Does anyone believe 100 percent equities is not risky?

[tvubpwcisla]

I am in the camp that 100% equities is a great investment approach because you get to participate in 100% of the Index Fund rallies without drag down.

I believe the risky assets are not equity Index Funds but rather:

Options Trading
Individual Stocks
Speculative Assets like Cryptocurrencies

Do you agree?

[7eight9]

I am in the camp that 100% equities is a great investment approach because you get to participate in 100% of the Index Fund rallies without drag down.

I believe the risky assets are not equity Index Funds but rather:

Options Trading
Individual Stocks
Speculative Assets like Cryptocurrencies

Do you agree?

No. Investors in the Nikkei circa 1989 agree with me.

[sureshoe]

Your statement is too broad. When people speak of AA, it is a generalized number that may (or may not) take into account things like other assets, income, etc. Also, the meaning of risk can be contextual.

If you are entering retirement, have a significant mortgage, virtually no cash outside 2-4 weeks living expenses, and no expected income other than enough SS to tread water alongside $50k in equities - yes, $50k in equities is too risky.

If you are 22, living at home, making $100k/year - 100% equities is a pretty good idea.

In summary, being 100% in equities with all investments and having no others is not "too risky" for some. However, there are lots of people who would argue whether it offers the best risk-adjusted return.

[RJC]

It's less risky if you have a long timeframe (>10+ years).

[KlangFool]

I am in the camp that 100% equities is a great investment approach because you get to participate in 100% of the Index Fund rallies without drag down.

I believe the risky assets are not equity Index Funds but rather:

Options Trading
Individual Stocks
Speculative Assets like Cryptocurrencies

Do you agree?

tvubpwcisla,

When you are unemployed in the coming recession, how long can you last?

KlangFool

[dbr]

To answer that question you have to stop using "risk" as an absolute and specify the X in "risk of X"

In finance risk otherwise unqualified is the volatility of returns, specifically the standard deviation of whatever distribution of annual returns you can extract for the investment in question.

Yes it is usually true that the risk in those things you listed is greater than that of the US total stock market index.

A different issue which the term "drag down" might refer to is what is the average of the distribution of returns, aka the expected return. A poor expected return can be at great "risk of not meeting objectives." That would be what happens if the returns of a portfolio are "dragged down" by poor returning assets such as cash, that by itself is not volatile. To boil down the combination one can look at risk adjusted return such as Sharpe ratio. In the case of individual stocks the concept of diversifiable risk says that individual stocks have risk not compensated by expected return, thus a poor Sharpe ratio. A single individual stock in some period of time could turn out to deliver high return without a lot of volatility, until it doesn't.

Another issue is that a simple standard deviation of returns does not consider that returns could be from an asymmetric distribution, different on the upside than on the downside. That is why one might look at a statistic such as Sortino Ratio rather than Sharpe ratio.

[dbr]

It's less risky if you have a long timeframe (>10+ years).

see here: https://danluu.com/norstad/risk-time/

Volatility of CAGR tends to lessen over time, but volatility of end point wealth compounds over time at a higher rate than CAGR is reduced. That is because CAGR is annualized.

A good picture of this sort of thing is here: https://engaging-data.com/visualizing-4-rule/

It is a good idea to be very specific regarding what one is talking about when discussing risk.

An interesting side light on that sort of risk is that the risk of failing to meet a certain wealth goal decreases if the investment has an expected return that extrapolates in excess of the goal and increases if the expected return extrapolates to less than the goal. That is why investing too conservatively can actually increase risk of retirement failure.

[Big Dog]

what do you mean by risky? (I was 100% US equities until my early 60's, but I had a good job so I was comfortable with the investment "risk". Now, I have the 2-fund portfolio.)

Investors in the Nikkei circa 1989...

IMO, if the US goes the way of Nikkei, the world has much bigger problems than the price of the Total Stock.

[runninginvestor]

I am in the camp that 100% equities is a great investment approach because you get to participate in 100% of the Index Fund rallies without drag down.

I believe the risky assets are not equity Index Funds but rather:

Options Trading
Individual Stocks
Speculative Assets like Cryptocurrencies

Do you agree?

