Why I'm 100% stocks

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Ari
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Why I'm 100% stocks

Post by Ari »

So whenever the subject of 100% stocks comes up, there are always comments that "you only hear this when the market is doing well", and recently in a thread I saw a comment that there have been a conspicuous absence of 100% stocks threads recently, so I thought I'd start one! I've been waiting for a downturn in the market to be able to talk about 100% stock portfolios without the assumption that I'm only doing it because the market is doing well. Unfortunately, I don't think the current downturn is significant enough to really test my adherence to the allocation, but at least I'm not posting at an all-time high. Though since I don't really follow the market except when I buy new stocks once a month, I can't say I know very well what the market is doing (I get my salary tomorrow).

Here are my thoughts on a 100% stock allocation: A gain of 1000 dollars followed by a loss of 500 dollars is better than a gain of 300 dollars without a following loss. I feel that many people criticizing the 100% stock portfolios always look at the downturn from the peak and compare it to a more conservative AA. But that is only valid if you invested a lump sum on the peak. If you, like me, continuously invest over a long period of time, most of your money will have been in on the runup as well, and even after the pullback they will be better off than with a conservative allocation. Simply put, most of the volatility is on the upside. This is why I'm not very worried about "selling stocks when they're down", because even if stocks are down from their peak, they are likely to still be up when compared to the bonds!

Here's a quote that summarizes my though well and also provide some data, from an excellent paper by Javier Estrada. You can find the entire paper here: http://blog.iese.edu/jestrada/files/201 ... path-2.pdf
Consider again the US first and ask why (in fact, whether ) the 100×30 strategy is riskier than the other strategies shown in the exhibit. Relative to the best dynamic and static strategies considered here, the strategy that fully invests in stocks has the lowest failure rate (tied with the best static strategy, which in this case is 90% invested in stocks) at 3.7%; provides the same or better downside protection when tail risks strike (measured by P1, P5, and P10); and provides much higher upside potential (measured by the mean, median, P90 , P95, and P99). Therefore, as discussed before, the higher standard deviation of this strategy only indicates uncertainty about how much better off (not worse off) a retiree will be after 30 years.
Results for the world market and the average country in the sample are similar. Relative to the best dynamic and static strategies considered here, the strategy that fully invests in stocks has the lowest failure rate (6.2% for the world market and 26.4 % for the average country), provides the same or better downside protection when tail risks strike, and provides much higher upside potential. The only exception to this statement is in terms of downside protection as measured by P1 for the average country in the sample; in this case, the best static strategy provides a slightly higher terminal wealth ($12 versus $3 for the all‐equity strategy). Importantly, note that this panel shows average figures for the best static strategy for each country, and which one is the best changes across countries. In other words, no single static strategy can be said to provide better downside protection when 1% tail risks strike than the all‐equity strategy.
In short, although a strategy that fully invests a retirement portfolio in stocks can be perceived as riskier than most alternatives, is that really the case? Is a strategy that has the lowest probability of failure, provides the same or better downside protection, and higher upside potential really riskier than other strategies simply because a retiree is more uncertain about (how much higher will be) his bequest? If not, then having a retirement portfolio fully invested in stocks is a strategy that should be seriously considered by retirees.
Full disclosure: I'm 100% stocks (pretty much no emergency fund) when it comes to the portfolio I can control, but I have some money locked up at my employer's and I also have a pension waining for me at 65 (or whenever the politicians decide I will be allowed to officially retire). As I'm not a US citizen, I can expect my pension to be somewhere close to my salary if I were to work until 65, though in practice I expect to retire much earler than that without the help of that pension. I would, however, probably keep all my money in stocks (internationally diversified to avoid single-country risk, of course) even if I had control of all of this money.
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Plz
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Re: Why I'm 100% stocks

Post by Plz »

I think 100% stocks also makes sense in certain cases. For example, if one is far from retirement and can take more risks, if there are no upcoming large purchases (eg, you want to buy a house in 3 years), and if one has a stable job and/or a sufficient emergency fund.
HEDGEFUNDIE
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Re: Why I'm 100% stocks

Post by HEDGEFUNDIE »

Two portfolios over past 10 years:

1. 100% VTI returning 9.8% CAGR
2. 80% VTI + 20% EDV (ultra long duration treasury bonds)

One of these returned more *with* less risk, can you guess which one?

https://www.portfoliovisualizer.com/bac ... tion2_2=20
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dogagility
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Re: Why I'm 100% stocks

Post by dogagility »

Thanks for posting and linking the article. I found it interesting that the author was advocating during retirement either 100% stock or a 60/40 allocation... seems like very different strategies.

