Anyone comfortable with 100% stock?

[cute fuzzy bunny]

Yeah sure. You're just trying to see if you can get another 15 page post out of us.

Its not a matter of it being "different this time", its been plenty different enough already!

Some bondage is not necessarily bad; for example in the 3 year down period we just experienced, bonds did very well. They also outperformed stocks for a 3 year period from 1939-1941. In individual years, from 1900-1980, bonds outperformed stocks in 3 out of 10 years.

In periods of high P/E ratio's (like now), generally bonds subsequently outperformed stocks...at some point...although usually not too many years away.

Theres also the TYPE of bonds you might consider for portfolio diversification...convertibles, high yield, gnma's, and TIPS each have some characteristics that can diversify a stock portfolio, reduce volatility, and still provide a fairly pleasing rate of return. I wouldnt buy a lot of them NOW with interest rates where they are and with a mind for where they're going to go, but once the interest rate tomfoolery is over, they would be good buys.

A 5 year cash cushion in front of your all stock portfolio might buffer it out for you. I just think about having 150-200k of my money barely staying ahead of inflation to act as a safety net.

Reminds me of folks who drive their sports cars at mach 12 up the Pacific Coast Highway...about 500 feet down the cliff to the ocean and no guard rail...with the presumption that the odds of a blowout being in their favor.

Lots of fun, plenty of adrenaline surges here and there, and the odds are certainly in your favor. And at least you have plenty of time to contemplate things between the time you leave the road and the time you hit the water...

But again, if you arent withdrawing or withdrawing very little, then I wouldnt worry...but as has already been pointed out, if you dont need much, why are you shooting for such a high return on your investments? Pre-ER, I can see it, post-ER I'm not so sure.

 

[unclemick]

John C Bogle explains why individual stocks are better than index or even tax managed index funds toward the end of: 'Mutual Funds: Parallaxes and Taxes' September 16, 1997 - found in the achives section of Bogle Financial Markets Research Center. Of course he uses fund examples. Buy 30 blue chips, don't rebalance, collect the dividends and go fishing for 60 years. Of course balanced index is easier - even if less productive and the difference isn't that big.

 

[wabmester]

Unclemick, I kind of like Buffett's idea about picking stocks like you only had 20 picks you could make in a lifetime.   The last time I really felt good about individual stocks was when I bought MSFT and INTC in the late 80's.   Do you have a couple of stocks you really love, preferably with monopoly positions in growth industries?

 

[unclemick]

Wabmester

Nope - the percent of individual stocks vs balanced index in my overall portfolio is roughly the same as 1993 - soo in spite of some winners like Lilly, PSC(now-Aqua America, WTR), New Plan Reality back at 12% yield and Aetna at it's low - I have enough less than stellar picks to keep me in line vs the balanced index. I have no barnburners to jump up and down over at todays prices.

 

[wabmester]

One stock I've been loading up on for the last year is Toyota (TM).   It's almost doubled since I started buying, but I think they're so far ahead of the competition in Hybrid technology that they'll own the market for the next few years (I believe they recently licensed the technology to Ford).

Other than that, it's been slim pickings for me too.

 

[sgeeeee]

Re:  Cognitive dissonance.

. . . SG, I agree with you.  That's what I'd probably do for myself.  I'm somewhat playing the devil's advocate so I can learn from you folks.

Another question that can stir this kind of discussion goes like this.

Assume that you have enough money invested (say $y) with what you believe is the perfect allocation (equities/fixed/real estate/ . . .) so that you can retire with what you believe is the ultimate safe withdrawal rate (say x%). Now, you are suddenly awarded the Dory FIRE personality of the year award which amounts to another $y so that your portfolio is instantly doubled. After you thank Dory, your parents and members of the FIRE community for the award, what do you do with the windfall?

a) invest it with the same allocation breakdown of your original nest egg (ie stay the course)

b) invest it in high risk, high yield opportunities since poor performance will have little downside effect on you while realizing a big upside potential could dramatically change your life.

c) invest it in more conservative opportunities since this extra money provides you with the chance to live with almost no volatility risk. You don't need more money, but you would really like the idea of lower risk.

d) have a giant party, fly in all your friends from the Early Retirement Forum, buy them all a lifetime supply of dryer sheets, and spend the rest of the cash on the party.

