100% Stocks Long Term Pro/Con

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martin7
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100% Stocks Long Term Pro/Con

Post by martin7 » Wed Mar 11, 2015 7:04 pm

If you are just starting out investing, would you consider investing 100% in equities (total market funds) for the long term (30+ years)? Many suggest at least 20% bonds with similar results and lower volatility.

Pros of 100% equities:
-Over most long term periods, stocks outperform bonds using https://www.portfoliovisualizer.com/
-With DRIP and automatic investing, you will be buying high and low without worrying about rebalancing
-Holding and rebalancing into bonds limits growth in bull markets
-More inflation protection than bonds

Cons of 100% equities:
-Much higher volatility- bonds buffer against market downswings and occasionally outperform equities
-No Rebalancing bonus: rebalancing during market swings helps you buy low and sell high
-Bonds add diversity to your portfolio in long bear markets

Any comments greatly appreciated. Thank you :beer
Last edited by martin7 on Thu Mar 12, 2015 8:07 am, edited 3 times in total.

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Re: 100% Stocks Long Term Pro/Con

Post by noyopacific » Wed Mar 11, 2015 7:13 pm

A major correction in equities of 40 % or more that happens shortly before or after retirement can have a devastating effect on ones SWR (Safe Withdrawal Rate) / income for retirement. This sort of correction is not at all unusual and the market will not necessarily recover as quickly as it did the last time.
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jwillis77373
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Re: 100% Stocks Long Term Pro/Con

Post by jwillis77373 » Wed Mar 11, 2015 7:18 pm

I think its rarely disputed, if ever, that 100% Long Term in a broad index is unbeatable (unless) its in a taxable account and you have the short term ability to jump in an out of the market or between funds.

Bonds are a bit mystical and magical in that they cloud judgement a bit and provide a sense of security. But unless they keep up with inflation they are a hard bet. Inflation protected securities are even more speculative depending on the model you trust.

Behaviorally we're just "wired" to tinker and obsess, and we tend to get burned more often than not.

Until you have felt the pain personally a 100% investing strategy hasn't tested your resolve and your probably better off riding a training wheel set for a while. Just don't go 100% bonds, stocks, reits or anything else in the beginning.

The slow thing its hard to realize and accept is to focus on trading and holding fees, yearly expense fees, and short term trading fees.. they're boring and deliberately obfuscated.. and make peoples eyes glaze over.. your not human if they don't bore you to tears in the beginning. But eventually with experience they can excite and empower you to make significant long term gains.

The power of Zero is really powerful. An Index Fund can drop a lot, but by definition if it holds the entire market the chances it will ever hit absolute Zero is as low as it can possibly be. Likewise.. the broader the Index.. the more inherent protection. That means even after a significant correction, or bear run.. it will always return to the "mean" or "average" trend of the market. Baring a Zombie Apocalypse or the End of our Civilization (in which you might have higher priorities) it will always come back.. as long as you leave it in the market.

Withdrawl rates in retirement are also something to be concerned about, the Wiki has more information regarding theory and best practice. I think some people say its good to consider any pensions or social security your due if they can be treated like an annuity to provide a secure floor through which you can never fall for the rest of your life. Then any investment on top of those as supplemental or descretionary.. or at least the part thats not absolutely essential for survivial. Most of us can adjust to a lesser lifestyle if things get too bad but having a secure stable income will enhance the tolerance of a higher percent in an Index fund without bonds.

And just in case you didn't mispoke.. 100% Individual Stocks is not the same thing as 100% Total Stock Market Index Fund.. and highly ill advised by most people.

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martin7
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Re: 100% Stocks Long Term Pro/Con

Post by martin7 » Wed Mar 11, 2015 8:01 pm

I agree that this should not be done close to retirement. The Target Date 2060 Fund is 90% Equities so Vanguard is pretty close to 100% stocks for an aggressive portfolio.