Why I was 100% stock for during my accumulation phase.
  • Didn't understand bonds, but realized bonds didn't return as much as stocks
  • Had confidence I wouldn't need to touch this money for more than 10 years
  • Didn't listen to, or want to listen to, the financial industry noise
  • Wanted to maximize my investment return
  • Always felt my wife and I had sufficient resiliency to mitigate economic downturns without tapping into retirement funds. E.g. willing to move, take different/additional work, adjust spending, etc should the need arise
  • Had confidence in the world's people (and specifically the US) to keep on innovating thus driving economic progress and stock prices over time
  • All of these points combined to turn the 2000 and 2008 stock events into non-events for my investment psyche despite holding 100% stock throughout
Now that I'm approaching retirement, I'm taking more of a bucket approach to mitigate against spending stocks during a downturn. Currently have a relatively small bucket allocated to bonds (current 15%) which I intend to spend from primarily should a severe (>20%) decrease in stock prices occur. I've also reasoned that the total return of stocks recovers after approximately 5-7 years even during the worst of times (e.g. the Great Depression). I can live with that length of "risk".

Maybe I should really go 100% stock throughout my life. Gotta love the thought-provoking Bogleheads forum!
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UpperNwGuy
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Re: Why I'm 100% stocks

Post by UpperNwGuy »

I am in my mid-60s. If I were 15-20 years younger, I would definitely go 100% stocks. Given time, stocks always recover from a downturn. My problem now is that my investment horizon is no longer measured in decades.
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Re: Why I'm 100% stocks

Post by nisiprius »

Why did you choose the number "100%?" Why are you convinced that a little leverage, 120% stocks, say, would not be better yet? What parts of your argument do not apply to the situation of 120% stocks?
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bottlecap
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Re: Why I'm 100% stocks

Post by bottlecap »

I like to think that I'm best off not taking extreme positions, especially when based on shaky logic.

JT
rkhusky
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Re: Why I'm 100% stocks

Post by rkhusky »

UpperNwGuy wrote: Thu Oct 25, 2018 6:36 am Given time, stocks always recover from a downturn.
There have been stock markets that have not recovered from a downturn. Granted, it is much less likely that the entire world's stock market would not recover. However, the likelihood is not zero. There is always a non-zero probability that the world's stock market will not return to its previous high.
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Re: Why I'm 100% stocks

Post by Stinky »

Plz wrote: Thu Oct 25, 2018 4:45 am I think 100% stocks also makes sense in certain cases. For example, if one is far from retirement and can take more risks, if there are no upcoming large purchases (eg, you want to buy a house in 3 years), and if one has a stable job and/or a sufficient emergency fund.
All of these applied to me during most of my working lifetime. So I was 100% stocks until I was about 60. Now that I’m 65 and recently retired, I’ve eased back on stocks.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
mary1969
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Re: Why I'm 100% stocks

Post by mary1969 »

there is no right or wrong answer. if 100% stocks works for you, great. key is whatever allocation you have, can you stay the course.

my net worth is such that i don't feel i need to take a ton of risk. i like having bonds because it allows me to buy aggressively when the mkt sells off. i saw a comment on twitter this week that usually 1 or 2 times a year the mkt sells off hard to test if the economy is entering a recession. the vast majority of the time it passes the test. i like to have ammo when this occurs year in and year out.

i have bought stocks on sale this week. probably early....but who knows.
lightfighter214
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Re: Why I'm 100% stocks

Post by lightfighter214 »

I'm 70% stocks, 30% treasuries. Only 36, but would like to have a fund off to the side for a new car, extra house payments ect.

I also work for a corporation, as does my wife. Having a treasuries in a taxable helps me sleep better if we would both lose our income for a short time.

Treasuries will also help payoff the house at somepoint.

don't know what's going to happen in the market or economy. Liquidity helps me sleep.
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JoMoney
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Re: Why I'm 100% stocks

Post by JoMoney »

I don't think anyone else can tell you what your risk profile should be, but having 0% cash at all seems tricky, maybe have a couple good credit lines and go 105% stocks sometimes ;)

My allocation is pretty close. I sleep better having some cash / short-term bonds... but I generally don't think of that as part of my "allocation", it's just my emergency fund. I don't follow a specific rebalancing regimen, it's the dollar amount that I'm comfortable with. I have been putting more in it recently, because I've been considering just making it a 90/10 allocation and calling it good enough. Even then I don't think I would follow a constant-mix rebalancing regimen, but would just top up the cash when times are good, and spend that first when times are bad (at least down to the 10% level... sort of one way rebalancing).
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UpperNwGuy
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Re: Why I'm 100% stocks

Post by UpperNwGuy »

rkhusky wrote: Thu Oct 25, 2018 6:45 am
UpperNwGuy wrote: Thu Oct 25, 2018 6:36 am Given time, stocks always recover from a downturn.
There have been stock markets that have not recovered from a downturn. Granted, it is much less likely that the entire world's stock market would not recover. However, the likelihood is not zero. There is always a non-zero probability that the world's stock market will not return to its previous high.
If that is a big concern, then why invest at all?
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Ari
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Re: Why I'm 100% stocks

Post by Ari »

nisiprius wrote: Thu Oct 25, 2018 6:40 am Why did you choose the number "100%?" Why are you convinced that a little leverage, 120% stocks, say, would not be better yet? What parts of your argument do not apply to the situation of 120% stocks?
1: Leverage adds costs. Thus adding more equities beyond 100% diminishes the marginal utility. My 101st percentage point of stocks is worth less than my 100th.
2: Leverage adds a new risk not present in a 100% stock portfolio. I can lose more than 100% of my investment. And in practice, the risk of every stock market in the world going to zero is practically nil, the risk of losing all my money is far from zero if I leverage my portfolio.
3: Though I know there is research suggesting a more-than-100% portfolio is optimal, I haven't seen research for leveraged stocks during withdrawals, which the Estrada article is all about.