These are potentially contradictory. For example, you can trade equity index LEAPS to participate in a portion of the gains while limiting downside risk. Options are one of the primary tools for risk management. If you are unhedged in your options, yeah, they can put you at risk. But buying calls and puts gives you a pre-defined risk spectrum for gains/losses which would make them less risky than buying a naked security as you'd be exposed to upside and downside movements.

[Californiastate]

Not even close.

[Mike Scott]

Everything has risk but if you have enough money and enough time, almost any allocation can be OK. Meanwhile, emergency funds and fixed income provide financial buffers along the way for most people.

[burritoLover]

what do you mean by risky? (I was 100% US equities until my early 60's, but I had a good job so I was comfortable with the investment "risk". Now, I have the 2-fund portfolio.)

Investors in the Nikkei circa 1989...

IMO, if the US goes the way of Nikkei, the world has much bigger problems than the price of the Total Stock.

You think the global economy will grind to a halt because the market returns of the US are poor over a long period? Stock market != economy.

[Taylor Larimore]

tvubpwcisla:

I remember the 1929-1932 bear market when the Dow stocks plunged 89%.

Enough said.

Best wishes.
Taylor

Jack Bogle's Words of Wisdom: "Deep down, I remain absolutely confident that the vast majority of American families would be well served by owning their equity holdings in an all-U.S. stock-market index portfolio and holding their bonds in all-U.S. bond-market index fund."

[TheTimeLord]

I am in the camp that 100% equities is a great investment approach because you get to participate in 100% of the Index Fund rallies without drag down.

I believe the risky assets are not equity Index Funds but rather:

Options Trading
Individual Stocks
Speculative Assets like Cryptocurrencies

Do you agree?

Sure, if you never need to make withdrawals.

[JBTX]

For any money you don’t need for 20 years, 100% stocks risk is “manageable”. Even then you run the behavioral risk if your 100% stock portfolio gets hammered and stays down for a long period, many years, that investors won’t have the conviction to stick with it. This has not been experienced in the US since the early 80’s.

[hnd]

risk is subjective. there are many "unique" factors to everyone's life that will push and pull on the risk-o-meter.

[Dude2]

Sometimes you have to take risk, and sometimes you don't. It'd be nice to get a firm grip on the reins and understand how that translates into an overall plan, starting with an asset allocation decision. Most people don't find out they were taking too much risk until they are bitten, and then they probably overcompensate. People with decades of life experience in investable assets have been bitten many times. Each time it seems different. The apocalypse is always right around the corner. Pick a plan and stick to it.

[cmr79]

I am in the camp that 100% equities is a great investment approach because you get to participate in 100% of the Index Fund rallies without drag down.

I believe the risky assets are not equity Index Funds but rather:

Options Trading
Individual Stocks
Speculative Assets like Cryptocurrencies

Do you agree?

I certainly agree that options, individual stocks and crypto are riskier, but the real question is whether your personal risk tolerance will allow you to sleep well at night and not sell low if your 100% equity index fund drops 50% in value during a bear market. If you are early in your investing career with a small portfolio, it would be better to learn your risk tolerance now when the cost is lower...if you've been through one, you should already know if 100% equity index funds is too risky for you. Other posters have already pointed out the importance of your investment horizon.

Personally, I had a 100% equities investment portfolio when I was just starting, but I adjusted that to 75/25 after finding Bogleheads and subscribing to the Graham 75-25% rule. I could tolerate more risk...but based on my projections, I don't need to take it.

[dbr]

For me 100% equities would not be hugely risky because any reasonably possible loss would not hamper doing what I want to do. Even 100% permanent loss could be managed if somewhat painful.

100% equities is undesirably risky for me because I would prefer not to see the portfolio ending up fluctuating in value as much as that would imply,

50% equities and 50% in intermediate bonds is a level consistent with both. While 2022 was not exactly expected to happen the consequences in investing are not surprising for the conditions and don't exceed either of the above considerations.

