Why not 100% stocks all the way?

[FUEGO]

At some point you are analyzing "how many angels fit on the head of a pin" and splitting hairs.

There have been a few threads here in the last few years that dealt with different withdrawal strategies. Buckets a la Ray Lucia, stocks first vs. bonds first (see link below). Search around and see what you can find. Bottom line is that the more stocks you own and the longer you own them increases your AVERAGE expected portfolio value. With more volatility. Hence consuming bonds first and/or using a bucket approach where you deplete a fixed income bucket before consuming any equities can make you wealthier long term on average. If you don't have a portfolio failure in the mean time!

http://www.early-retirement.org/forums/f28/buckets-and-bears-31362.html

And I have laid out a little bit of planning I have done here in post #19 and #23: http://www.early-retirement.org/forums/f28/2-swr-40703.html

 

[haha]

Thanks everyone for your posts. So the conclusion that I came is that we should all go for equities in the very long term if we can handle the brutal market swings, because it has lower volatility and higher return in the end.

I'm really confused of how to apply this "principle" in my future early retirement.

Be wary of promoting the dubious musings of internet forum members to the status of a principle.

Ha

 

[Running_Man]

http://www.indexuniverse.com/docs/magazine/2/2009_149.pdf

Robert Arnott writes a very good article describing why not. Including the reality that at the bottom of the 1932 market share prices adjusted for inflation were no higher than in 1802 meaning the only return was dividends over a 130 year period.

 

[Leonardo]

http://www.indexuniverse.com/docs/magazine/2/2009_149.pdf

Robert Arnott writes a very good article describing why not. Including the reality that at the bottom of the 1932 market share prices adjusted for inflation were no higher than in 1802 meaning the only return was dividends over a 130 year period.

In this link Jeremy Siegel presents some very good arguments against the Arnott article.

 

[Running_Man]

Jeremy Siegel is missing the main point of the article, which despite it's title is not arguing for bonds per se over stocks, it is that stocks actually suffer through very prolonged periods of virtually no growth in value offset by periods where it explodes upwards, not that they consistently provide solid growth. Jeremy Siegel does not even address that point, instead as he has since January 2008 with the Dow at 14,000+ continues to argue for outsized stock gains. Even arguing the best values were in financial stocks.

Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More

But most telling to me is a sentence that Jeremy Siegel writes in this article discussing the advantage that stocks have over bonds (and in this article he argues that stocks earned 6.9 percent real world return the long run and present bonds can only earn you 2 percent which equals nearly the 5 percent Arnott is arguing:

Neither I nor any other economists have uncovered precisely why investors have received this return and cannot promise they will receive it in the future.

Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More

That Jeremy Siegel argues stocks, stocks, stocks is indisputable, he is the cheerleader of the don't think just invest in stocks movement. To merely assume that thought really cuts down on the amount of thought you need to put into a position, you merely take current data and slice it into your thesis.

This is all Siegel has done for years. However, I believe all investments need to take into context the enviroment into which you are investing. Siegel has shown absolutely no instincts. Invest in financials at their very peak, housing at it's peak? Keep it! it's safe keep a second house!

Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More

 

[haha]

Jeremy Siegel is missing the main point of the article, which despite it's title is not arguing for bonds per se over stocks, it is that stocks actually suffer through very prolonged periods of virtually no growth in value offset by periods where it explodes upwards, not that they consistently provide solid growth. Jeremy Siegel does not even address that point, instead as he has since January 2008 with the Dow at 14,000+ continues to argue for outsized stock gains. Even arguing the best values were in financial stocks.

Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More

But most telling to me is a sentence that Jeremy Siegel writes in this article discussing the advantage that stocks have over bonds (and in this article he argues that stocks earned 6.9 percent real world return the long run and present bonds can only earn you 2 percent which equals nearly the 5 percent Arnott is arguing:

Neither I nor any other economists have uncovered precisely why investors have received this return and cannot promise they will receive it in the future.

Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More

That Jeremy Siegel argues stocks, stocks, stocks is indisputable, he is the cheerleader of the don't think just invest in stocks movement. To merely assume that thought really cuts down on the amount of thought you need to put into a position, you merely take current data and slice it into your thesis.

This is all Siegel has done for years. However, I believe all investments need to take into context the enviroment into which you are investing. Siegel has shown absolutely no instincts. Invest in financials at their very peak, housing at it's peak? Keep it! it's safe keep a second house!

Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More

Jeremy Siegal knows one thing only-never dilute your brand.

He is a dope, but a dope with his eye on the ball.

Ha

 

[Moemg]

. But here is the important part: I know my risk tolerance and it is quite high. Yours may or may not match mine and figuring out exactly what your risk tolerance is can be difficult. It also changes over time and the changes can be slow enough that you suddenly wake up one morning to the realization that you are terrified of your portfolio. So high equities (or anything else) may suit you, but spend a lot of effort thinking about your risk tolerance before you conclude that this is the case.

When I was working I was 100% stocks until late 1999 when I decided things were a little nutsy so I went to 77% stocks and slept well until last year when the stock market taught me a lesson about risk . I now am at 65% to 67% stocks and that is were I will stay .

 

[Leonardo]

Running Man, first of all thank you for your reply.

Jeremy Siegel is missing the main point of the article, which despite it's title is not arguing for bonds per se over stocks, it is that stocks actually suffer through very prolonged periods of virtually no growth in value offset by periods where it explodes upwards, not that they consistently provide solid growth. Jeremy Siegel does not even address that point(...)

I don't agree with that, because in the article that I've linked he shows that there has never been a 20 year period that the real stock return was negative, and that the WORST real 30 year stock return (+2.6%) was almost the AVERAGE of bonds real return. That's very different from "very prolonged periods of virtually no growth".

But most telling to me is a sentence that Jeremy Siegel writes in this article discussing the advantage that stocks have over bonds (and in this article he argues that stocks earned 6.9 percent real world return the long run and present bonds can only earn you 2 percent which equals nearly the 5 percent Arnott is arguing:

Neither I nor any other economists have uncovered precisely why investors have received this return and cannot promise they will receive it in the future.

I agree that no one can promise what will happen in the future, or explain exactly the equity premium, but we can only learn from what happened in the past and act accordingly, hoping for the best. I know that there aren't any guarantees, but this is the best we can do. If stocks had 99% of the time a better return than bonds and you know you will hold for that long period, what else can you do?

 

[freebird5825]

Q: Why not 100% equities?

A: 2008

 

[unclemick]

Were that I was once again at age 21, young, strong, fearless and still sure that: 'God Looks After Dunkards, Fools, and The United States of America.'

I might expand my vison in memory of December 1968, Apollo 8 and Earthrise over the moon.

Vanguard has rolled out the Total World Stock Index 6/26/2008.

For the young and strong in the 21st century - faith and time in the market.

No guts, no glory - belly up to the bar and save as much as you can, as early and often as you can.

heh heh heh - buy yer bonds when you get old and chickenhearted like me.

 

[Lawrence of Suburbia]

100% stocks?? That thought terrifies me now, after what's happened to my portfolio since Oct. 2007 (when I was about 70/30 stocks/bonds, with NO appreciable emergency fund.)

Now, I'm approx 1/3 cash, 1/4 bonds, 1/4 stocks and a smattering of gold, silver etc. (my pathetic IRA is now mainly in PRPFX.)

I'm also guessing that any of you has got more $ invested than I (I really got killed. )

Here's my new idea - feel free to laugh at me, or abuse me with text. My plan is, all new contributions go into cash; or maybe a TIPS fund (TCILX, current yield 4.5% or so) in my workplace 403b plan. Something safe, and I'll just suck it up and keep working 'til I've got enough saved to fund the 5 or 6 years of life I'll have left at that point. My risk tolerance is kerplunkt, as they say.

