How crazy is it to hold 100% equities until retirement? (ERN)

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How crazy is it to hold 100% equities until retirement? (ERN)

Post by 9mm »

Helpful analysis:

https://earlyretirementnow.com/2021/03/ ... s-part-43/
It’s not crazy at all to keep 100% equities right until you retire!

At least if you’re planning an early retirement with 1) high contribution rates and 2) some flexibility about your retirement date.
He made some helpful points about valuation considerations. I went to 100% equities in March 2020 for that very reason (I was 80/20), and I’m probably 5 to 10 years away from early retirement. This helps answer the question if I should glide down my equity holdings (most traditional retirees probably should, especially given valuations), but I am flexible on when I quit my job, so I’m staying the course with all or mostly equities. Plus I don’t have a lot of room in my tax advantaged accounts for bonds (most of my investments are in taxable), so I may just not reinvest my ESPP and RSUs when selling them each period and put that in a CD when I am 1 to 5 years away from retirement, but stay above 80/20 (given my 60 year horizon).

Cheers :beer
Last edited by 9mm on Tue Mar 02, 2021 10:36 am, edited 1 time in total.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by willthrill81 »

It's not crazy. The math supports it.

The problem is investor behavior.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by Tamalak »

Not crazy. Domestic PE is like 25 right now, during covid. That's 4% even during the plague, much less when it recovers and earnings go up. Compare to bonds returning 1%. Bonds just don't make sense unless you need the money soon. I think their prices are being distorted upwards by corporations having to use them as shelter for wealth.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by sailaway »

We were about 95/5 (and most of that 5 was the cash we hold to smooth cash flow through the year), until we reached minimum FI. We went to 70/30 at that point, as it was also permission to ourselves to walk away when the mood strikes. That number was so minimal that the pull of what we want to do on sabbatical/ in retirement is not yet stronger than the pull of a bigger buffer, but we are financially prepared if the mood does strike.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by KlangFool »

OP,

It is crazy. It assumes that the person is in control when he/she will retire. Good luck with that assumption. If the person is wrong in the worst possible time, there will be no chance to do it over.

Counting on luck is not a good planning strategy.

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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by arcticpineapplecorp. »

this is the entire quote:
At least if you’re planning an early retirement with 1) high contribution rates and 2) some flexibility about your retirement date. The 100% equities throughout would certainly be defensible if you find yourself in the middle of a bear market a few years before retirement. Then just keep the 100% equities and ride the subsequent bull market until you retire!
the error in this thinking is assuming you stay employed (ask KlangFool) during a recession (which the author doesn't use that word, but says bear market instead, as if they don't generally occur concurrently).

and it's not just high contribution rate (unless you don't mind selling stock at lower prices) but having some assets not in stocks that matters. That allows you to "ride the subsequent bull" after you've lost your job.

Does the person with 100% equities have their emergency fund in equities too?

This is why the author is not a financial planner. I don't think a CFP would give such advice.
Last edited by arcticpineapplecorp. on Tue Mar 02, 2021 10:45 am, edited 1 time in total.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by Japanfan1986 »

I’m tempted to do it myself. I’m 90/10 now so not too far off. It seems like that 10 percent (6 in bonds, 4 in cash stable value) is just rotting away its potential. However, every financially sound person I talk to IRL is adamant about keeping at least 10 percent in non-equities if not much, much more. Part of what makes me thinks differently is the reasoning behind this is usually unconvincing or unclear, being based on some doomsday scenario or rule of thumb.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by bob991 »

sailaway wrote: Tue Mar 02, 2021 10:42 am We were about 95/5 (and most of that 5 was the cash we hold to smooth cash flow through the year), until we reached minimum FI. We went to 70/30 at that point, as it was also permission to ourselves to walk away when the mood strikes. That number was so minimal that the pull of what we want to do on sabbatical/ in retirement is not yet stronger than the pull of a bigger buffer, but we are financially prepared if the mood does strike.
This is basically our plan. We may be 3-5 years away from the first rung of FI. I feel comfortable with this plan since my wife's job is relatively stable (teacher) and we could live off her salary alone. I also know my personality well enough (I think) that I won't panic when/if the crash does come - I've been tested a few times already.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by absolute zero »

arcticpineapplecorp. wrote: Tue Mar 02, 2021 10:45 am this is the entire quote:
At least if you’re planning an early retirement with 1) high contribution rates and 2) some flexibility about your retirement date. The 100% equities throughout would certainly be defensible if you find yourself in the middle of a bear market a few years before retirement. Then just keep the 100% equities and ride the subsequent bull market until you retire!
the error in this thinking is assuming you stay employed (ask KlangFool) during a recession (which the author doesn't use that word, but says bear market instead, as if they don't generally occur concurrently).

and it's not just high contribution rate (unless you don't mind selling stock at lower prices) but having some assets not in stocks that matters. That allows you to "ride the subsequent bull" after you've lost your job.

Does the person with 100% equities have their emergency fund in equities too?

