Does 100% stocks make sense for very high net worth individuals

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Daitokuji
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Re: Does 100% stocks make sense for very high net worth individuals

Post by Daitokuji » Tue Nov 27, 2018 9:38 pm

No, you should go relatively heavy into bonds if you are a high net worth individual. You want to preserve capital and don't need growth since you are already rich.

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willthrill81
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Re: Does 100% stocks make sense for very high net worth individuals

Post by willthrill81 » Wed Nov 28, 2018 12:00 am

Daitokuji wrote:
Tue Nov 27, 2018 9:38 pm
No, you should go relatively heavy into bonds if you are a high net worth individual. You want to preserve capital and don't need growth since you are already rich.
Why do you care about preserving capital if a 50% market plunge would just reduce your withdrawals from $1 million to $500k?

Once you become a decamillionaire, a solid argument can be made that no fixed income is necessary in any way. But many would probably still desire some.
“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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willthrill81
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Re: Does 100% stocks make sense for very high net worth individuals

Post by willthrill81 » Wed Nov 28, 2018 12:01 am

nullbytes wrote:
Tue Nov 27, 2018 6:40 pm
No sane person with 30 million+ would be in 100% stocks.
Call Bellevue and tell them to go pick up Warren Buffet. :wink:
“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: Does 100% stocks make sense for very high net worth individuals

Post by KyleAAA » Wed Nov 28, 2018 12:07 am

Stormbringer wrote:
Tue Nov 27, 2018 8:56 pm
KyleAAA wrote:
Tue Nov 27, 2018 7:23 pm
It can, sure, but I suspect most UHNWI are more concerned with wealth preservation than maximizing return. If you have $100 million to invest it can also make sense to dabble in direct real estate and other less liquid alternatives, too.
I'm not sure. In my experience, the guy with $100M is often driven nuts by the fact that someone else he knows has $250M. For many of these people, it's all about keeping score.
Of the various people I know north of that figure, none of them care how much the next guy has. After a certain point it doesn’t make much of a difference in your lifestyle and the notion of keeping score has no appeal.

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willthrill81
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Re: Does 100% stocks make sense for very high net worth individuals

Post by willthrill81 » Wed Nov 28, 2018 12:13 am

KyleAAA wrote:
Wed Nov 28, 2018 12:07 am
Stormbringer wrote:
Tue Nov 27, 2018 8:56 pm
KyleAAA wrote:
Tue Nov 27, 2018 7:23 pm
It can, sure, but I suspect most UHNWI are more concerned with wealth preservation than maximizing return. If you have $100 million to invest it can also make sense to dabble in direct real estate and other less liquid alternatives, too.
I'm not sure. In my experience, the guy with $100M is often driven nuts by the fact that someone else he knows has $250M. For many of these people, it's all about keeping score.
Of the various people I know north of that figure, none of them care how much the next guy has. After a certain point it doesn’t make much of a difference in your lifestyle and the notion of keeping score has no appeal.
I know two decamillionaires personally. For one, money is indeed a scorecard, and he works very hard all the time, very rarely taking a vacation. The other, despite probably being worth double the first, is frugal but has traveled all over the world with his wife and friends, and he couldn't care less about how much wealth someone else has, although increasing his net worth is a fun sideline for him.
“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: Does 100% stocks make sense for very high net worth individuals

Post by WanderingDoc » Wed Nov 28, 2018 12:14 am

JackoC wrote:
Tue Nov 27, 2018 10:48 am
masonstone wrote:
Tue Nov 27, 2018 10:29 am
Bacchus01 wrote:
Tue Nov 27, 2018 9:26 am
masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
I don't know what "very higher net worth" really means
My definition for very high net worth is the Wikipedia/ Investopedia definition. This is someone whose investable assets (outside of primary residence) is greater than $30 million.
I believe that's the definition of 'ultra high net worth', at least per this investopedia page, with 'very' at $5mil
https://www.investopedia.com/terms/d/de ... onaire.asp

I'm not saying this is of any cosmic significance or worth quibbling over. Besides which as I said above I don't think there's any good rationale why people either over 5 or over 30 should be more/less heavily invested in stocks than anyone else. It depends on personal risk preference like anyone else, and as others have mentioned a person in this wealth range (or particularly higher ranges) might have a lot of that wealth in their own business, which they aren't necessarily going to sell just to buy other companies' stocks, and where it's going to exacerbate their already highly risky position to hold onto to their own company plus put spare assets into stocks.
I agree. $30M is $30M. Its irrelevant what the person spends. The above was just a rationalization about not having $30M. You cannot save your way to wealth. End of story. Wealthy individuals don't have time to pinch pennies. They are too busy making deals.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

Daitokuji
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Re: Does 100% stocks make sense for very high net worth individuals

Post by Daitokuji » Wed Nov 28, 2018 2:11 pm

willthrill81 wrote:
Wed Nov 28, 2018 12:00 am
Daitokuji wrote:
Tue Nov 27, 2018 9:38 pm
No, you should go relatively heavy into bonds if you are a high net worth individual. You want to preserve capital and don't need growth since you are already rich.
Why do you care about preserving capital if a 50% market plunge would just reduce your withdrawals from $1 million to $500k?

