Changed asset allocation from 60/40 to 50/50 today

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freebeer
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Changed asset allocation from 60/40 to 50/50 today

Post by freebeer »

We "stayed the course" from 2006 onwards so it feels kind of drag to "flinch" now but Dr. Bernstein's maxim "if you've won the game, why keep playing?" had been resonating like a drum beat given recent market highs... if we stopped working today our annual expenses would be sub 2% of retirement assets. And our stock allocation is tilted (55% TSM, 25% Total International, 10% Emerging Markets, 10% Small-Cap) so the potential volatility is increased accordingly. Anyway we figured if the market keeps hitting new highs we will still participate and be in good shape, but if there's a downturn we will feel a lot better rebalancing in from a 50/50 position and with early retirement still a theoretical possibility. Intellectually I believe we are sacrificing total return in so doing and I hate to get that "market timer" scarlet letter... but oh well. Anyone else thinking about "trimming their sails"?
Aish
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by Aish »

freebeer wrote:We "stayed the course" from 2006 onwards so it feels kind of drag to "flinch" now but Dr. Bernstein's maxim "if you've won the game, why keep playing?" had been resonating like a drum beat given recent market highs... if we stopped working today our annual expenses would be sub 2% of retirement assets. And our stock allocation is tilted (55% TSM, 25% Total International, 10% Emerging Markets, 10% Small-Cap) so the potential volatility is increased accordingly. Anyway we figured if the market keeps hitting new highs we will still participate and be in good shape, but if there's a downturn we will feel a lot better rebalancing in from a 50/50 position and with early retirement still a theoretical possibility. Intellectually I believe we are sacrificing total return in so doing and I hate to get that "market timer" scarlet letter... but oh well. Anyone else thinking about "trimming their sails"?
Honest question: With annual expenses being sub 2% of retirement assets, why don't you go ultra-conservative, say 30/70 or 20/80 and just retire? You're practically guaranteed to have enough money.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by Dr. No »

Count me in too! I retire 7/3 (better add me to the list I guess!) and scaled down to 50/45/5 stocks/bonds/cash for the long haul...sleeping really well at night with this AA and my Boglehead philosophy to guide me the rest of the way.

D. :sharebeer
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by bottlecap »

Sounds like a well-reasoned approach to me. I think market timing is making investment decisions based on what we think (really guess) the market will do. Coming to a market high and reassessing risk tolerance or allocation based on the need to take risk is not market timing. It's making a decision based on what we think we will need for retirement and how we are most likely to get there from here.

You're okay in my book, for what it's worth. :wink:

JT
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by The Wizard »

50/50 is actually one of the more common Boglehead AAs in retirement. We know how to deal with downturns and we beat inflation. Go for it...
Attempted new signature...
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freebeer
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by freebeer »

Aish wrote:...
Honest question: With annual expenses being sub 2% of retirement assets, why don't you go ultra-conservative, say 30/70 or 20/80 and just retire? You're practically guaranteed to have enough money.
You really asked two questions:

1. Why don't we go ultra-conservative? ANSWER: we have kids thus bequest motive, and also I just don't like the idea of sacrificing much of potential portfolio value just for the last .1% of "safety". And we are relative cheapskates (our cars are 6+ years old, and not luxury models) so we keep on saving & thus there doesn't seem much point in going ultra-conservative. Again even going from 60/40 to 50/50 gives me the negative feeling that I'm being inefficient much more strongly than the positive feeling that I have less risk... going to 20/80 would just make me feel stupid.

2. Why don't we just retire? ANSWER: we find our jobs rewarding. And we're early-50's and late-40's respectively so not exactly ready to hang 'em up. I did however "downshift" a few years back, now making 50% of what I made at MegaCorp but with 200% more flexibility/autonomy.
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cfs
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by cfs »

Good job.

Good job on the asset allocation shift to the "SWAN (sleep well at night) portfolio" and (if not done so) recommend reading "Reducing the Risk of Black Swans" by Larry Swedroe and Kevin Grogan. And now to my side of the keyboard, I just retired three weeks ago and based on winning the game we have shifted to capital preservation and loss prevention mode--and have made adjustments to our portfolio accordingly. Again, good job on the shift, sleep well, and good luck.

