Convincing myself to go 100% equities

Linton

NoviceInvestor1 said:

adindas said:

Changing the dates gives a very different outlook though....

Total Return Bond Index vs Total Return S&P500 from 2000 - 2010 (orange is TR bonds, black TR S&P500, red S&P500 share price no dividends)

Excellent point. Many graphs used to prove a argument can be used to disprove the same argument by changing the time period.

Also during the past 40 years, in particular since the Great Crash, bond returns were non-sustainably inflated by growth in capital value. In the perfect world without reinvestment non-inflation linked bond prices would stay constant in cash terms

Linton

JohnWinder said:

Linton said:

It is a mistake, I believe, to determine your %equity on a wimp/hero risk acceptance scale. Better to calculate it based on what you want from your investments.

Yes, the accepted wisdom is that ‘willingness’ to take equity risk is not the best basis for choosing an equity allocation. Better to also consider ‘need’ (do I need those sort of returns?), and ability (can I ‘feed’ myself with that much volatility and potential downside?). Willingness, need, ability, then choose the lowest equity percentage that those three point to.
https://www.cbsnews.com/news/asset-allocation-guide-how-much-risk-should-you-take/

I thought the “accepted wisdom” for all investment problems was VLS60  .

adindas

NoviceInvestor1 said:

adindas said:

Changing the dates gives a very different outlook though....

Total Return Bond Index vs Total Return S&P500 from 2000 - 2010 (orange is TR bonds, black TR S&P500, red S&P500 share price no dividends)

Plot that into a larger scale so you could cover a much wider range (see below) and see the bigger picture. Unless people could argue that they know better than the proven billionaires investor such as Warren Buffet, Peter Lynch, Howard Marks, etc good luck with relying on your bond investment if the aim is a wealth creation rather than a wealth preservation. In 2009 Bond investment was very popular in the UK due to the launching of Vanguard  in the UK with its popular multi assets funds. But it has started last year some people start thinking otherwise. We have seen there are some threads about this in MSEs.

There is nothing certain in the stock market. People could easily observe that in only in a few occasions bonds beats equity, but Vast majority of the time it is not. Using statistics and probability, which one has a higher probability that you might be landing on the right side. If you toss an "unfair coin" and you know that the "head" come in the vast majority of the time, which one you choose, head or tail ??

Equity beats bonds over a long run is a general consensus, so people do not even need a research to know that.

Again DYOR and we believe what we want to believe and we take the consequences of our own decision

NoviceInvestor1

adindas said:

NoviceInvestor1 said:

adindas said:

Changing the dates gives a very different outlook though....

Total Return Bond Index vs Total Return S&P500 from 2000 - 2010 (orange is TR bonds, black TR S&P500, red S&P500 share price no dividends)

Plot that into a larger scale so you could cover a much wider range (see below) and see the bigger picture. Unless people could argue that they know better than the proven billionaires investor such as Warren Buffet, Peter Lynch, Howard Marks, etc good luck with relying on your bond investment if the aim is a wealth creation rather than a wealth preservation.

But you literally used a far shorter timeframe (during the middle of a stock market bull run) to seemingly attempt to prove stocks return more than bonds?

I used a timeframe of 3 x as long to show that’s not always the case. 

This idea that billionaire x doesn’t invest in bonds therefore it’s wrong to do so is also none sense. Billionaire x has a very different set of circumstances to average punter y. I think the idea that Buffet, Lynch or Marks do it like this so you should too is dangerous. 

adindas

NoviceInvestor1 said:

But you literally used a far shorter timeframe (during the middle of a stock market bull run) to seemingly attempt to prove stocks return more than bonds?

I used a timeframe of 3 x as long to show that’s not always the case. 

This idea that billionaire x doesn’t invest in bonds therefore it’s wrong to do so is also none sense. Billionaire x has a very different set of circumstances to average punter y. I think the idea that Buffet, Lynch or Marks do it like this so you should too is dangerous. 

Well I never say that. There is nothing certain in investing world. If there was such kind of thing then many people would become a multi millionaires in relatively short period of time. But if there is some level of uncertainty and you will have to choose, which one you choose ? I for certain will choose the higher probability where I might be landing in the right side.

NoviceInvestor1 said:

But you literally used a far shorter timeframe (during the middle of a stock market bull run) to seemingly attempt to prove stocks return more than bonds?

I used a timeframe of 3 x as long to show that’s not always the case. 

This idea that billionaire x doesn’t invest in bonds therefore it’s wrong to do so is also none sense. Billionaire x has a very different set of circumstances to average punter y. I think the idea that Buffet, Lynch or Marks do it like this so you should too is dangerous. 

I fully agree with this. That is why I said "DYOR and we believe  what we want to believe and we take the consequences of our own decision". I also mentioned about the personal goal, it is wealth creation or wealth preservation ?

El_Torro

Deleted_User said:

AIUI, there is little advantage in going higher than c. 75-80% equities, because although bonds (& any other alternatives) are expected to return less than equities as stand-alone investments, that is largely made up for by the "rebalancing bonus" you expect to get from holding a mixed portfolio (which is rebalanced - either automatically inside the multi-asset funds, or manually).

