7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

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Rowan Oak
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7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by Rowan Oak »

I'm not sure if the prevalence of “Why bonds?” and “Should I use a 100% stock portfolio?” threads on internet forums is inversely correlated with future stock market returns, but it wouldn't surprise me. I do know that I didn't see very many of them in late 2008. I'm seeing a ton of them now, so it is probably time to readdress the topic.

I fully understand the desire to use a 100% stock portfolio. Once somebody looks at past behavior of the stock market and understands the general rule between risk and return, it seems obvious to question why they might want to put 10%, 25%, 40% or more of their portfolio into those pesky low-returning bonds. I mean, look at the data:
https://www.whitecoatinvestor.com/100-stock-portfolio/
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by JoMoney »

There are many different perspectives and different risk profiles out there.
People that say there 100% stocks probably aren't, but are somewhere between 90%-110% stocks depending on their cash savings/emergency funds and/or use of credit.
If they otherwise have stable income, surplus money allowing them to save, and a high risk-tolerance, they might be better off just plugging away at putting all their additional savings into long-term investments and ignoring the portfolio allocation/rebalancing (or worse.. active trading) hoopla
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by flaccidsteele »

I wanted to go 100% US equities in 2008 but then the US real estate market fell, so I had to make a decision to take advantage of the bigger disaster
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by azanon »

How does a list like that not include at least 1 of the 7 saying something about, because it's not diversified, it doesn't adhere to Modern Portfolio Theory, or something along those lines?
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by roth evangelist »

IMO the only good reason to not go 100% in stocks is it's easier to stay the course with some bonds. But even then, if you're younger than say, 40, and you have to add bonds just to keep from selling, I think it's unfortunate that behavioral issues are hindering your portfolio growth.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by l1am »

roth evangelist wrote: Fri Oct 23, 2020 9:37 am IMO the only good reason to not go 100% in stocks is it's easier to stay the course with some bonds. But even then, if you're younger than say, 40, and you have to add bonds just to keep from selling, I think it's unfortunate that behavioral issues are hindering your portfolio growth.
Psychological I assume you mean. You're right, I'm in my 30's and sleep better at night with ~20% bonds.

Should I be 100% stocks to maximize returns, probably?
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by Broken Man 1999 »

l1am wrote: Fri Oct 23, 2020 10:22 am
roth evangelist wrote: Fri Oct 23, 2020 9:37 am IMO the only good reason to not go 100% in stocks is it's easier to stay the course with some bonds. But even then, if you're younger than say, 40, and you have to add bonds just to keep from selling, I think it's unfortunate that behavioral issues are hindering your portfolio growth.
Psychological I assume you mean. You're right, I'm in my 30's and sleep better at night with ~20% bonds.

Should I be 100% stocks to maximize returns, probably?
Not if 100% stocks causes stress! Stress might result in you changing your AA at an inopportune time.

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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by willthrill81 »

There's nothing particularly special about 100% stock vs. 80/20, 60/40, etc. It's mostly a question of volatility and drawdowns. Some can tolerate the swings of 100% stock, and some cannot. Some can tolerate the swings of 60/40, and some cannot. 100/0 isn't inherently 'dangerous'. The real danger lies in investors' behavior.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by Rowan Oak »

# 4 Easier to Stay the Course
I think it is a big mistake for a new investor who has read a book or two on investing to assume they will be able to tolerate a stock-heavy portfolio in a bear market. When setting up a portfolio in “normal times” lots of stocks make logical sense. But staying the course in a bear market is not a logical experience. It is a profoundly emotional one. Watching money that used to be yours disappear is psychologically painful. That money represents the kitchen upgrade you didn't do, the Tesla you didn't buy, the vacation you didn't take, and the piano lessons you didn't give to your child. Investing more as the market drops day by day and the talking heads on TV are screaming “This is the end” feels like shoving hundred dollar bills down a rat hole. Ignore the critical behavioral aspect of investing at your peril.

Having SOMETHING invested in bonds at those times not only reduces the volatility of your portfolio but also gives you the psychological reassurance that “At least I didn't put it all in the market.” In fact, your bonds (at least the high-quality ones) are likely RISING in value at that time, providing you reassurance that something you own is actually increasing in value and moderating the volatility of the entire portfolio. You get to say to yourself, “Now I've got some dry powder I can put to work so I can buy stocks while there is blood in the streets,” even if deep down you know that is just a psychological crux and you really don't want to hold “dry powder.”

All of that helps you to stay the course, which is the most critical aspect of investing. You are far better off holding a 60/40 portfolio for decades than a 100% stock portfolio that you sell low just once during your investing career. Avoiding the investment catastrophe of selling low is the most important aspect of portfolio construction. Far better to underestimate your risk tolerance than overestimate it.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by absolute zero »

If your 100% stock allocation feels a bit aggressive and you start feeling nervous, go read about the people on other threads implementing leveraged portfolios. Play around in portfolio visualizer with leveraged ETF’s and study them for a little while. And then when you look back at your own holdings, you’ll say “oh thank goodness I have a nice conservative 100% stock portfolio.”

