As a 30 year old with extremely high risk tolerance should I even be holding bonds any more or should I go 100% stock?

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ClevrChico
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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by ClevrChico »

How would you weather a major portfolio decline at the same time as long term unemployment/underemployment? Look at the "lost decade".

"The second-worst drop is the 54% decline over the Lost Decade (the period from August 2000 to February 2009). The market index did not fully recover until May 2013, almost 12 and a half years after that decline began."

https://www.morningstar.com/articles/10 ... e-shortest
averagedude
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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by averagedude »

ClevrChico wrote: Thu May 06, 2021 10:26 pm How would you weather a major portfolio decline at the same time as long term unemployment/underemployment? Look at the "lost decade".

"The second-worst drop is the 54% decline over the Lost Decade (the period from August 2000 to February 2009). The market index did not fully recover until May 2013, almost 12 and a half years after that decline began."

https://www.morningstar.com/articles/10 ... e-shortest
At 30 years old, a lost decade would be great assuming you could still be employed and continue having a modest to high savings rate.
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ClevrChico
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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by ClevrChico »

averagedude wrote: Thu May 06, 2021 10:40 pm
ClevrChico wrote: Thu May 06, 2021 10:26 pm How would you weather a major portfolio decline at the same time as long term unemployment/underemployment? Look at the "lost decade".

"The second-worst drop is the 54% decline over the Lost Decade (the period from August 2000 to February 2009). The market index did not fully recover until May 2013, almost 12 and a half years after that decline began."

https://www.morningstar.com/articles/10 ... e-shortest
At 30 years old, a lost decade would be great assuming you could still be employed and continue having a modest to high savings rate.
Ooof, easier said than done. I'm just thankful I had a small portfolio and was early career when I went through the "lost decade".
KlangFool
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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by KlangFool »

averagedude wrote: Thu May 06, 2021 10:26 pm
KlangFool wrote: Thu May 06, 2021 9:59 pm
averagedude wrote: Thu May 06, 2021 9:53 pm It is acceptable and could quite possibly be optimal, especially if you plan on continue working for the next 30 plus years.
averagedude ,

Not many people has a high enough salary to justify working for the next 30 plus years with a 2 million portfolio now. And, not may people are willing to work for free either.

Are you willing to work for free? Aka, your portfolio earned several times your gross salary and you still work for money? I know I won't.

KlangFool
Klangfool, you do make a very good point and I agree with you. I am assuming that the OP is making a very big salary and 2 million to him can be totally different than 2 million to an average person like me. I see celebrities, pro athletes, executives of companies, and small business owners that would never quit their job just because they have a 2 million dollar portfolio, especially at the age of 30. You can look up the net worth's of famous people and it will shock you how people who are less famous have a higher net worth than people who are more famous. Something tells me how these people invest their money has alot to do with it. By reading your posts (and I love them), I bet you would say it has something to do with their "savings rate" and I would never argue with you on that.
It is possible that 2 million at 30 is due to some kind of windfall than high salary.

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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by muffins14 »

TropikThunder wrote: Thu May 06, 2021 5:21 pm

So the 100/0 investor will panic sell during a crash while the 85/15 investor sleeps well at night? Hypothetical $1,000,000 portfolios, 50% stock crash
- 100/0 portfolio drops to $500,000
- 85/15 portfolio drops to $575,000 (you can't assume bonds will go up when stocks go down, they didn't last March)
Somehow that extra $75,000 makes the difference?
It would have been good to be more specific about “bonds”, because long-term treasuries did go up dramatically during the March 2020 crash
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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by watchnerd »

VartAndelay wrote: Thu May 06, 2021 12:08 pm Or would that be reckless and he should put some in bond funds? If so how much?
At age 30, that's totally acceptable.

You don't need an EF, either, at that portfolio size.
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Ramjet
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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by Ramjet »

If you don't need the money soon it is acceptable and I would be doing the same
protagonist
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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by protagonist »

Do you have a (theoretically) secure job, in case the stock market tanks, to mitigate your risk?

Don't rely on historical data to predict what a normal or worst-case scenario is for the future, or to predict how much your $2M will be worth in 30 years. In my humble opinion, it is statistically meaningless.

