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

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

Post by flaccidsteele »

HomerJ wrote: Fri Oct 23, 2020 1:06 pm 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...
My charmed life has been through the exact same markets as everyone else

Those who can’t sleep well at night should spend some time to determine the root cause... it can’t be the US market because the US market always recovers. Always

Underlying cause must be something else
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 Ben Mathew »

Re: # 1 Why Not 130% Stocks?

It's easier and cheaper to go from 90% stocks to 100% stocks than it is to go from 100% stocks to 110% stocks. So 100% stocks is a natural corner solution:

HIGHER RATES

From 90 to 100, you are implicitly borrowing at the risk free rate offered by the treasuries you give up. From 100 to 110, you are explicitly borrowing at the higher margin rate offered by the brokerage.


MISMATCHED DURATION

From 90 to 100, there is no big mismatch in duration of portfolio because you are reducing long term bonds and increasing stocks which are also of long duration. From 100 to 110, you are borrowing short term (because the debt is callable) but investing in stocks with long duration. If interest rates rise, the value of the stocks fall a lot, but the value of the debt does not fall. Financing long term assets with short term debt introduces interest rate risk. You are compensated for it some because of the upward sloping yield curve, but you'll have to decide whether it's worth it for you.

If someone created a product like a closed end fund that is financed by long term non-callable debt, a leveraged portfolio at younger ages might become a more compelling and mainstream option.
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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 3:02 pm
HomerJ wrote: Fri Oct 23, 2020 1:06 pm 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...
My charmed life has been through the exact same markets as everyone else
There is far more to a charmed life than stock market movements. There is job loss, divorce, health issues for yourself or your children, natural disasters, etc. to name just a few.

It's good that you've never needed money during a stock market crash.

It's even more fortunate for you that couldn't even conceive of anything going wrong where you might need money unexpectedly. So you were indeed able to always easily sleep at night. Congrats!
Those who can’t sleep well at night should spend some time to determine the root cause... it can’t be the US market because the US market always recovers. Always
You continually state this incorrectly. Past tense only can be stated as a certainty. U.S. stock market always HAS recovered. No one can state this with certainty going forward. Sure, it's pretty likely, and an excellent bet. But it's not for certain.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by kimura king »

This thread is a perfect example of everyone's unique risk tolerance, ranging from going homeless during a downturn to others wanting to go 100% equities.

One point that has not been mentioned - bonds are pretty volatile themselves. Selling bonds at the wrong time seems to carry the same risk as selling vtsax at the wrong time. In addition, bonds may not beat inflation, therefore, bonds are a risky investment vehicle in different ways, both for accumulators (opportunity cost) and for retirees (going broke from a lack of earnings/opportunity cost).

klang, I learned from this link about accessing the 401k without penalty, but it is super complicated, suggests using a tax pro, you risk screwing things up opposed to keeping things simple, etc. https://www.madfientist.com/how-to-acce ... nds-early/

Lastly, regarding the article, I disagreed with points 1-6. The only point I agreed with was #7.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by willthrill81 »

I have no idea why Jim put the table of historic returns of various AAs in his post. It's almost mathematically impossible for a 0/100 AA to return 5.4% for a long time going forward. Therefore, the table is useless for evaluating the relative differences for various AAs going forward.

This definitely isn't his best work.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by HomerJ »

kimura king wrote: Fri Oct 23, 2020 3:34 pmOne point that has not been mentioned - bonds are pretty volatile themselves. Selling bonds at the wrong time seems to carry the same risk as selling vtsax at the wrong time.
It hasn't been mentioned because it's not true. Stocks can drop 50% in a few months. A bad year for a bond fund would be a 5%-10% drop.
In addition, bonds may not beat inflation, therefore, bonds are a risky investment vehicle in different ways, both for accumulators (opportunity cost) and for retirees (going broke from a lack of earnings/opportunity cost).
Inflation is indeed a big risk, and you are right that it should be taken into account.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by 000 »

KlangFool wrote: Fri Oct 23, 2020 11:57 am I lost 50% of my whole life-saving in Telecom Bust. I was 100% stock.

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 wrote: Fri Oct 23, 2020 12:56 pm 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)?
KlangFool wrote: Fri Oct 23, 2020 1:18 pm 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.
Your emotionally charged posts suggest you may be projecting your own personal emotions from a bad experience onto everything and everyone else. Moreover, your specific bad experience seems to be partly due to your own bad choices (individual stock speculation, staying at a dysfunctional employer for five years), which is not the same as what those with 100% diversified stock portfolios are doing.

Very, very few people with 100% stock investments will become homeless and starving in the next stock market crash.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by Fallible »

Any stock allocation is right if it's right for the individual investor. This means knowing oneself, knowing how much risk can be tolerated in an unknown future. It's probably the hardest part of investing.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by KlangFool »

000 wrote: Fri Oct 23, 2020 5:07 pm
KlangFool wrote: Fri Oct 23, 2020 11:57 am I lost 50% of my whole life-saving in Telecom Bust. I was 100% stock.

