Why should I not stay with 100% stocks?

[racelari]

yeah dude 100% stocks during retirement makes SORR that much more detrimental. SORR is the reason not to hold all equities. However, if you use the 4% rule chances are high you'll be fine with all equities, but Bill bengan and the Trinity study found the 50-75% equities seemed to be the sweet spot where most portfolio's survived using the 4% rule, and even many made it using the 5% rule. Another reason is behavioral finance- your risk tolerance in my mind is directly proportional to your risk capacity, and when you old and in retirement and your risk capacity is nil, I am convinced your risk tolerance will be affected similarly as well.

[CordMcNally]

Who said you need to not be all stocks? You should be whatever your desired asset allocation is and what your risk tolerance can handle. I'm 100% stocks and that probably won't change for the next 5-10 years.

[White.Beard.Doc]

My plan when I retire is to be 40% stocks, 10% bonds and cash, and 50% cash flowing real estate. Stocks have to be sold in retirement and decumulation feels generally uncomfortable to me, in particular when the market is down.

So many of you saying you are comfortable being 100% stocks is a strong contrarian signal to me, full of recency bias given that all of the recent downturns in the market have been short, sweet, and pretty much pain free. A huge market downturn that lasts more than a decade is overdue. Maybe it will come, maybe it won’t. But a period of significant inflation will require painful increases in interest rates, and that will hurt stock market returns for quite a while.

[Shant]

Eh, I've been 100% stocks for 37 years now, except for a brief period when I was forced to temporarily hold a bit in a money market account due to the stock market malfunctioning during the Lehmann fiasco times. I can't remember the full details but something like the banks not being willing to extend credit to each other overnight?

[Tangler]

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.

Hatton is my hero= model. Having a pile of cash or a pile of safe bonds at the beginning of retirement makes perfect sense. You avoid SORR and sleep well. Going back to work out of necessity is suboptimal and not worth the risk IMO.

[Tim]

Much depends on your life plan and your exit strategy. The reality is in the withdrawal phase here is where you end up:
Efund- 3-5 years safe money. Cash, bonds, any income.
Investments- 100% stocks

At 60, 70, 80 you will look at your investment balance and see it’s outgrown your spending (by multiples)

You will replenish checking monthly. You will replenish from Efund in a down turn, and in an upturn replenish Efund and checking. Your choice is simply tactical. Over 30-40 years, you will have more money than you started with.

What derails your plan is not the market. Black swan life events- usually divorce or health. Absent that, you will have more later than sooner. You end up nibbling at the investment gains and have downturns covered.

Some make the choice, double the EFund. It’s not due to allocation, it is they don’t need or want the risk. 6-10 years covered, maybe more. Result? The investments will still grow.

Behavioral finance switches from optimizing allocation %’s to the need for uncompensated risk. How much more growth do you want? The greed factor diminishes. I don’t have a clue how many 80 year olds handle allocations. Don’t think Buffet is representative.

[Hatton]

When you are actually getting serious about pulling the trigger on retirement I think having 3-5 years in cash (MMFs) makes a lot of sense. You sleep at night. You can go pay cash for a new car or whatever. I never kept any cash other than working capital in my business. In order to do this you must understand your cash flows in and out. I also decided that I have enough bonds. When I retired I was trying to do 60/40. Now I am 70/30. I am holding more cash and buying fewer bonds.

[Random1]

I read recommendations of 100% stock , but then other reports show over certain periods T-Bills substantial out performed stocks for an extended period of time. Wondering is my thought process just suffering from recency bias or is this time different from the past. I am currently 65/35 hoping to retire soon. I think if I were 20 years away , I would still be in 100% stocks.

[Dewangski1]

I read recommendations of 100% stock , but then other reports show over certain periods T-Bills substantial out performed stocks for an extended period of time. Wondering is my thought process just suffering from recency bias or is this time different from the past. I am currently 65/35 hoping to retire soon. I think if I were 20 years away , I would still be in 100% stocks.