It seems obvious to me that there is a sharp line at 100% stocks and adding leverage is a whole nother story. 101% is something completely different from 100%. 100% is thus a very natural selection point.
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Re: Why I'm 100% stocks

Post by rkhusky »

UpperNwGuy wrote: Thu Oct 25, 2018 7:11 am
rkhusky wrote: Thu Oct 25, 2018 6:45 am
UpperNwGuy wrote: Thu Oct 25, 2018 6:36 am Given time, stocks always recover from a downturn.
There have been stock markets that have not recovered from a downturn. Granted, it is much less likely that the entire world's stock market would not recover. However, the likelihood is not zero. There is always a non-zero probability that the world's stock market will not return to its previous high.
If that is a big concern, then why invest at all?
Investing involves probabilities. You have to weigh the probability of the risk and the consequences of the risk. There is also the probability of not reaching a financial goal if you don't invest in stocks.
rkhusky
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Re: Why I'm 100% stocks

Post by rkhusky »

Ari wrote: Thu Oct 25, 2018 7:16 am It seems obvious to me that there is a sharp line at 100% stocks and adding leverage is a whole nother story. 101% is something completely different from 100%. 100% is thus a very natural selection point.
Is there really a significant difference between 99% stock and 100% stock versus 100% stock and 101% stock?
drg02b
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Re: Why I'm 100% stocks

Post by drg02b »

I am in my mid-30's... except for my HSA, which is split between stocks/bonds, I am 100% stocks in everything else.
Ron Scott
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Re: Why I'm 100% stocks

Post by Ron Scott »

Bonds are a form of safety net and you will be jumping into retirement with a sweet one. Estimate the present value of your pension and consider it your bond allocation.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.
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Ari
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Re: Why I'm 100% stocks

Post by Ari »

mary1969 wrote: Thu Oct 25, 2018 6:54 ammy net worth is such that i don't feel i need to take a ton of risk.
That's a reasonable argument, if it's for psychological reasons. Personally, I feel that the more my net worth grows, the more I can afford taking risks, since I'll be ok even with a large decline.
i like having bonds because it allows me to buy aggressively when the mkt sells off.
Of course, even if you're buying when the market sells off, chances are good that you're still buying high, compared to when you first got the money that's been sitting in bonds for this time. Buying the dip is not necessarily buying low.
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Ari
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Re: Why I'm 100% stocks

Post by Ari »

rkhusky wrote: Thu Oct 25, 2018 7:19 amIs there really a significant difference between 99% stock and 100% stock versus 100% stock and 101% stock?
There's a kink in the curve, so to speak. The marginal benefit is lower. It's like hitting a new tax bracket. Even if there's no great difference between being a dollar below or a dollar above, there's still a sharp dividing line where all the dollars above the bracket are worth less than the ones below. Similarly, all the percentage points above 100 are bringing less return and adding more risk, so they are qualitatively different from the first 100 percentage points.
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Valuethinker
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Re: Why I'm 100% stocks

Post by Valuethinker »

dogagility wrote: Thu Oct 25, 2018 5:14 am Thanks for posting and linking the article. I found it interesting that the author was advocating during retirement either 100% stock or a 60/40 allocation... seems like very different strategies.

Why I was 100% stock for during my accumulation phase.
  • Didn't understand bonds, but realized bonds didn't return as much as stocks
  • Had confidence I wouldn't need to touch this money for more than 10 years
  • Didn't listen to, or want to listen to, the financial industry noise
  • Wanted to maximize my investment return
  • Always felt my wife and I had sufficient resiliency to mitigate economic downturns without tapping into retirement funds. E.g. willing to move, take different/additional work, adjust spending, etc should the need arise
  • Had confidence in the world's people (and specifically the US) to keep on innovating thus driving economic progress and stock prices over time
  • All of these points combined to turn the 2000 and 2008 stock events into non-events for my investment psyche despite holding 100% stock throughout
Now that I'm approaching retirement, I'm taking more of a bucket approach to mitigate against spending stocks during a downturn. Currently have a relatively small bucket allocated to bonds (current 15%) which I intend to spend from primarily should a severe (>20%) decrease in stock prices occur. I've also reasoned that the total return of stocks recovers after approximately 5-7 years even during the worst of times (e.g. the Great Depression). I can live with that length of "risk".
For reasons nicely summarized in an intelligent but non technical way by Benoit Mandelbrot in "The Misbehavior of Markets" historic returns for markets are not a guide to future returns. Nicolas Taleb makes the same point in The Black Swan among others.

