100% stock portfolio?? Is that CRAZY?

[Amyolin]

I recently sat down w/ a friend's dad in his early 60s...retired but still dabbles in some business on the side.  He had a very good career/job with an international company and become a real estate developer.  He did that for 30+ years and he had 100% stocks (and stock mutual funds) until 3 years ago!  He openly admits that he has a high tolerance for risk and says that reducing risk will cost returns over long periods of time (of course).

Sent me an email w/ the following:

Look at the two positions below graphs. Which would you rather have over a 20 year period?  If you go further back, it's even more pronounced.

Here's a bond fund Vanguard Total Bond, and here is an exchange traded fund Schwab S&P 500.  Over the 20 year time period the bonds went up a multiple of about 1.1 (less than inflation for the same time period) while the S&P 500 went up about 2.7 times (even thru the 2008 crisis).

Anyone on this forum have 100% stocks?  I don't think this is something I'm willing to do at 40 years old w/ plans to retire in my early 50s.  Seems a little too risky for me but curious to hear what ya'll think.

[Dr. Mom]

There is a time and place for 100% stocks...young, high future income, and strong risk tolerance. The luck of your dad's friend should not sway your plan.  Life carries a sequence of returns risk, not just our retirement.  Bonds help smooth that risk for us, but each of us is different.  We are 70 Stock:30 Bond in our early 50's.  We are not on the early retirement band wagon, by choice not ability.

[CM]

Valuations matter. It was crazy to have more than 10% of a portfolio in the S&P 500 in 2000. CAPE 44-45.

On the other hand, it might have been reasonable for a young person with a multi-decade horizon (to retirement) to invest 100% in US stocks in 1982. CAPE 6.6.

[ITEngineer]

100% Stocks? Not quite but close. No bonds though (all stocks or cash is my portfolio). I'm in my late 30's though (not 60's)

I hope he has a cash cushion of 3-5 years of expenses/vacation/etc. I would! Besides that he lived through the second worst financial crisis in 80+ years and sounds like he prospered.

Bonds? I would be very caution. Best case scenario, interest rates slowly tick upwards over a long period of time and bond prices slowly return to nominal levels. Worst case - interest rates rise quickly and destroys existing bond values. And then there are other concerns about bonds, how the ETF's are more liquid than the underlying bonds are. I'm not a 'sky is falling' guy, but what if bonds crashed like stocks did in 2008 and people sold the funds but the funds couldn't sell the bonds....strange things would happen that I can't even begin to predict. I wish it was 'easy' to buy bonds like I could buy stocks with low transaction costs.

(IMO) - Collecting Dividends and living off them is a nice retirement solution! Keep a nice cash buffer, do smart things, don't panic if the market drops and enjoy your retirement! Risk comes in many flavors. Most of the time the best thing to do in crisis is nothing and just ride it out.

[Miss Bonnie MD]

Amyolin wrote:

 

Anyone on this forum have 100% stocks?  I don’t think this is something I’m willing to do at 40 years old w/ plans to retire in my early 50s.  Seems a little too risky for me but curious to hear what ya’ll think.

Click to expand...

myself (about to turn 40) and fiance (43) are 100% equities and plan to be a for a while...

[jfoxcpacfp]

Amyolin wrote:

I recently sat down w/ a friend’s dad in his early 60s…retired but still dabbles in some business on the side.  He had a very good career/job with an international company and become a real estate developer.  He did that for 30+ years and he had 100% stocks (and stock mutual funds) until 3 years ago!  He openly admits that he has a high tolerance for risk and says that reducing risk will cost returns over long periods of time (of course).

Sent me an email w/ the following:

Look at the two positions below graphs. Which would you rather have over a 20 year period?  If you go further back, it’s even more pronounced.

Here’s a bond fund Vanguard Total Bond, and here is an exchange traded fund Schwab S&P 500.  Over the 20 year time period the bonds went up a multiple of about 1.1 (less than inflation for the same time period) while the S&P 500 went up about 2.7 times (even thru the 2008 crisis).

Anyone on this forum have 100% stocks?  I don’t think this is something I’m willing to do at 40 years old w/ plans to retire in my early 50s.  Seems a little too risky for me but curious to hear what ya’ll think.

Click to expand...

