At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
The stock market has not dropped enough yet for me to go 100/0 but it will get tempting soon. At what point, if any, would you considering making the jump if you have 30+ years left to invest?
- saltycaper
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Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
Asset allocation is best decided based on need and ability to take risk. This shouldn't change because of market price fluctuations alone. Even if you decide to base your AA on market valuations--not extremely popular on this forum, but some do--it should be planned, and not made up as go. Some different AA strategies here: Asset allocation.
It's hard to suggest to someone else what their AA should be, but I personally would never be 100% stocks, even in my twenties. 70/30 to 100/0 is also quite a drastic change. I couldn't get behind a tactical/dynamic strategy that would warrant such a move just because prices fell 10-20%.
It's hard to suggest to someone else what their AA should be, but I personally would never be 100% stocks, even in my twenties. 70/30 to 100/0 is also quite a drastic change. I couldn't get behind a tactical/dynamic strategy that would warrant such a move just because prices fell 10-20%.
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Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
The amount of emergency fund cushion I would need in order to feel comfortable doing this would serve precisely the same purpose as at least 20% bonds. Therefore, regardless of the status of my brokerage/IRA/401k accounts, I'd always be holding at least a quarter "bonds."
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
I'm 29 (30 in a week, pity me). I'm 80/20. My IPS says to throw a "bullet" defined as 5% of bonds at a 20% decline and 10% thereafter. So at a 20% drop I would rebalance to 85/15, then 90/10 at 30% down. 95/5 at 40% down. Finally I will rebalance every dime into stocks at 50% down.
To answer your question, I will go 100/0 at 50% down.
To answer your question, I will go 100/0 at 50% down.
- saltycaper
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Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
^ What down? From where?
Quod vitae sectabor iter?
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
I'm not a big fan of large asset allocation changes based on market timing, even if it's contrarian or valuations-based. This is coming from an EMH skeptic and Bogleheretic, btw.
The fire sales are only obvious in hindsight. You never actually know you have 30+ years left to invest. That's what you hope and that's what's likely now. No guarantee, just like there's no guarantee stocks ever climb back up, just a very good shot.
I know, the track record is pretty good for long-term recoveries for US stocks, globally diversified stocks too (not so much in plenty of examples of other markets). For reference:
http://www.advisorperspectives.com/dsho ... -Bad-Bears
The real question is, if you're willing to be about 100% stocks under certain circumstances, why are you allocated 70/30 now? Is the risk/reward that much amazingly better in some situations than others, and can you truly identify those in real time?
The fire sales are only obvious in hindsight. You never actually know you have 30+ years left to invest. That's what you hope and that's what's likely now. No guarantee, just like there's no guarantee stocks ever climb back up, just a very good shot.
I know, the track record is pretty good for long-term recoveries for US stocks, globally diversified stocks too (not so much in plenty of examples of other markets). For reference:
http://www.advisorperspectives.com/dsho ... -Bad-Bears
The real question is, if you're willing to be about 100% stocks under certain circumstances, why are you allocated 70/30 now? Is the risk/reward that much amazingly better in some situations than others, and can you truly identify those in real time?
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Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
If you're in your late twenties, you probably haven't survived a major drop in the market while holding a significant portion of your wealth in stocks. Accordingly, you have no idea how you'll react if it drops further after whatever point you decide, so I'd advise against the risk entirely. Too many behavioral mistakes are possible that can really hurt you.
If, after this year's and the surrounding stock market valuation is better known in retrospect, if you find you survived and were even eager to take more risk, you can reassess whether you want to be at 30% bonds. I'm at age-in-bonds now (I'm 32) and also wasn't heavily invested in 2008-09. In a year or two, if both what happened and my reaction to the events is better understood by me, I plan to revisit whether I'm going to stick with "age in bonds" or if I need to be more (or less) conservative.
Regardless of circumstances, I think you should never shift your allocation as extreme as 70/30 to 100/0 in any short period of time, whether it's the result of a new investing philosophy or a re-balancing or anything else.
If, after this year's and the surrounding stock market valuation is better known in retrospect, if you find you survived and were even eager to take more risk, you can reassess whether you want to be at 30% bonds. I'm at age-in-bonds now (I'm 32) and also wasn't heavily invested in 2008-09. In a year or two, if both what happened and my reaction to the events is better understood by me, I plan to revisit whether I'm going to stick with "age in bonds" or if I need to be more (or less) conservative.
Regardless of circumstances, I think you should never shift your allocation as extreme as 70/30 to 100/0 in any short period of time, whether it's the result of a new investing philosophy or a re-balancing or anything else.