Thanks for reading.
~ Member of the Active Retired Force since 2014 ~
protagonist
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by protagonist »

freebeer wrote:We "stayed the course" from 2006 onwards so it feels kind of drag to "flinch" now but Dr. Bernstein's maxim "if you've won the game, why keep playing?" had been resonating like a drum beat given recent market highs... if we stopped working today our annual expenses would be sub 2% of retirement assets. And our stock allocation is tilted (55% TSM, 25% Total International, 10% Emerging Markets, 10% Small-Cap) so the potential volatility is increased accordingly. Anyway we figured if the market keeps hitting new highs we will still participate and be in good shape, but if there's a downturn we will feel a lot better rebalancing in from a 50/50 position and with early retirement still a theoretical possibility. Intellectually I believe we are sacrificing total return in so doing and I hate to get that "market timer" scarlet letter... but oh well. Anyone else thinking about "trimming their sails"?
If your annual expenses are below 2% of your assets, why is early retirement only a "theoretical possibility"? You should be able to retire today, I would think.
I lowered my stock allocation to about 50% from about 60% recently.
Don't worry about scarlet letters. It's mostly intuition anyway, I don't believe there is any "right" or "wrong", just "lucky" or "unlucky". Who knows what is optimal?
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by mkatz »

1. Why don't we go ultra-conservative? ANSWER: we have kids thus bequest motive, and also I just don't like the idea of sacrificing much of potential portfolio value just for the last .1% of "safety". And we are relative cheapskaterelistically is quite small.s (our cars are 6+ years old, and not luxury models) so we keep on saving & thus there doesn't seem much point in going ultra-conservative. Again even going from 60/40 to 50/50 gives me the negative feeling that I'm being inefficient much more strongly than the positive feeling that I have less risk... going to 20/80 would just make me feel stupid.

Except for age, my wife and I am in a similar financial position. I chose to stay at 60:40 in an effort to increase the probable value of our bequests at time of death. I think, however, that for us (older than you) the difference between 60:40 vs. 50:50 at time of death will be relatively small.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by bertilak »

freebeer,

I am retired with my expenses covered almost completely by SS+pension. I chose 50/50. I look at it in two ways:
  1. I can find NO convincing argument why I should have more stocks than bonds or vice-versa. Or perhaps it is better said that there are a LOT of reasonable arguments both ways. That leaves 50/50.
  2. I have half of my money at 100% stocks and the other half at 100% bonds. One half or the other will turn out to have been the best! This is a can't lose situation. :happy
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
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james99
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by james99 »

Hi Freebeer

How do you allocate your bond portion?
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by scrabbler1 »

Freebeer, I am an early retiree for the last 5 years. Last year, the year I turned 50, I changed my IRA's AA from 55/45 (where it had been for many years including before I retired) to 50/50. With the stock market's huge year in 2013, I found myself rebalancing the IRA a few times more to stay near the 50/50 level. I can't tap into the IRA yet which is fine, but I will have unfettered access to it about 9 years. I use the income from my taxable accounts to fund my retirement and there I have a more bond-weighted AA and make fewer rebalancing moves.
protagonist
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by protagonist »

bertilak wrote:
[*]I can find NO convincing argument why I should have more stocks than bonds or vice-versa. Or perhaps it is better said that there are a LOT of reasonable arguments both ways. That leaves 50/50.
Exactly! That's the best argument for 50-50 I have heard.

There is an expression in Spanish that fits this perfectly."rizando el rizo". Literally, "curling the curl" or "looping the loop". In other words, further complicating things that are complicated enough already. The closest I can think of in English is "making a mountain out of a molehill", though this does not quite fit.