This is why the author is not a financial planner. I don't think a CFP would give such advice.
The article references people saving half their income. For those people, it’s not very hard to find employment even during a recession that would cover their expenses and let them wait patiently until the recession ends. They just have to keep their expectations low and be happy with a massive pay cut.

People with more typical savings rates (eg 10-20%), on the other hand, can’t afford to take much of a pay cut.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by 9mm »

KlangFool wrote: Tue Mar 02, 2021 10:43 am OP,

It is crazy. It assumes that the person is in control when he/she will retire. Good luck with that assumption. If the person is wrong in the worst possible time, there will be no chance to do it over.

Counting on luck is not a good planning strategy.

KlangFool
Your blanket statements aren’t helpful, and are not grounded in reality. In some situations, 100% equities is not crazy at all. In fact, in most situations it ends up helping the investor. Are you projecting your own unreasonable fears on other people?

We have over 15X our living expenses invested and in very employable fields. We have no reason to hold bonds. If I become disabled, we are insured. If I become unemployed, even for a long time, I will get another job and we have plenty of cushion for a long period with no employment (I will also receive unemployment checks). How on earth is any of this luck?
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by arcticpineapplecorp. »

absolute zero wrote: Tue Mar 02, 2021 10:53 am
arcticpineapplecorp. wrote: Tue Mar 02, 2021 10:45 am this is the entire quote:
At least if you’re planning an early retirement with 1) high contribution rates and 2) some flexibility about your retirement date. The 100% equities throughout would certainly be defensible if you find yourself in the middle of a bear market a few years before retirement. Then just keep the 100% equities and ride the subsequent bull market until you retire!
the error in this thinking is assuming you stay employed (ask KlangFool) during a recession (which the author doesn't use that word, but says bear market instead, as if they don't generally occur concurrently).

and it's not just high contribution rate (unless you don't mind selling stock at lower prices) but having some assets not in stocks that matters. That allows you to "ride the subsequent bull" after you've lost your job.

Does the person with 100% equities have their emergency fund in equities too?

This is why the author is not a financial planner. I don't think a CFP would give such advice.
The article references people saving half their income. For those people, it’s not very hard to find employment even during a recession that would cover their expenses and let them wait patiently until the recession ends. They just have to keep their expectations low and be happy with a massive pay cut.

People with more typical savings rates (eg 10-20%), on the other hand, can’t afford to take much of a pay cut.
i get that. I still think that thinking (I save 50% of my income so I'll be fine cuz I'll find a job in no time!!) has two built in assumptions:

1. you'll find a job in no time. what if that's wrong? Just having skills isn't everything. If you're an older skilled worker you still may not get the job over a younger equally skilled worker. Ageism is a real thing.

2. even if you find a job but it takes a couple months what is your emergency fund in? Stocks? So you're selling stocks (at depressed prices) for two months until you're paychecks start up again? Usually there is SOME gap between losing and getting a job, if only when you get the first paycheck again. It doesn't matter if you have low expectations or live cheaply (allowing a 50% savings rate). You need SOME money. Where does that come from while waiting for reemployment/paychecks starting again?? Selling stocks?? At depressed prices?? Or are we assuming you live on the payout of your accumulated vacation pay? For some that might work. I'm planning on rolling that over into my tax deferred 457b because the payout of my accumulated vacation AND Sick pay will be substantial amount that would push me into a higher bracket.

see. ymmv. individual scenarios abound which is why giving general advice like be 100% in stocks is fine, is anything but fine.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by RAchip »

My parents held 100% equities (aside from checking account cash) for their entire lives. It worked out fine for them.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by willthrill81 »

RAchip wrote: Tue Mar 02, 2021 11:06 am My parents held 100% equities (aside from checking account cash) for their entire lives. It worked out fine for them.
My parents have basically done the same, and they're in a better financial position because of it.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by climber2020 »

9mm wrote: Tue Mar 02, 2021 10:56 am Your blanket statements aren’t helpful, and are not grounded in reality. In some situations, 100% equities is not crazy at all. In fact, in most situations it ends up helping the investor.
If this were the case, I would think companies like Vanguard would start off their all-in-one retirement funds at 100/0. The most aggressive they go is 90/10 for target date retirement funds and 80/20 for lifestrategy. There's likely a reason for that.

100% equities is fine for some people, but there are many others who can completely derail their retirement by making one ill advised move while panicking at the bottom of a crash. Having a small bond allocation may provide some psychological reassurance to people like this even though statistically 90/10 and 100/0 are virtually identical.
Last edited by climber2020 on Tue Mar 02, 2021 11:12 am, edited 1 time in total.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by David Jay »