You are also misreading what happened in the 1930s. Stocks rallied not once, but twice, and then went right back down again. As they did in 1938 really hard. The period 1929-1939 was one bear market punctuated by rallies. The fact that you had negative inflation slightly complicates the numbers because the absolute fall in stock prices was *greater* than what the actual real returns data shows (reverse is true in the 1970s). The actual all time bottom of the stock market after October 1929 was, I think, 1941 around the time of Pearl Harbor? (I'd have to check, but Barton Biggs wrote about it). It was in to the early 1950s before you got your money back (dividend yields
were a lot higher then, too), I recall.

And in the period 1968-1980 adjusted for inflation stocks never "recovered". Again from the Dow over 1000 in the 1960s, adjusted for inflation, you were well into the middle 1980s before you got all your money back.

So

1. you can't use history to predict stock returns with absolute confidence. You may not be able to do so at all - ask anyone Japanese.

2. you haven't correctly digested what history tells you about stock returns, which is that there are some truly horrible decades out there (the 1870s would have been another, I think).
Maybe I should really go 100% stock throughout my life. Gotta love the thought-provoking Bogleheads forum!
Because the correlation of stocks and US Treasury bonds is less than 1.0, you can add 20% US Treasuries to an equity portfolio and lose a lot of volatility and not a lot of return (assuming rebalancing). It's worth digging out those numbers and reflecting.
Last edited by Valuethinker on Thu Oct 25, 2018 7:57 am, edited 1 time in total.
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birdog
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Re: Why I'm 100% stocks

Post by birdog »

I see nothing wrong with 100% stocks if you can resist from selling in a downturn. I am 90-10. I also think the difference between 100% stocks and more than 100% stocks is pretty obvious, which you demonstrated in your explanation.
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Re: Why I'm 100% stocks

Post by staythecourse »

Too lazy to read the other replies so apologize if I am repeating.

Being 100% stocks is not what concerns me in your post. Having no EF does concern me. I have said before those who are 100% equities should have an AMPLE EF (my opinion 1-2 years worth). That, of course, leads to the usual discussion of mental accounting and that one is NOT 100% stocks then. I would then have to agree that no one then should be 100% equities and no EF. EF should be first BEFORE investing.

Good luck.
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Re: Why I'm 100% stocks

Post by NoHeat »

Ari wrote: Thu Oct 25, 2018 4:27 am I can expect my pension to be somewhere close to my salary if I were to work until 65
That's got to be the key point, buried in the middle of the long post.

If you've been living on your salary, and your pension can entirely replace it, then of course a 100% stock allocation is okay.
ignition
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Re: Why I'm 100% stocks

Post by ignition »

Interesting that, according to the paper, 100% stocks is the best strategy, both during retirement and acumulation and across different countries. You wouldn't expect that.
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Re: Why I'm 100% stocks

Post by Dandy »

It is a lot easier to have a very aggressive investment portfolio if you don't have to rely on it currently for support. If your other income is not sufficient or if you are retired with no human capital a very aggressive allocation is often problematic.

Let's face it, over time equities outperform most other options by far. You have to wonder why few trusted market sages recommend 100% equity allocation except for the very young in the accumulation stage. You have to ask yourself in those situations "Do I know something they don't" If not, why do so many not recommend my approach?
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Ari
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Re: Why I'm 100% stocks

Post by Ari »

staythecourse wrote: Thu Oct 25, 2018 7:59 amBeing 100% stocks is not what concerns me in your post. Having no EF does concern me. I have said before those who are 100% equities should have an AMPLE EF (my opinion 1-2 years worth). That, of course, leads to the usual discussion of mental accounting and that one is NOT 100% stocks then. I would then have to agree that no one then should be 100% equities and no EF. EF should be first BEFORE investing.
I guess technically I do have an emergency fund, about 1/2 after-tax monthly salary, which is 1,5 months of expenses or so, since I have a 70% savings rate. I have this money solely for liquidity reasons. If I need money quickly, it takes a few days to sell funds and move the money out from my brokerage, so I need to keep some cash for expenses that cannot wait a few days.

Can you explain why you think I need an ample EF? I can just sell stocks if I need money, and as I think I explained in my post, I don't really see the problem with "selling stocks when they're down". This is often treated as some horrible fate at BH, but in reality, I have some money that would need to lose something like 70% before they're down compared to when I bought the stock funds. Even if the stock market loses 50% and I need to sell them, I'm still better off than had I kept an emergency fund in cash.

Perhaps you object "That's fine now, but you didn't know you would have this big bull market when you first invested them", but in the beginning of my investment career my savings were so small that bonds or cash wouldn't have saved me anyway. I just don't agree with this idea that it's a horrible thing to sell your stocks when they're down.

(If I were saving for a house or something, that would be different, since it would represent a one-time lump-sum expense. But I fail to see any emergency that could befall me that would be a one-time lump-sum expense like that. If I lose my job, it would be a period of repeated withdrawals from the portfolio, and as Estrada showed in the linked paper, a 100% stock portfolio has historically handled that pretty well, compared to the alternatives.)
Last edited by Ari on Thu Oct 25, 2018 9:17 am, edited 2 times in total.
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Ari
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Re: Why I'm 100% stocks

Post by Ari »

NoHeat wrote: Thu Oct 25, 2018 8:39 am
Ari wrote: Thu Oct 25, 2018 4:27 am I can expect my pension to be somewhere close to my salary if I were to work until 65
That's got to be the key point, buried in the middle of the long post.

