Related Posts
Pro
Conversation Starter
Rent or Buy a house?
Subject Expert
More Posts
Community Builder
Enthusiast
Summary for this year
Community Builder
Anyone here working with a Match Maker?
Any feedback regarding HUMA?
Additional Posts in Personal Investment Chatter
Conversation Starter
Anyone sweating over AMC 😬
Conversation Starter
Rising Star
Anyone buying today?
$70k this week?🚀
Rising Star
I’m in the exact same boat (32, 100% equites for 401k/IRA) and I think since your retirement horizon is 20+ years out, there’s little reason to pull out of equities for 401k/IRA funds. Perhaps for taxable brokerage accounts there might be some value in diversifying, but I think you should be comfortable leaving your retirement accounts are purely equities for at least another 10 years.
Agree.
Rising Star
Retirement is 25+ years away. It’s probably worth visiting your asset allocation once or twice a year, but worrying about potential short term fluctuations in the market is not worth your time. You will never be able to “time” the market, so keep your outlook long.
You know all those people who lost 50% of their 401k in 2008? The value was all restored within 1 to 3 years, and now that’s just a blip on the radar. Same with March 2020… 6 months later, everybody was up again, and 18 months later, we are back to record highs.
Go long and don’t sweat the small stuff.
Except for those who couldn’t and sold to move to cash or bonds after the crash. See this article https://www.forbes.com/sites/advisor/2014/04/24/why-the-average-investors-investment-return-is-so-low/?sh=6dbdc4a111a3, most don’t do the right thing.
You are absolutely correct, at least historically, buying and holding 100% equities gets you the best long term return, but maybe not the highest risk adjusted return.
I advocate that each investor needs to look hard at their likely behavior, because staying the course with 100% equities isn’t easy.
There is value to have the stabilizing impact of bonds in your portfolio when we hit another ‘87, 2000, or 2008 type event. Given you probably didn’t have any significant savings in’08 it can be hard to really know what it feels like when it looks like the financial world is falling apart. 3/20 wasn’t comparable in size or how long lasting it was. Having just a small base in bonds dampens the drop and allows you to take some positive action in rebalancing to your 80/20 asset mix. Staying the course is harder than most people think in these times, the cost of your 20% ballast in bonds I think is worth it. And you’re right, the index price of bonds will take a hit with rising interest rates, but if held for the duration plus, I believe I recall, one year, the increased coupon payments will make you whole again relative to the loss in asset price. So if you plan on adding a proportion of BND long term, the risk relative to interest rate changes isn’t that great. If this low returning 20% stops you from selling low, even with the loss of returns on the 20%, it could give you an overall increase in long term performance. I’ve held bonds in my portfolio since watching the dot com crash wipe out too many friends. No regrets.
Asset allocation is personal. 100% equities is fine at 30 if in a significant downturn that person won’t do anything to hurt their long term success (selling low). Bogleheads typically suggest envisioning a 50% long term hit to equities and really looking at what you might do. My point, is that many haven’t seen their hard earned dollars tanking. Holding steady is harder than most think.
I also addressed above. If holding bonds long term, the risk of interest rate increases is netted out by the increased coupons.
and bond yields are terrible. That said, it feels wrong to continue pouring money into equities at these valuations. Any advice appreciated! I’m not an expert by any means, so welcome people telling me my reasoning is off.
Because over the long term the bonds will be paying the higher rates. I would not invest in bonds short term now, but if you plan on holding a bond fund for a long time, you will be fine, assuming higher quality bonds
That's why flows have gone into liquid / illiquid alts funds.
Rising Star
If OP was 3 to 5 years away from retirement, I would have a different response and suggest being much more conservative. But 25+ years away, planning for a “potential downturn” doesn’t make sense.