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.
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:
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:
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.
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.