Why don't all investors go 100% stocks

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
Topic Author
tvubpwcisla
Posts: 502
Joined: Sat Nov 09, 2019 10:09 am

Why don't all investors go 100% stocks

Post by tvubpwcisla » Fri Apr 03, 2020 6:32 am

When the markets correct, you will have larger paper losses; however, in times of prosperity you will have larger gains. Seems to balance out and also provides the investor with the largest returns in the long term.

Why not just stay 100% equities and stop watching the market?

Why choose products that offer lower returns?

Is it simply the emotions of seeing large up and down swings to account balances?
Stay invested my friends.

alex_686
Posts: 6317
Joined: Mon Feb 09, 2015 2:39 pm

Re: Why don't all investors go 100% stocks

Post by alex_686 » Fri Apr 03, 2020 6:37 am

2 points.

First, the ability to take risk is tied to wealth. Lower wealth, lower ability. You don’t hazard what you can’t afford to lose.

Second, there is a big assumption you are making about things are on sale. A fair number of people, including myself, felt things were overvalued before the crash. Maybe they are now fairly valued?
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.

Triple digit golfer
Posts: 5276
Joined: Mon May 18, 2009 5:57 pm

Re: Why don't all investors go 100% stocks

Post by Triple digit golfer » Fri Apr 03, 2020 6:41 am

You say returns, but you mean expected returns. Big difference.

By your logic, why not go with the smallest, riskiest stocks instead of holding any large cap stocks at all? After all, they offer the highest expected return.

There are no guarantees. You also never know when you'll need the money. Imagine losing your job after a 50% market crash. You can't find another one and are out of work for a long time. Wouldn't some fixed income to draw upon be nice instead of selling stock at prices that took a decade to attain?

Diversify.

lostdog
Posts: 2734
Joined: Thu Feb 04, 2016 2:15 pm

Re: Why don't all investors go 100% stocks

Post by lostdog » Fri Apr 03, 2020 6:46 am

You could if you have a big emergency fund of cash that you separate from your portfolio.

Bear markets can last a few years. A few years of an emergency fund would suffice.

Or the stock portion in your taxable account is large enough to qualify for an emergency fund.
Global Market Cap Equity/1 Year Cash/Bonds || 25x Expenses

livesoft
Posts: 71925
Joined: Thu Mar 01, 2007 8:00 pm

Re: Why don't all investors go 100% stocks

Post by livesoft » Fri Apr 03, 2020 6:51 am

You didn't watch Ben Carlson's video interviewing Dr. William Bernstein that was linked yesterday, did you? :)
Your title question is very explicitly answered.
Wiki This signature message sponsored by sscritic: Learn to fish.

sterjs
Posts: 300
Joined: Sun Mar 25, 2007 2:22 am

Re: Why don't all investors go 100% stocks

Post by sterjs » Fri Apr 03, 2020 6:56 am

tvubpwcisla wrote:
Fri Apr 03, 2020 6:32 am
When the markets correct, you will have larger paper losses; however, in times of prosperity you will have larger gains.
Losses aren't paper losses any more than gains are paper gains. This idea is just a psychological trick(albeit a useful one).

Stock market returns are correlated to human capital for most investors. Besides, if every investor went 100% stocks, the equity risk premium would approach 0%.

Valuethinker
Posts: 40218
Joined: Fri May 11, 2007 11:07 am

Re: Why don't all investors go 100% stocks

Post by Valuethinker » Fri Apr 03, 2020 6:56 am

tvubpwcisla wrote:
Fri Apr 03, 2020 6:32 am
When the markets correct, you will have larger paper losses; however, in times of prosperity you will have larger gains. Seems to balance out and also provides the investor with the largest returns in the long term.

Why not just stay 100% equities and stop watching the market?

Why choose products that offer lower returns?

Is it simply the emotions of seeing large up and down swings to account balances?
1. you are ignoring the benefits of diversification. US Treasury bonds v S&P 500 for example, UST have near zero correlation with S&P 500. Thus you can craft a more efficient portfolio on a risk-return basis by adding the second asset (UST).

In practice the historic data shows you shed a lot more volatility than you do return by moving onto a more efficient frontier. It's quite striking how little return you give up for an increase in bond weighting to 20%/ 80% equities. In fact that tradeoff occurs until roughly 40% B/ 60% E.

One caveat is that the last 30 years have been a bull market for bonds. So future returns from that asset class are likely to be lower. But that is also true of equities.

2. If you ever think you will need to spend your portfolio, you need to think about bonds

I went through the 2000 and 2008-09 bear markets with nearly 100% in equities. I just shut my computer off and stopped looking at my portfolios (including my employer stock, I was down c 90% in 2000-03).

I am not so fearless any more. In my late 50s, retirement is not just some abstract issue. Had I been 100% equities, the loss of 30% of that portfolio in the last 6 weeks or so would have changed by financial plans. As it is, I can shrug and move on.

Those of us who were invested in October 1987 can remember the shock that c 32% of the portfolio value can disappear in a single day (I think that is what the FTSE 100 dropped, that day). We have seen a number of double-digit percentage moves in a single day or week, since.

