100% stocks? Why?

[MikeyMarks]

I’ve noticed a shocking number of people in this group mention that they have 100% of their portfolio in stocks. What?! Why?! Sure, maybe some are very young or have big stakes in other assets, like real estate, but even so, there is never, ever a good reason to have 100% in stocks.

I’m 49, have 45% in bonds, 52% in stocks, and sure, I’ve taken a beating in the past two weeks, but I’m thrilled I have such a cushion.

Am I missing something?

 

[ERD50]

What's a shocking number? How did you come to this, is there a poll (probably, but I don't recall looking at it)? I only recall 2-3 discussing it, but that's a guess.

I'm not 100%, but I'm fine with what I've heard from those who are. Over the long run (20-30 years), stocks have outperformed bonds in a high % of periods (maybe all, I'd need to check the data). FIRECalc shows only a very slight lowering of success at 100% stocks (probably due to Sequence of Return Risk/Volatility). A 100/0 has fared better than 35/65. I prefer to be further away from those edges, so stick near 70/30 ~ 75/25.

If you plan for (different from counting on or expecting) a 100 year lifespan, this could fit for an 80 YO.

And if they withdraw less than ~ 2% from portfolio (have other income, or low spend/savings ratio), divs alone carry them, so little/no selling required.

Yes, you are missing something: True, they have taken a bigger beating than you in this dip, but over the long run, they are very likely still ahead of you (because the fully participated in the run up, and you did not). So if they still have more money than you (assume starting points and WR the same), isn't that good for them?

I like money, do you like money? Or do you hate volatility more than you like money?

It's a choice, I see no reason to be "shocked".

there is never, ever a good reason to have 100% in stocks.

Never? Please provide some data to back that up.

-ERD50

 

[MikeyMarks]

My back-up data is my strong opinion.

I’ve run FireCalc with lots of different allocations, and my success rate has dipped significantly every time with increased stocks.

Why I’m shocked is because this is a retirement forum and I’ve never heard a single expert or adviser state that a retiree should be 100% stocks. I guess some people just like living on the edge.

 

[Major Tom]

Agreed with ERD50. I've only seen a few mention that they are 100% equities. There are probably a few more who have talked about a high stock allocation, in the region of 80%.

The last time I checked, I think I was at about 65/33/2. I have no interest in knowing where I am now! At the same time, I am not feeling any fear or trepidation, for some reason. I am quite happy sticking my head in the sand.

I really take issue with the statement, "there is never, ever a good reason to have 100% in stocks." What about a person who is very comfortable with high volatility, and whose portfolio is large enough to supply their income needs with a conservative WR? That would seem to be a good case for a very high stock allocation. It's not living on the edge if you have more than enough to supply your income needs, under almost any conceivable historical circumstance.

 

[ERD50]

My back-up data is my strong opinion. ...

Due to community guidelines, I won't give you my opinion on that!

...

I’ve run FireCalc with lots of different allocations, and my success rate has dipped significantly every time with increased stocks. ...

I'd be interested to a link to that data, doesn't sound right. Is your situation an outlier? Though I'd still be hard pressed to see that outcome.

... Why I’m shocked is because this is a retirement forum and I’ve never heard a single expert or adviser state that a retiree should be 100% stocks. I guess some people just like living on the edge.

There's a difference between not recommending it, and it being crazy/shocking to do it.

I don't recommend it, but I have no issue with those who are doing it, and understand the situation.

Chart is 30 year success versus AA, with other setting default. X axis is decimal for stocks ( "0.95" = 95% stock AA; the 100% on the Y, left, is the percent success).

-ERD50

 

[Zathras]

My back-up data is my strong opinion.

I’ve run FireCalc with lots of different allocations, and my success rate has dipped significantly every time with increased stocks.

Why I’m shocked is because this is a retirement forum and I’ve never heard a single expert or adviser state that a retiree should be 100% stocks. I guess some people just like living on the edge.

And these experts and advisors... are they still working??

I keep about a year of cash on hand, the rest is stocks.
I diversify, pay no fees (except for the rare occasions I sell) and live solely off the dividends.

I have been retired through the 2008 recession as well. I sleep very well at night.

To each their own

 

[MikeyMarks]

At the same time, I am not feeling any fear or trepidation, for some reason. I am quite happy sticking my head in the sand.

This is exactly where I am mentally, and I attribute it entirely to having retired into the 2008 crisis, which felt like the end of the world. Turns out in a weird way that crisis was a blessing because experiencing it has kept me from falling into a black hole of despair this time.

 

[youbet]

there is never, ever a good reason to have 100% in stocks.