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Re: 100% Stocks Long Term Pro/Con

Post by grabiner » Wed Mar 11, 2015 8:02 pm

martin7 wrote:If you are just starting out investing, would you consider investing 100% in equities (total market funds) for the long term (30+ years)?


I would not recommend getting started with 100% stock, because you don't know how you will react to a bear market. Mathematically, 100% stock may be best, but many investors who were 100% stock in 2007 sold out in 2008 and didn't get the benefit of the recovery.

But if you have a long time horizon, a high risk tolerance (for example, a secure job), and have already been through a bear market with a stock-heavy portfolio, then 100% stock is reasonable.
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Re: 100% Stocks Long Term Pro/Con

Post by nisiprius » Wed Mar 11, 2015 8:09 pm

Pastor, Lubos and Stambaugh, Robert F., "Are Stocks Really Less Volatile in the Long Run?" (March 22, 2011). EFA 2009 Bergen Meetings Paper; AFA 2010 Atlanta Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1136847 or http://dx.doi.org/10.2139/ssrn.1136847

According to conventional wisdom, annualized volatility of stock returns is lower over long horizons than over short horizons, due to mean reversion induced by return predictability. In contrast, we find that stocks are substantially more volatile over long horizons from an investor's perspective. This perspective recognizes that parameters are uncertain, even with two centuries of data, and that observable predictors imperfectly deliver the conditional expected return. Mean reversion contributes strongly to reducing long-horizon variance, but it is more than offset by various uncertainties faced by the investor, especially uncertainty about the expected return. The same uncertainties reduce desired stock allocations of long-horizon investors contemplating target-date funds.
You had better decide what you think of this paper, because if "stocks are substantially more volatile over long horizons from an investor's perspective," then 100% stocks long term would seem unwise.

Does anyone know if Jeremy Siegel discusses this in the 5th edition of Stocks for the Long Run?
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Re: 100% Stocks Long Term Pro/Con

Post by Toons » Wed Mar 11, 2015 8:12 pm

80/20 :happy
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jhfenton
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Re: 100% Stocks Long Term Pro/Con

Post by jhfenton » Wed Mar 11, 2015 10:13 pm

We went 100% equities starting out 20 years ago and still are 100%. We've never sold out of equities or stopped our monthly scheduled contributions or changed our investments in a panic. It never even crossed our minds. We investment monthly or biweekly in our 401(k)s and HSA. We investment monthly in our Roth IRAs. We investment monthly in taxable. All of the transfers are automated.

I've finally written down a plan to start adding bonds at age 50 to hit 10% at age 55, when we'll decide on and start a real transition to a reasonable retirement allocation over the next 10 years (from then). (Right now, 20 years out from retirement, I have no idea whether our retirement portfolio will be 40/60 or 60/40 or somewhere in between. It'll depends on our assets, plans, and expenses.) But at the moment, I don't see any need for bonds 20 years out from retirement. While we're still saving, market swings are our friends.

We don't use total market funds, though. I tilt to small and value and break out international small cap and emerging markets from international developed.

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Re: 100% Stocks Long Term Pro/Con

Post by LeeMKE » Wed Mar 11, 2015 10:16 pm

I would add one PRO and CON to your list:

Equities offer better inflation protection than bonds.
Bonds don't offer inflation protection.

When investing for a long period (and 30+ years is a long period around here) inflation is a greater threat IMHO.

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Re: 100% Stocks Long Term Pro/Con

Post by Rob Bertram » Wed Mar 11, 2015 10:21 pm

You can go 80/20 and get slightly lower returns but significantly lower drawdowns. It's a lot easier to stay the course.

If you have trouble staying the course, 40/60 is a fairly smooth ride and still does well.

https://www.portfoliovisualizer.com/bac ... rmBond3=30

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Re: 100% Stocks Long Term Pro/Con

Post by Riprap » Wed Mar 11, 2015 10:34 pm

If you're just starting out, which I assume to mean a young person (20 or 30ish) with a secure income source, 100% equities is fine. I think you're correct to consider inflation. I think rebalancing is primarily for risk (volatility) control, not an added bonus. Invest, forget about it, and concentrate on things you can control.