What do you think of my evil plan? Not investing, more like old-fashioned saving is what I have in mind.

 

[Dennis]

Well..maybe, but using The S&P Index of VFINX vs a Blanaced Fund OAKBX since 1996? Maybe not..Using M8 New Beta Chart per a $10k Cost basis and their Tot. values...

-

Zoom: 1M 3M YTD1Y 3Y 5Y 10Y Maximum



Oakmark Equity & Income I:37,558.66

Vanguard 500 Index Investor:17,129.15

 

[Dennis]

Not sure if this will post right..but got this off another Board and not sure if Figures are correct, so ck them out yourself..


1981-2009 is familiar to most of us. Below is a spreadsheet that compares nominal returns of five strategies over this period: on a $10k Cost Basis since End of 1980.

• Stocks only
• Bonds only
• Balanced 60-40
• PE (overweight stocks when cheap; underweight when pricey)
• PE+Market Action (consider both PE and Market Action)

Year
Shiller PE 10Factor PEStocks PE
Rating MStocks M
Stocks PE+M
VTSMX Total Return10-Year T-Bond Return

CPI
$10K Stocks$10K Bonds$10K Bal$10K PE$10K PE+M
2008
24.00.6820%
5%1%
5%
-37.0%20.1%0%
$189$170$204$237$406

Average % Rtns:

Stks Bnds Bal PE PE+M


11.3%9.9%10.7%11.1%13.5%

After Tax
Stocks = 9.6%
Bonds at -21% tx = 7.8%
Bal Port = 8.7%

*PE + M After Tax = 11.07%

*Ave. of Top 5 ranked Investment Firms with Min. $500,000 Req'd to Open an Account
ave 0.50% Mgmnt. fee. Most are now closed to the Public and require Sponsorship to be Considered to be accepted as a client..
Ave.

> I was given a heads up on this Type of Fund/Investment a few yrs prior to my Retiring from a VP of a Investment firm..back in 1998 and been adding more to it every yr..vs owning Global Bond Funds and many Equities as well. Now have over 30% Allocation in my port..( only lost about -17% in 08' ) and has way outperofrmed most Bond Funds and other Equities I have in my Port.. But, I'd start with a max 5% allocation and go from there...adn Don't Rebalance and just let if Grow and Compound RI Divs and Yields.. ( now 8.8% )

One of the Best kept secrets by Investment Firms & Pro's > Investing in Emergeing markets
EMD's Bonds such as IShares or For Public > FNMIX since 1996 = $44,867 per $10k
S&P 500 = $17,129

And EMD's are mostly Insured by the International Monatary Fund toBoost Investment into thos countries without having to provide $ to them directly and inturn that has had a lower risk than even investing into US Corp. or Global Bond Funds..of individual countries..

 

[samclem]

What do you think of my evil plan? Not investing, more like old-fashioned saving is what I have in mind.

It can certainly work, and many people have done it over the years. But, as you probably know, you're still taking a big risk. Stocks (price appreciation and dividends) have historically outperformed every other common investment in the US over long periods of time. By leaving them out of your portfolio, you're betting against this historical record and significantly increasing the likelihood (if the future resembles the past) that you'll have to work more years and/or save more every year to get to retirement. Less likely to ER, will probably just R or maybe LR.

And, if inflation takes off, it could get ugly unless you've got a lot of TIPS. If TIPS continue to keep their promise over the years.

 

[Buckeye]

We moved to 60/40 in late 2007 (thank god!) when we engaged our current financial planner. We had been 100% equities which he said was crazy given we were considering at least semi-retirement in the next 5 years. I wouldn't have been able to accept his advice if I had not recently read Bernstein's Four Pillars. There's one chart in the book that showed me there wasn't much reward for the additional risk one assumed holding over 60%-70% equities.

 

[ERD50]

Not sure if this will post right..

No, it didn't - try this:

1) Paste the info into a text editor or word processor.

2) Change all the fonts to Courier.