3. 100% stocks is a strategy where you have large amounts of future labour income (years in your career) and that labour income (job) is not correlated with the economy. Unfortunately in 2000 my job and the stock market were very highly correlated. Investments I made then have either underperformed (the FTSE 100 is below its 2000 high, although you have had the benefit of 3.5% or so dividend yield every year, on average) or been wiped out (some private company investments).

In 2020 I have a lot less labour income left. My job still has economic correlation - I could lose it (although redeployment is more likely, if I accept it). My investment policy is accordingly more conservative.

Looking back on my investing career (really began about 1980 although I had an interest in shares before then) I think the Ben Graham dictum that the wise investor is never less than 20% in bonds, and never more than 80% in bonds, is a good one.

Call_Me_Op
Posts: 7841
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Why don't all investors go 100% stocks

Post by Call_Me_Op » Fri Apr 03, 2020 7:34 am

Surely to are not advocating 100% stocks for retirees. That's not smart because it risks portfolio depletion in a short time period assuming a typical withdrawal rate.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

User avatar
firebirdparts
Posts: 1560
Joined: Thu Jun 13, 2019 4:21 pm

Re: Why don't all investors go 100% stocks

Post by firebirdparts » Fri Apr 03, 2020 7:40 am

alex_686 wrote:
Fri Apr 03, 2020 6:37 am
2 points.

First, the ability to take risk is tied to wealth. Lower wealth, lower ability. You don’t hazard what you can’t afford to lose.
I gotta tell you, I don't even know what that is. It seems like you have to become rich before you can have anything you "can't afford" to lose. What I mean is, if you're rich, and you lose everything, you become normal. That is the ultimate consequence, normalcy.

I'm totally lost.
A fool and your money are soon partners

User avatar
fredflinstone
Posts: 2610
Joined: Mon Mar 29, 2010 7:35 am
Location: Bedrock

Re: Why don't all investors go 100% stocks

Post by fredflinstone » Fri Apr 03, 2020 7:45 am

US bonds and gold have outperformed US stocks since the beginning of 2000. Why not have a little bit of each?
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash 22 / TIPS 8

sd323232
Posts: 505
Joined: Thu Jun 21, 2018 4:45 pm

Re: Why don't all investors go 100% stocks

Post by sd323232 » Fri Apr 03, 2020 7:47 am

i agree here, right choice is to go all in on stocks. but actually doing it is hard lol!. But yes, anyone who goes 100% into stocks now will be ahead by 2030 and beyond. i just need to force myself to do it now.

deltaneutral83
Posts: 1626
Joined: Tue Mar 07, 2017 4:25 pm

Re: Why don't all investors go 100% stocks

Post by deltaneutral83 » Fri Apr 03, 2020 8:08 am

Call_Me_Op wrote:
Fri Apr 03, 2020 7:34 am
Surely to are not advocating 100% stocks for retirees. That's not smart because it risks portfolio depletion in a short time period assuming a typical withdrawal rate.
Depends, if you have 80x annual expenses and are planning generational wealth then it doesn't matter. The question at hand is dependent on a number of factors and these types of questions in the OP are rather pointless. Asking someone who is approaching retirement with 15x expenses and SS why they don't go 100% equities is an easy answer. I will say this about the accumulation phase, until you go through the 35%+ decline, you don't really know how you'll feel. A good compromise is to keep a lot of cash (say 18 months) if you're going to go 100% equities or keep so I guess you're not really 100% but it is a compromise between that and putting a large chunk like 20% in bonds if you wanted the equity exposure. I think I've read a few articles about 100% equities outside of 2 years in cash to take on that equity risk while having a backup plan.
Last edited by deltaneutral83 on Fri Apr 03, 2020 8:11 am, edited 1 time in total.

User avatar
gmaynardkrebs
Posts: 2102
Joined: Sun Feb 10, 2008 11:48 am

Re: Why don't all investors go 100% stocks

Post by gmaynardkrebs » Fri Apr 03, 2020 8:10 am

sd323232 wrote:
Fri Apr 03, 2020 7:47 am
i agree here, right choice is to go all in on stocks. but actually doing it is hard lol!. But yes, anyone who goes 100% into stocks now will be ahead by 2030 and beyond. i just need to force myself to do it now.
It seems like you are thinking that the world of 2030 will be as favorable for corporations as it was before the crash. I'm not so sure; if I had to guess, I would say that "shareholder value" will be one of the many fatalities of this profound social and economic crisis.

Nowizard
Posts: 2812
Joined: Tue Oct 23, 2007 5:33 pm

Re: Why don't all investors go 100% stocks

Post by Nowizard » Fri Apr 03, 2020 8:13 am

Many who post here could at least consider your suggestion but most Americans don't have the ability to even consider doing so and are living day-to-day. The post reflects a frequent circumstance of those of us facing a first world question but does not apply to lots of others, including many who post here.

