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Old 05-21-2011, 04:49 PM   #21
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It is just that for somebody that is currently comfortable with 100% equities . . .
They should be in 100% equities.

But the question I responded to was "what's the risk of owning 100% equities?"

It's interesting that after two years of a nearly vertical stock market, which has more than doubled in value, we're starting to see threads again asking about 100% equity allocations. I don't recall any such threads in 2009 when valuations made far more sense to go 'all-in'.
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Old 05-21-2011, 05:23 PM   #22
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Good point there clearly are risks to 100% equities even a decade before retirement and the examples you cites should give people pause.

As for the threads in 2009 urging 100% equities, you are right among new members of the forum there does seem to be a strong correlation for high equity allocations after recent stock market run ups and low ones after market crashes.

But I'll say many forum members are natural contrarions and/or disciplined rebalancers. So there were plenty of folks who either bought steadily during the decline like myself, and even more who gritted their teeth and said my AA is 50/50 and I need to rebalance by selling bonds and buying stocks even if it is scary to do so.
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Old 05-21-2011, 06:05 PM   #23
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Agreed. Depending on what about of money one has at risk very few people can tolerate 100% equity portfolio. If one had $1,000,000 in equities and lost 50% during a bear market, how many in the population would stay in 100% equity?
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Old 05-22-2011, 01:17 AM   #24
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You don't 'lose' if you don't sell. If you pick reliable dividend-producing stocks, the price of the day does not matter. My dividends have been much more stable than my valuations.

I did a short eye-ball study a while ago using Vanguard funds that showed that a bond component smoothed total valuation fluctuations out at the cost of lower returns over the last ten years or so. I do not like to invest in things that have low long-term returns on investment.

Having said that, it has also been shown that having a buffer (say, 10 years) in bonds or equivalents improves overall results if you sell the bonds first, allowing the stocks to grow.

Full disclosure: I have not started regular withdrawals yet so have not committed to any particular strategy. Almost 100% equities (50/50 US/non-US today) for over 20 years and now paying off debt rather than putting new money into equities.
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Old 05-22-2011, 01:29 AM   #25
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As I look at it, Social Security will be my bond fund. Bonds do not excite me as an asset.

If you decide that you want a 10-year fixed-income buffer, you could
a) move one year's worth out of equities to bonds every year,
b) wait until you retire, then move 10-years' worth all at once.
You could build a bond or CD ladder at any time.

You could take distribution from the bonds or the equities depending on which one is doing better that year, or you could take x% (3%? 4%?) out of both asset groups and rebalance every year.
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Old 05-22-2011, 04:47 AM   #26
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No way to know how the future will turn out.

Plus, there are too many variables to really discuss this topic. It depends on many many factors.

Going all stock might yield a better outcome (looking at historic averages).... but you would have to time the lock-in value with a conversion to some bonds at some point in time... that timing would be critical to not encounter revers dollar cost averaging during the withdrawal phase (assuming you cannot live off of stock dividends alone).

Some of the decision also depends on the stock market... look at the secular bull of the late 80's and 90's. Compare that to the last 10 years.

Obviously if the stock market is marching upwards over a long period (even with periodic bears)... holding stocks over time will increase. During the last 10 years.... it looks to me like up down sideways.....

You cannot predict the future.... if something happened and you needed the money unexpectedly, the bonds would provide a little more stability in the pricing.

Plus, the rebalancing provides some level of buy low sell high action along the way.


IMO - Strategic allocation is a more safe approach. The amount of stocks vs bonds depends on your appetite for risk. In this case.... trade-off of a little higher return vs the risk of delaying retirement.
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Old 05-25-2011, 09:17 AM   #27
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Risk of not retiring.

NASDAQ 5,000 circa 2000 . . . eleven years later 2,800
Nikkei 35,000 circa 1990 . . . 21 years later 9,800
Nikkei 20,000 circa 2000 . . . 11 years later 9,800
SPX 1,500 circa 2000 . . . 11 years later 1,342

Stocks don't always go up, even over decades.
Ok, that helps to explain the reasoning ... thank you. So, if I'm understanding correctly, during these downturns bonds didn't have a corresponding downturn, and in fact might have increased in value?

FWIW, wife and I have been DCAing for the past 10+ years into 401Ks - all going into mutual funds. We think we're now about 10 years or so from RE and are trying to formulate an AA that will make sense going forward. I figure bonds will need to become a part of that AA at some point, just trying to determine how much and how soon for our comfort level.

Appreciate all of the advice.
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