Asset Allocation in Retirement: 100% in stocks???

[Orchidflower]

Since I had an Professor (well over a Millionaire and did it all himself) that taught Principles of Investing who believed totally in no bonds but 100% stocks always--and it now seems that's Warren Buffet's philosophy also--I wondered if anyone here was 100% in stocks and retired?

Cramer also says go 100% stocks or close to it. He said one of his callers did it "right" when his asset allocation was:

10% cash
20% Gold (I assumed GLD)
70% Individual Stocks

OK, now that's 3 well known professionals that have been made wealthy with stocks saying go 100% stocks or close to that, which is why I'm asking here if anyone on this Board has had the...well...guts to do it?

On the site TheStreet.com there is a nifty asset allocation test that you can plug your age and all pertinent information in and find out what Cramer (who owns it) thinks. The result here was very interesting--and AGAIN--nothing more than 20% Long-Term Bonds. Here is what was recommended for me:

Age: 67

15% Aggressive Growth
10% Individual Stock
25% Growth
30% Index
10% Long Term Bonds


Just would like some feedback as to how other Retirees set-up their asset allocation. I'm still hanging on to way too many Bonds possibly and am considering what to do.

 

[clifp]

Yes I believe there are several young retiree with 100% dividend portfolio.

I just sold a bond ETF today and put much of the money in a SCHB (schwab's total stock market equivalent). This leaves my bond AA at 5% (Vanguard GNMA a couple small individual issues.) and 4% in ISM/OSM which are inflation index bonds issued by Sallie Mae. Since they are inflation index and more or less junk bond status I don't really treat them as bond portfolio. I do have a bit above 10% in PenFed CD, money markets and Schwab's saving.

 

[NW-Bound]

...and it now seems that's Warren Buffet's philosophy also--I wondered if anyone here was 100% in stocks and retired?

Yes, there are several posters who are 100% equities. I am not one of them (currently at 70%), and have been thinking about going higher, and keeping perhaps just 10% in cash.

Of course, one question that inevitably goes up is that "sure, anyone can go 100%, but how did he weather the market meltdowns in recent memory?".

I recall reading that Billy and Akaisha Kaderli said somewhere that they were 100% equities, and they have been retired since 1991, at a youthful age of 38, and with less than $1M. So, there you go!

 

[Alan]

A poll in January on this site had about 10% of retired members over age 55 invested 100% in equities. (I am not one of them)

http://www.early-retirement.org/for...re-what-is-your-current-allocation-59633.html

 

[Surewhitey]

Buffett also buys companies and runs / improves them (that's not buying stock). He also gets preferred dividends / stock deals by throwing a few billion at GS or BAC. I would take anyone's words with a grain of salt. I listen to Cramer more for information and entertainment.

We personally have only
15% - stocks (made 17% last year)
10% - loan to homeowner @5.5%; 20 years left
75% - CD's and equivalent at 3% on average

Very conservative, I know. We still pay expenses and save a couple grand a month, so we're ok with the conservative stance and hope for improvements in the returns in the future.

 

[CyclingInvestor]

53, retired 5 years, 100% individual equities since 1993, living on the dividends. However, I do not consider this particularly aggressive as it is all in mid/large cap, solid companies (KO, PG, JNJ, MSFT, WMT, ABT, EMR, MMM, etc) with long records of increasing earnings and dividends.

 

[Onward]

I'm around 85% stocks, but I'm not proud of it. I'm slowly decreasing my stock/bond ratio.

From all the data I've seen, if you care anything about portfolio stability, you need at least 20% bonds. And historically that 20% chunk of bonds doesn't hurt your SWR at all (versus 100% equities), so it's a rare free lunch.

 

[NW-Bound]

There might be people who like to be 100% equities all the time. But some people like Buffett do not like bonds because of the special condition we find ourselves in at this moment, meaning the current low interest rate environment that most likely will not persist. Inflation was up to 3% already for the entire year of 2011.

Even though I agree with the above prognostication, I still find it difficult to go to 90% equities + 10% cash, as I want to do. Let's see if I can click "buy" to even go up to 80-85%.

 

[Ed_The_Gypsy]

Age: 67

15% Aggressive Growth
10% Individual Stock
25% Growth
30% Index
10% Long Term Bonds

That is a lot of "Growth". That means they do not pay dividends--they think they know better about spending their earnings than you would. Is that something a retiree would be happy with?

Long term bonds? Is that for higher dividends? Is that consistent with all that Growth stuff? When interest rates rise--and they will--the value of those bonds will drop. At 67, are you willing to hang on to a long term bond until it matures to avoid losing money if you sell it before maturity?

At this time, I favor equities that pay dividends reliably. I do not trust growth stocks anymore and I won't touch a bond today.

I wonder what the rationale is behind the recommendation TheStreet.com gave you? It sounds like they have an assortment of assets they just throw at you.