Once you become a decamillionaire, a solid argument can be made that no fixed income is necessary in any way. But many would probably still desire some.
Well if you're a decamillionaire why do you even want to invest at all? You have enough money already so what difference does 10%/year gains vs 2% make? It depends if your focus is on growth or preservation of wealth.

randomguy
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Re: Does 100% stocks make sense for very high net worth individuals

Post by randomguy » Wed Nov 28, 2018 2:54 pm

Daitokuji wrote:
Wed Nov 28, 2018 2:11 pm
willthrill81 wrote:
Wed Nov 28, 2018 12:00 am
Daitokuji wrote:
Tue Nov 27, 2018 9:38 pm
No, you should go relatively heavy into bonds if you are a high net worth individual. You want to preserve capital and don't need growth since you are already rich.
Why do you care about preserving capital if a 50% market plunge would just reduce your withdrawals from $1 million to $500k?

Once you become a decamillionaire, a solid argument can be made that no fixed income is necessary in any way. But many would probably still desire some.
Well if you're a decamillionaire why do you even want to invest at all? You have enough money already so what difference does 10%/year gains vs 2% make? It depends if your focus is on growth or preservation of wealth.
Best way to preserve your wealth is to make 10% versus 2%.:) Most of the UHNW are just like normal people at higher scales. The person worth 30 million and spending 1 million per year isnt much different than the 3 million/100k person.

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J G Bankerton
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Re: Does 100% stocks make sense for very high net worth individuals

Post by J G Bankerton » Wed Nov 28, 2018 3:36 pm

Vanguard uses $50,000, $500,000, $1,000,000 and $10,000,000 for the category of client. That's roughly what other's use to classify clients for the level of service they get. People in the top group have access to funds and gatherings not open to common millionaires. It is rumored Vanguard customer service improves greatly as one moves up the ladder.

freedom66
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Re: Does 100% stocks make sense for very high net worth individuals

Post by freedom66 » Wed Nov 28, 2018 3:42 pm

Vanguard has a different category starting at $5 million

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Re: Does 100% stocks make sense for very high net worth individuals

Post by columbia » Wed Nov 28, 2018 3:44 pm

J G Bankerton wrote:
Wed Nov 28, 2018 3:36 pm
Vanguard uses $50,000, $500,000, $1,000,000 and $10,000,000 for the category of client. That's roughly what other's use to classify clients for the level of service they get. People in the top group have access to funds and gatherings not open to common millionaires. It is rumored Vanguard customer service improves greatly as one moves up the ladder.
<Peeks at fortune>

I don’t expect to be on the guest list, complete with luxury box seats and champagne cocktails. ;)

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willthrill81
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Re: Does 100% stocks make sense for very high net worth individuals

Post by willthrill81 » Wed Nov 28, 2018 3:48 pm

randomguy wrote:
Wed Nov 28, 2018 2:54 pm
Daitokuji wrote:
Wed Nov 28, 2018 2:11 pm
willthrill81 wrote:
Wed Nov 28, 2018 12:00 am
Daitokuji wrote:
Tue Nov 27, 2018 9:38 pm
No, you should go relatively heavy into bonds if you are a high net worth individual. You want to preserve capital and don't need growth since you are already rich.
Why do you care about preserving capital if a 50% market plunge would just reduce your withdrawals from $1 million to $500k?

Once you become a decamillionaire, a solid argument can be made that no fixed income is necessary in any way. But many would probably still desire some.
Well if you're a decamillionaire why do you even want to invest at all? You have enough money already so what difference does 10%/year gains vs 2% make? It depends if your focus is on growth or preservation of wealth.
Best way to preserve your wealth is to make 10% versus 2%.:) Most of the UHNW are just like normal people at higher scales. The person worth 30 million and spending 1 million per year isnt much different than the 3 million/100k person.
This reminds me of the Red Queen from Lewis Carroll's Through the Looking Glass.

Image
“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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celerity
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Re: Does 100% stocks make sense for very high net worth individuals

Post by celerity » Wed Nov 28, 2018 3:53 pm

WhiteMaxima wrote:
Tue Nov 27, 2018 12:45 pm
Cash is another asset class. People just don't realize. On the opposite, people borrow on margins to invest. When financial crisis hits, those invest on borrowed money will find they are swimming naked. Don't know people with 100% in stock when 2008 event hits. personlly, I prefer to have 10-20% asset in cash in an FDIC secured saving account.
Cash isn’t strictly speaking a asset class. When you put money on a bank account the bank usually buys long term gov bonds with them. This is why bank interest rates are often similar to 10 Y treasuries.