It’s all relative. :happy
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by l1am »

Broken Man 1999 wrote: Fri Oct 23, 2020 10:28 am
l1am wrote: Fri Oct 23, 2020 10:22 am
roth evangelist wrote: Fri Oct 23, 2020 9:37 am IMO the only good reason to not go 100% in stocks is it's easier to stay the course with some bonds. But even then, if you're younger than say, 40, and you have to add bonds just to keep from selling, I think it's unfortunate that behavioral issues are hindering your portfolio growth.
Psychological I assume you mean. You're right, I'm in my 30's and sleep better at night with ~20% bonds.

Should I be 100% stocks to maximize returns, probably?
Not if 100% stocks causes stress! Stress might result in you changing your AA at an inopportune time.

Broken Man 1999
I wouldn't change from a committed AA during drawdown.

However, the equation is the cost of the psychological distress, which is real. Even with 80/20 though, I know I'd experience some if the market dropped 40% over a year.

Risk of psychological distress vs. risk of lost returns. I'm probably going to shift closer to age-10 in bonds.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by HootingSloth »

I think one good reason not to go 100% stocks, even at a relatively early age, is uncertainty about the medium-term (i.e. 2-10 years) outlook for income and expenses. The degree of uncertainty will vary from family to family, of course.

I think most people are on board with having some kind of emergency fund (at least until your portfolio is large enough). But seeing the emergency fund as separate from your portfolio is just mental accounting. So, first, it seems wise to hold enough cash to deal with short-term emergencies. Then, to invest enough in stocks to make it likely you will meet your long-term goals. Once you have enough invested in the stock market that you will likely meet your long-term goals, it makes sense to invest in bonds to hedge against medium-term risks, even if you may still be decades away from retirement.

All of these considerations are very particular to a family's circumstances. In our case, we have chosen a glide path based on the size of our portfolio, rather than age, to help assess the relative benefits of focusing on long-term rewards and medium-term risks.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by warowits »

One wonders what the advice will be when instead of living through decades of falling rates, our advice givers live through decades of near zero rates, or possibly even steadily increasing rates.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by willthrill81 »

warowits wrote: Fri Oct 23, 2020 10:59 am One wonders what the advice will be when instead of living through decades of falling rates, our advice givers live through decades of near zero rates, or possibly even steadily increasing rates.
Indeed. Look at what happened when intermediate-term Treasuries lost -1.6% annualized from 1941-1981. I doubt that bonds had as much appeal as they do for many today.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by geerhardusvos »

willthrill81 wrote: Fri Oct 23, 2020 10:30 am There's nothing particularly special about 100% stock vs. 80/20, 60/40, etc. It's mostly a question of volatility and drawdowns. Some can tolerate the swings of 100% stock, and some cannot. Some can tolerate the swings of 60/40, and some cannot. 100/0 isn't inherently 'dangerous'. The real danger lies in investors' behavior.
Exactly. Staying the course is the important part. It always frustrates me when some criticize 100/0 but recommend 90/10 or 80/20 for young investors. Materially they are the same. If the investor can ignore their portfolio for their entire career (assuming normal career length), there are almost no cases where bonds have helped total returns.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by flaccidsteele »

As a teenager I recognized that the US market always recovers (thanks Bogle and Buffett 👍)

I then recognized that I didn’t need a pre-set asset allocation or to conventionally rebalance (thanks to the same epiphany)

That simplified everything

No problem sleeping at night. Ever

It depends on the investors temperament

Some people are scared of everything - real or imagined
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by flaccidsteele »

geerhardusvos wrote: Fri Oct 23, 2020 11:10 am
willthrill81 wrote: Fri Oct 23, 2020 10:30 am There's nothing particularly special about 100% stock vs. 80/20, 60/40, etc. It's mostly a question of volatility and drawdowns. Some can tolerate the swings of 100% stock, and some cannot. Some can tolerate the swings of 60/40, and some cannot. 100/0 isn't inherently 'dangerous'. The real danger lies in investors' behavior.
Exactly. Staying the course is the important part. It always frustrates me when some criticize 100/0 but recommend 90/10 or 80/20 for young investors. Materially they are the same. If the investor can ignore their portfolio for their entire career (assuming normal career length), there are almost no cases where bonds have helped total returns.
+1 this
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by willthrill81 »

geerhardusvos wrote: Fri Oct 23, 2020 11:10 am
willthrill81 wrote: Fri Oct 23, 2020 10:30 am There's nothing particularly special about 100% stock vs. 80/20, 60/40, etc. It's mostly a question of volatility and drawdowns. Some can tolerate the swings of 100% stock, and some cannot. Some can tolerate the swings of 60/40, and some cannot. 100/0 isn't inherently 'dangerous'. The real danger lies in investors' behavior.
Exactly. Staying the course is the important part. It always frustrates me when some criticize 100/0 but recommend 90/10 or 80/20 for young investors. Materially they are the same. If the investor can ignore their portfolio for their entire career (assuming normal career length), there are almost no cases where bonds have helped total returns.
I don't believe that there's ever been a period longer than about 20 years in U.S. history where holding intermediate-term bonds would have helped total returns, and there have only been a couple of 30 year periods where long-term bonds would have helped. And with current yields on both being negative, there's virtually no long-term upside potential unless the Fed changes its mind and tries to implement negative rates.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by roth evangelist »

I think psychologically speaking, it's worth it to exercise a little willpower and stomach the downturns. It seems lots of advice is basically "Oh, well, since you can't stomach volatility you should add bonds" rather than addressing the issues or by convincing them empirically why they should go more aggressive. I don't know how you can convince those people, and maybe it's easy for me so say being in my late 20s, but seems like that should be the first course of action.

