 100% stock index fund?

Post by brigboy » Sun Jul 13, 2014 5:37 pm

I know you may be semi-trolling but I actually think the way you think :confused

livesoft
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Re: But why not 100% stock index fund?

Post by livesoft » Sun Jul 13, 2014 5:44 pm

What was the 10-year return of the S&P500 index fund from March 2000 to March 2010?
How about for Total Bond Index fund for the same 10 years?

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Trailbreaker1
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Re: But why not 100% stock index fund?

Post by Trailbreaker1 » Sun Jul 13, 2014 5:45 pm

It's not too big a deal if u wanna go 100% stocks if your young and have plenty of time to invest. Just beware and understand your account value can be cut in half by 50% or more at certain times. But if you have the time and have the right temperament to keep investing then who cares. Do it. It's what I'm doing.
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John3754
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Re: But why not 100% stock index fund?

Post by John3754 » Sun Jul 13, 2014 5:45 pm

Heyolshan wrote:...with the caveat that when you near retirement you need to begin moving some portion of it into a less volatile investment or cash.
How near retirement should one be before moving out of 100% stocks? 1 year? 5 years? 10 years? 20 years? Where do you draw the line?

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Re: But why not 100% stock index fund?

Post by livesoft » Sun Jul 13, 2014 5:49 pm

I guess all those articles and teaching moments about the "Lost Decade" are now forgotten history.
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Re: But why not 100% stock index fund?

Post by pkcrafter » Sun Jul 13, 2014 6:11 pm

Heyolshan, there will never be a consensus on how much risk to take, but if you look at what happens in market crashes you should at lest take that into consideration. Market crashes are the result of people selling in panic mode. Many of them vowed they wouldn't. The other consideration is what is the worst thing that can happen in a market crash? While I'd love to hear your answer, unless you said you can't be sure, then the answer would be wrong. If you absolutely knew the market can't fall more than 50% and it will always recover in 8 years or less, and stocks will always beat bonds in any 20 year period, then sure, go 100% stock, at least until nearing retirement.
Now, set me straight (I would put a smiley face emoticon here if I didn't hate emoticons so much).
That's a good line, although you should have added :oops: or :twisted: .

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Re: But why not 100% stock index fund?

Post by longinvest » Sun Jul 13, 2014 6:15 pm

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Re: But why not 100% stock index fund?

Post by denovo » Sun Jul 13, 2014 6:19 pm

OP,

I know this is the theory sub-forum, but how about we look at facts. Please check the excellent search function on the top right corner and find threads from mid-2008 to 2009 when the market was crashing. This forum's investors are probably less jittery than others, but a lot of people cracked and sold low (including prolific posters) or chickened out of re-balancing when the market hit lows (the latter includes me). Until you have a six-fugure account or something reasonably large and see those dollar signs go down down, down, with no end in sight, I am skeptical of anyone who says they can handle it unless they've been in the arena of battle.

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Heyolshan
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Re: But why not 100% stock index fund?

Post by Heyolshan » Sun Jul 13, 2014 6:25 pm

I appreciate the honest replies. I am 45 years old, fully invested in stocks in my retirement accounts. In my heart I believe a downturn is imminent, though like anyone else, I can't say when (or even if). It's tempting to push some money into cash right now, but more important than my portfolio balance right now, I have 2 boys--17 and 16--to whom I am teaching the fundamentals of investing. And so I have decided that even if the market plunges 50%, I'm going to ride it all the way down, and continue to invest monthly. I want them to see how I react to that so that when they face similar circumstances down the road, they'll have some perspective on how to deal with it.

Does anyone else have a similar situation?

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Dutch
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Re: But why not 100% stock index fund?

Post by Dutch » Sun Jul 13, 2014 6:30 pm

Ok I'm calling the top of the market

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Re: But why not 100% stock index fund?

Post by longinvest » Sun Jul 13, 2014 6:35 pm

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Re: But why not 100% stock index fund?

Post by denovo » Sun Jul 13, 2014 6:37 pm

Dutch wrote:Ok I'm calling the top of the market
Will the bottom of the market be when we have a bunch of threads and posts declaring "CASH IS KING" ?
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Cosmo
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Re: But why not 100% stock index fund?

