Why not 100% Stocks?

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packer16
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Re: Why not 100% Stocks?

Post by packer16 » Sun Oct 05, 2014 7:04 am

dbh25 wrote:
packer16 wrote:How realistic is to compare the US today with an over 200 year history of democracy and compromise to a totalitarian regime that was overthrown by another totalitarian regime? What do think the odds are of the US government expropriating assets from US corporations? This is why it is risky to invest in places like Argentina and Venezula where they still do expropriations and less risky to invest in places like the US and the Anglophone countries where that is not even in most peoples imaginations.

Packer


That's not the point. It's not a comparison, it's an example.


If the example is not a valid comparison, how is it relevant?

Packer
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tibbitts
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Re: Why not 100% Stocks?

Post by tibbitts » Sun Oct 05, 2014 7:38 am

packer16 wrote:Every time we have one of these discussions it comes down to risk tolerance. The key is to understand yours and not to think everyone has the same level. You also need to determine how likely your worse case scenario could happen, what the implications mean for the economy and does that make sense and vetting and testing the assumptions of that scenario.

For the 60% decline in stock prices, 20% in home price and losing job scenario you need to look at what would happen then. First, you would get unemployment/assistance for 6 to 12 months, you would reduce your living expenses and if you have emergency fund for 12 months of expenses, you should be OK for 18 to 24 months, more than enough time to find a job. Within 24 months that decline in stock prices turned into a much more manageble decline of less than 10% from the 2007 high. I think you also introduced the idea that a someone going into retirement would have 100% stocks into your worse case which I think no one has ever even implied would make sense. As to your numbers, the largest decline in the S&P 500 if you pick the 2007 high and 2009 low was 50%.

Packer

Many people on the forum aren't eligible for unemployment insurance, and many are of such an age that regaining employment - even much "lesser" employment - in a significant downturn would be unlikely.

But the main point is that you either believe equities can lose 50% and not recover significantly from those "new normal" levels during your effective investing lifespan, or you don't. It doesn't matter if it's never happened in (recent, US, etc.) history; it only has to happen once for it to affect you.

Obviously nobody would even be talking about 100% equities if we were still at the 2009 equity lows and bonds were returning 3% real, but we have what we have, so even previous stay-the-course "experts" are groping for some solution, when in fact there may not be one.

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Bustoff
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Re: Why not 100% Stocks?

Post by Bustoff » Sun Oct 05, 2014 12:07 pm

Why not 100% Stocks?

Look... why take a chance? At least, that's the way I feel about it.
Remo Gaggi

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ogd
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Re: Why not 100% Stocks?

Post by ogd » Sun Oct 05, 2014 12:48 pm

backpacker wrote:We clearly think about the case differently and I've been trying to figure out why. I don't think it's just relative risk aversion. You're clearly a "new every day" sort of person. Every day is the same as your first day investing. The only difference is that you now have more money to lump sum. I tend to think in terms of the judgements I would have made in the past. Would my past self have been happy getting x% return between the start of my investing career and now? If so, then I'm happy getting x%. If x% would have gotten me a smaller portfolio, then I'm not worried about losses that take me back to x%.

Well, I won't deny that there's something zen about thinking of your portfolio as something the market giveth, the market taketh away. Impermanence, as illustrated by the sand mandala:

[Embedded animated GIFs removed by admin LadyGeek (distracting). Instead, here are the links:]

https://38.media.tumblr.com/9fae049480e01a3ad486e3ed865be8e9/tumblr_nas2c53dxX1rl52wjo2_r1_500.gif

https://33.media.tumblr.com/223960e38f146a5b98dd82d5610ecf88/tumblr_nas2c53dxX1rl52wjo4_r1_500.gif
https://33.media.tumblr.com/741267b07df7f9e156ebf41f5dbd8efe/tumblr_nas2c53dxX1rl52wjo6_r2_400.gif

Later, and unfortunately part of the original Terms and Conditions:

http://31.media.tumblr.com/813f95bea35df35b92c877b5e3dbdf21/tumblr_n0hzxsu5CW1qb6knno1_500.gif

Fortunately, the way it works for investments is I have $X to my name and Buy and Sell buttons, so I don't have to be bound by the rationalizations of a "just getting started" past self with so little invested that it didn't matter what he did. Moreover, a past self who was myopic enough to not have foreseen this very moment, when there would be something at stake. I don't trust that guy.

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backpacker
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Re: Why not 100% Stocks?

Post by backpacker » Sun Oct 05, 2014 1:02 pm

letsgobobby wrote: It doesn't matter what you 'think'. Money has no memory. It matters what you have; and how much you were counting on having the day you became a decumulator - voluntarily or not. If you have 25x expenses and were planning on getting 4% from that and then the markets go down 60% and you lose your job and your home falls 20% - all stuff that has happened in the last decade, to say nothing of the Great Depression - then whatever you 'think' or 'feel' you're pretty much SOL.

This point has been made a few hundred times upthread but if you cannot or choose not to understand it, the warning stands for others who may partake.


It depends on what your overall financial plan is. My financial plan is to save 25x expenses assuming 0% real return. If I get a more reasonable 4% real return, I'll have 50x expenses.

