By Dr. Jim Dahle, WCI Founder
I fully understand the desire to use a 100% stock portfolio. Once somebody looks at past behavior of the stock market and understands the general rule between risk and return, it seems obvious to question why they might want to put 10%, 25%, 40%, or more of their portfolio into those pesky low-returning bonds. I mean, look at the data:
The intermediate investor looks at that data and thinks, “If I can get 10.1% returns instead of 9.5% returns, over 30 years that means I end up with 12% more money. Or I can retire over a year earlier with the same amount of money. All I have to do is tolerate losing a little more of my money in a bear market. I'm sure I can do that since stocks have ALWAYS come back . . . eventually.” People also have an understandably hard time getting excited about investing in bonds given current yields of 0.1%-3%, especially when they understand that the best predictor of future nominal bond returns is current yield.
Should You Rebalance Your All Stock Portfolio?
However, today we're going to poke some holes into the argument for 100% stocks. Now, if at the end of this article you still want a 100% stock portfolio, knock yourself out.
But I think any 100% stock investor owes herself two things:
- Fully understand the arguments against a 100% stock portfolio
- Pass through her first bear market and STILL feel comfortable with a 100% stock portfolio
Obviously, obeying those two requirements rules out the opportunity for any investing virgins (anyone who hasn't invested in a bear market) to have a 100% stock portfolio. That's probably a good thing. A 100% stock proponent might then argue, “But that means that anyone who has started investing in the last decade can't have a 100% stock portfolio when their risk tolerance should be highest at the beginning of their career.” To which I would reply, “The fact that we haven't had a real bear market in a decade is not an argument for increasing your stock allocation.” Besides, there were (admittedly short) bear markets in the summer of 2011, December 2018, and March 2020, so that excuse really doesn't fly.
All right, let's get into it.
#1 Why Not 130% Stocks?
I never see threads arguing for 95% stock portfolios. Nor 105% portfolios. It's always 100%. I'm not sure what the fascination with that round number is other than it is round. If 100% stocks is good, 110% stocks must be better, right? How do you get 110% stocks? Well, debt is basically a negative bond. So if you borrow 10% of the size of your portfolio and invest the entire portfolio plus that 10% in stocks, you have a 110% stock portfolio. In truth, it doesn't matter what the source of that debt is. If you have student loans and a mortgage and a relatively small portfolio, in reality, you may already have a portfolio that is already > 100% stocks. If the possibility of a margin call scares you (and it should) then don't borrow against the portfolio, borrow against your house to get there. Actually, don't. At least not until you've read this fascinating thread started in 2007 and progressing through the Global Financial Crisis.
#2 Why Not 100% Small-Value Stocks?
The primary reason people cite for 100% stock portfolios is because in the long-run, at least in the United States, a 100% stock portfolio has had higher returns than a portfolio that contained any percentage of bonds—although at the extremes the “cost” of a few bonds or a few stocks isn't very high, as you can see in this chart:
We can carry that higher return argument out further. Long-term data suggests that small-value stocks outperform the overall market. So if you're just going for the highest possible return, you should use a portfolio that is 100% small-value stocks.
A factor investing fan would argue you're even MORE diversified doing that, since you are now taking not only market risk, but also size and value risk. Does a 100% small-value portfolio make you feel uncomfortable? You don't want to put all your money into what accounts for just 2% of the stock market?
The same reason you feel uncomfortable with a 100% small-value portfolio should make you uncomfortable with a 100% stock portfolio. It's a very big bet on the future resembling the past.
#3 Bonds Might Outperform Stocks
There have been long time periods in the past when bonds outperformed stocks, even in the US, and even longer time periods in other national markets. It might not be “normal” but it does happen. The problem is we all get seduced by stocks when we look at tables like this one:
(By the way, that's a really fun chart to pull out when the gold bugs start doing their thing too.) But if you carefully examine shorter time periods, you'll see that there are many periods of time where bonds outperform stocks for quite a while. Take a look at this chart of rolling 10-year periods:
As you can see, stocks outperform bonds most of the time over 10 years, but nowhere near all the time. It becomes especially noteworthy if you also include all those 10-year periods when stocks barely outperformed bonds while taking far less risk. Even at 15 years, a bet on stocks hasn't always worked out well. In this chart, S&P 500 stocks are compared to 5-year treasuries.