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J G Bankerton
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Re: Does 100% stocks make sense for very high net worth individuals

Post by J G Bankerton » Wed Nov 28, 2018 3:55 pm

J G Bankerton wrote:
Wed Nov 28, 2018 3:36 pm
Vanguard uses $50,000, $500,000, $1,000,000, $5,000,000 and $10,000,000 for the category of client. That's roughly what other's use to classify clients for the level of service they get. People in the top group have access to funds and gatherings not open to common millionaires. It is rumored Vanguard customer service improves greatly as one moves up the ladder.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by Bacchus01 » Wed Nov 28, 2018 4:15 pm

Daitokuji wrote:
Tue Nov 27, 2018 9:38 pm
No, you should go relatively heavy into bonds if you are a high net worth individual. You want to preserve capital and don't need growth since you are already rich.
That’s one perspective.

JackoC
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Re: Does 100% stocks make sense for very high net worth individuals

Post by JackoC » Wed Nov 28, 2018 4:24 pm

J G Bankerton wrote:
Wed Nov 28, 2018 3:36 pm
Vanguard uses $50,000, $500,000, $1,000,000 and $10,000,000 for the category of client. That's roughly what other's use to classify clients for the level of service they get. People in the top group have access to funds and gatherings not open to common millionaires. It is rumored Vanguard customer service improves greatly as one moves up the ladder.
I think this underlines where these definitions come from and to whom they are most meaningful: brokers. Vanguard being IMO a relative 'good guy' among financial providers. But still. For example the otherwise odd idea of excluding one's home from one's wealth makes sense from POV of a broker who isn't going to get you to invest your home with or through them. :D They count the stuff you *could* invest with or through them. There's no reason for you to exclude stuff just because it isn't a business opportunity for a broker.

I don't have any problem with any definitions as long as people aren't talking past one another too much. But it seems with 'rich' or 'high net worth' some people kind of want to quibble about it (not saying you). As with the added condition that the person spend some limited % of the money ever year to be counted as HNW. That makes no sense to me. If you have $25mil and spend $2.5mil/yr, and don't make nearly $2.5mil/yr after tax from working (the condition is outright ridiculous if it doesn't account for additional labor income every year), then OK you're probably gradually depleting your $25mil save for really stellar returns by today's standards. If you persist long enough, you probably won't be 'high net worth' at some point. But for now, you are. :happy 'Net worth' is a snapshot.

But IMO the definition of HNW is not central, because IMO there is no basis at all to suppose a systematic change in risk aversion in one direction with wealth level, or necessarily any change. I think people who've gone through the various rungs themselves generally realize this: it doesn't make that much difference, you are who you are, to a large extent.

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J G Bankerton
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Re: Does 100% stocks make sense for very high net worth individuals

Post by J G Bankerton » Wed Nov 28, 2018 4:38 pm

JackoC wrote:
Wed Nov 28, 2018 4:24 pm
I don't have any problem with any definitions as long as people aren't talking past one another too much. But it seems with 'rich' or 'high net worth' some people kind of want to quibble about it (not saying you).
I was just giving what professional money managers objectively consider rich. It gets one real world perks because the rich must get richer. J D Clampett comes to mind. A truly high net worth individual who never had to wait on hold to talk to his bank.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by SGM » Wed Nov 28, 2018 4:48 pm

Many of the high net individuals I know have some income producing real estate. I know several high net individuals who have been swindled in their old age. It doesn't matter how much you have it can still be lost.

A local bank has a lot of their wealthy clients in stock and bond funds. I see a few of the advisors socially on occasion and they seem to be very interested in Vanguard.

It seems to me if you have a lot of income and a large portfolio you can invest it in either stocks or bonds. With a legacy motive you would probably want more stock.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by EfficientInvestor » Wed Nov 28, 2018 4:59 pm

Here is a portfolio to consider for a high net worth individual that wants to preserve wealth AND achieve growth at the same time:

75% VFSTX (Short-term Inv grade bond) or your "risk-free" return vehicle of choice
10% UPRO (3X S&P 500)
12% TMF (3X long term bond)
3% UGLD (3X gold)

75% of you money would be in a fund that could provide a risk-free return or close to it. VFSTX has a little risk, but has only had a max drawdown of -7.6% since inception in 1985. You could sub this out with a money market, CD, or ultra-short bond ETF like MINT if you want something more "risk-free". With the remaining 25% of the funds that are "at-risk", invest them using a leveraged indexing approach and split it between stock (~40%), bond (~50%), and gold (~10%). I pulled daily data of these indexes and performed backtests of what these leveraged funds would have done going back to 1987. This 75/10/12/3 fund would have had a CAGR of 9.7% with a max drawdown of -15%. If you sub TQQQ (3x Nasdaq) for UPRO, you would have had a CAGR of 12.7% and max drawdown of -17.9%. Depending on the amount of money you have, you could do a similar approach but use options or futures as your source of leverage for the 25% of funds "at-risk".

