Anybody else 100% stocks, no bonds?

[OldShooter]

There is a good reason to invest in bonds, it protects your nest egg from some the effects of a large market drop. Earning 2% is better than losing 25%.
Are you feeling lucky!

With respect, this is a major misunderstanding of market dynamics.

1) A market drop has no effect on the investor unless they are forced to sell equities while the market is down significantly. In history, market drops have always been followed by recoveries, sometimes very quickly. (If one wants to be fearful, fear inflation. There is never a recovery from inflation.)

2) To actually lose 25% in a 25% market drop is to make the horribly bad decision to sell in a panic.

3) Even if some equities must be sold, the likelihood is that part of the recovery has already happened -- maybe most of it. IOW The unfortunate seller will probably miss the bottom.

The short version: Volatility is not risk. SORR is risk. Volatility is expected by any knowledgeable investor and need not be feared. In the accumulation phase volatility is actually desirable.

 

[RetiredAt49]

With respect, this is a major misunderstanding of market dynamics.

1) A market drop has no effect on the investor unless they are forced to sell equities while the market is down significantly. In history, market drops have always been followed by recoveries, sometimes very quickly. (If one wants to be fearful, fear inflation. There is never a recovery from inflation.)

2) To actually lose 25% in a 25% market drop is to make the horribly bad decision to sell in a panic.

3) Even if some equities must be sold, the likelihood is that part of the recovery has already happened -- maybe most of it. IOW The unfortunate seller will probably miss the bottom.

The short version: Volatility is not risk. SORR is risk. Volatility is expected by any knowledgeable investor and need not be feared. In the accumulation phase volatility is actually desirable.

Well said, I’m 49 years old and am 100% invested in stocks but I do have rental properties too

 

[Al in Ohio]

Our living expenses are completely covered by my wife's pension. I expect the ride to be bumpy at some point on our investments (VTSAX), but we're retired debt free at age 60 with a six month emergency fund, full medical benefits and expecting to collect social security at 62. Just looking for other perspectives. Bonds in our case seem to likely be a drag on our investments when we can ride out any serious dip in the market.

Your crazy taking that much risk. I am in your same situation with a 5 year emergency fund and 45% bonds. Age 61. Retired at 55. Own my home and cars. No debt.

 

[Bullwinkle]

I'm at 99/1 for the taxed account, but 70/30 in the 401k.

This actually strikes me as backwards. Since I can't get my mitts into the 401k for another 18 years anyway, it seems like 401k should be the aggressive one, and taxed should be the conservative one. But I can't really move much in the taxed account without paying a lot in taxes when I'm still in a high bracket. But since the 401k is not a practical buffer anyway, why not go all in with 100/0 in it? Then I will truly be at 100 but I'm sort of stuck there. Except accumulate into cash and hope I've got a big enough buffer when I go.

Logical? Crazy?

 

[clifp]

There is a good reason to invest in bonds, it protects your nest egg from some the effects of a large market drop. Earning 2% is better than losing 25%.
Are you feeling lucky!

What happens if the Fed can't/won't get inflation under control and interest rates rise? Inflation is running at 5.5%, once you factor in taxes the 10 year T-bill would need to yield 6.5-7.0 just to break even with inflation.

What happens to the value of your bond holdings. Obviously, they go down.
In fact, we can measure pretty accurately how much they go down. The effective duration of the Vanguard Total Bond market is 6.8 meaning that a 5% rise in interest rates will result in a 34% (5%*6.8) decline in bonds.

Vanguard Wellesley has a duration of 7.9 so the fixed asset portion of the fund will drop by almost 40%.

Stocks will probably drop also, but probably not as much.

Historically stocks are more volatile than bonds, but don't kid yourself that there isn't risk associated with bonds.
if your bonds are yielding 2% or more you are taking a lot of risk.

 

[37andhappy]

I have virtually zero bonds (other than a small amount of Pan-Asia corporate bonds which I bought at a great time in the Asian markets). Overall bond never appealed to me, primarily as I preferred assets the produce an income and which ideally themselves appreciate over time. In general I would always prefer investing in a company in a company I like (as opposed to buying any debt issued by it).

I do have various amounts of cash in banks in term deposits (earning almost zero), ready to deploy on any time of great crisis in stocks or property. And for any money that I might even consider putting into bonds, there is always Bitcoin which for a range of reasons I see as a far better alternative for storing excess cash. Another alternative is always to pay down any debt you have (which will always yield a better compounded return than keeping that cash in Treasury bonds).