If you've been living on your salary, and your pension can entirely replace it, then of course a 100% stock allocation is okay.
Like I said just after that point, I expect to retire well before that date and probably face a retirement period of something like 25 years before I hit 65. And once I do hit 65, since I wouldn't have a very long working career, my pension will be far lower than my current salary.
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Ari
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Re: Why I'm 100% stocks

Post by Ari »

Dandy wrote: Thu Oct 25, 2018 9:10 am It is a lot easier to have a very aggressive investment portfolio if you don't have to rely on it currently for support. If your other income is not sufficient or if you are retired with no human capital a very aggressive allocation is often problematic.
The part I quoted from the Estrada paper seems to tell a different story. He's talking about being 100% stocks in retirement (so no human capital) and says it has historically and in all countries had better downside protection (i.e. lower risk) than any other static portfolio.

This, of course, excludes psychological reasons to keep bonds.
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Re: Why I'm 100% stocks

Post by White Coat Investor »

Plz wrote: Thu Oct 25, 2018 4:45 am I think 100% stocks also makes sense in certain cases. For example, if one is far from retirement and can take more risks, if there are no upcoming large purchases (eg, you want to buy a house in 3 years), and if one has a stable job and/or a sufficient emergency fund.
I disagree. Why would you put all your money into one major asset class when you could put it into two major asset classes with similar expected returns? I'm fine with an argument of "I'm going to go all risky assets" (i.e. no bonds) but to say I'm going to put it all in stocks or I'm going to put it all in real estate I think is foolish.
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Re: Why I'm 100% stocks

Post by aristotelian »

You are absolutely right that historically, stocks are the best performing asset class with a sufficient timeframe. The problems are: 1) past results to not guarantee future returns, and 2) not everyone has a sufficiently long timeframe. If 100% stocks works for you, great, but not everyone can take that risk.

In your example, the $300 guaranteed gain could be a rational choice for someone who only needs $300 and is risk averse.
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DanMahowny
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Re: Why I'm 100% stocks

Post by DanMahowny »

I went 100% stocks in 2009 (up from 80/20).

Today I am 0% stocks.

78% short-term treasuries + cash
13% tips
9% gold

Equities will become interesting when DOW drops to 16,000.
Funding secured
Elbowman
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Re: Why I'm 100% stocks

Post by Elbowman »

Experts/experienced investors: "Please, please believe us when we say that the psychological effect of significant losses in an environment of panic affects many people, and consequently their behavior, in ways they to not anticipate."

Young, 100% stockers: "Haha, not me! Broad psychological trends are things that happen to other people!"
Plz
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Re: Why I'm 100% stocks

Post by Plz »

White Coat Investor wrote: Thu Oct 25, 2018 9:21 am
Plz wrote: Thu Oct 25, 2018 4:45 am I think 100% stocks also makes sense in certain cases. For example, if one is far from retirement and can take more risks, if there are no upcoming large purchases (eg, you want to buy a house in 3 years), and if one has a stable job and/or a sufficient emergency fund.
I disagree. Why would you put all your money into one major asset class when you could put it into two major asset classes with similar expected returns? I'm fine with an argument of "I'm going to go all risky assets" (i.e. no bonds) but to say I'm going to put it all in stocks or I'm going to put it all in real estate I think is foolish.
Has there been a 30 year period where stocks underperformed stocks + bonds?
staythecourse
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Re: Why I'm 100% stocks

Post by staythecourse »

Ari wrote: Thu Oct 25, 2018 9:14 am
staythecourse wrote: Thu Oct 25, 2018 7:59 amBeing 100% stocks is not what concerns me in your post. Having no EF does concern me. I have said before those who are 100% equities should have an AMPLE EF (my opinion 1-2 years worth). That, of course, leads to the usual discussion of mental accounting and that one is NOT 100% stocks then. I would then have to agree that no one then should be 100% equities and no EF. EF should be first BEFORE investing.
I guess technically I do have an emergency fund, about 1/2 after-tax monthly salary, which is 1,5 months of expenses or so, since I have a 70% savings rate. I have this money solely for liquidity reasons. If I need money quickly, it takes a few days to sell funds and move the money out from my brokerage, so I need to keep some cash for expenses that cannot wait a few days.

Can you explain why you think I need an ample EF? I can just sell stocks if I need money, and as I think I explained in my post, I don't really see the problem with "selling stocks when they're down". This is often treated as some horrible fate at BH, but in reality, I have some money that would need to lose something like 70% before they're down compared to when I bought the stock funds. Even if the stock market loses 50% and I need to sell them, I'm still better off than had I kept an emergency fund in cash.

Perhaps you object "That's fine now, but you didn't know you would have this big bull market when you first invested them", but in the beginning of my investment career my savings were so small that bonds or cash wouldn't have saved me anyway. I just don't agree with this idea that it's a horrible thing to sell your stocks when they're down.

