WSJournal - one man.s stock market.

The 100% Stock Solution

Most investors hold a mix of stocks and bonds, hoping for both growth and safety. Then there are people like Daniel White.

The 36-year-old Chicago lawyer keeps all his investments in the stock market. His 401(k) plan is invested in equities, and so is his wife's. The college-savings accounts for their four young children also are in stocks. His separate brokerage accounts are, too. The total sum at risk is in the high six figures, he says.

"I'm not an adrenaline junkie," says Mr. White, who sees the stock-market wagers as part of a broader personal portfolio that includes his job, enough cash to cover the family's living expenses for an extended period and a house that is fully paid for.

Mr. White adopted the strategy nearly a decade ago and stuck with it when stocks plunged during the financial crisis. Now, with stocks hitting fresh record highs, he is seeing the payoff.

Stocks often have outperformed bonds over long periods. An investor who put $100,000 into the Standard & Poor's 500-stock index 25 years ago would have had more than $1 million this April, while the same amount in the Barclays U.S. Aggregate Bond Index would be worth $560,900, according to investment researcher Morningstar MORN -0.13% .

The problem: Stocks take investors on a rockier ride, and the threat of large, long-lasting drops looms. The S&P 500 fell 38% in 2008, amid the financial crisis, and didn't close above its precrisis peak until March.

Investors risk locking in their losses if they sell stocks after that kind of drop, as many did during the financial crisis, due either to fear of greater losses or a short-term need for cash. If the money is needed to fund retirement, for instance, the damage can be catastrophic.

To manage that risk, conventional wisdom dictates striking a balance, putting some investments in stocks and some in bonds and gradually adjusting the proportions to boost the fixed-income allocation as an investor ages. Popular "target date" mutual funds often make the adjustment automatically.

Retirement-account data indicate that people increasingly embrace the idea that a diversified pool of stocks and bonds provides a better shot at steady returns and protection from losses.

Just 9% of investors in 401(k) and similar retirement plans had their entire account in stocks last year, according to asset manager Vanguard Group, based on data covering about 3.5 million participants in plans where it serves as record-keeper. That is down from 31% in 2000.

The Federal Reserve's Survey of Consumer Finances for 2010 found that just 6% of families have all their investments in stocks.

"The message is out that 100% equities is not the right mix for most investors," says Winfield Evens, director of investment strategy at consultant Aon AON -4.13% Hewitt.

But this year's stock-market rally, combined with fears that the decadeslong bull market in bonds might be ending, has sparked new interest in how all-stock investors handle the risk.

Financial advisers, academics and investors who follow the strategy say there are various factors to weigh. Understanding those factors also can be useful for investors who would never consider following suit by framing investments as part of a bigger financial picture.

High on the checklist: understanding the risks, which include losing a lot of money, possibly for good.

Other key items include an investor's overall wealth; the amount of time before an investor needs the money invested in stocks; other sources of steady income, such as Social Security or a traditional pension; and whether an investor's salary might be affected by stock-market swings.

An investor's psychological and emotional makeup is critical, too. "If you can think of half your wealth disappearing—your financial wealth—for five or 10 years, then I think you can tolerate it," says Stephen Utkus, who runs the Vanguard Center for Retirement Research.

Investment firms typically have only a partial picture of their clients' assets, based on which part of the portfolio they see. But there are some indications in the retirement-account data of the types of investors who are inclined to invest only in stocks.

"Disproportionately, it tends to be men," Mr. Utkus says. The typical retirement account of an all-stock investor has more money in it than the average account, with balances usually over $100,000, he says.

More than one in five investors in their 30s and 40s has a 401(k) account balance more than 90% in equities, compared with fewer than one in six investors in their 60s, according to 2011 data, the most recent available, from the Employee Benefit Research Institute and the Investment Company Institute. The nonprofit organizations are based in Washington.

All-stock investors are more likely to own a variety of different funds and also are more likely to buy shares in actively managed stock funds rather than funds that passively track a benchmark index, according to Mr. Utkus.

There are exceptions, though. Mr. White, for example, is a fan of low-cost index funds. Investors and financial advisers say they often favor passive, low-cost funds, and typically aim for exposure to a broad array of domestic stocks beyond just the S&P 500, and for a portfolio with a significant allocation to foreign stocks.

Investors who are all in stocks aren't swayed by arguments for diversification into bonds. "There just aren't one set of rules, one-size-fits-all," says Richard Warren, who is 61 years old and a Nashville, Tenn.-based partner in a law firm.

Mr. Warren moved his money out of bonds before the financial crisis and now has all of his investments in stocks. "I can't find any place that I feel is a better place to be," he says.

Here are some of the questions financial advisers, experts and investors themselves say are important to consider before putting an entire nest egg into equities:

Do you have other assets that behave like bonds?

Moshe Milevsky doesn't own any bonds because he sees his professional status as a tenured finance professor at York University in Toronto offering the same kind of steady, dependable income as a typical fixed-income investment.

About 95% of Mr. Milevsky's retirement account is in stock funds, both domestic and international, he says. The remainder is largely in gold and a bet on the Indian rupee—investments that he makes "instead of going to the casino."

