Investing

Investment horizon of 25+ years. Should I be investing in 90-100% equities?

  • Last Updated:
  • Jul 18th, 2019 1:24 pm
[OP]
Jr. Member
Jun 14, 2018
119 posts
162 upvotes

Investment horizon of 25+ years. Should I be investing in 90-100% equities?

Hey everyone,

Just started investing in mutual funds (TD E-series index funds and bond fund). Plan was to do 75/25 equities/bonds, but with my investment horizon being 25+ years, I'm rethinking whether I should up the equity to 90-100%. I don't really see the point of investing much, if any, in bonds at this time. It does help mitigate bigger losses, but if I feel that the Index funds will come out ahead over the 25+ years, all the bonds really do is negate some of my potential gains.

Does it make sense to be more aggressive in my allocation?
17 replies
Jr. Member
Jan 16, 2009
171 posts
96 upvotes
Go to the Canadian Couch Potato website and type in "Ready, Willing and Able to Take Risk".

It may have some answers that you are looking for.

If you are investing in a TFSA I would just purchase VEQT. It Vanguards 100% equity ETF.

When that is filled you can then purchase VBAL (60% equities, 40% bonds) in your RRSP. If you max your TFSA and RRSP then don't touch it until retirement you should be more than fine.

Make sure to do your own research though. Everyone's situation is different (e.g. Pensions, inheritance, single, married, kids, mortgage etc.).
Deal Guru
Jan 27, 2006
11182 posts
4561 upvotes
Vancouver, BC
As long as you have the risk tolerance (ie. if the market drops 25% two days after you are fully invested, will you be OKAY with it?), then absolutely 100% into equities as long as you have an emergency fund that will cover you for 3 months of expenses without any additional income.

There is absolutely no reason to have anything lower than 90% equities at this stage in your life as long as you have the risk tolerance for it that is as equities have historically outperformed bonds in the long run but equities have been much more volatile which is fine as long as you have a long time horizon. The traditional school of thought for bonds is to use your age as the percentage of bonds in your portfolio but even that is being rethought as the current bond yields are too low compared to the past and life expectancies have increased which means that if you go into bonds too much, too soon, you might outlive your money which is a very bad thing.

As for allocations between account types, don't worry about it. It makes little sense to allocation funds into any bond investments with the proper risk tolerance and a long time horizon. You would just be reducing your overall returns in the long run.
Newbie
May 2, 2019
81 posts
43 upvotes
Vancouver
MarinersFanatik wrote:
Jul 15th, 2019 12:27 am
I don't really see the point of investing much, if any, in bonds at this time. It does help mitigate bigger losses, but if I feel that the Index funds will come out ahead over the 25+ years, all the bonds really do is negate some of my potential gains.
This is a very common and very dangerous feeling. You don't know your actual risk tolerance until you build a significant portfolio and see the equities drop 35% or so off the highs. On average, that happens about every decade. Imagine you are in the fall of 2007 and put 100% of your portfolio to equity, just to see your investment lose 50% of its value by early 2019. Many people felt terrible and bailed at the worst moment. Perhaps it was even tougher for people who bought in 2000, survived a big drop and recovery, and back to big losses by 2009.

Instead of getting greedy at all time highs, it is a good time to be conservative. Stick to your 75% equity plan or maybe even less. If the market goes higher, you are a winner (slightly less, but still). If the market goes down, rebalancing every 6 months will allow you selling bonds (likely at a profit) and buying equities at a discount. You can revisit a higher equity allocation when/if the market drops 20%, 30% or more from the highs - then it could be a good idea.
Deal Addict
Nov 9, 2013
3108 posts
2120 upvotes
Edmonton, AB
MarinersFanatik wrote:
Jul 15th, 2019 12:27 am
\It does help mitigate bigger losses, but if I feel that the Index funds will come out ahead over the 25+ years, all the bonds really do is negate some of my potential gains.