(If I were saving for a house or something, that would be different, since it would represent a one-time lump-sum expense. But I fail to see any emergency that could befall me that would be a one-time lump-sum expense like that. If I lose my job, it would be a period of repeated withdrawals from the portfolio, and as Estrada showed in the linked paper, a 100% stock portfolio has historically handled that pretty well, compared to the alternatives.)
Sorry maybe I missed it, but is all of these investments in taxable? If so, yes you could just sell it if you need it. You are correct that a EF is a drag on overall returns. In the end though I am a bit more conservative. The biggest issue is not needing money to buy a house, a new car, or fix a leaking roof. The big issue is job loss. As Murphy's law has it or probably makes sense on common sense level (high chance of job loss when the market tanks which means the economy is tanking) I like to see liquid and principle stable money set aside for potential job loss. If you ask nearly everyone out there no one thinks they will lose their job, but if you ask folks who retired in the last 10 years how many of them in the private world did not lose their job at least a FEW times in their careers? The overconfidence of folk's not being fired is big problem. I really do think (just my opinion)the biggest risk an investor faces is not volatility of the market, but the risk of job loss and its affect on their accumulation period. To hedge that is why I like a separate EF fund.

Good luck.
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Re: Why I'm 100% stocks

Post by White Coat Investor »

Plz wrote: Thu Oct 25, 2018 9:38 am
White Coat Investor wrote: Thu Oct 25, 2018 9:21 am
Plz wrote: Thu Oct 25, 2018 4:45 am I think 100% stocks also makes sense in certain cases. For example, if one is far from retirement and can take more risks, if there are no upcoming large purchases (eg, you want to buy a house in 3 years), and if one has a stable job and/or a sufficient emergency fund.
I disagree. Why would you put all your money into one major asset class when you could put it into two major asset classes with similar expected returns? I'm fine with an argument of "I'm going to go all risky assets" (i.e. no bonds) but to say I'm going to put it all in stocks or I'm going to put it all in real estate I think is foolish.
Has there been a 30 year period where stocks underperformed stocks + bonds?
That comment makes no sense in relationship to mine that you quoted. Maybe if you asked "Has there been a 30 year period where stocks underperformed real estate?" it would make sense. I would venture a guess that the answer to that one is yes, but I don't know for sure.
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Re: Why I'm 100% stocks

Post by White Coat Investor »

DanMahowny wrote: Thu Oct 25, 2018 9:30 am I went 100% stocks in 2009 (up from 80/20).

Today I am 0% stocks.

78% short-term treasuries + cash
13% tips
9% gold

Equities will become interesting when DOW drops to 16,000.
I'll buy them then too.

Are you a billionaire? I'm curious why not. You should be given how clear your crystal ball seems to be. Why didn't you leverage way up in 2009 and why aren't you selling VTI short now?

I'll venture a reason- you're not sure what's going to happen but maybe you've gotten lucky once or twice. For example, you're 0% stock. The market is currently up 1.55%. If you have a million dollar portfolio, your opportunity cost in the last hour was $15,500.
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Re: Why I'm 100% stocks

Post by Plz »

White Coat Investor wrote: Thu Oct 25, 2018 9:43 am
Plz wrote: Thu Oct 25, 2018 9:38 am
White Coat Investor wrote: Thu Oct 25, 2018 9:21 am
Plz wrote: Thu Oct 25, 2018 4:45 am I think 100% stocks also makes sense in certain cases. For example, if one is far from retirement and can take more risks, if there are no upcoming large purchases (eg, you want to buy a house in 3 years), and if one has a stable job and/or a sufficient emergency fund.
I disagree. Why would you put all your money into one major asset class when you could put it into two major asset classes with similar expected returns? I'm fine with an argument of "I'm going to go all risky assets" (i.e. no bonds) but to say I'm going to put it all in stocks or I'm going to put it all in real estate I think is foolish.
Has there been a 30 year period where stocks underperformed stocks + bonds?
That comment makes no sense in relationship to mine that you quoted. Maybe if you asked "Has there been a 30 year period where stocks underperformed real estate?" it would make sense. I would venture a guess that the answer to that one is yes, but I don't know for sure.
I see what you’re saying, but when this forum talks about asset allocation, it’s usually excluding real estate. That’s why you see so many AAs quotes with just two numbers: stocks/bonds.

Evaluating real estate is also tricky, especially since location and entry price of a rather illiquid asset matter so much to returns. I would think that there’s also no 30 year period where stocks underperform stocks + REIT indexes.
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Re: Why I'm 100% stocks

Post by Ari »

Elbowman wrote: Thu Oct 25, 2018 9:30 am Experts/experienced investors: "Please, please believe us when we say that the psychological effect of significant losses in an environment of panic affects many people, and consequently their behavior, in ways they to not anticipate."