That said, even if your $2M lost 95% of its value and never recovered you would be fine if you had a decent job and didn't overspend. You would still have a lot more money than most 30 year olds.
Last edited by protagonist on Fri May 07, 2021 8:55 am, edited 2 times in total.
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Wiggums
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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by Wiggums »

TomatoTomahto wrote: Thu May 06, 2021 12:50 pm I advise my kids, somewhat younger than you, that their human capital so massively outweighs their financial capital that they don’t need bonds.
+1
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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by LadyGeek »

I removed an off-topic post. As are reminder, see: General Etiquette
At all times we must conduct ourselves in a respectful manner to other posters.
VartAndelay - Who are you referring to with your question?
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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by alex_686 »

dboeger1 wrote: Thu May 06, 2021 10:01 pm I don't really think that's a fair assessment. All investing involves risk. ... You asserted that the people who are 100% equities tend to be overconfident on average, and I can maybe believe that on average as it's intuitive that overconfident investors would pile into stocks, but I don't think that necessarily supports the idea that everyone who is 100% stocks is overconfident...
Emphasis added. I did use the weasel word "tends", I gave examples where it was ok, and I did say it was a yellow flag, not a absolute one.

So, about 8 out of 10 people that I have meet who are 100% equities are doing it wrong. They failed to save when young and are piling into risk to make up for lost time. They love gambling, fast cars, and credit card debt. They don't say that all people get into a auto accident, they say that they will never get into a auto accident. IIRC, 70% of drivers say that they are average. That goes up to 85% if you interview people in the ER room due to single car auto accidents.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
marky2kk
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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by marky2kk »

I am sympathetic to something like 70/30 or 80/20, but it of course depends on risk preferences.

Most 30-year olds with $2 million probably want to buy a house or apartment in the near-term, so it can make sense to keep some for the downpayment aside and put it safe bonds. So then you end up with 70/30 or 80/20 or so.
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Jon Luskin
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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by Jon Luskin »

VartAndelay wrote: Thu May 06, 2021 12:08 pm Or would that be reckless and he should put some in bond funds? If so how much?
It's not an issue of your age, it's an issue of your investment timeline. How long do you have to invest? (Of course, for most people, there is a strong relationship between one's age and one's investment timeline.)

So, ask yourself, when do you expect to access these funds? For most people who don't expect to access their investments for a very long time, it can make sense to have a 100% equity portfolio.

Once you've determined when you need the funds, you can then move onto the next step of determining the right portfolio mix for yourself.
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Spring garden
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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by Spring garden »

I'd weigh the risks vs benefits in relation to your investing time horizon. Is there a chance you could need some portion of the money in the next 10 years? Yes that chance is almost assuredly nonzero (although could be small). That chance is probably also highly correlated to loss of other income.

What is the downside to having 10% of your portfolio in safe assets/bonds when the rest is indexed total world stock? Very very minimal downside. Take a look at simulations for 90% vs 100% equity portfolios.
So to me it seems you are taking some degree of risk for minimal benefit.

You could also look at it from a regret minimization perspective. If the market is doing great and you didn't need the bonds but had then then the market is doing great and it didn't matter. If the market does not do well, at least you had those bonds.
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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by KlangFool »

Folks,

The answer is highly dependent on where the money comes from. Is it a windfall and/or inheritance? Hence, the question on the OP's annual savings and annual expense.

A) If OP inherited 2 million and OP's annual salary is only 50K per year, it should be obvious that OP cannot take the RISK of 100% stock.

B) If OP's annual salary is 500K and OP's annual saving is 250K, then, OP can take the RISK of 100% stock with the 2 million.

It depends. Context matters.

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Re: Is it acceptable for 30 year old with $2 million to have 100% all in diversified total world stock index funds?

Post by Misenplace »

And with that nice summary by KlangFool, this thread has run its course and is locked (topic exhausted; need more specifics). See: Locked Topics
Moderators or site admins may lock a topic (set it so no more replies may be added) when a violation of posting policy has occurred. Occasionally, even if there are no overt violations of posting policy, a topic (or thread) will reach a point where the information content of the discussion has been essentially exhausted and further replies are much more likely to cause distress to the community than add anything of value.
VartAndelay, I suggest that you consider posting the specifics of the situation using the Subject: Asking Portfolio Questions template, which also pinned at the top of this forum. You will get much more useful input.
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