2983: Why I Own 100% US Stocks by A Purple Life on Financial Planning and Money Advice

[00:00:00] This is Optimal Finance Daily, Why I Own 100% US Stocks by A Purple Life of APurpleLife.com

[00:00:09] Let's start with all the caveats. Just like everything I do in my life, this is not a recommendation. I'm just trying stuff out and seeing what works. I'm not an expert or a guru. I'm just a 30-year-old going through life.

[00:00:23] This is how I've set up my investment portfolio, but I'm not saying this is right for everyone. It's called personal finance for a reason.

[00:00:31] All right, now that the disclaimers are done, let's dig into it. When I finally decided to listen to my partner and look into this whole financial independence thing, after two years of him bothering me, I read everything I could on the subject. I devoured finance books and blogs.

[00:00:49] After several months of data gathering, I felt that I understood the subject matter enough to decide how I wanted to structure my own investment portfolio. Before I started reading, I didn't really understand what a stock was, y'all.

[00:01:03] But after those few months of reading, I understood enough to realize that my 401k was in subpar funds that my parents' financial advisor suggested and felt comfortable enough to stray a little from the beaten path, as if that's rare for me.

[00:01:20] I moved my 401k to low-cost stock index funds and then decided to make a plan for my investing future.

[00:01:29] After careful consideration and financial calculators, I decided to own 100% U.S. stocks.

[00:01:36] I've received a fair number of questions on the reasoning behind this decision, with main concerns including,

[00:01:43] But what about bonds?

[00:01:45] Bonds are a stabilizing force in a portfolio that helps smooth the wild ride of the stock market.

[00:01:52] The flip side of that is that bonds are a drag on your portfolio.

[00:01:56] While greater stability can help people sleep at night, holding bonds also decreases the overall return of your portfolio,

[00:02:03] which first clicked for me when I read a post by Go Curry Cracker about why he's on the path to 100% stocks.

[00:02:12] Longevity.

[00:02:13] Hopefully, I'm looking at a 70-year retirement, and because of that long time frame, I am of course concerned about running out of money.

[00:02:21] Having 100% stocks helps me fight against the challenges of living that long on my portfolio.

[00:02:27] In Go Curry Cracker's post, he lays out the possible terminal values of a portfolio

[00:02:33] and finds that the difference in terminal value between a portfolio of 100% stocks compared to 70% stocks for a 60-year retirement is four times more.

[00:02:45] Having 30% bonds instead of 0% leaves you with one quarter of the money at the end of a long retirement.

[00:02:53] That's a lot of dough to leave on the table just to play down stock market gyrations.

[00:02:58] And to be honest, I'm not very concerned about experiencing stock market volatility because of lifestyle flexibility.

[00:03:07] My lifestyle is completely flexible.

[00:03:10] I have absolutely no roots or anything keeping me in one location.

[00:03:14] No house, no car, no kids, no pets.

[00:03:18] Geo-arbitrage is part of my retirement plan, both so I can see the world and experience other places,

[00:03:24] and because it allows me to scale my costs up and down as needed without decreasing my standard of living.

[00:03:30] I can also look into earning a little money if needed.

[00:03:33] I will use decreased spending and, if necessary, increased income instead of bonds to help smooth my ride.

[00:03:41] So that's why I don't own bonds.

[00:03:43] But what about my weird stock allocation?

[00:03:46] What about international stocks?

[00:03:48] I never realized this truth before I read a post by godfather of five JL Collins,

[00:03:54] but U.S. stock index funds such as VTSAX that I own actually include a fair bit of international exposure.

[00:04:03] I was shocked to see that the amount from other countries is almost half.

[00:04:07] In addition to where the sales come from, Collins makes some great points about the additional risks

[00:04:13] that come along with investing in international funds, such as currency risk, accounting risk,

[00:04:19] and the higher expense ratio.

[00:04:21] It also just so happens that the U.S. makes up 15% of global GDP.

[00:04:26] The U.S. is not a small player on the stage.

[00:04:29] I am aware of home country bias, and I'm not investing this way because I think the U.S. is perfect

[00:04:35] or because I happen to live here.

[00:04:37] It just so happens that I've weighed the pros and cons and think I'll be just fine without.