I was 100% equities until about 3 years before retirement. But as others have said, behavioral issues make this difficult for most. I can go “Spock” (i.e. Star Trek) and allow the logic to over-ride.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by absolute zero »

arcticpineapplecorp. wrote: Tue Mar 02, 2021 11:03 am 2. even if you find a job but it takes a couple months what is your emergency fund in? Stocks? So you're selling stocks (at depressed prices) for two months until you're paychecks start up again?
A couple months is nothing. The audience for this article could live off their stocks for a good solid YEAR and still be okay. Not that they should, or that they will be forced to (this would be highly unlikely in my opinion). But as an example: for someone in their 40's who has 24x expenses saved up, aiming for 30x expenses, and suddenly sees equities drop 50% and they become unemployed. Living off their equities for a year would not obliterate their plans. This would fall under the category of a "setback." Probably only a mild to moderate one at that.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by 9mm »

climber2020 wrote: Tue Mar 02, 2021 11:08 am
9mm wrote: Tue Mar 02, 2021 10:56 am Your blanket statements aren’t helpful, and are not grounded in reality. In some situations, 100% equities is not crazy at all. In fact, in most situations it ends up helping the investor.
If this were the case, I would think companies like Vanguard would start off their all-in-one retirement funds at 100/0. The most aggressive they go is 90/10 for target date retirement funds and 80/20 for lifestrategy. There's likely a reason for that.

100% equities is fine for some people, but there are many others who can completely derail their retirement by making one ill advised move while panicking at the bottom of a crash. Having a small bond allocation may provide some psychological reassurance to people like this even though statistically 90/10 and 100/0 are virtually identical.
Many very reputable investors have criticized Vanguard‘s target date fund asset allocations. They are trying to create very palatable portfolios in one fund (noble cause), but it doesn’t mean that they are picking the right ones. Target date funds are great, but they should probably be supplemented with another equity fund for younger investors. In many situations, a young investor holding bonds is just silly.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by willthrill81 »

climber2020 wrote: Tue Mar 02, 2021 11:08 am
9mm wrote: Tue Mar 02, 2021 10:56 am Your blanket statements aren’t helpful, and are not grounded in reality. In some situations, 100% equities is not crazy at all. In fact, in most situations it ends up helping the investor.
If this were the case, I would think companies like Vanguard would start off their all-in-one retirement funds at 100/0. The most aggressive they go is 90/10 for target date retirement funds and 80/20 for lifestrategy. There's likely a reason for that.
One of the biggest reasons is due to government regulations on default investments in 401(k) accounts and the like, which require that investments be 'diversified' across stocks and bonds.

Keep in mind that the difference in volatility associated with a 90/10 or 95/5 AA (which I believe at least one TDF provider uses) versus 100/0 is usually negligible.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by KlangFool »

9mm wrote: Tue Mar 02, 2021 10:56 am
KlangFool wrote: Tue Mar 02, 2021 10:43 am OP,

It is crazy. It assumes that the person is in control when he/she will retire. Good luck with that assumption. If the person is wrong in the worst possible time, there will be no chance to do it over.

Counting on luck is not a good planning strategy.

KlangFool
Your blanket statements aren’t helpful, and are not grounded in reality. In some situations, 100% equities is not crazy at all. In fact, in most situations it ends up helping the investor. Are you projecting your own unreasonable fears on other people?

We have over 15X our living expenses invested and in very employable fields. We have no reason to hold bonds. If I become disabled, we are insured. If I become unemployed, even for a long time, I will get another job and we have plenty of cushion for a long period with no employment (I will also receive unemployment checks). How on earth is any of this luck?
9mm,

<<Your blanket statements aren’t helpful, and are not grounded in reality.>>

Same to you.

<<In fact, in most situations it ends up helping the investor. >>


Which may not matter if the person happened to be the unlucky one. There will be no do-over for that person.

<<We have over 15X our living expenses invested and in very employable fields.>>


In a global recession, no one is safe. With a 15X portfolio and a 50% market drop, you can be wiped out in less than 8 years.


<<If I become unemployed, even for a long time, I will get another job and we have plenty of cushion for a long period with no employment (I will also receive unemployment checks). How on earth is any of this luck?>>


Being employed in a recession = lucky. And, if you are that lucky, good for you. It is not helpful or realistic to assume that everyone is that lucky.

<<Are you projecting your own unreasonable fears on other people? >>

My employer was about to sign a contract that would guarantee my employment over the next 4 to 5 years in Q1/2020. Then, COVID happened. I was laid off in June 2020 and I had been unemployed since that time.


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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by 9mm »

arcticpineapplecorp. wrote: Tue Mar 02, 2021 11:03 am
absolute zero wrote: Tue Mar 02, 2021 10:53 am
arcticpineapplecorp. wrote: Tue Mar 02, 2021 10:45 am this is the entire quote:
At least if you’re planning an early retirement with 1) high contribution rates and 2) some flexibility about your retirement date. The 100% equities throughout would certainly be defensible if you find yourself in the middle of a bear market a few years before retirement. Then just keep the 100% equities and ride the subsequent bull market until you retire!
the error in this thinking is assuming you stay employed (ask KlangFool) during a recession (which the author doesn't use that word, but says bear market instead, as if they don't generally occur concurrently).

and it's not just high contribution rate (unless you don't mind selling stock at lower prices) but having some assets not in stocks that matters. That allows you to "ride the subsequent bull" after you've lost your job.

Does the person with 100% equities have their emergency fund in equities too?

This is why the author is not a financial planner. I don't think a CFP would give such advice.
The article references people saving half their income. For those people, it’s not very hard to find employment even during a recession that would cover their expenses and let them wait patiently until the recession ends. They just have to keep their expectations low and be happy with a massive pay cut.