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Re: 100% Stocks Long Term Pro/Con

Post by N52570 » Wed Mar 11, 2015 11:05 pm

Rob Bertram wrote:You can go 80/20 and get slightly lower returns but significantly lower drawdowns. It's a lot easier to stay the course.

If you have trouble staying the course, 40/60 is a fairly smooth ride and still does well.

https://www.portfoliovisualizer.com/bac ... rmBond3=30


Or a 40/60 version of the "larry" portfolio, it smokes the 100/0 and 80/20. All with a Higher Sharpe and Sortino, and a worst year that was less than -9% against a -37% loss for the 100/0.

https://www.portfoliovisualizer.com/bac ... rmBond1=60
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Re: 100% Stocks Long Term Pro/Con

Post by kolea » Thu Mar 12, 2015 12:17 am

martin7 wrote:If you are just starting out investing, would you consider investing 100% in equities (total market funds) for the long term (30+ years)?


Yes, I would not only consider it, I would do it. And in fact did it and glad of it. But that does not mean it is right for you. Many, many things to consider. All I am saying is that it is very much a plan worth considering.
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Re: 100% Stocks Long Term Pro/Con

Post by EarlyStart » Thu Mar 12, 2015 12:33 am

nisiprius wrote:Pastor, Lubos and Stambaugh, Robert F., "Are Stocks Really Less Volatile in the Long Run?" (March 22, 2011). EFA 2009 Bergen Meetings Paper; AFA 2010 Atlanta Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1136847 or http://dx.doi.org/10.2139/ssrn.1136847

According to conventional wisdom, annualized volatility of stock returns is lower over long horizons than over short horizons, due to mean reversion induced by return predictability. In contrast, we find that stocks are substantially more volatile over long horizons from an investor's perspective. This perspective recognizes that parameters are uncertain, even with two centuries of data, and that observable predictors imperfectly deliver the conditional expected return. Mean reversion contributes strongly to reducing long-horizon variance, but it is more than offset by various uncertainties faced by the investor, especially uncertainty about the expected return. The same uncertainties reduce desired stock allocations of long-horizon investors contemplating target-date funds.
You had better decide what you think of this paper, because if "stocks are substantially more volatile over long horizons from an investor's perspective," then 100% stocks long term would seem unwise.

Does anyone know if Jeremy Siegel discusses this in the 5th edition of Stocks for the Long Run?



Yes, he does. It depends how you define risk. Is risk price fluctuations or a decline in purchasing power? For most people, it's some combination of both. So equities are less likely to lose inflation-adjusted purchasing power over long periods than bonds. Naturally, there is more volatility, so whether volatility or absolute purchasing power is a greater risk depends on the individual. I think that's his main argument.

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Re: 100% Stocks Long Term Pro/Con

Post by VPP » Thu Mar 12, 2015 5:46 am

Stocks for growth and bonds for safety, depends which you are seeking, it's that simple.

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Re: 100% Stocks Long Term Pro/Con

Post by Michread » Thu Mar 12, 2015 6:11 am

90/10 for 20+ yrs and going....

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Re: 100% Stocks Long Term Pro/Con

Post by Snowjob » Thu Mar 12, 2015 6:50 am

Pro - you'll love yourself during bull markets
Con - you'll hate yourself during bear markets

I found that I was very happy with my performance over the last 8 years of investing until I ran the math on a 'what if' scenario. If I was fully committed to stocks I would have made a ton more money. Now that 2008/9 is a long way away, I find the regret of not having maximum equity exposure 'feels' quite painful, and that the satisfaction of having less volatility and some protection in case things got even worse, well I can't 'feel' that at all. I just have to remind myself that it was a good idea at the time and I shouldn't abandon it now just because the emotional signals have changed.

