Does a 100% Stock Portfolio Make Sense?

Peter Mallouk, Creative Planning president and CEO, suggested some diversification makes sense despite the strong long-term track record for equities.

“Over 10 years or more, the odds are overwhelming that stocks will outperform bonds. People often overestimate the gap in income between bonds and stocks,” not realizing that stocks produce some income and quality bonds don’t produce that much, he said via email on Friday.

“I prefer to overweight stocks as much as possible,” he added, “only retaining enough in bonds to cover needs over the next five to seven years, or for those that simply can’t stomach the volatility that comes with stocks, especially if they can accomplish all their goals with a less volatile portfolio.

“However, it doesn’t make sense to own an all-stock portfolio just because it will likely perform much better. For those that have more than they need and don’t like wild price swings, bonds are a great addition to take out the unnecessary drama.”

Bogleheads Live host Jon Luskin, owner of Luskin Financial Planning and a registered investment advisor, said an entirely stock portfolio could make sense for some.

“Generally, for some investors who don’t need the money for a very long time and have the iron stomach to stick with it, a 100% stock portfolio isn’t unreasonable,” he said via email. “For younger investors far from retirement — or for those investing for legacy, a 100% stock portfolio could be a fit.

“Of course, whenever investing, folks need to be focused on not only taking the right amount of risk — helping them stick with their investing plan — but also keeping costs low and being diversified. That’s to say, a 100% stock portfolio made of low-cost, diversified funds can be a fit for some.”

It’s more challenging to make a case for high-fee funds with fewer holdings and to argue for picking a handful of individual stocks, he said, explaining that “the odds that one does well as a stock picker are terrible. The same goes for paying high fees to invest; if you pay more to invest, you’ll probably underperform low-cost index funds.”

(Pictured: Ben Carlson of Ritholtz Wealth Management)