Tim

User avatar
JoMoney
Posts: 9331
Joined: Tue Jul 23, 2013 5:31 am

Re: Why don't all investors go 100% stocks

Post by JoMoney » Fri Apr 03, 2020 8:13 am

The interesting thing about "100% stock" threads in times like now, is I don't see anybody jumping in to say it obviously signals the market peak. ;)
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Longdog
Posts: 1474
Joined: Sun Feb 09, 2014 6:56 pm
Location: Philadelphia

Re: Why don't all investors go 100% stocks

Post by Longdog » Fri Apr 03, 2020 8:18 am

Because eventually you (or someone connected to you) will actually need to use the value of your investments in some material, beneficial way, which will require you to cash some in to meet your needs. As you approach that day, you’re less able to take the risks associated with the day to day or year to year swings of the market.
Steve

Presintense
Posts: 375
Joined: Thu Nov 06, 2014 1:58 pm
Location: "Somewhere in the middle of America"

Re: Why don't all investors go 100% stocks

Post by Presintense » Fri Apr 03, 2020 8:20 am

tvubpwcisla wrote:
Fri Apr 03, 2020 6:32 am
When the markets correct, you will have larger paper losses; however, in times of prosperity you will have larger gains. Seems to balance out and also provides the investor with the largest returns in the long term.

Why not just stay 100% equities and stop watching the market?

Why choose products that offer lower returns?

Is it simply the emotions of seeing large up and down swings to account balances?
There is a “real” component to risk that goes beyond paper. It has to do with the fact that most people will enter a period of life where they have to live off of the value of their shares. If people never had to sell any of those shares, I would agree that the reason for not holding 100% stocks would be on paper and strictly emotional.
Performance = Potential - Distraction

User avatar
Sandtrap
Posts: 10963
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Why don't all investors go 100% stocks

Post by Sandtrap » Fri Apr 03, 2020 8:32 am

tvubpwcisla wrote:
Fri Apr 03, 2020 6:32 am
When the markets correct, you will have larger paper losses; however, in times of prosperity you will have larger gains. Seems to balance out and also provides the investor with the largest returns in the long term.
1
Why not just stay 100% equities and stop watching the market?
2
Why choose products that offer lower returns?
3
Is it simply the emotions of seeing large up and down swings to account balances?
1
Yes. "If" you have secure income, cash reserves, and "staying power" (decades).
No. "If" you have more to lose than to gain by doing so.
2
How do you know which products will offer lower vs higher returns going forward?
3
Yes.
Emotions = behavioral/reactive investing.

j :happy
Wiki Bogleheads Wiki: Everything You Need to Know

User avatar
scorcher31
Posts: 240
Joined: Sun Mar 06, 2016 11:13 pm

Re: Why don't all investors go 100% stocks

Post by scorcher31 » Fri Apr 03, 2020 8:35 am

For what it's worth we are close to 100% stocks albeit young and have no problem with it. I think if you have a high income, no debt, and almost guaranteed job security there is minimal harm in this approach. I think this could be carried into retirement as well, although I may personally pull back in my mid 50's if the market isin't in a major crash. The plan has to be to drastically overshoot retirement needs to the point a drop is inconsequential in retirement when you take out a small percent out. For example our longtime goal is to hit 10 mil (not counting social security) and retire but only take out 100-200k per year (including social security).
Last edited by scorcher31 on Fri Apr 03, 2020 8:40 am, edited 1 time in total.

User avatar
nisiprius
Advisory Board
Posts: 41024
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Why don't all investors go 100% stocks

Post by nisiprius » Fri Apr 03, 2020 8:38 am

Because some of us have assessed our own risk tolerance and know that 100% stocks is not for us.

Unfortunately, people who misjudge their risk tolerance and panic-sell during market dips really don't like to talk about it--it's like people who get swindled in scams. Therefore it's really hard to get even anecdotal evidence about what happens. Within my personal circle of acquaintances I know two people who sold in late 2008. One was a work colleague; I believe he was at 100% stocks and didn't know it, but it was loose conversation and I didn't inspect his portfolio. I know he said "I can't hack the volatility, I put everything into the money market." When I asked if he had had everything in stocks, he said "Oh, no, certainly not, a lot of it was international." Since the only "international" fund in the plan was the Fidelity Diversified International Fund, I assume that's what he meant, and it is, of course, stocks. One was the wife of a friend, and I want them both to remain friends so have not cross-examined her on this, and I know that she was holding the Wellington Fund so she wasn't even at 100% stocks. All I know about the situation is that she was working with an advisor.

I've read accounts by two financial professionals who sold during the downturn. One was Daniel R. Solin, professional money manager and book author, who acknowledged "panic-selling" during 2008-2009 and acknowledged that he was doing it himself at the same time as he was advising other people not to. I can't, alas, find his account on the Internet currently. Another was Cass Sunstein, behavioral economist and co-author, with Richard Thaler, of Nudge, a book about how public policy should be informed by behavioral economics. He sold during the 20% correction in 2011, despite talking to Richard Thaler first and despite Thaler telling him "reread our book!" Sunstein says "In a single day, I hit the trifecta, committing at least three classic behavioral mistakes."

What this shows that knowing about behavioral mistakes does not give you much protection against making them.

