Should you put all your savings into stocks?

LESS than two months of 2024 have passed, but the year has already been a pleasing one for stock market investors. The S&P 500 index of big American companies is up by 6 per cent, and has passed 5,000 for the first time ever, driven by a surge in enthusiasm for tech giants, such as Meta and Nvidia. Japan’s Nikkei 225 is tantalisingly close to passing its own record, set in 1989. The roaring start to the year has revived an old debate: should investors go all in on equities?

A few bits of research are being discussed in financial circles. One was published in October by Aizhan Anarkulova, Scott Cederburg and Michael O’Doherty, a trio of academics. They make the case for a portfolio of 100 per cent equities, an approach that flies in the face of longstanding mainstream advice, which suggests a mixture of stocks and bonds is best for most investors. A portfolio solely made up of stocks (albeit half American and half global) is likely to beat a diversified approach, the authors argue – a finding based on data going back to 1890.

Why stop there? Although the idea might sound absurd, the notion of ordinary investors levering up to buy assets is considered normal in the housing market. Some advocate a similar approach in the stock market. Ian Ayres and Barry Nalebuff, both at Yale University, have previously noted that young people stand to gain the most from the long-run compounding effect of capital growth, but have the least to invest. Thus, the duo has argued, youngsters should borrow in order to buy stocks, before deleveraging and diversifying later on in life.