New Poster. Talk me out of 100%stock allocation

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Re: New Poster. Talk me out of 100%stock allocation

Post by Clearly_Irrational » Mon Sep 30, 2013 1:51 pm

ddb wrote:I think our main disagreement is this: you said (emphasis mine)
...a small bond allocation will vastly increase your risk adjusted returns.
I'm saying that a small bond allocation will improve your expected risk-adjusted returns.

The difference between expectation and certainty is not a trivial point, which is why I'm pointing this out.

Fair enough, I never meant to imply that the results were "guaranteed" but for practical purposes of this discussion I think my point holds. It is extremely likely that a 90/10 portfolio will outperform 100% stocks on a risk adjusted basis. The only time I would consider holding 100% stocks is if I was going with an individual stock strategy, say dividend growth for example, because in that case you don't care about the total return let alone the risk adjusted return. Even if for some reason I felt that chance of a 45% loss wasn't enough risk I'd fix that by using a 2X leverage ETF rather than eliminating the bond holding.

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Re: New Poster. Talk me out of 100%stock allocation

Post by johncunningham » Tue Jun 30, 2020 11:14 pm

OP here

I decided to resurrect a thread... I have always appreciated the advice on this forum and for some reason I like to read the longitudinal stories, so I thought I would revive this one. I'll try not to go in excruciating detail.

I'm seven years older. still in the same house, and the nest egg is growing appropriately. My income has been basically flat, but inflation has been low, and I'm still saving the same amounts, or near enough as doesn't matter. No new debts!

I stopped paying down the mortgage, and actually spent some money updating and improving the homestead. I stopped funneling money into the 529s as well. We have set a good base there and will be able to spend income or taxable monies when the time comes. It is truly impossible for me to get a real handle on possible future education expenses, and I am forever grateful to my younger self that I started saving for the kids education when they were born.

More to the point tho, about 2 years ago, at age 41, I moved to 90/10. then about a year later, I moved 80/20. For some reason that felt "right" to me. The recent events didn't bother me as the losses occurred, even tho my income during the second quarter of this year has been markedly reduced. Looking forward, it certainly won't be a banner year (sad trombone sound). The beauty of living below ones means and having a reasonable emergency fund is that one can weather these life (or even global pandemic) events. I guess all I really wanted to say is thanks to all of you that provide thoughtful and helpful advice to those of us willing to ask questions. This truly is an amazing forum.

I think I'm going to stay where I am in terms of asset allocation for the forseeable future. My desire to take risk remains nearly the same as when I started saving in my mid 20's. My need had decreased, and all else being equal, my ability to take risk has increased. Perhaps I'll chime in again in another 7 years. By then, God willing, I'll have 2 in college, a high school sophomore, and be starting to come up with the plan that takes me from 50 to the finish.


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Re: New Poster. Talk me out of 100%stock allocation

Post by geerhardusvos » Tue Jun 30, 2020 11:42 pm

johncunningham wrote:
Fri Sep 27, 2013 1:05 am
Thanks in advance. I hope this is the proper forum for my question. Please bear with me.

The basics:
-Emergency funds: 6 months cash
-Debt: Mortgage 30 year fixed at 3.875 balance 970k
Student Loan 1.625% balance 139k
-Federal Tax rate 39.6 State 5.3%
-Age 36, wife 35
-Desired asset allocation 100%stock. 70/30 US/International

Current Retirement Assets total 779k

-9.6% Vanguard Total Market (VTSAX) (0.05)
- 2% Cash

401k (I combined his and hers for simplicity. We consider it as one portfolio)
-30% Fidelity Spartan extended Market FSEVX (0.07)
-29.8% Fidelity Global ex-US FSGDX (0.18)
-28.9% Vanguard 500 VINIX (0.04)


His 401k 16k to Roth 401k 35k to traditional 401k (profit sharing)
Her 401k 17.5 k to traditional 401k 6k match
Taxable contibutions 2-3k/month

We also have 529's for our three kids ages 1,3,5 total balance 146k. adding 2k/month

Brief backstory: I'm a physician. I didn't start making my current income until 2011. My wife has always been employed and we were very fortunate to be able to "max" our 401k's since she was 26, and I was 27. We recently bought our "forever" house in a high COL area. The mortgage is less than twice our gross income, we put 30% down and have a 30year fixed rate at 3.875. The student loan rate is a gift from the feds. I was very lucky to consolidate in 2004 and lock it in for 30 years at less than 2%. I pay the minimum payment.

