Author Topic: Why not do 100% allocation, draw 4% at retirement, and yolo it?  (Read 27585 times)

Retire-Canada

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #350 on: August 10, 2018, 08:31:50 AM »
Not needing the money would be all the more reason to remain aggressive with it.

Yup. If I suddenly went to 2%WR I would not be buying 50%+ bonds in my portfolio. 2%WR is already so secure as to be ridiculous.

My fatfire $/yr is higher than my target FIRE spend. It's not worth me chaining myself to a desk for extra years to hit the fatfire number, but if it came to me without effort I would spend a bit more. Particularly in a nicer place to live.

I would also share the wealth with family and friends so I would spend some of the extra income that the windfall would generate...pay for group travel/holidays...maybe help out with education costs for lower income folks, medical costs, etc.... I have no kids so eventually all my money is going to charity. I may decide to leave some to the kids of friends/relatives, but at this point I don't feel that way.

Another way to look at it is if a 2%WR on globally diversified stock portfolio fails because the world economy collapses those bonds you are relying on won't be worth anything. If the global economy doesn't collapse the 2%-3%WR stock portfolio won't fail. I'm trying to see where investing the windfall in massive amounts of bonds protects me.
« Last Edit: August 10, 2018, 08:36:48 AM by Retire-Canada »

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #351 on: August 10, 2018, 09:01:19 AM »
Not needing the money would be all the more reason to remain aggressive with it.

Also, if I do end up with more money than I need for my current lifestyle expectations, I would absolutely spend it on more of what I already plan to do in retirement.

Correct on the keep it invested this arguement always makes me laugh. But what if you had a shit ton of money. Then I'd keep my current AA and make a difference in more people's lives

steveo

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #352 on: August 10, 2018, 06:09:09 PM »
Not needing the money would be all the more reason to remain aggressive with it.

Yup. If I suddenly went to 2%WR I would not be buying 50%+ bonds in my portfolio. 2%WR is already so secure as to be ridiculous.

I agree. I'm diversifying a bit but only because I'm not going to get to that low a WR. The lower my WR goes the more I think the only investment I need is a low cost diversified all world equity tracker. Since I'm not saving to that level I want some cash and bonds to help me out if something goes wrong early in my retirement but even that I'm skeptical how much it will help me out.

I suppose answering the question of getting to 4% with 100% stocks being a bad idea is it depends but it's definitely not a bad idea. If you are thinking about spending more and that is beneficial to you I think choosing 100% stocks and working part time for a year or two is a really good idea as well.

markbike528CBX

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #353 on: August 10, 2018, 06:17:36 PM »
4) Ego associated with having your name on a building, would their be to take on the added risk?

My alma mater current president said that $20M USD would get you name on a building.  This is a very small private college, so anything bigger would be even more $.   If your ego AND stache  is that big, go for it :-)

Classical_Liberal

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #354 on: August 10, 2018, 08:21:09 PM »
This is the number one thing overlooked. People trying to mitigate volatility always do so assuming that they had that AA at the height of a market crash and not before. The risk of opportunity cost is far greater.

Which is why static portfolios are foolish, IMO.  Your life changes, your goals change, your investments should change with them.  You are correct in that there is a huge opportunity cost of someone with a 10-15 year accumulation period holding 30% bonds throughout.  That literally makes zero sense, assuming the goal is FIRE ASAP. This person should be 100% equities for at least the first 75%. 

However, as time goes on the same person may become sensitive to FIRE date, so decreasing portfolio volatility has advantages.  After that, for the first five or so years of RE, this same person is at the height of sequence risk, so adding additional noncorrelators makes more sense.  Later if this person gets to a 2-3% WR due to good returns or a windfall as discussed above (ie almost dividends only), then noncorrelators are worthless to goals and only serve as a drag to runaway wealth.   

Why do we always assume a well educated mustachian is so stupid that they need to hold the exact portfolio mix from beginning of accumulation until death?  It's not "market timing" if one adjusts portfolio to mitigate the risks associated with their phase of life or financial goals.

One other point, the assumption is not bonds or other non correlated assets remain static during a general market downturn.  The point is they generally perform better than their average. Capital often flows to one or more of those other asset classes, that's one of the reasons the general equity market drops.