Young, 100% stockers: "Haha, not me! Broad psychological trends are things that happen to other people!"
I'll be prepared to admit that psychological reasons could be valid. The Estrada paper obviously skips this point. On the other hand, I suspect that knowing about the research of the Estrada paper can help with this. I have good reasons (I believe!) to believe that my psychological makeup is such that I will not panic sell in a crash. Obviously, I cannot know this for sure until I've been heavily invested during a crash, but I've collected enough evidence to meet my personal standards of evidence for this. And I've read several posters on BH who have talked about having no problems being 100% stocks during the 2008 crisis. I also recall seeing data from Vanguard talking about a 14% selloff from their clients, but I don't recall where I saw it, unfortunately.
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Re: Why I'm 100% stocks

Post by Ari »

staythecourse wrote: Thu Oct 25, 2018 9:38 amSorry maybe I missed it, but is all of these investments in taxable? If so, yes you could just sell it if you need it.
I live in Sweden and don't need to pay capital gains tax, so there could be differences here compared to the US. I'm not convinced this materially changes the equation, though. Reasonably in the scenario which is the most feared, selling stocks when they're down, cap gains would also be the smallest?
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Re: Why I'm 100% stocks

Post by sschullo »

HEDGEFUNDIE wrote: Thu Oct 25, 2018 5:05 am Two portfolios over past 10 years:

1. 100% VTI returning 9.8% CAGR
2. 80% VTI + 20% EDV (ultra long duration treasury bonds)

One of these returned more *with* less risk, can you guess which one?

https://www.portfoliovisualizer.com/bac ... tion2_2=20
I opted for additional bond diversification with the Total bond market index because long-term bonds are too narrow and thus too risky for my purposes. I changed the comparison to the total bond market index Admiral shares which I own: https://www.portfoliovisualizer.com/ba ... tion2_2=20
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Re: Why I'm 100% stocks

Post by staythecourse »

White Coat Investor wrote: Thu Oct 25, 2018 9:21 am
Plz wrote: Thu Oct 25, 2018 4:45 am I think 100% stocks also makes sense in certain cases. For example, if one is far from retirement and can take more risks, if there are no upcoming large purchases (eg, you want to buy a house in 3 years), and if one has a stable job and/or a sufficient emergency fund.
I disagree. Why would you put all your money into one major asset class when you could put it into two major asset classes with similar expected returns? I'm fine with an argument of "I'm going to go all risky assets" (i.e. no bonds) but to say I'm going to put it all in stocks or I'm going to put it all in real estate I think is foolish.
I don't think it is correct to think real estate AVERAGES are consistent for the investor. Some do better some do worse as they are not investing in an index, i.e. "averages" unlike a stock index investor. You also have negatives of concentration risk, geographical risk, manager risk (even if that is YOU), opacity and nontransparency (if you go through someone else), and illiquidity. Real estate is a great option, but don't think you can say it is the same risk or return (may be better or worse) then stocks. The only thing you can be assured is the correlation between the two should be different and low.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
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Re: Why I'm 100% stocks

Post by staythecourse »

Ari wrote: Thu Oct 25, 2018 10:00 am
staythecourse wrote: Thu Oct 25, 2018 9:38 amSorry maybe I missed it, but is all of these investments in taxable? If so, yes you could just sell it if you need it.
I live in Sweden and don't need to pay capital gains tax, so there could be differences here compared to the US. I'm not convinced this materially changes the equation, though. Reasonably in the scenario which is the most feared, selling stocks when they're down, cap gains would also be the smallest?
Guess I meant is it in a tax deferred plan that has a penalty for early withdrawals or even allowed? Didn't know Sweden has no cap gain tax. Interesting.

Good luck.
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Re: Why I'm 100% stocks

Post by HEDGEFUNDIE »

sschullo wrote: Thu Oct 25, 2018 10:01 am
HEDGEFUNDIE wrote: Thu Oct 25, 2018 5:05 am Two portfolios over past 10 years:

1. 100% VTI returning 9.8% CAGR
2. 80% VTI + 20% EDV (ultra long duration treasury bonds)

One of these returned more *with* less risk, can you guess which one?

https://www.portfoliovisualizer.com/bac ... tion2_2=20
I opted for additional bond diversification with the Total bond market index because long-term bonds are too narrow and thus too risky for my purposes. I changed the comparison to the total bond market index Admiral shares which I own: https://www.portfoliovisualizer.com/ba ... tion2_2=20
You missed the point. Long treasury bonds + stocks make your portfolio less risky than total bond market + stocks, because total bond market is more correlated with the stock market than long treasuries are.

Just because a fund holds more kinds of stuff than another fund does not make it more diversified in terms of sources of risk. “Additional bond diversification” does not mean what you think it means.