In fact, had I not run the what if scenario, I probably would never have run across this. In my case it was necessary to run it just to check and see if I had created significant alpha and determine if my experiment was worth it (I digress) But for 99% of people on this form its completely unnecessary given the style of investing. If you do feel the need to check something like this however, its important to remember that you compare to your most reasonable alternative, and not compare to a back tested optimal set of results that you likely would never have selected to begin with. :wink:

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Re: 100% Stocks Long Term Pro/Con

Post by fortyofforty » Thu Mar 12, 2015 7:33 am

Been there. Done that. Got the bloodstained tee-shirt. I was 100% stocks for the vast majority of my retirement funds, for decades. The ability to watch--and continue investing--while your portfolio plummets thirty, forty, or more in percentage terms is the key. I was able to do it. In fact, I was able to tell myself those stock market crashes were tremendous buying opportunities. But it is quite a ride, and not for the faint of heart.

One more pro: a 100% stock portfolio removes the need to decide on the stock/bond asset mix. I had the TSP, which (years ago) allowed only the S&P 500 index fund, then expanded to include the EAFE and completion index funds. I had only to dump money into the C fund, and never second-guessed my asset class mix since that was the only game in town if you wanted stocks. Then, I decided on a mixture between C, S, and I, when they were added. Still 100% stocks, but a bit more diversified. It is only quite recently that I added the G fund to my mix.

One more con: you lose the ability to rebalance to an underperforming asset class (stocks in a crash) from an overperforming asset class (bonds, in that case). You simply keep investing in stocks, week after week, month after month, year after year. Simple, but not selling high to buy low, just dollar cost averaging in.
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Re: 100% Stocks Long Term Pro/Con

Post by oldzey » Thu Mar 12, 2015 7:52 am

Lost my shirt in 2008-2009 with 100% energy sector stocks - never again - wish I had known about this forum back then. :D

This is one of my favorite quotes in my IPS:

“Bonds are a key ingredient in all good investment portfolios, and the part that assures great investor behavior.”– Rick Van Ness

(currently 65/35 and keeping it as simple as possible)
Last edited by oldzey on Thu Mar 12, 2015 8:00 am, edited 1 time in total.
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Re: 100% Stocks Long Term Pro/Con

Post by Prudence » Thu Mar 12, 2015 7:59 am

Yes..

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Re: 100% Stocks Long Term Pro/Con

Post by BL » Thu Mar 12, 2015 8:09 am

From March 2, 2015 CNN Money:
http://money.cnn.com/2015/03/02/investing/nasdaq-hits-5000/

Finally! The Nasdaq topped the 5,000 level Monday for the first time since March 2000.

If you invested your money 15 years ago in a NASDAQ index, you would now be even.

I believe there were also several years during that time when bonds did better than stocks.

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Re: 100% Stocks Long Term Pro/Con

Post by Dulocracy » Thu Mar 12, 2015 10:10 am

If you go 100% stocks because you are just chasing growth, do it while you are young. By 15 years from retirement, you should have a significant portion of your portfolio in something with more stability than stocks.

If you are avoiding bonds because they are uncertain in your mind, consider additional payments on your mortgage to get stability in the portfolio. This "reverse-bond" will allow you to set aside money in a safe way if you are hesitant to buy bond funds in the current market. Your returns will likely be lower, but it gives you an option that can help you sleep well at night, but still maintain some stability.
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Re: 100% Stocks Long Term Pro/Con

Post by bhsince87 » Thu Mar 12, 2015 10:13 am

Pro: potentially larger gains.

Con: potentially larger losses.
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kenyan
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Re: 100% Stocks Long Term Pro/Con

Post by kenyan » Thu Mar 12, 2015 10:34 am

LeeMKE wrote:Bonds don't offer inflation protection.

When investing for a long period (and 30+ years is a long period around here) inflation is a greater threat IMHO.


