100% stocks? Why?

[OldShooter]

... 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). ...

Good job. You have just capsulized Harry Markowitz's Capital Assets Pricing Model (CAPM) ! (https://www.investopedia.com/terms/c/capm.asp) Markowitz already has the Nobel though, so it's probably not worth putting in your application.

 

[Chuckanut]

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.

My guess is that you are probably right.

But, I will play the Devil's Advocate by pointing out in the crash of 1973-74 it took the US stock market over two decades to reach the break even point in real dollars.

 

[dixonge]

we're living off of 40% of our current pension/SS income, investing the rest. In 2023 we will have added *my* pension/SS and it, too, will be invested. 100% equity index funds. It's painful when the market swoons, but so, so nice when it resurrects!

 

[ERD50]

Originally Posted by ERD50 View Post
... 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). ...

Good job. You have just capsulized Harry Markowitz's Capital Assets Pricing Model (CAPM) ! (https://www.investopedia.com/terms/c/capm.asp) Markowitz already has the Nobel though, so it's probably not worth putting in your application.

Maybe I'll write him and tell him he can use my capsule summary, no charge. The math on that link would scare a lot of people away!

-ERD50

 

[Lawrencewendall]

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”​

Where are you Imoldernu? We miss you.

 

[vrijheid]

Where are you Imoldernu? We miss you.

Ditto! I understand Imoldernu is in a much better place. [emoji120]

 

[OldShooter]

My guess is that you are probably right.

But, I will play the Devil's Advocate by pointing out in the crash of 1973-74 it took the US stock market over two decades to reach the break even point in real dollars.

Well, "probably" is probably the best we ever get looking through the windshield.

I have seen that "two decades" thing before but have never researched it. Do you have a link or a reference and do you know if it is total return or just nominal?

The other thing about "recover" is that recoveries tend to be slow and steady, so someone needing to sell equities "near" the end of the recovery will probably get "near" prices to the peak.

Also, people tend to cry about markets being overpriced, above the Shiller CAPE, etc., making moral objections to the prices. But then they want to "recover" to those prices. Probably a regression to the mean is a more realistic way to look at recoveries and how long they take.

But all of that and $5 will probably get you a (take-out) Starbucks coffee.

 

[free2020]

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.

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

Your posts are worth 100x other posts. In my opinion. Nothing beats personal experience. Over the long term. Sure, it's easy to dismiss as "Great that it worked out for you" but I sense that to sometimes mean "I don't care what your experience is, this is my story and I'm sticking to it".

Underlying the topic of this thread there is presumption that 100% equity portfolio is bad for the volatility. The fear of having to withdraw when prices are down (like now) is indeed a real fear - emotion that is real and felt real time. But at the other end of the spectrum there is a fear that few experience...and that is the mediocrity over the long term that comes with too cautious of an approach. With fear there is pronounced emotion with loss, with mediocrity you really are poorer but don't feel it.

The frog in hot water analogy is a fitting one.

 

[VanWinkle]

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.

What exactly is a zombie stock?

 

[daylatedollarshort]

I have seen that "two decades" thing before but have never researched it. Do you have a link or a reference and do you know if it is total return or just nominal?

You might find this summary from Triumph of the Optimists authors' research of interest. According to the authors, historical equity returns from a 17 country analysis found that stocks do better in the long run over bonds, but that long run may be longer than 20 years.

 

[OldShooter]

You might find this summary from Triumph of the Optimists authors' research of interest. According to the authors, historical equity returns from a 17 country analysis found that stocks do better in the long run over bonds, but that long run may be longer than 20 years.

Thanks much. That paper is quite interesting. I especially like Figure 3. I have not seen the data presented that way before. Certainly in any near-random process there will be cases where the bread falls jelly-side down, but that chart also says that real returns were pretty decent three-fourth of the times even with only 10 year periods and positive 90% of the time. You're right though --- it is maybe not as good as I had thought.

The "Looking Forward" part is not interesting to me. They arbitrarily project lower returns and then offer some nice graphs that (Guess what?) show lower returns. It would have been much more interesting if they had made the effort to show how various SDs might chart.

I went to Amazon to buy the book. On sale for $141.64! No thanks. Looking for info on the database led to "Credit Suisse Global Ivestment Returns Yearbook 2020," which would be interesting but is limited to clients.

 

[daylatedollarshort]

I went to Amazon to buy the book. On sale for $141.64! No thanks. Looking for info on the database led to "Credit Suisse Global Ivestment Returns Yearbook 2020," which would be interesting but is limited to clients.