Now say that I'm all-equity with 50x expenses and another investor is 60/40 with 25x expenses. If the market falls by half, I have 25x expenses and the 60/40 investor has ~18x expenses (depending on how much the bonds pop).

One way to be safer is to hold more bonds. Another way is to save more and spend less. Everyone has a different plan! :beer

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backpacker
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Re: Why not 100% Stocks?

Post by backpacker » Sun Oct 05, 2014 1:15 pm

ogd wrote: Well, I won't deny that there's something zen about thinking of your portfolio as something the market giveth, the market taketh away. Impermanence, as illustrated by the sand mandala.

Fortunately, the way it works for investments is I have $X to my name and Buy and Sell buttons, so I don't have to be bound by the rationalizations of a "just getting started" past self with so little invested that it didn't matter what he did. Moreover, a past self who was myopic enough to not have foreseen this very moment, when there would be something at stake. I don't trust that guy.


Ha! I do rather like various philosophical features of Buddhism, so that may explains the difference. :D

Say I show up in the middle of the night and bang on your front door. I offer to pay you 11% more than the going value of your house if you sell right then and there. You need a house, like the one you have, and don't know what houses will cost by the time you find a new one. So you tell me to get the heck off your front door step.

Have you now experienced a 10% loss? You could have sold right then and there! The house is yours and I'm standing there with a briefcase full of cash. I can even bring a big green sell button if you want. :wink:

(P.S. What's more or less going on is that we are framing results differently. I use the frame of my past self, so see market declines as merely reducing gains rather than bringing about losses. You update your frame daily, so see all market declines as losses. Whether the difference in frame causes or is caused by relative risk aversion is anyone's guess.)

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ogd
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Re: Why not 100% Stocks?

Post by ogd » Sun Oct 05, 2014 2:13 pm

backpacker wrote:Say I show up in the middle of the night and bang on your front door. I offer to pay you 11% more than the going value of your house if you sell right then and there. You need a house, like the one you have, and don't know what houses will cost by the time you find a new one. So you tell me to get the heck off your front door step.

Have you now experienced a 10% loss? You could have sold right then and there! The house is yours and I'm standing there with a briefcase full of cash. I can even bring a big green sell button if you want.

It's quite hard to see where this is going, but I think it's about what different people might choose to call the 11% that someone other than me would have inexplicably left in your pocket, absent overwhelming liquidity/tax/hassle constraints. I would call it "Untitled :moneybag" because I wouldn't have time to get creative amidst all the paperwork.

In fact, I see the entire portfolio as a bunch of "Untitled :moneybag"s who might have come from various (yet legal) sources, and a couple of small piles that read "Uncle Sam :moneybag ". Notably absent are any "Wall Street :moneybag" that I wouldn't feel too bad about surrendering.

This reminds me of another problem that I mentioned in another 100% stock thread: a bad consequence of being overly aggressive at any given point is that you can't internalize your full net worth and take on lifestyle upgrades, because it might get taken away from you very quickly. Like in the mandala image above, though of course the monks wouldn't care about such worldly things.

(self-edited to remove embedded image, sorry LadyGeek -- I thought it was a powerful and rather quiet image)

Since I value the nice patterns, I prefer to try and strike a balance between sand and solid substrate.
Last edited by ogd on Sun Oct 05, 2014 2:48 pm, edited 1 time in total.

Buffetologist
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Re: Why not 100% Stocks?

Post by Buffetologist » Sun Oct 05, 2014 2:33 pm

I was 100% stocks almost until I turned 50. I think 100% stocks is fine for retirement if you're in your 20's and 30's. Having a fixed percentage in bonds or cash lowers volatility (which may not matter if your 25), and gives you an allocation where re-balancing forces you to buy low and sell high in order to maintain the allocation. I think that's more important as you get closer to retirement or for any investment where the horizon is in the ~10 year time frame.

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Re: Why not 100% Stocks?

Post by avalpert » Sun Oct 05, 2014 3:41 pm

backpacker wrote:(P.S. What's more or less going on is that we are framing results differently. I use the frame of my past self, so see market declines as merely reducing gains rather than bringing about losses. You update your frame daily, so see all market declines as losses. Whether the difference in frame causes or is caused by relative risk aversion is anyone's guess.)

That's right - it's a framing thing. It may be the case that ignoring the frame of the present is the better choice for psychological reasons (though that is certainly arguable) but from the perspective of reality, the frame you are choosing to use is deliberately trying to shield you from the real circumstances. Once you bought, other than or tax purposes, what you bought for is irrelevant to reality - though potentially relevant to your own psychology.

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backpacker
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Re: Why not 100% Stocks?

Post by backpacker » Sun Oct 05, 2014 4:26 pm

ogd wrote: Since I value the nice patterns, I prefer to try and strike a balance between sand and solid substrate.


This is a really beautiful way of putting your view. I also don't think the GIF should have been removed give that it was relevant to the discussion...

Maybe pictures help? Here's what the tech crash looked like for a 100/0 investor (blue) and a 60/40 investor (red) making the same regular $50,000 contributions starting in 1993. The chart cuts off because both investors lose their jobs and sell everything at the very bottom of the market.

