Why not 100% Stocks?

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MarSam
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Re: Why not 100% Stocks?

Post by MarSam » Mon Oct 13, 2014 4:40 pm

I'll still be holding enough in cash to account for 10 years of expenses AND I still own a business that I will likely sell in 5-10 years

IPer
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Why not 100% stocks

Post by IPer » Mon Oct 13, 2014 5:06 pm

MarSam wrote:I'll still be holding enough in cash to account for 10 years of expenses AND I still own a business that I will likely sell in 5-10 years
People on this board might not understand what you just said! Most are the employee type, and a lot are doctors and other professionals who are their businesses.
Something that might interest you that I ran into is the Talmud Asset Allocation post I read. It speaks of 33% Cash/33% Business/33% Real Estate, and I would consider
stocks of the non-REIT nature to be business and of the REIT type to be Real Estate except not 100% as they are still stocks so their behavior differs from an actual real
estate portfolio (which is obvious to some). The post is an easy read and you might appreciate the example: http://www.joshuakennon.com/the-talmud- ... portfolio/

It sounds like in the long run you will have a lot more than you need so that will provide you with more flexibility than most, enjoy it!
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avalpert
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Re: Why not 100% Stocks?

Post by avalpert » Mon Oct 13, 2014 5:10 pm

MarSam wrote:I'll still be holding enough in cash to account for 10 years of expenses AND I still own a business that I will likely sell in 5-10 years
In other words you won't be 100% in stocks. Why not phrase the question than - if I have 10 times my annual spending in cash why shouldn't the rest of my portfolio be in stocks? Heck, that is a more risk averse than I am, in fact for someone retiring with a 4% withdrawal rate, keeping 10x expenses in cash leads to a very reasonable 60/40 portfolio. So the more interesting question is why do you have to frame your not so risky portfolio as a risky bet?
Last edited by avalpert on Mon Oct 13, 2014 5:13 pm, edited 1 time in total.

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Re: Why not 100% Stocks?

Post by LadyGeek » Mon Oct 13, 2014 6:36 pm

I removed some off-topic comments. As a reminder, see: Forum Policy
This is a moderated forum. We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.
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staythecourse
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Re: Why not 100% Stocks?

Post by staythecourse » Mon Oct 13, 2014 6:52 pm

grap0013 wrote:
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.
+1. I always remind myself and others this board is no different then any other group. Herd mentality and group thinking are rampant here as anywhere else. The good thing is most of the herd mentality is very useful for the investor, but there are different issues where it is not hard to figure out what is "accepted" and treated like dogma when they really should be presented as opinion.

As I always say the best thing ANYONE can do is learn from as many intelligent sources (books, internet, this site, etc...), think A LOT, and come up with your own decisions. This way no matter what happens you only have yourself to pat on the back or be upset with.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

Trader Joe
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Re: Why not 100% Stocks?

Post by Trader Joe » Mon Oct 13, 2014 7:11 pm

No reason not to be in 100% stocks if you have a long time horizon. Best of luck.

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Re: Why not 100% Stocks?

Post by avalpert » Mon Oct 13, 2014 7:35 pm

Trader Joe wrote:No reason not to be in 100% stocks if you have a long time horizon. Best of luck.
I'm sorry but this needs to be reiterated - yes there are reasons not to be 100% stocks even if you have a long time horizon. You can choose to dismiss those reasons or conclude they don't apply to you but to pretend they don't exist is likely a recipe for bad decisions - make decisions with your eyes wide open and you will at least mitigate some cognitive errors.

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Yesterdaysnews
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Re: Why not 100% Stocks?

Post by Yesterdaysnews » Mon Oct 13, 2014 10:40 pm

What if one plans to never retire?

I could see myself going part-time, but I never plan to fully retire. I am into saving and investing, but not necessarily with the end point being retirement. I am interested in it and it is a hobby and I like to have more and more money etc.

I don't view retirement as much of a goal, so I tend to have a stock heavy portfolio. I may never sell any of my investments during my lifetime.

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Re: Why not 100% Stocks?