 

[Ed_The_Gypsy]

I recall reading that Billy and Akaisha Kaderli said somewhere that they were 100% equities, and they have been retired since 1991, at a youthful age of 38, and with less than $1M. So, there you go!

That is true. I believe they said they started out with everything in an S&P 500 index fund (and Billy was a stockbroker!), but IIRC they have a broader asset allocation these days. I'll bet they are still 100% in equities, though.

 

[haha]

Since I had an Professor (well over a Millionaire and did it all himself) that taught Principles of Investing who believed totally in no bonds but 100% stocks always--and it now seems that's Warren Buffet's philosophy also--I wondered if anyone here was 100% in stocks and retired?

Cramer also says go 100% stocks or close to it. He said one of his callers did it "right" when his asset allocation was:

10% cash
20% Gold (I assumed GLD)
70% Individual Stocks

OK, now that's 3 well known professionals that have been made wealthy with stocks saying go 100% stocks or close to that, which is why I'm asking here if anyone on this Board has had the...well...guts to do it?

On the site TheStreet.com there is a nifty asset allocation test that you can plug your age and all pertinent information in and find out what Cramer (who owns it) thinks. The result here was very interesting--and AGAIN--nothing more than 20% Long-Term Bonds. Here is what was recommended for me:

Age: 67

15% Aggressive Growth
10% Individual Stock
25% Growth
30% Index
10% Long Term Bonds


Just would like some feedback as to how other Retirees set-up their asset allocation. I'm still hanging on to way too many Bonds possibly and am considering what to do.

Like various posters have said, if you have cash income greater than what you need for your expenses, and you are a good stock picker or you buy a mutual fund well managed for growing dividends, you may not need cash beyond a ~ $50k emergency fund, which you will always need unless you are certain that you can borrow at OK rates for emergencies.

If you are doing the sell investments as you go along plan you need a fixed income allocation so that you will be extremely unlikely to need to sell stock for expenses.

And no matter what plan you follow, you must be certain that you will not panic no matter what happens, and no matter what level of panic is in the air.

Overall, for many people 100% equity could be dangerous.

Ha

 

[Ed_The_Gypsy]

Like various posters have said, if you have cash income greater than what you need for your expenses, and you are a good stock picker or you buy a mutual fund well managed for growing dividends, you may not need cash beyond a ~ $50k emergency fund, which you will always need unless you are certain that you can borrow at OK rates for emergencies.

If you are doing the sell investments as you go along plan you need a fixed income allocation so that you will be extremely unlikely to need to sell stock for expenses.

And no matter what plan you follow, you must be certain that you will not panic no matter what happens, and no matter what level of panic is in the air.

Overall, for many people 100% equity could be dangerous.

Ha

Aha, Ha,

I wasn't thinking of cash for emergencies, only bonds as an asset for growth/income.

I agree that a cash stash is very important. CDs would suit me.

I had not thought about the idea of borrowing in an emergency. That could be difficult, with HELOCs drying up and one having left the workplace. This sounds like something that would require advance planning before the need arises.

Has anyone out there investigated this?

Cheers from Baku,

Ed

 

[MichaelB]

100% equity is pretty high. Not for the faint of heart. Does your portfolio need real growth to provide for you to age 95? If you choose to do so, how do you get there? When average yields fall to levels that are similar to your withdrawal rate, you could consider moving a big part of your fixed income allocation to stocks.

Even if you decide that 100% is just too much risk, it does make sense to consider shifting allocation from bonds to stocks just based on current bond rates.

 

[Hamlet]

Buffett does not believe in 100% stocks always. He believes in buying any investment when the price makes sense.

He went to mostly cash in the boom of the late 1960's because stock prices stopped making sense. He has owned silver in the past. He currently owns a large amount of US Treasuries (although he isn't particularly happy about it).

He's said that gold and bonds are likely to underperform stocks at current prices. That doesn't translate into a 100% stocks portfolio for most people though, even him.

Since I had an Professor (well over a Millionaire and did it all himself) that taught Principles of Investing who believed totally in no bonds but 100% stocks always--and it now seems that's Warren Buffet's philosophy also--I wondered if anyone here was 100% in stocks and retired?

 

[Midpack]

I wouldn't do it, but the Wade Pfau blog below (which you may have already seen from earlier posts here) suggests the risk with 100% equities over 30 years isn't that much greater than much more conservative AA's. It suggests that there's virtually no difference in SWR between 35% and 80% equities, which encourages higher equity allocation. And SWR drops from 4.0% at 50:50 AA to about 3.8% at 100:00. It would be a wild ride for sure, but you're almost guaranteed to have a larger residual $ nest egg end of plan without adding much risk of failure (or theoretically none if you trim your WR 0.2%). I'm still not doing it, not that it matters...