15 years can be a long time. Consider where you were financially 15 years ago. 15 years ago I had a four-figure net worth as a brand new intern. Now, imagine you've been investing ever since then in a 100% stock portfolio and you're STILL underperforming a 100% bond portfolio. It happens. It has happened even more frequently outside of the United States. Check out the real (after-inflation) equity returns from various countries:
As you can see, US bonds outperformed some of those countries over more than a century! That might be twice as long as your investing career. Maybe the future looks more like Japan or heaven forbid, Austria, rather than the US or South Africa. This idea that stocks always outperform bonds over 20+ year periods really only applies to the US and the comparative advantages the US has enjoyed in the past were significantly higher. (To be fair, some of the bond returns of these countries were even worse than their stock returns!)
More recently, I saw a post that looked into stock versus bond returns in the US, but not over the typical time period that we look at. If you start in 1793, there is a 150-year period where bonds outperformed stocks!
I look at all this data and to me, as a long-term investor, the message is clear. Bet on stocks, but don't bet the farm. A 100% stock portfolio is betting the farm. The future may not resemble the past at all or we may have one of those periods like the 1930s, 1970s, or 2000s.
When I constructed my portfolio, I made a few assumptions:
- Stocks would outperform bonds.
- Small-value stocks would outperform the overall stock market.
- US stocks and international stocks would have similar returns with a correlation of less than 1.
- Stocks and real estate would have similar returns with a correlation of less than 1.
As you might expect, my portfolio reflects those assumptions. But I also wanted a portfolio that was highly likely to reach my financial goals even if one or more of my assumptions turned out to be wrong. I tried to avoid making any big bets that would sink me if they were wrong. As such, I hold lots of stocks, but didn't go “all-in” with a 100% stock portfolio. I have a significant small-value tilt, but I also own the entire market. I own both US and international stocks. I own both stocks and real estate. The goal of investing isn't to win, it's to not lose. Consider both the likelihood that your assumptions are wrong AND the consequences when designing your portfolio.
#4 Easier to Stay the Course
I think it is a big mistake for a new investor who has read a book or two on investing to assume they will be able to tolerate a stock-heavy portfolio in a bear market. When setting up a portfolio in “normal times” lots of stocks make logical sense. But staying the course in a bear market is not a logical experience. It is a profoundly emotional one. Watching money that used to be yours disappear is psychologically painful. That money represents the kitchen upgrade you didn't do, the Tesla you didn't buy, the vacation you didn't take, and the piano lessons you didn't give to your child. Investing more as the market drops day by day and the talking heads on TV are screaming “This is the end” feels like shoving hundred-dollar bills down a rat hole. Ignore the critical behavioral aspect of investing at your peril.
Having SOMETHING invested in bonds at those times not only reduces the volatility of your portfolio but also gives you the psychological reassurance that “At least I didn't put it all in the market.” In fact, your bonds (at least the high-quality ones) are likely RISING in value at that time, providing you reassurance that something you own is actually increasing in value and moderating the volatility of the entire portfolio. You get to say to yourself, “Now I've got some dry powder I can put to work so I can buy stocks while there is blood in the streets,” even if deep down you know that is just a psychological crux and you really don't want to hold “dry powder”.
All of that helps you to stay the course, which is the most critical aspect of investing. You are far better off holding a 60/40 portfolio for decades than a 100% stock portfolio that you sell low just once during your investing career. Avoiding the investment catastrophe of selling low is the most important aspect of portfolio construction. Far better to underestimate your risk tolerance than overestimate it. It's kind of like The Price is Right, where you try to get as close as you can to your risk tolerance without going over.
You really don't want to pull a Happy Gilmore and find out “The price is wrong, Bob!”
#5 Experienced Investors Say Don't Use a 100% Stock Portfolio
I find it interesting that the majority of those who advocate for a 100% stock portfolio are on the young side. When I talk to older investors, they are very much fans of bonds. Their willingness to take risk has dropped over the decades, of course, but part of it is that they have lived through economic scenarios that you and I have never seen. These older folks say “Pay off your mortgage” even though the numbers suggest you could come out ahead by not doing so. They say, “Own both stocks and bonds” even though they would have come out ahead with a 100% stock portfolio over their lifetime. Ignore the wisdom of your elders at your own peril.
Benjamin Graham, who Warren Buffett considers his mentor, said that you should never hold more than 75% of your portfolio in stocks and no more than 75% of your portfolio in bonds. Graham was born in 1894 and died in 1976, so his investment career really started during World War I, extended through the Great Depression and World War II, endured through the cold war, and ended during the stagflation of the 1970s. Stock yields were over 5% for most of his career (actually higher than bond yields) and that was felt to be normal since stocks were so much riskier than bonds. Taylor Larimore is a big fan of holding bonds and recommends you hold up to your age in bonds. He's 94 years old. You might consider what he knows that you don't.