People with more typical savings rates (eg 10-20%), on the other hand, can’t afford to take much of a pay cut.
i get that. I still think that thinking (I save 50% of my income so I'll be fine cuz I'll find a job in no time!!) has two built in assumptions:

1. you'll find a job in no time. what if that's wrong? Just having skills isn't everything. If you're an older skilled worker you still may not get the job over a younger equally skilled worker. Ageism is a real thing.

2. even if you find a job but it takes a couple months what is your emergency fund in? Stocks? So you're selling stocks (at depressed prices) for two months until you're paychecks start up again? Usually there is SOME gap between losing and getting a job, if only when you get the first paycheck again. It doesn't matter if you have low expectations or live cheaply (allowing a 50% savings rate). You need SOME money. Where does that come from while waiting for reemployment/paychecks starting again?? Selling stocks?? At depressed prices?? Or are we assuming you live on the payout of your accumulated vacation pay? For some that might work. I'm planning on rolling that over into my tax deferred 457b because the payout of my accumulated vacation AND Sick pay will be substantial amount that would push me into a higher bracket.

see. ymmv. individual scenarios abound which is why giving general advice like be 100% in stocks is fine, is anything but fine.
Our emergency fund is exactly $0.00 https://earlyretirementnow.com/2016/05/ ... ency-fund/

If I have 15 X my living expenses invested in equities, why would I need bonds to survive? If I am insured for disability, why do I need an EF? If I am going to get unemployment checks if I lose my job, why do I need an emergency EF?

The answer is, in my situation, there is no need to worry about job loss because I have made it this far, and I also have a very solid network and reputation. I haven’t known anyone who has been unemployed for more than a year while also having ambition, a solid network, and a good résumé. And I have all those things. Each person needs to evaluate their situation accordingly.

To your point earlier, many reputable investors have criticize Vanguard‘s Target date fund AA. They are nobly trying to create a palatable portfolio in one fund, but that doesn’t mean that a young Investor actually needs bonds, or that a seventy year old actually needs 70% bonds.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by Scooter57 »

<DING DING DING>

This has to be the bell marking the top of the bull market.

All that is missing are the house flipping threads and I am seeing them elsewhere...
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by Peaceful »

I'm not going to say it's "crazy" although that IS the way the OP phrased the question.

However, those who unflinchingly advocate 100% equities "until retirement" are likely displaying a cognitive bias which consists of completely discounting the equity risk, as well as discounting other sorts of risk (loss of employment risk, health risk, etc. etc. etc.)

The math only supports 100% equities "until retirement" if you first make the false assumption that the equity risk won't show up, and that the other major risk factors won't show up, during a time frame which will meaningfully impact the terminal value of your portfolio "at retirement."

That's a cognitive bias.

There's absolutely no logical basis to do financial planning, including portfolio construction, based on the implicit assumption that these kinds of risks won't show up for you at the worst possible time.

Equity risk, for example, includes that between whenever "now" is and when you retire, equities will have suboptimal returns, and then, immediately before you retire, you will sustain SOR risk consisting of a 50% or more equities decline; and then due to age, health reasons, or for some other circumstance beyond your control, you are unable to extend your retirement date, and you cannot continue working for a few years until the crisis period blows over. Equity risk includes being forced into draw down of the portfolio precisely at the worst possible time.

Virtually all advocates of 100% (or more, via leverage) equity portfolios "until retirement" are making a variety of implicit assumptions that they think may be applicable to themselves (or may not be), but are not generally applicable.

For most people, they are not tenured professors at an Ivy League university, or highly compensated professionals who have 50, 60 or 70x their basic retirement expenses already saved.

For most people in their 40's, 50's, or 60's, "retirement" and the need to immediately start drawing down the portfolio may be something that occurs suddenly and without much if any warning. If persons posting here did not learn that from the on going covid crisis, then they were not paying proper attention.

So, no, it is not "crazy" to go 100% equities "until retirement." But it requires making a number of assumptions about the course of one's employment history and withdrawal needs before and during retirement which are very path-dependent and may turn out to be incorrect. And we only get one shot at this, not 100,000 runs on a Monte Carlo analysis with a good "average" result.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by willthrill81 »

Scooter57 wrote: Tue Mar 02, 2021 11:34 am <DING DING DING>

This has to be the bell marking the top of the bull market.

All that is missing are the house flipping threads and I am seeing them elsewhere...
IIRC, around a third of the time, the market is trading within about 5% of its all-time high. That's just normal.

The OP's argument is not based on recent market performance.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by Peaceful »

9mm wrote: Tue Mar 02, 2021 11:30 am
arcticpineapplecorp. wrote: Tue Mar 02, 2021 11:03 am
absolute zero wrote: Tue Mar 02, 2021 10:53 am
arcticpineapplecorp. wrote: Tue Mar 02, 2021 10:45 am this is the entire quote:
At least if you’re planning an early retirement with 1) high contribution rates and 2) some flexibility about your retirement date. The 100% equities throughout would certainly be defensible if you find yourself in the middle of a bear market a few years before retirement. Then just keep the 100% equities and ride the subsequent bull market until you retire!
the error in this thinking is assuming you stay employed (ask KlangFool) during a recession (which the author doesn't use that word, but says bear market instead, as if they don't generally occur concurrently).

and it's not just high contribution rate (unless you don't mind selling stock at lower prices) but having some assets not in stocks that matters. That allows you to "ride the subsequent bull" after you've lost your job.

