Why not go 100% stocks?

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TheTimeLord
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Re: Why not go 100% stocks?

Post by TheTimeLord » Wed Jul 11, 2018 9:13 am

masonstone wrote:
Mon Jun 25, 2018 10:35 am
I'm relatively young, 35, and plan to work for the next two decades. I'm in a dual physician household and enjoy working and being productive. I don't really enjoy site-seeing and traveling as much. My household income is approximately 900K with approximately 120K of annual expenses.

My question is, why not keep 100% of my assets in stocks? The only thing holding me from putting 100% in stocks is to be able to take advantage of a market downturn. So for example if there's a recession, I can take advantage of it by shifting money from bonds to stocks in that scenario. If I'm 100% stocks I wouldn't be able to do that.

What do the bogleheads think? Your input is appreciated.
My question would be what advantage do you perceive being provided to your lifestyle by going 100/0 versus say 75/25? If you see some advantage then figure out if that advantage is worth the risk. You obviously have plenty of income available investment each month.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

masonstone
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Re: Why not go 100% stocks?

Post by masonstone » Wed Jul 11, 2018 9:15 am

TheTimeLord wrote:
Wed Jul 11, 2018 9:13 am
masonstone wrote:
Mon Jun 25, 2018 10:35 am
I'm relatively young, 35, and plan to work for the next two decades. I'm in a dual physician household and enjoy working and being productive. I don't really enjoy site-seeing and traveling as much. My household income is approximately 900K with approximately 120K of annual expenses.

My question is, why not keep 100% of my assets in stocks? The only thing holding me from putting 100% in stocks is to be able to take advantage of a market downturn. So for example if there's a recession, I can take advantage of it by shifting money from bonds to stocks in that scenario. If I'm 100% stocks I wouldn't be able to do that.

What do the bogleheads think? Your input is appreciated.
My question would be what advantage do you perceive being provided to your lifestyle by going 100/0 versus say 75/25? If you see some advantage then figure out if that advantage is worth the risk. You obviously have plenty of income available investment each month.
Main advantage is leaving more money for my children.

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TheTimeLord
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Re: Why not go 100% stocks?

Post by TheTimeLord » Wed Jul 11, 2018 9:26 am

masonstone wrote:
Wed Jul 11, 2018 9:15 am
TheTimeLord wrote:
Wed Jul 11, 2018 9:13 am
masonstone wrote:
Mon Jun 25, 2018 10:35 am
I'm relatively young, 35, and plan to work for the next two decades. I'm in a dual physician household and enjoy working and being productive. I don't really enjoy site-seeing and traveling as much. My household income is approximately 900K with approximately 120K of annual expenses.

My question is, why not keep 100% of my assets in stocks? The only thing holding me from putting 100% in stocks is to be able to take advantage of a market downturn. So for example if there's a recession, I can take advantage of it by shifting money from bonds to stocks in that scenario. If I'm 100% stocks I wouldn't be able to do that.

What do the bogleheads think? Your input is appreciated.
My question would be what advantage do you perceive being provided to your lifestyle by going 100/0 versus say 75/25? If you see some advantage then figure out if that advantage is worth the risk. You obviously have plenty of income available investment each month.
Main advantage is leaving more money for my children.
Going to be blunt, do you feel your children won't be able to support themselves or that they should never dirty their hands with work? With your level of income and your careers it would seem they will have excellent access to education and live in a household that encourages and values learning. At your income level you are likely to leave them millions (unless you have like a dozen kids) however you go, so what would that additional money provide your children and do you feel it would be a positive in their life? My perception is your children are going to grow up fortunate and advantaged and receive a fine inheritance from their parents that will likely enable them to pursue whatever field of work they choose. So do you think more money will truly make their lives better. Its your family, your choices so just figure out what kind of impact you want money to have on your family and make the decisions inline with that.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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vineviz
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Re: Why not go 100% stocks?