[HueyLD]

I am in the camp that 100% equities is a great investment approach because you get to participate in 100% of the Index Fund rallies without drag down.

Possibly yes if you do not need to sell when the equity markets tank more than 50% and stay down for a few years.

If you have other resources for food, shelter, transportation, taxes, children’s expenses, etc., yes go for it. But you have to promise not to cash out at the bottom (as in buy high and sell low).

[Watty]

Do you agree?

One measure of risk of a portfolio is how much the return has varied from the average return over the years. The past history of that can be measured by looking at the standard deviation and there is not question that adding some bonds to a portfolio reduces the standard deviation. As the standard deviation declines that can also be called less risky.

That is a historical and mathematical fact and not an opinion.

There can of course be different opinions about what the right amount of risk to take is but to say that 100% stocks is not riskier, as measured by standard deviation, than something like a 80%stock/20% bond portfolio is incorrect.

This is not to say that having a percentage of your portfolio in bonds is perfect. Recently bonds have been going down at the same time stocks have which is unusual but that has always been a possibility.

It's less risky if you have a long timeframe (>10+ years).

It is a different type of risk but you also have to keep in mind that you cannot be completely certain just what your timeframe is. This is especially important in retirement planning once you get to be about in your late 40s since if you have a nonfinancial setback your timeframe may be reduced and be a lot shorter than you assumed.

Especially when I was going through my 50s I saw a lot more people than I expected run into problems with careers, burnout, layoffs, big health problem, the death of a spouse, etc that cut their retirement savings timeframe short.

If something happens like you get laid off in your 50 at the same time your 100% stock portfolio is way down you could be in a real bad situation. For example I worked in tech and one of my coworkers was laid off when he was in his 50s during the 2008 financial crisis. He was never able to find another similar tech job and ended up working as a school bus driver as a bridge job into retirement to get the benefits and a bit of income.

[dbr]

I am in the camp that 100% equities is a great investment approach because you get to participate in 100% of the Index Fund rallies without drag down.

Possibly yes if you do not need to sell when the equity markets tank more than 50% and stay down for a few years.

If you have other resources for food, shelter, transportation, taxes, children’s expenses, etc., yes go for it. But you have to promise not to cash out at the bottom (as in buy high and sell low).

You still have to specify the X in "risk of X." Otherwise "not risky" depends on how one evaluates the standard deviation of annual returns for the equities one holds. For you, based on the above, X is the risk of needing or taking all the investment when the deviation is strong to the downside. Equities are indeed risky if that condition materializes and not if it doesn't. An equity portfolio is risky if one relies on it for large withdrawals over time that exceed a certain amount and not risky if they don't. 4% withdrawal rate for 30 years at 100% equities is not very risky, but 8% is highly risky, risk meaning running out of money before the time is up. Ironically, 0% equities is risky at that 4%, but not so much at 3%.

And so on.

[Watty]

risk is subjective. there are many "unique" factors to everyone's life that will push and pull on the risk-o-meter.

In investing risk is a somewhat vague word which can mean many different things but when looking at portfolio asset allocation expectations it is normally referring to the standard deviation of historical returns(as mentioned in my prior post) which is not subjective at all.

How much risk to take is very subjective though.

[dbr]

risk is subjective. there are many "unique" factors to everyone's life that will push and pull on the risk-o-meter.

In investing risk is a somewhat vague word which can mean many different things but when looking at portfolio asset allocation expectations it is normally referring to the standard deviation of historical returns(as mentioned in my prior post) which is not subjective at all.

How much risk to take is very subjective though.

The fact that this has to be hammered on over and over again, and that risk always devolves into "means this, means that" says that we need a bot that evaluates each post for coherent definitions and auto deletes the ones that are not coherent.

[H-Town]

I am in the camp that 100% equities is a great investment approach because you get to participate in 100% of the Index Fund rallies without drag down.

I believe the risky assets are not equity Index Funds but rather:

Options Trading
Individual Stocks
Speculative Assets like Cryptocurrencies

Do you agree?

No. Risk and rewards go hand in hand. Higher the risk, higher the rewards and vice versa. See efficient frontier graph.