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celerity
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Re: Does 100% stocks make sense for very high net worth individuals

Post by celerity » Wed Nov 28, 2018 5:04 pm

EfficientInvestor wrote:
Wed Nov 28, 2018 4:59 pm
Here is a portfolio to consider for a high net worth individual that wants to preserve wealth AND achieve growth at the same time:

75% VFSTX (Short-term Inv grade bond) or your "risk-free" return vehicle of choice
10% UPRO (3X S&P 500)
12% TMF (3X long term bond)
3% UGLD (3X gold)

75% of you money would be in a fund that could provide a risk-free return or close to it. VFSTX has a little risk, but has only had a max drawdown of -7.6% since inception in 1985. You could sub this out with a money market, CD, or ultra-short bond ETF like MINT if you want something more "risk-free". With the remaining 25% of the funds that are "at-risk", invest them using a leveraged indexing approach and split it between stock (~40%), bond (~50%), and gold (~10%). I pulled daily data of these indexes and performed backtests of what these leveraged funds would have done going back to 1987. This 75/10/12/3 fund would have had a CAGR of 9.7% with a max drawdown of -15%. If you sub TQQQ (3x Nasdaq) for UPRO, you would have had a CAGR of 12.7% and max drawdown of -17.9%. Depending on the amount of money you have, you could do a similar approach but use options or futures as your source of leverage for the 25% of funds "at-risk".
Why not TIPS? Putting the volatility aside, they are probably the safest bond out there because they are issued by the state and have unexpected inflation protection built-in.

EfficientInvestor
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Re: Does 100% stocks make sense for very high net worth individuals

Post by EfficientInvestor » Wed Nov 28, 2018 5:15 pm

celerity wrote:
Wed Nov 28, 2018 5:04 pm
Why not TIPS? Putting the volatility aside, they are probably the safest bond out there because they are issued by the state and have unexpected inflation protection built-in.
That is certainly an option if you're ok with the additional volatility. Since PV began tracking in 2001, it looks like they have had higher CAGR but more downside than Short-term Inv Grade Bonds. I would prefer the Short-term Inv Grade Bonds due to the higher Sharpe ratio (closer to a risk-free return). The gold in the fund can help protect against inflation. Here is a comparison of both vs cash:

https://www.portfoliovisualizer.com/bac ... vBond2=100

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J G Bankerton
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Re: Does 100% stocks make sense for very high net worth individuals

Post by J G Bankerton » Wed Nov 28, 2018 5:33 pm

I just notice 100% stocks. So no, a high net worth individual should also be a "shark" or venture capitalist.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by bada bing » Wed Nov 28, 2018 5:34 pm

I tend to buy into the efficient frontier. You get less return for the risk assumed for
the last 10% allocation bump to a 100% equity portfolio. I wouldn't go above 90% under
any situation. Having $30M, or whatever level we're talking about, wouldn't incentivize
me into increasing equity allocation above what I do with my paltry little portfolio. Same
rationale applies, just bigger numbers. If I had over $30M liquid, I would probably buy
some real estate and diversify away from bonds and equities a bit, so that would be a
change.

If I did want to swing for the fences, I would use leverage and/or aggressive tilts before
I would go 100% equity. Probably actually lower my overall equity allocation at the same time.
Maybe 1.5 to 1 leverage on a 60-40 portfolio with the equity being half small cap + value +
emerging markets. And I'd smoke Cuban cigars and have a couple bottle of expensive
scotch.

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TimeRunner
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Re: Does 100% stocks make sense for very high net worth individuals

Post by TimeRunner » Wed Nov 28, 2018 5:40 pm

Too bad it's a hypothetical question and no one (almost certainly) is going to act on whatever answers get put up here. :wink:
"Technology is cool, but you've got to use it as opposed to letting it use you." - Prince

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Re: Does 100% stocks make sense for very high net worth individuals

Post by blinx77 » Wed Nov 28, 2018 7:50 pm

SGM wrote:
Wed Nov 28, 2018 4:48 pm
Many of the high net individuals I know have some income producing real estate. I know several high net individuals who have been swindled in their old age. It doesn't matter how much you have it can still be lost.

A local bank has a lot of their wealthy clients in stock and bond funds. I see a few of the advisors socially on occasion and they seem to be very interested in Vanguard.