A pretty narrow and apparently inflexible viewpoint IMHO. While I choose to run a target 55/40/5 or so portfolio at age 72 and FIRE'd 14 years, it's easy to see where a high equity allocation (even 100%) would be fine in my view.

In my own situation, I have my granddaughter at 100% in her Roth. She's 17 and this is money meant for her retirement decades from now.

I manage my 45 yr old son's 401k and IRA's and have him near 100% equities. There is some "trading cash" there at the moment. Because of some special circumstances in his life, he'll likely need to work until he can collect SS, so a couple of decades to go. And he (and his family) have me to back them up in a real pinch.

I can vision other anecdotal examples by the dozens. My opinion is that you're incorrect to say "there is never, ever a good reason."

Am I missing something?

Yes. Not everyone's personal circumstances are remotely like yours. As ERD50 said, when the investment period is long and the WR is low, historical statistics say equities will outperform.

 

[Dtail]

Another example of going 100% into stocks in retirement (not me) is for those who have "won the game" already, they might wish to maximize their portfolio for legacy purposes.

 

[OldShooter]

... I’m thrilled I have such a cushion. Am I missing something?

Well, maybe. "What does the cushion cost me?" is an important question you may have missed.

Boring, I know, but here is a chart I have posted a couple of times before:

​

(Note that the Y-axis is logarithmic.) What you may be missing is that fear of volatility is causing you to put close to half of your portfolio in assets that (if history is any guide) grow very slowly. If that major hit to the potential growth of your portfolio will still leave you where you want to be for the many decades in your future, then that's fine. You are where you want to be during your accumulation phase.

To your thread-title question, I think there's a strong argument that one needs some conservative money (cash, bonds) during the drawdown phase in order to reduce or eliminate SORR risk. For ourselves we were close to 100% equities until we started to phase into retirement. Then we were 60/40 for a while until we realized that 40% fixed income was far more than we would ever need. So we were at 75/25 prior to the current excitement. I have not bothered to recalculate (a) because the input signal is changing faster than I can change the output and (b) because it doesn't matter anyway. The market drop has, for us, turned our cash and bonds tranche into a bucket that we expect to use for at least a few years. We take a serious portfolio look once a year right after Christmas and no doubt we'll do the same this year.

Be well and be careful.

 

[youbet]

I’ve noticed a shocking number of people in this group mention that they have 100% of their portfolio in stocks.

To add on to my previous post.......

OP says he's talking about "100% of their portfolio." This outlook fails to consider other sources of income from outside the portfolio. For example, if a retiree's spending needs (including generous discretionary) are easily met by income flows from outside their portfolio such as SS and pension, and especially if that person is interested in maximizing a long term legacy, why not go 100% into a diversified equity portfolio?

If OP is talking about a situation where the retiree has no other sources of income outside the portfolio, has a spending level and WR with little wiggle room and a potential need for extra cash over the short run, a 100% equity portfolio doesn't sound right. But we don't know since OP doesn't mention anything beyond the "portfolio."

 

[Freedom56]

I have 0 percent stocks. But I do watch equities to get some clues into fixed income investing. Many stocks are forming a bottom (the one's that will survive). May that were already in a steep decline are accelerating faster to penny stock land. Those are primarily in the energy sector, retail, and mall REITs, and some industrial stocks. They will be a drag on the overall market going forward. Boeing will continue to drag the Dow Jones index until it is removed (like GM , Kodak, Citigroup) and will likely become a zombie stock.

The issue right now is that it's unclear how much of a risk coronavirus will be going forward. The market will start to bottom when there is some evidence that containment is working and likely tread water waiting for a vaccine.

 

[MikeyMarks]

Well, maybe. "What does the cushion cost me?" is an important question you may have missed.

Boring, I know, but here is a chart I have posted a couple of times before:

​

(Note that the Y-axis is logarithmic.) What you may be missing is that fear of volatility is causing you to put close to half of your portfolio in assets that (if history is any guide) grow very slowly. If that major hit to the potential growth of your portfolio will still leave you where you want to be for the many decades in your future, then that's fine. You are where you want to be during your accumulation phase.

To your thread-title question, I think there's a strong argument that one needs some conservative money (cash, bonds) during the drawdown phase in order to reduce or eliminate SORR risk. For ourselves we were close to 100% equities until we started to phase into retirement. Then we were 60/40 for a while until we realized that 40% fixed income was far more than we would ever need. So we were at 75/25 prior to the current excitement. I have not bothered to recalculate (a) because the input signal is changing faster than I can change the output and (b) because it doesn't matter anyway. The market drop has, for us, turned our cash and bonds tranche into a bucket that we expect to use for at least a few years. We take a serious portfolio look once a year right after Christmas and no doubt we'll do the same this year.