My investing belief: I have a written investment plan that calls for me to consider adding bonds at age 40 to reach an ultimate goal 80/20 stock/bond ratio by age 50. I feel that I will only be young once. My risk tolerance will likely decrease with age. I feel that now is the time for me to be 100% stock. I am fortunate to have a job that I love that pays well. I also think of my job as being very stable. My wife is also in a very stable employment situation. We live on much less than our income. We saved for several years making much less money in order to come up with a large down payment.

I have 2 questions:

1)Why not 100%stock? In 2008-2009, we lost around 40% of our portfolio and just kept contributing all the way down and then all the way back up. I am confident that I/we have the fortitude to ride that rollercoaster again.

2)In an effort to hedge, I have been adding $2000 extra principal to each mortgage payment. Does it make sense to put all extra cash against the mortgage note? It is only at 3.875% but I am thinking of it as my "bond" holdings.

2a)What would the bogleheads do with extra cashflow if not pay off the mortgage?

Thanks again
I am in a similar financial situation to you, in fact extremely similar. I am ~96% equities because the below circumstances make sense and align with my goals.

An all-stock allocation can make sense in the right circumstances:

1. You want to take on lots of risk in the hope of higher returns,
2. You can afford a large decline in the market, even if that decline is not followed by an immediate comeback, and
3. You have good evidence that you won’t panic and sell during a sharp market decline (or, the size of your retirement portfolio relative to your total economic assets is small enough that it’s no big deal if you do end up panicking and selling at the bottom of a bear market).

Stated differently, you must want to have a high-risk portfolio and you must have the economic and emotional risk tolerance to handle such a thing.

Are you willing to “lose” this money or diminished in value for a very very long time?
VTSAX and chill

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Re: New Poster. Talk me out of 100%stock allocation

Post by tre3sori » Wed Jul 01, 2020 2:00 am

Taylor Larimore wrote:
Mon Sep 30, 2013 10:40 am
When Does a 100% Stock Portfolio Make Sense?
direkt link to the article: ... ake-sense/
Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep by him in reserve. Talmud | 34% Real Estate, 40% VGWL, 17% VAGE, 6% 8PSG, 3% Cash

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Re: New Poster. Talk me out of 100%stock allocation

Post by RomeoMustDie » Wed Jul 01, 2020 4:27 am

I would understand the risk if it led to a higher return, but it's fairly easy to beat 100% VTI using a more diversified portfolio. Less exposure to risk, less volatility, and more risk adjusted return.

A more diversified portfolio also opens up the ability to use light leverage 15%-25% to even out the risk with a 100% stock portfolio while providing elevated returns.

If you have high risk tolerance, why not use a portfolio as described above?

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Re: New Poster. Talk me out of 100%stock allocation

Post by 1789 » Wed Jul 01, 2020 11:58 am

As one poster mentioned before, it is important to define what 100% stocks really mean. Is it really 100%? Some people include their EF in their AA and for some we are talking about 2-3 years of expenses. Obviously this example is an example of a portfolio that cannot be a 100% stocks as there is a hidden buffer (CASH) that helps in case of a stock market crash and one doesn't need to sell. And people who claim 100% stocks sometimes skip telling us how much CASH they are hording . :P
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

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Re: New Poster. Talk me out of 100%stock allocation

Post by johncunningham » Wed Jul 01, 2020 12:16 pm

Fair point regarding cash position. For me it’s around 2 percent of investable assets. 7 years ago it was more like 6%. Portfolio got bigger. Emergency fund stayed the same...

Emergency funds are a funny thing tho. At this point, my emergency fund is a many layered cake. There is cash, there is a hobby car, there are taxable investments. I said to my wife in April, that I would sell the car before I generated a tax bill, but that somewhat distorts the truth. During the sell off I could have raised cash without incurring a tax event, but it would have meant selling at a loss... thankfully it didn’t come to that.

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