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 wrote: Fri Oct 23, 2020 12:56 pm 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)?
KlangFool wrote: Fri Oct 23, 2020 1:18 pm 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.
Your emotionally charged posts suggest you may be projecting your own personal emotions from a bad experience onto everything and everyone else. Moreover, your specific bad experience seems to be partly due to your own bad choices (individual stock speculation, staying at a dysfunctional employer for five years), which is not the same as what those with 100% diversified stock portfolios are doing.

Very, very few people with 100% stock investments will become homeless and starving in the next stock market crash.

And, how does someone know that they would not be one of those few people?


A) I am lucky. So, it could never happen to me.


B) I am not 100% stock and I am prepared for a stock market crash. So, it would not happen to me.


(A) or (B). That is the philosophical question.


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

Post by 000 »

KlangFool wrote: Fri Oct 23, 2020 5:19 pm And, how does someone know that they would not be one of those few people?

A) I am lucky. So, it could never happen to me.

B) I am not 100% stock and I am prepared for a stock market crash. So, it would not happen to me.

(A) or (B). That is the philosophical question.
No, it is not a binary path. Holding bonds does not guarantee safety either.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by KlangFool »

Folks,

Unless and until you experience something, you may not know how you may behave.

A) 100% stock, while you are full-employed in a normal economy, is different from


B) 100% stock while the economy is in a RECESSION and your whole industry is laying off people.


C) 100% stock with 100K is different from 100% stock with 1 million.


Please do not be so certain that you know how you will behave and you can SWAN. In many cases, it is unknowable until you are facing it.


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

Post by KlangFool »

000 wrote: Fri Oct 23, 2020 5:24 pm
KlangFool wrote: Fri Oct 23, 2020 5:19 pm And, how does someone know that they would not be one of those few people?

A) I am lucky. So, it could never happen to me.

B) I am not 100% stock and I am prepared for a stock market crash. So, it would not happen to me.

(A) or (B). That is the philosophical question.
No, it is not a binary path. Holding bonds does not guarantee safety either.

So, why advocate an extreme position of 100% stock?

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

Post by 000 »

KlangFool wrote: Fri Oct 23, 2020 5:28 pm
000 wrote: Fri Oct 23, 2020 5:24 pm
KlangFool wrote: Fri Oct 23, 2020 5:19 pm And, how does someone know that they would not be one of those few people?

A) I am lucky. So, it could never happen to me.

B) I am not 100% stock and I am prepared for a stock market crash. So, it would not happen to me.

(A) or (B). That is the philosophical question.
No, it is not a binary path. Holding bonds does not guarantee safety either.

So, why advocate an extreme position of 100% stock?

KlangFool
That is a non sequitur.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by 000 »

KlangFool wrote: Fri Oct 23, 2020 5:27 pm Folks,

Unless and until you experience something, you may not know how you may behave.

A) 100% stock, while you are full-employed in a normal economy, is different from


B) 100% stock while the economy is in a RECESSION and your whole industry is laying off people.


C) 100% stock with 100K is different from 100% stock with 1 million.


Please do not be so certain that you know how you will behave and you can SWAN. In many cases, it is unknowable until you are facing it.


KlangFool
Do you know how you will behave and feel when unexpected inflation comes for your bonds?
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by rockstar »

I don't get this click bait. It feels like it's premised on the idea that bonds will remain negatively correlated to equities. There's also a much higher implied yield in the data provided than what's available now.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by KlangFool »

000 wrote: Fri Oct 23, 2020 5:31 pm
KlangFool wrote: Fri Oct 23, 2020 5:27 pm Folks,

Unless and until you experience something, you may not know how you may behave.

A) 100% stock, while you are full-employed in a normal economy, is different from


B) 100% stock while the economy is in a RECESSION and your whole industry is laying off people.


C) 100% stock with 100K is different from 100% stock with 1 million.


Please do not be so certain that you know how you will behave and you can SWAN. In many cases, it is unknowable until you are facing it.


KlangFool
Do you know how you will behave and feel when unexpected inflation comes for your bonds?
1) And, why does that matter to me when I am not 100% bond?


2) I own physical GOLD and SILVER too.


3) I do not need to know. I am prepared.


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

Post by shockwavesfan »

I think the doomsday scenarios described by posters in this thread are failing to be concerned with the other side of the coin. There is no such thing as zero risk when it comes to saving for retirement. Someone afraid to assume enough stock market risk assumes significant inflation risk as well as risks not being able to save enough money needed for retirement.

