You’ve worked for decades to build your retirement nest egg. You have invested smartly. The investment portfolio is required to fund a significant portion of your retirement years. In fact, you need those monies to last for many decades. Should you invest in an all stock portfolio? That approach might deliver greater income than the traditional stock and bond portfolio.
Yup. More stocks might deliver more growth. No one can deny that stocks are the growth engine of a portfolio. When we own stocks we become business owners and we share in the success (or failure) of those companies. In the past, owning a big basket of market leading companies has worked out more than well.
When stocks earn 8% we can spend 8%?
Retirement funding is tricky business. It’s much more complicated than the accumulation stage. The sequence of returns does not matter that much at all when we are building our portfolios, and we have decades until that retirement start date. We might see several good years that are followed by two or three bad years. Those bad years will not affect your retirement readiness when you have decades to recover. A savvy investor will even enjoy those bad years as the stocks go ‘on sale’.
But in retirement the order of stock market and portfolio returns do matter. That’s called sequence of returns risk. A bad year or a few bad years early in retirement can permanently impair your portfolio and your retirement. Even before that retirement start date we are already in the retirement risk zone.
But stocks beat the crap out of bonds.
Most retirees and most financial planners will add some bonds to the portfolios of retirees. Those bonds work like shock absorbers. While there is no guarantee, good bonds have a habit of going up in price when stocks get hit hard. This is typical retirement planning ‘thinking’. And yes, there are other weapons besides bonds.
On Twitter we had a very robust discussion on retirement funding and risk. Financial Planner Ed Rempel defended the all stock portfolio for retirees. And he provided some support with this chart.

According to Mr. Rempel, the success rate for an all equity portfolio is 97% for a period that spans over 100 years. Success is defined as the retiree being able to spend at 4% of the portfolio value, every year, with an adjustment equal to inflation. Of course that’s called the 4% rule. That’s a retirement planning benchmark that is useful, but is then usually disposed of for dozens of reasons. For Boomer and Echo I had asked if there was a new normal for Canadian retirees .
And here’s the full post from Ed Rempel Is Typical Retirement Advice Good Advice?
Conventional wisdom and typical advice states we should protect our assets. After all, our retirement and lifestyle is on the line. Ed begs to differ and he certainly takes an unconventional approach. Ed also suggests retirees do not hold that cash buffer.

But what about the correction in the early 2000’s?
Of course any study that looks at 30 year periods does not include the last two major stock market corrections. We’d look to the 2000 to 2002 period and the 2008 financial crisis. Those are the two most severe market correction since the Great Depression of the late 1920’s and through the 1930’s. And it’s true that the typical market correction has not been ‘all that’ severe in the period in between the Depression and the tech meltdown of early 2000’s. An all-equity portfolio would not have been down for the count.

But that’s rolling the dice. That’s rolling the dice because that study does not include those two big corrections. Here’s how an all stock portfolio would have fared from the year 2000. The retiree is spending at that 4% rate, annually, inflation adjusted. For this chart I am using US stocks. The chart is courtesy of portfoliovisualizer.com.
Dead portfolio walking.

We see that from 2000 there is failure. The inflation adjusted spend rate is too high. Dead portfolio walking, it has been cut in half. To give us a 30-year period to evaluate I went back to 2008 and then further back to restart the retirement funding process. The portfolio dies before a cumulative 30 year period. And perhaps a bigger question might be, who could watch their $1,000,000 portfolio (and life savings perhaps) fall to $330,000? Who has the stomach for that?
Here’s how a classic 60/40 Balanced Portfolio would have performed, as Portfolio 2.

And what about the financial crisis?
The financial crisis took down US stock markets by over 50%. But of course, the markets recovered quite ‘quickly’. A severe drop followed by a mostly robust recovery.
Portfolio 1 is all stock.
Portfolio 2 is the Balanced Portfolio.