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Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
I'm a couple of years behind you but I would follow a similar strategy. I feel that I would have to go 100% stocks at 50% down. My IPS allows me to go up to 85% stocks from my usual 75% stocks. I actually bumped it up to 78% last week. This probably means I should review my IPS and either change it or change my current mindset of disobeying it.awval999 wrote:I'm 29 (30 in a week, pity me). I'm 80/20. My IPS says to throw a "bullet" defined as 5% of bonds at a 20% decline and 10% thereafter. So at a 20% drop I would rebalance to 85/15, then 90/10 at 30% down. 95/5 at 40% down. Finally I will rebalance every dime into stocks at 50% down.
To answer your question, I will go 100/0 at 50% down.
- Rx 4 investing
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Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
It’s possible that we may be on the cusp of a “bear market”. Downturns in stock prices, when your own hard-earned money is evaporating, often gives an investor a better sense of their true risk tolerance. Here's a passage from one of the greatest financial writers and thought leaders of his day, and hopefully you will read his entire article that was published in Forbes:Paul78 asked: “The stock market has not dropped enough yet for me to go 100/ 0 but it will get tempting soon. At what point, if any, would you considering making the jump if you have 30+ years left to invest?”
“Few decisions in life motivated by greed ever have happy outcomes. Unless you are that rarest of birds, someone who is cool under the rapid-fire, high-pressure decision making required to maximize your returns, let others take such risks, and allow your portfolio to plug along at a slower speed. In investing, tortoises tend to win far more often than hares over the turns of the market cycle..” From the 60/40 Solution (for retirement savings) by Peter L. Bernstein.
http://web.archive.org/web/200612140619 ... in6040.pdf
An investor with a 60/40 portfolio as their “center of gravity”, points in the right direction for a long-term allocation as it is a stock-heavy. But there are enough bonds to provide an “anchor to the wind” when the stock market encounters rough seas. This optimal long-term balance of stocks and bonds is apt to allow you to stick with your asset allocation over the long haul perhaps more so than 100 / 0 or even 70/30. Research by Andrew W. Lo , Professor of Finance, and the Director of the Laboratory for Financial Engineering at the MIT Sloan School of Management, suggests that the average investor is likely to abandon their program when losses start to exceed -20%. Even a “balanced” portfolio like 60/40 can drop as much as -25% in a severe market drop like that of ’08-09.
FWIW…
--My oldest daughter, now 26, graduated from her professional program about 1.5 years ago. When she asked my advice on which asset allocation to pick for her 401-k plan , I shared with her the wisdom of Peter L. Bernstein from this article. She is currently contributing to the 60/40 fund in her 401-k plan.
--We spoke recently because she already needed some reassurance given the rocky start to 2016. She “peeked” at her account balance, and was expressing mild concern about the volatility after seeing her hard earned savings shrink this early into her investing journey . She said she was grateful she isn’t more stock heavy as the literature from her plan chocices suggested for a person her age.
Good luck with your decision. You are not in a rush with a 30 year horizon. Take some time to do some additional reading and research. And perhaps think about the wisdom in Bernstein’s words: “…tortoises tend to win far more often than hares over the turns of the market cycle..”
“Everyone is a disciplined, long-term investor until the market goes down.” – Steve Forbes
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
I would rather have a modestly leveraged, diversified portfolio than an unlevered 100% stock portfolio. That said, I don't want either. But the former can have higher expected return with lower risk than the latter.
It all depends on your need, ability, and willingness to take risk. It depends on your personal marginal value of another dollar.
It all depends on your need, ability, and willingness to take risk. It depends on your personal marginal value of another dollar.
I'm just a fan of the person I got my user name from
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
Before going to 0 for the bond allocation I would at least consider holding 10% in long term treasuries. Diversification is the only free lunch and I can't imagine totally skipping out on bonds.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
As a practical matter, how much money are we talking here?
Most 20 somethings will do well by making sure they invest a solid amount with every paycheck and not by fiddling with allocation. That is to say, their contributions are much larger than any extra hoped for (and certainly not guaranteed) return from that 30% change in allocation.
Which is to say the decision is not likely to make a big impact.
Perhaps you would do yourself a favor by practicing "steady as she goes", because in the long run that is likely going to provide more benefit.
Most 20 somethings will do well by making sure they invest a solid amount with every paycheck and not by fiddling with allocation. That is to say, their contributions are much larger than any extra hoped for (and certainly not guaranteed) return from that 30% change in allocation.
Which is to say the decision is not likely to make a big impact.
Perhaps you would do yourself a favor by practicing "steady as she goes", because in the long run that is likely going to provide more benefit.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
I've been thinking of writing something like this into my IPS. If you can tell me, what are your "declines" measured against? In other words, "40% down" from what? The S and P all-time high?awval999 wrote:I'm 29 (30 in a week, pity me). I'm 80/20. My IPS says to throw a "bullet" defined as 5% of bonds at a 20% decline and 10% thereafter. So at a 20% drop I would rebalance to 85/15, then 90/10 at 30% down. 95/5 at 40% down. Finally I will rebalance every dime into stocks at 50% down.