It seems to me if you have a lot of income and a large portfolio you can invest it in either stocks or bonds. With a legacy motive you would probably want more stock.
My parents have a friend whose father was swindled out of $11 million. Mercifully, it was by a bank employee, and the bank honored the obligation.

EfficientInvestor
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Re: Does 100% stocks make sense for very high net worth individuals

Post by EfficientInvestor » Wed Nov 28, 2018 9:23 pm

bada bing wrote:
Wed Nov 28, 2018 5:34 pm
I tend to buy into the efficient frontier. You get less return for the risk assumed for
the last 10% allocation bump to a 100% equity portfolio. I wouldn't go above 90% under
any situation.
This is why I like leveraged indexing. You establish an asset allocation that is near the tangency point on the efficient frontier. Then you apply leverage according to risk tolerance. You realize a much better return/risk than just going further out on the efficient frontier.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by randomguy » Wed Nov 28, 2018 9:50 pm

EfficientInvestor wrote:
Wed Nov 28, 2018 4:59 pm
Here is a portfolio to consider for a high net worth individual that wants to preserve wealth AND achieve growth at the same time:

75% VFSTX (Short-term Inv grade bond) or your "risk-free" return vehicle of choice
10% UPRO (3X S&P 500)
12% TMF (3X long term bond)
3% UGLD (3X gold)

75% of you money would be in a fund that could provide a risk-free return or close to it. VFSTX has a little risk, but has only had a max drawdown of -7.6% since inception in 1985. You could sub this out with a money market, CD, or ultra-short bond ETF like MINT if you want something more "risk-free". With the remaining 25% of the funds that are "at-risk", invest them using a leveraged indexing approach and split it between stock (~40%), bond (~50%), and gold (~10%). I pulled daily data of these indexes and performed backtests of what these leveraged funds would have done going back to 1987. This 75/10/12/3 fund would have had a CAGR of 9.7% with a max drawdown of -15%. If you sub TQQQ (3x Nasdaq) for UPRO, you would have had a CAGR of 12.7% and max drawdown of -17.9%. Depending on the amount of money you have, you could do a similar approach but use options or futures as your source of leverage for the 25% of funds "at-risk".
If you believe that is a good portfolio for a HNWI, why wouldn't you recommend to anyone else? I mean who wouldn't want a 9.7% returns with max drawdowns of 15%?

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Re: Does 100% stocks make sense for very high net worth individuals

Post by EfficientInvestor » Wed Nov 28, 2018 11:08 pm

randomguy wrote:
Wed Nov 28, 2018 9:50 pm
If you believe that is a good portfolio for a HNWI, why wouldn't you recommend to anyone else? I mean who wouldn't want a 9.7% returns with max drawdowns of 15%?
I would absolutely recommend it to anybody. I think leveraged indexing is a very efficient way to invest and it applies to anybody. I was just using the 75/10/12/3 example for HNWI or people in retirement. For folks still in the growth phase, a portfolio of 35% TQQQ/50% TMF/15% UGLD might be of interest. Since 1987, this would have returned a CAGR of 29.3% with a max drawdown of -50.2%. Who knows if that kind of performance will continue, especially considering this was during falling interest rates. The main takeaway is that you would have had the same max drawdown of the S&P 500 but with almost triple the annual return. S&P had 10.2% CAGR and max drawdown of -51%. If that’s too much risk, you can always deleverage by leaving a certain portion of your funds in “risk-free” return type funds.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by randomguy » Thu Nov 29, 2018 12:18 am

EfficientInvestor wrote:
Wed Nov 28, 2018 11:08 pm
randomguy wrote:
Wed Nov 28, 2018 9:50 pm
If you believe that is a good portfolio for a HNWI, why wouldn't you recommend to anyone else? I mean who wouldn't want a 9.7% returns with max drawdowns of 15%?
I would absolutely recommend it to anybody. I think leveraged indexing is a very efficient way to invest and it applies to anybody. I was just using the 75/10/12/3 example for HNWI or people in retirement. For folks still in the growth phase, a portfolio of 35% TQQQ/50% TMF/15% UGLD might be of interest. Since 1987, this would have returned a CAGR of 29.3% with a max drawdown of -50.2%. Who knows if that kind of performance will continue, especially considering this was during falling interest rates. The main takeaway is that you would have had the same max drawdown of the S&P 500 but with almost triple the annual return. S&P had 10.2% CAGR and max drawdown of -51%. If that’s too much risk, you can always deleverage by leaving a certain portion of your funds in “risk-free” return type funds.
The high level point is simply that UHNWI don't really have different portfolio needs.

The main takeaway is it is easy to backtest incredible portfolios:) For example compare

30% SV/ 70% LB with its 8.9%CAGR and 14% max drawdown.:)

You either believe in leverage or you don't.