You might check out Treasury Inflation-Protected Securities or Series I savings bonds. I submit that those may even offer superior inflation protection to equities.
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Re: 100% Stocks Long Term Pro/Con

Post by Purelife304 » Thu Mar 12, 2015 10:45 am

BL wrote:From March 2, 2015 CNN Money:
http://money.cnn.com/2015/03/02/investing/nasdaq-hits-5000/

Finally! The Nasdaq topped the 5,000 level Monday for the first time since March 2000.

If you invested your money 15 years ago in a NASDAQ index, you would now be even.

I believe there were also several years during that time when bonds did better than stocks.



Is this really an accurate statement? If you had 100k in there back then, you just now have 100k in the same account? This can't account for dividend payments does it?

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Re: 100% Stocks Long Term Pro/Con

Post by flatfoot » Thu Mar 12, 2015 10:48 am

it was called the lost decade...

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kenyan
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Re: 100% Stocks Long Term Pro/Con

Post by kenyan » Thu Mar 12, 2015 10:50 am

Yes, it ignores dividends, though the NASDAQ is pretty low on dividends due to it being tech- and growth-focused.
Retirement investing is a marathon.

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Re: 100% Stocks Long Term Pro/Con

Post by Purelife304 » Thu Mar 12, 2015 10:53 am

Well that potential is a bit worrisome

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Re: 100% Stocks Long Term Pro/Con

Post by privatefarmer » Thu Mar 12, 2015 11:12 am

I think you need to view this as more of a continuum; the most volatile end of spectrum is actually not 100% equities. I have 100% equities + 25% leveraged using credit card balance transfer promotions ~2% interest. Think outside the box. I am 31 years old, hope to work another 40yrs, I know the history of equities and am broadly/globally diversified. I EXPECT to have 50% drawdowns at any given moment. But since I don't plan on becoming more conservative for least 10 years, I actually am hoping for a major downturn so that I can buy cheap.

Look at historical data, ask yourself how much loss can you stomach without flinching, and go for it. with 30-40 yrs until I retire, why would I put ANY money into fixed income?? It's not complicated and with leverage you can actually get far riskier than just "100% equities". I wouldn't leverage more than 25% in my case bc I'm not comfortable losing more in a bear market. You just have to run the numbers for your situation and feel comfortable about it.

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Re: 100% Stocks Long Term Pro/Con

Post by flatfoot » Thu Mar 12, 2015 11:22 am

privatefarmer wrote: I have 100% equities + 25% leveraged using credit card balance transfer promotions ~2% interest. Think outside the box.

really?

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Re: 100% Stocks Long Term Pro/Con

Post by flatfoot » Thu Mar 12, 2015 11:24 am

Does anyone have a link to a calculator or chart where I can play around with past/future results with bond vs stock AA?

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Re: 100% Stocks Long Term Pro/Con

Post by nisiprius » Thu Mar 12, 2015 11:52 am

LeeMKE wrote:...Equities offer better inflation protection than bonds.
Bonds don't offer inflation protection....
True, those bonds that don't offer inflation protection don't offer inflation protection.
But those bonds that do offer inflation protection do offer inflation protection.
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Re: 100% Stocks Long Term Pro/Con

Post by Sportswhiz00 » Thu Mar 12, 2015 11:59 am

flatfoot wrote:Does anyone have a link to a calculator or chart where I can play around with past/future results with bond vs stock AA?


https://personal.vanguard.com/us/insigh ... about-risk

Or try firecalc

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Re: 100% Stocks Long Term Pro/Con

Post by nisiprius » Thu Mar 12, 2015 12:05 pm

Purelife304 wrote:I believe there were also several years during that time when bonds did better than stocks.
At the end of 1999, people were scratching their heads in wonder (or dismay) over the fact that bonds beat stocks over the whole decade--full years, not measuring to the lowest point in 2009.

