Words of Wisdom William Bernstein_chat w/Ben Carlson

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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by kupuna »

Great interview. Thanks to both of you for making it.

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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by watchnerd »

Bill Bernstein wrote: Sat Apr 04, 2020 12:24 pm Readers of my recent books will know that I favor short Treasuries and CDs for emergency money, upcoming consumption needs, and dry powder.

There's nothing wrong with having some municipals and corporates, but you can't count on them during periods when you're going to need capital the most. You always want to be sure there are plenty of T's and CDs in front of them.

Finally, TIPS are usually a fine holding for defeasing years and decades of upcoming consumption needs, though their current prices and yields are atrocious.

Bill
What do you think of short TIPS when held in a mutual fund with a duration of 2.5 years (e.g. Vanguard's VTIP)?

We hold 2.5 years of living expenses in Treasury MM (T-bills) & CDs, which equals the duration of VTIP, for liquidity purposes, and then years 2.5 - 6 in VTIP.

Full disclosure: 49, still accumulating. AA in sig.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by pascalwager »

Already retired with a pension, I did "take a lot off the table" in recent years after the urgings of Bill and Larry, but I don't know if I'm ready to abandon total return-type redemptions or duration-investment timeline matching bond funds. Also, I'm not very good at estimating future expenses.

I guess when Livesoft starts keeping five years of cash and stops rebalancing, I'll know I missed the boat.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by More Please »

I watched it 3 times and sent it to all my non Boglehead friends. Loved this quote from JP Morgan, ‘A bear market is when stocks return to their rightful owners’. Wonderful! Thanks Dr. Bernstein.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by watchnerd »

pascalwager wrote: Sat Apr 04, 2020 5:51 pm Already retired with a pension, I did "take a lot off the table" in recent years after the urgings of Bill and Larry, but I don't know if I'm ready to abandon total return-type redemptions or duration-investment timeline matching bond funds. Also, I'm not very good at estimating future expenses.

I guess when Livesoft starts keeping five years of cash and stops rebalancing, I'll know I missed the boat.
Didn't he recently say he only did a partial rebalance?
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by pascalwager »

watchnerd wrote: Sat Apr 04, 2020 5:57 pm
pascalwager wrote: Sat Apr 04, 2020 5:51 pm Already retired with a pension, I did "take a lot off the table" in recent years after the urgings of Bill and Larry, but I don't know if I'm ready to abandon total return-type redemptions or duration-investment timeline matching bond funds. Also, I'm not very good at estimating future expenses.

I guess when Livesoft starts keeping five years of cash and stops rebalancing, I'll know I missed the boat.
Didn't he recently say he only did a partial rebalance?
Oh my! That could be an early warning signal. I did a $120k exchange from bonds to stocks a few weeks ago, but I reset my balance band from 10 to 20% recently after reading a rebalance study and maybe that'll save me from my own reckless behavior.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by watchnerd »

pascalwager wrote: Sat Apr 04, 2020 7:44 pm

Oh my! That could be an early warning signal. I did a $120k exchange from bonds to stocks a few weeks ago, but I reset my balance band from 10 to 20% recently after reading a rebalance study and maybe that'll save me from my own reckless behavior.
Of what?

From what I read in his remark, he was uncomfortable doing the fully-called for bond sale because it was a fairly large sum.

That doesn't sound like an objective warning signal, just somebody having certain emotions.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by pascalwager »

watchnerd wrote: Sat Apr 04, 2020 8:34 pm
pascalwager wrote: Sat Apr 04, 2020 7:44 pm

Oh my! That could be an early warning signal. I did a $120k exchange from bonds to stocks a few weeks ago, but I reset my balance band from 10 to 20% recently after reading a rebalance study and maybe that'll save me from my own reckless behavior.
Of what?

From what I read in his remark, he was uncomfortable doing the fully-called for bond sale because it was a fairly large sum.

