Invest to Win

The Green Swan - Invest to Win

The Green Swan eBook

Hello again, folks!  Thanks for checking in with The Green Swan.  Before I get to today’s post, Invest to Win, I have a big announcement to share.  The Green Swan ebook is published and ready to go!  The Green Swan eBook is over 30,000 words, 82 pages on normal 8.5 x 11 paper, and over a year in the making to help you get on the path toward financial independence!  To find out more, visit The Green Swan eBook page.

Invest to Win

Now, back to today’s post.  Today we will be getting into some nitty gritty of The Green Swan’s key principle #3: Investing.  And what I’m going to show you today is how to invest to win!  Check this link out for a refresher on The Green Swan’s Key Principles.  Otherwise, let’s dive right in.

I have received a number of inquiries from readers as to the composition of my investment portfolio and why I feel comfortable investing in stocks. For background, my wife and I have held an all stock portfolio, comprised of a variety of mutual funds (both domestic and international), since we began investing out of college approximately 10 years ago.

In this post I’ll explain why I am comfortable with an all stock portfolio and why I think that is the best way to invest to win.  In a follow-up post, I will go into the composition of my actual portfolio and why I’ve structured it the way I have.

Historical Perspective

Yes I know, just because something happened historically doesn’t mean it will continue to be the case in the future.  Thanks Einstein, but Is that still not the best indicator?  So let’s look at some common investment vehicles to see how they have fared historically.  I’ve selected a 30 year time horizon for no real particular reason other than 1) that’s the most recent data, 2) it is a long enough time horizon to flush out some noise in the numbers and give a more accurate representation, and 3) I’m 30 years old so why not.

Sorry, I’m not sorry, this post is going to be data intensive.  What did you expect though in a post on investing!?

The below chart shows the returns on an annual basis for the S&P 500, Treasury Inflation Protected Securities (TIPS), 10-Yr Treasuries, Total Corporate Bonds, and Total Commodities.  S&P returns are total returns as provided by, while the source for the data on the other securities is from

At the bottom I summarize the data with the High, Low and Average returns over the 30 year period.  From this chart, I draw two conclusions:

  1. The average S&P return outperforms all other securities by a landslide.  The difference between the S&P and commodities of 3.5% per year adds up over 30 years.
  2. Although the S&P has stronger returns on average, the ride is bumpy with significantly more volatility (as indicated by the high and low returns).

Invest to Win

So my conclusion is that if you have a long time horizon, the S&P 500 is your best investment.  Shocker, huh?!  Like you haven’t heard that before.  But let’s dig deeper into the S&P 500 return to see what else we can conclude.

S&P 500 Detailed Return Analysis

The chart below details the S&P returns with more detail.  Column 1 is the annual return and the next column over marks the value of $1 from the beginning of 1986 onward (based on those annual returns).  Column 3-5 are the 5 year, 10 year, and 15 year compound annual growth rates (CAGRs).  These CAGRs are calculated on a rolling basis.  For example, the 5 Year CAGR in 1986 of 19.87% represents the average return from 1981-1986, or the 5 preceding years.  Likewise, the 15 Year CAGR in 1986 of 10.76% is calculated based on the returns from 1971-1986.

Invest to Win

Again, at the bottom I summarize the data with the High, Low and Average returns over the 30 year period.  A lot of data, I know, but let’s break it down a bit by drawing out my main conclusions from this chart.

  1. The value of $1 at the beginning of 1986 grows to $19.32, or said differently, if you invested $10K at the beginning of 1986 you would have $193.2K by the end of 2015! Talk about putting your money to work for you!
  2. Out of all 30 5-year investment horizons, only 5 are negative (2002-2004, 2008, and 2011).  Yes stocks are volatile, but for a relatively short time horizon of 5 years you have a 84% chance of either breaking even or better.  That should give you some degree of confidence to maintain a significant amount of stocks up to within 5 years of your planned retirement date, or even well into retirement.
  3. Let’s stay focused on the 5-year CAGRs, because it only gets better when looking at the longer time horizons of 10 and 15 years.  The worst 5-year investment period was down only 2.3%, and that was after 3 consecutive bad years from 2001-2003.  What that tells me is that even when there is a lot of pain in the stock market, it bounces back relatively quickly to close to breakeven.  So expect pain, yes, but also expect a good bounce back quickly after (so stick it out!).

S&P 500 Linked Returns

This chart does not tell the whole picture though, so one last chart.  Hang in there, you can do it, just one more!