In fact, an investment in Vanguard Total Stock Market Index Fund made at the beginning of the year 2000 would still be worth less today than one made in Vanguard Total Bond Market Index Fund.

QQQ, the ETF that tracks the NASDAQ 100, would indeed be back to even by the end of 2013, but would still be far, far behind either the total stock market OR bonds, and, again, if an ETF is a Morningstar "compare to" choice it shows the effect of reinvested dividends.

Source: Morningstar

Blue: Vanguard Total Stock Market Index Fund, VTSMX
Orange: Vanguard Total Bond Market Index Fund, VBMFX
Green: PowerShares QQQ Trust (tracks NASDAQ-100 index)
Image

So the long run may be what it is--better read Pastor and Stambaugh--but certainly bonds can win and have won over periods of more than 15 years. I think it is a good idea to have some bonds in your "retirement red zone" happens to fall within a period like 2000-2014.
Last edited by nisiprius on Thu Mar 12, 2015 12:31 pm, edited 1 time in total.
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Re: 100% Stocks Long Term Pro/Con

Post by ShiftF5 » Thu Mar 12, 2015 12:10 pm

Toons wrote:80/20 :happy

Years ago I asked Vanguard to suggest an AA for me.

Based on my answers to their questionnaire I believe they proposed a 70/30 portfolio.

I was more interested in 90/10 or 80/20.

They told me they don't suggest anything higher than 80/20.

I went 80/20 and was fine.

If I had been any higher I may have panicked in some of the big drops.

Best wishes.

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Re: 100% Stocks Long Term Pro/Con

Post by grabiner » Thu Mar 12, 2015 12:22 pm

ShiftF5 wrote:
Toons wrote:80/20 :happy

Years ago I asked Vanguard to suggest an AA for me.

Based on my answers to their questionnaire I believe they proposed a 70/30 portfolio.

I was more interested in 90/10 or 80/20.

They told me they don't suggest anything higher than 80/20.


And that is good advice. Similarly, while I post my portfolio occasionally, I never recommend anyone match it, as it is one of the most aggressive portfolios on the Bogleheads. If my portfolio is right for you. then you know enough to ignore my advice (presumably through having had a slightly less risky portfolio in a bear market, as I did in 2000-2002).
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Re: 100% Stocks Long Term Pro/Con

Post by CyberBob » Thu Mar 12, 2015 12:43 pm

flatfoot wrote:Does anyone have a link to a calculator or chart where I can play around with past/future results with bond vs stock AA?

https://www.portfoliovisualizer.com

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Re: 100% Stocks Long Term Pro/Con

Post by KyleAAA » Thu Mar 12, 2015 12:49 pm

The common assertion that stocks ALWAYS have higher expected returns than bonds is just false because it implies stocks are ALWAYS riskier than bonds, which isn't the case: stocks are ALMOST always riskier than bonds. Starting with that as the premise, the usual 100% stocks arguments fall apart pretty quickly.

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Re: 100% Stocks Long Term Pro/Con

Post by flatfoot » Thu Mar 12, 2015 1:06 pm

Sportswhiz00 wrote:
flatfoot wrote:Does anyone have a link to a calculator or chart where I can play around with past/future results with bond vs stock AA?


https://personal.vanguard.com/us/insigh ... about-risk

Or try firecalc

perfect thanks!

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Re: 100% Stocks Long Term Pro/Con

Post by flatfoot » Thu Mar 12, 2015 1:07 pm

CyberBob wrote:
flatfoot wrote:Does anyone have a link to a calculator or chart where I can play around with past/future results with bond vs stock AA?

https://www.portfoliovisualizer.com

great! thanks!

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BL
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Re: 100% Stocks Long Term Pro/Con

Post by BL » Thu Mar 12, 2015 1:47 pm

nisiprius wrote:
Purelife304 wrote:I believe there were also several years during that time when bonds did better than stocks.



Thanks for the graphs. It is good to see a visual comparison.