While the all stock portfolio would now sit at a greater portfolio value, it was in permanent impairment territory in 2010 and into 2013. The portfolio was in danger. It was only ‘saved’ by the longest bull market in US history. Stock market corrections typically arrive every 4 to 5 years. If the stock markets had stuck to the script, that portfolio (and retiree) would have been in severe danger.

That’s 0 for 2 in my books.
On a risk assessment I’d say the all stock portfolio failed in the last two major market corrections. Yes, even though it survived. Risk is about protecting from probabilities. And that’s the paradox. Proponents of an all stock approach can say ‘but it worked’.
So we might say the all stock portfolio batted .500 or it batted zero. You can make up your own mind on that. I asked notable retirement specialist and financial planner Alexandra Macqueen what she thought of the all equity approach. And that is what does she think of the approach when the funds are actually required to do the bulk of the heavy lifting for retirement funding. This was offered …
It’s a bit like getting on a plane and hearing the pilot say, “if all goes well, we’ll have you on the ground in 2 hours. We don’t really have a plan to land safely, as we’ve really only focused on getting you in the air. But here’s hoping!”
Personally I want to increase the odds of a safe landing. It’s a personal decision. And that’s why they call it personal finance. I’d suggest investors look at Ed’s chart. It also shows the incredible success rate of the Balanced Growth model. It does not take a significant weighting to bonds to help the cause. And not all bonds are the same as I suggested in this post on our personal and recent portfolio moves.
What about you? Got bonds? How are you managing the risks? Or are you rolling the dice? FIRE away in the comment section.
Thanks for reading, Dale
Thank you for that article. When I was much younger I was 100% invested in equities. No bonds or GICs. Now, my retirement portfolio is 50% fixed income. I have other accounts that are somewhat more aggressive because I will not need the money any time soon. I feel that for my retirement account I cannot go lower than 40% fixed income, nor higher than 50%. I think sequence of return risk is a very serious concern. I read an article by Rick Ferri who argued that a retiree should have only about 30% equities. He believes that such an asset allocation would still provide a modicum of growth. That is a little too conservative for my taste, but his point is well taken. I think a kind of bucket approach works. One bucket is the RRIF or LIF or whatever. Then, there are non-registered accounts and TFSAs where one can take a little bit more risk.
Thanks David I certainly see where Rick is coming from. I really like Rick’s writings. If stocks can deliver 10%, no guarantee, then that is 3% of spending needs. Bond income at 2.8% takes it to 5% spend rate area, using income from the bonds. I’d agree we’d likely need more stocks. I like your band ideas. I am more Balanced Growth area. We all have to invest within our risk tolerance level, first and foremost.
Thanks for dropping by …
Dale
Nice post Dale. I’m kind of curious as to what a cash-flow oriented portfolio would have done in the same time. Hinting on a dividend portfolio here obviously, which is 100% stocks too. Guess the yield might be somewhat lower and the portfolio value a bit higher to get to the equivalent 4% SWR in absolute terms.
Anyhow, personally would always want to have some stable investments. Perhaps statistically not always the best thing to do, but I would sleep a whole lot better at night for sure! That being said, I would not exceed 10-15% in bonds, cash of equivalent at this stage in life. I can always go back to work and get a bit of income.
Something else to consider, our economic growth and consumption levels will get to a point where the planet won’t be able to sustain it (since 8% growth cannot be sustained indefinitely in a finite real world). This will limit growth, perhaps already in the next 30 years. Your SWR won’t be able to be maintained at 4% in such a scenario and perhaps we should lower it for the future. Not sure what this would do in terms of your fixed-income/cash and stocks balance of your portfolio though.
Thanks Mr. CF. I have not seen a good study of generous dividends from 2000 area and beyond. I think today, one could create a portfolio with a decent yield above the core large cap indices ‘the market’. Especially from the Canadian holdings. But we might not get to 4% in total with US and International. Not without creating more risk. Maybe not worth that risk to chase and stretch.
