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Why should I not stay with 100% stocks?

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  • Hatton
    replied
    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.

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  • Tim
    replied
    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.

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  • Tangler
    replied
    Originally posted by Hatton View Post
    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.

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  • Shant
    replied
    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?

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  • White.Beard.Doc
    replied
    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.

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  • CordMcNally
    replied
    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.

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  • racelari
    replied
    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.

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  • Shant
    replied
    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.

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  • Turf Doc
    replied
    Originally posted by Hatton View Post
    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?

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  • Hatton
    replied
    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.

    Leave a comment:


  • Panscan
    replied
    Originally posted by TheDangerZone View Post

    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

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  • PreCancerDoctor
    replied
    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.

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  • Tangler
    replied
    Originally posted by Tinroofsundae View Post
    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

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  • Brains428
    replied
    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.

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  • TheDangerZone
    replied
    Originally posted by danesgod View Post

    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?

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