You are right about one thing, there are a ton of scenarios where things can go wrong for a person during their accumulation years. If a person concerned themselves with all of these possibilities, they wouldn’t be able function in any aspect of their life.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by 000 »

KlangFool wrote: Fri Oct 23, 2020 6:07 pm 1) And, why does that matter to me when I am not 100% bond?
2) I own physical GOLD and SILVER too.
3) I do not need to know. I am prepared.
Good for you. But you don't seem to be suggesting metals when you criticize 100% stocks. You seem to suggest less stocks, and more bonds. Over the long run, this arguably has more risk. Over the short run, it depends. Buying "high quality" bonds right now is very likely to return less than 0% real unless deflation happens or the Fed goes to negative interest rates.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by KlangFool »

000 wrote: Fri Oct 23, 2020 6:30 pm
KlangFool wrote: Fri Oct 23, 2020 6:07 pm 1) And, why does that matter to me when I am not 100% bond?
2) I own physical GOLD and SILVER too.
3) I do not need to know. I am prepared.
Good for you. But you don't seem to be suggesting metals when you criticize 100% stocks. You seem to suggest less stocks, and more bonds. Over the long run, this arguably has more risk. Over the short run, it depends. Buying "high quality" bonds right now is very likely to return less than 0% real unless deflation happens or the Fed goes to negative interest rates.
000,

<<Over the long run, this arguably has more risk. Over the short run, it depends.>>

The long-run only matters when a person can survive the short run.

<<But you don't seem to be suggesting metals when you criticize 100% stocks. You seem to suggest less stocks, and more bonds.>>


Gold/Silver only comes in when a person's portfolio is much bigger. In the beginning, CASH, BOND, and STOCK are good enough.

<<Buying "high quality" bonds right now is very likely to return less than 0% real unless deflation happens or the Fed goes to negative interest rates.>>

I cannot predict the future. Hence, I do not claim to be able to predict that deflation and/or negative interest rate is impossible. But, I don't have to. I am prepared. I have both STOCK and BOND. I am fine in any situation.


Be prepared or Be Lucky or Be able to predict the future. Those are the questions. I know my answer.

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

Post by willthrill81 »

shockwavesfan wrote: Fri Oct 23, 2020 6:21 pm I think the doomsday scenarios described by posters in this thread are failing to be concerned with the other side of the coin. There is no such thing as zero risk when it comes to saving for retirement. Someone afraid to assume enough stock market risk assumes significant inflation risk as well as risks not being able to save enough money needed for retirement.
+1

There is risk in not having enough funds later in life to fund one's expenses when one is unable to earn an income. An excellent way to address this risk is to own assets that are likely to have returns well exceeding inflation, such as stocks and good rental real estate. Bonds with negative real yields are a very poor way to address this risk.

The bottom line is that if an investor is able to stomach the inevitably deep occasional drawdowns of a 100% stock allocation, they have historically been well rewarded for doing so. In the current environment, bonds don't do anything productive on their own apart from potentially enabling an investor to stay the course during stock downturns.

Everyone needs a plan for dealing with job losses and other financial hardships. But a significant allocation to bonds is not the silver bullet to dealing with that issue.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by 000 »

KlangFool wrote: Fri Oct 23, 2020 6:55 pm 000,

<<Over the long run, this arguably has more risk. Over the short run, it depends.>>

The long-run only matters when a person can survive the short run.

<<But you don't seem to be suggesting metals when you criticize 100% stocks. You seem to suggest less stocks, and more bonds.>>


Gold/Silver only comes in when a person's portfolio is much bigger. In the beginning, CASH, BOND, and STOCK are good enough.

<<Buying "high quality" bonds right now is very likely to return less than 0% real unless deflation happens or the Fed goes to negative interest rates.>>

I cannot predict the future. Hence, I do not claim to be able to predict that deflation and/or negative interest rate is impossible. But, I don't have to. I am prepared. I have both STOCK and BOND. I am fine in any situation.


Be prepared or Be Lucky or Be able to predict the future. Those are the questions. I know my answer.

KlangFool
KlangFool,

Sometimes the price of safety is too high. Sometimes the safety is only illusory too. There is risk in all paths. An accumulator takes on more risk with an overly conservative portfolio of not having enough when the layoff happens to them in their 50s and they can't find another job. That is far more likely than being unable to find work in their 30s. Your anecdotal experience is not the norm.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by dml130 »

shockwavesfan wrote: Fri Oct 23, 2020 6:21 pm I think the doomsday scenarios described by posters in this thread are failing to be concerned with the other side of the coin. There is no such thing as zero risk when it comes to saving for retirement. Someone afraid to assume enough stock market risk assumes significant inflation risk as well as risks not being able to save enough money needed for retirement.
But that isn't really a counterpoint to what is being argued, unless you are arguing that "enough stock market risk" is no less than 100% stocks.
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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 6:55 pm The long-run only matters when a person can survive the short run.
This is strictly accurate but, in this context, is utterly ridiculous nonsense.

Two investors each have $200k portfolios. One is 100% stock and the other has a 70/30, which you have often said is alright. During a 50% market downturn, the first is down to $100k, and the second is down to $140k. That $40k difference is not the difference between 'homeless and survival' vs. being in an acceptable financial situation.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by willthrill81 »

dml130 wrote: Fri Oct 23, 2020 7:03 pm
shockwavesfan wrote: Fri Oct 23, 2020 6:21 pm I think the doomsday scenarios described by posters in this thread are failing to be concerned with the other side of the coin. There is no such thing as zero risk when it comes to saving for retirement. Someone afraid to assume enough stock market risk assumes significant inflation risk as well as risks not being able to save enough money needed for retirement.
But that isn't really a counterpoint to what is being argued, unless you are arguing that "enough stock market risk" is no less than 100% stocks.
In some situations, investors probably need 100% stocks. In others, they probably don't. But some here are claiming that nobody needs a 100% stock allocation, which is prima facie ridiculous.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by EnjoyIt »

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
When one makes $100k a year and has a $100k in stocks and that gets cut in half in 2008, it is not that big of a deal.
When one has $1 million and it falls to $500k while still making the same $100k it makes a big difference. That difference becomes even bigger when that person also loses their job on top of it and is selling depressed equities to pay the mortgage and buy groceries. That is enough psychologically to take down many a stoics.

