Why bother diversified? Why not all in Index SP500?

[MarieIG]

I was very heavy in an S&P 500 while working - and would contribute about 80 % S&P and 20% fixed income fund. Why? The S&P 500 fund was rather broad, and by far and away the least expensive fund. When there was a biggish dip, I would transfer some money from the fixed income fund into the S&P - but never the other way.

In preparation for retirement, I piled up a cash reserve (or cash buckets, if you will). In my IRAs, I attempt to have a broad base of what I consider reasonable funds (Vanguard Total Stock Market and some Vanguard International Total Stock Market), some sectors - which bounce around, and a very little bit of stock. I also have "cash" in the IRAs for dry powder.

In my IRAs, I pretty much got out of bond funds and bought some individual treasuries in spring 2022 - as a result of Pb4uski's repeated demonstrations as to what was going to happen to bond fund values as interest rates rose, and started buying individual treasuries, and more recently a few CDs, to park cash.

You could do a lot worse than an S&P 500.

[tulak]

Searching on this topic isn't much help. I think that's why the OP asked to see what others think and what you'll find is answers all over the map.

There's no right or wrong answer. You can either own the market or you can hedge with different assets and rebalance (slice and dice). I used to think the latter would do better, but it's more of a wash than ever. If you go back far enough, you'll see that owning different asset classes did result in better performance, but if you look over the last 20 or so years that benefit is gone. Maybe it'll return, maybe it won't?

Portfolio Performance (Jan 1972 - Apr 2023)
Metric	Portfolio 1	Portfolio 2	Portfolio 3
Start Balance	$10,000.00	$10,000.00	$10,000.00
End Balance	$1,560,138.20	$1,554,060.75	$2,506,650.76
Annualized Return (CAGR)	10.34%	10.33%	11.36%

Portfolio Performance (Jan 2000 - Apr 2023)
Metric	Portfolio 1	Portfolio 2	Portfolio 3
Start Balance	$10,000.00	$10,000.00	$10,000.00
End Balance	$43,004.50	$44,801.10	$58,606.13
Annualized Return (CAGR)	6.45%	6.64%	7.87%

Portfolio Performance (Jan 2010 - Apr 2023)
Metric	Portfolio 1	Portfolio 2	Portfolio 3
Start Balance	$10,000.00	$10,000.00	$10,000.00
End Balance	$47,695.28	$46,032.06	$43,695.21
Annualized Return (CAGR)	12.43%	12.13%	11.69%

Portfolio 1 = 100% US Large Cap
Portfolio 2 = 100% US Total Market
Portfolio 3 = 25% each of US Large Growth, US Large Value, US Small Growth, US Small Value

Personally, I invest in US Total Market (VTSAX/VTI) and call it good.

And obviously, I didn't touch on International. So far it's been a dog and I'm happy I reduced international allocation from 40% to 20% many years ago. You'll hear the argument that you'll miss out on a lot of good companies not in the US, but for diversification purposes, US companies derive a lot of their revenue internationally and I doubt that will change. It's probably good enough.

Good luck with whatever you decide.

[tutan]

Quote:

Originally Posted by Enuff2Eat Anyone here all in S&P500? Boring but seems like a "set it and forget it" strategy? Would anyone dare to keep it after retired? Vanguard much lower percentage, more like 40% or so. Your thought please Enuff

If you have enough to live on or have the risk tolerance to take in large market drops, yes just put it all in S&P 500 or total stock market. Big market downturns such as the one in 2000 still scare me so I prefer 50% in stocks and the rest in bonds, gold, cash.

[Chuckanut]

To answer the OPS question in the thread title: Diversification

I sleep better at night knowing that one financial asset extinction event won’t take me with it.

[matjung]

Quote:

Originally Posted by Enuff2Eat Anyone here all in S&P500? Boring but seems like a "set it and forget it" strategy? Would anyone dare to keep it after retired? Vanguard much lower percentage, more like 40% or so. Your thought please Enuff

My opinion may differ from mainstream thoughts.
The return on investment of a fully diversified strategy is close to negative.
By focusing on S&P500 you have a fair chance of performing better than a lot of other strategies.

If your income as a retiree depends on the up and down of stock markets, I would go with a diversification strategy. If it is independent, I would keep the index funds.