Image

How bad were things for each of our investors during the tech crash?

(Maybe other episodes show that all-stock portfolios are way riskier than this. Let's set that aside for now. I'm trying to figure out how to evaluating how bad things were in particular episodes from investment history.)

One way of describing the crash is that the all-stock investor had peak to trough losses of -40% and the 60/40 investor had peak to trough losses of -15%. So the 100/0 investor lost -25% more than the 60/40 investor. In other words, we should think about the difference between the two strategies like this:

Image

But that's misleading as a way of comparing investment strategies. It shows us how the 100/0 investor did compared to how she would have done if she had successfully market-timed into a 60/40 portfolio at the very top of the market. But why expect her to do that?

What matters is the differential performance of the two strategies over time, not the difference in peak to trough losses. And the value of the 100/0 portfolio is only -8.5% less at the bottom of the crash for investors who started in 1994.

Maybe you think that I'm cheating by having the investors start in 1994. But suppose we start later:

Image

There's now a bigger percentage difference between the two portfolios. But there's also not much at stake because our investors haven't been saving very long. Alternatively, we could have them start much earlier so they have more in the market by the crash. But again, the 100/0 investor does fine compared to the 60/40 investor.

Image

Your position, as far as I can tell, is that the second chart is most illuminating for comparing how bad things were for the 100/0 and 60/40 investors. But why? That chart doesn't show the actual experience for any pair of Bogleheadish investors. They would have had to lump sum in with several years of savings to get those results.

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ogd
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Re: Why not 100% Stocks?

Post by ogd » Sun Oct 05, 2014 6:46 pm

backpacker: now we're just going in circles. You keep stating the optimistic belief that you will be rewarded before you get hurt, then handwave that if you get hurt early the losses don't matter, then rationalize that if do you get hurt later -- well it was the 100% stock allocation that gave you the earnings anyway and you as an investor were not supposed to give any consideration to changing that allocation once you committed to a portfolio line color on a graph, because of something having to do with lump sumps, framing and possibly even zen. I don't know how to get the discussion out of this tailspin, so all I can say is, I hope it works out for you because it would also work out very well for me and pretty much everyone on this board.

Meanwhile, I and others will continue to advise people that ask us what to do with their portfolio that stock market crashes are actually something to worry about.

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backpacker
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Re: Why not 100% Stocks?

Post by backpacker » Sun Oct 05, 2014 6:50 pm

^ Fair enough. I can have my zen and you can have your mandala. :beer
Last edited by backpacker on Sun Oct 05, 2014 8:24 pm, edited 13 times in total.

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Re: Why not 100% Stocks?

Post by JohnnyFive » Sun Oct 05, 2014 6:55 pm

ogd wrote:I hope it works out for you because it would also work out very well for me and pretty much everyone on this board.


Except it wouldn't work out for you AS well if you are not 100% stocks.

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backpacker
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Re: Why not 100% Stocks?

Post by backpacker » Sun Oct 05, 2014 8:16 pm

avalpert wrote:
backpacker wrote:(P.S. What's more or less going on is that we are framing results differently. I use the frame of my past self, so see market declines as merely reducing gains rather than bringing about losses. You update your frame daily, so see all market declines as losses. Whether the difference in frame causes or is caused by relative risk aversion is anyone's guess.)

That's right - it's a framing thing. It may be the case that ignoring the frame of the present is the better choice for psychological reasons (though that is certainly arguable) but from the perspective of reality, the frame you are choosing to use is deliberately trying to shield you from the real circumstances. Once you bought, other than or tax purposes, what you bought for is irrelevant to reality - though potentially relevant to your own psychology.


Right. I do find that I'm much less worries about the market when I maintain a constant frame rather than updating with each new portfolio increase. But it's not like this is going to change what the market does.

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Re: Why not 100% Stocks?

Post by Johno » Sun Oct 05, 2014 8:31 pm

tibbitts wrote:
packer16 wrote:Every time we have one of these discussions it comes down to risk tolerance.

For the 60% decline in stock prices, 20% in home price and losing job scenario you need to look at what would happen then. First, you would get unemployment/assistance for 6 to 12 months, you would reduce your living expenses and if you have emergency fund for 12 months of expenses, you should be OK for 18 to 24 months, more than enough time to find a job. Within 24 months that decline in stock prices turned into a much more manageble decline of less than 10% from the 2007 high.

Many people on the forum aren't eligible for unemployment insurance, and many are of such an age that regaining employment - even much "lesser" employment - in a significant downturn would be unlikely.

But the main point is that you either believe equities can lose 50% and not recover significantly from those "new normal" levels during your effective investing lifespan, or you don't. It doesn't matter if it's never happened in (recent, US, etc.) history; it only has to happen once for it to affect you.

Obviously nobody would even be talking about 100% equities if we were still at the 2009 equity lows and bonds were returning 3% real, but we have what we have, so even previous stay-the-course "experts" are groping for some solution, when in fact there may not be one.