To answer your question, I will go 100/0 at 50% down.
And, then equally as important, what does your IPS say about moving back to bonds after the market begins to recover?
Thanks
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Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
In my view you shouldn't be contemplating such a strategy without committing the time and effort to figuring it out for yourself. If you want to adjust your AA as valuations change, there are things to read. I doubt anyone here would give you a simple rule of thumb you could follow. If they did, you shouldn't follow it.
If you are serious about such a strategy, you should also think about hiring a manager to do it for you, or finding an actively managed fund that does what you want. From what I've read I wouldn't want to try to implement something like this on my own.
By the way, I'm just assuming you are talking about using valuations to base your changes on. Using declines from market highs makes no sense whatsoever, and I wouldn't recommend that no matter what you read or whom you hired.
If you are serious about such a strategy, you should also think about hiring a manager to do it for you, or finding an actively managed fund that does what you want. From what I've read I wouldn't want to try to implement something like this on my own.
By the way, I'm just assuming you are talking about using valuations to base your changes on. Using declines from market highs makes no sense whatsoever, and I wouldn't recommend that no matter what you read or whom you hired.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
If you've got a lot of money, no pressing short- or medium-term obligations, and a reliable income source (note that jobs can be lost), then 100/0 is probably fine. All those conditions mean that you can ride out the lows without any problem.
I think a good question to ask yourself is: do you have the money and nerves to survive if you lose 40% of your net worth for 1-2 years? That would be a big recession, which means you might also lose your job. If yes, go for it.
I think a good question to ask yourself is: do you have the money and nerves to survive if you lose 40% of your net worth for 1-2 years? That would be a big recession, which means you might also lose your job. If yes, go for it.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
If you feel strongly about this why not just dedicate all new contributions to 100% equity now and leave bonds as they are? Whatever you decide I'd write it down in detail and then stick with it.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
I wouldn't.Paul78 wrote:The stock market has not dropped enough yet for me to go 100/0 but it will get tempting soon. At what point, if any, would you considering making the jump if you have 30+ years left to invest?
If you are going to do anything at all, and I'm not suggesting that you should, it should not be that dramatic a change in my opinion. Maybe a 10% increase in stocks, but more than that does not make a lot of sense to me.
There has to be a reason you are at 70/30 to begin with.
Link to Asking Portfolio Questions
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
This question seems to be prefaced on the idea that because the market has dropped a decent amount in the last three months, that stocks should have a better return in the future than they otherwise would. Otherwise you wouldn't consider reallocating toward more stock. I've looked at the annual and quarterly data for S&P500 and VTSMX, and there is virtually no convincing evidence that recent poor performance on those timescales predicts better performance in the future. It could be true on the monthly timescale, though, which is what we're dealing with. So I don't think this is a good idea - although I'm far from an expert.
There is one thing we can be certain about after a big drop: our net worth has decreased appreciably, and so we may have less ability to take risk. If anything, then, you may have to get more conservative to ensure that you can still pay your short term obligations.
EDIT: I just checked out monthly total returns to S&P 500 since 1970. Same result: last month's return (or last 2 or 3 or 4 or 5 or 6 or 7 or 8 or 9 or 10 months' return) have basically no predictive ability for the next month.
There is one thing we can be certain about after a big drop: our net worth has decreased appreciably, and so we may have less ability to take risk. If anything, then, you may have to get more conservative to ensure that you can still pay your short term obligations.
EDIT: I just checked out monthly total returns to S&P 500 since 1970. Same result: last month's return (or last 2 or 3 or 4 or 5 or 6 or 7 or 8 or 9 or 10 months' return) have basically no predictive ability for the next month.
Last edited by rbaldini on Tue Jan 26, 2016 11:02 am, edited 1 time in total.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
I hope you do realize that OP is bucking this conventional trend, in the sense that when hard-earned money evaporates, most investors head to the exits (but OP is coming back for more)!Rx 4 investing wrote:It’s possible that we may be on the cusp of a “bear market”. Downturns in stock prices, when your own hard-earned money is evaporating, often gives an investor a better sense of their true risk tolerance. [...]Paul78 asked: “The stock market has not dropped enough yet for me to go 100/ 0 but it will get tempting soon. At what point, if any, would you considering making the jump if you have 30+ years left to invest?”
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
Dont' "wait' for the market to dictate your asset allocation.
If you know that you are comfortable with 100% equities,then
Set it and forget it.
Revisit it about age 40.
If you know that you are comfortable with 100% equities,then
Set it and forget it.
