Investing - Theory, News & General • Re: 70/30 has almost the same return as 100% stocks?

For 4% withdrawal rate, 75% stocks *barely* outperforms 100% stocks over 30-40 years and *barely* underperforms 100% stocks over 50-60 years.
https://earlyretirementnow.com/2016/12/ ... t-1-intro/

Yes, the 100% stock investor retiring at, say, 60 in 2000 is underperforming the 70% investor, but they are now 84 and still have $688k. If the success criterion is not running out of money, they are still doing OK. And that is a cherry picked worst case scenario.

For higher withdrawal rates, say 5%, 100% stocks has outperformed 75% stocks for all 30-60 year timeframes. For lower withdrawal rates, both do about equally well.

My guess is that having a bond allocation really starts to help when you get down to 10 or 20 years with higher withdrawal rates. Say you have 10 years left in retirement with 12-15 years expenses left... at that point, you really could not afford a 50% market crash with 100% in equities.

Of course I was cherry picking. I was trying to demonstrate that 25 years is not sufficient time for a 100% stock portfolio to recover. 2000 is not even the worse time to retire, I think 1966 is but I don't have that data in PV.

Obviously the 100% person still probably will make it and in the next 10 years, they will probably recover and even exceed 70/30, but I feel that you may be one of the tiny niche of people who can stand watching their $1M portfolio go to $300K or so in the first 8 years of retirement. There is a reason why a 30% equity is popular despite its drawbacks. If your withdraw rate is really low like 1%, it hardly matters which allocation you use. I often feel that bond allocation is often more for the physiological factors.

Statistics: Posted by aristotelian — Wed Aug 21, 2024 4:40 pm