Retire-Canada

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #355 on: August 10, 2018, 11:44:47 PM »
One other point, the assumption is not bonds or other non correlated assets remain static during a general market downturn.  The point is they generally perform better than their average. Capital often flows to one or more of those other asset classes, that's one of the reasons the general equity market drops.

Bonds can go up, stay steady or go down in a crash. It just depends. Assuming they hold steady is a reasonable simplification given that it could go either way.

https://obliviousinvestor.com/what-happens-to-bonds-in-a-stock-market-crash/

Classical_Liberal

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #356 on: August 11, 2018, 12:08:50 AM »
One other point, the assumption is not bonds or other non correlated assets remain static during a general market downturn.  The point is they generally perform better than their average. Capital often flows to one or more of those other asset classes, that's one of the reasons the general equity market drops.

Bonds can go up, stay steady or go down in a crash. It just depends. Assuming they hold steady is a reasonable simplification given that it could go either way.

https://obliviousinvestor.com/what-happens-to-bonds-in-a-stock-market-crash/

Right, your link shows not all bonds are created equal.  Nor are all equities. Hence the idea of noncorrelation with investments to smooth the ride.  Obviously corporate bonds (particularly the high yield/riskier subset) tend to suffer at the same time as equities, after all, they are different investments in the same companies. This seems common sense, no?

I wouldn't consider equities and corporate bonds in the same companies as noncorrelated asset classes.  I never argued they were.  Although there are economic conditions when they perform differently, just not enough differently.



Retire-Canada

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #357 on: August 11, 2018, 09:07:13 AM »
Right, your link shows not all bonds are created equal.

The author makes the point that treasury bonds may go negative in a crash as well. Again it all depends on the situation.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #358 on: August 11, 2018, 09:14:07 AM »
All you need is negative correlation. REITs supply this much more nicely than bonds since they return the same.

Classical_Liberal

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #359 on: August 11, 2018, 02:52:52 PM »
Right, your link shows not all bonds are created equal.

The author makes the point that treasury bonds may go negative in a crash as well. Again it all depends on the situation.

True (increasing rates due to inflation with a recession would be the driver), which is why treasuries are not the only option, nor the only noncoorelator I own.   But they are much less correlated with the total equity market than a total bond fund, which is stacked with 50% corporate.

gerardc

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #360 on: August 11, 2018, 03:47:10 PM »
PLEASE diversify, do not put all your eggs in one basket if it will risk other important things in your life.

This is a bold statement (emphasis added).

Rubic

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #361 on: August 11, 2018, 05:28:04 PM »
The author makes the point that treasury bonds may go negative in a crash as well.

I think for practical investing purposes, short-term treasuries can be considered
a risk-free investment.  The government bond yields may fall if the Fed lowers
rates to stimulate economic activity, but your funds are "safe".  Warren Buffett
considers t-bills to be risk-free and parks Berkshire's excess cash there.

My current mix is 90% equities and 10% cash equivalents (e.g. short-term
government notes or similar).  That might seem high, but the 10% represents
a reasonable period of living expenses -- and I'm currently drawing other income.



TomTX

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #362 on: August 12, 2018, 11:08:43 AM »
What is the harm in having 20-30%  in bonds? You will appreciate it when the markets tank.  Imagine having $1 million invested 100% in equities and the markets drop 50%.  Now you have 500k invested.  That would not stress you out?  You would still have 600k at 20% bonds and 650k at 30% bonds.  I understand that you won't have the highest possible return if you have bonds in your portfolio, but that has never been the reason for bonds.

Except that Bond Guy almost certainly didn't have $1M when the market crashed, as he missed out on the (likely) equity runup.

Maybe 20% Bond Guy only had $800k (total) and 30% Bond Guy only had $720k.

TomTX

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #363 on: August 12, 2018, 11:30:45 AM »
i didnt say his data was inaccurate just that it doesnt exist pre 1970 so you cant backtest theories past then.  I'm becoming more and more of the mindset that a 10-20% maybe even higher REIT allocation makes a lot of sense.  as REITs dont always track with stocks but generate similar returns.  the problem again here is the back testing ability since they havent existed long enough.  and as far as the golden butterfly there are miles of posts online discussing its ability to be the best portfolio in the future since its timed with the US coming off the gold standard and many other strange occurances that make it look really really good but likely are replicable in the future. 

