Isn't it a bad idea to have everything in equity I thought?

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GAAP
Posts: 955
Joined: Fri Apr 08, 2016 12:41 pm

Re: Isn't it a bad idea to have everything in equity I thought?

Post by GAAP » Sun Dec 01, 2019 3:24 pm

When starting out -- and for a long time thereafter -- the vast majority of portfolio growth comes from new contributions, not growth of existing contributions. Consistency in contributions, combined with consistency in growth will do more good and less damage to a new portfolio than chasing hypothetical returns from any asset class. It is also much easier at first to maintain contributions when you see more growth than decline in your portfolio.

You don't really know how you will react to a severe market downturn until it happens -- those risk-evaluation questionnaires don't really come close to a real event with your real money.

I suggest starting out conservatively with a 50/50 allocation. You can gradually increase the stock allocation over the years as you learn how you react to that volatility and as you get closer to the situation where returns outrun contributions.

Take a look at the chart in viewtopic.php?p=4855972#p4855972 to get an idea of the relative risk and potential from the different asset allocations.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

Topic Author
thelateinvestor43
Posts: 170
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Isn't it a bad idea to have everything in equity I thought?

Post by thelateinvestor43 » Sun Dec 01, 2019 11:15 pm

GAAP wrote:
Sun Dec 01, 2019 3:24 pm
When starting out -- and for a long time thereafter -- the vast majority of portfolio growth comes from new contributions, not growth of existing contributions. Consistency in contributions, combined with consistency in growth will do more good and less damage to a new portfolio than chasing hypothetical returns from any asset class. It is also much easier at first to maintain contributions when you see more growth than decline in your portfolio.

You don't really know how you will react to a severe market downturn until it happens -- those risk-evaluation questionnaires don't really come close to a real event with your real money.

I suggest starting out conservatively with a 50/50 allocation. You can gradually increase the stock allocation over the years as you learn how you react to that volatility and as you get closer to the situation where returns outrun contributions.

Take a look at the chart in viewtopic.php?p=4855972#p4855972 to get an idea of the relative risk and potential from the different asset allocations.
I only have $6k in there (Roth) so if it went down to $3K I wouldn't be HAPPY about it, but I don' think I'd panic. I realize that I would still own the same amount of stock and over the years it would come back up as the market always seems to.

Topic Author
thelateinvestor43
Posts: 170
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Isn't it a bad idea to have everything in equity I thought?

Post by thelateinvestor43 » Sun Dec 01, 2019 11:18 pm

GAAP wrote:
Sun Dec 01, 2019 3:24 pm
When starting out -- and for a long time thereafter -- the vast majority of portfolio growth comes from new contributions, not growth of existing contributions. Consistency in contributions, combined with consistency in growth will do more good and less damage to a new portfolio than chasing hypothetical returns from any asset class. It is also much easier at first to maintain contributions when you see more growth than decline in your portfolio.

You don't really know how you will react to a severe market downturn until it happens -- those risk-evaluation questionnaires don't really come close to a real event with your real money.

I suggest starting out conservatively with a 50/50 allocation. You can gradually increase the stock allocation over the years as you learn how you react to that volatility and as you get closer to the situation where returns outrun contributions.

Take a look at the chart in viewtopic.php?p=4855972#p4855972 to get an idea of the relative risk and potential from the different asset allocations.
I only have $6k in there (Roth) so if it went down to $3K I wouldn't be HAPPY about it, but I don' think I'd panic. I realize that I would still own the same amount of stock and over the years it would come back up as the market always seems to.

So for now I'm going to leave my entire ROTH $6k in the FSKAX and a little in the International market, no bonds. I'm wondering though if the ETF SPY might be better than the FSKAX Total Market? The past 6 years it went from 10k to 40k.
Last edited by thelateinvestor43 on Sun Dec 01, 2019 11:21 pm, edited 1 time in total.

vipertom1970
Posts: 67
Joined: Fri Jun 21, 2019 7:06 pm

Re: Isn't it a bad idea to have everything in equity I thought?

Post by vipertom1970 » Sun Dec 01, 2019 11:19 pm

if it goes down you could buy more shares for the same amount of money. How would you feel if your $475k went down to $250K ?

Beehave
Posts: 583
Joined: Mon Jun 19, 2017 12:46 pm

Re: Isn't it a bad idea to have everything in equity I thought?

Post by Beehave » Sun Dec 01, 2019 11:36 pm

Let's assume you will put another $6K in this year, at a $500 a month
- Suppose the market trundles along or goes up. No worries.
- Suppose the market craters. Your new money going in is buying at a low price, so all's good. No worries.

