Exposure to the Stock Market

[Truth]

I'm curious as to everyone's comfort level when it comes to one's overall percentage of net worth that is currently invested in the stock market, including 401ks, IRA's, discretionary accounts, etc.?

I would expect this number to decrease with age, particularly as one ties up accumulated earnings (and future earnings) in real estate holdings (primary residence, etc.), but I'm curious how much equity exposure people aim for...

Also, how much is too much?

[dukepsy1963]

For me...and I am retired, I like to keep at least 60 to 70 percent in equities.

[wilson]

My current net worth is something like $30. It is on my dresser.

[OldPhiKap]

Depends on your age and risk tolerance.

There was an old rule of thumb, that your equity mix should equal 110 minus your age.

Also, a 60%/40% equity to cash/bonds is a fairly standard conservative allotment. This would have left a lot of money on the table from 2003 until last summer, but shielded you since then.

None of this generalized stuff can be taken too seriously, though. It's highly individualistic.

[Fish80]

I recently reviewed my financial plan with the planner. His software asked me a slew of questions designed to figure out my goals and my risk tolerance. The output recommended 80% in equities, 20% in bonds. 15% of the equities international. The other 65% equities in a mix of domestic. No single exposure > 10%.

I'm pretty far from retirement and have a high risk tolerance, short term. That is, I can accept short term volatility in my retirement portfolio in exchange for higher expected long term growth.

[Truth]

Depends on your age and risk tolerance.

There was an old rule of thumb, that your equity mix should equal 110 minus your age.

Also, a 60%/40% equity to cash/bonds is a fairly standard conservative allotment. This would have left a lot of money on the table from 2003 until last summer, but shielded you since then.

None of this generalized stuff can be taken too seriously, though. It's highly individualistic.

Very interesting formula - I had not seen that before.

Also, keep in mind that I am asking for one's comfort level in equity exposure as a percentage of one's net worth... when you say 60/40 "equity to cash/bonds," does that "cash/bonds" include real estate (your house) and personal assets (cars, etc.)?

[Truth]

I recently reviewed my financial plan with the planner. His software asked me a slew of questions designed to figure out my goals and my risk tolerance. The output recommended 80% in equities, 20% in bonds. 15% of the equities international. The other 65% equities in a mix of domestic. No single exposure > 10%.

I'm pretty far from retirement and have a high risk tolerance, short term. That is, I can accept short term volatility in my retirement portfolio in exchange for higher expected long term growth.

Same question for Fish80... does that 80% equity exposure account a percentage of your overall net worth? (In other words, not just the money you have earmarked for market-related investment, but does it also include real estate, personal assets, collectibles etc?)

[Fish80]

Same question for Fish80... does that 80% equity exposure account a percentage of your overall net worth? (In other words, not just the money you have earmarked for market-related investment, but does it also include real estate, personal assets, collectibles etc?)

No, the 80% equities in my case applies to "invested assets". It would not include house, cars, boats, planes, art, etc. (My boat is a kayak.) If you invest in real estate, say rent out a condo or own an apartment building, my guess is that you include that in your total invested assets. I tend to think of real estate as more like debt than equity. But in the corporate world (I work for a financial services company) we consider real estate another asset class. And don't get me started on sub prime . . .

I don't recall seeing a figure for equity as a percentage of net worth. I think that again goes to risk tolerance.

Over the years I've observed a pretty wide range of personal preference. At one extreme, some people own cars that are worth more than 50% of their net worth. That seems out of balance to me, but that's my preference. I've also known guys who take out ten year interest only mortgages on their home and invest it in equities just to decrease their exposure to real estate. Personally, I'd rather have the home paid off. Again, that's my preference.

[Truth]

No, the 80% equities in my case applies to "invested assets". It would not include house, cars, boats, planes, art, etc. (My boat is a kayak.) If you invest in real estate, say rent out a condo or own an apartment building, my guess is that you include that in your total invested assets. I tend to think of real estate as more like debt than equity. But in the corporate world (I work for a financial services company) we consider real estate another asset class. And don't get me started on sub prime . . .

