I have been debating whether to diversified more on my equity side. I do have about 30% international but thinks about whether i should adding some small cap and value. The goal is to build a portfolio that will survive things like higher inflation and Japense lost decade.No doubt that 100% stocks may be difficult to maintain in retirement. The talking points coming out of the Cederburg study are simply that what may be Optimal for a Robot, may not be Optimal for a Human.
I only have access to the Morningstar article, which doesn't have the full detail. It's not clear to me if they did 100% for the enire lifetime and the other use a fairly aggresive allocation and then switch ot a more conservative when retired.
I still feel that 100% stock may be somewhat hard to maintain in retirement. I have use a 100% stock most of my life but that is because I had constant contribution to help alleviate the lost. I am pretty sure that it will work but I am doubtful that many even in this forum can handle 100% in retirement even if intellectually a higher equity allocation is better. The main selling point for Target is that they help guard against the destructive behavior of overtinkering with your portfolio and end up selling low and buying high.
I did notice that having diversifying the account domestically seems to help return during the same period LINK. May be it won't work in other periods.
So what this highlights to me is that Bonds do have a place in a portfolio for many people, even if they are largely psychological/behavioral.
Me personally? I am fine with 100% Stocks and probably will be into retirement, but there are some caveats:
- I'm planning for a very low SWR for core expenses (less than 2% SWR) and can cut back if times get tough should I decide to spend higher
If you look at most major markets that have terrible returns for a long period of time, it seems to be due to: 1) War 2) Overvaluation 3) Unexpected Inflation. While you can't control for the first item, Value investing has proven to help with overvaluation and unexpected inflation over the long term.
- My comfort level with 100% stocks is due to high levels of diversification across regions and factors - focusing heavily on international stocks and Value stocks in my portfolio with allocations that some would find extreme
The uncertainty at the later is making me do at least some bonds. Now that I am closer to retirement I am feeling a bit uncertain and wonder if I wil be forced to retire early.
Statistics: Posted by gavinsiu — Sat Feb 15, 2025 8:29 pm