I agree and the disconnect I feel in the argument you responded to is the general term 'risk tolerance' juxtaposed against one particular historical scenario. At the end of the day, or perhaps up to now pending any seeds for an even bigger debacle which might have been planted by extraordinary govt and fed action in 2008-9, the 2008-9 crash was basically a head fake, market wise. As you imply, it might be a different story career wise, millions find themselves on a possibly permanently lower track now. But anyway the basic dilemma, seemingly so obvious but people argue about it constantly on this forum, is that the future may contain scenarios not seen in the past 100 years or so of US stock history, let alone strictly mimic the 2008-09 episode. Everyone is entitled to their opinion of course but I would worry if someone I counted on for advice evaluated 'risk tolerance' and general view of risk, in anywhere near as narrow a framework as laying out how a hypothetical person with good reemployment prospects, unemployment benefits and 100% stock allocation would have navigated from the eve of that crisis to the quick and vigorous stock comeback that followed shortly after.

Then again, the great majority of '100% stock' people it seems to me don't really have 100% stock, if they're going to ask 'are you kidding?' when one states the plain fact that 500k house and 500k stocks is 50-50, not 100-0.
Last edited by Johno on Sun Oct 05, 2014 9:01 pm, edited 1 time in total.

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ogd
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Re: Why not 100% Stocks?

Post by ogd » Sun Oct 05, 2014 8:59 pm

backpacker wrote:(edited) ^ Fair enough. I can have my zen and you can have your mandala. :beer

(Edited response; discussion stayed respectful but was diverging hopelessly) Yup, let's agree to disagree.

Technically, the mandala goes with the zen, but I can appreciate the beauty even as I lament its demise.

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Re: Why not 100% Stocks?

Post by skeptic88 » Sun Oct 05, 2014 9:32 pm

I have been 100% equities for 20 years, I have found a few psychological remedies for the volatility of stocks(this mainly applies to people that own the total stock market fund or s&p 500 fund)


Never look at the price of your stock fund, instead, look at the dividends and earnings. One can go to Robert Shiller's website and download his data to excel; He has the price, earnings and dividends of stocks all the way to back to the late 19th century. If you look at these numbers it is very comforting, there has only been a hand full of years since 1900 where dividends and earnings did not increase. The fact is, when you own the total stock market you own a (very) small percentage of the underlying companies, so when you look at how "your businesses" are doing, look at dividends and earnings. Once you look at this way it makes you wonder why people worry so much.

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Re: Why not 100% Stocks?

Post by TPS_Reports » Sun Oct 05, 2014 10:07 pm

RE: Packer
If the example is not a valid comparison, how is it relevant?


johno already stated the answer above, I will quote it since it was summed up nicely-
the future may contain scenarios not seen in the past 100 years or so of US stock history, let alone strictly mimic the 2008-09 episode.

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backpacker
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Re: Why not 100% Stocks?

Post by backpacker » Sun Oct 05, 2014 10:43 pm

skeptic88 wrote: Never look at the price of your stock fund, instead, look at the dividends and earnings.


Right--these are much less volatile than prices, even though the two move together over the long-run.

Johno wrote:[
Then again, the great majority of '100% stock' people it seems to me don't really have 100% stock, if they're going to ask 'are you kidding?' when one states the plain fact that 500k house and 500k stocks is 50-50, not 100-0.


Housing goes with equities, not bonds, but who's counting? :wink:

ogd wrote: Technically, the mandala goes with the zen, but I can appreciate the beauty even as I lament its demise.


I was referring to your comment about wanting to preserve the patterns rather than letting them be swept away. But the analogy was getting a bit stretched, I agree.

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Re: Why not 100% Stocks?

Post by HomerJ » Mon Oct 06, 2014 8:32 am

backpacker wrote:
letsgobobby wrote: It doesn't matter what you 'think'. Money has no memory. It matters what you have; and how much you were counting on having the day you became a decumulator - voluntarily or not. If you have 25x expenses and were planning on getting 4% from that and then the markets go down 60% and you lose your job and your home falls 20% - all stuff that has happened in the last decade, to say nothing of the Great Depression - then whatever you 'think' or 'feel' you're pretty much SOL.

This point has been made a few hundred times upthread but if you cannot or choose not to understand it, the warning stands for others who may partake.


It depends on what your overall financial plan is. My financial plan is to save 25x expenses assuming 0% real return. If I get a more reasonable 4% real return, I'll have 50x expenses.

Now say that I'm all-equity with 50x expenses and another investor is 60/40 with 25x expenses. If the market falls by half, I have 25x expenses and the 60/40 investor has ~18x expenses (depending on how much the bonds pop).

One way to be safer is to hold more bonds. Another way is to save more and spend less. Everyone has a different plan! :beer


I don't understand your plan... Are you going to keep working and saving until you have 50x expenses or 25x expenses? If you retire at 25x expenses, you will indeed care if the market crashes (even if you're "technically up" over all those years)... If you retire at 50x expenses, you're going to have to work 5-10 more years and/or spend a lot less during your working lifetime...

Why is your plan to spend less throughout your entire life and work longer a better plan than holding some bonds as you get closer to retirement?