You could reallocate now to a fixed bond-to-stock ratio, but it is not urgent unless you feel it is. However, it becomes more and more prudent the more meaningful the Roth balance becomes relative to your retirement (or other) needs and expectations as that balance grows. At the beginning of the Roth accumulation phase, putting all new money into stocks is not, in my opinion, a bad idea at all. If there's a downturn, then going through a downturn and staying the course and seeing the results is a healthy, low cost experience. And if you find you cannot stomach it and sell or stop investing at the wrong time, that is also a learning experience good to have when balances are low.

Best wishes.

Topic Author
thelateinvestor43
Posts: 170
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Isn't it a bad idea to have everything in equity I thought?

Post by thelateinvestor43 » Sun Dec 01, 2019 11:56 pm

Beehave wrote:
Sun Dec 01, 2019 11:36 pm
Let's assume you will put another $6K in this year, at a $500 a month
- Suppose the market trundles along or goes up. No worries.
- Suppose the market craters. Your new money going in is buying at a low price, so all's good. No worries.

You could reallocate now to a fixed bond-to-stock ratio, but it is not urgent unless you feel it is. However, it becomes more and more prudent the more meaningful the Roth balance becomes relative to your retirement (or other) needs and expectations as that balance grows. At the beginning of the Roth accumulation phase, putting all new money into stocks is not, in my opinion, a bad idea at all. If there's a downturn, then going through a downturn and staying the course and seeing the results is a healthy, low cost experience. And if you find you cannot stomach it and sell or stop investing at the wrong time, that is also a learning experience good to have when balances are low.

Best wishes.
It doesn't scare me. Even if my money goes down by 30%, I know that it will come up again some day. You just lose time that's all. We're all losing time every passing day anyway as we march towards our deaths.

abc132
Posts: 317
Joined: Thu Oct 18, 2018 1:11 am

Re: Isn't it a bad idea to have everything in equity I thought?

Post by abc132 » Mon Dec 02, 2019 1:48 am

I invested in 100% stocks through both the 2000 and 2008 crashes. The result of taking on that risk is going to be early retirement, and/or doing things I would not have been able to do with a more conservative portfolio.

The reality is that the 2000 crash had almost no effect on my long term results. The same will likely be true for you if something bad happens in the next year or two. The 2008 crash had almost no long term effect on my portfolio. Only a crash in the last 10 years before retirement is likely to be significant to your outcomes.

It sounds like you want to make your own choices. To be a successful investor that makes your own choices, you have to be able to understand the implications of

1. amount/rate of investment
2. portfolio allocation
3. costs
4. your self

Many people on these forums seem to come up with some idea or saying that they can latch on to in order to determine what to do. I don't recommend this, unless your one thing is following the simple rules of the Bogleheads. If you try latch onto one idea and jump from idea to idea, if you ever leave the market or buy/sell based on emotions, you have the chance to really cause a lot of damage. Many people seem to be unable to analyze more than one type of risk at a time, and they tend to focus only on one thing. I would encourage you to focus on multiple risks and not on singular things like chasing the best performance or trying to get the smallest drop.

Taking yourself out of the equation gives you a very strong chance for success, and helps avoid all kinds of mistakes. The average do-it-yourself person under performs the market by 2% a year. If that is what you are looking for, switch strategies whenever you become afraid or uncomfortable, hide your money in cash when the going gets rough, and change up what you are doing whenever you hear about some new trend that beats the market in back testing.

I can tell you that if you do a proper risk analysis, having large percentage of stocks when your portfolio is small relative to your goal is going to give you the best chance of success for your situation if you do not give up on investing during bad times. You can even make mistakes early on, switch your allocation, etc and still come out fine because your amount invested is small, and you still have time on your side.

The advice I gave my friend 15 years ago was to start with a single US total market index fund (less than 0.2% fees) from Vanguard in a Roth IRA, auto-invest, and only add any additional complexity after investing for at least 5 years. The purpose of the advice was to give them something so simple that they would do it, and make it so simple that they could not sabotage a good-enough plan. If the stock market drops, this is an even better plan for the new investor than if it does not drop - because we know that lower prices bring higher expected returns. I would tell them to grab some bonds and a little international exposure if they were still 100% US stocks and had 10+ years of retirement expenses invested.

