Why should I not stay with 100% stocks?

[Tinroofsundae]

So I have learned a tremendous amount in the last few years, thanks to WCI. Apparently I am a super saver. I have always been 100% stocks, recently moving to index funds, with a small number of legacy holdings. Aside from a small amount of cash and my house, I have no other asset classes. No bonds, no REIT's, no crypto, etc. The kids college is funded. No debt. I have maximized all available tax advantaged accounts. I plan to retire in roughly 5-10 yrs, but can comfortably do so now, using the 4% rule. The recommendation I hear everywhere is to have a certain percent in bonds or something more conservative. The rationale I hear is that in the event of a downturn, my spending will in effect be "selling low", putting a serious dent in my retirement savings just before or early in retirement. Now that I have roughed out a retirement spending plan, I feel I am overfunded, and can tolerate a major downturn. Having been through a couple downturns, I feel I would have the discipline to hold and not liquidate. I am not thrilled with how bonds and real estate look right now. Would it be reasonable to continue with 100% stocks at this point? If not, why?

Thanks

[Dewangski1]

I 100% agree with stocks only right now. Given your potential 5 year time line, I’d consider building a bucket with about 3-5 years of expenses that is highly liquid to help diffuse the potential pain of a bear. Otherwise, just remain flexible with your 5-10 year plan… don’t go out in a bear.

FWIW. I’m all stocks. Of course I’m 15 years out, but I do plan on triggering the above plan when I’m 5-7 years away. And who knows what the interest rate environment will be then, but I’d hope to set up a CD ladder for liquidity in my initial retirement years. This would incur minimal income and would enable more tax efficient 401k conversions.

[DynamicHipScrew]

I’m 95+% stocks. Although I’m at least 25 yrs from retirement.

[danesgod]

I 100% agree with stocks only right now. Given your potential 5 year time line, I’d consider building a bucket with about 3-5 years of expenses that is highly liquid to help diffuse the potential pain of a bear. Otherwise, just remain flexible with your 5-10 year plan… don’t go out in a bear.

FWIW. I’m all stocks. Of course I’m 15 years out, but I do plan on triggering the above plan when I’m 5-7 years away. And who knows what the interest rate environment will be then, but I’d hope to set up a CD ladder for liquidity in my initial retirement years. This would incur minimal income and would enable more tax efficient 401k conversions.

I agree. 100% stocks, <4% withdrawl rate, and 3-5 years "cash" when close to retirement sounds fine to me as long as OP can tolerate the downturn w/o an income coming in too.

[Kamban]

I was 100% stocks for a long time. Only in the last 10+ years I have had some real estate income producing properties and some investments in businesses. I still have no bonds or T bills As long as there is some liquidity there is no need to go into bonds. Others may disagree, but this is what works for me.

[Larry Ragman]

The rationale for some bond, or even cash allocation, within 5 years of retirement is SORR. If there is a market crash early in retirement you leave equities to recover and spend your bonds. Do you have to? No, and the longer your expected retirement the more sense 100% equities makes. If it were me, I’d go at least 80-20 five years out.

[TXDoc21]

As long as you can weather the storm, then your good. If your account lost half its value would you sell?

I feel like if you were 60 or 70 and retiring soon then you may feel differently. If you are retiring at a younger age and you had a massive bear market, you can always push back your retirement by months/years if needed.

[TheDangerZone]

I agree. 100% stocks, <4% withdrawl rate, and 3-5 years "cash" when close to retirement sounds fine to me as long as OP can tolerate the downturn w/o an income coming in too.

Is it really 100% stocks if you also have 3-5 years in cash? Why doesn't the cash factor in to the asset allocation of the overall portfolio?

[Brains428]

Given the reactive nature of the Fed and Treasury to red days on the exchange, boomers retiring, most laws/policy made by said boomers, extended length of low interest rate environment so to the point to where they can't raise rates... then yea, it makes sense to just be all in on stocks. Biggest issue is black swan type events.

[Tangler]

So I have learned a tremendous amount in the last few years, thanks to WCI. Apparently I am a super saver. I have always been 100% stocks, recently moving to index funds, with a small number of legacy holdings. Aside from a small amount of cash and my house, I have no other asset classes. No bonds, no REIT's, no crypto, etc. The kids college is funded. No debt. I have maximized all available tax advantaged accounts. I plan to retire in roughly 5-10 yrs, but can comfortably do so now, using the 4% rule. The recommendation I hear everywhere is to have a certain percent in bonds or something more conservative. The rationale I hear is that in the event of a downturn, my spending will in effect be "selling low", putting a serious dent in my retirement savings just before or early in retirement. Now that I have roughed out a retirement spending plan, I feel I am overfunded, and can tolerate a major downturn. Having been through a couple downturns, I feel I would have the discipline to hold and not liquidate. I am not thrilled with how bonds and real estate look right now. Would it be reasonable to continue with 100% stocks at this point? If not, why?

Thanks

Up to you. I would personally slowly go to 90:10 through new purchases of bonds, then keep adding bonds and get to 70:30 by retirement to help minimize SORR.

Perhaps a schedule:
90:10 by 7 years out
80:20 by 5 years out
75:25 or 70:30 in retirement

[PreCancerDoctor]

When we approached our FI number, I decided I didn’t want to feel like we would be forced to continue working if the market crashed. So shifted to include some bonds. Bonds aren’t for growth, they’re for your protection.

Later on, after moving past a lean FI number, I realized that there is no reason to have 40% bonds if your portfolio is, say, over 40x annual expenses.
Warren Buffett doesn’t roll 50/50, does he?

I think most on this forum will surpass 40x so I would favor a bucket strategy for them, as we have done. For example, 7-8 years of expenses in bonds to weather any stock market crash, and the rest in stocks. Then save 1-2 years income in cash right before retirement, when it won’t have time to grow much anyway.

Bulletproof.

[Panscan]

Is it really 100% stocks if you also have 3-5 years in cash? Why doesn't the cash factor in to the asset allocation of the overall portfolio?

exactly and few understand this

[Hatton]

Exactly. I have several years of expenses in cash. 26% in bonds and the rest in stocks. The cash bucket is a nice thing to accumulate before retiring. I feel pretty good.

[Turf Doc]

Exactly. I have several years of expenses in cash. 26% in bonds and the rest in stocks. The cash bucket is a nice thing to accumulate before retiring. I feel pretty good.

The cash/bonds bucket makes sense; but practically, if stocks go down, do you just get expenses from that bucket, thus making your asset allocation more aggressive? when do you decide to take from the stock side vs. the bond side? if you run out of bonds and the market is still down do you just take as needed from stocks or reallocate back to your several year cash bucket then and there?

[Shant]

I am 100% stocks during accumulation and have been for decades. I've been investing long enough to know I will not panic sell in a downturn. I will probably cash out 1-2 years expenses when retirement is imminent to spend first. A 50% market crash right after retirement would mean a few lean years but not be a big deal.