Might want to find a less risky place to watch TV, never know what might land on you.
#6 Don't Take Investment Risks You Don't Have To
Some people may need a 100% stock portfolio to meet their goals. Some people may also need to highly leverage their lives by borrowing against the house in order to invest more. Others may need a highly leveraged real estate portfolio to get what they want. But the chances of you needing to do that to reach your goal are probably pretty low. A typical young attending physician reading this site simply doesn't need to take those kinds of risks to retire early as a multi-millionaire. At a certain point, you've got to ask yourself why you're taking risks you don't need to take. Is 24% more volatility worth it to retire in 29 years instead of 30? Would you be better off cutting back your lifestyle a tiny bit and working an occasional extra shift so you could save a little more money and use a 75/25 portfolio rather than a 100/0 portfolio? Probably. These aren't risks that folks like us need to take. Don't take risks you don't have to.
#7 We Overestimate How Much the Future Will Resemble the Past
A common behavioral error is to expect that the future will resemble the past, particularly the recent past. We project what we have seen will continue indefinitely. A careful study of the past will reveal that time and time again investors are surprised when that isn't the case. How sure are you that stocks will outperform bonds over the next 30 years? How about the next 20? 10? Be careful that this very natural human tendency doesn't lead you to take on more risk than you should. In early 2000, people were really sure stocks would outperform bonds in the 2000s, but they were wrong.
There you go. If I haven't convinced you to add some bonds to your portfolio AND you've invested through your first bear market, feel free to use 100% stocks or more. But the Venn Diagram overlap of those who can tolerate a 100% stock portfolio and those who need to take that kind of risk is so small that the odds you're in that area of overlap are unlikely.
What do you think? Do you hold bonds? Why or why not? What percentage of investors do you think can tolerate a 100% stock portfolio in a down market? Comment below!
“When I constructed my portfolio, I made a few assumptions:
Stocks would outperform bonds.
Small value stocks would outperform the overall stock market.
US stocks and international stocks would have similar returns with a correlation of less than 1.
Stocks and real estate would have similar returns with a correlation of less than 1.
As you might expect, my portfolio reflects those assumptions. But I also wanted a portfolio that was highly likely to reach my financial goals even if one or more of my assumptions turned out to be wrong. I tried to avoid making any big bets that would sink me if they were wrong. As such, I hold lots of stocks, but didn’t go “all-in” with a 100% stock portfolio. I have a significant small value tilt, but I also own the entire market. I own both US and international stocks. I own both stocks and real estate. The goal of investing isn’t to win, it’s to not lose. Consider both the likelihood that your assumptions are wrong AND the consequences when designing your portfolio.”
The above quote is excellent, but I’d like to make a few comments, which assume a holding period of at least 5 years.
Yes, bonds can outperform stocks. But when that happens, the outperformance is usually modest. However, when stocks outperform bonds, the outperformance can be considerably more than modest. And if you’re a taxable investor,, the probability of bonds outperforming stocks is less than modest. The last edition of “What Works On Wall Street” has a chapter on taxable investing, which I would encourage taxable investors to read. Personally, I can’t make money in bonds in a taxable account.
The total market can outperform small value. But when that happens, small value still usually does reasonably well compared to the total market. An important exception is the Depression, when small value did poorly relative to the market. But IIRC, if you held small value for 10 years at that time, it didn’t turn out that badly. And small value allows you to diversify among factors, and that can be very helpful. In fact, that diversification, rather than return, is why I invest in small value. I’m not that confident that small value with outperform in the future.
About stocks and real estate having similar return, with a correlation of less than 1, I’d agree with you. But when I’ve seen analyses of REITs, it’s a stock/bond hybrid. In addition to that hybrid nature, it also includes idiosyncratic risk for which you’re not compensated. Based on that, I don’t overweight REITs in my portfolio. In fact, I’d like to have a portfolio without them, as they are tax inefficient for me.
https://www.pwlcapital.com/reconsidering-reits-in-your-investment-portfolio/
Someone might say that I’m ignoring the vast majority of real estate, which is private. With private real estate, there are issues of liquidity, diversification and increased costs. You have to rely on active management; an indexing strategy isn’t possible. Since I don’t have the ability to value or manage real estate, I would have to pay others to do that. The agency issues associated with that are not small, and historically haven’t gone well for investors like myself.