Revisit it about age 40.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
Lets say you go 100% stocks when the market drops 50%. How long are you holding that allocation?
I think trying to take advanage of minor volatility is likely to be a losers game (well other than higher stock allocations will give you more return over time). Meaningful drops (call it 25%+ ) just don't happen often enough to make a difference.
I think trying to take advanage of minor volatility is likely to be a losers game (well other than higher stock allocations will give you more return over time). Meaningful drops (call it 25%+ ) just don't happen often enough to make a difference.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
Based on what?Paul78 wrote:The stock market has not dropped enough yet for me to go 100/0 but it will get tempting soon.
My wife and I are 30 and have always been 100% stocks. However, if I was in your current situation and wanted to go 100% stocks I would do it right now. No sense in timing the market.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
If I were in my late 20s, I'd be 90-100% now.
Not because of the current state of the markets, but simply because of my time horizon.
Not because of the current state of the markets, but simply because of my time horizon.
Last edited by feh on Tue Jan 26, 2016 12:13 pm, edited 1 time in total.
- FelixTheCat
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Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
AA is how much risk/reward you can handle. Could you emotionally stomach a 50% loss (thimk 1/2 of stocks) without selling out at the bottom?
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Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
I wouldn't do it. For the record, right or wrong, that's not the Bogleheads investment philosophy.
I think you need to analyze what it is that you hope to achieve by doing this.
A blind, relentless pursuit of "more" isn't a coherent strategy. And it leaves you open to the obvious question: why stop at 100% stocks, why not lever it up to 110% or 120% or 200% or more?
You can get almost any numbers you like by picking the right endpoints and there's endless discussion of whether MPT means anything at all, and, if so, what, and what should be the measure of "risk." But there's a fairly good case to be made for almost any mixture of stocks and bonds having higher risk-adjusted reward than pure stocks or pure bonds. If you just want "more" you at least need to ask what you want more of. More return, or more risk-adjusted return?
The first chart covers 29 years of history from real mutual funds, Vanguard Total Stock and Vanguard Total Bond. The second covers 89 years of history from two well-known data sets representing the S&P 500 and predecessors, and intermediate-term government bonds.
In both cases, the red line shows the risk and return of 100% stocks, and every mix of 100% stocks and the riskless asset. The curved line shows the risk and return of every mixture from 100% stocks down to 100% bonds. Any place the mixture is above the red line represents a mix of stocks and bonds that, over the stated time period, had higher risk-adjusted return than 100% stocks.
I think you need to analyze what it is that you hope to achieve by doing this.
A blind, relentless pursuit of "more" isn't a coherent strategy. And it leaves you open to the obvious question: why stop at 100% stocks, why not lever it up to 110% or 120% or 200% or more?
You can get almost any numbers you like by picking the right endpoints and there's endless discussion of whether MPT means anything at all, and, if so, what, and what should be the measure of "risk." But there's a fairly good case to be made for almost any mixture of stocks and bonds having higher risk-adjusted reward than pure stocks or pure bonds. If you just want "more" you at least need to ask what you want more of. More return, or more risk-adjusted return?
The first chart covers 29 years of history from real mutual funds, Vanguard Total Stock and Vanguard Total Bond. The second covers 89 years of history from two well-known data sets representing the S&P 500 and predecessors, and intermediate-term government bonds.
In both cases, the red line shows the risk and return of 100% stocks, and every mix of 100% stocks and the riskless asset. The curved line shows the risk and return of every mixture from 100% stocks down to 100% bonds. Any place the mixture is above the red line represents a mix of stocks and bonds that, over the stated time period, had higher risk-adjusted return than 100% stocks.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
Who would you rather be in 2013,nisiprius wrote:I wouldn't do it. For the record, right or wrong, that's not the Bogleheads investment philosophy.
I think you need to analyze what it is that you hope to achieve by doing this.
A blind, relentless pursuit of "more" isn't a coherent strategy. And it leaves you open to the obvious question: why stop at 100% stocks, why not lever it up to 110% or 120% or 200% or more?
You can get almost any numbers you like by picking the right endpoints and there's endless discussion of whether MPT means anything at all, and, if so, what, and what should be the measure of "risk." But there's a fairly good case to be made for almost any mixture of stocks and bonds having higher risk-adjusted reward than pure stocks or pure bonds. If you just want "more" you at least need to ask what you want more of. More return, or more risk-adjusted return?
The first chart covers 29 years of history from real mutual funds, Vanguard Total Stock and Vanguard Total Bond. The second covers 89 years of history from two well-known data sets representing the S&P 500 and predecessors, and intermediate-term government bonds.