Post by Cosmo » Sun Jul 13, 2014 6:38 pm

Dutch wrote:Ok I'm calling the top of the market
+1

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Re: But why not 100% stock index fund?

Post by acegolfer » Sun Jul 13, 2014 6:39 pm

To OP,

It's fine for one to go 100% or even 150%, 200% on stock index fund. It depends on one's risk tolerance, which is different for everyone. (Some theory also implies that there are some investors who borrow to invest 100+% in market portfolio.)

BH tend to be more risk averse or conservative and hence advise you against going 100% stock. But if you know your risk attitude, there's nothing wrong with going 100%.

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Don Christy
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Re: But why not 100% stock index fund?

Post by Don Christy » Sun Jul 13, 2014 6:41 pm

Dutch wrote:Ok I'm calling the top of the market
With several 100% equity threads in short order, I think you may have made the right call. Just waiting for stock tips at cocktail parties to confirm.
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SunsetKid
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Re: But why not 100% stock index fund?

Post by SunsetKid » Sun Jul 13, 2014 6:43 pm

OP - Currently I'm a bit like you, too much in stocks, So why should you have some bonds, because say the market drops 20/30/40/50/60/70 percent sometime in the next year. Then you can cash out some bonds and buy stocks at 1/2 price, and when the market recovers you are king, as you will be 20/30 percent higher than you are now.

By just having 100% in stocks, you will see them cut down, then rise back up in 1/2/3/4/5..../9 years and you will be back to where you are right now.

So I'm selling some of my stocks, the odd ones I don't know why I bought and looking to buy bonds or at least have 10% cash since I cannot figure out what bonds to buy right now.

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munemaker
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Re: But why not 100% stock index fund?

Post by munemaker » Sun Jul 13, 2014 7:02 pm

SunsetKid wrote:OP - So why should you have some bonds, because say the market drops 20/30/40/50/60/70 percent sometime in the next year. Then you can cash out some bonds and buy stocks at 1/2 price, and when the market recovers you are king, as you will be 20/30 percent higher than you are now.
That would be timing the market and is not the way to go. You should have a relatively fixed asset allocation that very gradually becomes more conservative as you age.

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Re: But why not 100% stock index fund?

Post by letsgobobby » Sun Jul 13, 2014 7:09 pm

livesoft wrote:I guess all those articles and teaching moments about the "Lost Decade" are now forgotten history.
Yes, time for another one already.

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Re: But why not 100% stock index fund?

Post by steve_14 » Sun Jul 13, 2014 7:13 pm

100% stocks is a perfectly valid allocation - it's what I use. More risk = more expected return. Once I retire, however, I'll own plenty of bonds, probably 60/40. Stocks get a lot riskier during the draw down phase.

Heyolshan
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Re: But why not 100% stock index fund?

Post by Heyolshan » Sun Jul 13, 2014 7:25 pm

So most of the responses are about the emotions involved with a stock market plunge. For myself, I panic-sold in 2000, and hung through 2008, so I have seen some ups and downs. I didn't mean to give the impression that I knew nothing about investing; I just wanted to generate some "why do I believe what I believe" discussion. Does anyone have a reason other than emotional involvement (e.g. buffering a plunge, diversification)?

Also, how do you do that quote thing with other people's posts? I wanted to give a smart-alec comment to that "trying to impress your children" remark, but I couldn't figure out how to do the quotes.

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Re: But why not 100% stock index fund?

Post by denovo » Sun Jul 13, 2014 7:28 pm

letsgobobby wrote:
livesoft wrote:I guess all those articles and teaching moments about the "Lost Decade" are now forgotten history.
Yes, time for another one already.
Btw, for everyone partying like it's 1999, the 15 year return on the SP 500 Index as measured by the Vanguard tracking index, net of expenses is a whopping 4.12 percent. The total market did slightly better at 4.97 percent. The inflation rate during this period was about 2.5 percent, so real returns of about 2 percent annually.

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Re: But why not 100% stock index fund?