That doesn't sound like an objective warning signal, just somebody having certain emotions.
He was probably concerned (not emoting) about observed wide price fluctuations. But if he should stop rebalancing, it's a possible sign that he believes it really is different this time--which might be interesting to me, a fellow retiree. To you, with a fairly long work life ahead, it may be of passing interest.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by watchnerd »

pascalwager wrote: Sat Apr 04, 2020 11:14 pm

He was probably concerned (not emoting) about observed wide price fluctuations. But if he should stop rebalancing, it's a possible sign that he believes it really is different this time--which might be interesting to me, a fellow retiree. To you, with a fairly long work life ahead, it may be of passing interest.
Or perhaps it's just a way of backing into a less aggressive AA after a change in risk tolerance assessment.
Last edited by watchnerd on Sun Apr 05, 2020 12:13 am, edited 1 time in total.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by 1789 »

This was a nice one. Thanks for sharing
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by bearcub »

Enjoy listening to Bill thanks. Like how he calls stocks toxic for those near + in retirement. I was terrified in 08-09 over how much I was down. Today I had my asset allocation at a sleep at night spot thanks to listening to Bill in the past.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by pop77 »

Good to see he endorse the 'bucket approach' at least from a psychological perspective on how to think about your portfolio.

I am still not sure how the bucket approach will fully play out in a bear market, for retirees. As you keep pulling money out from 'safer assets' the risk keeps going up, if your safer buckets last longer than correction and eventual recovery , this approach will work, however if the bear market lasts longer, you might be in a position to sell the stocks after they have fallen to their lowest prices.. Would three to five years of expenses in 'safe assets' be a good bet? Should it be 10? Not sure what the right answer is..

It is interesting to see how the forum's thinking has changed and how TBill is the new superstar. Could this be a contrarian indicator? :?:
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by hudson »

pop77 wrote: Sun Apr 05, 2020 7:58 am Good to see he endorse the 'bucket approach' at least from a psychological perspective on how to think about your portfolio.

I am still not sure how the bucket approach will fully play out in a bear market, for retirees. As you keep pulling money out from 'safer assets' the risk keeps going up, if your safer buckets last longer than correction and eventual recovery , this approach will work, however if the bear market lasts longer, you might be in a position to sell the stocks after they have fallen to their lowest prices.. Would three to five years of expenses in 'safe assets' be a good bet? Should it be 10? Not sure what the right answer is..

It is interesting to see how the forum's thinking has changed and how TBill is the new superstar. Could this be a contrarian indicator? :?:
I don't know if this helps? Inside of the article is a quote from W. Bernstein
From the Oblivious Investor...
https://obliviousinvestor.com/getting-o ... etirement/
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by MarginalUtility »

pop77 wrote: Sun Apr 05, 2020 7:58 am Good to see he endorse the 'bucket approach' at least from a psychological perspective on how to think about your portfolio.

I am still not sure how the bucket approach will fully play out in a bear market, for retirees. As you keep pulling money out from 'safer assets' the risk keeps going up, if your safer buckets last longer than correction and eventual recovery , this approach will work, however if the bear market lasts longer, you might be in a position to sell the stocks after they have fallen to their lowest prices.. Would three to five years of expenses in 'safe assets' be a good bet? Should it be 10? Not sure what the right answer is..

It is interesting to see how the forum's thinking has changed and how TBill is the new superstar. Could this be a contrarian indicator? :?:
My impression is that Dr. Bernstein is not endorsing a "bucket approach." A liability matching portfolio should suffice to cover a retiree's basic living expenses for the remainder of his or her life. Unlike the "bucket approach," the retiree should not need to sell equities to replenish a liability matching portfolio.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by Leesbro63 »

MarginalUtility wrote: Sun Apr 05, 2020 10:12 am
pop77 wrote: Sun Apr 05, 2020 7:58 am Good to see he endorse the 'bucket approach' at least from a psychological perspective on how to think about your portfolio.

I am still not sure how the bucket approach will fully play out in a bear market, for retirees. As you keep pulling money out from 'safer assets' the risk keeps going up, if your safer buckets last longer than correction and eventual recovery , this approach will work, however if the bear market lasts longer, you might be in a position to sell the stocks after they have fallen to their lowest prices.. Would three to five years of expenses in 'safe assets' be a good bet? Should it be 10? Not sure what the right answer is..