Post by avalpert » Mon Oct 13, 2014 10:53 pm

Yesterdaysnews wrote:What if one plans to never retire?
Those plans are not always in your control - unless you plan to commit suicide if you are ever physically no longer able to perform or no one will keep you employed.

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Yesterdaysnews
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Re: Why not 100% Stocks?

Post by Yesterdaysnews » Mon Oct 13, 2014 10:58 pm

I have disability insurance for a situation where I can no longer perform my job. I am in a profession where I can always find a job thankfully (physician).

Seems like no reason not to have a stock heavy portfolio based on index funds. 0.05% ER is almost nothing. It is too good a deal to pass up to invest heavy in total stock market admiral.

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Re: Why not 100% Stocks?

Post by John3754 » Mon Oct 13, 2014 11:10 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.
MarSam wrote:I'll still be holding enough in cash to account for 10 years of expenses AND I still own a business that I will likely sell in 5-10 years
These two statements are incongruous, if you plan to hold 10 years expenses in cash then obviously you DO understand why one should NOT be 100% in stocks.

What you should be asking yourself is not "why hold bonds when stocks have a higher expected return", rather it's "why hold cash when bonds have a higher expected return?"

So I'll pose the question...why would you hold 10 years expenses in cash when you could hold say...9 years expenses in bonds and 1 year expenses in cash and have a higher expected return?

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Re: Why not 100% Stocks?

Post by letsgobobby » Mon Oct 13, 2014 11:49 pm

Yesterdaysnews wrote:I have disability insurance for a situation where I can no longer perform my job. I am in a profession where I can always find a job thankfully (physician).

Seems like no reason not to have a stock heavy portfolio based on index funds. 0.05% ER is almost nothing. It is too good a deal to pass up to invest heavy in total stock market admiral.
Sounds you have a high tolerance for risk and a high ability to take risk, so that's 2 out of 3.

Do you need to take a lot of risk? Probably not; with high earnings and aggressive savings, you could take a fraction of the risk and still meet all your financial goals. So why do you choose to take risk that you don't need to take? (I have no need to take a lot of risk and don't, 60/40 gets me to where I need to be so that is what I do).

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Re: Why not 100% Stocks?

Post by HomerJ » Tue Oct 14, 2014 12:21 am

MarSam wrote:I'll still be holding enough in cash to account for 10 years of expenses
Wait, what? Then you're not 100% in stocks. In fact, you're more conservative than most of us. Nothing wrong with that, of course.

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ginmqi
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Re: Why not 100% Stocks?

Post by ginmqi » Tue Oct 14, 2014 1:12 am

If the investor is getting palpitations and anxiety attacks from this past week's performance (and possible upcoming week/month performance) then 100% stock is not right for them. :mrgreen:

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Re: Why not 100% Stocks?

Post by avalpert » Tue Oct 14, 2014 8:37 am

Yesterdaysnews wrote:I have disability insurance for a situation where I can no longer perform my job.
Is disability insurance going to be a cost effective option in your 70s? (I honestly don't know but my guess is that as the likelihood of you needing it the most increases the benefits of having self insured increase considerably).

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Re: Why not 100% Stocks?

Post by Yesterdaysnews » Tue Oct 14, 2014 8:53 am

avalpert wrote:
Yesterdaysnews wrote:I have disability insurance for a situation where I can no longer perform my job.
Is disability insurance going to be a cost effective option in your 70s? (I honestly don't know but my guess is that as the likelihood of you needing it the most increases the benefits of having self insured increase considerably).
It is more just a insurance against something catastrophic happening to me and I can't do my job any longer as a physician. The likelihood is pretty low cause of the field of medicine I am in (radiology) really only requires a brain, one good hand, and one good eye :D

I am only partially kidding also, I have never met a disabled radiologist. It is just worst case scenario stuff.

I am pretty aggressive with stocks mainly because I don't ever want to sell in my lifetime. To me, the "risk" is really having to sell when stocks are down, and my goal is to avoid having to do that during my lifetime.

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Re: Why not 100% Stocks?

