I'd say it's the way to go during the accumulation phase, but switch to at least some bonds in retirement. A mix of 80/20 will provide nearly as much return, with a lot less volatility.
Assume you withdraw $30K annually over 60 years, starting at $1M. With 100% in stocks, "The lowest and highest portfolio balance throughout your retirement was $1,000,000 to $54,352,253, with an average of $19,263,792. (Note: values are in terms of the dollars as of the beginning of the retirement period for each cycle.)" With an 80/20 split, "The lowest and highest portfolio balance throughout your retirement was $1,000,000 to $32,301,622, with an average of $11,664,071."
Is reducing volatility worth it when it reduces your average final balance from $19M to $12M, especially when your portfolio is never in danger?
What about the Permanent Portfolio? Would it be any better than a stock/bond allocation?
The reason to have bonds is not just for security. If you have a given percent in bonds and then religiously re-balance, say in May each year, you are able to automatically buy stocks high and sell low over time. I have read that this provides increased (or at least matched) growth compared to an all stock portfolio, as well as added stability and security, all of which makes sense to me but that doesn't mean it's true.
That's what I was thinking, but I just now checked the Firecalc FAQ:
"
Does the model assume annual rebalancing?Yes, it assumes you maintain the same ratio between equities and fixed income investments by rebalancing at the time of each annual withdrawal."
A Random Walk Down Wall Street has fantastic coverage of risk reduction by diversification...
I still need to read that book. I only got to the tulip part, and then I had to return it to the library.
My hypothesis: most analyses involve shorter retirements and the withdrawal of principal. If you have a low enough withdrawal rate, then it's best to be in 100% stocks.
How can I test that more thoroughly? I want to know the answer, because it's very practical. I suppose I can start with Malkiel's book.
IMHO, a good investment strategy doesn't just look OK on Firecalc - it also let's you sleep at night when something unexpected happens. If you can't stick with a plan in bad times, it really isn't much of a plan.
True, though anything that would have helped you sleep through 2008 would probably give you anemic returns over the long run.