An all stock portfolio is not “betting the farm”. An all bitcoin portfolio would be.
The risk is really the relative difference in gains of stocks versus bonds.
If your stocks go to zero then there are larger problems in society, and bonds would probably not fare well either.
The not having all your money in stocks advice is up there with you should have some money invested in international stocks advice, things for which the evidence is weak.
The psychological aspects are probably the primary reasons to do one thing or another, so if people are happy with all stocks and can tolerate the risks then I don’t see a problem.
A more interesting discussion might factor in how close a person is to retirement versus historical volatility in the market, e.g. what should you do in the time period immediately prior to retirement.
As always, thank you for the thought provoking blog post!
Au contraire. Let me remind you of the 1930s, when stocks lost 90% of their value and bonds did quite well. For well over a decade bonds outperformed stocks.
Easy to say “don’t invest in international, don’t invest in bonds, don’t invest in small value” after a decade of excellent performance by the overall US market, but I have a feeling your comment will not age well if we check back in on it in 5 or 10 years.
Dear WCI,
I would like your view on Burton Malkiel’s take on bonds, especially in low interest rate environments. He has said it in the past (GFC period) and he said it again recently: substitute bonds with preferred stocks or high dividend stocks (AT&T). Having read Malkiel’s Random Walk book, I struggled with how to reconcile that approach with Jack Bogle’s stay the course approach. What’s your comment on this? Thanks, Hank.
I disagree with it and Jack Bogle would too. Surprised?
Preferred stocks and certainly dividend stocks are not bonds.
https://www.whitecoatinvestor.com/the-pros-and-cons-of-income-investing/
https://www.whitecoatinvestor.com/5-reasons-to-avoid-focusing-on-dividend-stocks/
Rick Ferri, a fan of preferreds incidentally, will readily admit they are not really a bond substitute. Larry Swedroe would point out all the equity risk you are taking with them.
Burton Malkiel is not only 88 years old, but has never had a functioning crystal ball, just like the rest of us. Read his words, but like everybody else (including me), take what you find useful, leave the rest, and don’t give anybody “guru” status in your mind. Consider how dividend stocks did in the GFC compared to bonds. The Vanguard High Dividend Yield Index Fund lost 32.5%. The Vanguard Total Stock Market Index Fund lost 37%. The Vanguard Total Bond Market Fund MADE 5%. The Vanguard Intermediate Treasury Fund MADE 17%. Do those dividend stocks look like bonds to you? They certainly don’t to me. Preferred stocks lost 23% that year (at one point being down over 60%), even worse than what you’d expect from a hybrid stock/bond instrument. They blame that on the fact that a lot of them were banking stocks but still….60%+ on something you thought was bond like? No, if you need bonds buy bonds and don’t get caught chasing yield.
“More money has been lost reaching for yield than at the point of a gun.” – Raymond DeVoe Jr.
My favorite line of the piece: “The goal of investing isn’t to win, it’s to not lose.”
Over the years I’ve found this foolproof method to ascertain the correct allocation for me (I”m approaching 70 yrs old). If, when stocks go up, I have angst for not investing more in stocks and if, when stocks go down, I have an equal amount of angst that I did not invest more in bonds, then I am perfectly balanced. This simple approach allows me to sleep well at night and prevents me from making radical allocation changes in reaction to the stock market.
Totally agree. Great method.
I’m curious what your thoughts are for a very young investor (e.g. still in medical school) with a small 5 figure portfolio but has already established a 6 month cash emergency fund. For instance, my wife and I have about 1/3 of the value of our current investments in cash in a high interest savings account. As time goes on I’m sure the cash number will get much smaller relative to the entire portfolio as we continue to invest, but at the moment I feel like my emergency fund is essentially my “bond allocation.” Is that the wrong way to look at it?
That’s probably fine, especially since you are highly likely to need that cash to pay for school, interviews, moving, a house down payment etc.
Asset allocation is always fun to debate. Ultimately, the correct allocation is a very personal decision taking into account stage of life, risk tolerance, future expectations, etc.
Personally, 100% diversified equity allocation is what works best for me and here is why:
1. I have been investing since 1995 and have never sold during a downturn. I am not sure why so many people worry about selling in a downturn. Why would anyone want to lock in losses? What about the written investment plan? Surely, it doesn’t say sell in a downturn. If you can’t follow your plan, why spend the time writing it? Over the years, it has been easy not to sell. The harder thing to do is to keep buying when the markets tumble, although that has gotten easier for me with time.