Post by Yesterdaysnews » Tue Oct 14, 2014 8:54 am

letsgobobby wrote:
Yesterdaysnews wrote:I have disability insurance for a situation where I can no longer perform my job. I am in a profession where I can always find a job thankfully (physician).

Seems like no reason not to have a stock heavy portfolio based on index funds. 0.05% ER is almost nothing. It is too good a deal to pass up to invest heavy in total stock market admiral.
Sounds you have a high tolerance for risk and a high ability to take risk, so that's 2 out of 3.

Do you need to take a lot of risk? Probably not; with high earnings and aggressive savings, you could take a fraction of the risk and still meet all your financial goals. So why do you choose to take risk that you don't need to take? (I have no need to take a lot of risk and don't, 60/40 gets me to where I need to be so that is what I do).

I guess I don't really "need" to, but I really have no plans to ever sell any significant investments in my lifetime. Keep working to live for as long as I can cause I enjoy it and part-time is fine with me.

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Re: Why not 100% Stocks?

Post by jobronze » Tue Oct 14, 2014 9:25 am

New poster. New Investor. Long time horizon. Very interesting points thus far:

My understanding of AA is effectively a technique to reduce volatility. Over the long term, less volatile portfolios lead to better gains. So a 100% stock allocation based on history is not necessarily any better than a 75/25. Unless you timed the market well enough to enter and exit to lock in your gains (very anti BH-like).

Mathematically the way I see it is the portfolio that teeters around 5% is better than the one that roller coasters from +10% to -5%.

I'm I off here?


Also, totally agree with the point that if folks are stashing away large gobs of cash are not REALLY taking the risk they think they are with 100% eq.

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Re: Why not 100% Stocks?

Post by dbr » Tue Oct 14, 2014 12:14 pm

jobronze wrote:New poster. New Investor. Long time horizon. Very interesting points thus far:

My understanding of AA is effectively a technique to reduce volatility. Over the long term, less volatile portfolios lead to better gains. So a 100% stock allocation based on history is not necessarily any better than a 75/25. Unless you timed the market well enough to enter and exit to lock in your gains (very anti BH-like).

Mathematically the way I see it is the portfolio that teeters around 5% is better than the one that roller coasters from +10% to -5%.

I'm I off here?

Yes, you are off here -- sort of. When considering high stock portfolios to ones that hold a little less in stocks, less volatile portfolios don't lead to larger gains on average but rather to more certain gains but smaller gains on average. You have to have in mind that gains will be a random selection from a set of possible gains. Stocks offer a set of possible gains that are higher in general than the gains offered by bonds, but the range over which the result may fall year after year is much wider for stocks than for bonds. A result is that over time most outcomes for holding stocks will exceed most outcomes for holding bonds, but some outcomes for holding stocks will actually be worse than most of the outcomes for holding bonds, and may even be worse than the worst outcomes for holding bonds.

As far as your numbers above, if you have the average return for stocks halfway between +10 and -5, then that average is 2.5%, while you have bonds at 5%. A better example of what actually happens might be the 5% for bonds and stocks to roller coaster between +30% and -10% with an average of 10%. That illustrates something with a high average and also a wide spread. It is a major undertaking (to say the least) to arrive at a successful characterization of what the actual distribution of stock or bond returns looks like followed by actually projecting the future from such a characterization.



Also, totally agree with the point that if folks are stashing away large gobs of cash are not REALLY taking the risk they think they are with 100% eq.

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Re: Why not 100% Stocks?

Post by technovelist » Tue Oct 14, 2014 2:03 pm

HomerJ wrote:
MarSam wrote:I'll still be holding enough in cash to account for 10 years of expenses
Wait, what? Then you're not 100% in stocks. In fact, you're more conservative than most of us. Nothing wrong with that, of course.
If that's 100% in stocks, then I guess I qualify too. After all, I have 100% in stocks except for my cash and everything else I have. :sharebeer
In theory, theory and practice are identical. In practice, they often differ.

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Re: Why not 100% Stocks?

