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Let’s start with all the caveats! Just like everything I do in my life, this is not a recommendation. I’m just trying stuff out and seeing what works. I am not an expert or a guru, I’m just a 30 year old going through life. This is how I’ve set up my investment portfolio, but I’m not saying this is right for everyone. It’s called personal finance for a reason.
Alrighty – now that the disclaimers are done, let’s dig into it! When I finally decided to listen to my partner and look into this whole “financial independence thing” (after 2 years of him bothering me…) I read everything I could on the subject. I devoured finance books and blogs.
After several months of data gathering, I felt that I understood the subject matter enough to decide how I wanted to structure my own investment portfolio. Before I started reading, I didn’t really understand what a stock WAS y’all!
But after those first few months of reading, I understood enough to realize that my 401(k) was in sub-par funds (that my parents’ financial advisor suggested…) and felt comfortable enough to stray a little from the beaten path (like that’s rare for me 😉 ). I moved my 401(k) to low cost stock index funds and then decided to make a plan for my investing future.
After careful consideration and financial calculations, I decided to own 100% US Stocks. I have received a fair number of questions on the reasoning behind this decision with the main concerns including:
But What About Bonds?
Bonds are a stabilizing force in a portfolio that helps smooth the wild ride of the stock market. The flip side of that is that bonds are a drag on your portfolio. While greater stability can help people sleep at night, holding bonds also decreases the overall return of your portfolio, which first clicked for me when I read this post by Go Curry Cracker about why he’s on the path to 100% stocks.
Longevity
Hopefully I am looking at a 70 year retirement, and because of that long time frame, I am of course concerned about running out of money. Having 100% stocks helps me fight against the challenges of living that long on my portfolio.
In Go Curry Cracker’s post he lays out the possible terminal values of a portfolio and finds that the difference in terminal value between a portfolio of 100% stocks compared to 70% stocks for a 60 year retirement is FOUR TIMES more. Having 30% bonds instead of 0% leaves you with 1/4 of the money at the end of a long retirement.
That’s a lot of dough to leave on the table just to play down stock market gyrations. And to be honest, I’m not very concerned about experiencing stock market volatility because of:
Lifestyle Flexibility
My lifestyle is completely flexible. I have absolutely no roots or anything keeping me in one location (no house, no car, no kids, no pets). Geo-arbitrage is part of my retirement plan both so I can see the world and experience other places, and because it allows me to scale my costs up and down as needed without decreasing my standard of living. I can also look into earning a little money if needed. I will use decreased spending and (if necessary) increased income instead of bonds to help smooth my ride. So that’s why I don’t own bonds, but what about my weird stock allocation?
But What About International Stocks?
I never realized this truth before I read this post by the Godfather of FI, JL Collins, but US stock index funds, such as the VTSAX that I own, actually include a fair bit of international exposure. To show this, Collins references the below chart that explains how much of the sales of the US companies in the S&P 500 (which make up 75% of VTSAX) come from overseas.
I was shocked to see that the amount from other countries is almost half! In addition to where the sales come from, Collins makes some great points about the additional risks that come along with investing in international funds, such as currency risk, accounting risk and the higher expense ratio. Read the full article if you’re curious about those details.
It also just so happens that the US makes up 15% of global GDP. The US is not a small player on the stage. I am aware of home country bias and am not investing this way because I think the US is perfect or because I happen to live here. It just so happens that I’ve weighed the pros and cons and think I’ll be just fine without. I already have a fair bit of international exposure built in. If the US’s percent share of global GDP or the percentage of US company sales from other countries decreases significantly, I’ll reassess my plan.
Simplicity
“Simple is good. Simple is easier. Simple is more profitable.” – The Simple Path To Wealth by JL Collins
I’m a self-proclaimed lazy person and I’m always looking for efficiencies in my life. In addition to all the reasons above, another reason I do not hold bonds or international stocks is simply because it’s more complicated without a lot of upside based on my specific situation. Rebalancing a portfolio, even with the complexities of tax-advantaged and taxable accounts isn’t THAT complicated, but it is one more thing that I don’t need to do. Instead, I can just let it ride.
Conclusion
I try to carefully evaluate all the big decisions in my life to make sure my decision is the best one for me – and my portfolio is no different. 100% US Stocks sounds like the best option for me at the moment, but I can’t promise I’ll never change my mind 😉 . Life is about learning and adapting based on new knowledge, but for now I’m riding the wildly bucking unicorn that is 100% US stocks.
What do you think about my reasons for holding 100% US Stocks? What’s your portfolio made of?