In both cases, the red line shows the risk and return of 100% stocks, and every mix of 100% stocks and the riskless asset. The curved line shows the risk and return of every mixture from 100% stocks down to 100% bonds. Any place the mixture is above the red line represents a mix of stocks and bonds that, over the stated time period, had higher risk-adjusted return than 100% stocks.
The 1985 guy who went 100% stock or the 1985 guy who went 16% stock? The 16% might have had better risk adjusted returns but the 100% stock guy has ~2x as much money. At the end of the day you spend real returns not risk adjusted ones. Of course you have to be able to hand the risk along the way. Read about the people worried about 5 and 10% drops and you will realize not many people are in that boat espeically when talking about real sums of money (10x+ of your expenses)
Now there are some 30 year periods where LONG term treasuries beat stocks. Those have a bit different volatility profile than total bond though.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
I'm pretty darn risk tolerant, and I'm 90/10. Having said that, the bull market is getting long in the tooth, at least as far as valuations are concerned. Now is not the time to ramp up your equity exposure. Stay at 70/30 and turn up the heat (but not to 100/0) after the market drops much further. You don't have to literally call the bottom to benefit from the drop over the long term.
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Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
If we are charitable we can interpret the OP's question as "should I adjust my AA based on big changes in the market?" While I don't recommend that the OP do this, it would be going to far to say that a strategy of dynamically adjusted asset allocation is ipso facto contrary to boglehead principles. If you ground a plan in solid research and implement it consistently, using broad-based index funds as your core elements, I think you can call yourself a boglehead.
Here's one paper that lays out a method that is capable of being implemented by an individual investor. It isn't for me, and I would not recommend it to anyone just based on this one paper, but if I came across someone that said they were going to follow the plan consistently, I wouldn't think they had gone off the reservation.
If we are less charitable then we interpret the OP's question as "I like to make rash moves -- is now a good time?" In that case we do have to say the only boglehead answer is "no."
Here's one paper that lays out a method that is capable of being implemented by an individual investor. It isn't for me, and I would not recommend it to anyone just based on this one paper, but if I came across someone that said they were going to follow the plan consistently, I wouldn't think they had gone off the reservation.
If we are less charitable then we interpret the OP's question as "I like to make rash moves -- is now a good time?" In that case we do have to say the only boglehead answer is "no."
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Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
Makes no sense to me. Your asset allocation is based on your need, willingness and ability to take risk. Stay the course.Paul78 wrote:The stock market has not dropped enough yet for me to go 100/0 but it will get tempting soon. At what point, if any, would you considering making the jump if you have 30+ years left to invest?
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Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
You're not required to take improvement in the form of lower risk. You can take it in the form of extra return. That's why the chart has the straight yellow and red lines on it. They show the range of risk/return combinations you can choose between.randomguy wrote:...Who would you rather be in 2013,
The 1985 guy who went 100% stock or the 1985 guy who went 16% stock? The 16% might have had better risk adjusted returns but the 100% stock guy has ~2x as much money. At the end of the day you spend real returns not risk adjusted ones. Of course you have to be able to hand the risk along the way. Read about the people worried about 5 and 10% drops and you will realize not many people are in that boat espeically when talking about real sums of money (10x+ of your expenses)...
A higher Sharpe ratio doesn't mean your only option is less risk for the same return, you can also take it as more return for the same risk.
What the numbers say is that if you truly had been willing to accept the risk of 100% stocks you would be (in theory yadda yadda yadda) have been much better off using a mix of 16% Total Stock, 83% Total Bond... and 3:1 leverage.
The result would have been about 14% average return instead of 9.5%.
That's a lot more impressive than the typical 50, 75 basis points people claim for sophisticated factor strategies.
That's so much more higher that it is probably a big gain even after you allow for the cost of borrowing.
Of course, market timer tried something like that--although I think he was leveraging 100% stocks--and it did not work out well for him. He got a margin call, he got $200,000 in the hole, and I was really concerned about him in the days when he was using Raskolnikov as his avatar. I was very happy to see Don Quixote again.
There's something weird about the pull of "100% stocks."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
The model assumes you can borrow at the riskless rate, no risk of margin call, and no taxes. None of this is true for us. But equity index and treasury futures have implied financing costs around LIBOR rates, and some custodians allow buying deep in the money, long dated call options (LEAPS) in your IRA (Vanguard does not allow this).nisiprius wrote:You're not required to take improvement in the form of lower risk. You can take it in the form of extra return. That's why the chart has those lines on it. A higher Sharpe ratio doesn't mean your only option is less risk for the same return, you can also take it as more return for the same risk.randomguy wrote:...Who would you rather be in 2013,
The 1985 guy who went 100% stock or the 1985 guy who went 16% stock? The 16% might have had better risk adjusted returns but the 100% stock guy has ~2x as much money. At the end of the day you spend real returns not risk adjusted ones. Of course you have to be able to hand the risk along the way. Read about the people worried about 5 and 10% drops and you will realize not many people are in that boat espeically when talking about real sums of money (10x+ of your expenses)...