Post by Ignatious P. Daily » Thu Oct 16, 2014 7:24 am

Bumping this thread to illustrate greed. I recommend to all reading both this and the two panic'y "sky is falling" threads. I believe you will see how human emotion is your enemy.

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Re: Why not 100% Stocks?

Post by azanon » Thu Oct 16, 2014 9:16 pm

Ignatious P. Daily wrote:Bumping this thread to illustrate greed. I recommend to all reading both this and the two panic'y "sky is falling" threads. I believe you will see how human emotion is your enemy.
Implying holding 100% stocks is being greedy, is an ignorant statement. I have 100% stocks with a 15+ year time horizon. Yeah, I lost quite a bit the last few months. Care to guess how much I made the previous 5 years?

The irony is I have it to lose largely because I owned and invested in stocks in the first place!

The only portfolios that are wrong (IMO) are those that are sub 20-30% equity, or thereabouts. Because in that scenario, you lose both return as well as increase risk. Above ~ 30% equity, the portfolio can be correct, given the appropriate circumstance.

Highest and lowest range of real returns on (all) stocks vs (all) bonds is actually about equivalent for periods as low as 10 years (see figure 6-1, in SFTLR 5th edition, Siegel). The only difference is, in the case of stocks, the maximum real return is an extra 4%, and the "maximum" minimum is actually 1.3% LESS. In conclusion, if you're investing for 10 years or more, ignore this volatility, and naysayers such as you, and then invest as much as you can in all stocks, and just worry about something else. When that time horizon goes sub 10 years, and especially sub 5 years, THEN start rethinking the strategy.

I agree with you on one thing though - human emotion is your enemy. And if yours is weak and, as a result, you can't handle the heat and will own truckloads of bonds, you might be looking at several hundred thousand less when you want to retire.... all because you worried about volatility on money that you had no intention of spending anytime soon anyway.

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Re: Why not 100% Stocks?

Post by Yesterdaysnews » Fri Oct 17, 2014 1:22 pm

I agree with above. I am 100% stocks as well. But, I have a large paid off house also, which is sort of bond-like. But, I don't any bonds in my investments.

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Re: Why not 100% Stocks?

Post by Johno » Fri Oct 17, 2014 2:11 pm

Yesterdaysnews wrote:I agree with above. I am 100% stocks as well. But, I have a large paid off house also, which is sort of bond-like. But, I don't any bonds in my investments.
The thread seems to keep coming back to this: most '100% stocks' people aren't actually 100% in stocks or necessarily anywhere near it. What they mean is that they are 0% in bonds, not 100% in stocks.

People are allowed whatever opinion they like as long as it doesn't contradict facts, but if people who have $500k in a house and $500k in stock (and relatively small amounts in cash or any other assets) think they have the same stock allocation, 100%, as a renter $1000k in stock, that's pretty close to the line of ignoring facts. I would say that '100% stocks not counting 10 years worth of expenses in cash' is clearly over that line: it's a reasonable allocation if you can afford that kind of drag on returns, but kind of a comedy routine to call it '100% stocks', unless perhaps it's a person with a $100mil portfolio who lives on $50k a year, then 10 yrs of cash reserve is still virtually really 100% stocks :D But we're talking unusual exceptions then.

People who are *really* 100% (or close) in stocks seem rare, and there's a good reason for that that most of the pseudo-100%'ers seem to realize: it's too darn risky once you've built up a significant portfolio relative to your ability to make up losses via your human capital. Once you're further down the road, it's prudent to also have eg. significant home equity and/or cash, a business, etc that 'don't count', in addition to your '100% stocks'. :D

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Re: Why not 100% Stocks?

Post by countmein » Fri Oct 17, 2014 7:01 pm

^ Yes. The big missing element in these threads is the raw quantity of money at risk. A lot of the 100%ers here could be talking about very small portfolios. If all you've got to invest is 50K then sure, 100% stocks, why not.

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Re: Why not 100% Stocks?