Maybe recency bias isn’t a bad thing? I think it can depend on how you get your bond exposure. Directly holding a bond would be best. Indirect bond exposure via funds risks your principle getting eaten by a rising rate environment. The only difference now vs in the past 30 years is a bond bull market. Now rates are about as low as they can go, which likely signifies the end of the bond bull market. Hence, TINA with equities until rates rise to the 2-3% levels that can support more meaningful income.

[Lordosis]

Hard to say without numbers but it is possible for some supersavers to get to 40-50x spending and than it really does not matter because you are almost just living on the dividends. So you sell so little even in a down market you are not hurting yourself too much. And the extra growth from the good years makes up for it.

Rock on!

[Jack_Sparrow]

Split the difference, go 5% cash then go 5% leveraged 3x index, then 90% stocks.

[Hoopoe]

My plan when I retire is to be 40% stocks, 10% bonds and cash, and 50% cash flowing real estate. Stocks have to be sold in retirement and decumulation feels generally uncomfortable to me, in particular when the market is down.

So many of you saying you are comfortable being 100% stocks is a strong contrarian signal to me, full of recency bias given that all of the recent downturns in the market have been short, sweet, and pretty much pain free. A huge market downturn that lasts more than a decade is overdue. Maybe it will come, maybe it won’t. But a period of significant inflation will require painful increases in interest rates, and that will hurt stock market returns for quite a while.

I was a 100% stocks boglehead investor for years but am moving towards the White Beard strategy. Real estate, especially well chosen and owned privately or through syndications can offer diversification and cash flow while meeting or exceeding stock market returns. They also work nicely together to help protect against different kinds if risk. Current talking heads are very concerned about inflation and I hope to soon be at the point where huge inflation and interest rate hikes might tank tech stocks that need cheap credit to fuel growth (goodbye SP500, QQQ etc), but that would explode the value of my real estate holdings and I could live on either. Assuming normal balanced economy, then both win! Good adage I heard somewhere: real estate for cash flow, stocks for diversification and growth. My wife and I are currently 25% real estate in various forms, 70% stocks and 5% other like bits of cash, some practice equity etc. Real estate accumulation has been in the last few years and will likely rise up to around 50%. I wouldn’t go above that.

As I get very close to retirement I’ll likely also add in 2-3 years of expenses in bond ladder, ibonds for inflation protection and some cash.

[GasFIRE]

I’m fast approaching retirement and use to be 100% equities until the 2008/09 Lehman Bros/Bear Stearns debacle when I created my first bond position. Now like Hatton I’m about 70/30 equities vs cash/bonds. When I was a 100% equities investor it was because I didn’t want to give up any potential gains by having “less able” holdings like bonds. Now I don’t view them as a performance drag but as ballast for my portfolio especially during a significant downturn. I don’t need the 30% to return more but to minimize potential losses. Since I consider myself fatFI I feel like I can live the rest of my life on my 30% cash/bond position plus SS @ 70 barring some black swan event. I’m willing to let the 70% equities position ride the future markets while the 30% cash/bond position is not a % allocation but a specific amount set aside for cash/bonds. As the market varies the ratio will too.

[Tim]

Hard to say without numbers but it is possible for some supersavers to get to 40-50x spending and than it really does not matter because you are almost just living on the dividends. So you sell so little even in a down market you are not hurting yourself too much. And the extra growth from the good years makes up for it.
Rock on!

WBD and Hatton will never spend down to the theory of 4% withdrawal. Most will not. The AA is as much determined by the market performance an tax increase rather than risk assessment. Yes, stocks and real estate have had gains. Let it run and resize the E Fund.

[artemis]

When you are actually getting serious about pulling the trigger on retirement I think having 3-5 years in cash (MMFs) makes a lot of sense. You sleep at night. You can go pay cash for a new car or whatever.

Another move along those lines that can make sense (especially if you are retiring at or later than age 65) is buying a SPIA. If the combination of monthly SS + annuity check covers all of your essential spending, you can afford to take more risk with your "luxury spending" money.