Convincing myself to go 100% equities

NoviceInvestor1

MK62 said:

I took it to be more of an illustration of "average" investor behaviour........

I think you are right, its about investor behaviour. Full article here:

https://www.jpmorgan.com/wealth-management/wealth-partners/insights/the-case-for-always-staying-invested

The study that led to the figure around average investors is based on analysing fund flows, looking at when retail investors buy and sell (seemingly buy high after something has done well, then sell it at a loss when it tanks). Morningstar have run similar data on ARKK and again showed most people bought after it had done well and and are underwater. 

Ultimately I am sure any such study has its flaws, and will rightly be challenged. But I’ve seen lots of evidence of this kind of “typical” behaviour with my own eyes. 

The overall point was in response to the idea that stocks have had the highest returns and this must make them the best way to generate wealth. On paper they have had the highest returns, but not everyone will have capitalised on that wealth generation opportunity as the volatility will have no doubt shaken many people out. Meanwhile the boring old bonds chugged along and made the balance of risk vs reward more palatable. 

As a disclaimer I am 100% equities, but just find the subject of bonds and investor behaviour interesting. 

barnstar2077

bostonerimus said:

barnstar2077 said:

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.

Do you have a plan for the size of pot you need and the income you need to generate? ie why are you taking the risk of 100% equities. What other things have you done as part of your income plan? Have you eliminated debt including the mortgage or looked into sources of income other than drawdown and SP?

I am currently about nine or ten years away from accessing any of this money.  I own my own home, the mortgage on which is very small (I think I owe about 12k at the moment, and I have intentionally increased the term to make the payments small enough to be irrelevant.)

When I compare the idea of having a proportion of my money in bonds (to try and offset the perceived risk of equities) with just being 100% equities I think that the probable drag of bonds on the pot just isn't worth it compared to the possible higher returns of equities.

If the 100% equities plan goes well, then I will either retire earlier, or have more money when I retire.  If it doesn't go well, then I can go part time or delay my retirement.

If I invest with a sizable portion of bonds and it goes well, then it probably still wouldn't beat a good result from a 100% equity pot.

So, I am rolling the dice to certain extent, and if I had a definite fixed date in mind that I needed the money for then I may decide differently (debatable.)  At the moment though my plan is to be 100% equities from now until well into retirement.

I think this fits in with my philosophy in general though, as I have often thought before that if I was ever in a serious accident and could have surgery that could increase my quality of life, but there was (for instance) a twenty percent chance I might not survive the surgery, I would definitely get the surgery.

"He who dares Rodney!" and all that :  ) 

Time will tell.  

Happy_planner

Not having a material mortgage is a legitimate consideration. A mortgage is effectively a negative bond (ignoring liquidity issues). It’s easier to justify a higher equity weight with less risk elsewhere in life. 

bostonerimus

Happy_planner said:

Not having a material mortgage is a legitimate consideration. A mortgage is effectively a negative bond (ignoring liquidity issues). It’s easier to justify a higher equity weight with less risk elsewhere in life. 

My point exactly, but the OP seems to have the mortgage well in hand. Just think of recent retirees who have to get a new mortgage today. It could be hundreds of pounds in unexpected extra costs on top of having to deal with 10% inflation. Having lots of equity in a home is a good back stop for an extended (a Japanese decade) stock market down turn, but selling losing equities for a decade because you need the income would really hurt. The OP should look their budget and go through the scenarios with emphasis on the bad ones. If they want to be 100% equities, what sort of equities do they want and why? Do they need growth or would a dividend emphasis work for them?