[Florida Orange]

I agree in theory, but I don't have the nerve to actually do it.

[dbr]

I am in the camp that 100% equities is a great investment approach because you get to participate in 100% of the Index Fund rallies without drag down.

I believe the risky assets are not equity Index Funds but rather:

Options Trading
Individual Stocks
Speculative Assets like Cryptocurrencies

Do you agree?

No. Risk and rewards go hand in hand. Higher the risk, higher the rewards and vice versa. See efficient frontier graph.

Exactly, but that graph is really one of expected return* vs standard deviation of returns as is the standard definition in finance. And it is very useful because those statistics lead to understanding of what is happening.

*Really should be arithmetic mean return, but sometimes a CAGR average is used instead.

[dbr]

I agree in theory, but I don't have the nerve to actually do it.

Reality in a nutshell. I have acted the same.

[Broken Man 1999]

Yes, as some folks have all their expenses covered by pensions and/or SS benefits.

We can't because SS only covers about half of our expenses.

Broken Man 1999

[willthrill81]

Before one can define any AA as 'risky' or not, one must first define risk. It's a remarkably difficult thing to do.

Personally, I view the biggest financial risk I face as not having the resources I need to purchase what my family needs, followed by the same for what my family reasonably desires. But financial risks are not the only risks we face. If they were, we would work as long as we possibly could with complete disregard for quality of life.

[DSBH]

I am in the camp that 100% equities is a great investment approach because you get to participate in 100% of the Index Fund rallies without drag down.
...
Do you agree?

Yes, if you have no issue with losing 50% of your investment, assuming that "risky" is about losing invested money.

[dbr]

Yes, as some folks have all their expenses covered by pensions and/or SS benefits.

We can't because SS only covers about half of our expenses.

Broken Man 1999

100% is still risky if one does not want to experience the volatility of stocks. It is not risky if the only thing endangered is the income one has decided is sufficient. It is still risky if one has ambitions for what one wants to accomplish other than have adequate income. Or it is not risky if what one wants is the maximum wealth one can actually achieve at 100% stocks. But it is risky is what one wants is the maximum wealth one might have achieved at 100% stocks.

This is not mere sophism but points to the fact that risk has to defined as risk of something and those somethings are real.

[tvubpwcisla]

I am in the camp that 100% equities is a great investment approach because you get to participate in 100% of the Index Fund rallies without drag down.
...
Do you agree?

Yes, if you have no issue with losing 50% of your investment, assuming that "risky" is about losing invested money.

The market will recover faster than you could have ever imagined and you will get to participate in that recovery to the fullest extent possible.

[HomerJ]

Higher the risk, higher the rewards and vice versa. See efficient frontier graph.

Higher the risk, higher the possible rewards. There is also the possibility of the risk showing up, and you get a loss instead of a reward.

[BrooklynInvest]

If I were a billionaire, then yes.

In this life, I'd say you're 60-70% correct

[dbr]

I am in the camp that 100% equities is a great investment approach because you get to participate in 100% of the Index Fund rallies without drag down.
...
Do you agree?

Yes, if you have no issue with losing 50% of your investment, assuming that "risky" is about losing invested money.

The market will recover faster than you could have ever imagined and you will get to participate in that recovery to the fullest extent possible.

Indeed so. But some people don't want to experience that even if it does recover.

But the real question is, for you, what is the "X" in "risk of X"? In the above example you could judge that starting with $1M and holding for 30 years your chances of failing to get to $6M are less at risk at 100% stocks, where the risk is 50% failure, than at 75/25, where the risk is 75% failure, or at 50/50 where the risk is about 100% failure.

This chart is the data for making that assessment: https://engaging-data.com/visualizing-4-rule/

[HomerJ]

I am in the camp that 100% equities is a great investment approach because you get to participate in 100% of the Index Fund rallies without drag down.

I believe the risky assets are not equity Index Funds but rather:

Options Trading
Individual Stocks
Speculative Assets like Cryptocurrencies

Do you agree?

Those three are far more risky yes... But saying that 100 percent equities is NOT risky is not correct for most people.