 

[wabmester]

A little bit of each. If you really have more than you can conceivably need, it can change your mindset a bit. Having been there (on a small scale), I'll tell you that I:

1) invested in a couple of risky ventures founded by the smartest people I knew (one went BK, one is still flying (under the radar))

2) established a charitable trust

3) bought a couple of middle-age toys

4) socked most of it away in ultraconservative tax-free bonds

 

[unclemick]

A windfall - as in sudden victory in a good stock/stocks - would probably bring out all my bad tendancies:

1. A foundation/trust (in my name of course).

2. I would totally forget Warren Buffett's caution about the 215 orangutans and engage in more risky investment ventures - along with being a pain in the butt - lectures, possibly a ghost written book.

3. Spending discipline would wane - adult toys and all that 'stuff'.

In the 60's (still working) became a legend in my own mind briefly in the market - new sports car, penthouse, switched from dirty blondes to light blondes(Pacific NW joke). Mr Market did not repeat in the 70's so went back to frugal - DCA mutual funds.

Have been in the comfort zone for ten years now: 20 - 30k presently even though we could double that Firecalc wise and SS is coming in 1-2 yrs - for us inflation and slow drift up spending is the best course.

In sum - victory in stocks would be bragging rights. Hopefully we would continue to recycle our generic dryer sheets as reminder of humble beginings.

 

[John Galt]

Hi unclemick! Once again struck by how similar our
stories are. Why, I've even stuck with blondes myself
(both kinds) The nearness of SS and the
"steady drift up in spending" fit here also. Of course,
I have no "hobby stocks", nor do I want any. As
far as a windfall, I'm uncertain what that would do to us.
I might go totally nuts and revert to my big spender
lifestyle, especially since most of my life is well behind me now. On the other hand, I recall a couple of times
when a big chunk of cash fell out of the blue and I was
quite determined to hold onto it. Soooooooooo,
not sure. Wish I had the problem though.

John Galt

 

[newellcr]

"Would any of you be comfortable with well diversified 100% stocks/stock funds? "

Yes, very comfortable.

Cheers,

Chris

 

[wzd]

OK, I'm not advocating this, but since some of us are comfortable with a 100% diversified stock portfolio, how about 110%? What are the feelings there?

My after tax portfolio used to be 130%, but I have moved back to ~90%. My 72t funds were and are in a laddered bond structure for the next 7 years. My non-72t funds are diversified stock.

Wayne

 

[unclemick]

130% stocks. !970's at the the suggestion of my broker - mortgage REIT/margin interest arbitrage play - worked for a while and then it didn't - may have came out slighly ahead - but the risk cured me. I saw what would have happened had I not sold when I did. Gun shy with leverage ever since - although never say never. My interest would be STRIPs, if interest rates got wild again - not stocks.

 

[BigMoneyJim]

In answer to the original question, I was comfortable with 100% stock (funds) until recently. I am many years away from retirement and had in mind 100% stocks for a while, then gradually add in bonds to start an 80/20 mix in retirement.

Now I am moving more toward the opinion that my current day allocation should be much as it is during retirement, partially because I may want or need to make an unplanned withdrawal before retirement, and in my brief experience this tends to happen at the worst possible time for withrdrawals so a lower risk factor is warranted.

Also I am becoming more conservative. On one hand I'd like the higher anticipated returns from stocks, but I am more comfortable that a 70/30 or 60/40 mix of stock and bond funds will provide sufficient returns while minimizing the chances of losing principal for a significant period of time.

It's occuring to me that I can't outsmart everyone else in the financial markets, but I can control my my expenses to great effect. And I have a decently paying job and career that I more or less enjoy, so I should be able to control expenses, invest somewhat conservatively and still make it to ER, national catasrophes aside.

 

[Cut-Throat]

BigMoney,

Most of the books I have read on this topic say that the first thing you do  is decide the Stock/Bond Allocation percentage.

Usually the recommendation is based on how much money are you willing to lose without 'Choking'. A 60/40 Stock/Bond split usually has a 25% downside potential. A 70/30 Stock Bond Split has a 30% DP - a 80/20 has a 35% etc. etc. etc.

So the question Berstein asks - Is how much are you willing to lose in an extended Bear Market?

Age also factors in this. Since Stocks get risker with time, you may wish to pare down your allocation quite a bit when you hit 80. When and if I hit 80 or 85 and I could see where an all TIPS portfoilo will give me plenty of breathing room, I may abandon stocks alltogether. There is not a lot of time to recover from bear markets at that age.