The chart below shows what I call the “linked returns” of the S&P 500.  I’m not sure if this is an actual thing or not, but it makes sense to me.  This measures what I feel is the true value of the $1 invested in 1986.  While the average returns do a good job of showing just that, the averages, I think it smooths things out too much.  We all know that if the stock market drops 50% one year, your $1 goes to 50 cents.  And even if it goes back up 50% the next year you are still only at 75 cents, whereas the average return would be 0%.  Alternatively, the linked return measures the return based on the dollar value.

So the chart below shows the linked returns based on the value of the $1 over the previous 10 year, 20 year, and 30 year periods up to 2015 (i.e. the 10-year linked return is from 2006-2015).

Invest to Win

Still solid returns over these investment horizons.  I would note that although the 10-year linked return is only 7.31%, that period is negatively impacted by the timing of the annual returns, specifically the largest single year drop in the S&P500 since the great depression, which occurred in the 3rd year of this period (2008 drop of 37%).

Final Conclusions

  • The stock market has the best historical return performance than any other asset class
  • Historical returns is the best proxy for future returns, even though it does not guarantee it
  • While the stock market is more volatile in any given year, the 5 year returns are much less volatile with a low probability of loss
  • There is even less of a likelihood of loss over 10 and 15 year periods

In terms of how this relates to asset allocation in retirement, if you are comfortable with any given 5 year period being slightly below breakeven on a worst case basis, you could consider having about 5 years’ worth of expenses in more liquid and safe assets and have comfort that the rest of your portfolio in stocks will at least hold their value pretty well.  Keeping in mind that is the worst case, while the far more likely outcome of your stock portfolio in any given 5 year period will have average annual growth of over 11%!

But asset allocation in retirement is a whole other discussion which I will leave for a future date.  In the next post you will see more specifically what my portfolio is comprised of and why I’ve constructed it the way I have.

This article was the result of reader inquiry so I appreciate the comments!  To further the discussion, let me know if you have considered an all-stock portfolio and why/why not?  And, of course, if you disagree with the analysis or conclusions above let me know.

Thanks for taking a look!

The Green Swan

Work Harder, Work Smarter, Retire Earlier and Find Your Beach

Disclaimer: Please reference my Disclosures page.  This post is for informational purposes only and is not to be construed as financial advice. If you need help with investing or financial decisions, please consult a financial professional.


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  1. I’m gonna be bookmarking this and coming back to rereading it! I’m still pretty new to investing and have been hearing more about an all stock portfolio. The common thing I’ve heard is to subtract my age (22) from 100 and that should be the amount I have in stocks. Is that right? I’ve also heard to bump it up to 110.

    That’s what I’m thinking so far, to have a portfolio of 88% stocks and 12% bonds. I’m still figuring everything out, haha, trying to read as many perspectives as possible.

    1. Good idea to do plenty of research for yourself and determining what your risk tolerance is before jumping in too much. I’ve heard of that strategy before as well and seems to be a common rule of thumb. I’d recommend defining your time horizon and risk tolerance and adjusting as life circumstances change. For example, if you were to retire early that rule of thumb wouldn’t be helpful once you reach that stage.

      I’d be happy to discuss further 1×1 if you wish, just reach out through the contact page. Thanks!

  2. We were pretty stock heavy in our portfolio – around 90-10 split stocks and “not-stocks” until a few years ago. We realized that we could still get the same type of gains without it being SO heavy in stocks so we switched some more into bonds/not-stocks to still get some return but protect that portion of our nest egg. I think we’re still at 80-20 (still heavy for most people), but as you pointed out, we’re still set for the upside growth potential without much loss risk. Sure it could crash and we could lose a lot of our value, but it should recover fairly quickly. Worst case, we delay our FIRE date until then and keep adding money to it at a lower price.
    When we get to FIRE and need those funds, we’ll move them into more of a dividend income generating index fund than the VTSAX type funds we have them in now. They will still be pretty heavily invested in stocks though, even during that withdrawal phase.

  3. I was surprised by your 11.8% thirty year return on the S&P500 at first. I just retired after 27 years – almost the same period, but have seen just a 7.1% S&P500 return over that period. The difference shows you how much of a difference just a few years makes. I started working in 1989 (+32% that year, but didn’t have anything invested yet) and also missed the growth from 1986-1988 (+40%). Just by missing that 4 year growth period, I missed over 70% of the 30 year growth! That said, fully appreciate your points and my wife and I were happily retired before we turned fifty!

    1. That’s true, timing of returns can make a big difference. 7.1% over that time horizon is still pretty solid. Lots of ups and downs but still strong result in the end. Thanks for sharing and congrats on your early retirement!