Be well and be careful.

Thank you for this extremely thoughtful response. That question you recommend to ask oneself is not a way I’ve looked at it before. For me, the clear answer is “I am absolutely willing to give up long-term gains to minimize volatility.” Does that mean I’m a conservative investor? (I mean, I am, but objectively, is that a conservative answer?)

 

[MichaelB]

To add on to my previous post.......

OP says he's talking about "100% of their portfolio." This outlook fails to consider other sources of income from outside the portfolio. For example, if a retiree's spending needs (including generous discretionary) are easily met by income flows from outside their portfolio such as SS and pension, and especially if that person is interested in maximizing a long term legacy, why not go 100% into a diversified equity portfolio?

If OP is talking about a situation where the retiree has no other sources of income outside the portfolio, has a spending level and WR with little wiggle room and a potential need for extra cash over the short run, a 100% equity portfolio doesn't sound right. But we don't know since OP doesn't mention anything beyond the "portfolio."

I agree. The absence of context makes an equity allocation percentage less meaningful..

 

[mountainsoft]

I’ve noticed a shocking number of people in this group mention that they have 100% of their portfolio in stocks. What?! Why?! Sure, maybe some are very young or have big stakes in other assets, like real estate, but even so, there is never, ever a good reason to have 100% in stocks.

I’m 49, have 45% in bonds, 52% in stocks, and sure, I’ve taken a beating in the past two weeks, but I’m thrilled I have such a cushion.

I must have missed the folks who are at 100% stocks. However, if income from a pension, social security, or rentals pays the bills, it would be a lot easier to tolerate the ups and downs of the stock market. A 50% drop in money you don't really need doesn't hurt anything.

Equally, if you have a portfolio that is much larger than you need, a big stock market drop probably isn't going to hurt your success rate.

We were at a 60% stock, 40% bonds allocation for several years. Since we're just a few years from retirement now I dropped that to a 50/50 mix. With the current market drop the allocation is closer to 45% stocks and 55% bonds now.

Once we have my wife's pension and social security, we won't be relying on our investments for living expenses. I will probably increase our stock allocation at that time.

 

[OldShooter]

... For me, the clear answer is “I am absolutely willing to give up long-term gains to minimize volatility.” Does that mean I’m a conservative investor? (I mean, I am, but objectively, is that a conservative answer?)

I think "conservative" normally means "risk averse" but certainly there are investors like you for whom it probably means "volatility averse."

With respect, I submit that you are confusing volatility with risk. As long as you don't need to draw on an equity portfolio and you are still accumulating, volatility is actually your friend.

Technical: The distribution of prices is not a "normal" Gaussian distribution. The center of the distribution is not zero; it trends slowly upward at maybe 4-7% a year. The distribution also has "fat tails" as evidenced by the current excitement. If it were truly Gaussian with historical standard deviations, the recent price drops would be mathematically almost impossible. Here's the important bit: The fat tail the left is fatter than the one on the right. So a dollar cost averaging strategy will result in the accumulator consistently getting prices that are slightly lower than average.

In my Adult-Ed investing class I tell the accumulators to rejoice when the market drops. Here's the chart I use:

​

Risk comes at withdrawal time, SORR, as mentioned.

 

[Dogpeace]

For someone in their 20s or 30s with not even the slightest glimmer of retirement on the horizon... 100% stocks may work out just fine.

For anyone who realistically may retire in the next decade, 100% stocks is not a great idea.

 

[MikeyMarks]

I think "conservative" normally means "risk averse" but certainly there are investors like you for whom it probably means "volatility averse."

With respect, I submit that you are confusing volatility with risk. As long as you don't need to draw on an equity portfolio and you are still accumulating, volatility is actually your friend.

Technical: The distribution of prices is not a "normal" Gaussian distribution. The center of the distribution is not zero; it trends slowly upward at maybe 4-7% a year. The distribution also has "fat tails" as evidenced by the current excitement. If it were truly Gaussian with historical standard deviations, the recent price drops would be mathematically almost impossible. Here's the important bit: The fat tail the left is fatter than the one on the right. So a dollar cost averaging strategy will result in the accumulator consistently getting prices that are slightly lower than average.

In my Adult-Ed investing class I tell the accumulators to rejoice when the market drops. Here's the chart I use:

​

Risk comes at withdrawal time, SORR, as mentioned.

