It’s great to see data-based arguments . However, as you probably would not be surprised to see, I sharply disagree with your conclusion, except for two cases — people who need the money in the next few years (whether close to retirement, need the money for down-payment on a house, etc.), or people who won’t be psychologically able to stay the course when, not if, stocks drop like a stone.
As I argue here, a 100% equities portfolio is a lot less risky that people fear, and will, on average, do much better for most people.
Using the Vanguard data you quote, let’s look at three allocation cases:
- 100% bonds: 5.3% average return (15% down years)
- 60% stocks/40% bonds: 8.6% average return (24% down years)
- 100% stocks: 10.1% average return (28% down years)
However, let’s now adjust for a 3.5% average inflation, which changes the picture:
- 100% bonds: 1.7% average real return
- 60% stocks/40% bonds: 4.9% average return
- 100% stocks: 6.4% average return
I don’t have the exact numbers for the fraction of down years, but I suspect the 15% of 100% bonds increases much more than the 28% of 100% stocks. However, even if it doesn’t, the real return of 100% stocks beats the balanced portfolio and the 100% bonds portfolio by a factor of 1.3 and 3.8, respectively for the average year. This with less than factor 1.2 and 1.9 respectively more down years (which don’t matter if you stay invested).
Much more impressively, if you look over a 40-year investing period, the total real return turns out to be 1096% for the 100% stocks, vs. 578% for the balanced portfolio, and only 96% for the 100% bonds.
I don’t know about you, but I’d go for the gold here.