The other thing is that I am personally convinced that the very phrase "100% stocks" contains an emotional component. It is a continuum. Due to the cost of leveraging, there is a corner at 100% but it's not very big. There is no reason at all why 100% should be any kind of optimum. It cannot possibly matter much whether you are at 90% stocks or 100% stocks. And if you believe that there is some kind of emotionless objective optimum, then depending how you determine it, it is probably not at 100%, it is almost certainly higher than that.

Even without leverage, if you do not believe there is such a thing as risk tolerance--or that you can become more risk tolerant simply by making a New Year's resolution to be--you could probably increase your expected return (not risk-adjusted return necessarily, but return) by going to 100% small-cap value stocks. Yet posters rarely ask "Why not 100% small-cap value stocks?" It is always just "100% stocks."

My belief is that because "100% stocks" carries a false resonance of phrases like "100% effort" and "100% commitment"--as if stocks were jealous lovers who would resent your fooling around with other asset classes, and will reward you for being true to them.
Last edited by nisiprius on Fri Apr 03, 2020 8:42 am, edited 2 times in total.
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.

larsm
Posts: 81
Joined: Thu Sep 23, 2010 8:04 pm

Re: Why don't all investors go 100% stocks

Post by larsm » Fri Apr 03, 2020 8:41 am

Never, ever forget there is ALWAYS someone on the other side of your stock trade that thinks selling is a wise decision. The exact opposite of what you are thinking.

User avatar
nisiprius
Advisory Board
Posts: 41024
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Why don't all investors go 100% stocks

Post by nisiprius » Fri Apr 03, 2020 8:44 am

scorcher31 wrote:
Fri Apr 03, 2020 8:35 am
For what it's worth we are close to 100% stocks albeit young and have no problem with it. I think if you have a high income, no debt, and almost guaranteed job security there is minimal harm in this approach.
Do you think that you, personally, have "almost guaranteed job security?" Or that you have "almost guaranteed job security in normal times?"

Do you have an employment contract, and, if so, for how many years?
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.

User avatar
scorcher31
Posts: 240
Joined: Sun Mar 06, 2016 11:13 pm

Re: Why don't all investors go 100% stocks

Post by scorcher31 » Fri Apr 03, 2020 8:51 am

nisiprius wrote:
Fri Apr 03, 2020 8:44 am
scorcher31 wrote:
Fri Apr 03, 2020 8:35 am
For what it's worth we are close to 100% stocks albeit young and have no problem with it. I think if you have a high income, no debt, and almost guaranteed job security there is minimal harm in this approach.
Do you think that you, personally, have "almost guaranteed job security?" Or that you have "almost guaranteed job security in normal times?"

Do you have an employment contract, and, if so, for how many years?
There is an excellent job market for salaried hospital physicians at the moment and I don't think that's changing anytime soon. I also don't work in a specialty that will have reduced elective work in these times. The same goes for nurses, mid levels, etc. There are a lot of drawbacks in healthcare, but we have almost guaranteed job security short of disability which is what insurance is for. It's super easy in most of healthcare to get another job within weeks if need be. I will admit though for those non salaried physicians who own their practice or those who rely on RVUs this could be a tougher time.

My spouse's job is not "guaranteed" but likely essential in any kind of crisis so also fairly secure. We can still live well on either of our salaries if one of us lost our jobs. Ultimately it's a personal decision, but that's why for us, our high stock allocation is comfortable.

tibbitts
Posts: 10545
Joined: Tue Feb 27, 2007 6:50 pm

Re: Why don't all investors go 100% stocks

Post by tibbitts » Fri Apr 03, 2020 9:28 am

tvubpwcisla wrote:
Fri Apr 03, 2020 6:32 am
When the markets correct, you will have larger paper losses; however, in times of prosperity you will have larger gains. Seems to balance out and also provides the investor with the largest returns in the long term.

Why not just stay 100% equities and stop watching the market?

Why choose products that offer lower returns?

Is it simply the emotions of seeing large up and down swings to account balances?
Why don't all investors go 100% stocks? Probably because they read the thread adjacent to yours about bonds outperforming stocks for the last 20+ years. And many of us have reasonable odds of not be around for another 20+ years.

Chip Shot
Posts: 91
Joined: Tue Apr 30, 2019 5:42 am

Re: Why don't all investors go 100% stocks

Post by Chip Shot » Fri Apr 03, 2020 9:33 am

All investors? You are kidding right?
Now, if you said all investors under age 35 with secure jobs, I would tend to agree with you.

KyleAAA
Posts: 8320
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: Why don't all investors go 100% stocks

Post by KyleAAA » Fri Apr 03, 2020 9:35 am

How can you be sure you'll see higher returns? Equities are risky.

BW1985
Posts: 2046
Joined: Tue Mar 23, 2010 6:12 pm

Re: Why don't all investors go 100% stocks

Post by BW1985 » Fri Apr 03, 2020 9:37 am

nisiprius wrote:
Fri Apr 03, 2020 8:38 am
Because some of us have assessed our own risk tolerance and know that 100% stocks is not for us.

