Lots of good points to think about , as usual.
My take, as you know, is that most of the time it makes more sense to be invested 100% in equities.
Of course there are situations when it doesn’t make sense to take on investment risk like that, but those are IMO the exception, not the rule.
On an inflation-adjusted basis, for 1926–2018, if you invested in the S&P 500 with reinvested dividends you’d have the following likelihood of losing money for rolling periods:
- 1 year: 32%
- 2 years: 26%
- 3 years: 20%
- 4 years: 24%
- 5 years: 25%
- 10 years: 12%
- 20 years: 0%
In the same period, if you stuffed your money under a mattress, this is your likelihood of losing money for rolling periods (due to inflation):
- 1 year: 87%
- 2 years: 89%
- 3 years: 90%
- 4 years: 92%
- 5 years: 92%
- 10 years: 92%
- 20 years: 100%
If you’re planning to spend the money right after the period in question, you’d be justified in considering the maximum loss possible too.
That worst-case loss is about 3 times worst for equities vs. cash for the 1-year and 2-year periods, twice as bad for 3-year and 4-year periods, comparable for 5-year periods, five times better for equities over 10-year periods, and for 20-year periods your worst-case would be making 84% in equities (worst case!) vs. losing 70% in cash.
See the full write-up here.