Just compare your portfolio 2’s standard deviation with portfolio 3 holding long treasuries instead:

https://www.portfoliovisualizer.com/bac ... tion3_3=20
Last edited by HEDGEFUNDIE on Thu Oct 25, 2018 10:27 am, edited 5 times in total.
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Re: Why I'm 100% stocks

Post by HEDGEFUNDIE »

Plz wrote: Thu Oct 25, 2018 9:38 am
White Coat Investor wrote: Thu Oct 25, 2018 9:21 am
Plz wrote: Thu Oct 25, 2018 4:45 am I think 100% stocks also makes sense in certain cases. For example, if one is far from retirement and can take more risks, if there are no upcoming large purchases (eg, you want to buy a house in 3 years), and if one has a stable job and/or a sufficient emergency fund.
I disagree. Why would you put all your money into one major asset class when you could put it into two major asset classes with similar expected returns? I'm fine with an argument of "I'm going to go all risky assets" (i.e. no bonds) but to say I'm going to put it all in stocks or I'm going to put it all in real estate I think is foolish.
Has there been a 30 year period where stocks underperformed stocks + bonds?
How about 27 years?

https://www.portfoliovisualizer.com/bac ... tion2_2=20
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Re: Why I'm 100% stocks

Post by Ari »

staythecourse wrote: Thu Oct 25, 2018 10:09 amGuess I meant is it in a tax deferred plan that has a penalty for early withdrawals or even allowed? Didn't know Sweden has no cap gain tax. Interesting.
We do, technically, but there's a specific kind of account which allows you to use a different taxation. Your assets are taxed by about 0.4% per year, no matter how they do. so basically it's an extra expense ratio instead of a cap gains tax. For most people it leads to lower tax burdens, and it sure makes your tax statements a whole lot easier. The only thing I need to care about is how much money is in that account. Buying and selling and prices and whatnot is not something I need to keep track of.
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Re: Why I'm 100% stocks

Post by z3r0c00l »

100% stock is great for some, I am simply not willing to risk a prolonged 50% decline in my life's savings. At least once in the past: stocks have dropped over 20% in a single day, and have dropped about 90% in a few years. Glad to leave some money on the table, or work a bit longer, in exchange for peace of mind.
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Re: Why I'm 100% stocks

Post by tman9940 »

staythecourse wrote: Thu Oct 25, 2018 7:59 am Too lazy to read the other replies so apologize if I am repeating.

Being 100% stocks is not what concerns me in your post. Having no EF does concern me. I have said before those who are 100% equities should have an AMPLE EF (my opinion 1-2 years worth). That, of course, leads to the usual discussion of mental accounting and that one is NOT 100% stocks then. I would then have to agree that no one then should be 100% equities and no EF. EF should be first BEFORE investing.

Good luck.
I have all my INVESTED money in stocks--but also have a large cash EF earning 1.9% in a savings account. I plan on purchasing a house within the next 5-10 years. Do not want to risk that money in the market, but I do not add much to my EF as it is big enough right now. I only invest my money now. I leave my EF alone.
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Re: Why I'm 100% stocks

Post by sschullo »

HEDGEFUNDIE wrote: Thu Oct 25, 2018 10:16 am
sschullo wrote: Thu Oct 25, 2018 10:01 am
HEDGEFUNDIE wrote: Thu Oct 25, 2018 5:05 am Two portfolios over past 10 years:

1. 100% VTI returning 9.8% CAGR
2. 80% VTI + 20% EDV (ultra long duration treasury bonds)

One of these returned more *with* less risk, can you guess which one?

https://www.portfoliovisualizer.com/bac ... tion2_2=20
I opted for additional bond diversification with the Total bond market index because long-term bonds are too narrow and thus too risky for my purposes. I changed the comparison to the total bond market index Admiral shares which I own: https://www.portfoliovisualizer.com/ba ... tion2_2=20
You missed the point. Long treasury bonds + stocks make your portfolio less risky than total bond market + stocks, because total bond market is more correlated with the stock market than long treasuries are.

Just because a fund holds more kinds of stuff than another fund does not make it more diversified in terms of sources of risk. “Additional bond diversification” does not mean what you think it means.

Just compare your portfolio 2’s standard deviation with portfolio 3 holding long treasuries instead:

https://www.portfoliovisualizer.com/bac ... tion3_3=20
Hi,
I understood your point and its a good one for the OP.
I was just curious as to what the comparison would look like because I like Taylor's recommendation of the Total bond market index. The total bond market index doesn't just own more "stuff". I choose it because of the mix of treasurers, intermediate and long-term bonds. Thats not "stuff." Of course, 100% long-term bonds did better than intermediate in the last ten years because of lowering interest rates. I am risk adverse so I opted for a diversified bond portfolio because 70% of my portfolio are bonds, and 30% are stocks. I actually own international bonds too. I am 71 so that's the primary reason I am conservative. But last year I earned a 9% return.
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Re: Why I'm 100% stocks

Post by AnalogKid22 »

z3r0c00l wrote: Thu Oct 25, 2018 10:20 am 100% stock is great for some, I am simply not willing to risk a prolonged 50% decline in my life's savings. At least once in the past: stocks have dropped over 20% in a single day, and have dropped about 90% in a few years. Glad to leave some money on the table, or work a bit longer, in exchange for peace of mind.
So true. If you're investing long-term, don't expect to need the invested money in the short-term, and you're in a "stable" occupation, then 100% stocks probably makes sense. The real gut-check will be the next major decline, when your portfolio not only drops significantly but barely moves for months or even years. For those with large portfolios (e.g. in the millions), low/moderate expenses, stable job, etc., even a major decline likely won't hurt much - you're still a millionaire. The Dave Ramseys, Buffets, of the world apparently hold very little fixed income for this very reason.
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