Unfortunately, people who misjudge their risk tolerance and panic-sell during market dips really don't like to talk about it--it's like people who get swindled in scams. Therefore it's really hard to get even anecdotal evidence about what happens. Within my personal circle of acquaintances I know two people who sold in late 2008. One was a work colleague; I believe he was at 100% stocks and didn't know it, but it was loose conversation and I didn't inspect his portfolio. I know he said "I can't hack the volatility, I put everything into the money market." When I asked if he had had everything in stocks, he said "Oh, no, certainly not, a lot of it was international." Since the only "international" fund in the plan was the Fidelity Diversified International Fund, I assume that's what he meant, and it is, of course, stocks. One was the wife of a friend, and I want them both to remain friends so have not cross-examined her on this, and I know that she was holding the Wellington Fund so she wasn't even at 100% stocks. All I know about the situation is that she was working with an advisor.

I've read accounts by two financial professionals who sold during the downturn. One was Daniel R. Solin, professional money manager and book author, who acknowledged "panic-selling" during 2008-2009 and acknowledged that he was doing it himself at the same time as he was advising other people not to. I can't, alas, find his account on the Internet currently. Another was Cass Sunstein, behavioral economist and co-author, with Richard Thaler, of Nudge, a book about how public policy should be informed by behavioral economics. He sold during the 20% correction in 2011, despite talking to Richard Thaler first and despite Thaler telling him "reread our book!" Sunstein says "In a single day, I hit the trifecta, committing at least three classic behavioral mistakes."

What this shows that knowing about behavioral mistakes does not give you much protection against making them.

The other thing is that I am personally convinced that the very phrase "100% stocks" contains an emotional component. It is a continuum. Due to the cost of leveraging, there is a corner at 100% but it's not very big. There is no reason at all why 100% should be any kind of optimum. It cannot possibly matter much whether you are at 90% stocks or 100% stocks. And if you believe that there is some kind of emotionless objective optimum, then depending how you determine it, it is probably not at 100%, it is almost certainly higher than that.

Even without leverage, if you do not believe there is such a thing as risk tolerance--or that you can become more risk tolerant simply by making a New Year's resolution to be--you could probably increase your expected return (not risk-adjusted return necessarily, but return) by going to 100% small-cap value stocks. Yet posters rarely ask "Why not 100% small-cap value stocks?" It is always just "100% stocks."

My belief is that because "100% stocks" carries a false resonance of phrases like "100% effort" and "100% commitment"--as if stocks were jealous lovers who would resent your fooling around with other asset classes, and will reward you for being true to them.
I love this post. Thank you. :beer
Chase the good life my whole life long, look back on my life and my life gone...where did I go wrong?

User avatar
scorcher31
Posts: 240
Joined: Sun Mar 06, 2016 11:13 pm

Re: Why don't all investors go 100% stocks

Post by scorcher31 » Fri Apr 03, 2020 9:39 am

Chip Shot wrote:
Fri Apr 03, 2020 9:33 am
All investors? You are kidding right?
Now, if you said all investors under age 35 with secure jobs, I would tend to agree with you.
Totally agree! I just realized in my earlier post I tried to justify it could be appropriate for some people, but I agree with Chip Shot. It's probably not appropriate for most let alone all

international001
Posts: 1470
Joined: Thu Feb 15, 2018 7:31 pm

Re: Why don't all investors go 100% stocks

Post by international001 » Fri Apr 03, 2020 9:54 am

Valuethinker wrote:
Fri Apr 03, 2020 6:56 am
tvubpwcisla wrote:
Fri Apr 03, 2020 6:32 am
When the markets correct, you will have larger paper losses; however, in times of prosperity you will have larger gains. Seems to balance out and also provides the investor with the largest returns in the long term.

Why not just stay 100% equities and stop watching the market?

Why choose products that offer lower returns?

Is it simply the emotions of seeing large up and down swings to account balances?
1. you are ignoring the benefits of diversification. US Treasury bonds v S&P 500 for example, UST have near zero correlation with S&P 500. Thus you can craft a more efficient portfolio on a risk-return basis by adding the second asset (UST).

In practice the historic data shows you shed a lot more volatility than you do return by moving onto a more efficient frontier. It's quite striking how little return you give up for an increase in bond weighting to 20%/ 80% equities. In fact that tradeoff occurs until roughly 40% B/ 60% E.

One caveat is that the last 30 years have been a bull market for bonds. So future returns from that asset class are likely to be lower. But that is also true of equities.

2. If you ever think you will need to spend your portfolio, you need to think about bonds

I went through the 2000 and 2008-09 bear markets with nearly 100% in equities. I just shut my computer off and stopped looking at my portfolios (including my employer stock, I was down c 90% in 2000-03).

I am not so fearless any more. In my late 50s, retirement is not just some abstract issue. Had I been 100% equities, the loss of 30% of that portfolio in the last 6 weeks or so would have changed by financial plans. As it is, I can shrug and move on.

Those of us who were invested in October 1987 can remember the shock that c 32% of the portfolio value can disappear in a single day (I think that is what the FTSE 100 dropped, that day). We have seen a number of double-digit percentage moves in a single day or week, since.