Does the person with 100% equities have their emergency fund in equities too?

This is why the author is not a financial planner. I don't think a CFP would give such advice.
The article references people saving half their income. For those people, it’s not very hard to find employment even during a recession that would cover their expenses and let them wait patiently until the recession ends. They just have to keep their expectations low and be happy with a massive pay cut.

People with more typical savings rates (eg 10-20%), on the other hand, can’t afford to take much of a pay cut.
i get that. I still think that thinking (I save 50% of my income so I'll be fine cuz I'll find a job in no time!!) has two built in assumptions:

1. you'll find a job in no time. what if that's wrong? Just having skills isn't everything. If you're an older skilled worker you still may not get the job over a younger equally skilled worker. Ageism is a real thing.

2. even if you find a job but it takes a couple months what is your emergency fund in? Stocks? So you're selling stocks (at depressed prices) for two months until you're paychecks start up again? Usually there is SOME gap between losing and getting a job, if only when you get the first paycheck again. It doesn't matter if you have low expectations or live cheaply (allowing a 50% savings rate). You need SOME money. Where does that come from while waiting for reemployment/paychecks starting again?? Selling stocks?? At depressed prices?? Or are we assuming you live on the payout of your accumulated vacation pay? For some that might work. I'm planning on rolling that over into my tax deferred 457b because the payout of my accumulated vacation AND Sick pay will be substantial amount that would push me into a higher bracket.

see. ymmv. individual scenarios abound which is why giving general advice like be 100% in stocks is fine, is anything but fine.
Our emergency fund is exactly $0.00 https://earlyretirementnow.com/2016/05/ ... ency-fund/

If I have 15 X my living expenses invested in equities, why would I need bonds to survive? If I am insured for disability, why do I need an EF? If I am going to get unemployment checks if I lose my job, why do I need an emergency EF?

The answer is, in my situation, there is no need to worry about job loss because I have made it this far, and I also have a very solid network and reputation. I haven’t known anyone who has been unemployed for more than a year while also having ambition, a solid network, and a good résumé. And I have all those things. Each person needs to evaluate their situation accordingly.

To your point earlier, many reputable investors have criticize Vanguard‘s Target date fund AA. They are nobly trying to create a palatable portfolio in one fund, but that doesn’t mean that a young Investor actually needs bonds, or that a seventy year old actually needs 70% bonds.
This response is showing some of the kinds of cognitive bias that I previously referred to. "in my situation there is no need to worry about job loss" and then the rationalization to justify the cognitive bias which completely discounts the risk to terminal portfolio value at retirement caused by the loss of the employment income stream in the present. Of course if you wish away all difficulties and problems, including job loss, then its impact on your terminal portfolio value will be zero.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by sjwoo »

Scooter57 wrote: Tue Mar 02, 2021 11:34 am <DING DING DING>

This has to be the bell marking the top of the bull market.

All that is missing are the house flipping threads and I am seeing them elsewhere...
I have to agree, it is feeling a whole lot like 2000. So many 100% equities threads, bonds are useless threads, etc.

But we never know when the music will stop...
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by canadianbacon »

This article is an indulgence of privilege.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by ljford7 »

willthrill81 wrote: Tue Mar 02, 2021 11:38 am
Scooter57 wrote: Tue Mar 02, 2021 11:34 am <DING DING DING>

This has to be the bell marking the top of the bull market.

All that is missing are the house flipping threads and I am seeing them elsewhere...
IIRC, around a third of the time, the market is trading within about 5% of its all-time high. That's just normal.

The OP's argument is not based on recent market performance.
I always find it funny when people talk about the all time high, because they gloss over the fact that the market has to be at an all time high to expand/grow. If it is never at an all time high, we have problems.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by KlangFool »

absolute zero wrote: Tue Mar 02, 2021 10:53 am
arcticpineapplecorp. wrote: Tue Mar 02, 2021 10:45 am this is the entire quote:
At least if you’re planning an early retirement with 1) high contribution rates and 2) some flexibility about your retirement date. The 100% equities throughout would certainly be defensible if you find yourself in the middle of a bear market a few years before retirement. Then just keep the 100% equities and ride the subsequent bull market until you retire!
the error in this thinking is assuming you stay employed (ask KlangFool) during a recession (which the author doesn't use that word, but says bear market instead, as if they don't generally occur concurrently).

and it's not just high contribution rate (unless you don't mind selling stock at lower prices) but having some assets not in stocks that matters. That allows you to "ride the subsequent bull" after you've lost your job.

Does the person with 100% equities have their emergency fund in equities too?