Some public libraries have copies of the Triumph book. This site searches 10,000 libraries worldwide and lets you know where you may be able to find a copy - https://www.worldcat.org/

 

[RenoJay]

I’m with OP on this one. Maybe not so much on this forum, but on seeking alpha there were a lot of folks boasting about 100% stock allocation until about six weeks ago. (Hmmm.)

Part of why I decided to bail from equities in Oct 2018 was the sheer unwavering confidence many of these 100%ers showed in their posts. They literally could not envision a recession, a scenario where the Fed couldn’t save the day or anything other than roses. (Even as 2018 ended as a down year.) They would regularly cheer a 3% drop as the buying opportunity of the decade.

I’m pretty sure it’s many of these folks who are getting margin calls right now and needing to sell at any price.

If you’re an intelligent FIRE, and you choose 100% equities because you’ve studied history and understand your own risk tolerance and behavior history, that’s fine. Most of those I’ve encountered who are 100%ers do not possess that level of self knowledge or discipline.

 

[Digger1000]

I'm 100% stocks. Retired 3 years ago at age 51. My chips are all in the middle of the table. You should not invest any money in the stock market without understanding that you can lose every dollar you have invested in the stock market. I do not have a pension or anything. I have always lived extremely frugal. I sleep very well.

 

[FLSUnFIRE]

I'm 100%, planned to quit this summerish. One of my scenerios for planning was a 40% drop immediately after... not quite there yet but getting close. 60/40 or any other AA ratio wouldn't have made any difference to me in these conditions. I am deferring until next year due as much to the state of the overall economy (planned to have some earnings doing fun stuff which would offset early withdrawals and the world is on pause anyway so many activities I would enjoy FIREd are suspended for now) as to my portfolio. I'm 45 and my investing horizon, even after FIRE in my 40's, will be 40 year horizon so that is why I'm 100%. While invested for growth via mutual funds and not receiving many payouts, the underlying dividends would be enough to cover base expenses. As I have made the decision to sit tight for another year, I have reallocated some of my savings (were going into cash to fund the first couple years) to invest in more equities. (about 50/50 allocation of savings for the remainder of this year going into cash/equities)

A bit of a bummer to make the decision to defer but I'm also fairly detached and find the whole thing interesting as it plays out and believe I'm making fairly good rational decisions. The response around the world is certainly unprecedented in my lifetime.

 

[dixonge]

Ran a little spreadsheet this morning. I'm projecting a 50% drop with a slight recovery by end of year. I'm hoping it doesn't go that far, but... And instead of throwing all my income into the market I am projecting leaving it in cash. In this scenario I come out well ahead of the Feb. peak, but with a vastly different AA (more like 40/60). So much for 100% equities!

Whenever the market begins to rebound I may start putting money back in, depending on what the economy looks like in general. But this projection gives me some peace of mind and some options, a shred of a strategy.

 

[pjigar]

If you can stomach the volatility then there is no reason NOT be be 100% in stocks. Stocks i.e. part ownership of mostly income producing businesses is the the only way to make the MOST amount of returns over log periods of time. I have a very simple test if you are a candidate for 100% stocks: Did you ever sold bonds/CDs/other stable investments or took home equity loan to invest in stocks when market was down more than 20%? If yes, then you would be fine with 100% stocks.

 

[PHARMACYPROF]

Psychologically it is very difficult to stay 100% stock for most people, especially those with significant assets. Also, many doubt that the United States will experience similar returns to the 20th century because of projected future growth being lower than in the 20th century. The U.S. did better than almost any other country in the 20th century and it is questionable if that will happen in the 21st century. For those who have already won the game (meaning they don't need stocks to meet their income goals) I recommend minimal exposure to stocks if one is retired. Stocks can stay down for a long time (i.e., 20 years or more). The problem is, the alternatives such as bonds, CDs, and money market funds return very little. So, in my view, a conservative but balanced portfolio may have the best probability of sticking to an asset allocation and getting through retirement in decent shape. But, there are no guarantees.

 

[ERD50]

I’m with OP on this one. Maybe not so much on this forum, but on seeking alpha there were a lot of folks boasting about 100% stock allocation until about six weeks ago. (Hmmm.) ....

Well, OP was referring to the people in this forum (or was "this group" referring to the 100%?). I don't frequent Seeking Alpha, so let's keep it to "this forum group", OK?

... the sheer unwavering confidence many of these 100%ers showed in their posts. They literally could not envision a recession, ...

I’m pretty sure it’s many of these folks who are getting margin calls right now and needing to sell at any price.

If you’re an intelligent FIRE, and you choose 100% equities because you’ve studied history and understand your own risk tolerance and behavior history, that’s fine. Most of those I’ve encountered who are 100%ers do not possess that level of self knowledge or discipline.