It is interesting to see how the forum's thinking has changed and how TBill is the new superstar. Could this be a contrarian indicator? :?:
My impression is that Dr. Bernstein is not endorsing a "bucket approach." A liability matching portfolio should suffice to cover a retiree's basic living expenses for the remainder of his or her life. Unlike the "bucket approach," the retiree should not need to sell equities to replenish a liability matching portfolio.
That’s my understanding. Have a fixed income liability matching portfolio that’s, well, fixed. You don’t rebalance it.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by Leesbro63 »

oops, was a duplicate 🤷🏻‍♂️
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by Bill Bernstein »

You don't rebalance an LMP so much as let it slowly shrink as you age, for obvious reasons, which leads you to the same place: the reverse glide slope of Pfau/Kitces.

And I certainly plead guilty to industrial quantities of mental accounting heuristics here. To badly mangle Yogi Berra, 90 percent of investing is half mental, ie, being able to manage the enemy staring back at you in the mirror.

I.e., a suboptimal approach you can execute (ie, a large Treasury/CD teddy bear to hug at night) is better than an optimal one you can't.

Bill
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by LadyGeek »

For new investors, Bill Bernstein is William Bernstein.

For LMP (Liability Matching Portfolio), the wiki has a similar article: Matching strategy

I seem to remember that a matching strategy is not the same thing as an LMP, but never got a clear explanation why. Can someone please clarify?
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by markcoop »

Anyone have any thoughts about stable value funds inside 401Ks in place of treasuries/CDs?
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by dh »

I appreciated his provocative statement, he views his portfolio as two parts:
(1) the fixed side is the money that he can use;
(2) the stock side is money for others to use.

Thank you William Bernstein for your great contributions! :sharebeer
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by hudson »

markcoop wrote: Sun Apr 05, 2020 12:40 pm Anyone have any thoughts about stable value funds inside 401Ks in place of treasuries/CDs?
You already know that stable value funds would rank behind treasuries and CDs for safety.
You've probably also read the WIKI: https://www.bogleheads.org/wiki/Stable_value_fund
Stable Value Funds are considered about as safe as money market funds. In 2008, there were problems if I remember correctly.

Update: This discussion might help....viewtopic.php?t=305562#p5062498
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by Toons »

This Too Shall Pass
:happy
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by Robert_007 »

I absolutely enjoyed this episode. Was hoping to hear about bills thoughts re the valuations and possible opportunities to investing in developed markets ex us I.e (vea etf). I recall him noting that developed ex us stocks look more appealing than US. That was before the pandemic. Curious to see if his mind has changed.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by Toadvine »

SimpleGift wrote: Fri Apr 03, 2020 8:06 pm
aj76er wrote: Fri Apr 03, 2020 7:53 pm So at what age do equities become “toxic”? When life expectancy is within 20yrs? 15yrs? Less?
Most likely it comes when one feels that their nest egg is "enough," rather than at any particular biological age.

One usual definition of enough is 25x annual expenses in retirement, invested in safe, high-quality bonds — though this will vary with each investor. Only funds beyond this base amount of safe assets, which are not going to be needed for foreseeable consumption needs, could be ventured into the stock market.
But in the podcast, Bernstein notes that the critical determinant is your remaining earning power (human resource capital), rather than the multiple of annual expenses. Stocks become more toxic as we get older and have increasingly less ability to recoup losses. For example, in the extreme, if you are already in retirement, with no prospects of earning more, then equities are toxic even if you have far less than 25x annual expenses. At that point you simply cannot afford to take any losses. If you haven't saved enough, then you must reduce your lifestyle in retirement. This is one of the central messages from the economics literature on life cycle finance.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by Sandtrap »

Bill Bernstein wrote: Sun Apr 05, 2020 10:44 am You don't rebalance an LMP so much as let it slowly shrink as you age, for obvious reasons, which leads you to the same place: the reverse glide slope of Pfau/Kitces.

And I certainly plead guilty to industrial quantities of mental accounting heuristics here. To badly mangle Yogi Berra, 90 percent of investing is half mental, ie, being able to manage the enemy staring back at you in the mirror.

I.e., a suboptimal approach you can execute (ie, a large Treasury/CD teddy bear to hug at night) is better than an optimal one you can't.


Bill
Great advice!!