This is why the author is not a financial planner. I don't think a CFP would give such advice.
The article references people saving half their income. For those people, it’s not very hard to find employment even during a recession that would cover their expenses and let them wait patiently until the recession ends. They just have to keep their expectations low and be happy with a massive pay cut.

People with more typical savings rates (eg 10-20%), on the other hand, can’t afford to take much of a pay cut.
absolute zero,


1) I save 1 year of current annual expense every year = a very high saving rate.


2) I had been unemployed for more than 1 year a few times.


3) I had been through too many recessions over the past 30+ years.


Houston Oil Bust, Texas Saving & Loan Crisis, Asian Currency Crisis, Telecom Bust, 2008/2009 recession, 2020 recession.


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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by Dandy »

A very long bull market dulls the risk sensitivity for most. Is there really a need to take this much risk so close to retirement?

As mentioned people aren't always in charge of when they retire - increasingly your boss is. Happened to me twice. :oops:

Good luck
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by Steve Reading »

Totally not crazy. Assuming a risk aversion of about 2 (decently risk tolerant) then 100% stocks is about the optimal portfolio. See:
viewtopic.php?t=305919
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by jginseattle »

With !00% stocks there is the possibility of a 60% or more loss. Some investors would be able survive this while it would hurt others just as they are about to retire. I suspect many would abandon their strategy in bad times
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by willthrill81 »

Dandy wrote: Tue Mar 02, 2021 11:48 am A very long bull market dulls the risk sensitivity for most.
But we aren't in a very long bull market. We had a bear market under a year ago.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by Peaceful »

willthrill81 wrote: Tue Mar 02, 2021 11:59 am
Dandy wrote: Tue Mar 02, 2021 11:48 am A very long bull market dulls the risk sensitivity for most.
But we aren't in a very long bull market. We had a bear market under a year ago.
I think Dandy's post was clearly referring to the 12 year long more or less relentless upward march of the stock market since the GFC. Using an arbitrary if widely accepted definition of what technically constitutes the supposed end of the prior bull market to ignore the thrust of what Dandy was trying to communicate--the fact that the markets have more than quintupled in the past 12 years, regardless of the nominal start or end points of "bull" and "bear" markets--is reflective of a cognitive bias on willthrill's part seeking to entirely discount that past 12 years of history, because it may be perceived as undercutting the notion that 100% equities, right now, is such a slam dunk notion.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by HomerJ »

KlangFool wrote: Tue Mar 02, 2021 10:43 amIt is crazy. It assumes that the person is in control when he/she will retire.
This.

It's simple as that.

The assumption is in your original post.
2) some flexibility about your retirement date.
The odds of losing your job is HIGHER during a recession and a 50% stock market crash.

Sure, if you can just keep working a few extra years and wait for stocks to come back, you'll be fine.

But that's not guaranteed. If you have to start pulling money from a 100% stock portfolio when it's 50% down in order to buy food and pay bills, you will be locking in losses and hurting your chances of a successful retirement.

Not all stock crashes recover in a few months. If it drags on for a few years, and you don't find work, you could find yourself hurting for money.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by HomerJ »

willthrill81 wrote: Tue Mar 02, 2021 11:59 am
Dandy wrote: Tue Mar 02, 2021 11:48 am A very long bull market dulls the risk sensitivity for most.
But we aren't in a very long bull market. We had a bear market under a year ago.
That bear market taught exactly the wrong lesson.

Most upper middle class people didn't lose their jobs and the market recovered quicker than ever before in history.

That is not guaranteed to be the case during the next crash.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by Peaceful »

jginseattle wrote: Tue Mar 02, 2021 11:58 am With !00% stocks there is the possibility of a 60% or more loss. Some investors would be able survive this while it would hurt others just as they are about to retire. I suspect many would abandon their strategy in bad times
The extreme cognitive bias implicit in the cheerleaders for 100% equity portfolios, which always seem to be most fervent when the market is on a roll, also fails to account for any non-market risk which the investor may sustain, and which often occurs at exactly the wrong time--when the market is crashing. Example, "I don't have to worry if I lose my job, I will figure something out."

Again, one need only reference as a counter example, the Texas utility which had to declare bankruptcy the other day because it didn't maintain sufficient liquidity to deal with the kind of weather crisis which couldn't even fairly be said to have been a true Black Swan. This is a multi billion dollar operation, the biggest, or one of the biggest, in Texas. Presumably staffed with all sorts of engineering and finance experts.

"Oh but it can't ever happen to ME."

Yes it can happen to you. Best be prepared for it, and it never happens, then be unprepared for it when it does.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by willthrill81 »

Peaceful wrote: Tue Mar 02, 2021 12:06 pm
willthrill81 wrote: Tue Mar 02, 2021 11:59 am
Dandy wrote: Tue Mar 02, 2021 11:48 am A very long bull market dulls the risk sensitivity for most.
But we aren't in a very long bull market. We had a bear market under a year ago.
I think Dandy's post was clearly referring to the 12 year long more or less relentless upward march of the stock market since the GFC. Using an arbitrary if widely accepted definition of what technically constitutes the supposed end of the prior bull market to ignore the thrust of what Dandy was trying to communicate--the fact that the markets have more than quintupled in the past 12 years, regardless of the nominal start or end points of "bull" and "bear" markets--is reflective of a cognitive bias on willthrill's part seeking to entirely discount that past 12 years of history, because it may be perceived as undercutting the notion that 100% equities, right now, is such a slam dunk notion.
First, saying that someone who is using widely agreed upon definitions of bull and bear markets is exhibiting 'cognitive bias' is absurd.