Post by vineviz » Wed Jul 11, 2018 9:34 am

masonstone wrote:
Wed Jul 11, 2018 9:07 am
I wonder if you look across a 40 year or so working career whether 100% stocks would always beat any other combination. IF you never sell during a down market.
Yes, a 100% stock portfolio has always outperformed a combination of stocks and intermediate bonds.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

sschullo
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Re: Why not go 100% stocks?

Post by sschullo » Wed Jul 11, 2018 9:46 am

emlowe wrote:
Mon Jun 25, 2018 4:47 pm
steve roy wrote:
Mon Jun 25, 2018 4:08 pm
Go the Warren Buffett route:

90% S & P 500; 10% bonds.
Specifically 10% in "short-term government bonds"

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)"
I think I read from Bernstein that the inclusion of 10% bonds not only reduces risk but increases return.
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

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TheTimeLord
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Re: Why not go 100% stocks?

Post by TheTimeLord » Wed Jul 11, 2018 9:46 am

vineviz wrote:
Wed Jul 11, 2018 9:34 am
masonstone wrote:
Wed Jul 11, 2018 9:07 am
I wonder if you look across a 40 year or so working career whether 100% stocks would always beat any other combination. IF you never sell during a down market.
Yes, a 100% stock portfolio has always outperformed a combination of stocks and intermediate bonds.
Just curious but being 35, extremely high income and having excellent saving tendencies do you really think you working another 40 year is likely?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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vineviz
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Re: Why not go 100% stocks?

Post by vineviz » Wed Jul 11, 2018 9:52 am

TheTimeLord wrote:
Wed Jul 11, 2018 9:46 am
vineviz wrote:
Wed Jul 11, 2018 9:34 am
masonstone wrote:
Wed Jul 11, 2018 9:07 am
I wonder if you look across a 40 year or so working career whether 100% stocks would always beat any other combination. IF you never sell during a down market.
Yes, a 100% stock portfolio has always outperformed a combination of stocks and intermediate bonds.
Just curious but being 35, extremely high income and having excellent saving tendencies do you really think you working another 40 year is likely?
I have no idea, but I certainly hope you at least LIVE another 40 years.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

masonstone
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Re: Why not go 100% stocks?

Post by masonstone » Wed Jul 11, 2018 9:58 am

vineviz wrote:
Wed Jul 11, 2018 9:52 am
TheTimeLord wrote:
Wed Jul 11, 2018 9:46 am
vineviz wrote:
Wed Jul 11, 2018 9:34 am
masonstone wrote:
Wed Jul 11, 2018 9:07 am
I wonder if you look across a 40 year or so working career whether 100% stocks would always beat any other combination. IF you never sell during a down market.
Yes, a 100% stock portfolio has always outperformed a combination of stocks and intermediate bonds.
Just curious but being 35, extremely high income and having excellent saving tendencies do you really think you working another 40 year is likely?
I have no idea, but I certainly hope you at least LIVE another 40 years.
Being an Oncologist I definitely know there's a possibility I wont be alive in 40 years. However there is very high chance that my children will be alive. Even if I do die early I would be happy having left them a good chunk of money to be self sufficient.

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vineviz
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Re: Why not go 100% stocks?

Post by vineviz » Wed Jul 11, 2018 10:04 am

masonstone wrote:
Wed Jul 11, 2018 9:58 am
Even if I do die early I would be happy having left them a good chunk of money to be self sufficient.
I'm pretty sure I know what you meant, but you might want to read that last sentence again. :wink:
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

masonstone
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Re: Why not go 100% stocks?

Post by masonstone » Wed Jul 11, 2018 10:35 am

vineviz wrote:
Wed Jul 11, 2018 10:04 am
masonstone wrote:
Wed Jul 11, 2018 9:58 am
Even if I do die early I would be happy having left them a good chunk of money to be self sufficient.
I'm pretty sure I know what you meant, but you might want to read that last sentence again. :wink:
Well technically if I'm dead, and the monies are in their account, they would be self sufficient with the money they inherited :P

wrongfunds
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Re: Why not go 100% stocks?