[00:04:41] I already have a fair bit of international exposure built in.

[00:04:46] If the U.S.'s percentage share of global GDP or the percentage of U.S. company sales from other countries

[00:04:53] decreases significantly, I'll reassess my plan.

[00:04:57] Simplicity.

[00:04:59] Quote,

[00:05:00] Simple is good.

[00:05:01] Simple is easier.

[00:05:02] Simple is more profitable.

[00:05:05] JL Collins, The Simple Path to Wealth

[00:05:08] I'm a self-proclaimed lazy person, and I'm always looking for efficiencies in my life.

[00:05:14] In addition to all the reasons mentioned, another reason I do not hold bonds or international stocks

[00:05:20] is simply because it's more complicated without a lot of upside based on my specific situation.

[00:05:25] Rebalancing a portfolio, even with the complexities of tax-advantaged and taxable accounts,

[00:05:31] isn't that complicated.

[00:05:32] But it's one more thing that I don't need to do.

[00:05:35] Instead, I can just let it ride.

[00:05:39] Conclusion.

[00:05:40] I try to carefully evaluate all the big decisions in my life

[00:05:44] to make sure my decision is the best one for me,

[00:05:47] and my portfolio is no different.

[00:05:50] 100% U.S. stocks sounds like the best option for me at the moment,

[00:05:53] but I can't promise I'll never change my mind.

[00:05:56] Life is all about learning and adapting based on new knowledge.

[00:05:59] But for now, I'm riding the wildly bucking unicorn that is 100% U.S. stocks.

[00:06:09] You just listened to the post titled,

[00:06:12] Why I Own 100% U.S. Stocks by A Purple Life of APurpleLife.com.

[00:06:18] Purple Life perfectly articulated most of my reasons why I'm also invested in a 100% U.S. stock portfolio.

[00:06:26] I consider myself a pretty lazy passive investor.

[00:06:30] So across my various tax-advantaged accounts and my after-tax brokerage,

[00:06:35] I'm all in on VTSAX, which is Vanguard's total U.S. market index fund.

[00:06:42] My strategy was heavily influenced by the book,

[00:06:45] The Simple Path to Wealth by J.L. Collins.

[00:06:47] And if you haven't read that yet, I highly recommend it.

[00:06:51] This is the book that finally got me comfortable with investing.

[00:06:56] I deal with the volatility of a 100% stock portfolio in two key ways.

[00:07:02] Firstly, I just don't watch the rollercoaster ride of the stock market very closely.

[00:07:08] I look at the money I invest like a tax that I'm paying to my future self.

[00:07:13] I see that money as not really mine,

[00:07:16] meaning present-day Diana has no claim to it.

[00:07:19] So whether my portfolio is up or down doesn't really have an effect on me right now,

[00:07:24] and I can happily ignore it.

[00:07:26] Also, I think a big reason why people include bonds in their portfolio

[00:07:30] is to smooth the volatility ride

[00:07:33] so they don't freak out and panic sell when they see the inevitable dips in their portfolio.

[00:07:38] Bonds are also important to smooth the ride

[00:07:40] when you're drawing down from your portfolio in retirement.

[00:07:44] I've replaced the stability of bonds with a really strong cash position.

[00:07:49] Most people think I'm holding way too much cash

[00:07:52] because I have about a year of expenses just sitting there earning no meaningful interest.

[00:07:57] But for me, holding this much cash provides extra insurance

[00:08:01] that whatever financial needs arise,

[00:08:03] it's unlikely I will need to tap into my investments anytime soon.

[00:08:07] Like Purple Life, I love that I don't have to worry about rebalancing.

[00:08:11] But when I eventually add bonds to my portfolio,

[00:08:15] I'd probably start using a service like M1 Finance

[00:08:18] who will automatically rebalance for me

[00:08:21] so that I can continue not to look at it.

[00:08:24] And that should do it for today.

[00:08:26] Have a happy rest of your day,

[00:08:27] and I'll see you in the Friday show tomorrow

[00:08:30] where your optimal life awaits.

[00:08:31] and just come back to you later.

[00:08:31] And then you'll see you next time,

[00:08:32] I'll see you after every day.