On the other hand, as mentioned above, adding 10 or 20% bonds doesn't meaningfully add enough stability to prevent selling in a downturn. Like, does 20% bonds really guard against losses enough for someone to shrug off a massive stock market crash? I find that hard to believe. A 60/40 portfolio may accomplish that, but at the cost of future returns.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by HootingSloth »

roth evangelist wrote: Fri Oct 23, 2020 11:25 am I think psychologically speaking, it's worth it to exercise a little willpower and stomach the downturns. It seems lots of advice is basically "Oh, well, since you can't stomach volatility you should add bonds" rather than addressing the issues or by convincing them empirically why they should go more aggressive. I don't know how you can convince those people, and maybe it's easy for me so say being in my late 20s, but seems like that should be the first course of action.

On the other hand, as mentioned above, adding 10 or 20% bonds doesn't meaningfully add enough stability to prevent selling in a downturn. Like, does 20% bonds really guard against losses enough for someone to shrug off a massive stock market crash? I find that hard to believe. A 60/40 portfolio may accomplish that, but at the cost of future returns.
I agree that 20% of bonds does not do that much to decrease the risk of a behavioral mistake. But I think this is not the reason to hold the 20%.

To take a more concrete example, for someone with a substantial portfolio with many years to go until retirement, the risk of not having enough to retire may be very slim. Meanwhile the risk of losing a job during a recession and not wanting to have to move or put your children into crummy public schools may be more meaningful. The 20% of bonds does more to address this second kind of risk. Adding more to your eventual pile at the end of decades may be nice, but also may not be that important once you have enough.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by Tipro »

I'm 100% stocks in retirement accounts. At this stage in my life (mid 30s, just 2 years expenses saved for retirement) watching the market tank in March was easy. Back of the napkin here but as a percentage of my retirement goal I only lost 2% in Feb / March. Why would that bother me? At every paycheck I have to choose whether (for investments I plan to withdraw in 30 to 70 years) I want to buy ownership in the worlds largest companies & future earnings, or buy some zero-real yield debt. Eventually a crash will lose me far more than 2% of my retirement goal, I wont be able to stomach it, and I will have less certainty about the relative economic outlook in a shorter time horizon. Not there yet however, so easy choice buy 100% stocks.

For the articles other points, they are less persuasive. I'm tempted by some leveraged strategies but don't understand them well enough yet. Also can't buy on margin in IRA / 401k. 100% small value is not diversified enough; if it loses to VT over an extended period I know myself and will sell low. I can ride out total market. For experienced investors, are they playing the same game I am? Are they talking to an audience of me? Not so sure.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by KlangFool »

Tipro wrote: Fri Oct 23, 2020 11:47 am
I'm 100% stocks in retirement accounts. At this stage in my life (mid 30s, just 2 years expenses saved for retirement) watching the market tank in March was easy.
Tipro,


1) What is the size of your emergency fund?


2) Are you 100% stock at other accounts?


3) Is your employer start laying off people yet?


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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by KlangFool »

roth evangelist wrote: Fri Oct 23, 2020 11:25 am
I think psychologically speaking, it's worth it to exercise a little willpower and stomach the downturns. It seems lots of advice is basically "Oh, well, since you can't stomach volatility you should add bonds" rather than addressing the issues or by convincing them empirically why they should go more aggressive. I don't know how you can convince those people, and maybe it's easy for me so say being in my late 20s, but seems like that should be the first course of action.

roth evangelist,


I lost 50% of my whole life-saving in Telecom Bust. I was 100% stock.


<<it's worth it to exercise a little willpower and stomach the downturns.>>


It is easy to say that until the whole industry crashes and your employer doing 5% to 8% quarterly laid off over 5 years until 80% of the employees are gone.


Can you imagine every quarter, the employer sent you a 60-days notice that your location may be shutdown? This continues for 5 years.


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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by Tipro »

Removed
Last edited by Tipro on Fri Oct 23, 2020 6:58 pm, edited 1 time in total.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by roth evangelist »

KlangFool wrote: Fri Oct 23, 2020 11:57 am
roth evangelist wrote: Fri Oct 23, 2020 11:25 am
I think psychologically speaking, it's worth it to exercise a little willpower and stomach the downturns. It seems lots of advice is basically "Oh, well, since you can't stomach volatility you should add bonds" rather than addressing the issues or by convincing them empirically why they should go more aggressive. I don't know how you can convince those people, and maybe it's easy for me so say being in my late 20s, but seems like that should be the first course of action.

roth evangelist,


I lost 50% of my whole life-saving in Telecom Bust. I was 100% stock.