I don't recall seeing a figure for equity as a percentage of net worth. I think that again goes to risk tolerance.

Over the years I've observed a pretty wide range of personal preference. At one extreme, some people own cars that are worth more than 50% of their net worth. That seems out of balance to me, but that's my preference. I've also known guys who take out ten year interest only mortgages on their home and invest it in equities just to decrease their exposure to real estate. Personally, I'd rather have the home paid off. Again, that's my preference.

First let me say that I am incredibly jealous of your "Jason Williams" poster ranking -- do you happen to know which statistical accomplishment this is referencing?

Second, I agree that the equity exposure as a percentage of overall net worth is very much an individual preference. That said, I'm curious to know what some of the individuals here think... to me, even as a not-yet-homeowner (who in theory would have money not "tied up" in real estate and therefore open for market investment), I would find it difficult to entertain the thought of >75% of my net worth being tied to the equities markets...

[Fish80]

JWill had 235 steals.

[Clipsfan]

First let me say that I am incredibly jealous of your "Jason Williams" poster ranking -- do you happen to know which statistical accomplishment this is referencing?

Second, I agree that the equity exposure as a percentage of overall net worth is very much an individual preference. That said, I'm curious to know what some of the individuals here think... to me, even as a not-yet-homeowner (who in theory would have money not "tied up" in real estate and therefore open for market investment), I would find it difficult to entertain the thought of >75% of my net worth being tied to the equities markets...

I worked in asset management for a while and had a larger percentage of my money in equities at the time as I was able to make smarter investment decisions (in my mind). At this point, I've pulled out of the equity markets some as I want to join the ranks of homeowners and don't want to deal with the short term volatility (a good thing, given that my equity holdings have been getting hammered recently). It really is an individual thing and I have to say that I think that time horizons play as much/more of a role as risk tolerance. I want to know what my liquid assets are over the next 6 months, so I don't want to risk any more downside in the equity market. On the other hand, my IRA/401k are fully equities.

[Clipsfan]

Aaackk...I knew that I didn't want to check my YTD performance in my 401k. The market has not been kind the past 2 weeks...

[OldPhiKap]

Very interesting formula - I had not seen that before.

Also, keep in mind that I am asking for one's comfort level in equity exposure as a percentage of one's net worth... when you say 60/40 "equity to cash/bonds," does that "cash/bonds" include real estate (your house) and personal assets (cars, etc.)?



Truth, I'm only talking about investment vehicles. Not hard assets that add to your overall net worth like cars, home, etc.

MSNBC.com, Bloomberg.com, and others have (I think) calculators that can help you estimate allocations for you based upon your age, risk tolerance, and present assets. I'm sure there are plenty of others as well.

To your overall question, though -- I've been getting slightly lighter on equities over the second half of last year and increasing cash. I missed some of the ride up but was somewhat shielded on the way down. When things look better, I'll put some cash to work. But even then, I'm only talking about probably a 5% shift or so.

Great question. I wish I had a better answer, because it is literally the $64M question.

[OldPhiKap]

Aaackk...I knew that I didn't want to check my YTD performance in my 401k. The market has not been kind the past 2 weeks...

Yeah, I felt bad when I did that this morning for the first time this year. I guess the only good part is that I didn't wait until the end of today's trading day. Oy.

[cspan37421]

The 110-age or 100-age is actually not a bad recommendation overall. The main argument against it is that you can be 60 years old, expect a full pension in 5 years, plus SS, plus some other stuff (inheritance, income properties), etc. You might have a time horizon well past 20 years - it might better apply to the next generation if you don't think you'll have to liquidate in your lifetime. In such situations, having 50-60% or more in bonds is unnecessarily conservative.

Unless your name is Buffett, it is pretty hard to outguess the market. But you don't need to be a Buffett to avoid bubbles and irrational exuberance. For instance, no matter what your allocations, you shouldn't have been adding to tech holdings in 1999-2000. A few years ago, European valuations looked a ton better than US. And so forth. If you have time to research the individual firms, great, but if not, just avoid the big mistakes and you'll do fine.