2. I look at Bonds as a portfolio stabilizer. If one is in the accumulation phase and is greater than 5 years from retirement, why bother? You do not need a stable portfolio. You need growth until you hit your FI number. Once you hit your FI number, that is when taking additional risk doesn’t make sense.
3. My crystal ball is probably cloudier than WCI’s, but honestly, I have more trouble sleeping with historically low bonds in my portfolio. The yield on the Vanguard Intermediate term treasury ETF is 1.77%. The dividend yield on the vanguard total international stock ETF is 2.54%. The dividend yield on on the vanguard total US stock market ETF is 1.69%. The Federal Reserve shows no signs of creating a more favorable environment for bonds.
4. Finally, if I am wrong and Bonds outperform stocks during my remaining accumulation phase (12 more years), I work a little longer and save a little more. No big deal.
Excellent. You’ve thought through these issues and decided on something that works for you.
IMHO, anyone who panic sells when the market has a dip like we had in March has an asset allocation that doesn’t match their risk tolerance.
When the market dipped to where the DOW was about $20K, I bought MORE index fund shares.
My problem with bonds is too fold. Rates are so low there is a lot of downside if and when they go up without much upside from them going down further, and with our current severe deficit spending there is a reasonable chance of eventual inflation. The second reason is one is leaving out items such as pension funds and social security (and maybe even real estate) may have which could be classified almost in the fixed income category so if on has a 60/40 ratio of stocks and bonds, the pension funds, etc. would raise the percentage of “bond” category without the physician taking that into account.
Just because bonds don’t make much doesn’t mean stocks will. I disagree that real estate should be considered fixed income. Certainly pensions, SS, and other guaranteed payments allow you to take more risk in your portfolio than you otherwise could, but often also decrease the need to take risk.
Assuming I have a 100% stock portofolio of $1,000,000 and a mortgage of $500,000, based on the comments above, my real stock allocation would be 150%. If I would like to change to an 80% stock/20% bond portofolio, these would be my choices:
1. Pay off my mortgage, then sell $200,000 of stocks to buy bonds, to end up with $800,000 in stocks and $200,000 in bonds.
or
2. Don’t pay off my mortgage, then sell $600,000 of stocks to buy bonds to end up with $400,000 in stocks and $600,000 in bonds (600 in bonds minus 500 mortgage would be equal to a real $100,000 in bonds).
Am I correct above?
Pretty much. Few would do either of those, they’d just direct new money to bonds until they got where they wanted to be, either before or after paying the mortgage.
Directing new money to buy bonds before paying the mortgage to achieve a real 80/20 portfolio would seem to me pretty extreme, since more than half of the money invested would be in bonds — as shown in my option 2 on the previous comment. I have never heard any of the FIRE bloggers, Rick Ferri, etc, recommending doing this.
Should TIPS be included in your bond % allocation, or are they a special kind of bond that should be grouped as a different asset class? WCI, have you written a blog post on TIPS? I’m having trouble understanding how they play into, let’s say, a 80/20 stock/bond portfolio…? Thanks!
I include them. Half of my bonds are TIPS, the other half nominal.
The 3rd column “Maximum Historical Loss” is meaningless without a timeframe and probability. It’s easy to glance at the chart and think “OK, I can get 2x returns fully invested in stocks, but the downside is increasing my risk 5x”. That doesn’t sound like a great deal and implies you would pick something between the two extremes.
When you subsequently tell me the loss lasted for 24 hours, 1 week, 1 month or 1 year followed by a full recovery, I’d take a very different view of the table and the risks involved. The increased risk is only a factor for people that can’t stay afloat to see the recovery. The 2008 crash is an easy example with countless investors seeing their portfolios drop by 50%. Fast forward ten years and those same investors are even further ahead *unless* the stocks were sold along the way.
Edit: Didn’t see the data link the first time through. The table is based on individual one year periods over the past 90 years. That doesn’t seem particularly relevant for anyone’s retirement portfolio.
The truth is that the real risk is the risk of permanent loss, not just volatility that will come back if you hold on. But that’s a much deeper discussion than what takes place in this post.
If one is interested in a stable fixed-income investment, it seems to me that a multi-year guaranteed annuity (MYGA) may be a better choice than a bond ETF like Vanguard’s BIV. For example, BIV currently has a duration of 6.5 years and an SEC yield of 1.27%. If interest rates rise, the ETF will lose money. The Fidelity website shows that I can get a 3 year MYGA paying 1.7% (jumbo rate) from a highly rated insurance company. The rate is fixed and does not change. Am I missing something here? Is the only risk that the insurance company may go bankrupt? Thanks…
Dear JIm,
Can you please update us on you latest portfolio allocation and how your portfolio has performed so far?