You are going to have to back that up with links to some of these posts. That's not my impression at all. I haven't seen any regular posters who have a high AA that express some sort of immunity (that excludes maybe a few of those short-term 'drive-by posters' who claim to know everything).

And how in the world would someone at 100% get a margin call? You are now literally being nonsensical. Being 100% is NOT being on margin. That's being 120%.

Links?

-ERD50

 

[ERD50]

... So, in my view, a conservative but balanced portfolio may have the best probability of sticking to an asset allocation and getting through retirement in decent shape. But, there are no guarantees.

You don't have to rely on a "view", there is data on this, if we can trust history to tell us anything at all. See the chart in my post #5 of this thread. Any AA from about 40/60 tp 100/0 had similar success.

So be careful when you say "conservative", as an AA below 35% drops off pretty sharply. I think it is prudent to stay away from the edges, since history will more likely rhyme than repeat exactly. 45/55 ~ 85/15 depending on your volatility tolerance?

-ERD50

 

[RetiredAt55.5]

I'm 100%, planned to quit this summerish
...
As I have made the decision to sit tight for another year, I have reallocated some of my savings (were going into cash to fund the first couple years) to invest in more equities. (about 50/50 allocation of savings for the remainder of this year going into cash/equities).

I'm confused - how can you be 100% in stock AND have cash to fund the first couple of years?

 

[OldShooter]

Psychologically it is very difficult to stay 100% stock for most people, especially those with significant assets. ...

I think you're completely wrong on this. For example, DW and I have more money than we will ever need. We are watching this current excitement with amusement not concern, having been through dips many times before. We are a little surprised, though, that toilet paper seems to be the asset of choice for those who are panicking.

Also, many doubt that the United States will experience similar returns to the 20th century because of projected future growth being lower than in the 20th century. The U.S. did better than almost any other country in the 20th century and it is questionable if that will happen in the 21st century. ...

Essentially this is a "reversion to the mean" argument and is very commonly made. The logical conclusion if you believe the argument is to shift equity investments overseas, where reversion to the mean will be beneficial.

For those who have already won the game (meaning they don't need stocks to meet their income goals) I recommend minimal exposure to stocks if one is retired. Stocks can stay down for a long time (i.e., 20 years or more). T..

This simplistic idea has been discussed here uncountable times. There are many situations for which it is a bad idea.

So, in my view, a conservative but balanced portfolio may have the best probability of sticking to an asset allocation and getting through retirement in decent shape. But, there are no guarantees.

Wow. I wonder why no one ever thought of that before.

 

[2017ish]

We were 100% from 1984 through 2013 or 14, then started to shift a bit to short term bond funds in light of expected retirement (2017).

Main reason we shifted slowly to 65-35 (at end of January) was desire to optimize for front loaded spending in retirement. As it appears to be turning out, I'm glad we made the change--but we still plan to employ a reverse glide path to minimize its cost.

Bottom line, know your own situation and decide what allows you to sleep at night and not be tempted to make changes in the midst of market carnage.

 

[PHARMACYPROF]

I think you're completely wrong on this. For example, DW and I have more money than we will ever need. We are watching this current excitement with amusement not concern, having been through dips many times before.


OldShooter, you obviously don't mind seeing your portfolio go down by 40% or more that that is fine for you. But, for many who live solely off their portfolios (including penta millionaires), to be down a million dollars or more with no guarantee of it coming back is extremely stressful and unnecessary. And, if you are taking money out during this time it can blow a portfolio up. Please take a look at how stocks performed in the 19th and first half of the 20th century to realize that there is no guarantee that stocks will return very much in the 21st century.

 

[ERD50]

I think you're completely wrong on this. For example, DW and I have more money than we will ever need. We are watching this current excitement with amusement not concern, having been through dips many times before.

OldShooter, you obviously don't mind seeing your portfolio go down by 40% or more that that is fine for you. ...

I'm not OldShooter, but c'mon. No one 'doesn't mind seeing their portfolio go down by 40% or more'. Of course they mind, but they also don't need to be running scared. If you want to be taken seriously, make serious comments.

As I've said many times before, what is the alternative? If you stayed with a low AA, you didn't partake in the run-up either. So in most cases, even after this fall, the lowAA portfolio is still further behind.

But, for many who live solely off their portfolios (including penta millionaires), to be down a million dollars or more with no guarantee of it coming back is extremely stressful and unnecessary. And, if you are taking money out during this time it can blow a portfolio up. ...

I'd bet that most people on this forum with a 100% stock AA have other sources of income and/or have a WR low enough that they would be supported on divs from a broad stock index fund (which pay ~ 2% in divs). They will do little to no selling, and will not "blow up their portfolio".

Relax, maybe you need to ask an MD for a prescription you can fill for yourself?

-ERD50