Why bother diversified? Why not all in Index SP500?

[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]

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]

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]

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

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]

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.

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]

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]

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]

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]

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.

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]

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/stocks/s-p-500/2017?amount=1000000&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]

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/stocks/s-p-500/1950?amount=1000&endYear=2022

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

 

[FREE866]

A more realistic view comes from https://www.officialdata.org/us/stocks/s-p-500/1950?amount=1000&endYear=2022

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

Confused by your comment. You also experience the blue increases no?

 

[VanWinkle]

A more realistic view comes from https://www.officialdata.org/us/stocks/s-p-500/1950?amount=1000&endYear=2022

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

Fun tool, thanks for sharing!!

VW

 

[FREE866]

Fun tool, thanks for sharing!!

VW

I shared it first


and yes, love it....totally cuts through the noise with hard data....shows the power of the stock market compounding ...amazing!

 

[target2019]

Confused by your comment. You also experience the blue increases no?

I experience the blue, but remember the red.

We're many different types of investors (aka people). You've chosen to make a point by focusing on 10-year periods. I measure monthly and live that.

Those red bars are more numerous than one would imagine if only 10-year averages are plotted. That was my point.

There's something more to averages, of course, I'm not denying that.

 

[FREE866]

I experience the blue, but remember the red.

We're many different types of investors (aka people). You've chosen to make a point by focusing on 10-year periods. I measure monthly and live that.

Those red bars are more numerous than one would imagine if only 10-year averages are plotted. That was my point.

There's something more to averages, of course, I'm not denying that.

Fair point.


Daily , monthly and yearly drawdowns feel more for sure, but barring something cataclysmic happening the future will most likely resemble something close to the past. No guarantees of course. Someone mentioned goals and for me if we even get 50% of past markets returns I'm good. So I think mentally I just try to focus on that as opposed to drowning in the angst of the volatility.

 

[pb4uski]

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/stocks/s-p-500/2017?amount=1000000&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

Well, to begin with, the topic of the thread is supposed to be whether one's equity allocation could be 100% S&P 500 index rather than a more diversified equity portfolio so your comment on playing it safe was a bit in left field to begin with. I'm not sure where the idea that an investing strategy for those who want or need growth came from.

Second, Warren Buffet's advice to his heirs was to simply invest in the S&P 500 index, so that pretty much answers the OP's question.

Here's the quote, from page 20 of his most recent annual letter to Berkshire shareholders, dated Feb. 28. After all of his Berkshire shares are distributed to charity, take the cash, Buffett says, and just buy index funds:

My advice to the trustee couldn't 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.

I never said anything about stocks being down for a decade, just underperforming.

I guess that we'll need to agree to disagree whether P/E compression is a real risk to equities. The current P/E is 24.34. The historical mean and median are 16.01 and 14.93, respectively. So even if the index reverts to a P/E of 20 over the next decade, that would reduce stock returns by ~2% annually. So if you take a 2% dividend yield, 5% earnings growth less 2% P/E compression that is 5% return on stocks which is in the range of Vanguard's March 2023 Outlook of 4.4%-6.4% for US equities for the next decade.

 

[target2019]

Fair point.

Daily , monthly and yearly drawdowns feel more for sure, but barring something cataclysmic happening the future will most likely resemble something close to the past. No guarantees of course. Someone mentioned goals and for me if we even get 50% of past markets returns I'm good. So I think mentally I just try to focus on that as opposed to drowning in the angst of the volatility.

I'm wondering why my father did not put $1,000 into the S&P 500 in 1950, solely for my use? Maybe because it was 15% of his salary, and 5 more mouths to feed?


While accumulating I did focus very much on those average returns. For me, "now" is simply about the total balance.

I wonder if anything said is meaningful to the OP?

 

[FREE866]

Well, to begin with, the topic of the thread is supposed to be whether one's equity allocation could be 100% S&P 500 index rather than a more diversified equity portfolio so your comment on playing it safe was a bit in left field to begin with. I'm not sure where the idea that an investing strategy for those who want or need growth came from.

Second, Warren Buffet's advice to his heirs was to simply invest in the S&P 500 index, so that pretty much answers the OP's question.



I never said anything about stocks being down for a decade, just underperforming.

I guess that we'll need to agree to disagree whether P/E compression is a real risk to equities. The current P/E is 24.34. The historical mean and median are 16.01 and 14.93, respectively. So even if the index reverts to a P/E of 20 over the next decade, that would reduce stock returns by ~2% annually. So if you take a 2% dividend yield, 5% earnings growth less 2% P/E compression that is 5% return on stocks which is in the range of Vanguard's March 2023 Outlook of 4.4%-6.4% for US equities for the next decade.

Well, the assumption is that if someone is considering stocks they want or need growth. If one doesnt then whats the point? just go into CDs


and as long as I'm a long term investor I have never, am not , and will ever be trying to "play it safe" so thats where that comment came from. I think the other poster used that language and I responded in kind.





The whole PE thing is just a tired narrative and if I invested based on the fear of what the PE is, and what its projected to do etc I'd probably still be working. Since I started investing in 1990 I've been hearing how the "PE is too high" so yeah lets just agree to disagree on that one.

 

[jurgs01]

Going all into the S&P at a single time of high valuations and extended US overperformance is risky.

If you want to diversify, put equal money into US S&P, US Nasdaq, a commodity index, TLT, a foreign bond index, a foreign developed market index, and a foreign emerging market index and re-balance every year (or add funds to the underperformer).

 

[ncbill]

It all depends how much you saved and what you spend each year.

If you have ended up with $10 million with annual expenses of $100,000 then 100% in any equity index won't make a whit of difference to portfolio survival over your retirement horizon.

For those who only saved $5 million but spend $200,000 annually it can matter significantly.

Similarly, Warren Buffet's current wife doesn't need to keep 10% in bonds as he recommends after he dies.

With the enormous sum she will inherit 100% in equities would do just fine.