But his job, his wife's job as a corporate controller—a transferable skill—and his Canadian pension help balance out the risk from the stocks, he says. "That's part of my asset allocation," says Mr. Milevsky, who is 46. He figures his total portfolio, including the value he assigns to so-called human capital, is equivalent to about 70% stocks and 30% bonds.

"You have to get a good handle on the security of your job before you make any investment," Mr. Milevsky says.

As many Americans learned painfully during the recession, a plunging stock market can help trigger widespread job losses. But one of Mr. Milevsky's relatives is a bankruptcy attorney who got busier during the downturn.

Mr. Milevsky told his relative he was "a great candidate" to follow an all-stock strategy.

When do you need the money?

All-stock investors need to make sure they can ride out a downturn. That is a difficult calculation to make because no one knows how long a bear market will last—or how low it will go.

Karen Keatley, a certified financial planner in Charlotte, N.C., says she recommends that clients who are all-stock investors and in or near retirement keep three to five years' worth of living expenses in cash or short-term bonds.

Mr. White says his family's stash of cash could be stretched, in a pinch, to meet their needs for a few years.

He says he won't need the money that is invested in stocks for years. Mr. White's oldest child is seven years old, and he plans to switch some money out of equities when college is about four years away. Because Mr. White's house already is paid for, the risk of being forced to move because of dire circumstances is also limited.

Similarly, Mr. Warren says he still is probably more than five years away from retirement, his house is paid for and his children are grown. He, too, has cash set aside that he could tap into if he needed it. When he gets closer to retirement, he plans to increase his cash allotment.

That kind of protection against a downturn is important, because the damage comes when an investor has to sell at a discount.

A stock-market investor who started saving at age 40, and then retired at age 67 at the end of 2012—after the stock market had recouped almost all of its losses from the financial crisis—would likely have enjoyed strong results, says Joshua Rauh, a finance professor at Stanford University.

But if that same investor retired in early 2009, when the market was near its financial-crisis low, and had to start tapping the stock account immediately, "that would have been a very anxiety-provoking situation," Mr. Rauh says.

That underscores a crucial point about timing: If an investor has to make withdrawals at a time when returns are negative, the hit is greater because there is less money left to invest even if the market turns positive again.

How would you react to big losses?

Even investors who don't have to sell sometimes feel compelled to do so when stocks fall sharply. That can cost them dearly if the market rebounds, but they are too rattled to take the risk again, so they don't make back what they lost.

"To maintain a 100%-equity strategy, one needs a lot of stick-to-itiveness," Mr. Rauh says.

Mr. White calls himself a "sitting bull," and says he didn't succumb to the temptation to turn bearish on stocks in 2008. "My mantra is, 'First, do no harm.' Selling at the bottom in a panic is doing harm," he says.

Investors who favor stocks and who have weathered severe downturns had different strategies for managing their emotions. In 2008, Mr. Milevsky says, "it was very, very difficult to sit there and do nothing."

Instead, he found a way to balance his urge to act with his desire to remain invested in stocks during the rough patch. He sold some of his mutual funds, allowing him to realize losses for tax purposes, and reinvested the proceeds in different stock funds.

"I did go right back. I never veered from the 100%-equity story," Mr. Milevsky says.

Mr. White says he took a different approach: "My defense mechanism was, I didn't check my account balances."

Can you handle the worst-case scenario?

Another grim possibility to keep in mind: There isn't any guarantee stocks will rebound at all—at least not in time to help the investor.

"Thinking about some bad-case scenarios is important," says James Poterba, an economics professor at the Massachusetts Institute of Technology.

Messrs. Poterba and Rauh worked on a study published in 2009 that examined a range of good and bad scenarios, in effect illustrating the potential trade-off between risk and reward. The study projected possible returns in 401(k) plans invested entirely in stocks, those invested entirely in government bonds and those with mixed portfolios, based on historical market performance and income data.

The study found that households that put all their 401(k) investments into stocks would, on average, end up with higher account balances.

But in the worst-case scenarios, the all-stock households fared much worse, ending up with roughly a third as much money in their accounts at retirement as households which invested in government bonds or that held a mix of stocks and bonds.

With stocks, there is "a very small chance of a very poor outcome," the study found. All-stock investors need to ponder how they would feel if that outcome was the one that shaped their retirement, Mr. Poterba says.

That could help explain why an investor's overall wealth can be a consideration as well.

?John Rafal, a financial adviser in Essex, Conn., says a small percentage of his clients—perhaps a dozen people, all but one of them male—keep all their investments in stocks. The clients generally have at least $10 million to $25 million in assets, he says.

?None of them bailed in 2008, Mr. Rafal says. "They're perfectly willing to take a down decade." Still, they protect themselves. "Most of them will have a year's worth of cash," he says.

The wealthy all-stock investors share another characteristic, Mr. Rafal says. "They all think Warren Buffett 's a god."

Mr. White is a fan of Mr. Buffett as well. He sees his stock investments as a bet on human progress, one that gets reinforced every day by the crush of people who share his morning commute.

"I kind of trust in them to go out and do something to add value," he says.