I looked at some deeper historical record on gold value - you can use loaves of bread (remember to correlate size) and such.

Typically, over the long term - gold is roughly the same value. Coming off the gold standard was a definite outlier, where heavy-handed government interference had artificially held down the price for a long time.

The comparison I liked best was the pay of a Roman Centurion, roughly equivalent to an Army Captain today. Very similar pay when I ran the numbers using the weight paid the centurion and modern price per ounce to equate with a Captain salary.

ol1970

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #364 on: August 13, 2018, 07:50:32 AM »
Not needing the money would be all the more reason to remain aggressive with it.

Yup. If I suddenly went to 2%WR I would not be buying 50%+ bonds in my portfolio. 2%WR is already so secure as to be ridiculous.

My fatfire $/yr is higher than my target FIRE spend. It's not worth me chaining myself to a desk for extra years to hit the fatfire number, but if it came to me without effort I would spend a bit more. Particularly in a nicer place to live.

I would also share the wealth with family and friends so I would spend some of the extra income that the windfall would generate...pay for group travel/holidays...maybe help out with education costs for lower income folks, medical costs, etc.... I have no kids so eventually all my money is going to charity. I may decide to leave some to the kids of friends/relatives, but at this point I don't feel that way.

Another way to look at it is if a 2%WR on globally diversified stock portfolio fails because the world economy collapses those bonds you are relying on won't be worth anything. If the global economy doesn't collapse the 2%-3%WR stock portfolio won't fail. I'm trying to see where investing the windfall in massive amounts of bonds protects me.

Everybody talks real tough here after a decade march higher in equities, but there are not a ton of people on here who can speak from a position of knowing how you would behave if you actually had $10M of investable assets, or having had $5M in 100% equities in 2007.  Yes I get the math works out, but living through seeing 30+ years of living expense evaporate overnight is a whole different ball game.  I think my only point is the number of people with 8 figure investable net worth's who stay 100% equities is probably close to 0.1%...they diversify.  Not just bonds, but paid for real estate generating income, alternative investments that you have access to at HNW, investments in private businesses, and silly old laddered CD's to throw off income when CD's start paying higher percentages.  Then yes you rebalance appropriately over the years.  To each their own, reality is we've all won the ball game at that point and likelihood of failure is remote.

talltexan

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #365 on: August 13, 2018, 07:51:51 AM »
Using data from the Roman economy makes little sense when compared to our modern one because it was:

  • based on agriculture and labor (ours is based on capital and technology)
  • an environment of zero population growth (ours is positive)
  • on a commodity standard, while ours is intended to have modest inflation
  • able to grow the macroeconomy through military conquest of new lands (ours should not do this; US historians will note that our high-growth period did include a rapid expansion of land area of our country from 1803-1900)

appleshampooid

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #366 on: August 13, 2018, 08:23:02 AM »
All you need is negative correlation. REITs supply this much more nicely than bonds since they return the same.
Running some numbers on Portfolio Visualizer, bonds are a much better choice for anti-correlation than REITs:
total stock market vs total bond market
https://www.portfoliovisualizer.com/asset-correlations?s=y&symbols=VTSMX+VBMFX&endDate=08%2F12%2F2018&timePeriod=4&numTradingDays=60
-0.01 correlation

total stock market vs reit index
https://www.portfoliovisualizer.com/asset-correlations?s=y&symbols=VTSMX+VGSIX&endDate=08%2F12%2F2018&timePeriod=4&numTradingDays=60
0.43 correlation

These numbers only go back to the 90s (when the corresponding Vanguard funds were created), if you have data going back further, or other considerations for this strategy I would love to see it. I'll stick with bonds for my portfolio ballast.
« Last Edit: August 13, 2018, 08:35:28 AM by appleshampooid »

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #367 on: August 13, 2018, 10:00:35 PM »
Go put it in Tyler's calculator if you want older data. It's not the amount of negative correlation alone. It's the combination of the extremely better returns and negative correlation.  If you want no correlation hold cash it correlates to losing money.

Classical_Liberal

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #368 on: August 14, 2018, 12:01:33 AM »
Using data from the Roman economy makes little sense when compared to our modern one because it was:
Yet we all use Cfiresim with data starting from the 1880's.  No Federal Reserve, gold standard, no SEC, no income tax, etc. 

