Our investment strategy has always been 100% equities, with no allocation to bonds or other asset classes. There are several reasons we came to this conclusion, which we want to cover in this post.  

When we say 100% equities, this is within our actual FI funds, which are housed in our ISA and pension accounts. Our emergency funds are in 100% cash and cover roughly 6 months of living costs. For more info on how our FI funds look at the moment see our 1 Year of Blogging post.

Our 100% equities allocation consists of index tracker funds with a global spread. This reduces the risk of being over-exposed to any particular country.  

Obviously this post details our personal approach. It isn’t advice and might not be suited to your situation. You should always do your own research and come to your own conclusion on what is right for you! 

Time Horizon 

The first reason for being 100% equities is the time horizon over which we are investing. First and foremost, we’re still very much in the accumulation phase. We’re climbing the steps to a brighter future!

We won’t be drawing down on our FI funds for 10 years at least. This means we can ride out any temporary dips in the stock market which occur in the meantime. Like right now for example! 

The stock market has gone down by ~30% since the March peak, but we aren’t concerned at all. We’ve actually been waiting for this opportunity as it now means our monthly investments are buying more units of our index funds.

The main reason to diversify into safer assets is so that your whole portfolio doesn’t dive at the same time. Many intend to re-allocate some of their bonds into stocks at the time of a market dip – a form of market timing.  

But with equities offering the best long-term returns, if you can afford to ride out the dip then you’ll be better off without the drag of a heavy bond allocation.

If you have an emergency fund to cover yourself if you lose your job etc, then you won’t need to touch your FI funds either way. If you aren’t going to need to liquidate any of the assets you can simply ride out the dip, while continuing to contribute at discounted prices. 

What About in Retirement? 

Many people advocate ramping up your bond allocation as you approach retirement. This will allow you to cover several years of expenses from bonds, without having to sell off equities to fund retirement spending.  

While there is certainly merit to this approach, our intention is to be somewhat less cautious. 

Our plan when approaching retirement is to increase our emergency funds to 1 year of living expenses. Depending on our risk appetite at the time, this could be supplemented with ~1 year of high quality government bonds.

The main reason for this less conservative approach is the length of time which our FI funds are intended to last us. All being well, we’ll be in a position to reach FIRE in our 40s. This would mean (hopefully) needing to maintain our spending habits for 60+ years.  

Over this kind of time horizon, we’re very reluctant to go much deeper into bonds as they would start to drag on long term performance. 

What if there’s a long market dip? 

Should there be long term market panic after we ‘retire’ (i.e. longer than our emergency funds + potential bonds would sustain) we would have the option to reduce our living costs. In all likelihood, we would start this process as soon as things start to go south.  

Our current FI fund targets allow for a reasonable spend on luxuries and we could probably manage to reduce them by 50% without too much effort. This would mean we now have 4 years of expenses covered without touching our equities. For many market crashes, this would see us through the worst of it.  

Should things go on for even longer, we expect we could pick up some income to assist. Miss Way actually intends to maintain some level of work so this would cover a proportion of our expenses.  

Personal Choice

If you’re not comfortable with this, don’t do it! 

Ultimately, this is an entirely personal decision. You have to weigh up your risk appetite, your long term goals and your plans.  

If, for example you’re likely to sell equities in a market dip due to panic, it is likely that a 100% equities approach is not for you. 

Further Inspiration

We came to the conclusion of going 100% equities ourselves. We did our own research and settled on this as the best outcome, particularly at this stage in our lives.

It might help to see the opinions of others who have come to the same conclusion. Enjoy the links below!

The Path to 100% Equities by Go Curry Cracker! Includes some really useful calculations on the reasons behind this approach.

Why I Own 100% US Stocks by A Purple Life.

There are of course infinite different approaches and you should choose the one you feel most comfortable with. Let us know in the comments what your allocation is!