What the numbers say is that if you truly had been willing to accept the risk of 100% stocks you would be (in theory yadda yadda yadda) have been much better off using a mix of 16% Total Stock, 83% Total Bond... and 3:1 leverage.
The result would have been about 14% average return instead of 9.5%.
That's a lot more impressive than the typical 50, 75 basis points people claim for sophisticated factor strategies.
That's so much more higher that it is probably a big gain even after you allow for the cost of borrowing.
Of course, market timer tried something like that--although I think he was leveraging 100% stocks--and it did not work out well for him. He got a margin call, he got $200,000 in the hole, and I was really concerned about him in the days when he was using Raskolnikov as his avatar. I was very happy to see Don Quixote again.
You would need to have very high need, ability, and willingness to take risk, and a high personal marginal value for more dollars. Margin is taboo on this forum for good reason. But I think there is something to this idea that makes something resembling this preferable to an unlevered 100% stock portfolio.
I'm just a fan of the person I got my user name from
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
I just checked 1928-2014 yearly rebalanced returns for
51% US stock (S&P 500, composite data before that)
249% 10-year T-note
-200% cash (the rate is assumed to be 50 bp above the 3-month T-bill, which roughly approximates implied financing of futures)
Annualized return is 9.0% with standard deviation of the return series as 21.1%.
For reference, just using the S&P 500 would have gotten an annualized return of 9.6% with a standard deviation of 20.0%.
All figures nominal, no taxes included, no transaction costs. Okay, to be fair you'd probably adjust the stock ratio up slightly, which would help when using the 10-year T-note rather than total bond because of the extra term risk in the former. You can find better Sharpe ratios from using leverage over the dataset (e.g. 80/120/-100 has slightly higher return and slightly lower standard deviation than 100% stock using the same assumptions) but it's not a slam dunk and in practice most people would give up from the tracking error. It's not fun being behind for decades at a time.
51% US stock (S&P 500, composite data before that)
249% 10-year T-note
-200% cash (the rate is assumed to be 50 bp above the 3-month T-bill, which roughly approximates implied financing of futures)
Annualized return is 9.0% with standard deviation of the return series as 21.1%.
For reference, just using the S&P 500 would have gotten an annualized return of 9.6% with a standard deviation of 20.0%.
All figures nominal, no taxes included, no transaction costs. Okay, to be fair you'd probably adjust the stock ratio up slightly, which would help when using the 10-year T-note rather than total bond because of the extra term risk in the former. You can find better Sharpe ratios from using leverage over the dataset (e.g. 80/120/-100 has slightly higher return and slightly lower standard deviation than 100% stock using the same assumptions) but it's not a slam dunk and in practice most people would give up from the tracking error. It's not fun being behind for decades at a time.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
When your market-timing spidey sense tells you that you could sleep at night after a 40% market drop.Paul78 wrote:The stock market has not dropped enough yet for me to go 100/0 but it will get tempting soon. At what point, if any, would you considering making the jump if you have 30+ years left to invest?
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Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
If I were me 25 years younger, with a good stable job, and knowing what I know now, I'd be at 80/20, leveraged to about 1.2x, using trend following strategies to mitigate the worst of the downside risk. But that's just me. That's not what Bogleheads typically advocate. The next post will be about how I'm going to heck because I'm timing the market...
Regardless of what process I chose, I would still have a detailed written IPS that covered exactly what I invest in, why, what kinds of risk and returns I expect, what criteria to use to buy, sell, rebalance, before I did anything at all. Then I would follow the IPS.
I was 100% stock (+ emergency fund) for 20 years. 2000-2003 was interesting. Not interesting enough to make me change allocation, but interesting. I was down far enough for long enough that Vanguard converted all of my Admiral shares back to Investor shares. That was a little demoralizing.
Regardless of what process I chose, I would still have a detailed written IPS that covered exactly what I invest in, why, what kinds of risk and returns I expect, what criteria to use to buy, sell, rebalance, before I did anything at all. Then I would follow the IPS.
I was 100% stock (+ emergency fund) for 20 years. 2000-2003 was interesting. Not interesting enough to make me change allocation, but interesting. I was down far enough for long enough that Vanguard converted all of my Admiral shares back to Investor shares. That was a little demoralizing.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
I was 100% into equities until my late fifties...