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Bustoff
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Re: Why not 100% Stocks?

Post by Bustoff » Fri Oct 10, 2014 5:24 pm

Vanguard Total Bond fund has pulled ahead of Total Stock for the year. Just sayin.

YTD as of 10/09/2014
Total Bond Fund ... 5.23%
Total Stock Mkt ... 3.11%

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Re: Why not 100% Stocks?

Post by JoMoney » Fri Oct 10, 2014 6:30 pm

Bustoff wrote:Vanguard Total Bond fund has pulled ahead of Total Stock for the year. Just sayin.

YTD as of 10/09/2014
Total Bond Fund ... 5.23%
Total Stock Mkt ... 3.11%


.. For Year To Date... Over the past year it paints a different picture, with Total Stock earning more than twice that of the bond fund...
...but of course we could go back over the past 15 years and see yet again a completely different result. Unless you're making all of your purchases and sales decisions on specific dates I'm not sure even this shows the whole story.
"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: Why not 100% Stocks?

Post by JohnnyFive » Fri Oct 10, 2014 8:22 pm

Bustoff wrote:Vanguard Total Bond fund has pulled ahead of Total Stock for the year. Just sayin.

YTD as of 10/09/2014
Total Bond Fund ... 5.23%
Total Stock Mkt ... 3.11%


What's your point? Even those with significant parts of their portfolios in bonds won't argue that bonds will outperform stocks over the long term. And yes, YTD bonds have outperformed. But over the past 12 months stocks have outperformed bonds by more than double. And even that means absolutely nothing.

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Re: Why not 100% Stocks?

Post by letsgobobby » Fri Oct 10, 2014 8:31 pm

JohnnyFive wrote:Even those with significant parts of their portfolios in bonds won't argue that bonds will outperform stocks over the long term.

Disagree completely.

I have 40% bonds, and what I argue is that it is quite possible that bonds will outperform stocks over a long period of time.

How possible? I don't know. More than 0%. More than 5%. Less than 50%.

How long a period of time? The only time period which matters: the one that is relevant to me. In my case, that is about 20 years (til I would potentially start drawing down my portfolio).

This is less possible today than it was, say, in 2000, when stocks were grossly overvalued and bonds paid triple what they paid now. But it is still possible. And possible means my IPS takes it into account, because no matter how improbable - it is not impossible.

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Re: Why not 100% Stocks?

Post by JohnnyFive » Fri Oct 10, 2014 10:27 pm

Good luck with that. Let me know how it works out for you.

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Re: Why not 100% Stocks?

Post by zaboomafoozarg » Fri Oct 10, 2014 11:28 pm

JohnnyFive wrote:Good luck with that. Let me know how it works out for you.


It'll probably work out OK. If I can keep saving 50% of my income for a few more years, that'll probably make up for this 25% allocation to bonds that I keep laying around.

That's not to mention the 1-to-2 year emergency/house fund I keep in I Bonds and cash. Oh my.

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Bustoff
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Re: Why not 100% Stocks?

Post by Bustoff » Sat Oct 11, 2014 7:55 am

JohnnyFive wrote:What's your point? Even those with significant parts of their portfolios in bonds won't argue that bonds will outperform stocks over the long term. And yes, YTD bonds have outperformed. But over the past 12 months stocks have outperformed bonds by more than double. And even that means absolutely nothing.

It appears that you like to answer your own questions without penetrating beyond the profoundly obvious.
My point was a little more subtle. Sorry you missed it.

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Re: Why not 100% Stocks?

Post by YDNAL » Sat Oct 11, 2014 9:07 am

MarSam [OP] » Wed Oct 01, 2014 8:09 pm wrote:One thing I don't quite understand is why not weight the portfolio almost exclusively in stocks. Their return over the long haul seems to greatly trump Bonds, CDs, etc. What role do bonds play in a portfolio, except perhaps access to liquidity. If my short term cash needs are not large, shouldn't I put the vast majority into stocks (via Index Funds)? Thanks for the advice, I'm very new to this.

Four pages later (in just 10 days), and the original post from a new poster seems so far detached. The Boglehead forum is becoming a different (good/bad) place, IMO.

MarSam, consistent savings are most important, without them, there are no hoped-for returns (or losses for that matter).
    1. From there, the only thing that should matter are personal goals and objectives.
    2. Then, we should be *willing* (psychological) to take whatever risk we take to meet them (goals and objectives). And, NOT do anything stupid when things go south.
Last edited by YDNAL on Sat Oct 11, 2014 9:30 am, edited 1 time in total.
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Re: Why not 100% Stocks?

Post by nedsaid » Sat Oct 11, 2014 9:17 am

If you want to time the market, try the "Nedsaid Boglehead 100% stock threads indicator." When you see the 100% stock threads pop up, it is an indication that it is time to rebalance the portfolio. Ditto for the "OMG Bogleheads Bond Crash ahead threads indicator" predicted a pretty good bond market for 2014. Now that the US Markets have dipped about 5% in recent market turmoil, my expectation is that the 100% stock threads will go off the radar for a while.
A fool and his money are good for business.

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Re: Why not 100% Stocks?