That said, that dividend approach certainly changes the picture for the all equity approach. If we can get the dividends to a level that satisfies needs, great. No need to sell stocks. We now have dividend growth risk and health and safety risk.
I like the in between approach as well. If we boost overall portfolio yield but fall short of our overall spending needs, we still reduce the number of shares that we have to sell. That will reduce sequence of returns risk. And in this scenario I think it’s wise to still manage that sequence of returns risk with modest bond exposure and other.
Low volatility stocks/indices will help as well of course. If we can get that combo of more generous yield and lesser volatility that helps with the risk. That’s where my Canadian core sits – great yield and lower volatility.
My overall portfolio yield is in that 4% area. Stock divs grow by about 9%.
On forward spend rate, I chatted this morning with a friend who runs and owns a big shop for higher net worth folks. He thinks 3% spend rate start is likely prudent given the current PE ratios.
Dale
Hi Dale, great insight as always. At age 56 I’m 95 % equities and 5% cash (laddered GIC’s). I’m planning on retiring in 3 – 5 years, maybe a bit sooner or later. We want to do a number of things before we can’t do them due to health and we’ve all seen friends and peers pass away unexpectedly so actual retirement date/plan is in flux.
I continually debate staying fully in equities or getting some bonds. I know what conventional wisdom says to do however whenever I look at lighting up on equities for bonds I struggle losing yields. When pipelines, telcos and the big five are yielding north of 4%, it’s pretty tough to drop down to 2.2% when the risk is somewhat similar. I am now using the philosophy that pipelines and telcos are my bond equivalent with one huge difference. The dividend tends to rise where the bond pymt normally does not. This obviously gives an inflation hedge as long as one can hold said stocks Sure the dividend is never guaranteed however if our telcos and pipelines go under, I personally think we’ll have many more things to worry about as a country and planet than bond/equity mix.
I guess the only thing I am missing is a crystal ball…when I get one that works I’ll know exactly what to do 🙂
Hi Clever Rover great comment thanks. I am going to write on the dividend approach for tomorrow. I’ll likely use some of your post. I am with you on those generous and growing Canadian dividends. I like that oligopoly approach as well. That can be a nice core for the Canadian investor. There are tax considerations for many as well of course.
We certainly need some US and likely International assets as well. And growth is good.
Was talking to a friend this morning who runs a well established shop that services higher net worth clients. He reminded me how the divs would not have kept up with inflation in the 70’s stagflation area. But nothing worked in stagflation. One of div’s greatest risks is a rising rate environment.
We cant’ worry about everything, we can’t protect against everything.
But a sensible mix with some risk management is still prudent IMHO. I’ll write more on other assets that can help protect those equities.
Dale
I like your thinking 🙂
Interesting post, Dale. I agree with you on this one.
Having all-stock portfolio in retirement is like playing with fire. It may work out, but doesnt provide you with the piece of mind and ballast that bonds provide. Important to remember that in old age, retirees may not have the stomach for a 50% stock drawdown — which if it results in permanent capital loss, may force ppl to go back to work (and that may not be possible for most old age retirees).
Thanks Roadmap2Retire, yes the real and permanent losses that occurred was terrible. That’s much more important than the charts.
I talked to too many retirees on that subject about their experience on those 2 corrections. The terrible news was probably unanimous. Unfortunately. Our tolerance for risk obviously decreases as we age and also have more funds to protect. Well we have our livelihood to protect.
Dale
I’m glad you ended with “that’s why it’s called PERSONAL finance”. I was thinking the whole time while reading this, the beautiful thing is there is no right or wrong answer, each person is going to have their own goals, preferences, and risk tolerances. Certain people may have pensions, or spouses/kids, and all these things will help determine which route they want to take.
At the end of the day, it really comes down to your own personal risk tolerance. Even if you knew you had a 97% chance of success/being better off with an all stock portfolio, but that 3% failure rate is enough to cause you stress/not be able to sleep at night – you should probably move to a balanced approach.