Does it make sense to be more aggressive in my allocation?
This seems to be true over the very long term - https://personal.vanguard.com/us/insigh ... llocations

Nonetheless, I hold bonds. As much as I can rationalize the price decrease as better for me in the long term (buy more assets with less money) I still feel the emotional pain that comes with a drop. Bonds help offset this. If it stops me from doing something stupid (i.e. selling low due to fear) then it's worth the drag on long term returns, because I'm more likely to succeed when I avoid dumb emotional decisions in investing.
Deal Fanatic
Feb 15, 2006
8281 posts
2554 upvotes
Toronto
MarinersFanatik wrote:
Jul 15th, 2019 12:27 am
Hey everyone,

Just started investing in mutual funds (TD E-series index funds and bond fund). Plan was to do 75/25 equities/bonds, but with my investment horizon being 25+ years, I'm rethinking whether I should up the equity to 90-100%. I don't really see the point of investing much, if any, in bonds at this time. It does help mitigate bigger losses, but if I feel that the Index funds will come out ahead over the 25+ years, all the bonds really do is negate some of my potential gains.

Does it make sense to be more aggressive in my allocation?
The important question is what is your risk tolerance, and what/when might you need to withdraw some money.

As others have said, equity can go down a lot, are you ok because you won't panic if it goes down 35% or 50% and not bail out at the worst time. If you also may need to withdraw some money out, and the equity is down, is that ok?

For fixed-income portion, it's not only bonds.
Deal Guru
Jan 27, 2006
11182 posts
4561 upvotes
Vancouver, BC
Here's a great graph comparing the S&P500 with the Bloomberg Barclays US Aggregate Bond Indexes -
Image

Notice that the S&P500 outperforms the Bond index by a wide margin since 1993 so that would include two major crashes. You can see on the graph that even with those two major crashes, if you bought and held (ie no selling), over that entire time frame there are only a few months at the end of 2008 where you would not have been ahead of someone holding just bonds. Yes, you could argue that the bond investor could have used a more aggressive index with higher returns but then you could also argue that the equity investor uses a different index as well... besides, a few fractions of a percent a year isn't going to change the story that much.

The interesting thing is that if you take 2008 timeline as a model, you could argue that instead of going into fixed income as a larger and larger percentage of your portfolio as you age, you could make the case that you just need to be able to cover your expenses for a period of time with the fixed income while the stock market rebounds (in this case about 3 years worth of funds and that's assuming the equity and the fixed income portion doesn't throw off any dividends or special payments during that time). And as the stock rebounds, you could start selling off some of those gains to refill the fixed income portion of the portfolio. If you factor in things like interest, dividends, and special payments, you might need less as those will supplement your fixed-income portion.
Member
Oct 21, 2016
262 posts
67 upvotes
Yeah no bonds . Lost 25 percent in December bought more . Will probably lose it again at some point buy again . Been through it meh. Only reason to keep bonds long term is to turn it to cash to buy a drop or crash .
[OP]
Jr. Member
Jun 14, 2018
119 posts
162 upvotes
Thanks for all of the replies.

I'll probably just end up doing 80/20 equities/bonds. I'm trying really hard to convince myself to go up to 90-100% equity, but I just can't muster up the courage to pull that trigger even though the stats overwhelmingly suggest that I do so. The difference in volatility isn't even that much, but there's a psychological barrier that I can't get through which is preventing me from being okay with being at a higher equity position.

At the end of the day, I'm probably not losing out on much by not being at the higher equity position. I guess the most important thing is that I'm at an allocation where I know I won't panic when I see a big loss.
Sr. Member
User avatar
Jul 25, 2018
661 posts
992 upvotes
Milton, ON
MarinersFanatik wrote:
Jul 15th, 2019 9:09 pm
Thanks for all of the replies.

I'll probably just end up doing 80/20 equities/bonds. I'm trying really hard to convince myself to go up to 90-100% equity, but I just can't muster up the courage to pull that trigger even though the stats overwhelmingly suggest that I do so. The difference in volatility isn't even that much, but there's a psychological barrier that I can't get through which is preventing me from being okay with being at a higher equity position.