Thanks for the comments everybody, some interesting posts. I have highlighted this comment as the most thought provoking for me. It may be a simplistic way to look at things, but I think it shows that some bonds can be of use regardless of what our investment timescale is. 

I don't have much more to add, most has been said already. Still not sure if I will change my pension investments, definitely some food for thought in this thread though. 

noclaf

This is one of the trickier aspects of investing as views differ on the optimum approach.

I am 41 and 100% equities across the board, have been for a few years. I don't have a DB pension or rental income and at this point assume I never will so my focus is building up my S&SISA and DC pensions as much as possible during the growth and accumulation phase and then at some point maybe with less than 10 years to go I could start to derisk the S&SISA investments as those will be needed first and keep the pension fairly high risk/equities. It's one idea for my approach but nothing is 100% certain or set in stone. I also have a LISA S&SISA so hoping that will grow and will also form part of retirement planning unless my other investments grow sufficiently such that I could leave that untouched.

 Another idea is whether at retirement I could purchase an annuity for one part of my pension and the rest as drawdown to have a secure income and one that is more flexible, best of both worlds. Not qualified to make a judgement as yet, I am 100% DIY with all my investments, but will consider the need to take on advice closer to retirement to hopefully avoid making any silly decisions!

NoviceInvestor1

adindas said:

Well I never say that. There is nothing certain in investing world. If there was such kind of thing then many people would become a multi millionaires in relatively short period of time. But if there is some level of uncertainty and you will have to choose, which one you choose ? I for certain will choose the higher probability where I might be landing in the right side.

I fully agree with this. That is why I said "DYOR and we believe  what we want to believe and we take the consequences of our own decision". I also mentioned about the personal goal, it is wealth creation or wealth preservation ?

This all assumes that historic higher returns are the sole factor in generating wealth though - you seem to be saying "Stocks have gone up the most over time so if you want to generate wealth buy stocks".

This isn't illogical at all, but it removes investor behaviour and human emotion from the equation - which I think is the key to actual real life returns. 

What bonds have done is dampen volatility, and therefore may have encouraged people to stay invested when they otherwise wouldn't have. 

If you look at 100% stocks vs a 60/40 portfolio using US data (as it's easiest available) the 100% stocks HAS done better. But does that mean anyone 100% stocks has generated more wealth? Because annualised volatility was a third higher. Max drawdown was 50% not 30%. Worst year was far higher. 

I think (judging by what you see on forums of people constantly selling at lows, being shaken out the tree at the worst possible time etc) that MOST retail investors would have generated far more wealth using the 60/40 portfolio below than the 100% stocks below.

Yes the stocks returned more but from what we can observe about our behaviours and that of others I don't think those higher returns translated through to more wealth generation.

barnstar2077

My ISA and pension are both 100% equities.  I want to retire earlier than state pension age, but I also have some flexibility as to when I do so, so I can always delay a few years (or do less hours) if things are not going so well at the time.

EthicsGradient

NoviceInvestor1 said:

adindas said:

Well I never say that. There is nothing certain in investing world. If there was such kind of thing then many people would become a multi millionaires in relatively short period of time. But if there is some level of uncertainty and you will have to choose, which one you choose ? I for certain will choose the higher probability where I might be landing in the right side.

I fully agree with this. That is why I said "DYOR and we believe  what we want to believe and we take the consequences of our own decision". I also mentioned about the personal goal, it is wealth creation or wealth preservation ?

This all assumes that historic higher returns are the sole factor in generating wealth though - you seem to be saying "Stocks have gone up the most over time so if you want to generate wealth buy stocks".

This isn't illogical at all, but it removes investor behaviour and human emotion from the equation - which I think is the key to actual real life returns. 

What bonds have done is dampen volatility, and therefore may have encouraged people to stay invested when they otherwise wouldn't have. 

If you look at 100% stocks vs a 60/40 portfolio using US data (as it's easiest available) the 100% stocks HAS done better. But does that mean anyone 100% stocks has generated more wealth? Because annualised volatility was a third higher. Max drawdown was 50% not 30%. Worst year was far higher. 

I think (judging by what you see on forums of people constantly selling at lows, being shaken out the tree at the worst possible time etc) that MOST retail investors would have generated far more wealth using the 60/40 portfolio below than the 100% stocks below.

Yes the stocks returned more but from what we can observe about our behaviours and that of others I don't think those higher returns translated through to more wealth generation.

No, I don't think it would be valid to say "MOST retail investors would have generated far more wealth using the 60/40 portfolio". While there is a danger of people buying or selling at the wrong time, most private investment in the market is pretty regular - through pension saving mainly, and also regular investing in other forms. adindas's chart of the rolling 30 year average is most relevant for that - if a particular bit of money stays invested for 30 years (eg you start investing your pension about 30 years before retiring, and draw it for nearly 30 years), it's been better in stocks almost every period over the past century. It takes a lot of bad decisions to overcome that.

But risk is important, because many people need a certain minimum return, and it's worth giving up the chance of a far higher one to make getting at least that minimum as likely as possible. That's why bonds can still be important.