If you put too much thought into it, you will probably just wind up kicking yourself mercilessly if the unpredictable future makes your decision seem wrong in retrospect. My humble advice....don't invest too much in this decision emotionally, or you are more likely to do something rash in the future if things don't work according to plan. Pick an AA strategy that feels good to you, and realize that the science is lacking and you are ultimately at the will of fate. Laugh at yourself. All the world is but a play. Be thou the joyful player.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by Rodc »

freebeer wrote:
Aish wrote:...
Honest question: With annual expenses being sub 2% of retirement assets, why don't you go ultra-conservative, say 30/70 or 20/80 and just retire? You're practically guaranteed to have enough money.
You really asked two questions:

1. Why don't we go ultra-conservative? ANSWER: we have kids thus bequest motive, and also I just don't like the idea of sacrificing much of potential portfolio value just for the last .1% of "safety". And we are relative cheapskates (our cars are 6+ years old, and not luxury models) so we keep on saving & thus there doesn't seem much point in going ultra-conservative. Again even going from 60/40 to 50/50 gives me the negative feeling that I'm being inefficient much more strongly than the positive feeling that I have less risk... going to 20/80 would just make me feel stupid.

2. Why don't we just retire? ANSWER: we find our jobs rewarding. And we're early-50's and late-40's respectively so not exactly ready to hang 'em up. I did however "downshift" a few years back, now making 50% of what I made at MegaCorp but with 200% more flexibility/autonomy.
:sharebeer
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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freebeer
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by freebeer »

james99 wrote:Hi Freebeer

How do you allocate your bond portion?
Well... I have to sheepishly confess to having been a bit a market timer on bonds (albeit that seems to be less heretical than timing on the equities side)...

I "backed up the truck" and bought TIPS bonds (on the secondary market) in Fall 2008 (= 50% of my bond portion) but got nervous about them being in a bubble and sold out in early 2013. That timing worked out very well indeed but I don't account it to anything but luck.

Since then I've been approximately 30% short-term (VFSUX), 50% TBM, 20% intermediate-term tax-exempt (VWIUX). No international bond exposure at the moment but that could be my next tweak.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by retiredjg »

freebeer wrote:Intellectually I believe we are sacrificing total return in so doing and I hate to get that "market timer" scarlet letter... but oh well. Anyone else thinking about "trimming their sails"?
This does not seem like market timing to me. When you start to feel your allocation is too aggressive, you should trim it.

I've done something similar. My allocation was 50/50 with 5% bands. I now trim it before stocks get to 55%. However, I'm still comfortable with a 5% band in the other direction. My guess is that I'm slowing moving to 45% stock/55% bonds over time.

I know the difference is small, but I'm doing what keeps me comfortable.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by friar1610 »

bertilak wrote:freebeer,

I am retired with my expenses covered almost completely by SS+pension. I chose 50/50. I look at it in two ways:
  1. I can find NO convincing argument why I should have more stocks than bonds or vice-versa. Or perhaps it is better said that there are a LOT of reasonable arguments both ways. That leaves 50/50.
  2. I have half of my money at 100% stocks and the other half at 100% bonds. One half or the other will turn out to have been the best! This is a can't lose situation. :happy
My wife and I are in essentially the same situation - an inflation adjusted pension and two early (age 62) SS checks mean we rarely tap the portfolio. We've been sitting at 45% stock/50% fixed/5% cash for some time now. We just sold a piece of real estate and the proceeds from that have thrown off the AA somewhat. Before doing anything with it we decided to have Vanguard do a financial plan for us and see what their recommendation will be. Whenever we take the on-line asset allocation quiz with VG we get a recommendation for a 50-50 portfolio. The primary purpose of the portfolio (other than funding the occasional vacation or buying the next car) will be to provide a nest egg to generate income for my wife if I should predecease her and my pension reverts to a much more modest survivor benefit plan. So I guess that means capital preservation/keeping up with inflation. Seems like something in the 50-50 range should accomplish that.

PS I really like the OPs screen name.
Friar1610 | 50-ish/50-ish - a satisficer, not a maximizer
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freebeer
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by freebeer »

retiredjg wrote:[...My allocation was 50/50 with 5% bands. I now trim it before stocks get to 55%. However, I'm still comfortable with a 5% band in the other direction. My guess is that I'm slowing moving to 45% stock/55% bonds over time.