The only part I don’t follow is why volatility is my friend (if I don’t need to draw from my portfolio). Does greater volatility somehow correlate with greater long-term returns?

 

[OldShooter]

The only part I don’t follow is why volatility is my friend (if I don’t need to draw from my portfolio). Does greater volatility somehow correlate with greater long-term returns?

Volatility is your friend if you are accumulating/saving. When the market is down, to a saver that is a situation where everything he buys with his monthly savings amount is on sale. Rejoice!

For a static portfolio, no additions and no draws, volatility is a don't-care.

 

[CyclingInvestor]

I must have missed the folks who are at 100% stocks. However, if income from a pension, social security, or rentals pays the bills, it would be a lot easier to tolerate the ups and downs of the stock market. A 50% drop in money you don't really need doesn't hurt anything.

Equally, if you have a portfolio that is much larger than you need, a big stock market drop probably isn't going to hurt your success rate.

I am one of those who is 100% stocks (since 1993). I retired 13 years ago at 48, with no outside income (although SS starts in a few months) but enough stock dividends to replace my salary. This dividend flow has almost tripled since, leaving a substantial income cushion.

Although my portfolio's market value has taken a pummelling, my dividends were all raised again in 2020 as expected, and I am feeling no stress at all from market volatility, just as in 2008-2009 shortly after retirement or in 2000-2003. Dividend flow has increased each year for decades, in spite of a few individual cuts.

 

[pacergal]

If someone had a pension and SS that covered their spending needs, a 100% stock portfolio could be used for inheritance purposes.
We are blessed to be in the position with a pension, but I do not tolerate extreme volatility very well, so I keep our stocks between 60-70%. I feel Ok with that.

 

[youbet]

For someone in their 20s or 30s with not even the slightest glimmer of retirement on the horizon... 100% stocks may work out just fine.

For anyone who realistically may retire in the next decade, 100% stocks is not a great idea.

I would have worded your broad-brush comment this way:

"For many folks, depending on their individual circumstances and goals, who realistically may retire in the next decade, 100% stocks is not a great idea. For others, it may be fine. It depends"

 

[CRLLS]

Filing for SS under my benefits at age 70 is 2-1/2 years off. DW is already collecting and I am on spousal at the moment. Our nut will be mostly covered by SS when I turn 70. Until then we can deal with almost anything that gets thrown at us.

I usually consider ourselves risk averse and do not invest in single stocks or trade options. Our children are grown and have their own families. While not a primary driver for us, leaving something at the end will probably happen. Considering our and their lifetimes, we are looking at a 40+ year timeframe for the investments. This is the first bear market for us during the withdrawal stage. We've seen several before. Granted, this is testing our mettle. So far, so good.

We are currently invested close to 80/20 or at least was last time I looked. I am actually thinking of moving up to near 100% if the markets seem ripe for the picking, say -50% or lower.

 

[ERD50]

.... . For me, the clear answer is “I am absolutely willing to give up long-term gains to minimize volatility.” Does that mean I’m a conservative investor? (I mean, I am, but objectively, is that a conservative answer?)

State it a different way, "long term gains" may be a bit too abstract?

What if you said, "I don't care if I'm very likely to have far less money in the future, if I can avoid some ups/down on paper along the way".

The only part I don’t follow is why volatility is my friend (if I don’t need to draw from my portfolio). Does greater volatility somehow correlate with greater long-term returns?

Yes, in a way, but it's more of a secondary effect than direct. Look at it this way:

If two retirement investments were equal in every way, except one had more volatility, I think most everyone would prefer the non-volatile one. So that would drive the price up on the less volatile one (and therefore lower your return if you buy in at a higher price).

Stocks rise over the long term because they grow value, that is why people invest in them. Volatility is just part of that, and people accept it for the higher return. I wouldn't go so far as to say the volatility is a cause for higher returns, but it's just part of the package.

-ERD50

 

[OldShooter]

... I usually consider ourselves risk averse and do not invest in single stocks or trade options. ...

Excellent point. There is, as you point out, real risk out there. I tend to think in terms of broad mutual funds, but there is real risk in portfolios that are not diversified and in investment products designed primarily for traders.

Some here have probably noticed that I like quotations from people who are smarter than me. Here are a couple from William Bernstein:

(on saving for retirement) “Make no mistake about it: The object of this particular game is not to get rich – It’s to not get poor.”

(On picking winners) “Do you think that by choosing a portfolio of only a few stocks that you hope will score big, you are maximizing your chances of becoming wealthy?

“Indeed you are, but you are also maximizing the chances of a retirement of cat food cuisine”​