3. 100% stocks is a strategy where you have large amounts of future labour income (years in your career) and that labour income (job) is not correlated with the economy. Unfortunately in 2000 my job and the stock market were very highly correlated. Investments I made then have either underperformed (the FTSE 100 is below its 2000 high, although you have had the benefit of 3.5% or so dividend yield every year, on average) or been wiped out (some private company investments).

In 2020 I have a lot less labour income left. My job still has economic correlation - I could lose it (although redeployment is more likely, if I accept it). My investment policy is accordingly more conservative.

Looking back on my investing career (really began about 1980 although I had an interest in shares before then) I think the Ben Graham dictum that the wise investor is never less than 20% in bonds, and never more than 80% in bonds, is a good one.
My point here:
viewtopic.php?f=10&t=310431

Stocks only is a 20+ years bet.

Dottie57
Posts: 8650
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Why don't all investors go 100% stocks

Post by Dottie57 » Fri Apr 03, 2020 9:57 am

livesoft wrote:
Fri Apr 03, 2020 6:51 am
You didn't watch Ben Carlson's video interviewing Dr. William Bernstein that was linked yesterday, did you? :)
Your title question is very explicitly answered.
Bingo.


As a retiree I need a more stable portfolio to draw from. So many more $ in bonds.

User avatar
Clever_Username
Posts: 1638
Joined: Sun Jul 15, 2012 12:24 am
Location: Southern California

Re: Why don't all investors go 100% stocks

Post by Clever_Username » Fri Apr 03, 2020 10:07 am

Because we don't all know our risk tolerances. I got my first 401(k) at a summer job in 2008 and had barely any invested and didn't even really know how to check my balance. In 2012 I got a bit more serious about investing (I read a book or two in the interim), joined this site, and set up a portfolio. I had yet to turn 30.

I went with age in bonds. The fact of the matter is it might have been too conservative an asset allocation for me. I kept with it and decided, up front, that until my first "real" downturn, one in which I had investments and knew the previous balance and so on, I would not deviate from age in bonds. I wrote an IPS (I've since found a flaw in it, as it doesn't account for every situation, one of which I came up against recently) that had that rule in it. I notice now I didn't describe what a real downturn is, or when it's over, but for the first question, I think what's going on now will qualify.

I haven't lost sleep over my portfolio losses the past month or so, so the "err on the side of conservative" served its purpose. A weird artifact of the taxable/tax-advantaged split caused me to be unable to rebalance fully, although I have enough new contributions hitting that I'll be back towards my age in bonds soon (I'm currently over-weight in bonds due to lack of re-balancing).

At some point, and I don't know when that will be, I will reconsider what portion I dedicate to bonds.

But there's another factor: need and ability to take risk. I don't know if I have the ability to take risk, but I've been okay, sleep-wise, with my current allocation.

But I know I don't have the need to take risk. I'm not even 40 years old yet, so I have many years in which I'll be accumulating wealth. But even if I stop contributing and just tread water, financially (not withdrawing from the account, but also not contributing) until the year I turn 59, and if my existing portfolio grows at 3.5% real between now and then, then I'll have a great deal more than 25x my expected annual expenses in retirement. So I'm not even sure I'll adjust from age in bonds, since I know I am surviving however much of the downturn so far.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

panhead
Posts: 448
Joined: Fri Feb 22, 2013 10:53 am

Re: Why don't all investors go 100% stocks

Post by panhead » Fri Apr 03, 2020 1:17 pm

nisiprius wrote:
Fri Apr 03, 2020 8:38 am
My belief is that because "100% stocks" carries a false resonance of phrases like "100% effort" and "100% commitment"--as if stocks were jealous lovers who would resent your fooling around with other asset classes, and will reward you for being true to them.
The whole post was very well written, but you just can't beat the summary!
Thanks!

Lee_WSP
Posts: 2624
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Why don't all investors go 100% stocks

Post by Lee_WSP » Fri Apr 03, 2020 1:27 pm

What Nispurius said. Panic selling is real.

The other main issue with 100% stocks is sequence of returns risk. It is also real, and also deadly to retirement plans.

flaccidsteele
Posts: 425
Joined: Sun Jul 28, 2019 9:42 pm
Location: Canada

Re: Why don't all investors go 100% stocks

Post by flaccidsteele » Fri Apr 03, 2020 1:53 pm

tvubpwcisla wrote:
Fri Apr 03, 2020 6:32 am
When the markets correct, you will have larger paper losses; however, in times of prosperity you will have larger gains. Seems to balance out and also provides the investor with the largest returns in the long term.

Why not just stay 100% equities and stop watching the market?

Why choose products that offer lower returns?
Because in 2009 I wasn’t sure if equities or real estate was the better investment. They were close. Rentals were essentially free

What I did know was that rentals provided more monthly cash flow than equities

So I bought rentals

That was the only time I diverted capital away from equities

Both equity and rentals worked out well since then
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat

User avatar
watchnerd
Posts: 5981
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Why don't all investors go 100% stocks

Post by watchnerd » Fri Apr 03, 2020 2:13 pm

tvubpwcisla wrote:
Fri Apr 03, 2020 6:32 am
When the markets correct, you will have larger paper losses; however, in times of prosperity you will have larger gains. Seems to balance out and also provides the investor with the largest returns in the long term.

