Tom_T wrote: Mon Oct 20, 2025 3:55 pm
It’s just one more reason I prefer Total World over VOO. Sure, the five stocks at the top are the same names, but instead of 27%, they comprise 15%.
This.
And if you add in bonds, you further diversify (reduce concentration) so that they comprise even less of a percentage of your OVERALL portfolio.
I.E., say you’re 60/40 (stock/bond) and the 60% is Total World stock and taking what Tom_T said at face value that the top 5 only comprise 15% would mean the top 5 of 60% Total World + 40% BND portfolio would be just 15% of 60% or just 9% of your entire portfolio.
If you still think the top 5 companies making up 9% of your entire portfolio is too much, then just reduce the 60% stock to even less.
it’s just math.
we can’t/don’t know anything the market doesn’t. So the world doesn’t think it’s a problem now. Maybe that will change at some point. We won’t know that in advance. People have been saying it for years. In the meantime the market’s gone higher still. People who try to go against the market usually underperform the market for all these various reasons.
The market has provided good returns in the past. It does fall too. It has bubbles and bursts. But for those that hang on and continue to invest are eventually rewarded. Stocks return to their rightful owners. If you are concerned, that is a signal that your asset allocation is too aggressive; i.e., you are taking more risk than you have the willingness to take. Reduce your equity allocation to the sleep point. Doesn’t mean you have to do something different from the market, just allocate your stock portion less than currently. You should always be prepared for a 50% decline. Design your portfolio to accept the maximumm tolerable loss (from fellow boglehead pkcrafter’s online book, Roadmap for Investing Success:
A Look at Historical Market Losses – Downside Risk You can get a fair perspective on risk by looking at actual stock market losses compared to how much money was allocated to stocks. The table below is based on actual market losses (price) encountered in the brutal 1973-74 bear market. A bear market is normally defined as a market decline of 20% or more. Drops of 10% to 15% are called corrections. Note in the table that a 100% stock portfolio lost nearly 50% of its value in two years (46% actual). If you had 50% stocks and 50% bonds, your loss would have been limited to 20%.Equity Exposure……. Max loss
20%…………………………………5%
30%……………………………….10%
40%……………………………….15%
50%……………………………….20%
60%……………………………….25%
70%……………………………….30%
80%……………………………… 35%
90%……………………………… 40%
100%……………………… …… 50%
Data provided by Author Larry Swedroe on Morningstar’s ‘Bogleheads Unite’ Forum
On average, a bear market has occurred about every 5-6 years. Note that the two major bear markets since 1973-74 (2000-2002, 2008) have had drops very close to those of 73-74, but there is no guarantee that we can’t see one with greater losses. Also, be aware that some charts will show you worst one year losses, but most all of the worst bear markets incurred losses in two or more successive years, meaning the real total loss is worse than shown. When you have many years to go until you need the money and you have a reliable income, larger losses may be tolerated. When your time-line is shorter, 10-12 years from retirement for instance, you will want to reduce your allocation to stocks and go into defensive or asset preservation mode.
make sure your portfolio’s allocation matches your need, ability and willingness to take risk:
How much risk do you need to take: https://www.cbsnews.com/news/asset-allo … -you-need/
How much risk do you have the ability to take: https://www.cbsnews.com/news/asset-allo … -you-take/
How much risk do you have the willingness to take: https://www.cbsnews.com/news/asset-allo … tolerance/
How to deal with conflicts between the need, ability and willingness to take risk: https://www.cbsnews.com/news/asset-allo … ing-goals/
what do you think?