Of course, it's not crazy. You simply have to invest according to the dictates of your financial plan (as I have repeated ad nauseum on this forum). Bonds have a purpose, but not as an investment. The problem with those who must temper their portfolios with bonds is that they don't follow a true plan, particularly one that takes emotion and guesswork out of the equation. Therefore, when the market dips or a bear wanders along, they have no set of meaningful rules, aka investment philosophy, to guide them. I strongly suspect your friend's dad's "luck" is the result of the good fortune to have discovered the benefit of having such a plan and following it religiously.

See these 2 articles for a "contrarian" but logical perspective:

• Bonds: What are they good for? Part 1


• Bonds: What are they good for? Part 2

 

Sending my affection and everlasting gratitude to @PhysicianOnFire for allowing me to express my opinions on his site!

 

[PhysicianOnFIRE]

I'm 90 / 10 at age 41. I know others, including early retirees, that are 100% stock. Look at ERN's SWR series. The best outcomes over timeframes of 30 to 60 years are the most aggressive. You need to be comfortable with volatility and willing to stay the course through thick and thin. Kinda like your wedding vows, but you'll be married to VTSAX or similar.

[q-school]

Me!

[adventure]

Yeah, I do, but will I when I'm 50? at FIRE? at 60? 80? 90?

I don't know. I have the risk tolerance (and the time...) now, so why not. Will I still think that at 60? I'm not sure. I expect to live to 100+, so 60 seems young to cut it short. But, when/if I need the stability, I'm not sure how I'll feel.

How have others felt over time? And as they approach FIRE?

[artemis]

My tolerance for volatility in my retirement accounts has gone down, because at age 54 I have less ability to make up any losses (since the government imposes RMDs which limit my investment horizon and also caps yearly contributions so I can't make up lost ground by just shoveling in more money).  But in my personal investments I'm still around 80% stock.

[nachos31]

jfoxcpacfp wrote:

The problem with those who must temper their portfolios with bonds is that they don’t follow a true plan, particularly one that takes emotion and guesswork out of the equation. Therefore, when the market dips or a bear wanders along, they have no set of meaningful rules, aka investment philosophy, to guide them.

Click to expand...

That's a pretty atrocious (and false) generalization, Johanna. How does having bonds equate with not having a plan? One could take your statement and switch "bonds" with "stocks" and it would probably more accurately apply to more people.

[VagabondMD]

My father (85) has been in 100% stocks since the 70's. (I should have my DNA checked ).

[Crazyroadtodublin]

Never owned a bond and don't plan to.  Crazy is 300 Pct stocks using leverage.  100 pct is perfectly fine in my book if your not going to touch the money for 20 years.

[jfoxcpacfp]

nachos31 wrote:

jfoxcpacfp wrote:

The problem with those who must temper their portfolios with bonds is that they don’t follow a true plan, particularly one that takes emotion and guesswork out of the equation. Therefore, when the market dips or a bear wanders along, they have no set of meaningful rules, aka investment philosophy, to guide them.

Click to expand…

That’s a pretty atrocious (and false) generalization, Johanna. How does having bonds equate with not having a plan? One could take your statement and switch “bonds” with “stocks” and it would probably more accurately apply to more people.

Click to expand...

Atrocious seems a bit of overkill, but ok, I'm up for it. Give me an example of a true plan that you know of that someone is following that dictates the use of bonds as an investment that is designed to ensure optimal long-term growth of wealth. I have yet to find one, perhaps you have or perhaps you can create one for us. I have yet to find an example on this website, only statements about the dangers of equity-heavy portfolios. The only plan using bonds as part of the investment portfolio that I could create would be a plan designed to ensure the clients have less-than-optimal results over their lifetimes. That is not what I do or would ever recommend. A portfolio, btw, is not a plan.

otoh, I can give you many examples of equity mutual fund/ETF portfolios (never straight stocks) employed to ensure clients reach their long-term goals according to the dictates of a plan. Actually, I laid out the framework in the 2 links I posted. We build and implement these plans every day. Our clients range from children to age 90+. Physicians, dentists, widows, business-owners, retirees, grandkids...all some version of the same portfolio.

So, what is your plan?

[East coast]

Certainly crazier things to do, but I'd think it smarter to stay away if you didn't live through at least an '08 scenario or better yet an '01 and an '08 scenario with a 100% stock portfolio.  If you didn't go through that, be honest with yourself in that you don't necessarily know what your true risk tolerance is.