I don't want to wade into a discussion where I'm inadvertently a trouble-maker... so sorry if this next comment comes across this way.
But are we all straight on how, if you have two investments that earn (say) 9.5% but which aren't perfectly correlated, you earn more than 9.5% if you blend them?
E.g., stocks may earn 9.5% over some long horizon... and so may REITs. But because these investments aren't correlated when you combine them 50%/50%, you won't get 9.5%... you get maybe 10%.
Similarly, if anyone here is saying they're okay with the risks of 100% US stocks, do they know they possibly can build a portfolio that generates similar return but shows less volatility?
Sorry if I'm underestimating people's understanding of "modern portfolio theory"...
here's the thing : REITS are stocks, its fine if someone wants to OVER-weight REITS but lets clarify they are not two separate things. REITS is simply a sector of the stock market. We don't have much data on the historical return of REITS, portfoliovisualizer only goes back 24 years. But if you want to play this game, you could plug in small-value stocks and see that holding anything else would dampen your returns, including REITS. Over weighting a segment of the stock market, such as REITS, should be done not bc of simply past returns but bc of a fundamental reason. Such as, overweighting the riskier small or valuey stocks bc of the higher expected return, due to the increased risk.
you mention modern portfolio theory, the idea being to pick two non-correlated assets that both go up at the same rate. that would be awesome if it existed. it doesn't. everything goes down but treasury bills during the big crashes. the standard deviation is not what we should be focused on. we should be focused on the MAX DRAWDOWN and during the great recession everything including REITS lost >50% except fixed income. The other point I would make is that owning the total stock market is the most efficient way to use modern portfolio theory. you are as diversified as you can possibly be, within stocks, at the lowest cost.
All this being said, I too am 100% stocks and in my 30s. The fact is, the expected return of stocks vs bonds over a 30+ year period is obviously highly favorable towards stocks. Take your risk in the stock market. bonds are for safety, NOT growth.
I would spend some time researching the efficient frontier. It's pretty simply, really. In order to get more return in the long-term you must take on more risk/volatility. This is why small stocks have outperformed large and value over growth - they are riskier. I would also read some of the work by Larry Swedroe. He advocates 100% small/value stocks and then adding enough short-term treasuries and TIPS to taper down the volatility to a comfortable level. This provides the most "bang for your buck", you should get the most return per unit of risk.
Anyhow, 100% stocks is totally reasonable as long as you are comfortable and EXPECT a 50-60% drawdown at some point (could even be worse, in the great depression stocks lost I believe 90%). But the good news is that it typically only takes a few years for a full market recovery and that stocks have gone up 70% of the years. So, if you can hang on during the rough times I think you will be rewarded in the end w/ 100% equities.