<<it's worth it to exercise a little willpower and stomach the downturns.>>


It is easy to say that until the whole industry crashes and your employer doing 5% to 8% quarterly laid off over 5 years until 80% of the employees are gone.


Can you imagine every quarter, the employer sent you a 60-days notice that your location may be shutdown? This continues for 5 years.


KlangFool
How old were you at the time? If you were near retirement, it's understandable that you would want to have some bonds. But if you were younger, then did you not stay the course? The thing is, it only matters if you stay the course and you're young. If you have those two things going for you, you'll be fine, even after 2001, even after 2008.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by KlangFool »

roth evangelist wrote: Fri Oct 23, 2020 12:17 pm
KlangFool wrote: Fri Oct 23, 2020 11:57 am
roth evangelist wrote: Fri Oct 23, 2020 11:25 am
I think psychologically speaking, it's worth it to exercise a little willpower and stomach the downturns. It seems lots of advice is basically "Oh, well, since you can't stomach volatility you should add bonds" rather than addressing the issues or by convincing them empirically why they should go more aggressive. I don't know how you can convince those people, and maybe it's easy for me so say being in my late 20s, but seems like that should be the first course of action.

roth evangelist,


I lost 50% of my whole life-saving in Telecom Bust. I was 100% stock.


<<it's worth it to exercise a little willpower and stomach the downturns.>>


It is easy to say that until the whole industry crashes and your employer doing 5% to 8% quarterly laid off over 5 years until 80% of the employees are gone.


Can you imagine every quarter, the employer sent you a 60-days notice that your location may be shutdown? This continues for 5 years.


KlangFool
How old were you at the time? If you were near retirement, it's understandable that you would want to have some bonds. But if you were younger, then did you not stay the course? The thing is, it only matters if you stay the course and you're young. If you have those two things going for you, you'll be fine, even after 2001, even after 2008.

roth evangelist,


<<If you were near retirement,>>


How do you know whether you are near retirement? I know that I cannot predict the future? Many of my peers are forced into early retirement in their 40s and 50s.


<<The thing is, it only matters if you stay the course and you're young.>>

The thing is life happened.


"Man plans, God laughs"

-Yiddish proverb

<<If you have those two things going for you, you'll be fine, even after 2001, even after 2008.>>


Many of my peers did not survive financially.


KlangFool
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by roth evangelist »

KlangFool wrote: Fri Oct 23, 2020 12:24 pm
roth evangelist wrote: Fri Oct 23, 2020 12:17 pm
KlangFool wrote: Fri Oct 23, 2020 11:57 am
roth evangelist wrote: Fri Oct 23, 2020 11:25 am
I think psychologically speaking, it's worth it to exercise a little willpower and stomach the downturns. It seems lots of advice is basically "Oh, well, since you can't stomach volatility you should add bonds" rather than addressing the issues or by convincing them empirically why they should go more aggressive. I don't know how you can convince those people, and maybe it's easy for me so say being in my late 20s, but seems like that should be the first course of action.

roth evangelist,


I lost 50% of my whole life-saving in Telecom Bust. I was 100% stock.


<<it's worth it to exercise a little willpower and stomach the downturns.>>


It is easy to say that until the whole industry crashes and your employer doing 5% to 8% quarterly laid off over 5 years until 80% of the employees are gone.


Can you imagine every quarter, the employer sent you a 60-days notice that your location may be shutdown? This continues for 5 years.


KlangFool
How old were you at the time? If you were near retirement, it's understandable that you would want to have some bonds. But if you were younger, then did you not stay the course? The thing is, it only matters if you stay the course and you're young. If you have those two things going for you, you'll be fine, even after 2001, even after 2008.

roth evangelist,


<<If you were near retirement,>>


How do you know whether you are near retirement? I know that I cannot predict the future? Many of my peers are forced into early retirement in their 40s and 50s.


<<The thing is, it only matters if you stay the course and you're young.>>

The thing is life happened.


"Man plans, God laughs"

-Yiddish proverb

<<If you have those two things going for you, you'll be fine, even after 2001, even after 2008.>>


Many of my peers did not survive financially.


KlangFool

I think forced early retirement sounds very unlikely in your 40s, unless we're talking about a disability. Maybe you get laid off, which is terrible, but it doesn't mean you can't work anymore. 50s, maybe more likely. But that's a good reason to own a more conservative taxable portfolio because it's not advantageous to tap retirement accounts early anyway. An account that is meant for 30+ years off should be invested aggressively in a diversified fund like VTSAX.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by flaccidsteele »

The content would be more interesting if it was “7 reasons to use a 100% stock portfolio” than the conventional/predictable fear/volatility driven stuff
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by absolute zero »

roth evangelist wrote: Fri Oct 23, 2020 12:28 pm
KlangFool wrote: Fri Oct 23, 2020 12:24 pm
roth evangelist wrote: Fri Oct 23, 2020 12:17 pm
KlangFool wrote: Fri Oct 23, 2020 11:57 am
roth evangelist wrote: Fri Oct 23, 2020 11:25 am
I think psychologically speaking, it's worth it to exercise a little willpower and stomach the downturns. It seems lots of advice is basically "Oh, well, since you can't stomach volatility you should add bonds" rather than addressing the issues or by convincing them empirically why they should go more aggressive. I don't know how you can convince those people, and maybe it's easy for me so say being in my late 20s, but seems like that should be the first course of action.

roth evangelist,


I lost 50% of my whole life-saving in Telecom Bust. I was 100% stock.