Post by acegolfer » Sun Jul 13, 2014 7:38 pm

Heyolshan wrote:So most of the responses are about the emotions involved with a stock market plunge. For myself, I panic-sold in 2000, and hung through 2008, so I have seen some ups and downs. I didn't mean to give the impression that I knew nothing about investing; I just wanted to generate some "why do I believe what I believe" discussion. Does anyone have a reason other than emotional involvement (e.g. buffering a plunge, diversification)?
In a very simplified theory, individual's AA depends on risk aversion factor. If your risk aversion factor stays constant no matter what, then you should stick to your 100% stock AA. As a few replies suggested, there's nothing wrong with 100% stock.

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Re: But why not 100% stock index fund?

Post by Raymond » Sun Jul 13, 2014 7:53 pm

Dutch wrote:Ok I'm calling the top of the market
Waiting for confirmation - when the kid at the Subway sandwich shop starts giving me stock tips, I'll know :P
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VortexStreet
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Re: But why not 100% stock index fund?

Post by VortexStreet » Sun Jul 13, 2014 8:09 pm

Take a look at the chart posted by nisiprius near the bottom of this thread: http://www.bogleheads.org/forum/viewtop ... 0&t=103753

I don't think it is possible to know what the efficient frontier will be going forward, but there have been enough historical periods where owning bonds in a portfolio improved risk adjusted returns that I wouldn't want to be without them.

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Re: But why not 100% stock index fund?

Post by IlliniDave » Sun Jul 13, 2014 8:20 pm

For a young investor I'd contend it's a perfectly valid approach. Starting today you might not get returns as generous as someone might have gotten 30 years ago, but over 30-40 years, you'll probably make a fair amount of money that way. I invested that way for my first 25 years or so. It can be bumpy, but in general you get paid for the jarring ride.
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Re: But why not 100% stock index fund?

Post by Candor » Sun Jul 13, 2014 8:36 pm

I have been over 90% stock funds, and at times 100%, in my retirement account since day one. Currently I'm at 92% at age 46 and will continue that general allocation for the next few years. The dot.com bust and 2008 were painful but I was able to keep perspective and soldier on. However, after 2000 I switched all the money outside of retirement acct's into cd's, I bonds and high yield savings acct's which is approx 25% of my financial worth. This allows me to have a very large (for me) "emergency fund" and makes the turmoil of the markets tolerable knowing I have plenty of cash no matter what happens.

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Re: But why not 100% stock index fund?

Post by John3754 » Sun Jul 13, 2014 8:46 pm

Candor wrote:Currently I'm at 92% at age 46 ...after 2000 I switched all the money outside of retirement acct's into cd's, I bonds and high yield savings acct's which is approx 25% of my financial worth.
If 25% of your net worth is in CDs, I Bonds and savings then your AA is not 92% stocks...unless I'm reading this incorrectly.

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Re: But why not 100% stock index fund?

Post by jginseattle » Sun Jul 13, 2014 8:50 pm

You could go 100% in Vanguard's Total World Index fund. But expenses are rather high. It would be better to buy a Total (domestic) Stock Index fund and Total International Index fund. Also, there's no value or small tilt. But, with one or two funds, you can't have it all.

But try it. Contribute for decades and see how you do after 40 or 50 years. :happy

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Re: But why not 100% stock index fund?

Post by Candor » Sun Jul 13, 2014 8:56 pm

John3754 wrote:
Candor wrote:Currently I'm at 92% at age 46 ...after 2000 I switched all the money outside of retirement acct's into cd's, I bonds and high yield savings acct's which is approx 25% of my financial worth.
If 25% of your net worth is in CDs, I Bonds and savings then your AA is not 92% stocks...unless I'm reading this incorrectly.
The op is asking about retirement acct's.

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vitaflo
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Re: But why not 100% stock index fund?

Post by vitaflo » Sun Jul 13, 2014 9:09 pm

Heyolshan wrote: Does anyone have a reason other than emotional involvement (e.g. buffering a plunge, diversification)?
I like the diversification and the ability to rebalance into whatever is cheapest at the time (stocks or bonds). I rebalance monthly and my bond allocation is fairly small (15%). Similar returns with less risk in my book.

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Re: But why not 100% stock index fund?