 

[teetee]

Make your emergency fund enough for 2 years of living expenses and emergencies then put the rest of the money in stock index funds (plus reinvest any dividend) and forget about it.

The forgetting part is the key: you don't worry about the ups and downs so you won't realize the loss. Just live mostly on SS and enjoy your freedom.

 

[FLSUnFIRE]

I consider myself 100% stocks, no bonds but have about $150K in "cash" out of $2.3M liquid portfolio which will fund my expenses though end of 2023 at which point I will be down to $50-80Kish of cash and will replenish as needed to maintain liquidity. If there is a significant market drop before then, I'd probably throw some of it back into equities rather than hold till I spend it all.



Based off historical data, statistically, I am better off being in the market and at 47 have a long time horizon. I have a bit more cash than what I think my baseline will stabilize at but it helped me feel comfortable having some extra cash on hand making the leap with the market so high and the global economy so chaotic.

 

[FLSUnFIRE]

Yes I am. 31 years of age 100% stocks across TSP, Roth IRA and brokerage with some options trading in a play around account. The reason I do it is because #1 I have time on my side and #2 I will have a pension either when I reach my MRA of 57 or 62 if I leave before my MRA as I’m a federal employee. My pension will be worth either 16% of my high 3 salary or 38% depending on when I exit federal service.

Once you hit 20 years, you can start your pension at age 60 (cola not until 62 though).

 

[VanWinkle]

I'm boring, went with the traditional 60/40 about a year before ER (age 50). Stuck with it ever since with annual rebalancing (with a brief drop down to 50/50 last year after the flash crash).

I know I've left money on the table since ER, but I sleep fine and portfolio has almost doubled in 7 years anyway. We could actually jack it up to 80/20 and be fine at this point since a 50% drop will still leave us with plenty to live on, but money is not the issue anymore.

+1 Boring is good in long term investing!!

 

[DawgMan]

+1 Boring is good in long term investing!!

+2
While I want to think I should be more aggressive with my fixed allocation (i.e. increase my stock allocation, add more preferreds, go junkier on my bonds for yield), I seem to just stay the course. Of course, I rely 100% on my portfolio to cover my annual spend so no pension in play for me.

While I get (and was) being much more aggressive in the accumulation years, I wonder how many on this board retired before 2007 100% stocks with no pension and have stayed there since??

Until I can be convinced there is better long term risk/reward mousetrap out there (which I am always looking for), I will stay with my snoozie 60/40.

 

[CyclingInvestor]

While I get (and was) being much more aggressive in the accumulation years, I wonder how many on this board retired before 2007 100% stocks with no pension and have stayed there since??

Retired Oct 2006 at 48, 100% stocks since 1990's, no pension. The stocks I own tend to be boring, however.

 

[RunningBum]

I'm at 99/1 for the taxed account, but 70/30 in the 401k.

This actually strikes me as backwards. Since I can't get my mitts into the 401k for another 18 years anyway, it seems like 401k should be the aggressive one, and taxed should be the conservative one. But I can't really move much in the taxed account without paying a lot in taxes when I'm still in a high bracket. But since the 401k is not a practical buffer anyway, why not go all in with 100/0 in it? Then I will truly be at 100 but I'm sort of stuck there. Except accumulate into cash and hope I've got a big enough buffer when I go.

Logical? Crazy?

1. Figure out your overall AA. Or bucket plan.
2. Figure out the most tax efficient placement of assets. This probably means bonds in your 401K.

If you need cash for living expenses, you can sell equities in your taxable account and trade bonds for equities in your 401K to get back to your desired AA.

This is a pretty simplified view, but does show how to effectively use bonds in your 401K even if you aren't able to access the account for many years.

You may find that ACA subsidies make that periodic selling of equities in taxable undesirable. In that case you have to weigh the tax effects of having some bonds or other fixed income assets in taxable vs. keeping them all in your 401K.

 

[Time2]

What happens if the Fed can't/won't get inflation under control and interest rates rise? Inflation is running at 5.5%, once you factor in taxes the 10 year T-bill would need to yield 6.5-7.0 just to break even with inflation.