<<it's worth it to exercise a little willpower and stomach the downturns.>>


It is easy to say that until the whole industry crashes and your employer doing 5% to 8% quarterly laid off over 5 years until 80% of the employees are gone.


Can you imagine every quarter, the employer sent you a 60-days notice that your location may be shutdown? This continues for 5 years.


KlangFool
How old were you at the time? If you were near retirement, it's understandable that you would want to have some bonds. But if you were younger, then did you not stay the course? The thing is, it only matters if you stay the course and you're young. If you have those two things going for you, you'll be fine, even after 2001, even after 2008.

roth evangelist,


<<If you were near retirement,>>


How do you know whether you are near retirement? I know that I cannot predict the future? Many of my peers are forced into early retirement in their 40s and 50s.


<<The thing is, it only matters if you stay the course and you're young.>>

The thing is life happened.


"Man plans, God laughs"

-Yiddish proverb

<<If you have those two things going for you, you'll be fine, even after 2001, even after 2008.>>


Many of my peers did not survive financially.


KlangFool

I think forced early retirement sounds very unlikely in your 40s, unless we're talking about a disability. Maybe you get laid off, which is terrible, but it doesn't mean you can't work anymore. 50s, maybe more likely. But that's a good reason to own a more conservative taxable portfolio because it's not advantageous to tap retirement accounts early anyway. An account that is meant for 30+ years off should be invested aggressively in a diversified fund like VTSAX.
Yeah the phrase “forced into early retirement in their 40’s” is downright silly.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by KlangFool »

roth evangelist wrote: Fri Oct 23, 2020 12:28 pm
I think forced early retirement sounds very unlikely in your 40s,

roth evangelist,


I do not need to think or guess. I have seen it among my peers. The US Telecom Industry laid off over 2+ million employees over the last 10 to 20 years. Not all of them are fully employed.

<<But that's a good reason to own a more conservative taxable portfolio because it's not advantageous to tap retirement accounts early anyway.>>

A) They are not a retirement account. You can withdraw money from those accounts tax-free and penalty-free before 59 1/2 years old.


B) It may be useful to tap those tax-advantaged accounts when you are unemployed and/or under-employed and pay 0% taxes.


C) It is a bad idea to fund your taxable before you max up your tax-advantaged accounts. You will pay more taxes and leave less money in your own pocket.

https://www.madfientist.com/how-to-acce ... nds-early/


D) You have only ONE PORTFOLIO across all accounts.

KlangFool
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by KlangFool »

roth evangelist wrote: Fri Oct 23, 2020 12:28 pm
KlangFool wrote: Fri Oct 23, 2020 12:24 pm
roth evangelist wrote: Fri Oct 23, 2020 12:17 pm
KlangFool wrote: Fri Oct 23, 2020 11:57 am
roth evangelist wrote: Fri Oct 23, 2020 11:25 am
I think psychologically speaking, it's worth it to exercise a little willpower and stomach the downturns. It seems lots of advice is basically "Oh, well, since you can't stomach volatility you should add bonds" rather than addressing the issues or by convincing them empirically why they should go more aggressive. I don't know how you can convince those people, and maybe it's easy for me so say being in my late 20s, but seems like that should be the first course of action.

roth evangelist,


I lost 50% of my whole life-saving in Telecom Bust. I was 100% stock.


<<it's worth it to exercise a little willpower and stomach the downturns.>>


It is easy to say that until the whole industry crashes and your employer doing 5% to 8% quarterly laid off over 5 years until 80% of the employees are gone.


Can you imagine every quarter, the employer sent you a 60-days notice that your location may be shutdown? This continues for 5 years.


KlangFool
How old were you at the time? If you were near retirement, it's understandable that you would want to have some bonds. But if you were younger, then did you not stay the course? The thing is, it only matters if you stay the course and you're young. If you have those two things going for you, you'll be fine, even after 2001, even after 2008.

roth evangelist,


<<If you were near retirement,>>


How do you know whether you are near retirement? I know that I cannot predict the future? Many of my peers are forced into early retirement in their 40s and 50s.


<<The thing is, it only matters if you stay the course and you're young.>>

The thing is life happened.


"Man plans, God laughs"

-Yiddish proverb

<<If you have those two things going for you, you'll be fine, even after 2001, even after 2008.>>


Many of my peers did not survive financially.


