Follow Up Question about ETFs

[jmxthievez]

So I had a recently question about investing 50k in the market, I described myself as fairly tolerant to risk as I have made some money playing poker and am currently 21.
(here: http://forumserver.twoplustwo.com/showfl...e#Post11225328)

I am looking to invest anywhere from 50k-100k (does this # matter on the advice) I received advice to go 100% stocks, and basically allocate 80% of my portfolio to domestic stocks and 20% to international.

Recently, I have been reading up on more material and came across this thread: http://forumserver.twoplustwo.com/showfl...=0#Post11605238

Where jively made some great points, which got me thinking again. Should my portfolio be a bit more diversified? Should I perhaps not go 100% stocks and maybe do a 90/10 or 80/20 combo? What other factors should I consider?

Paging jively, jimmysnow and all BFI regulars, I would appreciate further advice a great deal and what you say will 100% directly influence what I will do with my money. If the posters from the other thread and others might respond, it'd be great. Thanks.

edit: or point me to a resource where I can further educate myself in addition
I guess my main question is the diversification of your funds, and why people disagree on the allocation and their thought process as to why.

[ahnuld]

100% stocks doesnt really make sense to me. Theres no way to know which is overpriced or which is selling for a bargain. I also havent come across historical data which shows a big difference in returns between corporate bonds and stocks. If anyone has that data id be happy to see it (my hunch i stocks have returned 8-9% while bonds about 6-7%)

[ahnuld]

btw im just saying this because im going through the intelligent investor again and this is what graham says. Maybe not relevant today but id be surprised as every correction has proved his advice to be right and the new "standard" to be wrong.

[jmxthievez]

ahnuld-

iirc, lynch i think has this data in one of his books (either one up on wall st or beating the st, ill check later) that has this historical info. It turned out to be something absurd like 95% of the time (by year, # years outperformed/total years) stocks have outperformed bonds.

also "Theres no way to know which is overpriced or which is selling for a bargain"

I think I would invest in mutual funds or index funds which would do the stockpicking for me, at this point in my life at least. My primary question is regarding diversification and asset allocation and the correct way to think/go about it. So if you're saying 100% stocks/equities doesn't make sense to you, what do you recommend?

80% stocks? 20% bonds? or what? thanks

[ahnuld]

Im no personal financial advisor but for young guys like us 20% makes sense followed by selling some stock when the market has gone through some runups and moving to bonds and selling bonds and buying stocks when bond yields drop and stock prices are cheap as it is this week.

[mtgordon]

Check out fundadvice.com. I personally like the Ultimate Buy and Hold strategy but they also have an article on allocation that shows the various returns depending on how much Equity you have. Over the past 35ish year 100% has been 14.4%, 90% 13.7%, 80% 13.1%, etc as well as the SD and worst patches of time.

[emon87]

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(my hunch i stocks have returned 8-9% while bonds about 6-7%)

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This is a pretty big difference over like 40 years.


To the OP- a common way to allocate your %'s is to subtract your age from a number based on your risk tolerance. For conservative folks, (100-age)% of your portfolio would be in stocks, for aggressive (120-age)% would be in stocks.

[ahnuld]

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(my hunch i stocks have returned 8-9% while bonds about 6-7%)

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This is a pretty big difference over like 40 years.



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right, but to be 100% all stock because on average they can beat bonds is silly when they are clear valuation errors in either market.

[gull]

Historically, 100% stocks has had higher return and higher risk than any lower allocation. Also, over long time periods, 100% stocks has actually been LESS risky than lower allocations. This is history, of course, and only looks at realized risk, not unrealized risk.

[jmxthievez]

bump?