If you are withdrawing money (as in retirement), 100% equities can be dangerous.

[burritoLover]

Interesting chart posted over at rational reminder forums.

[nisiprius]

1) I think it is too risky for me.

2) I think are are some people who have the risk tolerance for 100 percent equities, either because of a much larger total financial picture, or because their of personal life philosophy and values.

3) I think there are many people who project their own feelings about financial risk and believe that what are simply decisions that are suitable for them are objectively right, and that people who make different decisions are objectively wrong.

4) I don't think many salaried employees who are saving money for retirement, without other major financial resources, have the risk tolerance for 100% equities.

5) I think there are overconfident people who think they have the risk tolerance for 100% equities, but are mistaken. I personally knew two people who had aggressive allocations and sold heavily in late 2008.

6) There are many financial products you can buy that are much riskier than a total stock market index fund.

[Broken Man 1999]

Yes, as some folks have all their expenses covered by pensions and/or SS benefits.

We can't because SS only covers about half of our expenses.

Broken Man 1999

100% is still risky if one does not want to experience the volatility of stocks. It is not risky if the only thing endangered is the income one has decided is sufficient. It is still risky if one has ambitions for what one wants to accomplish other than have adequate income. Or it is not risky if what one wants is the maximum wealth one can actually achieve at 100% stocks. But it is risky is what one wants is the maximum wealth one might have achieved at 100% stocks.

This is not mere sophism but points to the fact that risk has to defined as risk of something and those somethings are real.

Risk means different things to different people depending on their situations.

Broken Man 1999

[dbr]

Yes, as some folks have all their expenses covered by pensions and/or SS benefits.

We can't because SS only covers about half of our expenses.

Broken Man 1999

100% is still risky if one does not want to experience the volatility of stocks. It is not risky if the only thing endangered is the income one has decided is sufficient. It is still risky if one has ambitions for what one wants to accomplish other than have adequate income. Or it is not risky if what one wants is the maximum wealth one can actually achieve at 100% stocks. But it is risky is what one wants is the maximum wealth one might have achieved at 100% stocks.

This is not mere sophism but points to the fact that risk has to defined as risk of something and those somethings are real.

Risk msans different things to different people depending on their situations.

Broken Man 1999

Which is why I don't understand why people are not willing or able to say what that is in the context of their own comments. Having all one's expenses covered by income streams and not needing investments is not enough to specify what that person's risks are unless we concede that their only risk is not being able to cover their spending. In the case they do have that risk they can also have other ones unless they say that is their only risk. For example if you look at safe withdrawal rates there is very little difference between 50/50 portfolios and 100/0 portfolios, so 100% equities is not riskier than 50/50. And yet 0/100 is riskier than 50/50. Still, in the real world most investors who are now assured they will have enough income still don't want the extra volatility of 100% stocks and for them 100% is risky.

[Marseille07]

The market will recover faster than you could have ever imagined and you will get to participate in that recovery to the fullest extent possible.

100% is risky. I'm pretty gung-ho myself but I know my max is 90~95%.

The problem is that the market might not recover for a long time, such as the 2000~2012 stretch.

[tennisplyr]

Key questions: What’s your time frame, what’s your goal, what’s your emotional status? What’s your equity holdings?

[Valuethinker]

1) I think it is too risky for me.

2) I think are are some people who have the risk tolerance for 100 percent equities, either because of a much larger total financial picture, or because their of personal life philosophy and values.

3) I think there are many people who project their own feelings about financial risk and believe that what are simply decisions that are suitable for them are objectively right, and that people who make different decisions are objectively wrong.

4) I don't think many salaried employees who are saving money for retirement, without other major financial resources, have the risk tolerance for 100% equities.

5) I think there are overconfident people who think they have the risk tolerance for 100% equities, but are mistaken. I personally knew two people who had aggressive allocations and sold heavily in late 2008.

6) There are many financial products you can buy that are much riskier than a total stock market index fund.

Time left to make it back is a key variable.

I went through 2000-03 essentially 100% equities. This was a bad strategy, but I had lots of working years ahead of me ("human capital").