Post by wrongfunds » Wed Jul 11, 2018 11:44 am

You have $800K worth of "dry powder" every year to invest when markets go down. Do you think you need even more than that?

The real answer is "it does NOT matter" what you do as long as your income and expenses do not diverge in the wrong direction over the coming decades.

And about "saving for the children"; what roles *your* parents paid in getting you to this stage? I would assume you would do at least that much if not more for your children (aka fully pay their medical education if they get in to it)

Bottom Line:-

It does NOT matter but I am sure you already know that!

michaeljc70
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Re: Why not go 100% stocks?

Post by michaeljc70 » Wed Jul 11, 2018 11:59 am

masonstone wrote:
Wed Jul 11, 2018 9:07 am
I wonder if you look across a 40 year or so working career whether 100% stocks would always beat any other combination. IF you never sell during a down market.
If not always, almost always. I had 100% stocks until I was well into my 40s (and I plan to retire before 50). I plan on 75/25 in retirement (my current AA). Other than to give diversification and a little cushion in a downturn, bonds are a drag on returns over the long haul. Using the dataset I have (1926-2017),the S&P 500 averaged 11.9% and the 10 year averaged 5.5%.

The people suggesting going very conservative due to your income I think are looking at it differently than I would. Why leave all that money on the table when you have that long of an investment horizon? Also, who knows what will happen. Maybe they will have kids and one will want to stay home with the kids and then the income is cut in half (or whatever).
Last edited by michaeljc70 on Wed Jul 11, 2018 3:35 pm, edited 1 time in total.

BigMoneyNoWhammies
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Re: Why not go 100% stocks?

Post by BigMoneyNoWhammies » Wed Jul 11, 2018 12:31 pm

Jordan4FI wrote:
Mon Jun 25, 2018 10:40 am
You have no reason to go 100% your income is crazy high, that is WOW!! You could just put $$ into a very conservative account and you will have 20 Million in 20 years time.. If you invest between 500K and 700K a year, you can only have anything you want later in life... Most of us are just trying to get our base expenses covered in 10 years so we can have options or walk away from the need to work...

I would play your hand safe, you are going to be so damn wealthy.. Just enjoy the fact you and your family are going to be fine. Do not put any kind of unneeded risk..
+1

I'm in my early 30's as well, a few years younger than you, and am essentially 100% total US market right now via VTI (minus 3-4% of my portfolio that I use to essentially gamble on high risk-high reward plays after doing research). I'm 100% because the increased rate of return is worth the additional risk for me given my work time horizon, current income level, expected future income level, and ability to save. However, if I had your level of income and expenses, I would likely be far more conservative with my investing because I wouldn't need to take as much risk. I mean, you're pocketing over 85% of your income, and the total net amount you're saving after expenses is more than most dual income households have in gross income prior to expenses. a 50/50 stock/bond split would be what I went with if I was in your shoes in terms of income, retirement horizon, and expected lack of intensive spending during retirement.

Ravi_india
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Re: Why not go 100% stocks?

Post by Ravi_india » Thu Jul 12, 2018 11:51 am

masonstone wrote:
Mon Jun 25, 2018 10:35 am
I'm relatively young, 35, and plan to work for the next two decades. I'm in a dual physician household and enjoy working and being productive. I don't really enjoy site-seeing and traveling as much. My household income is approximately 900K with approximately 120K of annual expenses.

My question is, why not keep 100% of my assets in stocks? The only thing holding me from putting 100% in stocks is to be able to take advantage of a market downturn. So for example if there's a recession, I can take advantage of it by shifting money from bonds to stocks in that scenario. If I'm 100% stocks I wouldn't be able to do that.

What do the bogleheads think? Your input is appreciated.
Congratulations for earning such high income and saving majority of it.