Second, there has not been a 'relent upward market of the stock market since the GFC'. The market fell by roughly 20% in late 2018 and fell by more than 30% last year.

Third, the math clearly supports the idea that 100% during accumulation is superior to any bond allocation. However, in my first post in this thread, I noted that investor behavior can interfere with this 'superiority'.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by Peaceful »

HomerJ wrote: Tue Mar 02, 2021 12:12 pm
willthrill81 wrote: Tue Mar 02, 2021 11:59 am
Dandy wrote: Tue Mar 02, 2021 11:48 am A very long bull market dulls the risk sensitivity for most.
But we aren't in a very long bull market. We had a bear market under a year ago.
That bear market taught exactly the wrong lesson.

Most upper middle class people didn't lose their jobs and the market recovered quicker than ever before in history.

That is not guaranteed to be the case during the next crash.
Yup. An awful lot of people seem to be making an awful lot of assumptions that basically amount to an unsupportable belief that they are bullet proof regardless of the circumstances, regardless of what the market does or when it does it, regardless of other non-market risks (job loss, severe health issues, legal problems, marital problems) which may show up and probably will show up at exactly the wrong time.

It's mind boggling that so many people think the STOCK MARKET will actually PROTECT them from any and all dangers in their lives, financial and non-financial. That's basically the OPPOSITE of equity risk. The equity risk premium is what you are theoretically getting when you choose to invest in risky, as opposed to riskless, assets in EXCHANGE for taking EQUITY RISK--i.e. the RISK the investing in the stock market ends up with you getting screwed. They simply don't believe it's possible.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by Robot Monster »

Guys. C'mon. We're conflating "crazy" with "high-risk". The strategy being endorsed is a (quoting from linked-to article) "very gutsy and high-risk approach to investing," but not crazy!
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by willthrill81 »

HomerJ wrote: Tue Mar 02, 2021 12:12 pm
willthrill81 wrote: Tue Mar 02, 2021 11:59 am
Dandy wrote: Tue Mar 02, 2021 11:48 am A very long bull market dulls the risk sensitivity for most.
But we aren't in a very long bull market. We had a bear market under a year ago.
That bear market taught exactly the wrong lesson.

Most upper middle class people didn't lose their jobs and the market recovered quicker than ever before in history.

That is not guaranteed to be the case during the next crash.
I agree that not all bear markets are as short as that one, but it would obviously be wrong to act as though it never happened.

Regarding 'most' upper middle class people not losing their job, that has always been the case. Even during the Great Depression, employment remained at 75%. More importantly, those who are well educated have fared much better than those who weren't through every recession for which I've seen such data.

I'm never said that every accumulator's situation favors 100% stock allocations. There are many mitigating factors, investor behavior being a big one. But in general, those with 100% stock allocations who stick with it will accumulate more and be better prepared for recessions, unemployment, retirement, etc. than others.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by willthrill81 »

Peaceful wrote: Tue Mar 02, 2021 12:19 pm It's mind boggling that so many people think the STOCK MARKET will actually PROTECT them from any and all dangers in their lives, financial and non-financial. That's basically the OPPOSITE of equity risk. The equity risk premium is what you are theoretically getting when you choose to invest in risky, as opposed to riskless, assets in EXCHANGE for taking EQUITY RISK--i.e. the RISK the investing in the stock market ends up with you getting screwed. They simply don't believe it's possible.
Bonds have very real risks too, the significant potential for long-term erosion of buying power being one of them (e.g., 1941-1981, current bond yields).

All roads carry risk.
Last edited by willthrill81 on Tue Mar 02, 2021 12:26 pm, edited 1 time in total.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by nisiprius »

Warren Buffett's mentor, Benjamin Graham, writing advice for "defensive" investors, wrote that
We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks...
Although it raises as many questions as answers, perhaps the longest-term real-world test of 100% equities versus a balanced allocation can be seen in a comparison of the actual performance of two of the oldest mutual funds: Massachusetts Investors' Trust (MITTX) and Vanguard Wellington Fund (VWELX). It is what it is. It's a data point.

These are actively managed funds. But they represent real money really invested in real investable stocks and bonds. It includes expenses. And it was done in mutual funds with no place to hide from public view once launched.

People feel that 100% stocks ought to have far higher return than a balanced allocation, but it seems to me the difference hasn't been all that great. I'm not trying to hide the difference between $15,253,119.67 in the Wellington balanced fund (blue) and $19,790,510.19 in Massachusetts Investors' Trust, but over that long a time period we are talking about the difference between average (CAGR) returns of 8.33% for Wellington (balanced) and 8.63% for Massachusetts Investors' Trust (100% stocks). Needless to say, if you'd invested at the exact bottom, the difference would have been greater.