Why not just stay 100% equities and stop watching the market?

Why choose products that offer lower returns?

Is it simply the emotions of seeing large up and down swings to account balances?

While it may be a good probability that stocks will have superior returns to other assets going forward, it is not guaranteed.

Stocks are risky. They might not win.

If stocks weren't riskier, they wouldn't give excess returns.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

User avatar
watchnerd
Posts: 5981
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Why don't all investors go 100% stocks

Post by watchnerd » Fri Apr 03, 2020 2:19 pm

firebirdparts wrote:
Fri Apr 03, 2020 7:40 am


I gotta tell you, I don't even know what that is. It seems like you have to become rich before you can have anything you "can't afford" to lose. What I mean is, if you're rich, and you lose everything, you become normal. That is the ultimate consequence, normalcy.

I'm totally lost.
Most HNWI that I know don't have all, or most, of their net worth just in stocks.

We might have 70% of liquid portfolio in stocks, but it's only 35% of our net worth.

We could have 100% loss in our stock portfolio, losing 35% of our net worth, and still be financially independent.
Last edited by watchnerd on Fri Apr 03, 2020 2:53 pm, edited 1 time in total.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

User avatar
Toons
Posts: 13630
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: Why don't all investors go 100% stocks

Post by Toons » Fri Apr 03, 2020 2:52 pm

Why?
The Inability to hang on for the rollercoaster ride,
when the market heads into a bear market,
Capitulation
Throw in the towel,
Lock in the Losses
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

mrwalken
Posts: 175
Joined: Sat Oct 08, 2011 5:51 pm

Re: Why don't all investors go 100% stocks

Post by mrwalken » Fri Apr 03, 2020 3:04 pm

Because I fully believe at some point, "this time is different" will actually be true.

MotoTrojan
Posts: 9926
Joined: Wed Feb 01, 2017 8:39 pm

Re: Why don't all investors go 100% stocks

Post by MotoTrojan » Fri Apr 03, 2020 3:08 pm

Because if they all sold their bonds and went into equities, bond yields would shoot through the roof and people would post about why doesn't everyone go 100% bonds.

It’s a balance.

User avatar
watchnerd
Posts: 5981
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Why don't all investors go 100% stocks

Post by watchnerd » Fri Apr 03, 2020 3:13 pm

MotoTrojan wrote:
Fri Apr 03, 2020 3:08 pm
Because if they all sold their bonds and went into equities, bond yields would shoot through the roof and people would post about why doesn't everyone go 100% bonds.

It’s a balance.
Ha, so true.

The inverse is happening to me with long Treasuries. Late to the party performance chasers driving my yields down and driving up my reinvestment costs.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

vipertom1970
Posts: 770
Joined: Fri Jun 21, 2019 7:06 pm

Re: Why don't all investors go 100% stocks

Post by vipertom1970 » Fri Apr 03, 2020 3:19 pm

why ? because most here drank the bond in age Kool-Aid.

MotoTrojan
Posts: 9926
Joined: Wed Feb 01, 2017 8:39 pm

Re: Why don't all investors go 100% stocks

Post by MotoTrojan » Fri Apr 03, 2020 3:22 pm

watchnerd wrote:
Fri Apr 03, 2020 3:13 pm
MotoTrojan wrote:
Fri Apr 03, 2020 3:08 pm
Because if they all sold their bonds and went into equities, bond yields would shoot through the roof and people would post about why doesn't everyone go 100% bonds.

It’s a balance.
Ha, so true.

The inverse is happening to me with long Treasuries. Late to the party performance chasers driving my yields down and driving up my reinvestment costs.
I would be struggling to resist the urge not to step down a rung on the duration-ladder (EDV -> TLT, TLT -> IEF).

User avatar
AnalogKid22
Posts: 381
Joined: Wed May 18, 2016 8:26 pm
Location: Babylon, but I'd love to spend a night in Zion

Re: Why don't all investors go 100% stocks

Post by AnalogKid22 » Fri Apr 03, 2020 3:28 pm

I see, so, nothing else could possibly go wrong? Job loss, another illness, terrorist attack, natural disaster, and on, and on. Life goes on and so do all the wonderful and terrible things that we can't foresee.
Last edited by AnalogKid22 on Fri Apr 03, 2020 3:32 pm, edited 2 times in total.

User avatar
watchnerd
Posts: 5981
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Why don't all investors go 100% stocks

Post by watchnerd » Fri Apr 03, 2020 3:30 pm

MotoTrojan wrote:
Fri Apr 03, 2020 3:22 pm


I would be struggling to resist the urge not to step down a rung on the duration-ladder (EDV -> TLT, TLT -> IEF).
Well, I already have a barbell with short TIPS several rungs down.