I know the difference is small, but I'm doing what keeps me comfortable.
The weird thing for me is that I always feel more comfortable in recessions. Maybe it's my cheapskate Mom, raised in reduced circumstances during the Depression, who beat "never pay retail!" into me, but I just feel uncomfortable in frothy markets and just fine in bear markets (= "bargains!") . When even some long-timers on this list were talking "capitulation" last time it wasn't even a possible scenario for me. But, intellectually I realize that the bear market can keep doing down and the bull market can keep steaming ahead, and given inflation risk there is no real "safe" harbor... hence my post to the list. Because I feel that doing what keeps me comfortable isn't necessarily doing the best thing (abstractly, and perhaps practically for our kids inheritance)... having read a number of books on behavioral economics doesn't mean I still can't be a victim of irrationality but it does make me introspective about that possibility.

So in a way I compromised - "trimming sails" from 60/40 to 50/50, which did make me more comfortable. But I expect that if the market tanks I will very likely flip back to 60/40 in the interest of higher expected total return, again to make me more comfortable in that case, which to me negates my change being simply a step along a natural glide path and gives me the scarlet letters ("MT") on what I also feel is a dunce cap not a mortarboard.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by bhsince87 »

We just switched from 70/30 to 60/40 over the past few years. I plan to ratchet that down to 50/50 over the next couple years. I do it by a combination of selling some equities, but more by making new contributions more heavily weighted on the bond side.

I'm pondering the possibility of early retirement in 4-5 years, so I figure I might as well start the transition now. Our costs/assets are about 3% right now, but I'd like to get that down to 2-2.5%, before I pull the ripcord.
Time is what we want most, but what we use worst. William Penn
protagonist
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by protagonist »

friar1610 wrote:
bertilak wrote:freebeer,

I am retired with my expenses covered almost completely by SS+pension. I chose 50/50. I look at it in two ways:
  1. I can find NO convincing argument why I should have more stocks than bonds or vice-versa. Or perhaps it is better said that there are a LOT of reasonable arguments both ways. That leaves 50/50.
  2. I have half of my money at 100% stocks and the other half at 100% bonds. One half or the other will turn out to have been the best! This is a can't lose situation. :happy

PS I really like the OPs screen name.

"DEEP THOUGHT:
[Booming] If I might make an observation … All I wanted to say is that my circuits are now irrevocably committed to computing the answer to Life, the Universe, and Everything.

VROOMFONDEL:
That’s a -

MAJIKTHISE:
Ahhh! With -

DEEP THOUGHT:
But, but the program will take me seven-and-a-half million years to run.

LUNKWILL:
Seven-and-a-half million years?

MAJIKTHISE:
Seven-and-a-half million years? What are you talking about?

DEEP THOUGHT:
Yes. I said I’d have to think about it didn’t I? And it occurs to me, that running a program like this is bound to cause sensational public interest.

VROOMFONDEL:
Oh yes.

MAJIKTHISE:
Oh you can say that again.

DEEP THOUGHT:
And so any philosophers who are put off the mark, are going to clean up in the prediction business.

MAJIKTHISE:
”Prediction business”?

DEEP THOUGHT:
Obviously. You just get on the pundit circuit. You all go on the chat shows and the colour supplements and violently disagree with each other about what answer I’m eventually going to produce. And if you get yourselves clever agents, you’ll be on the gravy train for life.

MAJIKTHISE:
Bloody ‘ell! That’s what I call thinking! Here Vroomfondel, why do we never think of things like that?

VROOMFONDEL:
Dunno. Think our minds must be too highly trained Majikthise. "

ps....I like the OP's screen name too.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by KyleAAA »

It's only market timing if you intend to add more equities later after a market drop.
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freebeer
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by freebeer »

KyleAAA wrote:It's only market timing if you intend to add more equities later after a market drop.
Yes that's exactly the point... I don't necessarily "intend" to do it but I feel I will "likely" do it... :(
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by feh »

We are working our way from 70/30 to 60/40 over the next 16 months. Not due to current market valuations, but rather because we'll be starting early retirement.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by berntson »

I think the move from 60/40 to 50/50 is a bad idea.