Post by JoMoney » Fri Oct 17, 2014 7:39 pm

I consider my investment portfolio 100% stocks, despite the fact that I do own a short-term bond fund, have cash in the bank, and a bucket full of coins/loose-change sitting around. The main consideration (to me) relative to other allocations, is that I'm not following any kind of "rebalancing" regimen between stocks and bonds that I might have for my long-term investment. The amounts I have in cash and short-term bonds are for some short-term savings goals and emergency fund and nothing to do with the money that I'll have invested for some multi-decade long future period. Even keeping track of it as a percentage, it would be in the high 90's and round up close enough to 100% that arguing over whether or not it's technically 100% is about as silly as making someone take account of their household appliances and estimating their "portfolio value".
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Re: Why not 100% Stocks?

Post by Johno » Fri Oct 17, 2014 9:06 pm

JoMoney wrote: Even keeping track of it as a percentage, it would be in the high 90's and round up close enough to 100% that arguing over whether or not it's technically 100% is about as silly as making someone take account of their household appliances and estimating their "portfolio value".
It's silly to take into account di minimis asset amounts..if they are. However IMHO the concept that people with houses of significant value relative to their stock portfolio's saying they are '100% in stocks because a house isn't an investment' is also silly. I'm sure there are people who are practically close to 100% in stocks, but it seems there are many more who say that who are actually fairly far away, or as countmein reiterated, people starting out with small portfolio's where it really doesn't matter all that much.

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Re: Why not 100% Stocks?

Post by SC Hoosier » Fri Oct 17, 2014 9:18 pm

I am 100% equities. My reasons are as follows:
My wife and I are under 40 with tolerance for market ups and downs. I get excited when I see red.
We have no debt including our home. So our net worth is 45% home equity.

Thus, in this situation, I'm not looking to temper risk. I'm looking for more risk. I need to increase my returns. My plan is to continue buying only equities until age 50 and then put all new money into Total Bond or Money market. My plan in retirement is to spend Bond/MM first and replenish from equities after market spurts.

I think it's funny how so many people on this forum want to borrow all they can and then have a 20-40% bond allocation to lower risk. I lower risk by having no mortgage or debt and I get the monthly benefit of having no mortgage payment. I am saving 45% of pay. Thus if I have a bad month, I have few bills and can handle emergencies. I'm not implying that I have no emergency fund. I do. It came in handy when I went without a paycheck for 17 months five years ago. Having no debt payments was really nice then.
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Re: Why not 100% Stocks?

Post by Johno » Fri Oct 17, 2014 9:33 pm

SC Hoosier wrote:I am 100% equities. My reasons are as follows:
My wife and I are under 40 with tolerance for market ups and downs. I get excited when I see red.
We have no debt including our home. So our net worth is 45% home equity.
Ie, you're another 100% stock person who is not 100% in stocks, 55% from what you say, minus the effect of the 'emergency fund'. Your approach sounds very reasonable and your situation favorable, and a good explanation why you are 0% bonds, which is what you really mean.
Last edited by Johno on Fri Oct 17, 2014 9:35 pm, edited 1 time in total.

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Re: Why not 100% Stocks?

Post by Midwest_Investor » Fri Oct 17, 2014 9:34 pm

SC Hoosier wrote:I am 100% equities. My reasons are as follows:
My wife and I are under 40 with tolerance for market ups and downs. I get excited when I see red.
We have no debt including our home. So our net worth is 45% home equity.

.
With 45% of NW in HE, you are not 100% equities.

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Re: Why not 100% Stocks?

Post by Riceman » Fri Oct 17, 2014 9:44 pm

I don't see the point of arguing about the definition of 100% stocks. The whole point of discussions about asset allocation is to help each individual understand the various factors at play in his life that affect how he may wish to allocate his investments.

Of my current tangible assets, I am 0.5% cash, 3% car, 1% kitchen equipment, and 95.5% equities. But I do have very stable federal government employment and I'm young, so maybe we should adjust that and make me 70% personal capital. And I have a pension down the road starting at age 50, so maybe that's another 30%. So maybe I should say I am not 100% equiities, but instead 50% personal capital, 25% pension, 23% equities, 2% car, 0.5% kitchen equipment, 0.5% cash.