Ohh and if you say they should have an emergency fund, well then, they also are not 100% equities even if mental account for them ignores the cash.

Despite having a very secure job, I always believe in keeping a few years of my wealth in bonds. This is what will get me through the bad bear market years that last well over 6 months that we just recently experienced.

My advice to anyone who is 100% equities is to go back and read some of the old posts here from 2008. They paint a very grim picture of people who thought that they had the intestinal fortitude to stick with 100% equities and got severely burned. Darn, there have been plenty of those conversations here in March 2020.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
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Post by Taylor Larimore »

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

I admire your honest admission. It is an important lesson for stock investors about the importance of diversification.

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

Post by EnjoyIt »

willthrill81 wrote: Fri Oct 23, 2020 7:04 pm
KlangFool wrote: Fri Oct 23, 2020 6:55 pm The long-run only matters when a person can survive the short run.
This is strictly accurate but, in this context, is utterly ridiculous nonsense.

Two investors each have $200k portfolios. One is 100% stock and the other has a 70/30, which you have often said is alright. During a 50% market downturn, the first is down to $100k, and the second is down to $140k. That $40k difference is not the difference between 'homeless and survival' vs. being in an acceptable financial situation.
No at face value it is not. But then let us add some extra reality to this. The world around them is different. Everyone is yelling sell sell sell. Your equities are being sold at a loss to pay down your mortgage and buy groceries. Now is the time not to panic and sell everything. The following Monday the market drops another 5% and you don't know if you can take any further loss. Now is not the time to panic but that is exactly what most emotions will make you want to do. Having the extra $40k in bonds very well could be the difference between selling depressed equities to survive one extra year, find that job and let the markets recover.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by dml130 »

willthrill81 wrote: Fri Oct 23, 2020 7:05 pm
dml130 wrote: Fri Oct 23, 2020 7:03 pm
But that isn't really a counterpoint to what is being argued, unless you are arguing that "enough stock market risk" is no less than 100% stocks.
In some situations, investors probably need 100% stocks. In others, they probably don't. But some here are claiming that nobody needs a 100% stock allocation, which is prima facie ridiculous.
It's possible I'm missing something, but I'm having a hard time imagining a situation in which somebody needs 100% in stocks vs a more standard 70-80%.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by flaccidsteele »

EnjoyIt wrote: Fri Oct 23, 2020 7:08 pm My advice to anyone who is 100% equities is to go back and read some of the old posts here from 2008. They paint a very grim picture of people who thought that they had the intestinal fortitude to stick with 100% equities and got severely burned. Darn, there have been plenty of those conversations here in March 2020.
+1 most people don’t have the temperament

I’ve only bought into bears since the 1990s, but I was indoctrinated early

Once indoctrinated, it’s not bad

I posted on real estate forums in 2010, outlining my excited purchases in 2009. Those forums were as bad as BH in 2008. Everybody was a downer when houses were free
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 »

HomerJ wrote: Fri Oct 23, 2020 3:15 pm
flaccidsteele wrote: Fri Oct 23, 2020 3:02 pm
HomerJ wrote: Fri Oct 23, 2020 1:06 pm 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...
My charmed life has been through the exact same markets as everyone else
There is far more to a charmed life than stock market movements. There is job loss, divorce, health issues for yourself or your children, natural disasters, etc. to name just a few.

It's good that you've never needed money during a stock market crash.

It's even more fortunate for you that couldn't even conceive of anything going wrong where you might need money unexpectedly. So you were indeed able to always easily sleep at night. Congrats!
Those who can’t sleep well at night should spend some time to determine the root cause... it can’t be the US market because the US market always recovers. Always
You continually state this incorrectly. Past tense only can be stated as a certainty. U.S. stock market always HAS recovered. No one can state this with certainty going forward. Sure, it's pretty likely, and an excellent bet. But it's not for certain.
Never said if I had those (mis)fortunes or not. They would be irrelevant to my post

Easy to sleep at night when the US market always comes back. It’s never different this time. That “truth” is implicit in everything Bogle and Buffett discuss

There are a lot of smart people doing difficult things in this world - Investing to grow wealth isn’t one of them
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
EnjoyIt
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by EnjoyIt »

flaccidsteele wrote: Fri Oct 23, 2020 7:36 pm
EnjoyIt wrote: Fri Oct 23, 2020 7:08 pm My advice to anyone who is 100% equities is to go back and read some of the old posts here from 2008. They paint a very grim picture of people who thought that they had the intestinal fortitude to stick with 100% equities and got severely burned. Darn, there have been plenty of those conversations here in March 2020.
+1 most people don’t have the temperament