I feel you should be in 100% stocks. Anyway with your kind of savings you are going to be very wealthy, 10-15 years from now which ever way the markets go. If people with your income cannot take risks then who can? Even in the worst case scenario you will be fine.

However I feel your concern seems more about inability to take advantage of the downturn as you will be fully invested in stocks. In my view this is market timing and highly avoidable. Not only are there scores of threads discouraging that besides market plays funny games with one's mind like will markets go down further, how long will the market remain high etc, an avoidable strategy.

wolf359
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Re: Why not go 100% stocks?

Post by wolf359 » Thu Jul 12, 2018 12:30 pm

masonstone wrote:
Wed Jul 11, 2018 10:35 am
vineviz wrote:
Wed Jul 11, 2018 10:04 am
masonstone wrote:
Wed Jul 11, 2018 9:58 am
Even if I do die early I would be happy having left them a good chunk of money to be self sufficient.
I'm pretty sure I know what you meant, but you might want to read that last sentence again. :wink:
Well technically if I'm dead, and the monies are in their account, they would be self sufficient with the money they inherited :P
Most people with windfalls lose them. If they don't know how to handle large sums of money, they will mismanage it. They COULD be self-sufficient within the resources that they inherited. This does not mean that they WOULD be.

See: "The Millionaire Next Door" and the section on "economic outpatient care" and "inheritances."
Or see: Most stories about lottery winners 10 years later.

You have the advantage of knowing how to earn, accumulate, and invest the money. You also had the advantage of getting accustomed to growing the balances over time. If your $2 million drops 10% in a month (like in February), it probably won't phase you. Market moves like that are not uncommon. To someone who just had the money dropped on them, they may consider having $200,000 evaporate in a month (4X median annual income) to be a disaster.

Just giving them the money won't make them self-sufficient.

masonstone
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Re: Why not go 100% stocks?

Post by masonstone » Fri Jul 13, 2018 10:01 am

wolf359 wrote:
Thu Jul 12, 2018 12:30 pm
masonstone wrote:
Wed Jul 11, 2018 10:35 am
vineviz wrote:
Wed Jul 11, 2018 10:04 am
masonstone wrote:
Wed Jul 11, 2018 9:58 am
Even if I do die early I would be happy having left them a good chunk of money to be self sufficient.
I'm pretty sure I know what you meant, but you might want to read that last sentence again. :wink:
Well technically if I'm dead, and the monies are in their account, they would be self sufficient with the money they inherited :P
Most people with windfalls lose them. If they don't know how to handle large sums of money, they will mismanage it. They COULD be self-sufficient within the resources that they inherited. This does not mean that they WOULD be.

See: "The Millionaire Next Door" and the section on "economic outpatient care" and "inheritances."
Or see: Most stories about lottery winners 10 years later.

You have the advantage of knowing how to earn, accumulate, and invest the money. You also had the advantage of getting accustomed to growing the balances over time. If your $2 million drops 10% in a month (like in February), it probably won't phase you. Market moves like that are not uncommon. To someone who just had the money dropped on them, they may consider having $200,000 evaporate in a month (4X median annual income) to be a disaster.

Just giving them the money won't make them self-sufficient.
I agree with you that just as important to giving money to my children it's to educate them on how to manage their finances and put them on a path for a successful career. However that's a separate discussion and it doesn't change the goal of maximizing the money I would like to leave for them.

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Re: Why not go 100% stocks?

Post by joe8d » Fri Jul 13, 2018 7:31 pm

TravelforFun wrote:
Mon Jun 25, 2018 11:12 am
Sure. Go 100% stock if you:

- Don't need that money for 20-30 years
- Can still sleep well after your portfolio drops 20% in one day or 50% in one year then stay flat for a few years

I was 100% equity when I was in my 30s and 40s and came out fine.

TravelforFun
:thumbsup
All the Best, | Joe

Finridge
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Re: Why not go 100% stocks?

