Errold Moody, Financial Planning and Investment Instructor (1974-present)
Originally Answered: I’m 22, would investing 100% of my portfolio in the S&P 500 be smart or dumb?
Guess what Buffett is doing for his wife after he dies? Except for a small percentage that goes into Treasuries for living expenses, the rest is to go into the S&P 500 and STAYS THERE.
Do I think that is valid? Yes and No.
The yes part is I might like a slight change for allocations for index funds in the international arena and into the NASDAQ as well. But overall I don’t have a problem with this. That said, the S&P 500- actually any fixed investment- has a 95%+ probability in ‘working’ as expected for a current 5 years, and a 85% to 95% for the next 5 years. But once you go beyond 10 years, its a crapshoot as to what is valid. You look at all the international screwups, wars, tariffs etc., I just do not feel that you can just leave something ‘forever’.
The NO part is this: The inverted yield curve has indicated a U.S. recession in the forthcoming year. It is not a guarantee but it has been 100% correct for the last 50 years. It does not state when it will occur, how long it will last nor how bad it will be. Losses in 2000 were 49% and in 2008 were 57%.
If you were to put all your funds into the S&P500 and a recession occurred in 2020, you are very apt to lose 50%. Make sense? Hopefully not. The industry likes that you stay invested no matter what- buy and hold, buy on the dip or, my “favorite”, the market always comes back. Consider that there were no stats ANYPLACE that thought this could happen
Obviously I am not stating that the U.S. mirror what happened to Japan but when you consider the economic mess of the world, a trial for impeachment, etc., etc. there are situations that do not conform to some “history”.
I might concede that the market always comes back- but you could be dead by then.
I do not feel that you should invest now due to the 100% indicator etc. so wait a couple months to let the dust settle.
If you were to invest now- or for those already invested, the idea of buy and hold has hurt millions due to the 49% and 57% loss. Over many years I developed a 4 stage Process that keeps recessionary losses to about 12% to 15%. These are articles on how it works, etc. But they were not written for consumers so they are hard reads. If you reread enough times you can see how it works
Revolutionary Method for Asset Allocation- Increase Returns, Reduce Risk
Rebuttal to NY Times Retirement article. Terrible Advice & High Risk
EF Moody's Mutual Fund Value at Risk/Stress Test
EF Moody’s first major upgrade to Risk in the last 30 years+
This works for a bear market (not as bad as a recession) since the focus is solely geared to RISK of Loss.