I’ve only bought into bears since the 1990s, but I was indoctrinated early

Once indoctrinated, it’s not bad

I posted on real estate forums in 2010, outlining my excited purchases in 2009. Those forums were as bad as BH in 2008. Everybody was a downer when houses were free
Most think they can handle risk until it comes around and smacks them in the face. Some can, but many will go down.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
KlangFool
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by KlangFool »

000 wrote: Fri Oct 23, 2020 7:02 pm
KlangFool wrote: Fri Oct 23, 2020 6:55 pm 000,

<<Over the long run, this arguably has more risk. Over the short run, it depends.>>

The long-run only matters when a person can survive the short run.

<<But you don't seem to be suggesting metals when you criticize 100% stocks. You seem to suggest less stocks, and more bonds.>>


Gold/Silver only comes in when a person's portfolio is much bigger. In the beginning, CASH, BOND, and STOCK are good enough.

<<Buying "high quality" bonds right now is very likely to return less than 0% real unless deflation happens or the Fed goes to negative interest rates.>>

I cannot predict the future. Hence, I do not claim to be able to predict that deflation and/or negative interest rate is impossible. But, I don't have to. I am prepared. I have both STOCK and BOND. I am fine in any situation.


Be prepared or Be Lucky or Be able to predict the future. Those are the questions. I know my answer.

KlangFool
KlangFool,

Sometimes the price of safety is too high. Sometimes the safety is only illusory too. There is risk in all paths. An accumulator takes on more risk with an overly conservative portfolio of not having enough when the layoff happens to them in their 50s and they can't find another job. That is far more likely than being unable to find work in their 30s. Your anecdotal experience is not the norm.
000,

<<An accumulator takes on more risk with an overly conservative portfolio of not having enough when the layoff happens to them in their 50s >>


I dispute your assertion. Show us the numbers. The average annual return difference between 100/0 and 70/30 is only 1% per year. It is not enough to make a difference in a person's portfolio when they are the 50s.



<<That is far more likely than being unable to find work in their 30s.>>


We are not a statistic. We only get one shot in life. And, many folks are unemployed in every recession. And, sometimes, unemployment can last a while.


KlangFool
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Re: KlangFool's Admission

Post by KlangFool »

Taylor Larimore wrote: Fri Oct 23, 2020 7:12 pm
KlangFool wrote: I lost 50% of my whole life-saving in Telecom Bust. I was 100% stock.
Klangfool:

I admire your honest admission. It is an important lesson for stock investors about the importance of diversification.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "One of our most important values is candor--tell the whole truth and nothing but the truth, with no strings attached, and let the chips fall where they may."

Thanks.


KlangFool
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willthrill81
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by willthrill81 »

EnjoyIt wrote: Fri Oct 23, 2020 7:14 pm
willthrill81 wrote: Fri Oct 23, 2020 7:04 pm
KlangFool wrote: Fri Oct 23, 2020 6:55 pm The long-run only matters when a person can survive the short run.
This is strictly accurate but, in this context, is utterly ridiculous nonsense.

Two investors each have $200k portfolios. One is 100% stock and the other has a 70/30, which you have often said is alright. During a 50% market downturn, the first is down to $100k, and the second is down to $140k. That $40k difference is not the difference between 'homeless and survival' vs. being in an acceptable financial situation.
No at face value it is not. But then let us add some extra reality to this. The world around them is different. Everyone is yelling sell sell sell. Your equities are being sold at a loss to pay down your mortgage and buy groceries. Now is the time not to panic and sell everything. The following Monday the market drops another 5% and you don't know if you can take any further loss. Now is not the time to panic but that is exactly what most emotions will make you want to do. Having the extra $40k in bonds very well could be the difference between selling depressed equities to survive one extra year, find that job and let the markets recover.
Certainly. But if the investor can hold that 100% allocation without panicking for 30 years, that could be hundreds of thousands more dollars in retirement.

There just aren't easy answers to the question of 'optimal' asset allocation.
“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 shockwavesfan »

dml130 wrote: Fri Oct 23, 2020 7:26 pm
willthrill81 wrote: Fri Oct 23, 2020 7:05 pm
dml130 wrote: Fri Oct 23, 2020 7:03 pm
But that isn't really a counterpoint to what is being argued, unless you are arguing that "enough stock market risk" is no less than 100% stocks.
In some situations, investors probably need 100% stocks. In others, they probably don't. But some here are claiming that nobody needs a 100% stock allocation, which is prima facie ridiculous.
It's possible I'm missing something, but I'm having a hard time imagining a situation in which somebody needs 100% in stocks vs a more standard 70-80%.
I think it depends if you define an allocation based on all holdings versus just retirement accounts. At any age it is prudent to have an emergency fund in cash, cds, or short term bonds. At my current age (mid 30s) it makes absolutely zero sense for me to invest in anything but stocks in my retirement account. There hasn’t been one 30 year rolling period over the last 100 years where bonds have outperformed stocks. It statistically doesn’t make sense. Could this be the 30 year period where it happens, sure but that is a risk I’m willing to live with.