Post by Finridge » Fri Jul 20, 2018 5:35 pm

sschullo wrote:
Wed Jul 11, 2018 9:46 am
emlowe wrote:
Mon Jun 25, 2018 4:47 pm
steve roy wrote:
Mon Jun 25, 2018 4:08 pm
Go the Warren Buffett route:

90% S & P 500; 10% bonds.
Specifically 10% in "short-term government bonds"

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)"
I think I read from Bernstein that the inclusion of 10% bonds not only reduces risk but increases return.
That was not my reading. Over the long-run a 100% stock allocation can be expected to beat a 90%/10% allocation, but it is more volatile. Bernstein is of the view that investors should't take risks they don't need. If you've won the game and have "enough," stop playing he says.

Just mentioned this in another thread, but since it's equally relevant here, I will repeat it here with minor tweaks. I would suggest that the OP fill out this questionnaire and take into consideration it's recommendations:
https://personal.vanguard.com/us/FundsInvQuestionnaire

This tool WILL recommend a 100% equity allocation for people whose responses indicate that they are aware of the risk and can bear the risk of such an allocation. This allocation is not appropriate for most people, and ultimately only you can determine if it is appropriate for you. Are you OK waking up one morning and seeing that your $5,000,000 account went down to $2,500,000 (or lower) overnight? If the thought of this makes your stomach churn now, count on it being much worse when it actually happens. And if you feel the urge to sell after something like this happens, then you were in too aggressive an allocation, and finding out way to late, and after the damage has been done. An all-stock portfolio is volatile and you can expect that it will be a wild roller-coaster ride.

In his most recent shareholder letter, Warren Buffet states that the whether bonds increase or reduce risk depends on your time horizon. In the short-term they reduce risk. In the long-term they often increase risk.

http://www.berkshirehathaway.com/letters/2017ltr.pdf
Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained.

By that standard, purportedly “risk-free” long-term bonds in 2012 were a far riskier investment than a longterm
investment in common stocks. At that time, even a 1% annual rate of inflation between 2012 and 2017 would
have decreased the purchasing-power of the government bond that Protégé and I sold.

I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far
riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates.

It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds
to stocks. Often, high-grade bonds in an investment portfolio increase its risk.
So, if you are investing for a long time horizon, you understand, accept, and can bear the volatility risk, and you have the stomach to "stock with the program" through thick or thin - then a 100% stock allocatoin makes sense.

A 100% stock allocation, or even a 90%/10% allocation is probably too aggressive for most people, but it will be for some people. Just my opinion.

michaeljc70
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Re: Why not go 100% stocks?

Post by michaeljc70 » Fri Jul 20, 2018 6:11 pm

Everyone knows that bonds are less volatile than stocks and good for diversification. However, 36 years out of the last 91 years (that is what data I have), the 10 year had negative real returns. That's ~40% of years that were negative in real terms. I point this out because I bet if you asked people "would you consider an investment that underperformed inflation 40% of the time a good investment" you'd get a different response than asking if bonds are a good investment.
Last edited by michaeljc70 on Fri Jul 20, 2018 6:25 pm, edited 1 time in total.

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abuss368
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Re: Why not go 100% stocks?

Post by abuss368 » Fri Jul 20, 2018 6:19 pm

masonstone wrote:
Mon Jun 25, 2018 10:35 am
I'm relatively young, 35, and plan to work for the next two decades. I'm in a dual physician household and enjoy working and being productive. I don't really enjoy site-seeing and traveling as much. My household income is approximately 900K with approximately 120K of annual expenses.

My question is, why not keep 100% of my assets in stocks? The only thing holding me from putting 100% in stocks is to be able to take advantage of a market downturn. So for example if there's a recession, I can take advantage of it by shifting money from bonds to stocks in that scenario. If I'm 100% stocks I wouldn't be able to do that.