Pensions, Retirement Planning, and Economics Blog: William Bengen's SAFEMAX

 

[REWahoo]

Everyone is wired differently when it comes to risk, but I think anyone who is retired with a 100% stock portfolio is flirting with disaster unless the individual has:

1. A 'guaranteed' source of income covering a substantial (as in almost all) of your basic expenses. This can be SS, a pension, annuities or a combination of the three.
2. A cast iron, never flinch, won't-sell-no-matter-what ability to ride out sickening market crashes. Note that it is far, far easier believe this describes your mindset than to have the same conviction when your portfolio drops 40% and is still falling like a streamlined manhole cover...

No way in hell I'd ever consider anything near 100% equities in retirement.

 

[Gumby]

2. A cast iron, never flinch, won't-sell-no-matter-what ability to ride out sickening market crashes. Note that it is far, far easier believe this describes your mindset than to have the same conviction when your portfolio drops 40% and is still falling like a streamlined manhole cover....

Fortunately (or unfortunately) we have a recent real world test to determine one's own mindset. Just ask yourself the following question - "In the first three months of 2009, with respect to my equity holdings, did I: a) sell (including shifting new contributions to bonds for those still in the accumulation phase); b) stand pat; or c) buy more?" If you don't answer b or c, you shouldn't be all-in on equities. But that's just my opinion and worth what you paid for it.

 

[REWahoo]

Fortunately (or unfortunately) we have a recent real world test to determine one's own mindset. Just ask yourself the following question - "In the first three months of 2009, with respect to my equity holdings, did I: a) sell (including shifting new contributions to bonds for those still in the accumulation phase); b) stand pat; or c) buy more?" If you don't answer b or c, you shouldn't be all-in on equities.

+1

I'd go one step more: even if you did b) or c), did you sleep well at night, confident you'd made the right decision?

 

[nun]

Everyone is wired differently when it comes to risk, but I think anyone who is retired with a 100% stock portfolio is flirting with disaster unless the individual has:

............
2. A cast iron, never flinch, won't-sell-no-matter-what ability to ride out sickening market crashes. Note that it is far, far easier believe this describes your mindset than to have the same conviction when your portfolio drops 40% and is still falling like a streamlined manhole cover...

No way in hell I'd ever consider anything near 100% equities in retirement.

+1. Over 30 years of disciplined investing 100% equities may work well. But what 30 years are we talking about and if there's a lack of discipline during the inevitable down turns the results could be nasty. Having some equities and some bonds/fixed income is more of a psychological tool than a financial one and helps the investor to keep to a plan and make sensible decisions.

 

[Independent]

Depends on goals and ratio of assets to goals.

Suppose I've got $30k from social security,
I want to spend $60k per year,
I'd like to maximize the amount I will ultimately leave to charity,
and I've got $2 million of liquid assets.

In that case, 100% equities looks just fine.

 

[explanade]

I wonder what people would have thought of high equities allocation in 2009 versus now.

If the market didn't come back since 2008-09, would we even be having this discussion?


I recall one interview with Cramer talking about his background. Made a fortune in hedge funds and then moved into whatever he's doing now. But I would swear he said his fortune is in bonds now, though he also has a trust that invests for him. As a pseudo financial journalist, he's not suppose to trade stocks -- that's what all the other CNBC personalities claim.

 

[foxfirev5]

I'm noticing more of these posts which are making me think that the retail equity investor is slowly coming back.
However, I'm sticking to my 45/40/15 equity/bond/ cash,cd series I bond allocation. Despite how rosy the outlook I'll rebalance if equities go over 50%. That's my plan and I'm sticking to it.

 

[Chuckanut]

100% equity, 100% bonds, or anywhere in between is still a heck of a lot better than what most people have, which is no plan at all.

 

[easysurfer]

...Just would like some feedback as to how other Retirees set-up their asset allocation. I'm still hanging on to way too many Bonds possibly and am considering what to do.

I use formula: 100 - my age = % in stocks.

Every year when I rebalance, this automatically gradually takes a small percentage of stocks off the table. Plus, the formula forces me to keep my emotions out of the equation.

100% in stocks? Too volitile for my blood. I like sleeping at night.

 

[W2R]

Asset allocation is such a personal thing, and I think it is important to come up with an AA you can live with.

Remember how people were "freaking out" in the forum in late 2008 through early 2009? Some members said they were going to sell everything, others said they were going back to work. And if you read between the lines, even more were considering these possible actions.

This is why I will not have an asset allocation that is over 50% stocks. Selling low can destroy a person's retirement. I have to have an asset allocation with which I will not freak out should another market crash occur. I was pleased to see that my present 45:55 (equities:fixed) asset allocation worked for me in that respect. Each January I rebalance.

I do have a lot of bond funds and those supposedly in the know have been predicting an imminent, nearly immediate drop in bonds due to rising interest rates for at least four years. During this time, my bond funds have done well and have provided me with some nice dividends. Sure, someday it might happen but if/when it does, I won't freak out and sell low.