I don’t know what my retirement account is at right now, I don’t know what it was in February of this year, and I don’t know what it was at the market bottom on 3/23. I just keep on investing the maximum I’m allowed to invest.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by nigel_ht »

flaccidsteele wrote: Fri Oct 23, 2020 3:02 pm
Those who can’t sleep well at night should spend some time to determine the root cause... it can’t be the US market because the US market always recovers. Always
That's kind of the crux right? If you believe the US market always recovers then you can go 100/0 if you have a long enough time horizon.

And most folks aren't 100/0 anyway because that usually doesn't count their EF. If I have a $450K portfolio and $50K EF I'm 90/10.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by willthrill81 »

dml130 wrote: Fri Oct 23, 2020 7:26 pm
willthrill81 wrote: Fri Oct 23, 2020 7:05 pm
dml130 wrote: Fri Oct 23, 2020 7:03 pm
But that isn't really a counterpoint to what is being argued, unless you are arguing that "enough stock market risk" is no less than 100% stocks.
In some situations, investors probably need 100% stocks. In others, they probably don't. But some here are claiming that nobody needs a 100% stock allocation, which is prima facie ridiculous.
It's possible I'm missing something, but I'm having a hard time imagining a situation in which somebody needs 100% in stocks vs a more standard 70-80%.
It's easy if you assume that bonds' real return going forward will be zero, which is very plausible for the next 20 years at least (especially in total since bonds are likely to lose to inflation over the next decade). If stocks have a 5% real return, that would mean that a 70/30 would have a 3.5% real return. Compounded over 30 years with just maxing out a 401k, the difference in values would be nearly $300k. That's another $1,000 every month in retirement, assuming 4% withdrawals.
“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 EnjoyIt »

willthrill81 wrote: Fri Oct 23, 2020 8:02 pm
EnjoyIt wrote: Fri Oct 23, 2020 7:14 pm
willthrill81 wrote: Fri Oct 23, 2020 7:04 pm
KlangFool wrote: Fri Oct 23, 2020 6:55 pm The long-run only matters when a person can survive the short run.
This is strictly accurate but, in this context, is utterly ridiculous nonsense.

Two investors each have $200k portfolios. One is 100% stock and the other has a 70/30, which you have often said is alright. During a 50% market downturn, the first is down to $100k, and the second is down to $140k. That $40k difference is not the difference between 'homeless and survival' vs. being in an acceptable financial situation.
No at face value it is not. But then let us add some extra reality to this. The world around them is different. Everyone is yelling sell sell sell. Your equities are being sold at a loss to pay down your mortgage and buy groceries. Now is the time not to panic and sell everything. The following Monday the market drops another 5% and you don't know if you can take any further loss. Now is not the time to panic but that is exactly what most emotions will make you want to do. Having the extra $40k in bonds very well could be the difference between selling depressed equities to survive one extra year, find that job and let the markets recover.
Certainly. But if the investor can hold that 100% allocation without panicking for 30 years, that could be hundreds of thousands more dollars in retirement.

There just aren't easy answers to the question of 'optimal' asset allocation.
Nope, it is very personal. All I can tell you is that here on this forum of intelligent self aware investors, I have seen over and over and over again people who underestimate their risk tolerance.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by 000 »

KlangFool wrote: Fri Oct 23, 2020 7:59 pm 000,

<<An accumulator takes on more risk with an overly conservative portfolio of not having enough when the layoff happens to them in their 50s >>

I dispute your assertion. Show us the numbers. The [past] average annual return difference between 100/0 and 70/30 is [was] only 1% per year. It is not enough to make a difference in a person's portfolio when they are the 50s.
Past returns are meaningless, i.e. they are not predicative of future interest rate and inflation movements.

I don't have the numbers for future returns, so I can't show you them...
Last edited by 000 on Fri Oct 23, 2020 8:20 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 JBTX »

flaccidsteele wrote: Fri Oct 23, 2020 3:02 pm
HomerJ wrote: Fri Oct 23, 2020 1:06 pm 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...
My charmed life has been through the exact same markets as everyone else

Those who can’t sleep well at night should spend some time to determine the root cause... it can’t be the US market because the US market always recovers. Always

Underlying cause must be something else
Until it doesn't.

How has that worked for Japan. But we are different right? Nothing bad ever happens to us.

People used to say housing prices never go down.
Last edited by JBTX on Fri Oct 23, 2020 8:20 pm, edited 1 time in total.
roth evangelist
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by roth evangelist »

EnjoyIt wrote: Fri Oct 23, 2020 7:08 pm
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
When one makes $100k a year and has a $100k in stocks and that gets cut in half in 2008, it is not that big of a deal.
When one has $1 million and it falls to $500k while still making the same $100k it makes a big difference. That difference becomes even bigger when that person also loses their job on top of it and is selling depressed equities to pay the mortgage and buy groceries. That is enough psychologically to take down many a stoics.