Post by noyopacific » Mon Jul 14, 2014 1:53 am

It is close to impossible to assess risk tolerance during a bull market. You might want to consider putting something aside, even if it is only 20% in bonds for now. This should not affect your performance too greatly. Then commit to yourself to putting 1/2 of that bond allocation into equities after a 30% drop, then 1/4 more after a 40% drop and the balance after a 50% fall. If/when the market recovers, you would recoup your losses more quickly. If you can get yourself to do this, you'll have also demonstrated that you really can stomach the risk.

I enjoyed the comment about getting stock tips at Subway. I usually listen for them at the gym. Since I haven't heard anyone there talking about investments, I'm wondering how long this silly old bull (market) is going to keep running !
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Re: But why not 100% stock index fund?

Post by jwillis77373 » Mon Jul 14, 2014 2:26 am

Given the choices, in a simplified list:
  • stocks
    bonds
    cash
    reits
All appear to have reasons to rise and fall in value. Any close examination at one point in time is vulnerable to survivors bias, or recent perception.

Stocks aggregates, in mutual funds, appear to have a safety in numbers that prevents them from reaching zero, as long as the indexes they track are faithfully followed. This does not mean they cannot reach zero.

Cash and Bonds seem inextricably linked, changing the value of one changes the value of the other. Predictability seems difficult, but they generally decline in value over time, usually due to Inflation.

Reits seem more like a commodity which runs the risk of changing its value to zero for an indefinite amount of time.

To me Stocks seem the least risky option of all four.

Why not Stocks?
  • you have a defined time limit in which the stocks must be sold (only never selling always wins)
    you have the ability to exit the market after the market has declined (a lack of self control during a market downturn)
    you erroneously convince yourself you can afford to be in the market and then need to sell (investing before paying existing bills and debts)
Ultimately people have a defined time limit, their lifespan, so ultimately they will have to make at least one (possibly more) Market Timing decisions.

Dollar Cost Averaging into the market kind of dampens the entry and spreads the risk, rebalancing out of the market into Bonds is probably the opposite.. but its raising the exposure to Inflation and possible tax consequences.

If Inflation runs at an average of 3% then money rebalanced into Bonds has to gain at least that to break even (plus fees and taxes), currently that doesn't look likely. Perhaps rates will rise and that will become an option again.

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JoMoney
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Re: But why not 100% stock index fund?

Post by JoMoney » Mon Jul 14, 2014 5:54 am

Do what you think will serve you best.
John Bogle wrote:While I cannot give any investor a neat formula for risk control, I am comforted to share that inadequacy with the likes of Paul Samuelson, who tells us, “there is no way any professor of economics or any minister of the church can tell you what your risk tolerance must be.
No, nor can any Wall Street seer, nor any money manager, nor any indexing advocate, nor even any grizzled veteran of 50 years in this wonderful business.
http://johncbogle.com/speeches/JCB_NE_Pension_4-00.pdf
For myself, my investments are 100% stocks. At least that's the way I look at my "investment" portfolio". I do own a short-term bond fund I use for some savings, but I don't "rebalance" with it. I use it for some shorter term savings for things I'm budgeting separately and "emergency fund". It does help me sleep a little better with a heavy stock portfolio knowing I've got a separate cushion before I'd ever have to sell my investments, but I don't consider that money as part of my investment portfolio...
I'm still relatively young, I don't have any dependents looking to me for their livelihood, I have good career prospects in a job I enjoy, I have lots of income safety nets including vesting in a small fixed pension, social security, severance in the event of layoff, unemployment insurance, and more. I don't foresee any need for my investments to be providing stable income (like long-term bonds) or hold stable value (like short-term bonds). I'm not opposed to holding bonds, but the current yields are so un-appealing I would find it hard to justify calling them an "investment". I feel far more threatened by what the effects of inflation will do my savings over time.
Although I wasn't completely indexing at the time, I rode out 2008-2009 with a considerable stock portfolio. I watched co-workers grieve about what they thought was the end of the world (or at least any hopes of their financial well-being), and I have to admit that I was also a bit upset - but primarily because I didn't have more money available to put to work - as far as I was concerned it looked like the opportunity of a lifetime (at least for someone who still had decades of time to stay invested).
I don't think the broad U.S. Stock Market is "over valued" or reached a "top". I think it's ridiculous for someone to look at the long-term returns of the market and think that this is the "top" from which it will never ever go higher. While I wish I could say the market looks "cheap" (since I'm still accumulating), my view is that it's only recently gotten back in line with it's long-term growth trend, and things could easily go further up or experience a "correction"... In some ways, I feel relieved by the numerous news articles and commentary about how high the market has gone these past few years, and everyone watching like a hawk waiting for something to happen. "The market climbs a wall of worry." Decades from now the market will be higher - I'm betting on it :beer
If things go horribly wrong "oh well" - I've got time, and if the worst thing that happens is I have to work to eat then things aren't that bad. I'll console myself with good books and quotes like:
John Maynard Keynes wrote:...I do not believe that selling at very low prices is a remedy for having failed to sell at high ones... As soon as prices had fallen below a reasonable estimate of intrinsic value and long-period probabilities, there was nothing more to be done. It was too late to remedy any defects in previous policy, and the right course was to stand pretty well where one was.
... I feel no shame at being found owning a share when the bottom of the market comes. I do not think it is the business, far less the duty, of an institutional or any other serious investor to be constantly considering whether he should cut and run on a falling market, or to feel himself open to blame if shares depreciate on his hands...An investor is aiming or should be aiming, primarily at long-period results... The idea that we should all be selling out to the other fellow and should all be finding ourselves with nothing but cash at the bottom of the market is not merely fantastic, but destructive of the whole system.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: But why not 100% stock index fund?