Post by topos » Sat Oct 11, 2014 9:33 am

nedsaid wrote: Now that the US Markets have dipped about 5% in recent market turmoil, my expectation is that the 100% stock threads will go off the radar for a while.

Indeed, that's also my expectation. Same way the very popular threads a few years ago about "why not 100% emerging market?".

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Re: Why not 100% Stocks?

Post by JohnnyFive » Sat Oct 11, 2014 9:37 am

topos wrote:
nedsaid wrote: Now that the US Markets have dipped about 5% in recent market turmoil, my expectation is that the 100% stock threads will go off the radar for a while.

Indeed, that's also my expectation. Same way the very popular threads a few years ago about "why not 100% emerging market?".


Not sure why. I'm 100% stocks and will continue to be. Not sure why a couple of days of losses (mild ones, at that), would change that. If it does, you likely should not be 100% stocks anyway.

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Re: Why not 100% Stocks?

Post by JohnnyFive » Sat Oct 11, 2014 9:38 am

Bustoff wrote:
JohnnyFive wrote:What's your point? Even those with significant parts of their portfolios in bonds won't argue that bonds will outperform stocks over the long term. And yes, YTD bonds have outperformed. But over the past 12 months stocks have outperformed bonds by more than double. And even that means absolutely nothing.

It appears that you like to answer your own questions without penetrating beyond the profoundly obvious.
My point was a little more subtle. Sorry you missed it.


Not even sure what this means. Is this your attempt at "subtlety" once again? Must have missed it yet again.

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Re: Why not 100% Stocks?

Post by tainted-meat » Sat Oct 11, 2014 1:10 pm

I don't carE about short term losses. Bonds don't have a high enough expected return for me to touch. Besides, if crap really did hit the fan one could argue that bond payments would not be honored.

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Re: Why not 100% Stocks?

Post by placeholder » Sat Oct 11, 2014 1:14 pm

Bustoff wrote:My point was a little more subtle. Sorry you missed it.

Then it was too subtle for me as well as I don't know what you're getting at so I might suggest you just say what you mean instead of hinting at it.

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Re: Why not 100% Stocks?

Post by EyeYield » Sun Oct 12, 2014 12:31 am

I swore I wouldn't read another one of these threads, but evidently I have no life.

I think there is one very important fact that needs to be reveled in these threads and it was finally alluded to on the third page, by HomerJ, I believe.
How old are you?

When you have people in their twenties discussing allocation with people in their sixties and seventies, they are all being correct for their own risk factors. If you were mostly in stocks for 50 years and have enough to live on for the rest of your life, there's no need to take very much risk anymore, unless you plan on living forever.

It's fairly easy to tell the average age of the poster by what she says. Life is a teacher and there is no substitute for experience.

When I read something like this, I know this is coming from someone in their twenties.

"I am able to see any difficulty coming way in advance as it relates to my personal finances, including but not limited to, my business."

This is a person who has no need for insurance. (Not that insurance is a guarantee for anything.) He will never be broadsided by a semi or be in a coma and have out of pocket expenses of up to 200k per year. He will always be prepared for what's coming.

He will never have a larger company come into his neighborhood and ruin his business or have new Federal, State or local laws change the way he can do business. He will never have the need for an Umbrella, because he will never make a right turn and have the sun blind him to the fact that someone is in the crosswalk and accidentally make that person a paraplegic for life and possibly lose everything they have and have to pay for the next 30 years. No, he will see that coming.

Just like me, when I was in my twenties. Risk? Bring it on!

Then you live life and experience it, with all the Black Swans you thought you would see coming. Oh, to be young and ignorant again, those were the days.
"The stock market is a giant distraction from the business of investing." - Jack Bogle

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Re: Why not 100% Stocks?

Post by JohnnyFive » Sun Oct 12, 2014 9:28 am

EyeYield wrote:I swore I wouldn't read another one of these threads, but evidently I have no life.

I think there is one very important fact that needs to be reveled in these threads and it was finally alluded to on the third page, by HomerJ, I believe.
How old are you?

When you have people in their twenties discussing allocation with people in their sixties and seventies, they are all being correct for their own risk factors. If you were mostly in stocks for 50 years and have enough to live on for the rest of your life, there's no need to take very much risk anymore, unless you plan on living forever.

It's fairly easy to tell the average age of the poster by what she says. Life is a teacher and there is no substitute for experience.

When I read something like this, I know this is coming from someone in their twenties.

"I am able to see any difficulty coming way in advance as it relates to my personal finances, including but not limited to, my business."

This is a person who has no need for insurance. (Not that insurance is a guarantee for anything.) He will never be broadsided by a semi or be in a coma and have out of pocket expenses of up to 200k per year. He will always be prepared for what's coming.

He will never have a larger company come into his neighborhood and ruin his business or have new Federal, State or local laws change the way he can do business. He will never have the need for an Umbrella, because he will never make a right turn and have the sun blind him to the fact that someone is in the crosswalk and accidentally make that person a paraplegic for life and possibly lose everything they have and have to pay for the next 30 years. No, he will see that coming.

Just like me, when I was in my twenties. Risk? Bring it on!