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J G Bankerton
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Re: Does 100% stocks make sense for very high net worth individuals

Post by J G Bankerton » Thu Nov 29, 2018 10:14 am

EfficientInvestor wrote:
Wed Nov 28, 2018 9:23 pm
This is why I like leveraged indexing. You establish an asset allocation that is near the tangency point on the efficient frontier. Then you apply leverage according to risk tolerance. You realize a much better return/risk than just going further out on the efficient frontier.
If you want to roll the dice I would suggest binary options. The trouble with leverage is you are playing with borrowed money.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by pkcrafter » Thu Nov 29, 2018 1:14 pm

masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
Yes, I like that, but it's not wise to forget the last part of your post - 100% stocks almost always wins. I will emphasis the almost part. There can be times when stocks will lose, and there is no limit on how much or for low long they might lose. Total wipe outs are a threatening possibility. 100% stocks? No, never.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by EfficientInvestor » Thu Nov 29, 2018 1:46 pm

J G Bankerton wrote:
Thu Nov 29, 2018 10:14 am
If you want to roll the dice I would suggest binary options. The trouble with leverage is you are playing with borrowed money.
I wouldn't call it a roll of the dice. I use leverage with a very targeted approach. I develop an "all-weather" portfolio that has a high Sharpe ratio and then apply leverage to a point where the historical maximum drawdown is in line with my risk tolerance. That is not much different than how people determine their blend of stocks/bonds. I am just increasing my risk with leverage as opposed to increasing my risk with a higher stock allocation. The link below shows an example of this tradeoff. If you have a 40/60 (stock/LT bond) portfolio (Portfolio 1) and have more risk tolerance, the normal thing to do would be to increase stock allocation. Perhaps to 80% as shown in Portfolio 2 or even 100% as shown in the S&P 500 Benchmark. But then you are doubling or tripling your max drawdown with only a marginal gain in CAGR. In other words, you are lowering your Sharpe ratio the further you go towards all-stock. Alternatively, if you apply leverage to the 40/60 blend, you maintain the more efficient Sharpe ratio of the 40/60 blend at the higher risk levels.

https://www.portfoliovisualizer.com/bac ... bol8=FRESX

As for type of leverage, I prefer to hold a diversified portfolio of leveraged ETFs because the expense ratios (~1%) are reasonable relative to borrowing costs elsewhere. For instance, the leveraged portfolio in the sample above underperforms what a similar leveraged ETF portfolio would have done because it assumes borrowing costs of CASHX at the risk-free rate, which is greater than the 1% expense ratio of the ETFs. Also, since you aren't borrowing anything on margin when using the leveraged ETFs, there is no risk of margin calls. Your losses are limited to whatever you invest. The daily resetting of leverage can hurt a little in volatile, flat years due to additional volatility drag (like 2018). However, the daily reset is helpful in protecting your downside during bad years like 2008 and also provides outperformance in good years like 2017.
Last edited by EfficientInvestor on Thu Nov 29, 2018 6:37 pm, edited 1 time in total.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by willthrill81 » Thu Nov 29, 2018 5:51 pm

pkcrafter wrote:
Thu Nov 29, 2018 1:14 pm
masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
Yes, I like that, but it's not wise to forget the last part of your post - 100% stocks almost always wins. I will emphasis the almost part. There can be times when stocks will lose, and there is no limit on how much or for low long they might lose. Total wipe outs are a threatening possibility. 100% stocks? No, never.

Paul
Can you point to a period where stocks were wiped out but domestic bonds survived?
“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: Does 100% stocks make sense for very high net worth individuals

Post by RetireBy55 » Thu Nov 29, 2018 5:58 pm

100% stocks? NEVER. Why on earth would anyone take that kind of (IMHO, unnecessary) risk?

Once you've "won the game", stop playing. Or, reduce your risk. That is how you STAY rich.

I also can't / don't understand the desire for generational pass-down. If you've "made it", let the next generation do so on their own also. Might be a bit harsh, but if you achieved FI through blood, sweat, tears and hard work, let those who come behind you do the same. Builds character and wisdom IMHO.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by willthrill81 » Thu Nov 29, 2018 6:15 pm

RetireBy55 wrote:
Thu Nov 29, 2018 5:58 pm
100% stocks? NEVER. Why on earth would anyone take that kind of (IMHO, unnecessary) risk?

Once you've "won the game", stop playing. Or, reduce your risk. That is how you STAY rich.
One of the reasons I really don't like Bernstein's quote is for this reason. It makes it seem like stocks are equivalent to gambling, and if you happen to hit it big, you should stop playing while you're ahead. This is false on several levels, most importantly because the expected value of gambling is negative, whereas it is positive for stocks.

Further, as pointed out above, we can point to several periods in the U.S. alone where stocks were needed on some level to simply maintain buying power. Those 'safe' bonds (intermediate-term Treasuries in this instance) that many wax on about lost over a third of their buying power in just four years from 1977-1981.