Or we could instead simplify the conversation and say that my investment portfolio is 100% equities, and here are the factors that I believe make that a good choice.

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Re: Why not 100% Stocks?

Post by SC Hoosier » Fri Oct 17, 2014 10:04 pm

I can agree with the last three posts. I am 0% bonds and my retirement accounts are 100% equities.
I live in No Payment Land. It is wonderful, and I'd love for you to live here too.

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Yesterdaysnews
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Re: Why not 100% Stocks?

Post by Yesterdaysnews » Fri Oct 17, 2014 10:12 pm

I can see both sides here. Most calculations of net worth etc excludes your house. So do the various classifications of accredited investor etc.. so I tend to view my investment portfolio as totally separate from my paid off house. But, I think saying I am 0% bonds does make sense as well. Or one can say they are 100% stocks in investable assets.

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Re: Why not 100% Stocks?

Post by TomatoTomahto » Fri Oct 17, 2014 10:21 pm

John3754 wrote:
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:I'll still be holding enough in cash to account for 10 years of expenses AND I still own a business that I will likely sell in 5-10 years
These two statements are incongruous, if you plan to hold 10 years expenses in cash then obviously you DO understand why one should NOT be 100% in stocks.

What you should be asking yourself is not "why hold bonds when stocks have a higher expected return", rather it's "why hold cash when bonds have a higher expected return?"

So I'll pose the question...why would you hold 10 years expenses in cash when you could hold say...9 years expenses in bonds and 1 year expenses in cash and have a higher expected return?
OP, with all due respect, I will believe that you're new to this and have not figured out that with 10 years of living expenses in cash, you are not 100% equities. Even with a huge equity portfolio, and small living expenses, you won't be 100% equities. Keep cash if it makes you comfortable, but I personally would do as John suggested, keep a year or so in cash for an emergency fund, and put the rest in bonds (short to medium term if they make you nervous).

How did this thread grow to 5 pages? I might have to read all of the responses tomorrow; it's quite surprising, but maybe the thread title is what people focused on.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: Why not 100% Stocks?

Post by Yesterdaysnews » Fri Oct 17, 2014 10:38 pm

Longer term bonds should not make you nervous these days either really. The FED has basically said they won't be raising rated until mid to late 2015 anyway. Yes, they will eventually, but I bet it will be a non-event.

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Re: Why not 100% Stocks?

Post by looking » Fri Oct 17, 2014 11:41 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.
i'm 100% stock with 3 years emergence money -sock thnak it will come back in 3 years-no need to seel for 3 years

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Re: Why not 100% Stocks?

Post by looking » Fri Oct 17, 2014 11:45 pm

MarSam wrote:I'll still be holding enough in cash to account for 10 years of expenses AND I still own a business that I will likely sell in 5-10 years
m 100% stock with 3 years emergence money -sock thnak it will come back in 3 years-no need to seel for 3 years
looking

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Re: Why not 100% Stocks?

Post by looking » Fri Oct 17, 2014 11:55 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.




m 100% stock with 3 years emergence money -sock thnak it will come back in 3 years-no need to seel for 3 years
looking

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stemikger
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Re: Why not 100% Stocks?

Post by stemikger » Sat Oct 18, 2014 12:13 am

As you get older, it would be pretty hard to stick with a 100% stock portfolio. As an average Joe who wants nothing more than to save for retirement and be able to have a decent life after I quit working, I don't need that level of stress at that age. I will not be extremely conservative because I think that is not good either, but I want the right AA that still allows growth but enables me to sleep at night during those scary times that are sure to come several times in someone's lifetime. Right now at 50 years old a 70/30 or 65/35 porfolio is my sweet spot and holding that AA I'm able to not worry about Mr. Market but still feel I will do well over time.
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Robert T
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Re: Why not 100% Stocks?