What happens to the value of your bond holdings. Obviously, they go down.
In fact, we can measure pretty accurately how much they go down. The effective duration of the Vanguard Total Bond market is 6.8 meaning that a 5% rise in interest rates will result in a 34% (5%*6.8) decline in bonds.

Vanguard Wellesley has a duration of 7.9 so the fixed asset portion of the fund will drop by almost 40%.

Stocks will probably drop also, but probably not as much.

Historically stocks are more volatile than bonds, but don't kid yourself that there isn't risk associated with bonds.
if your bonds are yielding 2% or more you are taking a lot of risk.

I never said it was easy. In fact with the gains we have had the past two years, I'm thinking seriously about pulling those gains out of the market. I don't see myself putting those gains into a bond, so cash is probably where it would go, but I would kick myself if we have another 15% or 20% year.

 

[OldShooter]

I'm boring, went with the traditional 60/40 about a year before ER (age 50). ...

Good for you. In the wrap-up ending my 6 hour Adult-Ed investing class I tell them this:

"Investing is boring. If you're not bored, you're not doing it right."

The Reverend Buffet has consolation for you, too:

“The stock market is a device for transferring money from the impatient to the patient.”

"Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell. ... Lethargy bordering on sloth should remain the cornerstone of an investment style."
​

... taxed should be the conservative one. But I can't really move much in the taxed account without paying a lot in taxes when I'm still in a high bracket. ...

Be careful to not let the tax tail wag the investment dog. Your goal is not to starve the IRS, it is to maximize MIP (money in pocket). History tells us that maximum MIP will come from equities, so your 99% is probably optimal. Blend to taste total us market and total international market funds, ideally tax-managed funds, and you're done. In our case, we hold the total world, VTWAX, so we don't have any need to worry about the blend.

Re "taxed should be the conservative one" remember that volatility is not risk. IMO it is conservative (in the literal sense of the word) to maximize MIP.

 

[Time2]

To paraphrase Kermit, "It ain't easy having green.

 

[Koolau]

I think I've seen 2 or 3 members say (or suggest) that they can or do live off their fixed incomes (SS, Pension, annuities, etc.) So, they feel comfortable with high % equities. I guess my question would be: Why swing for the fences when you don't even use (don't even "need") the extra money generated by equities? Is it for the next generation? If not, what do you plan to use the extra for? An elaborate funeral?

One of my personal back-ups is to be able to live from my fixed income. But I hope it doesn't come to that. Right now, I'm even taking MORE than my official RMDs. I use the extra for the fulfillment I planned for in retirement. So far so good. Having said that, I don't see that I need any more in the future EXCEPT to cover inflation which is one reason I DO invest in some equity positions.

Mentioned before, I see 2 potential black swans on the horizon: Excessive inflation and LTC - for an extended period. Other than one or both of those, I'll be hard pressed to "get rid" of my current stash (except through my will.)

No implied criticism in this post. (I can barely run my own life. I won't try to run someone else's.) I just wonder what folks plan to do with "all that money" - especially those, like me who are closer to the end of FIRE than to the beginning (statistically, anyway) YMMV

 

[FLSUnFIRE]

I think I've seen 2 or 3 members say (or suggest) that they can or do live off their fixed incomes (SS, Pension, annuities, etc.) So, they feel comfortable with high % equities. I guess my question would be: Why swing for the fences when you don't even use (don't even "need") the extra money generated by equities? Is it for the next generation? If not, what do you plan to use the extra for? An elaborate funeral?

One of my personal back-ups is to be able to live from my fixed income. But I hope it doesn't come to that. Right now, I'm even taking MORE than my official RMDs. I use the extra for the fulfillment I planned for in retirement. So far so good. Having said that, I don't see that I need any more in the future EXCEPT to cover inflation which is one reason I DO invest in some equity positions.

Mentioned before, I see 2 potential black swans on the horizon: Excessive inflation and LTC - for an extended period. Other than one or both of those, I'll be hard pressed to "get rid" of my current stash (except through my will.)

No implied criticism in this post. (I can barely run my own life. I won't try to run someone else's.) I just wonder what folks plan to do with "all that money" - especially those, like me who are closer to the end of FIRE than to the beginning (statistically, anyway) YMMV

For myself, if I can make it to 60 SS and my small pension will fund my current lifestyle if spending only increases with inflation. I'm currently spending pretty lean so my expenses will likely increase more than inflation in later years (at current valuation I expect 1.8% spending rate in 2022). My reasons for being ~100% equities:


Inflation protection
I want BTD $ -I have my wish list ready to go!
LTC self-insurance
100% safe using all calculators (unless using Monte Carlo with really harsh assumptions) It doesn't seem that risky at my current WDR and why would I want to invest in something that has a lower expected return if I can handle the risk? I got here by optimizing (well, except for all my mistakes along the way)!