  4. Thanks for sharing the rationale behind your portfolio investment strategy, it is always interesting to see how other people are approaching portfolio management. I have a more traditional allocation that is still heavily invested in equities, but also includes some higher volatility sectors, e.g. commodities, and some lower volatility sectors, e.g. bonds. Your post will be good food for thought when I re-balance my portfolio later this year.

    Also, congratulations on the ebook, that is a huge accomplishment!

  5. My problem is that I have probably put more money in mutual funds compared to stocks. As I’ve focused more on paying off debt, I opted for the theoretically less-risky investment choice & have more exposure to small, mid, & large caps. The couple stocks I do own, pay dividends.

    1. I own stocks through mutual funds, I don’t mean owning stocks directly. I will go into my portfolio composition in more detail in an upcoming post. Thanks for the comment and allowing me to clarify.

  6. Good analysis. No matter how many times I try to find other alternatives for my investments, I almost always gravitate back towards the long-term draw of the S&P 500. It’s just undeniable how powerfully simple investing in it can be.

  7. I’m a majority in stocks (about 85% Stocks, 15% REITs/Bonds) for the same reasons you mentioned above. I don’t watch the market on a daily basis and so far have been able to handle smaller swings in the market over the past couple years. The big test is when the market takes its next big dive and if I end up with an ulcer or not 🙂

  8. Thanks for putting together these numbers. As I recently posted, my husband is hesitant about investing in the stock market, but it’s clearly one of the best ways to increase the value of your money. We are handling his reluctance with diversification – investing in rental properties in addition to the stock market. I should probably make him read this at some point though.

    1. Yeah let him know to give it a read. The historical support for investing in the stock market is strong no matter how you slice and dice the numbers.

  9. Thanks for sharing your investment thoughts.

    Our allocation is a little more broad with about 40% in US equities, 30% in international equities, and the rest in bonds, commodities, and real estate.

    We have primarily invested in mutual funds although the 401(k) plans and 529 plans are in target date funds. But especially more recently, we have struggled with higher cost funds and poor performance. As such, we are in the process of moving away from the mutual funds and into index ETFs. I would also like to start experimenting with a portion allocated to dividend growth stocks.

    Of course, it never fails that since I liquidated the mutual funds, the market has been outperforming making it more challenging to buy back in.

    1. Thanks for sharing your thoughts as well. My stocks are held primarily in index mutual funds with a significant percent in international equities. I’ll go into more detail in a future post though. I’m also going to try to move more into index you avoid the higher fees and more erratic returns.

  10. Congrats on the book launch JW, that’s really cool!

    Investing is definitely the best way to become financially independent. It’s what grows money the best over the long term, like you showed 🙂

    Other than keeping cash, the vast majority of our money is, and will be, in shares (and REITs). I look forward to the time that we’re successful with our IVF baby and our investing can be full steam ahead.


    1. I’m really looking forward to hearing you’ve been successful as well! That’ll be exciting news. Thanks for the comment.

  11. Congrats on the eBook and everything. Love your site design. Stocks are awesome. Why do anything else? All of my liquid investments are in stock. In fact, its all in index funds. I’m obsessed with index funds. Some of the funds are 3x the dow and some are plain vanilla Dow trackers. I’m old school so I like the Dow – I know it is silly but I still like it. Its the same index that Jesse Livermore made a million dollars shorting in the stock market crash of ’29. But really it has changed so much since then! I list my Net Worth composition here: And you can see that 30% of it is tied up in Real Estate. I think that is just a function of my relatively modest NW right now. Have a good one and I like your post.

  12. Great report.

    Investing in corporate America is a winning strategy. Warren Buffet shares the same view.

    I personally use a different diversify strategy to take advantage of the stock swings by buying more when is low.

    My portfolio structure tells me about events and economic cycles. Very useful to maximize profits.

    Funny thing is that all my investment classes in the last 2 weeks skyrocket together. This is a “bad” sign.

    I think this year we will have some fun along the way.

    I found interesting in your chart that corporate bonds have lost at worst 4.9% but still offering in average a healthy 7.66% yearly returns. I wrote a broad article about Bonds a few weeks ago, but I didn’t notice this interesting fact.

    I’m going to do some research about corporate bonds vs treasury bonds, let’s see the results.

    Thanks for sharing.

    1. Sounds like you have a good strategy going for you as well. I know one of the historical arguments of diversifying with bonds was their lack of correlated returns to the stock market but that isn’t the case as much anymore. They are less volatile though. I look forward to seeing the research you come up with.

  13. I’m currently 92% stocks and 8% cash and bonds. I’m 32 and super-comfortable with this breakdown for the reasons you’ve aggregated above. Once I have less debt and more cash available to invest, my brokerage will up the amount of stocks I own. I, too, believe in the US economy in the long-term.

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