Personally, I am hoping to build a large enough portfolio by the time I am in retirement, that I can live strictly off the dividend income, and not have to touch any capital – so that when I die, I can pass on my entire portfolio to my kids. That said, if they turn out to be little ungrateful douches, maybe I’ll change my mind, and spend it all…haha jk.
All the best
Thanks Jordan. I appreciate you stopping by. Keep in mind that 97%, or it’s 96% in Ed’s article text does not include the last 2 recessions. No 30 year time period yet. Both periods or corrections of which I’d call a failure. 0 for 2.
Most investors will not take those odds of course, ha. It’s not necessary and there’s really nothing to gain. Advisors don’t go that route either. Survey says! Well the dozens upon dozens that I communicate with. Ha
The dividend approach is certainly a little different. Article coming on that, hopefully for tomorrow.
Dale
Dale, there’s also an element of being able to sleep at night that needs to be considered. With an 0-2 record in the last two downturns, and knowing how stressed I’d be if I was 100% equity in a 50% bear market, you can bet this retiree is carrying cash, and always will. I’m a big fan of the Bucket Strategy and target 2-3 years of spending as a minimum in cash at all times. Sure, I may be giving up a bit of return, but I’m sleeping really, really well these days. Great post!
Thanks Fritz, I always appreciate your point of view. It’s from a guy (and family) who actually retired early. At the core is a pension(s) and a sensible portfolio and risk management. I truly don’t think many retirees would take on an all stock portfolio for an investment bucket that they truly need to last. The math says no. And more importantly our emotions and common sense says no.
Yes we need to SWAN – sleep well at night.
Dale
Hi Dale R.,
One factor that is rarely addressed in articles concerning rates of return and asset mix is the assumption that bond returns will behave in the future like they have in the past. That assumption is absolutely incorrect. In the early 1980’s, interest rates, inflation, bond returns and mortgage rates were all in the high teens. I remember when some mortgage rates exceeded 20%. Basically interest rates have fallen for 25 years until the present during which time bond returns have averaged 6 to 7% (keeping in mind that when interest rates fall bond prices increase and bond returns increase). We are now at essentially the bottom, hitting all time low interest rates. Bond coupon rates are at historic lows. If/when those rates increase, bond prices go down and returns go down. Analysts predict that the average bond rate for the next 10 years will be about 2%.
In my opinion, the biggest risk is that bond returns will be lucky to keep up with inflation for the next 10 years. Any analysis of past returns that include the average bond returns for the past 25 years are misleading as future bond returns will be much less that in the past.
With that in mind, the 100% equity portfolio is less risky when compared to the alternatives. My wife and I are in our late 50’s and we both retired one year ago. All of our investments (DC pension plan, RRSP, TFSA, and non-registered investments) are in equity investments, globally diversified. The exception is that three years worth of planned withdrawals in each income stream are invested in bonds. Monthly retirement withdrawals come out of the bond funds. Annually, assuming that the stock market is not down, one year worth of withdrawals is transferred from equity investments to the bond fund investments. This means that if the market crashes, we have the ability to wait three years for the market recovery before we would have to liquidate stocks at depressed prices. Historically, three years is adequate for the markets to regain most or all of what was lost in the crash.
This effectively splits our portfolio about 91% globally diversified equity and 9% bond fund. We think that this is effectively less risk than holding say 40% of your portfolio in bonds that are expected to earn an average of 2% per year for the next 10 years and barely keep up with inflation.
Dale S.
Thanks Dale, (OK that sounds weird) yes bonds will obviously deliver less to the portfolio these days compared to the past few decades as the consistent generous yield is not there. As I often write bonds are useful as risk managers, that’s about it these. So perhaps we use less bonds (if we have the risk tolerance level) and we use the better risk manager bonds.
And at lower yields good bonds such as treasuries have an even greater convexity. They can become even better risk managers. Any yield changes are more exaggerated as the starting yield is so low. A 1% yield decrease has more effect on a 2% yielding bond compared to if that same bond was at a 7% yield. That was explained to me a few days ago. I’ll check in again to get details and perhaps to a short post on the matter.
