The market has been on a tear. Shouldn’t I own more stocks and less bonds?
The extra expected return from increasing an allocation to stocks doesn’t come free. The ride is wilder and more uncertain. Recall the classic efficient frontier. The curve flattens. To get a little more return, one must take on a lot more uncertainty.
Financial planning involves working toward goals of a more practical nature, like not running out of money. Seeking extra returns is not usually the answer.
Take a look at just about any study on sustainable withdrawal rates or run a Monte Carlo simulation and you often see that increasing the allocation to stocks increases the average return but decreases the success rate.
The purpose of having bonds in the portfolio is to add stability. They won't grow a lot, but they won't collapse at the drop of a hat either like stocks are known to do.
Having no bonds in a downturn makes the math work against you when you are pulling money out of a portfolio. If you are too heavy in stocks, you must sell at the lower prices to meet your withdrawal needs. If you own bonds, you can choose to cash some of those out to meet your withdrawals, thus buying the stocks a little more time to recover.
Which brings me to another reason most people should temper their enthusiasm for stocks. If they hold too much, they can become powerless.
The next time the market takes a real tumble, if you have some money in bonds, you could look to buy more stock at the lower prices. If you are overallocated to stock, you have less ability to do this. If you are all stock, you can do almost nothing but sit and wait. Powerless. You might do some tax loss harvesting. You would also naturally have the option to panic and bail out but that's not advisable.
Of course all this assumes you are not in speculative bonds or too far out on the yield curve but that’s another story.