Rather than investors' net worth driving their AA, I believe it makes far more sense for their risk tolerance level to take that role. If they aren't comfortable with their allocation to stocks, then reduce it. But history says that at least a 25% allocation is prudent from a risk-return perspective.
“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: Does 100% stocks make sense for very high net worth individuals

Post by jdb » Thu Nov 29, 2018 6:22 pm

nullbytes wrote:
Tue Nov 27, 2018 6:40 pm
there are some crazy replies in here... No. No sane person with 30 million+ would be in 100% stocks. You'd want to be in as many non-correlated assets as possible. At those levels it's more about wealth preservation than accumulation. It would take a special person to stomach seeing $30 mil drop to $10 or less in a big downturn.

Stocks
Heavy bonds (intermediate/long/munis for tax reasons)
REITs and most likely physical real estate
Private equity
Charitable trust for tax redux
Cash

Potentially:
Fine art & collectibles
Gold
First good response. Though would skip the collectibles and gold. Good luck.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by RetireBy55 » Thu Nov 29, 2018 6:45 pm

willthrill81 wrote:
Thu Nov 29, 2018 6:15 pm
One of the reasons I really don't like Bernstein's quote is for this reason. It makes it seem like stocks are equivalent to gambling, and if you happen to hit it big, you should stop playing while you're ahead. This is false on several levels, most importantly because the expected value of gambling is negative, whereas it is positive for stocks.
I've never seen stocks as equivalent to gambling, although sadly, I do think in the past 10 or so years that it's become moreso with computerized trading, CNBC (and other channel) commentators like Cramer, etc. The market is becoming more of a casino, heavily manipulated, and detached from fundamentals on an increasing basis (all IMHO). I for one long for the "good ole' days" when we did not have any of what we have to deal with now.

I do think, however, if you've hit the point where you are truly FI (can cover your expenses with divvys and minimum withdrawals) and can reduce risk that it is highly prudent to do so. Hence, the famous Bernstein "quit playing" advice (good advice, IMHO) even though what we all do has nothing to do with "playing" but instead achieving financial independence. Given that, there is IMHO a point where many would never be 100% stocks as the need to take on that level of risk is totally unnecessary - unless you indeed wish to leave some sort of "legacy" - maybe a hospital or university building with your name on it, or at the very least making the lives of your kids/family/whoever much easier? My thinking is - they are on their own..just as I was coming from literally nothing and working for every last penny I earned..but to each their own and all of our circumstances will vary. I just now *I* would never, in a gazillion years, be 100% stocks - no matter what my net worth..

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Re: Does 100% stocks make sense for very high net worth individuals

Post by Bacchus01 » Thu Nov 29, 2018 6:51 pm

RetireBy55 wrote:
Thu Nov 29, 2018 5:58 pm
100% stocks? NEVER. Why on earth would anyone take that kind of (IMHO, unnecessary) risk?

Once you've "won the game", stop playing. Or, reduce your risk. That is how you STAY rich.

I also can't / don't understand the desire for generational pass-down. If you've "made it", let the next generation do so on their own also. Might be a bit harsh, but if you achieved FI through blood, sweat, tears and hard work, let those who come behind you do the same. Builds character and wisdom IMHO.

Why? Because they can and because they want to, and those are the only two reasons some people need.

I agree on the generational pass-down. Doesn’t make sense to me.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by J G Bankerton » Thu Nov 29, 2018 8:49 pm

RetireBy55 wrote:
Thu Nov 29, 2018 5:58 pm
100% stocks? NEVER. Why on earth would anyone take that kind of (IMHO, unnecessary) risk?
If one is collecting several single life annuities that are inflation protected and guarantied by the US of A. income may not be wanted because of taxes. Then 100% VTI except for a fixed cash reserve for incidentals.

Old money does not own bonds.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by MossySF » Thu Nov 29, 2018 9:56 pm

Seems like this question is for HNW Bogleheads who continue to spend as if they only had a LNW or MNW.

Most HNW individuals -- no longer in their earnings peak -- need a semi-consistent portfolio to fund their HNW lifestyles.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by BogleBoogie » Sun Apr 14, 2019 9:51 pm

Funny how these type of threads tend to heat up when the market is real high, however when the market is down they are more scarce :confused

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Re: Does 100% stocks make sense for very high net worth individuals

Post by J G Bankerton » Mon Apr 15, 2019 9:25 am

BogleBoogie wrote:
Sun Apr 14, 2019 9:51 pm
Funny how these type of threads tend to heat up when the market is real high, however when the market is down they are more scarce :confused
There are algorithms that buy and sell depending on the popular ignorance de jour.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by Dandy » Mon Apr 15, 2019 10:16 am

If you have very high net worth how you invest should relate to what are your goals.