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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by CULater »

Toons wrote: Sun Apr 05, 2020 2:48 pm This Too Shall Pass
:happy
Another way of saying this is: "Everything comes to an end" (including you). It's the spin on the ball that determines the pitch.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by ilan1h »

aj76er wrote: Sat Apr 04, 2020 1:07 pm
SimpleGift wrote: Fri Apr 03, 2020 8:06 pm
aj76er wrote: Fri Apr 03, 2020 7:53 pm So at what age do equities become “toxic”? When life expectancy is within 20yrs? 15yrs? Less?
Most likely it comes when one feels that their nest egg is "enough," rather than at any particular biological age.

One usual definition of enough is 25x annual expenses in retirement, invested in safe, high-quality bonds — though this will vary with each investor. Only funds beyond this base amount of safe assets, which are not going to be needed for foreseeable consumption needs, could be ventured into the stock market.
In my (personal) situation, prior to the market decline, I had accumulated 30X of living expenses at 43 years of age. Technically I had won the game at a relatively young age. Part of me wanted to de-risk my portfolio, but it seemed like a horrible bet over my 40yr - 50yr life expectancy.

I was 80/20 prior to the decline, so now my portfolio is down to about 20X of expenses. But the market drop hasn’t bothered me a bit, and I recently overbalanced to 85/15 when the market hit 30% down from the peak. Obviously, I’m still working (harder than ever) and saving (as much as I can), and I feel like this is probably my last real chance to be aggressive at buying equities at attractive prices.
Hi Simplegift,
So it's been about 4-5 months since you posted these opinions and I hope that you bought equities at their lows and are now basking in your success! I am in the same position as yourself ie: "having won the game" about 12 years ago at the age of 50 (I hate this apt but cringey term). I was heavily invested in equities when the 2008 disaster hit and did what you are doing now ie: held on to my losses and even bought more equities. I did very well but I began to realize that I relished my peace of mind and my soundness of sleep more than I did accumulating more wealth. That's why I was badly spooked by the pandemic. I had been intending to divest myself of risky assets even before the pandemic had started but had been sluggish to do so because the market was soaring. So I dithered and was suddenly caught up in a 35% decline of my equities. I sold the riskiest assets at a steep loss (something I had never done before) and lost a fortune. Strangely, I was instantly relieved because most of it was still intact. If you're the kind of person who gets more distressed by losing than elated by winning, then it's time to get out of Vegas. I don't intend to climb back into risky assets but also don't intend to let good money languish. I realized that the monies that I had in Vanguard Wellesley, BND, Vang muni munis etc did not cause me any anxiety. I have decided that this limited level of risk is the most that I am willing to stomach. I am not criticizing your choice of going 85/15, but I would ask myself "how would I feel if due to a black swan event I lost most of that 85?" We are living in a time when black swans are popping up every decade instead of every 100 years. Maybe the next one will be far worse than the last two?
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by hudson »

ilan1h,
In 2008 I got out of stocks and have been 0/100 ever since.
I like it here.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by oragne lovre »

Bill Bernstein wrote: Sat Apr 04, 2020 12:24 pm Readers of my recent books will know that I favor short Treasuries and CDs for emergency money, upcoming consumption needs, and dry powder.

There's nothing wrong with having some municipals and corporates, but you can't count on them during periods when you're going to need capital the most. You always want to be sure there are plenty of T's and CDs in front of them.

Finally, TIPS are usually a fine holding for defeasing years and decades of upcoming consumption needs, though their current prices and yields are atrocious.

Bill
Thanks
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by corp_sharecropper »

hudson wrote: Sat Sep 12, 2020 6:32 pm ilan1h,
In 2008 I got out of stocks and have been 0/100 ever since.
I like it here.
So you never once had FOMO over the last 11 years of equity bull market returns? Has your investing life been entirely during this multi decade, about 40 years, bond bull market? I think, and I'm not at all alone, that there has never been a more powerful recency bias than the bond bull market, and that going heavy bonds (much less 0/100) is asking for an unexpected disaster. 0/100 nominal bonds is nearly as risky as 100/0, that risk just hasn't shown its ugly face in the investing lifetime of the majority of current investors, and if one was old enough to have been an investor that long ago, it's probably a faded memory of time when your risks are far different than now. Good luck.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by ilan1h »