Telegram vs international video conferences.  Times have changed, so it's up to us to use information and comparisons wisely.

If you want no correlation hold cash it correlates to losing money.
Hahaha! 

I actually plugged in 100% T-bills and according to Tyler's site it supports a 0.4% perpetual WR.  Ahh the days of yore, when you could earn real returns on cash.

frugledoc

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #369 on: August 14, 2018, 05:08:06 AM »
If you are always 100% equities, in a market weight globally diversified portfolio you’ll be fine. 

I like risk and I get joy from markets shooting up AND crashing.  Over the long term I believe the trend is up and I like excitement along the way.

Fuck bonds

DreamFIRE

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #370 on: August 14, 2018, 05:59:59 AM »
My REIT hasn't done well over the last year, and it crashed back in 2009.  I just consider it another stock holding.

If you are always 100% equities, in a market weight globally diversified portfolio you’ll be fine. 

I like risk and I get joy from markets shooting up AND crashing.  Over the long term I believe the trend is up and I like excitement along the way.

Fuck bonds

As long as you have long enough of a retirement horizon and are prepared to ride out the storms...

https://forum.mrmoneymustache.com/investor-alley/10-years-of-negative-returns/

frugledoc

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #371 on: August 14, 2018, 06:13:27 AM »
My REIT hasn't done well over the last year, and it crashed back in 2009.  I just consider it another stock holding.

If you are always 100% equities, in a market weight globally diversified portfolio you’ll be fine. 

I like risk and I get joy from markets shooting up AND crashing.  Over the long term I believe the trend is up and I like excitement along the way.

Fuck bonds

As long as you have long enough of a retirement horizon and are prepared to ride out the storms...

https://forum.mrmoneymustache.com/investor-alley/10-years-of-negative-returns/


Buying equities cheaper every year for the next 10 - 15 years would suit me fine

appleshampooid

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #372 on: August 14, 2018, 06:20:30 AM »
Go put it in Tyler's calculator if you want older data. It's not the amount of negative correlation alone. It's the combination of the extremely better returns and negative correlation.  If you want no correlation hold cash it correlates to losing money.
But it's not even a small negative correlation, it's a positive correlation. I understand there are greater returns (historically).

Could you link to Tyler's calculator? I'm not familiar with a lot of the common calculators around here other than PV - don't know where to find it.

Retire-Canada

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #373 on: August 14, 2018, 07:23:43 AM »
Could you link to Tyler's calculator? I'm not familiar with a lot of the common calculators around here other than PV - don't know where to find it.

Here are all of Tyler's calculators: https://portfoliocharts.com/calculators/

talltexan

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #374 on: August 14, 2018, 09:58:20 AM »
Using data from the Roman economy makes little sense when compared to our modern one because it was:
Yet we all use Cfiresim with data starting from the 1880's.  No Federal Reserve, gold standard, no SEC, no income tax, etc. 

Telegram vs international video conferences.  Times have changed, so it's up to us to use information and comparisons wisely.

If you want no correlation hold cash it correlates to losing money.
Hahaha! 

I actually plugged in 100% T-bills and according to Tyler's site it supports a 0.4% perpetual WR.  Ahh the days of yore, when you could earn real returns on cash.

It is true that the US was still on gold standard in 1880's (at the start of cFiresim), as they were on throughout much of the next ninety years. But the FDR gold seizure of the 1930's would have been punishing to anyone who tried to keep their savings stored there.

Classical_Liberal

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #375 on: August 14, 2018, 03:58:26 PM »
Using data from the Roman economy makes little sense when compared to our modern one because it was:
Yet we all use Cfiresim with data starting from the 1880's.  No Federal Reserve, gold standard, no SEC, no income tax, etc. 

Telegram vs international video conferences.  Times have changed, so it's up to us to use information and comparisons wisely.

If you want no correlation hold cash it correlates to losing money.
Hahaha! 

I actually plugged in 100% T-bills and according to Tyler's site it supports a 0.4% perpetual WR.  Ahh the days of yore, when you could earn real returns on cash.

It is true that the US was still on gold standard in 1880's (at the start of cFiresim), as they were on throughout much of the next ninety years. But the FDR gold seizure of the 1930's would have been punishing to anyone who tried to keep their savings stored there.