What do the bogleheads think? Your input is appreciated.
This type of thread appears quite a bit when the markets are doing well. During 2007 - 2009 you would have never seen a thread like this!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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JoMoney
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Re: Why not go 100% stocks?

Post by JoMoney » Sat Jul 21, 2018 4:34 am

This "type of thread" appears a lot. I'm sure I could find a couple threads saying the same thing from every year since 2009, and over the past 5-6 years someone trying to claim it was an indication of a top.

On a side note/question: Why don't we have more "Why note 120% stocks? " threads? That's an allocation choice too... and one that might actually require re-balancing. Going 100% stocks can be set and forget...

As far as advice to the OP, I don't think a 100% stock portfolio for someone still working and years to go is such a bad thing if you can personally handle the idea that half the money could disappear relatively quickly. I'm also kind of uneasy about someone who is asking others what there allocation should be, if you need someone else to talk you down from going 100% stocks, it's probably not for you.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

masonstone
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Re: Why not go 100% stocks?

Post by masonstone » Sat Jul 21, 2018 8:49 am

Finridge wrote:
Fri Jul 20, 2018 5:35 pm
sschullo wrote:
Wed Jul 11, 2018 9:46 am
emlowe wrote:
Mon Jun 25, 2018 4:47 pm
steve roy wrote:
Mon Jun 25, 2018 4:08 pm
Go the Warren Buffett route:

90% S & P 500; 10% bonds.
Specifically 10% in "short-term government bonds"

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)"
I think I read from Bernstein that the inclusion of 10% bonds not only reduces risk but increases return.
That was not my reading. Over the long-run a 100% stock allocation can be expected to beat a 90%/10% allocation, but it is more volatile. Bernstein is of the view that investors should't take risks they don't need. If you've won the game and have "enough," stop playing he says.

Just mentioned this in another thread, but since it's equally relevant here, I will repeat it here with minor tweaks. I would suggest that the OP fill out this questionnaire and take into consideration it's recommendations:
https://personal.vanguard.com/us/FundsInvQuestionnaire

This tool WILL recommend a 100% equity allocation for people whose responses indicate that they are aware of the risk and can bear the risk of such an allocation. This allocation is not appropriate for most people, and ultimately only you can determine if it is appropriate for you. Are you OK waking up one morning and seeing that your $5,000,000 account went down to $2,500,000 (or lower) overnight? If the thought of this makes your stomach churn now, count on it being much worse when it actually happens. And if you feel the urge to sell after something like this happens, then you were in too aggressive an allocation, and finding out way to late, and after the damage has been done. An all-stock portfolio is volatile and you can expect that it will be a wild roller-coaster ride.

In his most recent shareholder letter, Warren Buffet states that the whether bonds increase or reduce risk depends on your time horizon. In the short-term they reduce risk. In the long-term they often increase risk.

http://www.berkshirehathaway.com/letters/2017ltr.pdf
Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained.

By that standard, purportedly “risk-free” long-term bonds in 2012 were a far riskier investment than a longterm
investment in common stocks. At that time, even a 1% annual rate of inflation between 2012 and 2017 would
have decreased the purchasing-power of the government bond that Protégé and I sold.

I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far
riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates.

It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds
to stocks. Often, high-grade bonds in an investment portfolio increase its risk.
So, if you are investing for a long time horizon, you understand, accept, and can bear the volatility risk, and you have the stomach to "stock with the program" through thick or thin - then a 100% stock allocatoin makes sense.

A 100% stock allocation, or even a 90%/10% allocation is probably too aggressive for most people, but it will be for some people. Just my opinion.

Thank you for the link to the Vanguard recommendation webpage. They actually recommended 100% stocks for me.

minimalistmarc
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Re: Why not go 100% stocks?

Post by minimalistmarc » Sat Jul 21, 2018 9:14 am

I love 100% stocks but have a good DB pension plan so feel happy dialling up risk to the maximum unleveraged.

Finridge
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Re: Why not go 100% stocks?