Post by nisiprius » Mon Jul 14, 2014 6:28 am

Know thyself. That's all you can do. The big caution I would make is not to kid yourself, and not to underestimate what people refer to dismissively as "emotion" or "panic factor." All the behavioral studies tell us that a common investing mistake is overconfidence, and in my opinion this applies to risk tolerance just as much as to anything else.

Remember that the investment industry is mostly in the business of selling stocks and other relatively risky investments. Mutual fund companies, 401(k) managers, and financial advisors do not make money when you buy series I savings bonds or bank CDs. I think you will find that many advisors feel that part of their job is to overcome clients' risk aversion, through coaching and "education." The information they present may be accurate and they may feel that what they suggest is truly in your best interest. Nevertheless they are paid advocates for riskier investments.

Carefully consider these admittedly anecdotal bits of information and these admitted selected quotations. this one comes from a professional wealth advisor who has authored a number of well-regarded books. If it happened to him, it could happen to almost anybody:
In the midst of the Great Recession of 2008, stocks were dropping like a stone. I did the opposite of what I advise my clients to do: I panicked and reduced my asset allocation to stocks, thereby missing out on a significant portion of the recovery. I let my emotions overtake me. It is easier to give advice than to follow it. I have a greater appreciation of the pain and anxiety investors feel when they see significant losses reflected in their monthly statements.
This one is from an expert on behavioral economics and how to avoid behavioral error. And what is significant to me, it was NOT in 2008, it was in 2011. There was a drop in 2011 that looks like almost nothing in hindsight--most of us have re-written the story of 2009-2014 as one of continuous advance. But a lot of people, including me, were, at least, jittery at that time. But this is what the expert did
The year was 2011. The stock market was recovering well from its terrible collapse during the Great Recession, but over a short period it had a series of stumbles. I got nervous. What if it collapsed again? I ... had daughter in college, a 2-year-old boy and a new child on the way. Could I afford to lose a lot of money? Wouldn’t it make sense to sell equities and to put the money into a safe, reliable certificate of deposit? ...seeing a decline in the fund’s value, I decided to sell a significant chunk.
Finally, do not be at all dismissive about the pain of financial loss. Fred Schwed wrote:
Like all of life's rich emotional experiences, the full flavor of losing important money cannot be conveyed by literature. Art cannot convey to an inexperienced girl what it is truly like to be a wife and mother. There are certain things that cannot be adequately explained to a virgin either by words or pictures. Nor can any description I might offer here even approximate what it feels like to lose a real chunk of money that you used to own.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: But why not 100% stock index fund?