 

[John Galt]

I am not quite 60. I am not willing to accept ANY
decline in my base, unless it is NAV of my bonds which
I will hold to maturity. I can take a market value
slide as long as those interest checks keep coming.

John Galt

 

[unclemick]

I hate to say this but in the 70's and 80's until 87, did a Ben Graham 50/50 in 401k - 11% interest on GICs(guaranteed investment contracts)/index 500. After the 87 mini-crash - 100% stock until ER in 93.

I think 100% stock via DCA with up to twenty years to ER might be considered. At 15 yrs and under begin adding some fixed until you hit your ER target asset allocation. Again this will vary depending on your individual ER situation - Pensions, SS, real estate, part time work etc, etc.

 

[Don Bell]

I'm struck by the quality of the posts at this web site. I know most of you are renagades from TMF, but you've brought the best part with you. In the past, I've more oten read TMF boards, largely because of an accident with Explorer that made adding favorites difficult. But now that I've switched to Apple's neat Safari browswer and added this site to my bookmark bar, I expect to be a daily visitor and occassional contributor. Thanks for the informative posts.

db

 

[cute fuzzy bunny]

Shhh...nobody tell him we're all 13 year olds playing "dress up" and I'm actually a dog...

 

[BigMoneyJim]

I know most of you are renagades from TMF, but you've brought the best part with you.

Thanks for the compliments and welcome to the board. Acutally, while there is a fair contingent of cheap TMF refugees (like me) here there are many valuable frequent contributors who found the site themselves. This board has really taken on its own personality.

TH is one of the relatively recent walk-ins. Don't pay attention to what he just said; he may sample fine cainine cuisine from time to time, but he's not actually a dog. You can tell because he's way too independent and unloyal.

Speaking of TMF, I can't help but occaionally wonder how the LBYM board survived the transition to pay-per-view. I think it was by far the busiest board before they went for-pay.

 

[cute fuzzy bunny]

So what you're saying is that I'm actually a cat?
:-/

By the way, I'm eating a nice soup full of green onions, mushrooms, seaweed and tofu. Neither the dogs nor the cats seem very interested.

 

[sgeeeee]

Shhh...nobody tell him we're all 13 year olds playing "dress up" and I'm actually a dog...

That explains your detailed knowledge about dog foods.

 

[sgeeeee]

. . . TH is one of the relatively recent walk-ins. Don't pay attention to what he just said; he may sample fine cainine cuisine from time to time, but he's not actually a dog. You can tell because he's way too independent and unloyal.  

That may be true, but I am pretty sure that unclemick is a bored 13 year old girl in disguise.

 

[unclemick]

Why 13? - instead of 12 or 14. As a left handed INTJ, this requires thought. Other posters have mentioned 13. Could it be sub conscious and thus effect our ability to properly use dryer sheets, asset class allocation, or predict the market?

I shall remain 'mysterious'. But two confessions:

1. The last(old) guess - '13 yr old girl from Missoula' - actually looked up Missoula on the net - nice college town.

2. Long ago(Colorado days) - once dated a blond from Billings - no pun - really.

 

[Bruce]

I was going to reply that I am 100% in stocks - but the more I thought about it, that is not exactly true. I had forgotten about the equity in my house - so overall I am only 50% in stocks and 50% in real estate.

But I am comfortable with having all my non-real estate in equities (but I am an Optimist at heart)!

I do not have a large enough portfolio to buy individual stocks so I stick to mutual funds. I have a few years to go before retirement, so I am not too concerned yet with the ups and downs of the market - as I get closer to retirement I will reduce my exposure to stocks - but not by too much. There are only three ways I know of growing your portfolio over inflation over the long term; inheritance, owning a business and owning stocks. Bonds will only keep you even with inflation maybe.

 

[John Galt]

Hey Bruce.........your situation is like mine (50%
real estate) but for me, no stocks. BTW, I never
really think much about beating inflation. Just staying even would be okay with me.

No stocks and no tax worries make my investment
ruminations pretty easy generally. We were discussing ER last night at dinner. Just after I uttered the
standard "Can't see how I found time to work!",
someone asked about a typical day. As best I recall,
it was "Get up early and then go back to bed about
half of the time. Chores and errands until lunch, and then fish until cocktail hour. Not sure if they believed me or not

John Galt