Post by Finridge » Mon Jul 23, 2018 4:01 am

masonstone wrote:
Sat Jul 21, 2018 8:49 am
Finridge wrote:
Fri Jul 20, 2018 5:35 pm
sschullo wrote:
Wed Jul 11, 2018 9:46 am
emlowe wrote:
Mon Jun 25, 2018 4:47 pm
steve roy wrote:
Mon Jun 25, 2018 4:08 pm
Go the Warren Buffett route:

90% S & P 500; 10% bonds.
Specifically 10% in "short-term government bonds"

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)"
I think I read from Bernstein that the inclusion of 10% bonds not only reduces risk but increases return.
That was not my reading. Over the long-run a 100% stock allocation can be expected to beat a 90%/10% allocation, but it is more volatile. Bernstein is of the view that investors should't take risks they don't need. If you've won the game and have "enough," stop playing he says.

Just mentioned this in another thread, but since it's equally relevant here, I will repeat it here with minor tweaks. I would suggest that the OP fill out this questionnaire and take into consideration it's recommendations:
https://personal.vanguard.com/us/FundsInvQuestionnaire

This tool WILL recommend a 100% equity allocation for people whose responses indicate that they are aware of the risk and can bear the risk of such an allocation. This allocation is not appropriate for most people, and ultimately only you can determine if it is appropriate for you. Are you OK waking up one morning and seeing that your $5,000,000 account went down to $2,500,000 (or lower) overnight? If the thought of this makes your stomach churn now, count on it being much worse when it actually happens. And if you feel the urge to sell after something like this happens, then you were in too aggressive an allocation, and finding out way to late, and after the damage has been done. An all-stock portfolio is volatile and you can expect that it will be a wild roller-coaster ride.

In his most recent shareholder letter, Warren Buffet states that the whether bonds increase or reduce risk depends on your time horizon. In the short-term they reduce risk. In the long-term they often increase risk.

http://www.berkshirehathaway.com/letters/2017ltr.pdf
Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained.

By that standard, purportedly “risk-free” long-term bonds in 2012 were a far riskier investment than a longterm
investment in common stocks. At that time, even a 1% annual rate of inflation between 2012 and 2017 would
have decreased the purchasing-power of the government bond that Protégé and I sold.

I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far
riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates.

It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds
to stocks. Often, high-grade bonds in an investment portfolio increase its risk.
So, if you are investing for a long time horizon, you understand, accept, and can bear the volatility risk, and you have the stomach to "stock with the program" through thick or thin - then a 100% stock allocatoin makes sense.

A 100% stock allocation, or even a 90%/10% allocation is probably too aggressive for most people, but it will be for some people. Just my opinion.

Thank you for the link to the Vanguard recommendation webpage. They actually recommended 100% stocks for me.
Just revisit the questionnaire and make sure that after careful consideration, you are comfortable that in all your answers you are being completely honest to yourself and not engaging in any wishful thinking. If that is the case, then 100% stock is probably appropriate for you, and welcome to the club. I've been 100% stock for most of my investing "career". Went into the "Great Recession" with a 100% stock portfolio, and stuck with it--no regrets.

But there are a lot of other people who thought they had the stomach to ride through a severe bear market with a 100% stock portfolio, and found that what they imagined this would be like and what it actually was were two different things. You won't know for sure until you get "stress-tested" by a severe downturn.

SGM
Posts: 2710
Joined: Wed Mar 23, 2011 4:46 am

Re: Why not go 100% stocks?

Post by SGM » Mon Jul 23, 2018 8:01 am

I was 100% stock for many years while accumulating. When I had DRIPs early on it was more difficult to make a sale. That mental trick helped me stay the course when I was young. I also noted that I was buying more shares with my monthly investments when the market was down. It is difficult to stay the course when everyone around you is in a panic, but it can be done. When the market was down I kept telling myself I was buying more shares for the same investment and my reinvested dividends were buying cheaper stock.