Then you live life and experience it, with all the Black Swans you thought you would see coming. Oh, to be young and ignorant again, those were the days.



I get your point, but, try not to make broad generalizations (especially when you know nothing about the person in question...in this case, me). I'm insured (probably over-insured actually). I have plenty of cash reserves, and, my business isn't the type of business that has to worry about either one of the scenarios that you outline. Oh, and, I'm in my 30's, not my 20's, so, essentially, you were wrong in every one of your assumptions about me. I'm not that young, and, I'm certainly not ignorant. But, thanks for all the kind words and for showing your powers of perception (even though they had a 0% accuracy rate).

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Re: Why not 100% Stocks?

Post by pkcrafter » Sun Oct 12, 2014 9:54 am

EyeYield wrote:
I swore I wouldn't read another one of these threads, but evidently I have no life
.
:happy

Bonds are one of the four major asset classes and must be included in a properly constructed portfolio.

Bonds are said to be the belt and suspenders of a portfolio.

The event that will break you is not yet in the history book.

Smart investors will learn from their mistakes: Wise investors learn from the mistakes of others. I guarantee there will be many investors on this board who will sell in the next deep market drawdown and learn from their mistake.

If you want maximum returns, use the Larry Portfolio.

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When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: Why not 100% Stocks?

Post by tyler_cracker » Sun Oct 12, 2014 11:07 am

JohnnyFive wrote:try not to make broad generalizations (especially when you know nothing about the person in question...


JohnnyFive wrote:Holding all or most of your wealth in CDs is never, under ANY circumstance, the right thing to do. Never.

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Re: Why not 100% Stocks?

Post by EyeYield » Sun Oct 12, 2014 11:57 am

Oh, and, I'm in my 30's, not my 20's, so, essentially, you were wrong…

I prefer to think I was right and you’re only speaking chronologically. :) Anyone who truly believes that they can see what’s ahead is truly {Deleted} …never mind.

Let me ask you this. Have you reached the height of your intelligence, where you’ll stay forever and never change the way you think about things or will you become much more intelligent over the next 20 - 30 years by learning a lot more than you know now and perhaps change the way you think due to learning and life experiences?
"The stock market is a giant distraction from the business of investing." - Jack Bogle

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Re: Why not 100% Stocks?

Post by zaboomafoozarg » Sun Oct 12, 2014 12:34 pm

JohnnyFive wrote:I'm certainly not ignorant


Certainly not. Someone who has the ability to see any and all difficulties coming their way, both personally and professionally, has achieved a level of foresight that most cannot even comprehend :D

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Re: Why not 100% Stocks?

Post by rca1824 » Sun Oct 12, 2014 2:10 pm

MarSam wrote:One thing I don't quite understand is why not weight the portfolio almost exclusively in stocks. Their return over the long haul seems to greatly trump Bonds, CDs, etc. What role do bonds play in a portfolio, except perhaps access to liquidity. If my short term cash needs are not large, shouldn't I put the vast majority into stocks (via Index Funds)? Thanks for the advice, I'm very new to this.


Your intuition is correct. If you have a long investment horizon and reasonable risk tolerance, 100% equity is optimal. Once you get within 10-20 years of retirement, it's time to scale down though.
Monthly or yearly movements of stocks are often erratic and not indicative of changes in intrinsic value. Over time, however, stock prices and intrinsic value almost invariably converge. ~ WB

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Re: Why not 100% Stocks?

Post by MarSam » Mon Oct 13, 2014 3:56 pm

I love how much belittling I get on this message board. I got a few genuine pieces of advice. Thank you for those. My post seems to be more the butt of jokes. I don't take it personally, but I wish the criticisms has more constructive input. I guess my take away from them should be its too much risk for some people??

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Re: Why not 100% Stocks?

Post by JoMoney » Mon Oct 13, 2014 4:02 pm

MarSam wrote:I love how much belittling I get on this message board. I got a few genuine pieces of advice. Thank you for those. My post seems to be more the butt of jokes. I don't take it personally, but I wish the criticisms has more constructive input. I guess my take away from them should be its too much risk for some people??

That would be my take on it... but I would be concerned about anyone who feels they need to get "permission" from the Internet on what their allocation should be. You'll hear plenty of warnings from people here about why 100% stocks is not right for them (but they'll direct their feelings at you). If you discover later on that it's more than you can handle, you can't say they didn't warn you.
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
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Re: Why not 100% Stocks?

Post by cfs » Mon Oct 13, 2014 4:04 pm

MarSam wrote:I love how much belittling I get on this message board. I got a few genuine pieces of advice. Thank you for those. My post seems to be more the butt of jokes. I don't take it personally, but I wish the criticisms has more constructive input. I guess my take away from them should be its too much risk for some people??

Correcto. It is too much risk for some people, on my imperfect SWAN or sleep well at night portfolio I try to maintain a 30-35 percent in equities and a 60-65 percent in bonds and cash reserves. You should NOT take anything personal, if you want to be 100 percent in equities, then more power to you, one last thing, YOUR allocation is YOUR allocation. Good luck with your investments.
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Re: Why not 100% Stocks?

