100% Stock Portfolio Or Balanced With Bonds? — FIRE the Family
Traditional wisdom tells us that investors shouldn’t invest all of their cash into stocks. It’s too risky and irresponsible for the average investor. Instead, investors should have a percentage allocation to bonds in an effort to reduce portfolio volatility. Should you invest in an all-stock portfolio?
A 100% stock portfolio will see greater returns over the long term, but a higher return comes at the cost of additional risk. This table shows the historical returns (1926–2020) of 9 different stock-to-bond portfolio ratios:
Based on the information presented in the table, allocating some portion of your investment portfolio to bonds is a prudent decision. A few percentage points of a return may not be worth it to chase the historically higher average returns of an all-stock portfolio.
Benjamin Graham, in his book, “The Intelligent Investor,” says the following investors may invest in a 100% stock portfolio if you:
- have set aside enough cash to support your family for at least one year
- will be investing steadily for at least 20 years to come