Post by Crow Hunter » Mon Jul 14, 2014 7:31 am

Heyolshan wrote:So most of the responses are about the emotions involved with a stock market plunge. For myself, I panic-sold in 2000, and hung through 2008, so I have seen some ups and downs. I didn't mean to give the impression that I knew nothing about investing; I just wanted to generate some "why do I believe what I believe" discussion. Does anyone have a reason other than emotional involvement (e.g. buffering a plunge, diversification)?

Also, how do you do that quote thing with other people's posts? I wanted to give a smart-alec comment to that "trying to impress your children" remark, but I couldn't figure out how to do the quotes.
I am of a similar age (40), I was 100% stocks with a 50% international split until right after I joined this board.

I did not sell during either panic. I have a very high tolerance for loss.

However, during 2008, I was really aggravated that I didn't have any bonds that I could use to rebalance with. All I could do was invest new money, which I did in 100% stocks. Unfortunately at the time, I had just started a new job in 2007 (and my wife in late 2007) and we could not invest in our 401ks until 1 year after our work anniversaries (IIRC). So Instead of really putting the hammer down and getting a bunch of cheap stocks, we were only able to invest $11,875 in our 401ks and max out our Roth IRAs and put the balance into paying off a 200 acre piece of land I had purchased in 2005. If I would have had bonds available to me, I could have been adding even more cheap stocks by rebalancing into them. Instead, all I could do was rebalance my International into my Domestic.

From that point forward I decided that I would have exposure to both bonds and stocks so I would be able to take advantage of that buying opportunity in the future so my asset allocation was changed to Age-20 in bonds.

After recently inheriting a sizeable position in bonds, I have since changed my asset allocation to Age-10 in bonds as I am significantly closer to my "number".

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Re: But why not 100% stock index fund?

Post by jvini » Mon Jul 14, 2014 7:59 am

I have almost the same story. I own the world in equities through low cost etfs. Never sold during the crash and recouped my losses and then some, especially because I could continue to dollar cost average into the market consistently. But I did realize that there are certain risks with that strategy not worth taking.

What if you lose your job? In a crash, nothing is as secure as you think. What if you get sick and can't work, then a crash happens. You have major losses, no cushion, and no way to re balance?

So when I recouped my losses and made even more in the market during the recovery, I switched to age minus 15 (approximately) in bonds. (I was 43 at the time).

I did a lot of research that really made this decision much easier. Vanguard has some great papers about their total bond fund and what happens when rates rise (almost nothing and in the intermediate and long term, you end up ahead). But even more importantly they have papers and web pages about long term returns bases on asset allocation. For me, the difference between 100% stocks and 70/30 for example isn't worth the risk. Especially as I get closer to retirement. Here's one hopefully helpful link.

https://personal.vanguard.com/us/insigh ... llocations

This link is also great from Vanguard https://personal.vanguard.com/us/insigh ... about-risk

I'm curious to hear what other people think.

Heyolshan
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Re: But why not 100% stock index fund?

Post by Heyolshan » Mon Jul 14, 2014 8:27 am

Crow Hunter and jvini, thank you. That's exactly the kind of insight I was looking for. Holding bonds in a high market in order to roll them into stocks in a lower one makes perfect sense, and it gives me food for thought on my own investment philosophy.

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packer16
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Re: But why not 100% stock index fund?

Post by packer16 » Mon Jul 14, 2014 8:56 am

One caveat is that the opportunity cost of holding bond versus stocks is very high and if you want to maximize returns then 100% stocks is the way to go. However, psychologically this is not for everyone. The key is to find out your specific comfort level for loss and then act accordingly.

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Re: But why not 100% stock index fund?

Post by Matin » Mon Jul 14, 2014 9:09 am

Right now, my retirement money (not my emergency funds) is invested in 100% US stock index funds. During the down markets of 2000 and 2008, my retirement funds were invested in 100% US stock index funds. 40 years from now, my retirement money (not my emergency funds) will be invested in US stock index funds.

I do not care what the market is doing. Is the market up? Don't care. Is the market down? Don't care. I don't do technical analysis. I don't pick individual stocks. I don't cherry pick historical periods to find a time when all other asset classes have done worse than stock. I don't buy international stock. If the market is up, my retirement money goes in. If the market is down, my retirement money goes in. If the market holds steady, my retirement money goes in. If the Zombie Apocalypse comes, my retirement money goes in the stock market. If you can say the same, 100% stock index fund would be a good asset allocation.