If you have good income and job security you can benefit from 100% stocks. If 100% in stocks makes you crazy then it is not suitable for you. I would not be 100% in stocks if you needed to make a big purchase or were in the early stages of retirement.

wolf359
Posts: 1350
Joined: Sun Mar 15, 2015 8:47 am

Re: Why not go 100% stocks?

Post by wolf359 » Mon Jul 23, 2018 8:48 am

Finridge wrote:
Mon Jul 23, 2018 4:01 am
masonstone wrote:
Sat Jul 21, 2018 8:49 am
Finridge wrote:
Fri Jul 20, 2018 5:35 pm
sschullo wrote:
Wed Jul 11, 2018 9:46 am
emlowe wrote:
Mon Jun 25, 2018 4:47 pm


Specifically 10% in "short-term government bonds"

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)"
I think I read from Bernstein that the inclusion of 10% bonds not only reduces risk but increases return.
That was not my reading. Over the long-run a 100% stock allocation can be expected to beat a 90%/10% allocation, but it is more volatile. Bernstein is of the view that investors should't take risks they don't need. If you've won the game and have "enough," stop playing he says.

Just mentioned this in another thread, but since it's equally relevant here, I will repeat it here with minor tweaks. I would suggest that the OP fill out this questionnaire and take into consideration it's recommendations:
https://personal.vanguard.com/us/FundsInvQuestionnaire

This tool WILL recommend a 100% equity allocation for people whose responses indicate that they are aware of the risk and can bear the risk of such an allocation. This allocation is not appropriate for most people, and ultimately only you can determine if it is appropriate for you. Are you OK waking up one morning and seeing that your $5,000,000 account went down to $2,500,000 (or lower) overnight? If the thought of this makes your stomach churn now, count on it being much worse when it actually happens. And if you feel the urge to sell after something like this happens, then you were in too aggressive an allocation, and finding out way to late, and after the damage has been done. An all-stock portfolio is volatile and you can expect that it will be a wild roller-coaster ride.

In his most recent shareholder letter, Warren Buffet states that the whether bonds increase or reduce risk depends on your time horizon. In the short-term they reduce risk. In the long-term they often increase risk.

http://www.berkshirehathaway.com/letters/2017ltr.pdf
Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained.

By that standard, purportedly “risk-free” long-term bonds in 2012 were a far riskier investment than a longterm
investment in common stocks. At that time, even a 1% annual rate of inflation between 2012 and 2017 would
have decreased the purchasing-power of the government bond that Protégé and I sold.

I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far
riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates.

It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds
to stocks. Often, high-grade bonds in an investment portfolio increase its risk.
So, if you are investing for a long time horizon, you understand, accept, and can bear the volatility risk, and you have the stomach to "stock with the program" through thick or thin - then a 100% stock allocatoin makes sense.

A 100% stock allocation, or even a 90%/10% allocation is probably too aggressive for most people, but it will be for some people. Just my opinion.

Thank you for the link to the Vanguard recommendation webpage. They actually recommended 100% stocks for me.
Just revisit the questionnaire and make sure that after careful consideration, you are comfortable that in all your answers you are being completely honest to yourself and not engaging in any wishful thinking. If that is the case, then 100% stock is probably appropriate for you, and welcome to the club. I've been 100% stock for most of my investing "career". Went into the "Great Recession" with a 100% stock portfolio, and stuck with it--no regrets.

But there are a lot of other people who thought they had the stomach to ride through a severe bear market with a 100% stock portfolio, and found that what they imagined this would be like and what it actually was were two different things. You won't know for sure until you get "stress-tested" by a severe downturn.
Also, don't forget to retake the questionnaire after a major life event (like getting married, losing a job, or having a baby), as well as right after a major market event. Your risk tolerance does change over time, and in reaction to what happens in your life. Repeating it when you're under stress will help validate the findings.

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