“I prefer to overweight stocks as much as possible,” he added, “only retaining enough in bonds to cover needs over the nextfive to seven years, or for those that simply can’t stomach the volatility that comes with stocks, especially if they can accomplish all their goals with a less volatile portfolio.
“However, it doesn’t make sense to own an all-stock portfolio just because it will likely perform much better. For those that have more than they need and don’t like wild price swings, bonds are a great addition to take out the unnecessary drama.”
Bogleheads Live host Jon Luskin,owner of Luskin Financial Planning and a registered investment advisor, said an entirely stock portfolio could make sense for some.
“Generally, for some investors who don’t need the money for a very long time and have the iron stomach to stick with it, a 100% stock portfolio isn’t unreasonable,” he said via email. “For younger investors far from retirement— or for those investing for legacy, a 100% stock portfolio could be a fit.
“Of course, whenever investing, folks need to be focused on not only taking the right amount of risk — helping them stick with their investing plan — but also keeping costs low and being diversified. That’s to say, a 100% stock portfolio made of low-cost, diversified funds can be a fit for some.”
It’s more challenging to make a case for high-fee funds with fewer holdings and to argue for picking a handful of individual stocks, he said, explaining that “the odds that one does well as a stock picker are terrible. The same goes for paying high fees to invest; if you pay more to invest, you’ll probably underperform low-cost index funds.”
Christine Benz, Morningstar personal finance director, suggested caution in taking an all-stock stance.
“While an all- or mostly equity portfolio might make sense for those with many years until retirement, our research pointed to the value of a balanced asset allocation for people who are actively drawing on their portfolios,” she said via email.
“For retirees who expect to be tapping their portfolios for 30 years, for example, we found that equity allocations of between 30% and 60% provided the highest starting withdrawal percentage— better than more equity-heavy portfolios,” said Benz.
Even young accumulators are usually saving for intermediate- or short-term goals besides retirement, such as a wedding or a home down payment, she noted. Stocks are too unreliable over a 10-year horizon, so for money that investors aim to spend within 10 years, “I would argue it’s much smarter to hold a combination of cash and bond funds rather than being in stocks,” Benz added.
” If an investor wanted to hold some stocks for growth potential in the ‘spend within 10 years bucket’ it should be a fairly small percentage,” she said.
(Pictured: Ben Carlson of Ritholtz Wealth Management)
