Should You Go All In on Stocks?

Most financial advisors recommend diversifying your retirement portfolio with a mix of stocks, bonds, and other assets. But some argue that going all-in on stocks could vastly increase your retirement wealth.

Putting 100% of your retirement portfolio into stocks is a big decision that depends on your risk tolerance, financial goals, and time horizon. The key is understanding whether you’re one of those who could benefit from this approach, which significantly changes the level of risk you’ll face.

Is an all-stock retirement plan worth the risk, or should you aim for a more balanced approach? Let’s dive into the pros, cons, and expert insights to help you decide what’s right for you.

Is An All-Stock Retirement Plan Right For You?

Noah Damsky, founder of the Los Angeles-based Marina Wealth Advisors, acknowledges that investing your whole portfolio in stocks “might not be the best idea for everyone.” But many people are good candidates for an all-stock portfolio, he said.

“A balanced portfolio can be great, but including a good chunk of your portfolio in fixed income leaves a lot of growth on the table,” he said, particularly for people who may live in retirement for over 20 years. “If your spending is low enough relative to your overall wealth that you run a very small risk of depleting your assets, a larger or full allocation to stocks can make a lot of sense. In that case, you might be more worried about what you’ll ultimately leave to your heirs.”

Put simply, this strategy could work if you have plenty of money saved and don’t need to spend much of it. For example, if you’ve saved several million dollars, have your house paid off, and live comfortably on Social Security, you might be a good candidate.

“Their day-to-day needs are more than sufficiently covered by Social Security income plus a large asset base, so their primary concern is legacy planning—or how they want to leave an inheritance to the next generation,” Damsky said.

A team of researchers led by Aizhan Anarkulova, a professor at Emory University’s Goizueta Business School, found that an all-equity retirement plan generated 50% more retirement wealth, on average, than a 60/40 portfolio of 60% domestic stocks and 40% bonds.

The portfolio they studied, however, wasn’t without diversification—they spread the stocks among domestic and foreign companies. Still, the researchers noted that all-stock portfolios are vulnerable to large drawdowns, which “can inflict intense psychological pain” on investors and cause some to “abandon their investments rather than stay the course.”

“Our results, as a whole, do not suggest that the all-equity strategy is safe; they merely suggest that it is safer than common alternatives,” the researchers concluded. “Given the relative safety and strong growth potential of equities, retirement savers and retirees would likely benefit from adopting a ‘set it and forget it’ strategy that fully invests in domestic and international stocks.”

When investing in an all-stock portfolio, you have to be comfortable, both financially and emotionally, with volatility. Damsky said he asks clients, “If we have another 2008 crisis, where markets plunge 20% quickly, or even 50%, what will your situation look like? How will your lifestyle be affected?” This prepares them for the risks involved.

Why a Balanced Portfolio May Be Right For You

A caveat of the above is what the Emory University study notes upfront: the results can change drastically depending on the period looked at. Keeping a mix of different investments might still make good financial sense for most Americans.

“In retirement, one of the things you really need from a financial planning perspective is predictability,” Ian Bloom, an advisor and founder of Raleigh, North Carolina-based Open World Financial Life Planning, told Investopedia. “Diversification into bonds, commodities, and real estate investments tends to provide slightly lower volatility overall—and that often translates to a [greater] sense of security.”

Bloom also says he ensures these clients have about two years of cash reserves, so they aren’t too worried about short-term market volatility. With this cushion, retirees can avoid selling investments at “dramatic” losses if there’s a market crash. After all, the average recovery period for major U.S. market crashes is about two years.

Bloom suggests alternatives like commodities funds or real estate investment trusts (REITs) for retirees who still want higher returns but are nervous about an all-stock portfolio. “That might be a middle ground that’s more palatable for a retiree who’s trying to invest exclusively in stocks,” he said.

The Bottom Line

While a 100% stock retirement portfolio offers the potential for higher returns, it’s essential to assess your financial situation, risk tolerance, and spending habits. Some experts suggest that retirees with a lot of assets and fewer expenses might benefit from a higher stock allocation. However, this approach also carries the risk of significant short-term losses during market downturns.