3) Adjust if needed so everything lines up as you want.

4) Paste into the forum reply box.

5) surround the pasted info with (remove the "*"):

[*code*] paste stuff here ... [/*code*] < or select text and use the "#" button in the toolbar.

That will tell the forum SW to keep the formatting at fixed courier font, and shouldn't mess with it.

vBulletin Community Forum - BB Code List

The

 tag switches to a fixed-width (monospace) font and preserves all spacing.[/QUOTE]


-ERD50

 

[Independent]

I am convinced that buckets are nothing more than "mental accounting", but what if I use a different asset allocation for each year all the way to 15 years and after that 100% stocks? Than I would sum everthing and see the final asset allocation.

For example, in year 1 let's assume I will use 40k during that time. I would make a graph and would try to get the allocation with the most return per volatility. I assume it would be something like 40% stocks 60% bonds.

For year 2 I would use 41.2k (3% inflation) and look the historical expected returns and SD for 2 years. I would make a graph (already very different from the graph of year 1) and would try to get the allocation with the most return per volatility. Etc. Etc. Etc.

Is that reasonable? Am I speaking non-sense?

I think I understand the approach here. I'd ask why you are using a fixed inflation rate while you are considering volatility on the assets. Shouldn't they both be random variables?

And then, how do you measure "return per volatility". What math are you doing?

Finally, shouldn't you really be concerned about the purchasing power that you get when you liquidate that segment of your portfolio? If so, you have to consider some sort of utility concept (e.g. if your "target" spending is $40k per year and your "can't live below" number is $25k, then a 5% chance of having more than $65k is not the same as a 5% chance of having less than $25k)

 

[Independent]

No, it didn't - try this:

1) Paste the info into a text editor or word processor.

2) Change all the fonts to Courier.

3) Adjust if needed so everything lines up as you want.

4) Paste into the forum reply box.

5) surround the pasted info with (remove the "*"):

[*code*] paste stuff here ... [/*code*] < or select text and use the "#" button in the toolbar.

Thanks, I've always wondered how to do that.

 

[Lawrence of Suburbia]

It can certainly work, and many people have done it over the years. But, as you probably know, you're still taking a big risk. Stocks (price appreciation and dividends) have historically outperformed every other common investment in the US over long periods of time. By leaving them out of your portfolio, you're betting against this historical record and significantly increasing the likelihood (if the future resembles the past) that you'll have to work more years and/or save more every year to get to retirement. Less likely to ER, will probably just R or maybe LR.

And, if inflation takes off, it could get ugly unless you've got a lot of TIPS. If TIPS continue to keep their promise over the years.

That's my plan...accumulate TIPS (I'm about 1/3 cash, that's enough as a %.) But I'm also leaving my stocks in there (in balanced funds VWINX and VGSTX - stocks currently account for about 1/4 of what I laughably call my portfolio.) I'm just talking about new money; if stocks revert to their mean performance, I'll be okay I suppose. However, I have no faith in stocks whatsoever, given the huge structural changes being wrought willy-nilly on our whole capitalist model/tax structure by the government. They're changing the rules in the middle of the game. That's just not cricket.

If I admit that I'm likely to "LR" rather than "ER", will I get kicked off the Forum?

My retirement formula: when the amount of money I have, divided by a years' living expenses equals the number of years I likely have left, I can retire.

 

[W2R]

If I admit that I'm likely to "LR" rather than "ER", will I get kicked off the Forum?

Nah... there are a lot of us "more seasoned" retirees or retirees-to be here. I asked the same question when I first showed up, and our most prolific poster essentially told me to stay. My plans have always been to retire at 61.5 or 62, but there have been several members planning a later retirement than that. There really isn't any other retirement board that I like as well as this one.

My retirement formula: when the amount of money I have, divided by a years' living expenses equals the number of years I likely have left, I can retire.

Don't forget to include taxes in your figures. Try the Firecalc link at the bottom of each page for an interesting, free retirement calculator.