AFTER THE MARKET turbulence of recent months, the idea of a 100% stock portfolio would strike many folks as crazy. Yet, when I was in the workforce, that’s pretty much what I owned.
I never felt my all-stock portfolio was particularly risky. My wife and I had solid paychecks to rely on. We always maxed out our retirement plans, while also adding to other accounts, and then lived on whatever remained.
While the stock market’s volatility and the occasional downturns may have been disconcerting, they never changed our all-in stock approach for our long-term savings. In the event of a major downturn, we felt we could always continue working to rebuild our savings and, if necessary, delay our retirement.
In addition to the security offered by our paychecks, the risk of an all-stock portfolio was somewhat mitigated by other areas of our financial life. Like most folks, we were earning Social Security benefits. I was also fortunate to be covered by a traditional pension plan, providing further retirement funds with no stock market risk. On top of that, we had significant and growing home equity.
These various resources provided a solid, multi-legged stool for retirement. In addition, we ended up with another half leg, thanks to an inheritance and some income from a side business, though we never counted on these.
Our confidence in our all-in approach was further bolstered by our conservative stock portfolio. We mainly invested in broad, low-cost U.S. stock market index funds, with almost no foreign market exposure and never any emerging markets investments. I figured I’d let U.S. companies manage our foreign market exposure, along with the related currency and political risk. No doubt we incurred occasional opportunity costs, missing out on hot markets and hot sectors. But our tortoise approach allowed us to stay fully invested in the game.
This approach also delivered lower portfolio volatility, and served us especially well in the 1987, 2000 and 2008 downturns. In fact, I still own my first individual stock, bought in 1977, and my first mutual fund shares, from 1982. Both are up more than tenfold. We also never had to fuss much about rebalancing. We simply let our stock funds compound.
Upon retiring, we cut our stock allocation to 85% initially, followed by a series of smaller reductions that have brought us down to 67%. We made these changes to reflect our lower risk tolerance, because we no longer have those paychecks to back us up. The lower allocations locked-in gains and increased our non-stock assets, so we can better weather any market downturn. With our current allocation, we should be fine, regardless of which direction the market goes.
John Yeigh is an engineer with an MBA in finance. He recently retired after 40 years in the oil industry, where he helped manage and negotiate the financial details for multi-billion-dollar international projects. John now manages his own portfolio and has a robust network of friends, with whom he likes to discuss and debate financial issues. His previous articles were Off the Payroll and Half Wrong.
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My parents have always been fully in the stock market, except for the family home, and father now 95. I’m 70 and feel the same. If you can get by a couple of years without having to sell stocks, and if you’re diversified in large, dividend-paying companies, you can weather a downturn. That’s been my experience anyway. Downturns do worry me but so far they all pass. I do have the protection of a pension and Social Security.
Similar philosophy and approach, all stocks. Mostly predicated on our situation, where both spouse and I are working, live well beneath our means, and have retirement/other qualified accounts that will provide income when we’re no longer working. So basically, we’ve worked to stretch out time horizon out such that I think we’re able to buffer the unavoidable bumps and turmoil of the stock market. While we have international holdings, the vast majority of our equities are in US companies. It’s basically a long-term bet on America.
My experience has been similar. My wife and I, both 79, retired in 2010, and we’re invested all in mutual stock funds. Except we have 20% in foreign stock funds, half of which are in emerging markets. We’re pleased with how our investments have done sine 1981, but especially in the last year, in which we’re up 38%. I’m a little bothered by the possibility that we are victims of the “recency fallacy”.