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
It is impressive. It is also imaginary:) Leverage isn't cheap. You would have to go back and subtract out yearly margin rates and the like. When ever I have looked into, it is just a lot cheaper to buy some small value. Throw in that margin in IRA/401(k)s and I have yet to come up with it being a win. Your experience might be different.nisiprius wrote:You're not required to take improvement in the form of lower risk. You can take it in the form of extra return. That's why the chart has the straight yellow and red lines on it. They show the range of risk/return combinations you can choose between.randomguy wrote:...Who would you rather be in 2013,
The 1985 guy who went 100% stock or the 1985 guy who went 16% stock? The 16% might have had better risk adjusted returns but the 100% stock guy has ~2x as much money. At the end of the day you spend real returns not risk adjusted ones. Of course you have to be able to hand the risk along the way. Read about the people worried about 5 and 10% drops and you will realize not many people are in that boat espeically when talking about real sums of money (10x+ of your expenses)...
A higher Sharpe ratio doesn't mean your only option is less risk for the same return, you can also take it as more return for the same risk.
What the numbers say is that if you truly had been willing to accept the risk of 100% stocks you would be (in theory yadda yadda yadda) have been much better off using a mix of 16% Total Stock, 83% Total Bond... and 3:1 leverage.
The result would have been about 14% average return instead of 9.5%.
That's a lot more impressive than the typical 50, 75 basis points people claim for sophisticated factor strategies.
That's so much more higher that it is probably a big gain even after you allow for the cost of borrowing.
Of course, market timer tried something like that--although I think he was leveraging 100% stocks--and it did not work out well for him. He got a margin call, he got $200,000 in the hole, and I was really concerned about him in the days when he was using Raskolnikov as his avatar. I was very happy to see Don Quixote again.
There's something weird about the pull of "100% stocks."
And of course, you would have to pick your AA. It is easy to say the EF was 16/83 from 1985-2013 leverage 3x is the best. It is a lot harder to figure out what it will be from 2015-2045:). When you plot out rolling 30 year period EF, you can see a pretty decent drift. depending on the time period.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
I'd be hard pressed to recommend anyone allocate 100% to stocks. That said, I had 100% of my 401k in a DFA small cap value fund for 20 years, until I left last year. Since I started investing late in life it was the only way to catch up, I believed.
Now, of course I have to protect those assets so I can retire.
Now, of course I have to protect those assets so I can retire.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
I waited until 45...last year. But that was pretty much my strategy.Toons wrote:Dont' "wait' for the market to dictate your asset allocation.
If you know that you are comfortable with 100% equities,then
Set it and forget it.
Revisit it about age 40.
A 70/30 portfolio would have failed the sleep well at night test as I agonized over the opportunity cost of the 30 percent in bonds.
I'm currently 97.5%/2.5% and gliding.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
Agreed. Margin leverage is very expensive, especially with smaller portfolios, and completely impossible with retirement accounts. (I suppose if you count a mortgage, we've been leveraged since our late 20's.)randomguy wrote:It is impressive. It is also imaginary:) Leverage isn't cheap. You would have to go back and subtract out yearly margin rates and the like. When ever I have looked into, it is just a lot cheaper to buy some small value. Throw in that margin in IRA/401(k)s and I have yet to come up with it being a win. Your experience might be different.
And of course, you would have to pick your AA. It is easy to say the EF was 16/83 from 1985-2013 leverage 3x is the best. It is a lot harder to figure out what it will be from 2015-2045:). When you plot out rolling 30 year period EF, you can see a pretty decent drift. depending on the time period.
My strategy in my 20s and 30s was always 100% equities and a strong small value tilt--and a mortgage.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
See my post a few comments above yours in this threadjhfenton wrote:Agreed. Margin leverage is very expensive, especially with smaller portfolios, and completely impossible with retirement accounts. (I suppose if you count a mortgage, we've been leveraged since our late 20's.)randomguy wrote:It is impressive. It is also imaginary:) Leverage isn't cheap. You would have to go back and subtract out yearly margin rates and the like. When ever I have looked into, it is just a lot cheaper to buy some small value. Throw in that margin in IRA/401(k)s and I have yet to come up with it being a win. Your experience might be different.
And of course, you would have to pick your AA. It is easy to say the EF was 16/83 from 1985-2013 leverage 3x is the best. It is a lot harder to figure out what it will be from 2015-2045:). When you plot out rolling 30 year period EF, you can see a pretty decent drift. depending on the time period.
My strategy in my 20s and 30s was always 100% equities and a strong small value tilt--and a mortgage.