You noted that buying bonds in a high stock market and then rolling them into the lower stock market makes sense. A 100% stock index fund asset allocation is probably not right for you.

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Re: But why not 100% stock index fund?

Post by grabiner » Mon Jul 14, 2014 10:42 pm

Heyolshan wrote:I'm new to this forum, though I have been reading posts for a while. A member further down posted for advice regarding 100% stock allocation in his retirement accounts, and most of the replies advise against it. However, almost all the negative votes have included some type of "panic" factor in the event of a market downturn. So it seems to me the biggest purpose of keeping bonds in a long-term investment is because you don't trust yourself to stay the course in a bear market.
And that's exactly the argument. Look at posts in this forum from October 2008-March 2009, and you will see a lot of posters who discovered that they couldn't stay the course when the market lost half its value. Until you have actually lost a large amount of real money, you don't know how you react to a bear market. If you did handle the bear market properly (for example, you were 80% stocks in 2007, and sold bonds to buy more stock in October 2008 to get back to 80%), then you know your risk tolerance and 100% stock may be right for you.

I held 80% stock myself when I started investing in 1997. After I lost a quarter of my portfolio in my first bear market (2000-2002), I did know my risk tolerance, and I have had the risk of 100% stock (90% stock, overweighting small-cap, value, and emerging markets) since 2004.
Wiki David Grabiner

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Re: But why not 100% stock index fund?

Post by John3754 » Mon Jul 14, 2014 11:06 pm

Matin wrote:Right now, my retirement money (not my emergency funds) is invested in 100% US stock index funds. During the down markets of 2000 and 2008, my retirement funds were invested in 100% US stock index funds. 40 years from now, my retirement money (not my emergency funds) will be invested in US stock index funds.
What happens if you're ready to retire and 50% or more of your retirement funds invested in 100% US stock index funds evaporates?

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wander
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Re: But why not 100% stock index fund?

Post by wander » Tue Jul 15, 2014 3:51 am

acegolfer wrote:To OP,

It's fine for one to go 100% or even 150%, 200% on stock index fund. It depends on one's risk tolerance, which is different for everyone. (Some theory also implies that there are some investors who borrow to invest 100+% in market portfolio.)

BH tend to be more risk averse or conservative and hence advise you against going 100% stock. But if you know your risk attitude, there's nothing wrong with going 100%.
+1.
Bond is to keep you sleep well at night in all market weather conditions. It's individual. It's fine for anyone to invest with 100% equity. In my case, I have 85% equity and 15% Bond.

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Re: But why not 100% stock index fund?

Post by pfrotation » Tue Jul 15, 2014 4:50 am

Trailbreaker1 wrote:It's not too big a deal if u wanna go 100% stocks if your young and have plenty of time to invest. Just beware and understand your account value can be cut in half by 50% or more at certain times. But if you have the time and have the right temperament to keep investing then who cares. Do it. It's what I'm doing.
+sin(x)+cos(x)

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Re: But why not 100% stock index fund?

Post by pfrotation » Tue Jul 15, 2014 4:52 am

John3754 wrote:
Matin wrote:Right now, my retirement money (not my emergency funds) is invested in 100% US stock index funds. During the down markets of 2000 and 2008, my retirement funds were invested in 100% US stock index funds. 40 years from now, my retirement money (not my emergency funds) will be invested in US stock index funds.
What happens if you're ready to retire and 50% or more of your retirement funds invested in 100% US stock index funds evaporates?
Keep working.

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Re: But why not 100% stock index fund?

Post by madbrain » Tue Jul 15, 2014 5:12 am

Raymond wrote:
Dutch wrote:Ok I'm calling the top of the market
Waiting for confirmation - when the kid at the Subway sandwich shop starts giving me stock tips, I'll know :P
The Subway closest to my house went out of business recently, so I will hold off a little bit longer on that "market top" call.

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Re: But why not 100% stock index fund?