1. Asset preservation to insure a luxury retirement
2. Create more wealth as a goal in itself - enjoy the challenge.
3. Create more wealth for heirs or a charity or "cause".
4. Create/buy a business/investment property.
5. ??

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Re: Does 100% stocks make sense for very high net worth individuals

Post by squirm » Mon Apr 15, 2019 10:29 am

I don't know, I think most people have forgotten what a decades long bear market can do. Everyone that's has been long for the past 30 years have been very lucky that it's been a huge ride up, even on severe down years, the market ends up snapping right back.
One day there will probably be a pivot point, and a multi generation bear begins. All those gains could be wiped out.

Probably best to keep a diversified portfolio.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by dh » Mon Apr 15, 2019 10:37 am

My first response to this question was to think like what Warren B wants his wife's portfolio to be after his passing: 90% S&P 500 Index; 10% Short Term Bond Index. However, I think if I was a high net worth individual I would be 50% Total World Index; 50% TIPS Mutual Fund (with annual rebalancing). Perhaps it is simply because a portfolio like that fits me now, and I assume if I "won the game" and had a high net worth it would be maintaining my comfort level. Still, I can't imagine Warren's wife ever worrying a day about money with his suggested portfolio or even being 100% in stocks. Thanks OP for a good thought experiment.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by wolf359 » Mon Apr 15, 2019 12:53 pm

I don't think the QUESTION makes sense.

How did the person became a VHNWI in the first place?

If you founded a company then your fortune starts out as 100% stocks, and pretty much one stock. In that case, 100% stocks doesn't make sense. You will want to diversify some of it into something else. If you maintain control of your company, you have to hold onto some of your stocks.

If you made your fortune in real estate, then your fortune is primarily real estate. If you invest in stocks, it is irrelevant if your AA is 100% stocks or not, because the bulk of your assets are tied up in real estate.

You don't get to VHNWI levels by buying and holding index funds.

About the only way the question makes sense is if someone sold a business (or won a lottery or inherited money) and ended up with $30 million or more in cash to invest. In that case, 100% equities COULD be a viable option, but the ultimate asset allocation should depend more on their needs and goals, and not on the fact that their net worth is really high.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by J G Bankerton » Mon Apr 15, 2019 1:01 pm

squirm wrote:
Mon Apr 15, 2019 10:29 am
I don't know, I think most people have forgotten what a decades long bear market can do. Everyone that's has been long for the past 30 years have been very lucky that it's been a huge ride up, even on severe down years, the market ends up snapping right back.
One day there will probably be a pivot point, and a multi generation bear begins. All those gains could be wiped out.

Probably best to keep a diversified portfolio.
All in all of the time.

Here is the split between “up” and “down” time periods for the S&P 500:
•Days: 53% “up” and 47% “down.”
•Months: 58% up, 42% down.
•Quarters: 63% up, 37% down.
•Years: 72% up, 28% down.
•5 Year Rolling Time Periods: 76% up, 24% down.
•10 Year Rolling Time Periods: 88% up, 12% down.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by WhiteMaxima » Mon Apr 15, 2019 1:17 pm

If you have high enough income to cover your daily and retirement expense, you should have no problem holding 100% equity. owing equity is like owning a company. many wall street hedge fund not only 100% in equity but also leveraged 1x10, that is 1000% in equity. Even Warren Buffet is leveraged 1x1.7. Though he tell you not to. But most fund manager uses leverage to amplify their return. As a individual investor who also depend on their investment for day to day living expense, you shoudn't do 100%. maybe 80/20 or 70/30 depend on risk tolerance.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by Dandy » Mon Apr 15, 2019 1:53 pm

I believe studies have shown that 100% equities isn't the best allocation for maximum long term growth of your portfolio. I believe it is something like 80/20. I think that is because there are stretches of time when bonds out perform equities and maybe because it allows for using some fixed income for buying equities when they are depressed.

The fact that pensions and social security can meet your current retirement expenses is great but those expenses in many cases go down but in some cases go up -- a lot. So, I wouldn't be overconfident especially in early retirement that everything is going to be fine. I have 2 pensions and expect opening the mail some day and getting an offer I can't refuse to take a lump sum. If I had a state pension I would expect to receive a letter about that or how much my monthly check will be reduced by.

Finally, very few of the trusted guru's we admire recommend 100% equities except maybe for the very young. Of course they aren't usually addressing investors with 10 million or higher. So maybe with that level of net worth it is without risk.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by J G Bankerton » Mon Apr 15, 2019 3:42 pm

Dandy wrote:
Mon Apr 15, 2019 1:53 pm
I believe studies have shown that 100% equities isn't the best allocation for maximum long term growth of your portfolio. ...using some fixed income for buying equities when they are depressed.
I doubt a market timer can beat the S&P 500 over a ten year period.

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