http://www.marketwatch.com/story/why-100-of-your-investment-portfolio-should-be-in-stocks-2015-11-11 An opinion piece on how a 100% stock portfolio attracted my attention today. Historically traditional decade-old guidance suggests a mix of stocks and bonds, e.g. 60-40 and moving to a higher percentage of fixed income products as one gets closer to retirement. This writer suggests a uncoventional way to invest in the market. Clearly such a methodology is not for everyone, but I thought it was interesting food for thought. HTH. YMMV.
I'm never a fan of a one-size-fits-all approach to investing and the idea that a 100% would be suitable for everyone really doesn't make sense to me. Yes, there may be limited in bonds and certain other asset classes at the moment but assume that this is a new norm that we should all adjust to is a bit worrying. We've had too many "new norms". Another problem with it is that you have to think about the psychology involved. We can all argue about whether the approach mitigates risk enough and gives you the right kind of return, but will those investors really be able to sleep well at night when 100% of your assets are hit by another market dip, never mind a market crash?
It depends on your needs, timeframe and risk tolerance. I have nothing against a 100% stock portfolio, in fact my own one is about 98% in stocks with the remaining 2% in bonds. Long time frame, a pretty well balanced portfolio and the low yield of bonds has led me here, I know that at some point I'll be picking up more bonds but when I can build a dividend growth portfolio with a higher yield than your average bond... then one has to wonder why touch bonds at all, especially since I'm not looking at selling for another couple of decades at the very least.
Agreed. If you're looking for investments strictly for growth and not income, stocks are generally the place to be. If you're looking for income with at least some of your money, a good chunk of that portion of your money generally should be in bonds/debt. Some or even all of that money you're investing in income-producing instruments can be in stocks that pay healthy dividends, but only if you're comfortable enough with the level of risk stocks in general carry. Ray Dalio has said that in a portfolio that is 50/50 stocks to bonds, 80% of the risk is in the stock portion of the portfolio. Stocks are basically 4 times riskier on average than bonds. So retired people with limited risk tolerances who likely need much or all of their nestegg to produce income for them - and who need to preserve principal - generally need to be into bonds moreso than stocks... particularly if they don't have a huge amount of money and are older with less time to waste. Those of us who are a long way from retirement, who are pretty aggressive, and who are investing for growth need to generally be mostly in stocks (if not entirely). This is particularly true these days, since rates have been held down for 7 years, and existing bond issues are likely to get hammered when rates eventually go up. It really sucks these days for the older retired folks who don't have a whole lot of money to play with. The bond market has been FUBAR by the Fed's actions, and is likely to get worse for a while once rates go up.
I bet very few people have 100% of their net worth in stocks if you also consider your house to also be an investment. Unless you are young or live in a major metro and just rent, then a 100% aggressive equity portfolio might actually be a good idea.
I'd argue that right now you can probably have a well balanced 100% stock portfolio focused on dividends and the yield will be almost equal to a similar portfolio that has bonds in it. Maybe not quite there, but almost. And with strong companies the dividend is pretty much as safe as the coupons payments on bonds... though with good companies the dividend yield tends to go up with time. I haven't calculated the current dividend yield of my portfolio but it should be somewhere between 3% and 4%. And this is a safe portfolio with only a couple of riskier companies in it.