Post by madbrain » Tue Jul 15, 2014 5:37 am

OP: I suggest you check out actual data from 17 years of 401k investing starting in 1996 that I posted last year at :

http://www.bogleheads.org/forum/viewtop ... 8#p1840747

I have compared my actual result with 100% S&P 500, 100% Total Bond Market, and with "age in bonds" and the rest in stocks.

You can draw your own conclusions.

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Re: But why not 100% stock index fund?

Post by nisiprius » Tue Jul 15, 2014 7:19 am

Heyolshan, without actually addressing your question, let me point out a possible behavioral trap that you might have fallen into. You could have wondered out loud at any time, "why not 100% stock index fund." However, you actually did it on July 13, 2014. There were undoubtedly many things in your life that lead to the impulse to post.

Do a mental inventory and see if you can some up with an actual answer, of some kind, to the question

"why did I post THIS question NOW?" I'm serious, and I'd be interested in an actual answer if you have one and care to share it.

One thing that you have definitely said is that you've been reading forum posts. I believe it will turn out that you are also aware that the Dow has crossed another nice round number in the last week or so. I suspect you are also aware that over the last five years the stock market has done really well, and it has made money and beaten a bank account every single year. For the last five years, the total return of the Vanguard 500 Index Fund have been 26%, 15%, 2%, 16%, 32% and this year 7% with the year only half over.

Now, regardless of the degree of truth or accuracy in analyses of 100% stocks during individual's retirement savings time, we are all of us, all of us, viewing it through the knowledge that it has made money five years in a row and made a heck of a lot of money four out of five years. It feels safe. During the last five years the stock market has been doing just what all the "stocks for the long run" people say does in the long run. You simply can't escape it. It affects everyone. It affect me. Of course I have mood swings when I think OMG it's too much, it's a bubble, it's going to burst.

But overall, I see my own personal stock investments through the rosy and comfortable haze of recent performance. Right now I'm very happy I have them.

It is worse if you tune in to the media... even indirectly, by reading forum postings.

So, completely separate from any factual considerations, allow for the fact that you and I and everybody else are influenced by the aura of success around stock investments over the last few years. The stock market just goes up, with nothing worse than a pothole in 2011--and that's already far enough behind that it's hard to remember the emotions surrounding it.

The stock market is only moderately risky, the stock market might be a reasonably prudent investment in the long run--but there is no way it can be as safe and as good as it feels right now. Worse yet, the mouthwatering numbers of the last few years create a sense of urgency, of missing the boat, of regret at only catching 30% or 50% or 80% of those numbers when one could catch 100% of them.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Heyolshan
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Re: But why not 100% stock index fund?

Post by Heyolshan » Tue Jul 15, 2014 8:28 am

nisiprius wrote: Do a mental inventory and see if you can some up with an actual answer, of some kind, to the question

"why did I post THIS question NOW?" I'm serious, and I'd be interested in an actual answer if you have one and care to share it.
Fair enough. Until late last year, I let a financial consultant make most of my retirement planning decisions for me. Then I realized I was paying 5% (in my retirement account) for this service, and that I owned 30+ mutual funds between 4 accounts. I decided to simplify.

So I read "Little Book of Common Sense Investing," and I was attracted to the simplistic nature of the principle. But one thing about the book bothered me--the gist of the entire book is that you probably can't consistently beat the market, so don't try; instead, match the market and keep fees low. Then it goes about constructing a portfolio split between stocks and bonds. Why, exactly? If your point is to make a simple portfolio that matches the market, shouldn't it be to put all of it in an index fund (especially a retirement account) and ride the waves out?

But that was never presented as an option, so I came here to the Boglehead board, and read a lot of posts on the subject. Almost everyone cites something along the lines of "if you've never lived through a bear market, you can't know what its like and you will panic and sell low." I personally don't buy that. This isn't like facing combat in Afghanistan, it's retirement accounts that I can't touch for another 20 years. I have lived through some financial ups and downs, but even if I hadn't, I still would say with confidence that I wouldn't panic-sell. And I think a lot of posters on this site feel the same way.

Anyway, yesterday someone posted about putting 100% of his retirement account in index stocks, and almost everyone disagreed with the thought, so I posted this thread to ask if anyone had a reason OTHER than panic to be in bonds. So even though I just posted the question, it has been brewing for six months now.

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