Glad to hear to have some bonds. The all equity portfolio is 0 for 2 in the last 2 major corrections for a retiree, in my books. That is if one really needs the monies, and needs the monies to last.
I would suggest not bucketing, but just basic asset allocation and withdrawals from the stocks and bonds. You simply have to sell less stocks in a major correction. There’s nothing wrong with selling modest amounts in a correction. Simple couch potato stuff for the retiree. That worked wonderfully in the last 2 major market corrections. Retirees were able to keep their spend rate up, even adjusted for inflation.
Remember US stocks delivered zero for 10 years from 2000 and 2001.
Please feel free to fire back 🙂
Dale
Hi Dale R.,
You make relevant counter-arguments. It is indeed all about individual risk tolerance and preference.
The main point that I would like to see considered more in the various investment mix alternatives is that bonds are not a beneficial as they were in the past. The Universe Bond Total Return Index had returns of: 2001: 8.08%, 2002: 8.73%, 2008: 6.40%. Those bond returns were significant in diversification and offsetting the large losses in the equity markets in those bad stock market years. But in current times, that same bond index showed returns of 2.50% in 2017 and 1.80% in 2018. Large gains in the bond market can only occur if interest rates drop, but that cannot happen because interest rates are at historical lows. If/when the equity markets crash in the next 10 years, the bond portion of a diversified portfolio will only provide a 2% return to offset equity losses. Certainly that will help but not to the extent that 6% and 8% bond returns did during prior stock market corrections.
So…. my perspective is that for the foreseeable future, my risk is that any allocation that I make to bonds is almost guaranteed to return only 2% per year, barely enough to cover inflation. Our equity position of about 91% balanced equally between Canadian, US and international equity markets will have more variability but as long as I do not have to sell during down markets, it expected to have a higher return that 2% per year. The 9% bond fund “bucket” provides the ability to get through a three year market downturn. To us, this is less risk than being guaranteed a 2% return.
I get it that some of this might be too much for someone who wants the simple couch potato portfolio approach. I realize that I need to transition to the maintenance free investment approach as I age and lose my enthusiasm and perhaps my decision making ability. That will be the next chapter in my investment evolution 🙂
Dale S.
Very thoughtful and candid comments Dale S. Thank you for sharing your analysis and strategy.
Thanks David. I hope folks are ‘careful out there’.
Dale
This is getting complicated. you say stocks delivered nothing for 10 years from 2001? My all stock portfolio returned an average of 11.5% annually from 2001 – 2019. From 2001 to 2010 it was 8.2%.
I am now retired and live on dividends alone. there is no need to have bonds that return nothing after inflation, or cash that earns even less. I look at my utilities holdings as fixed income. (see my views at dividend-café.com) You live within your means, spend all dividends if you like, or save some for when a market correction comes and some dividends may be cut. But even in 2008 non of the Canadian banks cut their dividends.
Thanks DivInestor, that reference of zero returns is in reference to US stocks (S&P 500). Canadian stocks and International did not suffer to the same degree. That said your returns would have been more than extraordinary. That’s nice to read.
I’ll have a look at div cafe. Your portfolio of that period is listed on that site?
Thanks, Dale
Thanks DivInvestor I dropped by the dividend cafe, very nice to see your success. Your ‘About’ page is blank. Would be great to read more of your experience and history as an investor in a paragraph or two.
All the best, I’ll follow your site.
Dale
The numbers from my portfolio:
70% global equity ETFs (VCN, VUN, VIU)
30% fixed income, consisting of:
– 50% bond ETFs (ZAG)
– 50% cash and GICs, all at 2.8 to 3%
The fixed income portion is sufficient to provide 4 to 5 years of unreduced living expenses when combined with early CPP income in years 4 and 5. We also have DB pension income for about 1/3rd of our expenses.