By the way, the quote above at the beginning of your post was Purelife quoting me. I am not sure he believed my undocumented comment.

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Re: 100% Stocks Long Term Pro/Con

Post by kolea » Thu Mar 12, 2015 2:12 pm

nisiprius wrote:In fact, an investment in Vanguard Total Stock Market Index Fund made at the beginning of the year 2000 would still be worth less today than one made in Vanguard Total Bond Market Index Fund.



That is certainly true, but a couple of further data points are in order:

(1) the 15-year period starting in the year 2000 was unique, statistically. You can choose 50 other 15-year sequences (i.e., starting in 1950, 1951, ...) and the total return of equities will be greater than that of bonds. Of course it is possible that we will have another sequence of market churn like we did in the aughts, but if you are playing a game of most likely scenarios, I would bet against that.

(2) The result for the 15-year sequence looks different if you are in a typical accumulation situation of making yearly contributions. I looked at this quite a bit to assess what the ideal AA would be, historically. The results varied depending on what year one started accumulating, what the initial amount was and the yearly contribution, but I saw no evidence that anything less than 50/50 would ever produce a higher ending portfolio value, and by far the AA that was most likely to maximize portfolio value during accumulation was 100/0.

Despite all this, I am not really recommending a 100/0 portfolio. I no longer have one that aggressive. But it is not unreasonable.

I know someone is going to say "past performance is no guarantee of future results", so consider yourself warned.
Kolea (pron. ko-lay-uh). Golden plover.

MichDad
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Re: 100% Stocks Long Term Pro/Con

Post by MichDad » Thu Mar 12, 2015 3:24 pm

I began investing for retirement in 1987 at age 32. With the exception of a short period when the Thrift Savings Plan required that all participants purchase its government bond "G Fund," my wife and I have never owned bonds. I got out of the G Fund as soon as permitted, which was around 1988 or 1989. In the 28 years I've been saving for retirement, I've been very heavily invested in US and international equities. Over time, my wife and I have added a commodities fund and a REIT fund to our retirement portfolio; but no bonds. Despite some sharp downturns and upturns in our portfolio, we've stuck with it. I've become so immune to drops in our portfolio that whenever payday comes along, I find myself hoping for stock market declines so we'll be purchasing more shares.

One important caveat is that I have already qualified for a decent federal pension that I'll begin to collect when I retire. My wife and I will also both collect Social Security. Also, we have significant equity in our home and our mortgage will be paid off not too long after we retire.

MichDad

Dandy
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Re: 100% Stocks Long Term Pro/Con

Post by Dandy » Thu Mar 12, 2015 3:37 pm

100% stocks ideas tend to grow after a nice long bull market. It is not necessary to go to that extreme to get a healthy long term growth of your portfolio.

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mbk734
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Re: 100% Stocks Long Term Pro/Con

Post by mbk734 » Thu Mar 12, 2015 5:12 pm

Dandy wrote:100% stocks ideas tend to grow after a nice long bull market. It is not necessary to go to that extreme to get a healthy long term growth of your portfolio.


Recency bias is an issue. The time to go 100% equities is after a big crash rather than a big bull run. Or I suppose if you're in it for the long haul with an iron stomach, 100% is not bad as long as you stay the course and ride the waves. 8-)
You can't stop the waves, but you can learn to surf

EarlyStart
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Re: 100% Stocks Long Term Pro/Con

Post by EarlyStart » Thu Mar 12, 2015 8:15 pm

I'm only 22, and I have a 100/0 portfolio. I don't know that I'll stay fully invested in equities in perpetuity though. As others have alluded to, I find myself hoping for stocks to decline so that my dollar goes further. Also it's not emotionally difficult because even with a 40-60% decline, I'd be able to arrive at my post-crash balance after a relatively short time due to contributions:balance ratio. My crystal ball isn't better than anyone else's, but if I HAD to place a bet on it (which I thankfully do not), I'd say we're in for a substantial correction within the next year and a half. I plan on considering bonds once I'm 40. Until then I'm not going to worry about it. I avoid all tinkering, including rebalancing.


