Should investors be 100% invested in stocks? The idea certainly sounds appealing.
Based on historical returns, we know that stocks generally outperform bonds over time. Indeed, US stocks have averaged 10-year returns of 9.2% over the past 140 years. While the annual return for each year does vary, statistics show that over the long term, stocks do tend to trend upwards.
This checks out. When you invest in stocks, you’re investing in companies that produce the goods and services that drive our economy. As long as the economy continues to expand over time, the stock market in general should benefit.
Are you investing for the long term?
While 100% stocks may produce higher returns than 100% bonds or a mix of stocks and bonds, it’s not for everyone.
Investing in all equities is inherently risky. A market tailspin could mean that your entire portfolio is exposed to the brunt of the crash.
Being invested solely in stocks could also backfire if you need the money in the next few years. Let’s say you’re saving for a house downpayment in two years. You risk not being able to raise that amount if the stock market falls this year or the next. Remember, it’s impossible to predict when the market is going to peak or bottom.
However, if you’re investing for something that’s still many years away, say your child’s university education or your retirement, you have the time to weather market ups and downs.
The market goes up over the long term, so if you’re able to stay invested for 10 years or longer, a 100% stocks strategy makes abundant sense.
Can you stomach the volatility?
Time horizon aside, another important consideration is whether you can stay the course on your 100% stocks strategy, even in a downturn. Do you have the “diamond hands” necessary to remain invested, or will you panic and sell your stocks?
This is also why many investors who invest 100% in equities prefer a dollar cost averaging strategy. It’s psychologically easier to stay invested when you can reframe downturns as opportunities to accumulate more stocks at cheaper prices.
A barbell approach to 100% stocks
If you like the idea of an all-stocks approach, one way to weather the inherent ups and downs of the stock market is the barbell strategy.
In essence, a barbell strategy splits your portfolio equally in two. On one end, you have growth assets – think high quality companies that ride on long-term growth trends. You can be 100% invested in such stocks.
Look out for companies that are positioned for the new world order. These are businesses that can advance in the digital economy, capitalise on China’s rising middle class, or tackle climate urgency, amongst other opportunities.
On the other end, you have income-generating assets. These can be dividend stocks or REITs.
Because they provide income on a regular basis, such assets provide resilience to your overall portfolio. When your stocks invariably hit a rough patch, your income investments act as a buffer against short-term price movements.
Putting it together: Your growth side
Assembling the growth side of your barbell strategy doesn’t mean picking a bunch of stocks and hoping your bets pay off. Even professional fund managers have failed at that nearly 9 out of 10 times over the past 20 years.
Instead, consider a 100% equity portfolio like Syfe Core Equity100. Through an optimised selection of 15 ETFs, you’ll gain exposure to more than 3,500 stocks worldwide.
What’s interesting is that Core Equity100 includes a tilt towards top technology stocks like Apple, Amazon, Facebook, Tesla, and more. This reflects the fundamental shift to greater technology adoption globally, spurred on by the COVID-19 pandemic.
It also includes a geographical tilt towards China, with Chinese stocks representing 17% of the portfolio. As China looks set to emerge as the world’s largest economy, Chinese equities could be poised for greater growth.
Putting it together: Your income side
Singapore has the largest REIT market in Asia outside of Japan. Singapore REITs also offer one of the highest dividend yields compared to REITs in other markets. As such, it makes sense that you tap on them for your income exposure.
One easy way is through the Syfe REIT+ portfolio. With one portfolio, you’ll be invested in Singapore’s 20 largest REITs such as CapitaLand Integrated Commercial Trust, Ascendas REIT, Mapletree Commercial Trust and more.
In 2020, the portfolio generated a dividend yield of 4.5%. For comparison, the 10-year Singapore government bond yield was only around 1%. If you’re looking to earn passive income, REIT+ is an effective, hassle-free option.
The bottom line
Investing 100% in stocks can potentially pay off, but it’s a strategy that’s more suited to investors with a long investment horizon and an appetite for risk.
To mitigate some of this risk, you can also consider a barbell strategy that divides your investments between growth and income stocks. This balance could give you the confidence to stay invested for the duration necessary to get the returns you seek.