Ohh and if you say they should have an emergency fund, well then, they also are not 100% equities even if mental account for them ignores the cash.

Despite having a very secure job, I always believe in keeping a few years of my wealth in bonds. This is what will get me through the bad bear market years that last well over 6 months that we just recently experienced.

My advice to anyone who is 100% equities is to go back and read some of the old posts here from 2008. They paint a very grim picture of people who thought that they had the intestinal fortitude to stick with 100% equities and got severely burned. Darn, there have been plenty of those conversations here in March 2020.
I don't know what the consensus on the forum is about emergency funds, but I absolutely do not count it as part of my portfolio, because it's uninvested cash. It's cash that's sitting there in case of an unplanned expense or a job loss. It has nothing to do with my Roth IRA, for example, which is invested for retirement. There are many, many options I would exhaust before even touching my retirement accounts.

This is partly why I don't like the concept of thinking about all your investment as one portfolio, because my retirement accounts serve one purpose, and taxable accounts might serve another purpose. And my HSA might double as a medical emergency fund in addition to a retirement account, so naturally I would want to invest it more conservatively than my Roth IRA.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by willthrill81 »

EnjoyIt wrote: Fri Oct 23, 2020 8:16 pm
willthrill81 wrote: Fri Oct 23, 2020 8:02 pm
EnjoyIt wrote: Fri Oct 23, 2020 7:14 pm
willthrill81 wrote: Fri Oct 23, 2020 7:04 pm
KlangFool wrote: Fri Oct 23, 2020 6:55 pm The long-run only matters when a person can survive the short run.
This is strictly accurate but, in this context, is utterly ridiculous nonsense.

Two investors each have $200k portfolios. One is 100% stock and the other has a 70/30, which you have often said is alright. During a 50% market downturn, the first is down to $100k, and the second is down to $140k. That $40k difference is not the difference between 'homeless and survival' vs. being in an acceptable financial situation.
No at face value it is not. But then let us add some extra reality to this. The world around them is different. Everyone is yelling sell sell sell. Your equities are being sold at a loss to pay down your mortgage and buy groceries. Now is the time not to panic and sell everything. The following Monday the market drops another 5% and you don't know if you can take any further loss. Now is not the time to panic but that is exactly what most emotions will make you want to do. Having the extra $40k in bonds very well could be the difference between selling depressed equities to survive one extra year, find that job and let the markets recover.
Certainly. But if the investor can hold that 100% allocation without panicking for 30 years, that could be hundreds of thousands more dollars in retirement.

There just aren't easy answers to the question of 'optimal' asset allocation.
Nope, it is very personal. All I can tell you is that here on this forum of intelligent self aware investors, I have seen over and over and over again people who underestimate their risk tolerance.
That's why I have never once recommended anything close to a 100% stock allocation to anyone. In fact, I've really tried to avoid recommending any AA for any investor because it's such a personal decision. However, I do think that investors should be very well informed before they make this potentially life changing decision.
“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 000 »

KlangFool wrote: Fri Oct 23, 2020 7:59 pm We are not a statistic. We only get one shot in life.
And putting 30%+ of my portfolio in stuff that is very likely to return less than inflation does not make sense.

I'd rather buy the means of production than take on the same tail risk lending money to the entities that own the means of production.

I'm all for diversification, but bonds are hazardous to wealth IMO.

Let me ask you this: if bonds return <0% real, wouldn't it make more sense to just prepay for the stuff one needs to live?
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by nigel_ht »

KlangFool wrote: Fri Oct 23, 2020 7:59 pm
000 wrote: Fri Oct 23, 2020 7:02 pm
KlangFool wrote: Fri Oct 23, 2020 6:55 pm 000,

<<Over the long run, this arguably has more risk. Over the short run, it depends.>>

The long-run only matters when a person can survive the short run.

<<But you don't seem to be suggesting metals when you criticize 100% stocks. You seem to suggest less stocks, and more bonds.>>


Gold/Silver only comes in when a person's portfolio is much bigger. In the beginning, CASH, BOND, and STOCK are good enough.

<<Buying "high quality" bonds right now is very likely to return less than 0% real unless deflation happens or the Fed goes to negative interest rates.>>

I cannot predict the future. Hence, I do not claim to be able to predict that deflation and/or negative interest rate is impossible. But, I don't have to. I am prepared. I have both STOCK and BOND. I am fine in any situation.


Be prepared or Be Lucky or Be able to predict the future. Those are the questions. I know my answer.

KlangFool
KlangFool,

Sometimes the price of safety is too high. Sometimes the safety is only illusory too. There is risk in all paths. An accumulator takes on more risk with an overly conservative portfolio of not having enough when the layoff happens to them in their 50s and they can't find another job. That is far more likely than being unable to find work in their 30s. Your anecdotal experience is not the norm.
000,

<<An accumulator takes on more risk with an overly conservative portfolio of not having enough when the layoff happens to them in their 50s >>


I dispute your assertion. Show us the numbers. The average annual return difference between 100/0 and 70/30 is only 1% per year. It is not enough to make a difference in a person's portfolio when they are the 50s.



