You'll never truly know your risk tolerance until you go through a period like 2008-09. Even then, you might not know it because how far you were from retirement probably had a big impact on how you weathered that downturn. It was not at all clear during that period that things would get materially better quickly. We came close to a much worse outcome.Totally agree re risk tolerance. Both the dot com crash (I lost about 90% of my personal wealth, that was tied up in company stock) and ensuing bear market (2000-03) plus the 2008-09 "apocalypse of financial capitalism" were pretty sobering. I do think in 2008-09 we glimpsed the risk of a 1929-1948 period, or a post Crash of 1871 (?). And now we are definitely in the risk phase for a 1966-1981 period.It is reasonably OK to use an S&P 500 index fund as your only investment in stocks; that is, to use one as 100% of your stock investment. You could do a lot worse. Why, I've done worse myself. Since about 2002, I've been about 80% Total Stock, 20% Total International (blue line), compared to 100% S&P 500 (red line):
It is probably not OK for most people to put 100% of their retirement savings into stocks. This is a matter of personal risk tolerance and you just have to know yourself. But my personal circle of acquaintances includes two people, one who had 100% stocks in their 401(k), and another who had a retirement savings portfolio that wasn't 100% stocks but was very aggressive... who were sure they were OK, but ended up selling deep in the downturn in late 2008.
It has unfortunately vanished from the Internet, but a professional wealth advisor, Dan Solin, who has published several books on personal investing, has said that he "panic-sold" during the downturn. That is, he misjudged his own risk tolerance.
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Do you know when Burton Malkiel first referenced the S&P 500 index fund?
In "A Random Walk Down Wall Street"?
I think that was the breakthrough moment for Vanguard?
My portfolio is designed to withstand a Great Depression scenario that lasts to the end of my days (which are probably 20 years or so if I'm lucky).
Statistics: Posted by Claudia Whitten — Mon May 06, 2024 8:09 am — Replies 56 — Views 9619