I think you could also use 10%, 20%, or 30% bonds in those first 5 years and be fine, but you will have worse expected returns because you are buying less stocks if/when the market is down, and you get less growth when the market is up. This would be a good-enough plan if you can stick to it during bad times. If you start going higher than 30% bonds for reasons other than emotional comfort, you really handicap your potential for growth and do so with worse expected returns.

US vs international is a debate that is unresolved. Bogle is OK with 0% international, and Vanguard currently pushes for 40% international based on their own valuation metrics. International investing is probably a volatility play over your 30 year investment horizon, and again becomes much more important within those last 10 years before retirement. There is really no need to try and pick a winner if you have a 30 year investing time frame.

Starting with your preferred mix of US stock/International/Bonds is fine, but if there are any additional fees for doing so, I would start with a single US or total world fund and add the other things later. Portfolios with 40-70% bonds are most appropriate for those very near retirement, those with large assets, those with no need for market gains (large income over small number of working years), or for those with enough risk aversion that they might stop investing.

The best decision for you is personal and is whatever plan gives you the best chance of success, including your ability to stay invested.

Good luck!

dru808
Posts: 180
Joined: Sat Oct 15, 2011 2:42 pm

Re: Isn't it a bad idea to have everything in equity I thought?

Post by dru808 » Mon Dec 02, 2019 3:00 am

thelateinvestor43 wrote:
Sun Dec 01, 2019 11:18 pm
GAAP wrote:
Sun Dec 01, 2019 3:24 pm
When starting out -- and for a long time thereafter -- the vast majority of portfolio growth comes from new contributions, not growth of existing contributions. Consistency in contributions, combined with consistency in growth will do more good and less damage to a new portfolio than chasing hypothetical returns from any asset class. It is also much easier at first to maintain contributions when you see more growth than decline in your portfolio.

You don't really know how you will react to a severe market downturn until it happens -- those risk-evaluation questionnaires don't really come close to a real event with your real money.

I suggest starting out conservatively with a 50/50 allocation. You can gradually increase the stock allocation over the years as you learn how you react to that volatility and as you get closer to the situation where returns outrun contributions.

Take a look at the chart in viewtopic.php?p=4855972#p4855972 to get an idea of the relative risk and potential from the different asset allocations.
I only have $6k in there (Roth) so if it went down to $3K I wouldn't be HAPPY about it, but I don' think I'd panic. I realize that I would still own the same amount of stock and over the years it would come back up as the market always seems to.

So for now I'm going to leave my entire ROTH $6k in the FSKAX and a little in the International market, no bonds. I'm wondering though if the ETF SPY might be better than the FSKAX Total Market? The past 6 years it went from 10k to 40k.

Is that it, 10k-40k? Why stop at the s&p? You can find better than that. Off the top of my head DPZ if you’re really about gambling that money away. :sharebeer

Topic Author
thelateinvestor43
Posts: 170
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Isn't it a bad idea to have everything in equity I thought?

Post by thelateinvestor43 » Mon Dec 02, 2019 5:13 am

dru808 wrote:
Mon Dec 02, 2019 3:00 am
thelateinvestor43 wrote:
Sun Dec 01, 2019 11:18 pm
GAAP wrote:
Sun Dec 01, 2019 3:24 pm
When starting out -- and for a long time thereafter -- the vast majority of portfolio growth comes from new contributions, not growth of existing contributions. Consistency in contributions, combined with consistency in growth will do more good and less damage to a new portfolio than chasing hypothetical returns from any asset class. It is also much easier at first to maintain contributions when you see more growth than decline in your portfolio.

You don't really know how you will react to a severe market downturn until it happens -- those risk-evaluation questionnaires don't really come close to a real event with your real money.

I suggest starting out conservatively with a 50/50 allocation. You can gradually increase the stock allocation over the years as you learn how you react to that volatility and as you get closer to the situation where returns outrun contributions.

Take a look at the chart in viewtopic.php?p=4855972#p4855972 to get an idea of the relative risk and potential from the different asset allocations.
I only have $6k in there (Roth) so if it went down to $3K I wouldn't be HAPPY about it, but I don' think I'd panic. I realize that I would still own the same amount of stock and over the years it would come back up as the market always seems to.

So for now I'm going to leave my entire ROTH $6k in the FSKAX and a little in the International market, no bonds. I'm wondering though if the ETF SPY might be better than the FSKAX Total Market? The past 6 years it went from 10k to 40k.

Is that it, 10k-40k? Why stop at the s&p? You can find better than that. Off the top of my head DPZ if you’re really about gambling that money away. :sharebeer
So are you being funny? Do you mean I shouldn't put $10k in the SPY ETF?

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