KlangFool

I think forced early retirement sounds very unlikely in your 40s, unless we're talking about a disability. Maybe you get laid off, which is terrible, but it doesn't mean you can't work anymore. 50s, maybe more likely. But that's a good reason to own a more conservative taxable portfolio because it's not advantageous to tap retirement accounts early anyway. An account that is meant for 30+ years off should be invested aggressively in a diversified fund like VTSAX.

roth evangelist,

You have a choice. You are about to go on a plane. You can choose pilot A or pilot B for your plane


Pilot A had never crashed a plane. The plane ride had been sunny all the time.


Pilot B had crashed the plane many times. But, the passenger always arrives safely.

(A) or (B)?


I had been through many recessions and economic crises over the past 30+ years. I was unemployed for more than 1 year a few times. I am in between retiring or finding a new job now.


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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by roth evangelist »

KlangFool wrote: Fri Oct 23, 2020 12:56 pm
roth evangelist wrote: Fri Oct 23, 2020 12:28 pm
KlangFool wrote: Fri Oct 23, 2020 12:24 pm
roth evangelist wrote: Fri Oct 23, 2020 12:17 pm
KlangFool wrote: Fri Oct 23, 2020 11:57 am

roth evangelist,


I lost 50% of my whole life-saving in Telecom Bust. I was 100% stock.


<<it's worth it to exercise a little willpower and stomach the downturns.>>


It is easy to say that until the whole industry crashes and your employer doing 5% to 8% quarterly laid off over 5 years until 80% of the employees are gone.


Can you imagine every quarter, the employer sent you a 60-days notice that your location may be shutdown? This continues for 5 years.


KlangFool
How old were you at the time? If you were near retirement, it's understandable that you would want to have some bonds. But if you were younger, then did you not stay the course? The thing is, it only matters if you stay the course and you're young. If you have those two things going for you, you'll be fine, even after 2001, even after 2008.

roth evangelist,


<<If you were near retirement,>>


How do you know whether you are near retirement? I know that I cannot predict the future? Many of my peers are forced into early retirement in their 40s and 50s.


<<The thing is, it only matters if you stay the course and you're young.>>

The thing is life happened.


"Man plans, God laughs"

-Yiddish proverb

<<If you have those two things going for you, you'll be fine, even after 2001, even after 2008.>>


Many of my peers did not survive financially.


KlangFool

I think forced early retirement sounds very unlikely in your 40s, unless we're talking about a disability. Maybe you get laid off, which is terrible, but it doesn't mean you can't work anymore. 50s, maybe more likely. But that's a good reason to own a more conservative taxable portfolio because it's not advantageous to tap retirement accounts early anyway. An account that is meant for 30+ years off should be invested aggressively in a diversified fund like VTSAX.

roth evangelist,

You have a choice. You are about to go on a plane. You can choose pilot A or pilot B for your plane


Pilot A had never crashed a plane. The plane ride had been sunny all the time.


Pilot B had crashed the plane many times. But, the passenger always arrives safely.

(A) or (B)?


I had been through many recessions and economic crises over the past 30+ years. I was unemployed for more than 1 year a few times. I am in between retiring or finding a new job now.


KlangFool
I don't know of many planes that can crash and then miraculously recover and fly even higher than ever before. I don't think this analogy really helps us understand stock market risks. The risk is short-term volatility, not permanent loss of principle.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by HomerJ »

flaccidsteele wrote: Fri Oct 23, 2020 11:11 am As a teenager I recognized that the US market always recovers (thanks Bogle and Buffett 👍)

I then recognized that I didn’t need a pre-set asset allocation or to conventionally rebalance (thanks to the same epiphany)

That simplified everything

No problem sleeping at night. Ever

It depends on the investors temperament

Some people are scared of everything - real or imagined
Yes, if you believe that nothing will ever go wrong (correctly or falsely), it's easy to sleep at night.

I'm glad you've lived a charmed life...
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by HomerJ »

roth evangelist wrote: Fri Oct 23, 2020 1:03 pmThe risk is short-term volatility, not permanent loss of principle.
What do you consider "short-term"?

The risk of a protracted loss of principle may be low, but it is not zero.

For someone nearing retirement, a crash that takes a while to recover can be very dangerous, financially.

I think too many people have taken the wrong lesson from the most recent crashes.

There is no rule that says the stock market has to bounce back in a year or two.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by KlangFool »

roth evangelist wrote: Fri Oct 23, 2020 1:03 pm
The risk is short-term volatility, not permanent loss of principle.

roth evangelist,


Please explain how short-term volatility cannot translate into a permanent loss when a person is unemployed and need to sell the stock to feed his family? This is a normal occurrence in a RECESSION. We are in a RECESSION now.


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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by roth evangelist »

HomerJ wrote: Fri Oct 23, 2020 1:10 pm
roth evangelist wrote: Fri Oct 23, 2020 1:03 pmThe risk is short-term volatility, not permanent loss of principle.
What do you consider "short-term"?

The risk of a protracted loss of principle may be low, but it is not zero.

For someone nearing retirement, a crash that takes a while to recover can be very dangerous, financially.

I think too many people have taken the wrong lesson from the most recent crashes.