 

[Time2]

I think I've seen 2 or 3 members say (or suggest) that they can or do live off their fixed incomes (SS, Pension, annuities, etc.) So, they feel comfortable with high % equities. I guess my question would be: Why swing for the fences when you don't even use (don't even "need") the extra money generated by equities? Is it for the next generation? If not, what do you plan to use the extra for? An elaborate funeral?

I'm starting to wonder that myself. We could have another 20 years, maybe a few more, that would put my youngest at 50 years old. I would hope they have their own nest eggs by then. Why do we still live frugally? But then what do I need? A new car, why, I don't drive 5000 miles a year. A new house and higher taxes, what a hassle moving. I guess I could do some travel, my wife has little interest and all she would want to do is food shop anyway, and we already have too much in the freezers. Maybe I'll splurge this winter and turn the heat up from 68* to 70*.

 

[plex]

100% stocks since I started investing, aside from obvious cash for expenses. I see some room for holding cash or a leveraged treasuries, but bond interest rates have been so incredibly poor in recent history that it just isn't reasonable holding them. There most certainly will be a time I hold bonds, such as a 5%+ interest environment. The late 70's and 80's was an incredible time to hold bonds.

 

[ICanSeeTheBeginning]

But you can't benefit by rebalancing

One of the big big benefits of a mixed portfolio is being able to rebalance. With 100 percent of anything that simply is not possible. By rebalancing, one is always selling high and buying low....and if you limit yourself from being able to do that, you limit your potential growth....IMO.

 

[bevette]

I'm 55 and have been retired almost 5years and although it is against conventional wisdom I'm at almost 100% stock. I always have been. I keep ~1-2 years in cash and draw on my account a few times a year to cover expenses. When I ran numbers paring my AA down to 70/30 it just didn't make sense to me.

Free866, do you have a pension? What is your withdrawal rate? When you say you “ran the numbers,” are you referring to FIRECALC? I’m 53 and still w*rking. No pension on the horizon but I aim to retire by 55. I am both waiting for a separation package as well as padding my coffers to self insure for LTC. I’m sitting around 80/20 with 4 years expenses in cash (that’s included in the 20%). I feel 80/20 is too conservative and feel the pull toward 90/10 or higher. I’ve weathered several market drops at 100% equities and am confident that a 2-3 year expenses cash buffer and 100% equities might be a better fit for me.

 

[DogGone]

I'm at 99/1 for the taxed account, but 70/30 in the 401k.

This actually strikes me as backwards. Since I can't get my mitts into the 401k for another 18 years anyway, it seems like 401k should be the aggressive one, and taxed should be the conservative one. But I can't really move much in the taxed account without paying a lot in taxes when I'm still in a high bracket. But since the 401k is not a practical buffer anyway, why not go all in with 100/0 in it? Then I will truly be at 100 but I'm sort of stuck there. Except accumulate into cash and hope I've got a big enough buffer when I go.

Logical? Crazy?

Yes backwards.
The money you won’t touch for years should be aggressive and you can trade more actively if you wish since you do t have capital gains.

 

[ychuck46]

Mostly/Kinda

Same situation as you (no debt, medical covered, SS at 63/DW at 62) and we are now 68, almost. Carrying some bonds but only ones that are tax-exempt either fully or deferred (municipal bond ETF and I Bonds). The vast bulk of our assets are in stocks, both ETFs and individual issues, as well as being active in the options market. Best of luck.

 

[Sanbenito1]

I’m in the same boat- age 63; pension and rental cottage cover all basic costs and house is paid off. I keep about 80 percent stock, 20 bonds. The only reason I keep so much in bonds is that I toy with the idea of buying another house (and even if I don’t, it’s nice to be able to help the youngsters with their down payment). If the stock market tanks when/if I need down payment money, I’d still be able to move forward. If it wasn’t for buying houses, I’d probably be closer to 100 percent stock. I also keep about $60K in an emergency fund (government Ibonds, mostly) for my next car/roof/emergency