At the end of the day, I'm probably not losing out on much by not being at the higher equity position. I guess the most important thing is that I'm at an allocation where I know I won't panic when I see a big loss.
I've posted this before on other threads, everyone is a long-term investor until the market tanks. A 30% drop of a portfolio consisting of 80% equities, assuming rest in cash, will lead to an overall drop of 24%. For 90%, it's a 27% overall drop. Are you really saying you won't panic for a 24% drop but you might for 27%? If so, re-evaluate your allocations. Until you've lived through an '08-'09 style recession, dot-com bubble or even something as "tame" as last December, you don't really know how you'll react.
[OP]
Jr. Member
Jun 14, 2018
119 posts
162 upvotes
JoelK22976 wrote:
Jul 16th, 2019 12:08 am
I've posted this before on other threads, everyone is a long-term investor until the market tanks. A 30% drop of a portfolio consisting of 80% equities, assuming rest in cash, will lead to an overall drop of 24%. For 90%, it's a 27% overall drop. Are you really saying you won't panic for a 24% drop but you might for 27%? If so, re-evaluate your allocations. Until you've lived through an '08-'09 style recession, dot-com bubble or even something as "tame" as last December, you don't really know how you'll react.
Right, so that's what I mean. I know what the numbers are saying and I still don't have it in me to take it up to 100% equities for the reason that you mentioned. Somehow I've kind of arbitrarily decided that 80/20 is the sweet spot for me where I think I can be rational in the case of a big loss.
Deal Addict
Oct 1, 2006
1948 posts
1190 upvotes
Montreal
JoelK22976 wrote:
Jul 16th, 2019 12:08 am
I've posted this before on other threads, everyone is a long-term investor until the market tanks. A 30% drop of a portfolio consisting of 80% equities, assuming rest in cash, will lead to an overall drop of 24%. For 90%, it's a 27% overall drop. Are you really saying you won't panic for a 24% drop but you might for 27%? If so, re-evaluate your allocations. Until you've lived through an '08-'09 style recession, dot-com bubble or even something as "tame" as last December, you don't really know how you'll react.
+1. Better to play it save especially for a new investor. Most people tend to overestimate their risk tolerance in good times.
Newbie
Apr 2, 2019
30 posts
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XGRO.TO or VGRO.TO . Personally, I am investing using XGRO.
10 year annual return is 7.5%
Sr. Member
User avatar
Jul 25, 2018
661 posts
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Milton, ON
MarinersFanatik wrote:
Jul 16th, 2019 12:53 am
Right, so that's what I mean. I know what the numbers are saying and I still don't have it in me to take it up to 100% equities for the reason that you mentioned. Somehow I've kind of arbitrarily decided that 80/20 is the sweet spot for me where I think I can be rational in the case of a big loss.
If anything, you have time on your side. You're young and you'll learn what kind of investor you are when (not if) we have a recession. It'll be very tempting to sell when you're down 30%, but buck the trend and you'll be rewarded. Good luck.
Member
Dec 25, 2015
219 posts
112 upvotes
Canada
I think the answer here is it depends. We don't know your risk tolerance, lifestyle, health conditions, career conditions etc...

Assuming you are healthy, have a good job, are risk torelant, etc.., yes you can be a heavier weight in equities.

While I hope your life unravels as you forsee, you never know when you might need emergency cash. I would never recommend 100% equities, as what if you need an extra $30K for private health care treatment? What if you lose your job, do you have a cash buffer? There's a lot of WHAT IFs that is hard to predict, so I would never advocate for 100% cash. If 10% cash 90% equities, ensures you have 1 year life expenses OK fine, but remember sh1t happens, sometimes its better to prepare for the recession and worst case scenario and your returns will take care of themselves.

Yes you may lose out on the upside. but in the small 1% chance your life unfolds opposite of what you think, at least you don't suffer financial hell. Remember markets were down 50% in 2009, and from 2000-2012 markets were effectively flat. What if for whatever reason you can no longer work, would you like to see your portfolio go 0% return over 12 years? That extra 10-20% cash buffer may allow you to pick up stocks at 80-90% discounts and effectively get some 8-10x baggers on the upside making you get better than 0% return over 12 years...

Just another way to think about asset allocation..
Last edited by wolfs004 on Jul 16th, 2019 2:37 pm, edited 2 times in total.

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