[audreyh1]

This is entirely a matter of personal long term goals and risk tolerance.

I prefer less annual volatility and studies/models indicate that my long term goals can be met with 50% (or even somewhat less) exposure to equities. Pretty much keeping up with inflation over the long term is would be ideal, although significant drawdown at times is OK. I don’t care about leaving a large pile at the end.

[marko]

Quote:

Originally Posted by matjung My opinion may differ from mainstream thoughts. The return on investment of a fully diversified strategy is close to negative. .

That has not been my experience. Are you referencing a typical 60/40 diversification or entire market? Or something else?

[38Chevy454]

I don't think 100% S&P 500 is that bad of strategy. But I think you can get more diversification with some other fund types. Such as Total Market, NASDAQ, or Total World market. Especially given that S&P is not equally weighted 500 companies. Of course the more diversification you have, the more you will have equal to market performance.

I run around 85-90% equities currently and in recent past, although I understand the value of some fixed income. Just don't have a lot in that allocation. My target equities is around 80%, but I'm letting it ride high for now until inflation gets better under control.

[Koolau]

Quote:

Originally Posted by enjoyinglife102 Your choice - follow Warren Buffet's advice or random strangers on the internet.

Or "tried and true" - pick an AA, rebalance at intervals. Rinse and repeat.

[Happyras]

Quote:

Originally Posted by pb4uski I think that would be fine. Link below compares Vanguard's Total Stock and S&P 500 results since 1994... they are similiar enough to me and the less diversified index fund actually outperformed.     Vanguard Total Stock Mkt Idx Inv   Vanguard 500 Index Investor   Year Inflation Return Balance Return Balance 1993 2.75% 10.62% $11,062 9.89% $10,989 1994 2.67% -0.17% $11,044 1.18% $11,118 1995 2.54% 35.79% $14,996 37.45% $15,282 1996 3.32% 20.96% $18,139 22.88% $18,778 1997 1.70% 30.99% $23,761 33.19% $25,010 1998 1.61% 23.26% $29,289 28.62% $32,168 1999 2.68% 23.81% $36,264 21.07% $38,945 2000 3.39% -10.57% $32,429 -9.06% $35,418 2001 1.55% -10.97% $28,873 -12.02% $31,160 2002 2.38% -20.96% $22,821 -22.15% $24,259 2003 1.88% 31.35% $29,976 28.50% $31,174 2004 3.26% 12.51% $33,728 10.74% $34,522 2005 3.42% 5.98% $35,745 4.77% $36,170 2006 2.54% 15.51% $41,289 15.64% $41,827 2007 4.08% 5.49% $43,556 5.39% $44,081 2008 0.09% -37.04% $27,424 -37.02% $27,762 2009 2.72% 28.70% $35,294 26.49% $35,114 2010 1.50% 17.09% $41,327 14.91% $40,351 2011 2.96% 0.96% $41,724 1.97% $41,145 2012 1.74% 16.25% $48,506 15.82% $47,656 2013 1.50% 33.35% $64,682 32.18% $62,989 2014 0.76% 12.43% $72,721 13.51% $71,498 2015 0.73% 0.29% $72,935 1.25% $72,391 2016 2.07% 12.53% $82,076 11.82% $80,945 2017 2.11% 21.05% $99,355 21.67% $98,484 2018 1.91% -5.26% $94,132 -4.52% $94,028 2019 2.29% 30.65% $122,983 31.33% $123,485 2020 1.36% 20.87% $148,649 18.25% $146,018 2021 7.04% 25.59% $186,685 28.53% $187,680 2022 6.45% -19.60% $150,090 -18.23% $153,468 2023 1.70% 8.25% $162,467 9.12% $167,468

I like the clear view in this table of the lost decade 1999 to 2009. I added to your table a column showing ITM covered call returns on SPY for that range. To me that lost decade is likely not a one off.

[FloridaJim57]

I simply don't have the stomach or nervous sytem for that type of investing. Not saying it is a bad idea, just why I don't follow it.

[Chuckanut]

Quote:

Originally Posted by FloridaJim57 I simply don't have the stomach or nervous sytem for that type of investing. Not saying it is a bad idea, just why I don't follow it.