Think of yourself as having two portfolios, one for your retirement and one for your kids. Say that you think of 75% of your current assets as being in your retirement portfolio and 25% in a portfolio for your kids. This leaves you with a retirement portfolio that can support your standard of living with a withdrawal rate of less than 3%. And that number will continue to go down as you continue to save.

What should be the allocation for your retirement portfolio? 50/50 seems like a very safe and conservative choice, so let's go with that. What should be the allocation of your kids portfolio? Well, that depends on their age and on how you intend for them to use it. If your kids' money is for their retirement, it should be invested using an allocation that would be appropriate if the money was already theirs. If they are fairly young, that would be something like a 90/10 or 80/20 portfolio. Heck, it may even be 100% stocks if they are still in middle school.

Let's say that 90/10 is the right portfolio for your kids. Holding a 50/50 portfolio (with 75% of your current assets) and a 90/10 portfolio (with 25% or your current assets) leaves you with exactly the portfolio you have right now: 60/40. Moving to a 50/50 allocation either means that you are adopting an even more conservative allocation for your retirement portfolio (unnecessary in my opinion) or that you are investing for your children with a 50/50 portfolio (unwise in my opinion).

Regardless of whether you agree with the above analysis, I think it would pay to think of yourself as running two different portfolios. This reflects the very different goals you have for your investments. You can then make separate asset allocation decisions for the two portfolios keeping in mind their very different purposes. I suspect that this will lead to an overall asset allocation that fits your needs and goals.
Last edited by berntson on Thu Jun 05, 2014 10:46 pm, edited 2 times in total.
J295
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by J295 »

50/50 seems reasonable, and fantastic for you that you have financial freedom AND vocations that fulfill you! Great combination.

Just an fyi, our IPS allows for allocation among cash, fixed, equities, and alternatives. Within each of these four classes there is a minimum and maximum allocation, with the total of all allocations being 100%. The IPS provides that if we want to alter the current allocations we have to "propose" to alter then wait three months and if we then still have the same intention we can implement the change. (Basically, a 3 month waiting period before we can act on an intended allocation change).

Best wishes.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by LongerPrimer »

Forced into retirement mode.

I was too late in 2008 but I bought portfolio insurance to protect what we did have. I have paid a bunch for that insurance but on the other hand the portfolio has not only recovered but exceeds the value of 2007. Even if the market drops 40% as it did in 2008-09, I would still be ahead because of that insurance.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by james99 »

This is an awesome way to look at it. If I think about investing for my kids (and their kids), I should be 100/0.

100% VT 1 fund portoflio anyone?
berntson wrote:I think the move from 60/40 to 50/50 is a bad idea.

Think of yourself as having two portfolios, one for your retirement and one for your kids. Say that you think of 75% of your current assets as being in your retirement portfolio and 25% in a portfolio for your kids. This leaves you with a retirement portfolio that can support your standard of living with a withdrawal rate of less than 3%. And that number will continue to go down as you continue to save.

What should be the allocation for your retirement portfolio? 50/50 seems like a very safe and conservative choice, so let's go with that. What should be the allocation of your kids portfolio? Well, that depends on their age and on how you intend for them to use it. If your kids' money is for their retirement, it should be invested using an allocation that would be appropriate if the money was already theirs. If they are fairly young, that would be something like a 90/10 or 80/20 portfolio. Heck, it may even be 100% stocks if they are still in middle school.

Let's say that 90/10 is the right portfolio for your kids. Holding a 50/50 portfolio (with 75% of your current assets) and a 90/10 portfolio (with 25% or your current assets) leaves you with exactly the portfolio you have right now: 60/40. Moving to a 50/50 allocation either means that you are adopting an even more conservative allocation for your retirement portfolio (unnecessary in my opinion) or that you are investing for your children with a 50/50 portfolio (unwise in my opinion).