Now I am in a totally different place. There is a meaningful impact on my retirement date & plans.

Also I am aware that it seems increasingly rare that one gets to choose one's retirement date. Rather, "the man" (or woman) takes you into a meeting room and HR gives you a package to sign. If you are lucky, you get to say goodbye to your colleagues. If not, then you don't.

Or something medical happens to you or your spouse that makes continuing to work unlikely or impossible.

[Broken Man 1999]

Yes, as some folks have all their expenses covered by pensions and/or SS benefits.

We can't because SS only covers about half of our expenses.

Broken Man 1999

100% is still risky if one does not want to experience the volatility of stocks. It is not risky if the only thing endangered is the income one has decided is sufficient. It is still risky if one has ambitions for what one wants to accomplish other than have adequate income. Or it is not risky if what one wants is the maximum wealth one can actually achieve at 100% stocks. But it is risky is what one wants is the maximum wealth one might have achieved at 100% stocks.

This is not mere sophism but points to the fact that risk has to defined as risk of something and those somethings are real.

Risk means different things to different people depending on their situations.

Broken Man 1999

Which is why I don't understand why people are not willing or able to say what that is in the context of their own comments. Having all one's expenses covered by income streams and not needing investments is not enough to specify what that person's risks are unless we concede that their only risk is not being able to cover their spending. In the case they do have that risk they can also have other ones unless they say that is their only risk. For example if you look at safe withdrawal rates there is very little difference between 50/50 portfolios and 100/0 portfolios, so 100% equities is not riskier than 50/50. And yet 0/100 is riskier than 50/50. Still, in the real world most investors who are now assured they will have enough income still don't want the extra volatility of 100% stocks and for them 100% is risky.

I have no idea if the bolded is true. I do assume that investors probably know their situations and the biases for/against the risk (as they define risk) they might be taking. Not sure I care all that much what others are doing. I'm sure they have their own thoughts why they have the AA they do have.

Broken Man 1999

[gougou]

If you have $100K portfolio with 100% equity and you save 100K a year that’s not risky at all. That’s like a 50/50 stock/cash portfolio in year 2.

If you have $1M 100% stock portfolio and must withdraw $100K a year, that’s very risky. That’s like going on 10% margin in year 2 and 20% margin in year 3 and so on.

[KlangFool]

The market will recover faster than you could have ever imagined and you will get to participate in that recovery to the fullest extent possible.

tvubpwcisla,

1) How do you know that unless you can predict the future?

2) If the person is wiped out before the recovery, then, the recovery could not save the person.

KlangFool

[H-Town]

1) I think it is too risky for me.

2) I think are are some people who have the risk tolerance for 100 percent equities, either because of a much larger total financial picture, or because their of personal life philosophy and values.

3) I think there are many people who project their own feelings about financial risk and believe that what are simply decisions that are suitable for them are objectively right, and that people who make different decisions are objectively wrong.

4) I don't think many salaried employees who are saving money for retirement, without other major financial resources, have the risk tolerance for 100% equities.

5) I think there are overconfident people who think they have the risk tolerance for 100% equities, but are mistaken. I personally knew two people who had aggressive allocations and sold heavily in late 2008.

6) There are many financial products you can buy that are much riskier than a total stock market index fund.

I think there are 2 groups of people who don't mind 100 percent equities:

1) Those who have too little to lose. If they have under 500k, a 50% haircut would only cost them 250k or so.

2) Those who have too much to care. If they have saved more than 50x of their annual expense, a 50% haircut would still put them at 25x.

Like a bell curve, many of savers are distributed among those 2 groups. They have more too lose, but not rich enough to play fast and furious with their life saving.

[Marseille07]

I went through 2000-03 essentially 100% equities. This was a bad strategy, but I had lots of working years ahead of me ("human capital").

Not sure why you think this was a bad strategy. This was when you ended up buying lots of shares on the cheap. Imagine holding 60/40 instead, that's way worse in my opinion.

[goodenyou]

Not risky if you have bulletproof human capital and a guaranteed job. That usually doesn't exist.