Post by Harold » Mon Oct 13, 2014 4:14 pm

I didn't read much of the thread, so I don't know the level of belittling. It might have been due to your original statement being somewhat loaded with essentially false presumptions.

MarSam wrote:One thing I don't quite understand is why not weight the portfolio almost exclusively in stocks. Their return over the long haul seems to greatly trump Bonds, CDs, etc. What role do bonds play in a portfolio, except perhaps access to liquidity. If my short term cash needs are not large, shouldn't I put the vast majority into stocks (via Index Funds)? Thanks for the advice, I'm very new to this.

- Stock returns over the long haul (depending on which long haul) have for the most part trumped Bonds/CDs. But nobody knows whether they will in the future, and nobody even knows that there is a probability they will in the future. Plenty of people express certainty of stock outperformance, but they don't have a mathematical/scientific basis for that certainty -- and they could be wrong.

- Although access to liquidity is a desirable feature to some, the real attribute of bonds is that they are an investment of lower risk than stocks. Every individual has a personal risk budget (i.e. the amount of their assets they can tolerate possibly losing in hopes of greater gains). Very few people have a risk budget of 100% stocks (probably far fewer than those who claim to invest at 100% stocks).

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Re: Why not 100% Stocks?

Post by MarSam » Mon Oct 13, 2014 4:20 pm

Thank you. Maybe a better way to phrase my question is as such. If you had capital that you did not need for 15-30 years, what would your allocation be on THAT capital? If corporations (particularly US) have demonstrated, historically, to be a superior investment over long stretches AND if you believed that companies are well positioned to continue to grow (and increase margins) and will continue to operate in a stable social/political environment, why wouldn't someone bet those funds on US equities?

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Re: Why not 100% Stocks?

Post by tecmage » Mon Oct 13, 2014 4:27 pm

MarSam wrote:Thank you. Maybe a better way to phrase my question is as such. If you had capital that you did not need for 15-30 years, what would your allocation be on THAT capital? If corporations (particularly US) have demonstrated, historically, to be a superior investment over long stretches AND if you believed that companies are well positioned to continue to grow (and increase margins) and will continue to operate in a stable social/political environment, why wouldn't someone bet those funds on US equities?


My tolerance won't be your tolerance though. I've settled on 80% stocks 20% bonds allocation for my investment accounts, since I will include SS and a very small pension in the mix. This will push my overall allocation to approx 70/30ish near retirement (30ish years) when you count the pension and SS as bonds.

why wouldn't someone bet those funds on US equities?

Sounds like this is more a question of how much international exposure you want and not how much bond exposure you want.

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Re: Why not 100% Stocks?

Post by Harold » Mon Oct 13, 2014 4:31 pm

MarSam wrote:Thank you. Maybe a better way to phrase my question is as such. If you had capital that you did not need for 15-30 years, what would your allocation be on THAT capital? If corporations (particularly US) have demonstrated, historically, to be a superior investment over long stretches AND if you believed that companies are well positioned to continue to grow (and increase margins) and will continue to operate in a stable social/political environment, why wouldn't someone bet those funds on US equities?

Again, the way you're posing the question presupposes the answer.

In short, your question is that if we know stocks will outperform over 15-30 years -- why don't we invest all of our capital in stocks? The answer is that we don't know that.

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Re: Why not 100% Stocks?

Post by YDNAL » Mon Oct 13, 2014 4:36 pm

MarSam wrote:One thing I don't quite understand is why not weight the portfolio almost exclusively in stocks. Their return over the long haul seems to greatly trump Bonds, CDs, etc. What role do bonds play in a portfolio, except perhaps access to liquidity. If my short term cash needs are not large, shouldn't I put the vast majority into stocks (via Index Funds)? Thanks for the advice, I'm very new to this.
MarSam wrote:Maybe a better way to phrase my question is as such. If you had capital that you did not need for 15-30 years, what would your allocation be on THAT capital? If corporations (particularly US) have demonstrated, historically, to be a superior investment over long stretches AND if you believed that companies are well positioned to continue to grow (and increase margins) and will continue to operate in a stable social/political environment, why wouldn't someone bet those funds on US equities?

The issue, MarSam, is that you are not diversified over the 15-30 years you mentioned. When (not if) the U.S. Equity market goes in a downward spiral, you have nothing to take advantage other that regular contributions (new money), and that is assuming the person is still accumulating.

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Re: Why not 100% Stocks?

Post by grap0013 » Mon Oct 13, 2014 4:38 pm

MarSam wrote:I love how much belittling I get on this message board. I got a few genuine pieces of advice. Thank you for those. My post seems to be more the butt of jokes. I don't take it personally, but I wish the criticisms has more constructive input. I guess my take away from them should be its too much risk for some people??


I didn't read the entire thread, but I saw this statement. I find some comments about high equity allocations a bit off-putting sometimes as well. Don't take it personally. Most posters reply based on what he/she would do rather than through another's eyes. Risk tolerance is a really personal thing and often even seasoned investors do not truly know their own risk tolerance let alone trying to guess at someone else's risk tolerance.
There are no guarantees, only probabilities.

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