Regardless of whether you agree with the above analysis, I think it would pay to think of yourself as running two different portfolios. This reflects the very different goals you have for your investments. You can then make separate asset allocation decisions for the two portfolios keeping in mind their very different purposes. I suspect that this will lead to an overall asset allocation that fits your needs and goals.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by Dandy »

A prudent move. It is often hard to change your allocation when you have reached your goal/number. After all that allocation is usually what got you to your number. I'm retired and have moved from 55% to the low 40's - with some unwanted help from the 2008 crash. No regrets.
You may wish to look at having your fixed income "safer" by diversifying some assets into short term bonds/funds, stable value funds and CDs. If the purpose of your fixed income is stability that type of diversification is stability oriented. And some TIPs for inflation.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by TheTimeLord »

freebeer wrote:We "stayed the course" from 2006 onwards so it feels kind of drag to "flinch" now but Dr. Bernstein's maxim "if you've won the game, why keep playing?" had been resonating like a drum beat given recent market highs... if we stopped working today our annual expenses would be sub 2% of retirement assets. And our stock allocation is tilted (55% TSM, 25% Total International, 10% Emerging Markets, 10% Small-Cap) so the potential volatility is increased accordingly. Anyway we figured if the market keeps hitting new highs we will still participate and be in good shape, but if there's a downturn we will feel a lot better rebalancing in from a 50/50 position and with early retirement still a theoretical possibility. Intellectually I believe we are sacrificing total return in so doing and I hate to get that "market timer" scarlet letter... but oh well. Anyone else thinking about "trimming their sails"?
I am in the accumulation phase and I have started keeping new monry in cash instead of investing (very unBogleheaded). That said I did cash because I don't see bonds as necessarily safer than stocks at their valuations. So basically leaving my current money on the table where it is and just piling up new money in cash for the moment. I am also reviewing my financial ituation to make sure I understand upcoming near term expenses like new cars or possibly retiring to try to match my cash reserves to these pending items. I don't want too much cash but I don't want to have money in the market that shouldn't be there no matter whether the market is high or low.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by Rodc »

I think the move from 60/40 to 50/50 is a bad idea.
This is a rather small move, frankly about the smallest meaningful move, IMHO, so can't really be all that bad or all that good.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by TheTimeLord »

Rodc wrote:
I think the move from 60/40 to 50/50 is a bad idea.
This is a rather small move, frankly about the smallest meaningful move, IMHO, so can't really be all that bad or all that good.
+1
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by bogle2013 »

berntson wrote: Let's say that 90/10 is the right portfolio for your kids. Holding a 50/50 portfolio (with 75% of your current assets) and a 90/10 portfolio (with 25% or your current assets) leaves you with exactly the portfolio you have right now: 60/40. Moving to a 50/50 allocation either means that you are adopting an even more conservative allocation for your retirement portfolio (unnecessary in my opinion) or that you are investing for your children with a 50/50 portfolio (unwise in my opinion).

Regardless of whether you agree with the above analysis, I think it would pay to think of yourself as running two different portfolios. This reflects the very different goals you have for your investments. You can then make separate asset allocation decisions for the two portfolios keeping in mind their very different purposes. I suspect that this will lead to an overall asset allocation that fits your needs and goals.
Instead of mentally running two different portfolios - what about setting up a simple trust for each kid and gifting the max gift each year into the portfolio allocation of your choice? We have done that and it goes into 60 Vanguard Total Stock Market Index / 40 Total international. better for estate planning and instead of mentally having two portfolios, you actually have two.
protagonist
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by protagonist »

StarbuxInvestor wrote: I am in the accumulation phase and I have started keeping new monry in cash instead of investing (very unBogleheaded). That said I did cash because I don't see bonds as necessarily safer than stocks at their valuations. So basically leaving my current money on the table where it is and just piling up new money in cash for the moment. I am also reviewing my financial ituation to make sure I understand upcoming near term expenses like new cars or possibly retiring to try to match my cash reserves to these pending items. I don't want too much cash but I don't want to have money in the market that shouldn't be there no matter whether the market is high or low.
Hi, Starbux.

I can appreciate your frustration. I think we all feel the same....there just are not many good alternatives where we can stash cash safely and not have it lose its value. Remember, if there is, hypothetically, 2% annual inflation, then your cash is losing 2% value every year. Not a good situation.