<<That is far more likely than being unable to find work in their 30s.>>


We are not a statistic. We only get one shot in life. And, many folks are unemployed in every recession. And, sometimes, unemployment can last a while.


KlangFool
Over 30 years $100K at 10.1% is $1,793,162.17 vs $1,363,774.35 at 9.1%. $429K strikes me as a difference worth noting. $17K more annual income using the 4% WR.

Yeah, you aren't likely to have $100K in your portfolio at the start of your career but at the end of the day if your early career portfolio is large enough that 30% bonds gives you a cushion then your early portfolio is large enough where 1% a year delta over 30 years is significant.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by rockstar »

000 wrote: Fri Oct 23, 2020 8:27 pm
KlangFool wrote: Fri Oct 23, 2020 7:59 pm We are not a statistic. We only get one shot in life.
And putting 30%+ of my portfolio in stuff that is very likely to return less than inflation does not make sense.

I'd rather buy the means of production than take on the same tail risk lending money to the entities that own the means of production.

I'm all for diversification, but bonds are hazardous to wealth IMO.

Let me ask you this: if bonds return <0% real, wouldn't it make more sense to just prepay for the stuff one needs to live?
This makes sense to me. I don't get the appeal of investment grade bonds at current yields.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by willthrill81 »

nigel_ht wrote: Fri Oct 23, 2020 8:30 pm Over 30 years $100K at 10.1% is $1,793,162.17 vs $1,363,774.35 at 9.1%. $429K strikes me as a difference worth noting. $17K more annual income using the 4% WR.
Those numbers, which were the same as those in the WCI post, aren't good for forward expectations since bond yields are negative right now. It's very plausible that bonds will have a real return of zero over the next 20 years. As such, a 70/30% is likely to trail a 100% AA by significantly more than what we've seen in most of the historical record.
“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 nigel_ht »

JBTX wrote: Fri Oct 23, 2020 8:18 pm
flaccidsteele wrote: Fri Oct 23, 2020 3:02 pm
HomerJ wrote: Fri Oct 23, 2020 1:06 pm 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...
My charmed life has been through the exact same markets as everyone else

Those who can’t sleep well at night should spend some time to determine the root cause... it can’t be the US market because the US market always recovers. Always

Underlying cause must be something else
Until it doesn't.

How has that worked for Japan. But we are different right? Nothing bad ever happens to us.

People used to say housing prices never go down.
Well, we can play games that Japan couldn't and our bubble isn't as big as the Japanese one was.

There are significant differences that make a Nikkei event less likely to the US where we would have advance warning that the future may not be so grand. For example losing reserve currency status takes a lot of tools away making the risk of a Nikkei style crash more likely.

If you don't believe the US market will always recover (for now) then buy and hold is suspect.

Certainly holding anything besides global market cap is far more debatable.

I'm inclined to hold bonds because I intend to market time the next crash by over-rebalancing bonds into stocks. Lots of cash works too in a low inflation and low bond yield environment.
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by nigel_ht »

willthrill81 wrote: Fri Oct 23, 2020 8:33 pm
nigel_ht wrote: Fri Oct 23, 2020 8:30 pm Over 30 years $100K at 10.1% is $1,793,162.17 vs $1,363,774.35 at 9.1%. $429K strikes me as a difference worth noting. $17K more annual income using the 4% WR.
Those numbers, which were the same as those in the WCI post, aren't good for forward expectations since bond yields are negative right now. It's very plausible that bonds will have a real return of zero over the next 20 years. As such, a 70/30% is likely to trail a 100% AA by significantly more than what we've seen in most of the historical record.
That only makes 100/0 more compelling, not less...
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Re: 7 Reasons Not to Use a 100% Stock Portfolio - The White Coat Investor

Post by willthrill81 »

nigel_ht wrote: Fri Oct 23, 2020 8:37 pm
willthrill81 wrote: Fri Oct 23, 2020 8:33 pm
nigel_ht wrote: Fri Oct 23, 2020 8:30 pm Over 30 years $100K at 10.1% is $1,793,162.17 vs $1,363,774.35 at 9.1%. $429K strikes me as a difference worth noting. $17K more annual income using the 4% WR.
Those numbers, which were the same as those in the WCI post, aren't good for forward expectations since bond yields are negative right now. It's very plausible that bonds will have a real return of zero over the next 20 years. As such, a 70/30% is likely to trail a 100% AA by significantly more than what we've seen in most of the historical record.
That only makes 100/0 more compelling, not less...
Indeed.

I really believe that investors today should expect their bonds to do nothing more than drag down their returns for at least the next decade and likely the next two.
“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 kimura king »

Thank you 000 for basically saying bonds are risky. That was all I was trying to point out with my previous post. Bonds don't help me sleep at all. I have 20k in bonds but not buying more until I am in my 50's, in the meantime I'm all cash and total market index funds.

roth evangelist - If you don't count emergency funds as part of the portfolio, do you count bonds? I only ask since I expect 0-1% real return from bonds over the foreseeable future.
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