All new fixed income allocation funds are going there.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

rbaldini
Posts: 1436
Joined: Mon Mar 23, 2015 3:20 pm

Re: Why don't all investors go 100% stocks

Post by rbaldini » Fri Apr 03, 2020 3:32 pm

Higher volatility matters if you need the money relatively soon. Like, next 10 years.

palanzo
Posts: 780
Joined: Thu Oct 10, 2019 4:28 pm

Re: Why don't all investors go 100% stocks

Post by palanzo » Fri Apr 03, 2020 3:48 pm

Valuethinker wrote:
Fri Apr 03, 2020 6:56 am
tvubpwcisla wrote:
Fri Apr 03, 2020 6:32 am
When the markets correct, you will have larger paper losses; however, in times of prosperity you will have larger gains. Seems to balance out and also provides the investor with the largest returns in the long term.

Why not just stay 100% equities and stop watching the market?

Why choose products that offer lower returns?

Is it simply the emotions of seeing large up and down swings to account balances?
1. you are ignoring the benefits of diversification. US Treasury bonds v S&P 500 for example, UST have near zero correlation with S&P 500. Thus you can craft a more efficient portfolio on a risk-return basis by adding the second asset (UST).

In practice the historic data shows you shed a lot more volatility than you do return by moving onto a more efficient frontier. It's quite striking how little return you give up for an increase in bond weighting to 20%/ 80% equities. In fact that tradeoff occurs until roughly 40% B/ 60% E.

One caveat is that the last 30 years have been a bull market for bonds. So future returns from that asset class are likely to be lower. But that is also true of equities.

2. If you ever think you will need to spend your portfolio, you need to think about bonds

I went through the 2000 and 2008-09 bear markets with nearly 100% in equities. I just shut my computer off and stopped looking at my portfolios (including my employer stock, I was down c 90% in 2000-03).

I am not so fearless any more. In my late 50s, retirement is not just some abstract issue. Had I been 100% equities, the loss of 30% of that portfolio in the last 6 weeks or so would have changed by financial plans. As it is, I can shrug and move on.

Those of us who were invested in October 1987 can remember the shock that c 32% of the portfolio value can disappear in a single day (I think that is what the FTSE 100 dropped, that day). We have seen a number of double-digit percentage moves in a single day or week, since.

3. 100% stocks is a strategy where you have large amounts of future labour income (years in your career) and that labour income (job) is not correlated with the economy. Unfortunately in 2000 my job and the stock market were very highly correlated. Investments I made then have either underperformed (the FTSE 100 is below its 2000 high, although you have had the benefit of 3.5% or so dividend yield every year, on average) or been wiped out (some private company investments).

In 2020 I have a lot less labour income left. My job still has economic correlation - I could lose it (although redeployment is more likely, if I accept it). My investment policy is accordingly more conservative.

Looking back on my investing career (really began about 1980 although I had an interest in shares before then) I think the Ben Graham dictum that the wise investor is never less than 20% in bonds, and never more than 80% in bonds, is a good one.
This is a really good description of one's investing time line. At what stock::bond ratio have you settled at now?

Trader Joe
Posts: 1784
Joined: Fri Apr 25, 2014 6:38 pm

Re: Why don't all investors go 100% stocks

Post by Trader Joe » Fri Apr 03, 2020 3:53 pm

tvubpwcisla wrote:
Fri Apr 03, 2020 6:32 am
When the markets correct, you will have larger paper losses; however, in times of prosperity you will have larger gains. Seems to balance out and also provides the investor with the largest returns in the long term.

Why not just stay 100% equities and stop watching the market?

Why choose products that offer lower returns?

Is it simply the emotions of seeing large up and down swings to account balances?
Excellent question. I absolutely 100% agree with you. I can tell you that I am 100% U.S. equities (VTSAX/VFIAX) That will never, ever change.

My results speak for themselves.

Dudley
Posts: 166
Joined: Tue May 09, 2017 5:34 am

Re: Why don't all investors go 100% stocks

Post by Dudley » Fri Apr 03, 2020 3:55 pm

Ask the Japanese.

MotoTrojan
Posts: 9926
Joined: Wed Feb 01, 2017 8:39 pm

Re: Why don't all investors go 100% stocks

Post by MotoTrojan » Fri Apr 03, 2020 4:00 pm

Dudley wrote:
Fri Apr 03, 2020 3:55 pm
Ask the Japanese.
The thread wasn't why don't investors go 100% US stocks.

Triple digit golfer
Posts: 5276
Joined: Mon May 18, 2009 5:57 pm

Re: Why don't all investors go 100% stocks

Post by Triple digit golfer » Fri Apr 03, 2020 4:07 pm

There is a huge difference between 100% stocks and "100% stocks + X years in cash that I don't count in my AA"

I can't fathom any reason why anybody would not hold ANY cash or fixed income at all in their net worth.

I am okay with 100% stocks and a year in an emergency fund. I prefer 2 years because we're a one-income house with a child to feed and a mortgage to pay and my job is not secure (typical corporate accounting).

Even a 30 year-old with a government job and a pension should have SOME cash, right?

Post Reply