I'm just a fan of the person I got my user name from
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
You're absolutely right that you can achieve leverage without and cheaper than direct margin using futures and DITM calls. But as you acknowledged, there are increased costs, complexity, risks, and limitations to those strategies beyond that assumed in the theoretical models. It is not as simple as going 16/84 and leveraging 3x. Especially since you can only pick the absolute best 16% risky asset in hindsight (unless I'm supposed to put 2% in each of my equity asset classes).Day9 wrote:See my post a few comments above yours in this threadjhfenton wrote:Agreed. Margin leverage is very expensive, especially with smaller portfolios, and completely impossible with retirement accounts. (I suppose if you count a mortgage, we've been leveraged since our late 20's.)randomguy wrote:It is impressive. It is also imaginary:) Leverage isn't cheap. You would have to go back and subtract out yearly margin rates and the like. When ever I have looked into, it is just a lot cheaper to buy some small value. Throw in that margin in IRA/401(k)s and I have yet to come up with it being a win. Your experience might be different.
And of course, you would have to pick your AA. It is easy to say the EF was 16/83 from 1985-2013 leverage 3x is the best. It is a lot harder to figure out what it will be from 2015-2045:). When you plot out rolling 30 year period EF, you can see a pretty decent drift. depending on the time period.
My strategy in my 20s and 30s was always 100% equities and a strong small value tilt--and a mortgage.
And as much as people talk about simplicity on here, there's nothing simple about juggling synthetic leverage. Whereas I find it quite simple to hold a static portfolio of 8 equity asset classes plus a now small position in fixed income.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
yesFelixTheCat wrote:AA is how much risk/reward you can handle. Could you emotionally stomach a 50% loss (thimk 1/2 of stocks) without selling out at the bottom?
A little over 50k currently in bonds (g-fund)Rodc wrote:As a practical matter, how much money are we talking here?
If I make the change I would never sell the stocks to buy bonds. I would just use my annual tsp contributions ($22,500) and put them towards the g-fund to bring back my allocation. Realistically I would only be comfortable with 100/0 for the short term (5 years or so).randomguy wrote:Lets say you go 100% stocks when the market drops 50%. How long are you holding that allocation?
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
Can you put into words why 70/30 was OK in the past and now you think 100/0 is the place to be?
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Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
Like many have said, I would not change my AA due to current market conditions. What circumstances caused you to choose your current 70/30 AA?
I personally was 100/0 well into my 50's. Now 62 I am at 70/30. If you are comfortable with 100/0 just go there, however if that is the case I am curious why you didn't go there previously?
I personally was 100/0 well into my 50's. Now 62 I am at 70/30. If you are comfortable with 100/0 just go there, however if that is the case I am curious why you didn't go there previously?
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Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
The very nature of Bonds seems to be changing right before our eyes.
I would encourage the OP not to take them for granted and Assume Bonds or Bond funds are "passive" investments in this environment.
What they were is not what they are Today.
I would encourage the OP not to take them for granted and Assume Bonds or Bond funds are "passive" investments in this environment.
What they were is not what they are Today.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
But when would you switch your contributions to the G fund? What do you do if after going 100% stocks, it drops another 20%. Do you really want to bypass this buying opportunity? You can easily run into the falling knife situation where you get less of the benefits of the upswing (you are 70/30 during the 5 years before hand when the market goes up 10%) but you end up 100% stock during most of the downswing (i.e. you buy in at 15% down and get to enjoy the trip to 40% down:)).Paul78 wrote:If I make the change I would never sell the stocks to buy bonds. I would just use my annual tsp contributions ($22,500) and put them towards the g-fund to bring back my allocation. Realistically I would only be comfortable with 100/0 for the short term (5 years or so).randomguy wrote:Lets say you go 100% stocks when the market drops 50%. How long are you holding that allocation?
Market timing is very seductive. Very few people make gains going forward (versus back testing) with it.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
I don't necessarily think 100/0 is the place to be.retiredjg wrote:Can you put into words why 70/30 was OK in the past and now you think 100/0 is the place to be?
I was at 70/30 because the market had risen a substantial amount (mostly before I started investing my money) and I figured a downfall would occur at some point in the near future (ie within 10 years). At this point in time, given my age/risk tolerance, 30% bonds is the highest number I am comfortable with. However I am also comfortable with a much lower allocation to bonds. I would easily be ok with 80/20 until age forty. I figured I would stay at my maximum acceptable bond rate until/if a major fall occurred. And yes I am 100% aware getting the exact bottom is extremely unlikely. However you do not need to time the market perfectly for the move to work. Even if I buy halfway into the fall it could still easily be beneficial (ie $$$ making) in the long term.
Re: At what point would you go from 70/30 to 100(stocks)/0(bonds) if you are in your late twenties
when I say "bonds" I only mean the g-fund. My long term expectation for the g-fund is to only keep up with inflation which I do think is realistic going forward.jwillis77373 wrote:The very nature of Bonds seems to be changing right before our eyes.
I would encourage the OP not to take them for granted and Assume Bonds or Bond funds are "passive" investments in this environment.
What they were is not what they are Today.