There is no rule that says stock market has to bounce back in a year or two.
Right, but I think the point from the beginning here is that if you're young, you have time. Obviously, if you're nearing retirement you want to take fewer risks and bonds make sense.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by KlangFool »

roth evangelist wrote: Fri Oct 23, 2020 1:03 pm

I don't know of many planes that can crash and then miraculously recover and fly even higher than ever before. I don't think this analogy really helps us understand stock market risks. The risk is short-term volatility, not permanent loss of principle.
roth evangelist,

Some pilot knows how to crash the plane and deliver the passenger safely. Meanwhile, some pilots just hope that the plane never crashes.


What do you choose?

Hoping to be lucky is not a strategy.

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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by roth evangelist »

KlangFool wrote: Fri Oct 23, 2020 1:14 pm
roth evangelist wrote: Fri Oct 23, 2020 1:03 pm

I don't know of many planes that can crash and then miraculously recover and fly even higher than ever before. I don't think this analogy really helps us understand stock market risks. The risk is short-term volatility, not permanent loss of principle.
roth evangelist,

Some pilot knows how to crash the plane and deliver the passenger safely. Meanwhile, some pilots just hope that the plane never crashes.


What do you choose?

Hoping to be lucky is not a strategy.

KlangFool
Long-term investing isn't about luck. It's about trusting companies to continue producing, innovating and being created from the ashes of companies that have collapsed during recessions. If you're diversified in the stock market, stay the course and have time on your side, you'll come out ahead.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by KlangFool »

roth evangelist wrote: Fri Oct 23, 2020 1:12 pm

Right, but I think the point from the beginning here is that if you're young, you have time. Obviously, if you're nearing retirement you want to take fewer risks and bonds make sense.

roth evangelist,

That is a lie. If you run out of money, you can be homeless and starving too.

You have to survive in order to succeed.


When a person is young, the portfolio is small. The person cannot take a 50% stock hit to survive unemployment for a very long time. They cannot afford 100% stock. They do not have the ability to take risks.

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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by KlangFool »

roth evangelist wrote: Fri Oct 23, 2020 1:17 pm
KlangFool wrote: Fri Oct 23, 2020 1:14 pm
roth evangelist wrote: Fri Oct 23, 2020 1:03 pm

I don't know of many planes that can crash and then miraculously recover and fly even higher than ever before. I don't think this analogy really helps us understand stock market risks. The risk is short-term volatility, not permanent loss of principle.
roth evangelist,

Some pilot knows how to crash the plane and deliver the passenger safely. Meanwhile, some pilots just hope that the plane never crashes.


What do you choose?

Hoping to be lucky is not a strategy.

KlangFool
Long-term investing isn't about luck
roth evangelist,

Unless you can predict the future and/or you are lucky, how do you know that you do not need to sell the investment for the next 10 to 20 years? You don't.

It is unknowable.

It takes LUCK to assume that you do not need to sell the investment for a very long time.


KlangFool
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by z3r0c00l »

What I did, and would recommend to others, is that you not invest at all (except 401K to get a match or some abnormally good deal) until you build a solid emergency fund in the range of 12 months of expenses. After that point I think a young person should feel fine going 100% stocks. I did not go 100% stocks due to the rule of thumb that says age minus bonds. I now regret it.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by Lee_WSP »

KlangFool wrote: Fri Oct 23, 2020 1:18 pm
roth evangelist wrote: Fri Oct 23, 2020 1:12 pm

Right, but I think the point from the beginning here is that if you're young, you have time. Obviously, if you're nearing retirement you want to take fewer risks and bonds make sense.

roth evangelist,

That is a lie. If you run out of money, you can be homeless and starving too.

You have to survive in order to succeed.


When a person is young, the portfolio is small. The person cannot take a 50% stock hit to survive unemployment for a very long time. They cannot afford 100% stock. They do not have the ability to take risks.

KlangFool
I think you mean they shouldn't invest their emergency fund in stocks. Which I agree.

That they cannot withstand a 50% drop is silly. You shouldn't be using your tax advantaged accounts in emergencies, you just need to get a new job and/or cut expenses.
KlangFool wrote: Fri Oct 23, 2020 1:14 pm
roth evangelist wrote: Fri Oct 23, 2020 1:03 pm

I don't know of many planes that can crash and then miraculously recover and fly even higher than ever before. I don't think this analogy really helps us understand stock market risks. The risk is short-term volatility, not permanent loss of principle.
roth evangelist,

Some pilot knows how to crash the plane and deliver the passenger safely. Meanwhile, some pilots just hope that the plane never crashes.


What do you choose?

Hoping to be lucky is not a strategy.

KlangFool
The analogy is flawed because the pilot who "crashes" often also gives a tangible benefit to the passengers. It's not just that one plane ride is bumpy but the other is perfectly smooth; it's that the bumpy plane ride has a very good chance of arriving a lot sooner or some other benefit.

Either way, I don't think the analogy works.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by HomerJ »

roth evangelist wrote: Fri Oct 23, 2020 1:12 pm
HomerJ wrote: Fri Oct 23, 2020 1:10 pm
roth evangelist wrote: Fri Oct 23, 2020 1:03 pmThe risk is short-term volatility, not permanent loss of principle.
What do you consider "short-term"?

