My wife and I (ages 35 and 38) have 25-30 years until we reach retirement age, and I'm doing some research regarding our asset allocation. In addition to various podcasts, articles, and online posts, I've read A Random Walk Down Wall Street, The Investor's Manifesto, and am currently reading Common Sense on Mutual Funds.

Our current plan is to move (in the next month or two) our retirement investments (~$100,000) from some Nationwide front-loaded funds to a combination of Vanguard index funds - probably largely composed of the Vanguard Total Stock Market Index and the Vanguard 500 Index Fund.

Although I'm currently leaning towards something like a 70%/30% stock/bond split, I'm wondering if there is any wisdom to holding a 100% stock portfolio (50% Vanguard Total Stock Market Index, 50% Vanguard 500 Index Fund) for the next 5-10 years.
I know we can't predict future returns, but wouldn't 25-30 years allow time to recover from a potential market downturn in the next few years? As we got older, we could begin to incorporate bonds.

  • I was surprised to see an online investment (ETRADE) advisor telling me that a 70/30 split was an aggressive approach to investing --- one level below their "most aggressive" split. I've needed to rebalance my portfolio because of that, away from stocks and more towards fixed income/bonds.
    – Peter K.
    Commented Jan 14, 2017 at 21:29
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    wouldn't 25-30 years allow time to recover from a potential market downturn in the next few years? Historically, if you bought the DJIA at its peak in 1929, you would have had to wait until 1959 for it to recover (inflation-adjusted), and similarly for 1966-1995. So that's a recovery, but it means that you haven't gained any value at all.
    – user13722
    Commented Jan 15, 2017 at 4:03

3 Answers 3


Having cash and bonds in your portfolio isn't just about balancing out the risk and volatility inherent in equities. Consider: If you are 100% invested in equities and the market declines by 30%, you'll be hard pressed to come up with additional money to "buy low". You'll miss out on the rebalancing bonus.

But, if you make a point of keeping some portion of your portfolio in cash and bonds, then when the market has such a decline (and it will), you'll be able to rebalance your portfolio back to target weights — i.e. redeploy some of your cash and bonds into equities to take advantage of the lower prices.

  • Thanks - in my reading so far, this has been the best reason I've come across to invest in bonds while my risk tolerance is still fairly high. Would you advise this even if we're able to target the temporarily low-priced equities with our regular monthly contributions? Commented Jan 14, 2017 at 20:49
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    @JeffLevine Recovery after a crash may be swifter than your monthly contributions could take advantage of. If your portfolio is small, perhaps. But for a large portfolio, what goes in monthly might not be enough to really take advantage of a significant but relatively brief dip. Commented Jan 14, 2017 at 23:20

This is always a judgement call based on your own tolerance for risk.

Yes, you have a fairly long time horizon and that does mean you can accept more risk/more volatility than someone closer to starting to draw upon those savings, but you're old enough and have enough existing savings that you want to start thinking about reducing the risk a notch. So most folks in your position would not put 100% in stocks, though exactly how much should be moved to bonds is debatable.

One traditional rule of thumb for a moderately conservative position is to subtract your age from 100 and keep that percentage of your investments in stock. Websearch for "stock bond age" will find lots of debate about whether and how to modify this rule. I have gone more aggressive myself, and haven't demonstrably hurt myself, but "past results are no guarantee of future performance".

A paid financial planning advisor can interview you about your risk tolerance, run some computer models, and recommend a strategy, with some estimate of expected performance and volatility. If you are looking for a semi-rational approach, that may be worth considering, at least as a starting point.

  • Thanks for the response - good point about beginning to reduce risk. I've worked with a few financial advisors over the years - I'm hoping to educate myself enough to passively manage our investments. Commented Jan 14, 2017 at 20:00
  • @JeffLevine Passive management may cost you more in lost opportunities than the actual cost of active financial management.
    – bishop
    Commented Jan 15, 2017 at 2:53
  • @bishop What types of opportunities would you recommend I/an advisor take advantage of? Commented Jan 15, 2017 at 2:55
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    Passive management has been matching the results of most pros for quite some time now, after the higher fees of actively managed funds are accounted for. And I, for one, don't believe I can outperform a pro without the cost n hours invested exceeding the additional returns... If that. Pick your poison, but take all advice with an appropriately sized salt mine... Including mine.
    – keshlam
    Commented Jan 15, 2017 at 3:01
  • @JeffLevine I simply caution that passive management may make your returns more like a typical investor than an optimal one. See theskilledinvestor.com/ss.item.111/…
    – bishop
    Commented Jan 15, 2017 at 3:28

I've had the same thoughts recently and after reading Investing at Level 3 by James Cloonan I believe his thesis that for the passive investor you're giving up too much if you're not 100% in equities. He is clear to point out that you need to be well aware of your withdrawal horizons and has specific tactics for shifting the portfolio when you know you must have the money in the next five years and wouldn't want to pull money out when you're at a market low.

The kicker for me was shifting your thought to a plotting a straight line of reasonable expectations on your return. Then you don't worry about how far down you are from your high (or up from your low) but you measure yourself against the expected return and you'll find some real grounding. You're investing for the long term so you're going to see 2-3 bear markets. That isn't the the time to get cold feet and react. Stay put and it will come back. The market gets back to the reasonable expectations very quickly as he confirms in all the bear markets and recessions of any note.

He gives guidelines for a passive investing strategy to leverage this mentality and talks about venturing into an active strategy but doesn't go into great depth. So if you're looking to invest more passively this book may be enough to get you rolling with thinking differently than the traditional 70/30 split.

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    I'm more convinced by the experimental evidence of running various strategies through stochastic models than by theoretical arguments, I'm afraid. Those still suggest that 100% stock is not optimal. Your milage will vary.
    – keshlam
    Commented Jan 20, 2017 at 7:17
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    Interesting - I was listening to the DoughRoller podcast, and the host made a convincing argument for a stock/bond mix by dialing up the hypothetical risk: (paraphrasing) "If you have so much time, why not go 100% into the small cap index or emerging market index instead of the full market index? It's more volatile, but has better average returns over time." This one twisted my stomach a little, and brought me back to something like an 80/20 stock/bond mix. :) Commented Jan 20, 2017 at 12:47

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