Going 100% Equities Too Late

Risk capacity—your ability to stay invested through a 50% drawdown without withdrawing funds—declines sharply in the decade before and after retirement, regardless of your risk tolerance.

Key takeaways

• 100% equities is defensible at age 25 with 40+ years of earning and recovery time; it is indefensible at age 55 with a 10-year spending horizon
• A 50% drawdown at age 20 leaves 47 years to recover; at age 58 it leaves 2 years before required withdrawals begin
• Many disciplined savers shift to 100% equities late because they fear missing the 2008–2020 bull market gains while holding bonds
• A 40-year bond-holding period means you capture most major rallies anyway; the marginal gain from 20 years of 100% equity is not worth the sequence-of-returns risk
• Age-based glide paths (simple rules like 110 minus your age in stocks) prevent this mistake automatically

The flaw in "equities for the long run"

Jeremy Siegel's Stocks for the Long Run has been published in five editions since 1994, and its core thesis is sound: equities have outperformed bonds over every 20-year period in U.S. history. A 25-year-old who loads 100% into VTI and holds it for 40 years will almost certainly beat a peer who held 50% bonds.

But the book's title contains the entire problem. For the long run requires two things: enough capital that you can afford a drawdown, and enough time that you can wait for recovery. A 55-year-old with $1.2 million and plans to retire at 62 has neither.

Here is the case that breaks 100% equities:

A 55-year-old engineer earns $140,000 annually and has accumulated $1,200,000 in retirement accounts. Their plan: work until 62, retire on $80,000 per year from Social Security and portfolio withdrawal, and live to 90. They reason: "I have 35 years until I die. Equities are for the long run. I am going 100%."

In late 2007, their $1.2 million portfolio is worth $1.8 million. They retire in 2009 at 62. Their portfolio is worth $900,000. They start withdrawing $80,000 per year. The next 10 years:

• 2009: $900,000, withdraw $80,000 = $820,000 after withdrawal
• Market recovers, grows 15% = $943,000
• 2010: $943,000, withdraw $80,000 = $863,000
• (and so on, with a few down years mixed in)
• 2018: Portfolio is $1,350,000
• 2019: Portfolio is $1,600,000

By age 72, they are back above $1.4 million and recovering. But look at the sequence: they withdrew $80,000 every year for a decade while the portfolio recovered. Every withdrawal at a depressed price hurt. In year two of retirement (2010), when their portfolio was still down 38% from the peak, they took $80,000 out at those low prices. Those dollars are gone forever.

Now contrast a 55-year-old with the same $1.2 million who held 60% stocks / 40% bonds:

• 2007: $1.2M (60% stocks, 40% bonds) = $720K stocks, $480K bonds
• 2009: Stocks down 50% to $360K, bonds down 5% to $456K = $816K total
• Retire, withdraw $80K from bonds = $376K bonds left
• Market recovers, same path as before
• But withdrawals come from bonds when the portfolio is stressed, stocks stay intact to recover

This investor ends at age 72 with roughly $1.55 million instead of $1.4 million—not a huge difference, but the path was less painful and the sequence risk was lower.

Why late-career equity loading happens

Many disciplined first-time investors avoid this by never hitting 100% equities at all. A 25-year-old holds 90% stocks and 10% bonds, or 95% stocks and 5% bonds. Over 40 years, this works fine. The bonds are drag on returns, but the drag is tiny (0.4% per year if bonds return 3% and stocks return 8%).

But a cohort of savers hits 100% equities later, in their 50s, because they:

1. Read the historical data (stocks always win over 20-year periods) and internalize this as "bonds are wasted"
2. Witness a 12-year bull market (2009–2020) where bonds returned 2–3% per year while stocks returned 15%
3. Develop an emotional conviction: "The best years are ahead. I cannot afford to miss them."
4. Act on this conviction at precisely the moment—age 50–60—when they cannot afford a 2008-scale drawdown

This is not stupidity. It is a rational inference drawn from recent data, applied at the wrong life stage.

The fix is mechanical, not emotional. Use a simple glide path. The simplest rule is: subtract your age from 110, and that is your stock percentage. At age 25: 85% stocks. At age 45: 65% stocks. At age 60: 50% stocks. At age 70: 40% stocks.

(Or use 120 minus age for more aggressiveness, or 100 minus age for more conservatism. The rule itself matters less than following a pre-set rule instead of updating your asset allocation based on recent market performance.)

The mathematics of sequence risk

A technical term—sequence of returns risk—captures why timing matters so much late in life. Consider two portfolios, both earning 7% annually on average:

Portfolio A: +20%, +10%, -8%, +12%, +5% = average 7.8%, ending at $1,357,000 Portfolio B: -8%, +12%, +20%, +10%, +5% = average 7.8%, ending at $1,357,000

Both average the same return. But if you are withdrawing $50,000 per year, the order matters:

Portfolio A (gains first, then a loss):

• Start: $1,000,000
• Year 1: +20% = $1,200,000, withdraw $50K = $1,150,000
• Year 2: +10% = $1,265,000, withdraw $50K = $1,215,000
• Year 3: -8% = $1,117,800, withdraw $50K = $1,067,800
• Year 4: +12% = $1,195,936, withdraw $50K = $1,145,936
• Year 5: +5% = $1,203,233
• Final: $1,203,233

Portfolio B (loss first, then gains):

• Start: $1,000,000
• Year 1: -8% = $920,000, withdraw $50K = $870,000
• Year 2: +12% = $974,400, withdraw $50K = $924,400
• Year 3: +20% = $1,109,280, withdraw $50K = $1,059,280
• Year 4: +10% = $1,165,208, withdraw $50K = $1,115,208
• Year 5: +5% = $1,170,968
• Final: $1,170,968

Portfolio A (gains first) ends at $1.203M. Portfolio B (losses first) ends at $1.171M. Same average return, different outcomes. The loss early, while the portfolio is large and you are withdrawing from it, costs $32,000 in final wealth.

This is sequence of returns risk. And it is non-negotiable for any portfolio funding near-term withdrawals. An investor at age 55 planning to retire at 62 is already in sequence-of-returns risk zone. Going 100% equities during those seven years is betting that the market will not go down, or will recover fast. It is not a long-term bet. It is a market-timing bet dressed up in long-term language.

Building a glide path at any age

The simplest approach: compute your "years to withdrawal" as the gap between now and when you plan to draw significantly on the portfolio. If you are 40 and plan to retire at 67, that is 27 years. If you are 55 and plan to retire at 62, that is 7 years.

For simplicity:

• 25+ years to first withdrawal: 85% stocks / 15% bonds is reasonable (or 100% stocks if you truly have emergency reserves elsewhere)
• 15–25 years: 70% stocks / 30% bonds
• 10–15 years: 60% stocks / 40% bonds
• 5–10 years: 50% stocks / 50% bonds or 40% stocks / 60% bonds
• Under 5 years: 30% stocks / 70% bonds or even 20% stocks / 80% bonds

These are rules of thumb, not law. But they prevent the specific mistake of realizing at age 58 that you are 100% equities and staying there through retirement.

The best time to build a glide path is when you are 25. The second best time is now, whatever your age.

Decision tree

Next

A glide path by age prevents the mistake of staying 100% equities too long. But many investors make the opposite mistake: they allocate to the right percentage of equities but pick the wrong equities—chasing funds that have just earned the highest recent returns, a trap that snared many investors in the 2020 ARK phenomenon.

Related concepts

• Skipping the Emergency Fund
• Chasing Recent Winners
• The 3-Fund Philosophy