The backbone of America's economy was just dealt a serious blow

[progree]

20. In the face of withdrawals and inflation, it is riskier NOT to have a high equity allocation

This is from something I wrote about a year ago (all figures are average annualized returns).

What really matters as far as risk is the risk of running out of money in retirement in the face of withdrawals and inflation, and that risk is much higher for people who don't have any equities and only rely on "safe" fixed income investments, which don't even keep up with inflation.

Numerous simulations reported in the American Association of Individual Investors (AAII) Journal and elsewhere have shown that mixed equity-bond portfolios with a high concentration of equities (around 80%) does best in the face of withdrawals and inflation (a typical study is with a 4%/year withdrawal rate in the beginning and the dollar amount withdrawn increasing with inflation. But there are tons of simulations with varying assumptions). IOW its a bigger gamble not to be in the market. I don't wish to take that gamble. I don't wish the pension funds and insurance companies I rely on taking that gamble either.

Nothing holds up as well in the face of withdrawals and inflation than does equities, except perhaps real estate. In other words, it's an even bigger gamble to not have a sizable proportion in equities.



Over the past 20 years, it has grown 6.3710 fold, an average annual increase of 9.7%/year

Over the past 50 years, it has grown 131 fold, an average annual increase of 10.2%/year

and so on.

This is from the below link, which has the S&P 500 total return since the start of 1928. It also has similar for bonds, Treasury bills, and gold. These don't come close to matching the increase in equities.
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

I'm using the broad-based S&P 500 as a proxy for U.S. stocks overall. The S&P 500 is about 80-85% of the total U.S. stock market capitalization. The remainder -- midcaps and smallcaps -- have had an even better overall record. I use the S&P 500 because data about it going way back is easier to find than total U.S. stock market.

The above table is through the end of 2022, a very bad year for the stock market. If I updated it through the end of 2023, it would be even better (the S&P 500 had a total return of 26.1% in 2023).