Also, would like to know how your portfolio compares to S and P 500 in the past and projected future?
Thank you,
Last updates here: https://www.whitecoatinvestor.com/my-index-fund-performance-report/ and here: https://www.whitecoatinvestor.com/spring-2021-real-estate-update/
Same portfolio 60% stock, 20% bond, 20% real estate. You can look up the major components on the Vanguard website: Total stock market, Total International stock market, Small Cap Value Index, International Small Index, Intermediate Muni Bond Fund, TIPS fund, REIT fund etc.
https://investor.vanguard.com/mutual-funds/list#/mutual-funds/asset-class/month-end-returns
My stock portfolio is definitely running behind the S&P 500 index the last 5-10 years as it should be given that US large cap stocks were the best performing asset class over that time period and not all of my stock money was invested in them.
I generally measure my portfolio performance against my goals, not other investors or the market, and in that competition, I have been smashingly successful. I suggest you do the same.
I would like to your thoughts about funds like CPOAX, BFOCX, FAGOX etc. which consistently outperform balance or index funds? Also your thoughts on a IPO and Real Estate Heavy portfolio?
How have your returns compared over the past 10 years with your asset allocation?
,you advise not to loose money and focus on investment goals. I am sure your net worth is 7 to 10 M 🙂 my guess, so at this point you can afford to take risks or be conservative whatever you chose.
Do you invest money monthly or in bulk once a year? Do you try to time the market?
CPOAX, BFOCX, FAGOX: You are using the wrong tense in your statement. You said “outperform” when you meant to say “outperformed”. Past performance is no guarantee of future performance. There will ALWAYS be some actively managed funds that outperform index funds over a long period of time. But you have to pick them in advance of the outperformance, and it turns out that’s a lot harder. Your money though if you want to try. Just realize the odds are really against you, especially in a taxable account.
IPOs generally have poor returns.
I like real estate as an asset class. I have 20% in real estate. I think it’s reasonable to have as much as 80% in real estate.
My returns have been adequate to reach my financial goals early. They’re pretty easy to look up yourself though: https://investor.vanguard.com/mutual-funds/list#/mutual-funds/asset-class/month-end-returns
My spreadsheet says my dollar weighted returns since I started investing in 2004 on my 60/20/20 retirement portfolio are 16.83%, but that’s highly affected by recent excellent returns and the fact that most of my money has only been invested the last few years. It was only a few years ago when that number was much closer to 8%. But choosing a portfolio based on relative returns over the last 10 years is a recipe for performance chasing, which generally leads to poor returns.
Yes, I have enough money that I can take significant risk or be conservative and all it is going to affect is how much I give to charity over my lifetime. I do find it interesting to see what people guess my net worth to be though.
We invest monthly.
We do not try to time the market.
ok, I see your side of the argument.
One of my friends brought Palantir Pre IPO at 6 and 11 dollars for approx. 250 k, now its hovering around 20 to 25 dollars and at one point it was 45 dollars.
My question is if there is a strong company you believe that could be the next Amazon or Google, why not follow that principle, would like to hear your arguments against such solid companies like Palantir, Splunk etc.?
I own Palantir, Splunk etc. I own all the stocks. I bought Tesla a decade ago for instance. That’s one of the great things about index fund investing, you get every single one of the winners.
Great comments as always. If one were inclined to utilize a bit of leverage in addition to a SV tilt, is it optimal to have bonds in the mix at all? Ie: 100% stocks with 10% leverage vs 80/20 with 20% leverage?
Great question. Certainly not if the leverage is at a higher interest rate than the yields!
Hard to get passed the math error in the statement “If I can get 10.1% returns instead of 9.5% returns, over 30 years that means I end up with 12% more money.”
The percentages here are annualized, so the math is exponential not addition. For example, in 30 years $100 would become $1,097 at 10.1% and $797 at 9.5%. That difference is 38% more money, not 12%.
Hard to get past the spelling error in your statement. 🙂
But I can certainly explain the math. You seem to be assuming that all the money was invested up front or something. That was not my assumption. I assumed $50K a year invested over 30 years. Seems more realistic. And it works out to 12%.
=FV(10.1%,30,-50000) = $8,381,990.96
=FV(9.5%,30,-50000) = $7,484,375.11
Difference: $897,615.85
$897,615.85/7,484,375.11 = 12%
Hope that helps you get past the math too.