I want to add the following:
I initially considered the 100% equity option, then went for 80/20, but after asking myself “do I really NEED more”, I opted for the 70/30 portfolio. It was having the 4 to 5 year cash cushion that ultimately determined our 70/30 target allocation.
Thanks for sharing Bob. As you know I am a big fan of that Balanced Growth model. You have a very sensible mix IMHO.
Dale
Thanks Dale. I think I’ll sleep fine with that allocation and the fairly substantial cash cushion.
I can’t see any reason why you wouldn’t have, at minimum, a 90% equity / 10% bond portfolio. Your returns are only marginally impacted while the overall portfolio risk is significantly reduced. You get a big bang for your buck there.
But the best argument against the all-stock portfolio is the behavioral aspect. As you say Dale, who has the stomach to handle the all-stock portfolio ride? Hint: far fewer people actually have the stomach for it than those who claim to have it.
Thanks David. Yes it appears from that chart from the article that the retirement funding success rate is even greater with a modest amount of bonds at 10% to 20%. And that bond allotment will not cost us much, even in the good times for stocks. In the long run, with any corrections, that bond component would not cost anything. It’s likely a massive benefit for long term funding levels and stability.
Dale
Dale, intersting discussion. Three points:
1. My study that you refer to includes every 30-year period from 1871-2017. This includes ten 30-year retirements that include both recent large declines. All 10 are successes.
2. The success of the 4% Rule is objective. Your feeling about it is not relevant. Success is providing an income of 4% of your starting investments plus inflation for 30 years. It’s a math calculation. Both recent large declines are clearly successes.
3. The 4% Rule with 100% equities failed 5 times in the last 150 years. 4 of the 5 would have been worse if you had any bonds. Only one of the ten would have been better.
4. Risk in retirement planning is the risk that you don’t live the retirement you want. Your retirement can fail from investments that lose money or from having too low of a return to provide a 30-year inflation-adjusted income. By studying the last 150 years, failures were almost always from too low a return. only once in 150 years was a market decline the reason. “Sequence of returns” has been essentially irrelevant in history over a 30-year retirement. Everyone must invest within their risk tolerance, but you cannot assume a less volatile portfolio is safer in providing a 30-year inflaiton-adjusted retirement for you.
Ed
Ed
Thanks Ed, it certainly is more than an interesting topic. And it’s more than interesting because an individual’s or family’s retirement years are on the line. I’d suggest a retiree look to the last 2 corrections and starting from those corrections. Obvious failure from 2000. And failure from 2008. Failure on paper, but more importantly is the tolerance for risk that almost exclusively lessens greatly as we age and move into retirement. Too many retirees created permanent losses as you know. It would be a small group of retirees that would want to see a $1 million portfolio (for instance) move to $350,000 area or even get cut in half.
I don’t think a retiree would knowingly sign up for that. And that’s why I can’t find a financial planner that would recommend an all stock portfolio for monies that are needed to generate income at a generous level, and are needed to last.
Interesting discussion for sure, I’m still in the camp of the other 99.9999999% of financial planners 😉 and with those that study retirement for a living. Thanks for stopping by.
Dale
Again, and from the article, this is the typical stance of financial planners and retirement specialists …
It’s a bit like getting on a plane and hearing the pilot say, “if all goes well, we’ll have you on the ground in 2 hours. We don’t really have a plan to land safely, as we’ve really only focused on getting you in the air. But here’s hoping!”
It seems to me all the financial planners learn from each other and keep repeating the same advice. They don’t know what works, its more about protecting themselves in case things don’t work out.
look at all your income sources. CPP, OAS, and if you have a DB pension are already fixed income. Then it only makes sense to invest everything else in dividend paying stocks.
I’m not worried about the 150 years where the portfolio survives, it’s the one year that kills the portfolio that I worry about.
A ships lifeboats cost money to buy, costs more fuel to move the heavier ship, and they are hardly, if ever, used, but when we hit the iceberg, I sure hope we have enough!