Need some help with my AA, particularly equity/FI

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

Need some help with my AA, particularly equity/FI

Postby quiet_morning » Tue Jul 16, 2013 9:22 am

Hi -

I'm having trouble finding the right AA for me and would sincerely appreciate some Boglehead comments.

(I'm mid-thirties, married, with two kids. No debt, rent an apt. We make ~$200k/yr total and have about $1.8MM in investible assets, 85% of which are in taxable because we made it in a business sale. Parents on both sides have good long term care and income sources.)

I'm relatively risk averse, and the money is "new-ish" (read: loss aversion), so my AA right now is 50/50 equity/fixed-income. I am of course, worried about inflation and considering changing the AA to be higher equity exposure.

Just looking for feedback on that AA. I realize this is a pointless/rediculous post :( , but appreciate the feedback.
quiet_morning
 
Posts: 13
Joined: Tue Jun 21, 2011 6:36 am

Re: Need some help with my AA, particularly equity/FI

Postby mhc » Tue Jul 16, 2013 12:34 pm

There is nothing wrong with 50/50. There are a lot of well-regarded people who follow a 50/50. Age in bonds would be 65/35. You are not too far off from that. If 50/50 is a number that allows you to sleep at night and not make behavioral mistakes, then go for it.

If you want more equity exposure and you think you can stick with it, then go for 65/35. The main thing is to develop a plan and stick with it.
User avatar
mhc
 
Posts: 2407
Joined: Mon Apr 04, 2011 11:18 pm
Location: NoCo

Re: Need some help with my AA, particularly equity/FI

Postby YDNAL » Tue Jul 16, 2013 12:45 pm

quiet_morning wrote:(I'm mid-thirties, married, with two kids. No debt, rent an apt. We make ~$200k/yr total and have about $1.8MM in investible assets, 85% of which are in taxable because we made it in a business sale....

Just looking for feedback on that AA.

A 50/50 Asset Allocation at 35 may be perfectly in line with YOUR Ability & Need to take risk. It sounds like you are not Willing (psychological) to take much risk - yet you are asking this question today.
  • With $1.8M in investable assets, what is your monetary goal for retirement ? How much additionally do you accumulate annually ?
  • The answer to these questions provide basis to find the level of risk you Need to take.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
YDNAL
 
Posts: 13524
Joined: Tue Apr 10, 2007 5:04 pm
Location: Biscayne Bay

Re: Need some help with my AA, particularly equity/FI

Postby Chris M » Tue Jul 16, 2013 5:10 pm

Unless you are planning to spend a big chunk of money (a house? college for your kids?) in the next five years or so, my advice would be to allocate as much to equities as you can stomach and still stick with buy and hold (and sleep at night). Retirement is an expensive proposition, and at your age you want all the inflation-beating returns of equities you can get to build up your nest egg.

Of course figuring out how much of an allocation to equities you can stand is easier said than done, but if you were invested in the market in 2008 you can use your experience from that year as a guide. What was your allocation going into the autumn of 2008? Did you stick with that allocation as the market went crazy, or did you sell? If you sold then that's an indication you need to keep your stock allocation below the level you had in 2008. If on the other hand you slept like a baby during 2008 that suggests your allocation was too conservative and you should up your allocation to stocks.

If you weren't invested back in 2008 it becomes much harder as then you have to go off of imagination rather than experience. The good news (or bad news) is sooner or later there'll be another test like 2008, and we'll all get a chance to learn from that new experience what our risk tolerance is.
Chris M
 
Posts: 88
Joined: Tue May 28, 2013 7:25 pm

Re: Need some help with my AA, particularly equity/FI

Postby quiet_morning » Tue Jul 16, 2013 8:55 pm

Thanks so much for your responses.

@Chris - I did not have substantial assets in the 2008 market, so I do not know how I would deal with such a downturn. (I do not believe I'm prone to sell off; however, I suspect it will be challenging for me to stay the course and rebalance into a declining asset class.)

@YDNAL - I believe I will require roughly 70k/yr in retirement. At the moment, I am accumulating about $50-100k/yr (my income varies substantially). However, we will likely have to pay for many years of private school for our 2 kids (bad public schools), so there's some chance I will not be able to save much over a long period.

@mhc - thanks. Good to know that it is not an "insane" AA. I was thinking that I was "ahead" of where I needed to be financially, and so my "need" for risk is low, even though my "ability" is high due to age.

I wish there was a more mathematical way to determine one's AA....I suppose I just need to reach a decision and finally write up my IPS so that I just stick with it.
quiet_morning
 
Posts: 13
Joined: Tue Jun 21, 2011 6:36 am


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: monkeyking, Seattlenative and 61 guests