You managed to completely miss my point, or I'm an ineffective communicator.  In any event, we are on completely different levels on this topic.

talltexan

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #376 on: August 15, 2018, 06:25:48 AM »
I thought your point was: since we use data from the 1880's economy--and I agree with you that a lot of things are different in 1880's than today--in cFireSim, it's not too much more of a leap to draw conclusions about economics from Ancient Rome.

partgypsy

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #377 on: August 16, 2018, 08:27:49 AM »
I read an article (which I'm not going to try to find) but it had a graph showing that the risk/return of equities, topped out around 85-90%. That is, it's not going to give you any more return over the long term to go past around 90% (the other 10% being bonds, etc).  I'm older and conservative and so my balance is about 65% equities. But even if I was younger and going for the big returns I wouldn't go past 90% stocks.


I do have a coworker who is doing 100% equities. But she works for the government and will be getting a decent pension as well as soc sec, so she is comfortable with the risk of it.
« Last Edit: August 16, 2018, 08:31:55 AM by partgypsy »

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #378 on: August 16, 2018, 02:29:23 PM »
I read an article (which I'm not going to try to find) but it had a graph showing that the risk/return of equities, topped out around 85-90%. That is, it's not going to give you any more return over the long term to go past around 90% (the other 10% being bonds, etc).  I'm older and conservative and so my balance is about 65% equities. But even if I was younger and going for the big returns I wouldn't go past 90% stocks.


I do have a coworker who is doing 100% equities. But she works for the government and will be getting a decent pension as well as soc sec, so she is comfortable with the risk of it.

there was a post here about this and the returns flatten out alot after you get past 90% equities.  what does 10% bonds really buy you though.  2.5 years of possible recovery time.  i'd rather have somthing like 20-30% REIT

moof

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #379 on: August 16, 2018, 03:01:21 PM »
My mental model used to be this:
Cash:  Store stuff here to spend in the next year.
Bonds:  Store stuff needed within the next ~5-10 years here.
Equities:  Store everything else here for the long term.

By that approach my thought was to be 100% stocks until retirement got close, then shift some into cash/bonds (5%/~30%) as my retirement date got close, and stay in that allocation forever.

My mental model has shifted a bit.  I now see that the money I stuck into my 401k 20 years ago was best put into stocks and left alone.  I can think of those early years of contributions as my first few year's withdrawals.  Money I put in today will be ~2038's withdrawals.  Given that time horizon it is quite likely that stocks are the place to let it sit and grow, so why would I ever put it into bonds that are almost guaranteed to have grown it less by time I need it?  So I am in the 100% stocks and YOLO it category I guess.

gerardc

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #380 on: August 16, 2018, 03:59:41 PM »
I read an article (which I'm not going to try to find) but it had a graph showing that the risk/return of equities, topped out around 85-90%. That is, it's not going to give you any more return over the long term to go past around 90% (the other 10% being bonds, etc).  I'm older and conservative and so my balance is about 65% equities. But even if I was younger and going for the big returns I wouldn't go past 90% stocks.


I do have a coworker who is doing 100% equities. But she works for the government and will be getting a decent pension as well as soc sec, so she is comfortable with the risk of it.

I remember that graph but the salient point was that even though the maximum of the risk/return curve was around 90% stock, the curve was almost flat there, in other words 80% to 100% stock are about the same (this is true also for historical success rates). So it doesn't matter much, if at all. At this point I go for simplicity, 100% stock has fewer funds and doesn't need rebalancing.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #381 on: August 16, 2018, 04:49:48 PM »
90-100 is about the flattening point still alot of rise from 80-90

secondcor521

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #382 on: August 16, 2018, 09:28:45 PM »
90-100 is about the flattening point still alot of rise from 80-90

Generally true although it does vary somewhat with planning period (20 years vs. 60 years) and degree of safety required (100% safe WR curves look somewhat different than 80% save WR curves).

Personally I use a 40 year planning period and aim for between 95% and 100% historically safe WR.  I'm at 92% equities and am undecided about whether to raise or lower my equity allocation.  Since for me the curve is pretty flat in that area I think it doesn't much matter.

With shorter planning durations and higher historical safety required, the top end of the curve drops; i.e. 80% equities is more safe historically than 90% equities which is more safe historically than 100% equities.  But I think this is only for planning durations under about 20 years, which probably nobody around here uses because we're all young and YOLO'ing things.