Post by Robert T » Sat Oct 18, 2014 5:15 am

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For those with the emotional fortitude to stick with a 100 percent stock portfolio - all the power to you. For me its about achieving a target portfolio value by the time I retire. This can potentially be achieved in two ways - save more and take less risk (higher bond allocation), or save less and take more risk (e.g. 100% stock allocation). The dispersion of possible outcomes is likely lower with the first approach than the second. IMO it should be about how to best achieve your retirement objectives (to increase the odds of success). There are obviously trade-offs. Saving more today has an opportunity cost. We each have to decide what we are most comfortable with.

FWIW - I like this illustration of the Ponte Fabricio. It has an overflow arch in the middle of the bridge to reduce the likelihood of it being washed away (a tail risk event). The bridge was built in 62 BC and is still standing after over 2000 years. Was on the bridge earlier this week - still working fine. To me, bonds play a similar role in a portfolio - they reduce the risk of a portfolio being washed away by market current extremes (to increase the likelihood that it is still standing when I retire).

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Re: Why not 100% Stocks?

Post by richard » Sat Oct 18, 2014 5:32 am

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.
All stocks is less diversified than stocks plus bonds.

Their return over the long haul may or may not trump other investments. If we knew the future, allocation decisions would be easier.

Bonds provide diversification and income.

Whether you should put the vast majority in stocks depends on how much you're saving, your time horizon, how much you will need from your portfolio for spending, your views on the trade-off between risk and hoped for returns, your emotional response to market movements, etc.

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Re: Why not 100% Stocks?

Post by IPer » Sat Oct 18, 2014 8:44 am

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.
Because bonds are additive, especially Intermediate and Muni type bonds...
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Re: Why not 100% Stocks?

Post by Johno » Sat Oct 18, 2014 11:10 am

Yesterdaysnews wrote:I can see both sides here. Most calculations of net worth etc excludes your house. So do the various classifications of accredited investor etc.. so I tend to view my investment portfolio as totally separate from my paid off house. But, I think saying I am 0% bonds does make sense as well. Or one can say they are 100% stocks in investable assets.
Not including house in 'investment allocation' implies that if the person with $500k house and $500k in stock sells the house (rents) and puts the $500k also in stocks, they haven't changed their allocation: it was 100% stocks before and after. That's clearly ridiculous, so 'house doesn't count' is clearly not the right way to look at it.

And I've noted that some of the posts trying to be witty as if counting kitchen utensils in the asset allocation is the problem haven't actually said if they own a house.

Houses are the most common issue in actually far from 100% '100% stock' allocations. However as noted in this thread, some people aren't counting 10yr (!) of living expenses in cash, or a businesses they own. Again, what these people are saying is they see no value in owning bonds in their financial asset portfolios, which is fine. But to me it's means zero if a person say 'I'm 100% stock' without mentioning whether they have other assets of significant value relative to the stock portfolio.

'Investable assets' is a term of importance to people who want money to help you choose how to invest those assets. That's what's funny about that kind of terminology and concept finding a home on this particular forum. All your assets are 'investable' by *you*. No you shouldn't count you personal possessions, etc in your allocation if their value is de minimis. But not counting stuff that's large is not correct, and it seems a very simple idea, hard to understand why it gets the resistance it does.
Last edited by Johno on Sat Oct 18, 2014 11:14 am, edited 1 time in total.

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Re: Why not 100% Stocks?

Post by Pizzasteve510 » Sat Oct 18, 2014 11:13 am

Robert T wrote:.
For those with the emotional fortitude to stick with a 100 percent stock portfolio - all the power to you. For me its about achieving a target portfolio value by the time I retire.

FWIW - I like this illustration of the Ponte Fabricio. It has an overflow arch in the middle of the bridge to reduce the likelihood of it being washed away (a tail risk event). The bridge was built in 62 BC and is still standing after over 2000 years. Was on the bridge earlier this week - still working fine. To me, bonds play a similar role in a portfolio - they reduce the risk of a portfolio being washed away by market current extremes (to increase the likelihood that it is still standing when I retire).