The only way I would consider remaining 100/0 for my entire life is if my portfolio balance is very, very high relative to my annual expenses. For example, if my portfolio was $2.75m, and I only spent $40,000/year (1.8% WR) I would probably never add bonds, but I guess I won't know how I'd feel without being in that situation. There is no correct amount of volatility to tolerate that's universally applicable to all of us.

chessmannextmove
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Re: 100% Stocks Long Term Pro/Con

Post by chessmannextmove » Thu Mar 12, 2015 8:19 pm

martin7 wrote:If you are just starting out investing, would you consider investing 100% in equities (total market funds) for the long term (30+ years)? Many suggest at least 20% bonds with similar results and lower volatility.

Pros of 100% equities:
-Over most long term periods, stocks outperform bonds using https://www.portfoliovisualizer.com/
-With DRIP and automatic investing, you will be buying high and low without worrying about rebalancing
-Holding and rebalancing into bonds limits growth in bull markets
-More inflation protection than bonds

Cons of 100% equities:
-Much higher volatility- bonds buffer against market downswings and occasionally outperform equities
-No Rebalancing bonus: rebalancing during market swings helps you buy low and sell high
-Bonds add diversity to your portfolio in long bear markets

Any comments greatly appreciated. Thank you :beer


100% stocks, do it and forget about it.

duffer
Posts: 183
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Re: 100% Stocks Long Term Pro/Con

Post by duffer » Thu Mar 12, 2015 8:30 pm

TwoByFour wrote:
nisiprius wrote:In fact, an investment in Vanguard Total Stock Market Index Fund made at the beginning of the year 2000 would still be worth less today than one made in Vanguard Total Bond Market Index Fund.



That is certainly true, but a couple of further data points are in order:

(1) the 15-year period starting in the year 2000 was unique, statistically. You can choose 50 other 15-year sequences (i.e., starting in 1950, 1951, ...) and the total return of equities will be greater than that of bonds. Of course it is possible that we will have another sequence of market churn like we did in the aughts, but if you are playing a game of most likely scenarios, I would bet against that.

(2) The result for the 15-year sequence looks different if you are in a typical accumulation situation of making yearly contributions. I looked at this quite a bit to assess what the ideal AA would be, historically. The results varied depending on what year one started accumulating, what the initial amount was and the yearly contribution, but I saw no evidence that anything less than 50/50 would ever produce a higher ending portfolio value, and by far the AA that was most likely to maximize portfolio value during accumulation was 100/0.

Despite all this, I am not really recommending a 100/0 portfolio. I no longer have one that aggressive. But it is not unreasonable.

I know someone is going to say "past performance is no guarantee of future results", so consider yourself warned.


Moreover, if you started 2001 with an all-equities portfolio of 20% each in large cap, small cap, international, REITS, and emerging markets, you realized an 8.35% annualized gain by the end of "lost decade" in 2010.

toto238
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Re: 100% Stocks Long Term Pro/Con

Post by toto238 » Thu Mar 12, 2015 8:47 pm

If you have $10million and only spend $100,000 a year, your SWR is 1%. You could be 100% stocks or 100% bonds or even 100% cash and never run out of money in your lifetime.

It's all relative.

frugalecon
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Re: 100% Stocks Long Term Pro/Con

Post by frugalecon » Thu Mar 12, 2015 8:59 pm

EarlyStart wrote:I'm only 22, and I have a 100/0 portfolio. My crystal ball isn't better than anyone else's, but if I HAD to place a bet on it (which I thankfully do not), I'd say we're in for a substantial correction within the next year and a half.


I wonder what a "substantial correction" is, in terms of magnitude. 10-15% is pretty garden variety. 25%? 30%? It seems that one really must be able to have the stomach to withstand a 25% swoon in one's stock allocation,

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