The risk of a protracted loss of principle may be low, but it is not zero.

For someone nearing retirement, a crash that takes a while to recover can be very dangerous, financially.

I think too many people have taken the wrong lesson from the most recent crashes.

There is no rule that says stock market has to bounce back in a year or two.
Right, but I think the point from the beginning here is that if you're young, you have time. Obviously, if you're nearing retirement you want to take fewer risks and bonds make sense.
Sure, I'll agree with that...
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by guyinlaw »

For someone in accumulation phase, future earnings is bond like. There is money added to portfolio every month or bi weekly. So 100% stocks is fine.

As long as
- investor is experienced enough to really know their risk tolerance. Like Jim Bernstein said new investors must start more conservative to understand their risk tolerance and increase stock allocation if they can really handle it. I donot agree with Age-10 in bonds.
- have a large enough emergency fund (depends of everyone's situation)

PS: White Coat investor is coming up with many click bait titles.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by willthrill81 »

KlangFool wrote: Fri Oct 23, 2020 1:18 pm
roth evangelist wrote: Fri Oct 23, 2020 1:12 pm

Right, but I think the point from the beginning here is that if you're young, you have time. Obviously, if you're nearing retirement you want to take fewer risks and bonds make sense.

roth evangelist,

That is a lie. If you run out of money, you can be homeless and starving too.

You have to survive in order to succeed.


When a person is young, the portfolio is small. The person cannot take a 50% stock hit to survive unemployment for a very long time. They cannot afford 100% stock. They do not have the ability to take risks.

KlangFool
This is beyond hyperbole. The person who has a 70/30 AA, which I know that you're fine with, would still take a 35% portfolio hit if stocks dropped 50%. There's nothing logical about a 35% drop automatically being 'a-okay' while 50% means you're 'homeless and starving'.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by lostdog »

willthrill81 wrote: Fri Oct 23, 2020 10:30 am There's nothing particularly special about 100% stock vs. 80/20, 60/40, etc. It's mostly a question of volatility and drawdowns. Some can tolerate the swings of 100% stock, and some cannot. Some can tolerate the swings of 60/40, and some cannot. 100/0 isn't inherently 'dangerous'. The real danger lies in investors' behavior.
+1
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by HomerJ »

KlangFool wrote: Fri Oct 23, 2020 1:18 pm
roth evangelist wrote: Fri Oct 23, 2020 1:12 pm

Right, but I think the point from the beginning here is that if you're young, you have time. Obviously, if you're nearing retirement you want to take fewer risks and bonds make sense.

roth evangelist,

That is a lie. If you run out of money, you can be homeless and starving too.

You have to survive in order to succeed.


When a person is young, the portfolio is small. The person cannot take a 50% stock hit to survive unemployment for a very long time. They cannot afford 100% stock. They do not have the ability to take risks.

KlangFool
This is incorrect for the vast majority of people on this board.

You've said this before, but it does not apply to everyone. Many people have family and friends, and most young people on this board can find low-paying work if absolutely needed.

Homeless and starving is an massive over-exaggeration.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by JBTX »

warowits wrote: Fri Oct 23, 2020 10:59 am One wonders what the advice will be when instead of living through decades of falling rates, our advice givers live through decades of near zero rates, or possibly even steadily increasing rates.
Agree. Most people here have only ever experienced falling long term rates. How everything plays out going forward will be interesting.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by CRJPylote »

I'm very young(24) and just wanted to respond to this article as a 105% ish Stock investor.

Point #1: I actually am slightly leveraged(indirect). in the HEDGEFUNDIE strategy and considering some PSLDX. Not sure how this is a reason against 100% stocks, its just a continuation of the idea that you can take massive risk while young.

Point #2: 100% SCV vs 100% TSM vs 60% TSM and 40% International TSM are not the same amount of risk. Again like leverage this is simply increasing the risk of the Portfolio and a TSM/International allocation is certainly less risky that a complete SCV tilt. Not sure what the argument is here.

Point #3: While this may be true in a few select countries, I simply do not see it as probable that bonds will outperform my 70/30 US/International TSM.

Point #4: True, but this is personal. Did you get stressed in March? Did you sell in March? It's personal risk tolerance.

Point #5: Warren Buffet himself has his wife's trust in 90% S&P 10% Bonds....

Point #6: True, but that's not me. 200K+ earnings are still a ways away with my current career path, and possible but not guaranteed.

Point #7: Also true, but just because something underperformed doesn't mean it will overperform in the future. Cuts both ways. I've seen the data and it suggests that bonds beating stocks is more unlikely long term than the other way around. I'm not snubbing bonds but at 24 I also don't think they are for me.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by simplesimon »

CRJPylote wrote: Fri Oct 23, 2020 2:30 pm I'm very young(24) and just wanted to respond to this article as a 105% ish Stock investor.
At your age it doesn't really matter what AA you pick. Your savings rate will by the driving factor of portfolio growth for a while.
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