Image

Robert
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Since no one has complemented you in your fabulous analogy, I will. Those who did not actually look at the bridge design and think about it, as well as consider the time frames involved, would do well to stop, take a moment, and do just that.

Adding to this is the irony that concerns over the EU are creating equity downside risk right now (and that you are enjoying the fruits of your wisdom by visiting there). Our presidents former chief economic advisor gave a very sobering view last week, when I heard him speak, about the possibilities for economic growth. Frankly I do not agree with him, due to a differing view of where our economy will go, but I am not certain what will change. The certainty for me is that massive change driven by a globally connected world at the very least has the potential for massive shocks to our well oiled systems (oil reference intended :wink: ).

Build you bridge how you like, but consult with an engineer, your spouse, and a spiritual advisor first!

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Yesterdaysnews
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Re: Why not 100% Stocks?

Post by Yesterdaysnews » Sat Oct 18, 2014 5:44 pm

I don't own bonds. Instead I paid off my house early. I also invest in some private equity. But for stocks I do only Vanguard funds.

I like to mix it up a little. A good hobby I guess. Cause I save more money where I can so I can invest more lol.

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Re: Why not 100% Stocks?

Post by Riceman » Sat Oct 18, 2014 9:45 pm

Johno wrote:
And I've noted that some of the posts trying to be witty as if counting kitchen utensils in the asset allocation is the problem haven't actually said if they own a house.
If I had a house, I would have counted it in my bloated definition (I also forgot to include potential inheritance 20 years down the line and stable situation on both sides of the family).

My point is that there are many things (social security, pensions, relative job security, prospect of inheritance, prospect of short life expectancy, etc) that are important additional factors in determining the proper allocation of one's investable assets. Because there are so many additional factors, the term "100% stocks" is a simplification that describes only the allocation of one's investment portfolio, and when a person says she is 100% stocks, she shouldn't need to defend herself against the definition police.

With that out of the way, I am 100% stocks, and I think it's a great fit for my situation, since I have numerous other factors that stabilize my financial situation outside of my investment portfolio.

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Re: Why not 100% Stocks?

Post by avalpert » Sat Oct 18, 2014 10:01 pm

Riceman wrote: the term "100% stocks" is a simplification that describes only the allocation of one's investment portfolio, and when a person says she is 100% stocks, she shouldn't need to defend herself against the definition police.
People can say whatever they want and don't have to defend themselves - they can say they are the Queen of England and no matter what anyone else says about what that term means they don't need to defend their use of it.

But in the context of this thread - where someone asks the questions 'why not 100% stocks' it very much matters whether they mean '100% stocks of investable assets only from which I exclude ten years of expenses in cash' because without that it makes the question incoherent. So yes, they should need to defend themselves against the definition police and it is perfectly valid to question why they feel the need to define '100% stocks' that way when what they really have is a very safe cash cushion instead of bonds.

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Re: Why not 100% Stocks?

Post by wshang » Sat Oct 18, 2014 10:16 pm

To me, this is a false dichotomy. I have a individual bond portfolio which in certain years outperformed stocks. I have options which have outperformed stocks over certain intervals. I also plan to buy annuities which might outperform stocks -given the right circumstance.

One might easily find themselves in a period of time when stocks are very depressed - and need the money. I just don't get it, a diversified portfolio beats stocks over many points of time.

And yes, the future of a steady high-paying career in medicine is very hard to predict. Teleradiology from third world nations, decreasing reimbursements, AI radiologic interpretations, even robotic assisted vascular cannulation. I'd not be so sure . . . .

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Re: Why not 100% Stocks?

Post by Yesterdaysnews » Sat Oct 18, 2014 11:09 pm

Teleradiology from third world nations? That's pretty absurd when considering the regulations involved in practicing medicine.

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Re: Why not 100% Stocks?

Post by robertf57 » Sun Oct 19, 2014 1:01 am

HomerJ wrote:
MarSam wrote:I'll still be holding enough in cash to account for 10 years of expenses
Wait, what? Then you're not 100% in stocks. In fact, you're more conservative than most of us. Nothing wrong with that, of course.
+100 :oops:

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