In the long run, stocks are likely to outperform bonds, but there are large variation in return over the short term. In order to get that return, you will have to hold it through some downmarket. You have to keep investing when your portfolio gets cut in half such as in 2008. You may have to keep investing if stock return -1% real for the entire decade such as the decade staring in 2000. Can you do this for several decades? If you will panic and sell out to cash, then perhaps you should consider a lower stock allocation. Stocks bond is the most important choice in your allocation.
As you near your goal, you will want less variation. There are those who say they want to have 100% stock forever, but what if the stock market drops 50% in the year your retire. That $2 Million you counted on for retirement is now $1 Million. This is why people start adding bonds to reduce variation in returns.
Do you need internatinoal diversification? This is less important than stocks vs bond. Looking back, having international fund reduced your return in the past couple of decades. Does this mean this will also be true in the long term? No one knows. You might want to have international allocation if you feel US market may not dominate in the future. For example, Japan in the late 80's thought they would be soon surpass the US, but then got 3 decade of crappy return.
Whatever you do, make sure you save enough. 100% stock of 1% contribution isn't going to meet your retirement goal. It's better to max out your 401K or at least save 15-20%. You should also assume that you might hit some roadblocks. You may get laid off at some point in your career or multiple times. You should have enough emergency fund to prevent you from drawing from your retirement savings. To prevent other dangers, make sure you have enough insurance to protect law suits, and have disability insurance.
As you near your goal, you will want less variation. There are those who say they want to have 100% stock forever, but what if the stock market drops 50% in the year your retire. That $2 Million you counted on for retirement is now $1 Million. This is why people start adding bonds to reduce variation in returns.
Do you need internatinoal diversification? This is less important than stocks vs bond. Looking back, having international fund reduced your return in the past couple of decades. Does this mean this will also be true in the long term? No one knows. You might want to have international allocation if you feel US market may not dominate in the future. For example, Japan in the late 80's thought they would be soon surpass the US, but then got 3 decade of crappy return.
Whatever you do, make sure you save enough. 100% stock of 1% contribution isn't going to meet your retirement goal. It's better to max out your 401K or at least save 15-20%. You should also assume that you might hit some roadblocks. You may get laid off at some point in your career or multiple times. You should have enough emergency fund to prevent you from drawing from your retirement savings. To prevent other dangers, make sure you have enough insurance to protect law suits, and have disability insurance.
Statistics: Posted by gavinsiu — Mon Oct 14, 2024 10:30 pm