corp_sharecropper wrote: Sat Sep 12, 2020 9:25 pm
hudson wrote: Sat Sep 12, 2020 6:32 pm ilan1h,
In 2008 I got out of stocks and have been 0/100 ever since.
I like it here.
So you never once had FOMO over the last 11 years of equity bull market returns? Has your investing life been entirely during this multi decade, about 40 years, bond bull market? I think, and I'm not at all alone, that there has never been a more powerful recency bias than the bond bull market, and that going heavy bonds (much less 0/100) is asking for an unexpected disaster. 0/100 nominal bonds is nearly as risky as 100/0, that risk just hasn't shown its ugly face in the investing lifetime of the majority of current investors, and if one was old enough to have been an investor that long ago, it's probably a faded memory of time when your risks are far different than now. Good luck.
Can you explain in more detail what you mean. I've heard that the worst year for bond funds is equivalent to the worst day for stock funds. What is the unexpected disaster or ugly face that you refer to? One of the worst years in history for bonds was 1994 and I think that even then the loss for interm term govt bonds was under 7%.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by ignition »

ilan1h wrote: Sun Sep 13, 2020 12:58 am
corp_sharecropper wrote: Sat Sep 12, 2020 9:25 pm
hudson wrote: Sat Sep 12, 2020 6:32 pm ilan1h,
In 2008 I got out of stocks and have been 0/100 ever since.
I like it here.
So you never once had FOMO over the last 11 years of equity bull market returns? Has your investing life been entirely during this multi decade, about 40 years, bond bull market? I think, and I'm not at all alone, that there has never been a more powerful recency bias than the bond bull market, and that going heavy bonds (much less 0/100) is asking for an unexpected disaster. 0/100 nominal bonds is nearly as risky as 100/0, that risk just hasn't shown its ugly face in the investing lifetime of the majority of current investors, and if one was old enough to have been an investor that long ago, it's probably a faded memory of time when your risks are far different than now. Good luck.
Can you explain in more detail what you mean. I've heard that the worst year for bond funds is equivalent to the worst day for stock funds. What is the unexpected disaster or ugly face that you refer to? One of the worst years in history for bonds was 1994 and I think that even then the loss for interm term govt bonds was under 7%.
Inflation is the big risk for nominal bonds.

"Many investors would be surprised to see the massive drawdown in bonds in the middle of each chart, both in terms of their magnitude and length. From November 1940 through September 1981, 5-year treasuries lost almost 44% of their value on a real basis while long-term treasuries lost almost 70%." (source: https://awealthofcommonsense.com/2018/1 ... ar-market/)
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by hudson »

corp_sharecropper wrote: Sat Sep 12, 2020 9:25 pm
hudson wrote: Sat Sep 12, 2020 6:32 pm ilan1h,
In 2008 I got out of stocks and have been 0/100 ever since.
I like it here.
So you never once had FOMO over the last 11 years of equity bull market returns? Has your investing life been entirely during this multi decade, about 40 years, bond bull market? I think, and I'm not at all alone, that there has never been a more powerful recency bias than the bond bull market, and that going heavy bonds (much less 0/100) is asking for an unexpected disaster. 0/100 nominal bonds is nearly as risky as 100/0, that risk just hasn't shown its ugly face in the investing lifetime of the majority of current investors, and if one was old enough to have been an investor that long ago, it's probably a faded memory of time when your risks are far different than now. Good luck.
Thanks corp_sharecropper!
Fear of missing out?...yes...that thought pops up.
I sold stocks down to the level where I can sleep at night in 2008.
I understand the historical risks of 0/100 and I'm fine with that. I've read most of the Boglehead books and many posts on the subject.
My favorite investing books are Swedroe's bond book and W. Bernstein's Four Pillars and Ages of the Investor.
I would recommend that everyone read the Boglehead books and come up with an investing plan/asset allocation. Then they would use the Boglehead discussions to tweak their plan. Big market downturns can help one make adjustments.
I'm 72 and retired. I wasn't investing 40 years ago; 20 years ago, yes.

Bottom Line: Stocks give me heartburn; I like CDs and safe bond funds....90/10.

At age 76, I may make a big move to TIPS.
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