It's just one piece of data to throw into the pot.

Source

Image

The stock/bond allocation of Wellington has varied, but has mostly been in the neighborhood of 70/30 or 65/35. it's currently 65% stocks and 35% bonds and short-term reserves. From data in John C. Bogle's Clash of the Cultures: Investment vs. Speculation

Image
Last edited by nisiprius on Tue Mar 02, 2021 12:32 pm, edited 1 time in total.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by climber2020 »

willthrill81 wrote: Tue Mar 02, 2021 12:17 pm Third, the math clearly supports the idea that 100% during accumulation is superior to any bond allocation.
If one becomes unexpectedly unemployed for a significant amount of time during a market crash while young and needs to sell stocks in order to pay bills, is that period of time in which one does not have a job and is making no investment contributions still considered "accumulation"? If not, does that change any aspect of the current discussion?
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by Nathan Drake »

This topic is very much about your individual circumstances and willingness to take risk. I personally have been 100% equities since I started working around 2007. I have of course experienced some very wild periods. A large 50% decline, a 35% decline, and many 10-20% declines.

My job is fairly stable and my savings rate is >50%. Each year I save a few years worth of living expenses. I have zero emergency fund outside of a very small cash position to cover short term expenses. I have been able to accumulate 56x living expenses, but at a very bare bones FI number.

I continue to work in order to achieve a fatter FI. I am still 100% equities. My goal is to achieve a fatter FI with a 2% SWR, and basically be invested in 80+% equities even throughout retirement.

I realize that my circumstances aren’t suitable for most people. But Big ERN’s audience is very specific, and it’s good advice if you conform to the model of investor he is speaking to.
Last edited by Nathan Drake on Tue Mar 02, 2021 12:29 pm, edited 1 time in total.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by nisiprius »

willthrill81 wrote: Tue Mar 02, 2021 12:26 pm...Bonds have very real risks too, the significant potential for long-term erosion of buying power being one of them (e.g., 1941-1981, current bond yields)...
Since 1997, retirement savers have been able to buy Treasury inflation-protected securities.

[My original posting here was snarky and I have edited it to be a plain statement.]
Last edited by nisiprius on Tue Mar 02, 2021 9:18 pm, edited 1 time in total.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by KlangFool »

willthrill81 wrote: Tue Mar 02, 2021 12:26 pm
Peaceful wrote: Tue Mar 02, 2021 12:19 pm It's mind boggling that so many people think the STOCK MARKET will actually PROTECT them from any and all dangers in their lives, financial and non-financial. That's basically the OPPOSITE of equity risk. The equity risk premium is what you are theoretically getting when you choose to invest in risky, as opposed to riskless, assets in EXCHANGE for taking EQUITY RISK--i.e. the RISK the investing in the stock market ends up with you getting screwed. They simply don't believe it's possible.
Bonds have very real risks too, the significant potential for long-term erosion of buying power being one of them (e.g., 1941-1981, current bond yields).

All roads carry risk.

Please do not overstate the RISK/VOLATILITY of the BOND is at the same level as the STOCK.


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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by HomerJ »

9mm wrote: Tue Mar 02, 2021 11:30 amThe answer is, in my situation, there is no need to worry about job loss because I have made it this far, and I also have a very solid network and reputation. I haven’t known anyone who has been unemployed for more than a year while also having ambition, a solid network, and a good résumé. And I have all those things.
If you never have to worry about job loss, and you're flexible on when you can retire, then yes you can be 100% stocks.

I think that first assumption is a dangerous one to hold your entire life.

I think you're fooling yourself that your employability will remain at 100% even when you are 50 or 60 or 70. Health conditions are also a factor. Disability is not guaranteed.
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by Seasonal »

Must be a bizarre coincidence that posts about 100% equities are so common near a market high and posts questioning high percentages of equities pop up when markets tumble.

Apparently little know item: there are real risks to holding equities (e.g., having to sell when market are way down, markets not rising forever), in addition to the psychological risks (e.g., anxiety, panic selling).
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by flyingaway »

If I knew what has happened since March 2020, I would have gone to 200% in equities. (And got back to between 70/30 and 60/40 in 2021).
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Re: How crazy is it to hold 100% equities until retirement? (ERN)

Post by Nathan Drake »

HomerJ wrote: Tue Mar 02, 2021 12:39 pm
9mm wrote: Tue Mar 02, 2021 11:30 amThe answer is, in my situation, there is no need to worry about job loss because I have made it this far, and I also have a very solid network and reputation. I haven’t known anyone who has been unemployed for more than a year while also having ambition, a solid network, and a good résumé. And I have all those things.
If you never have to worry about job loss, and you're flexible on when you can retire, then yes you can be 100% stocks.

I think that first assumption is a dangerous one to hold your entire life.

I think you're fooling yourself that your employability will remain at 100% even when you are 50 or 60 or 70. Health conditions are also a factor. Disability is not guaranteed.
If you’re mid-FI or close to FI you don’t need employment to be 100%

The modern economy has made side hustles and WFH gigs much easier too
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