We can’t all be like John Templeton.

Quote:

In 1939, Templeton made a large $10,000 bet on stocks trading on the New York Stock Exchange by buying every stock trading under $1 (104 equities). Near the end of the war, he sold the stocks for around $40,000.

[RetiredAt49]

Quoting from Warren Buffet’s 2013 letter to his shareholders…

“My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organizations over the ten years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors—whether pension funds, institutions, or individuals—who employ high-fee managers.”

[jurgs01]

Quote:

Originally Posted by Enuff2Eat Anyone here all in S&P500? Boring but seems like a "set it and forget it" strategy? Would anyone dare to keep it after retired? Vanguard much lower percentage, more like 40% or so. Your thought please Enuff

At current valuations, S&P will likely have extremely low returns (if not negative) the next 10 years.

I would just do a 10yr treasury ladder if you want to play it safe.

[RetiredAt49]

Quote:

Originally Posted by jurgs01 At current valuations, S&P will likely have extremely low returns (if not negative) the next 10 years. I would just do a 10yr treasury ladder if you want to play it safe.

Now there’s some optimism in the future of the S&P! Alternatively look at historical returns and decide for yourself.

[FREE866]

Quote:

Originally Posted by jurgs01 At current valuations, S&P will likely have extremely low returns (if not negative) the next 10 years. I would just do a 10yr treasury ladder if you want to play it safe.

Using history as a guideline, this is arguably the worst advice on this thread


"playing it safe" isn't an investment strategy.

[pb4uski]

Quote:

Originally Posted by jurgs01 At current valuations, S&P will likely have extremely low returns (if not negative) the next 10 years. I would just do a 10yr treasury ladder if you want to play it safe.

Quote:

Originally Posted by FREE866 Using history as a guideline, this is arguably the worst advice on this thread "playing it safe" isn't an investment strategy.

NO.

Actually, your post that playing it safe isn't an investment strategy is probably the worst advice in this thread.

There are many posters here who have extremely well funded and arguably over funded retirements for whom playing it safe as you framed it is an excellent investment strategy. Many here are 100% fixed income and even 100% fixed income throws off way more income than they spend.

They have won the game so any AA will be fine for them.

And there certainly have been long periods of underperformance of equities a la the lost decade. Given current P/E levels, I think that reversion to the mean of P/E is a substantial risk to future stock returns. Of course, YMMV.

[FREE866]

Quote:

Originally Posted by pb4uski NO. Actually, your post that playing it safe isn't an investment strategy is probably the worst advice in this thread. There are many posters here who have extremely well funded and arguably over funded retirements for whom playing it safe as you framed it is an excellent investment strategy. Many here are 100% fixed income and even 100% fixed income throws off way more income than they spend. They have won the game so any AA will be fine for them. And there certainly have been long periods of underperformance of equities a la the lost decade. Given current P/E levels, I think that reversion to the mean of P/E is a substantial risk to future stock returns. Of course, YMMV.

Couple things...


For the posters that are so overfunded to the point that 100% fixed income can carry them for decades they basically have monopoly money and what the market does is pretty much irrelevant . Any retirement calculator shows that as 100% fixed income success rates are very low unless the beginning balance is very high. Lets at least keep the convo focused on those that want or need growth.



Again, looking at history , post 1930s there has been very very rare occurrences where stocks were down over a 10 year period. The probabilities are they will come much closer the long term average of 10%


heres a calculator that shows that:


https://www.officialdata.org/us/stoc...0&endYear=2022




re PE ratios....PE ratios have long shown they are NOT predictive....even Robert Shiller himself, is on record saying that. If it were only that simple!


Perfect example was the PE back in 2009..it was like 60....looking back, was that a good time to invest?


again...PE is ONE metric

[pb4uski]

Quote:

Originally Posted by Happyras I like the clear view in this table of the lost decade 1999 to 2009. I added to your table a column showing ITM covered call returns on SPY for that range. To me that lost decade is likely not a one off.

Interesting idea to add that column but the column doesn't show for me. Perhaps change the fund descriptions to just tickers and it will show.

[target2019]

A more realistic view comes from https://www.officialdata.org/us/stoc...0&endYear=2022

Take a look at the monthly returns 1950-2022. I experience the red drawdowns.