It's unclear from your message as to whether you have excess cash (which could theoretically be invested), or whether you need everything you have for pending expenses. If you will need the cash within the next couple of years, a "high interest" (??) internet bank account might work for you- I use sfgidirect.com and have been happy with them for years (a bit over 1% interest rate now I think)...others here could perhaps recommend other ones. If you have excess cash, I would recommend biting the bullet and investing- there are many here who can help you with that. On the other hand, if you have any debt, paying that off or paying it down is probably, in my opinion, the best thing you can do with your money. Meanwhile you can read about wise investing (I would personally start with the books frequently recommended on this site- even if you disagree with the "Boglehead approach", at least they will not get you into trouble). Once any debt is paid down you will then have a stronger framework for making decisions.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by texasdiver »

bogle2013 wrote:
berntson wrote: Let's say that 90/10 is the right portfolio for your kids. Holding a 50/50 portfolio (with 75% of your current assets) and a 90/10 portfolio (with 25% or your current assets) leaves you with exactly the portfolio you have right now: 60/40. Moving to a 50/50 allocation either means that you are adopting an even more conservative allocation for your retirement portfolio (unnecessary in my opinion) or that you are investing for your children with a 50/50 portfolio (unwise in my opinion).

Regardless of whether you agree with the above analysis, I think it would pay to think of yourself as running two different portfolios. This reflects the very different goals you have for your investments. You can then make separate asset allocation decisions for the two portfolios keeping in mind their very different purposes. I suspect that this will lead to an overall asset allocation that fits your needs and goals.
Instead of mentally running two different portfolios - what about setting up a simple trust for each kid and gifting the max gift each year into the portfolio allocation of your choice? We have done that and it goes into 60 Vanguard Total Stock Market Index / 40 Total international. better for estate planning and instead of mentally having two portfolios, you actually have two.
Asset allocation and estate planning are two completely separate topics. If one is planning to leave a legacy then the form of investment (i.e. traditional IRA vs Roth vs taxable) is far more significant than the asset allocation.
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TheTimeLord
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by TheTimeLord »

protagonist wrote:
StarbuxInvestor wrote: I am in the accumulation phase and I have started keeping new monry in cash instead of investing (very unBogleheaded). That said I did cash because I don't see bonds as necessarily safer than stocks at their valuations. So basically leaving my current money on the table where it is and just piling up new money in cash for the moment. I am also reviewing my financial ituation to make sure I understand upcoming near term expenses like new cars or possibly retiring to try to match my cash reserves to these pending items. I don't want too much cash but I don't want to have money in the market that shouldn't be there no matter whether the market is high or low.
Hi, Starbux.

I can appreciate your frustration. I think we all feel the same....there just are not many good alternatives where we can stash cash safely and not have it lose its value. Remember, if there is, hypothetically, 2% annual inflation, then your cash is losing 2% value every year. Not a good situation.

It's unclear from your message as to whether you have excess cash (which could theoretically be invested), or whether you need everything you have for pending expenses. If you will need the cash within the next couple of years, a "high interest" (??) internet bank account might work for you- I use sfgidirect.com and have been happy with them for years (a bit over 1% interest rate now I think)...others here could perhaps recommend other ones. If you have excess cash, I would recommend biting the bullet and investing- there are many here who can help you with that. On the other hand, if you have any debt, paying that off or paying it down is probably, in my opinion, the best thing you can do with your money. Meanwhile you can read about wise investing (I would personally start with the books frequently recommended on this site- even if you disagree with the "Boglehead approach", at least they will not get you into trouble). Once any debt is paid down you will then have a stronger framework for making decisions.
One of the things I am trying to work through is to determine if it is excess investable cash or money I need to have set a side for items coming up in the next 5 years. I will probably be buying 2 cars in the next 3-4 years but I really didn't have that on my radar until recently. I an also likely to have wse in home maintenance over the next few years and I am closing in on a reitement in my 50's faster than I had projected. So I think maybe the best way to characterize what I am doing is not putting anything additional into risk assets until I get a handle on my likely cash needs over the next 3-5 years. I can live with losing 2% while doing that better than losing 10% or 15%. And I have enough invested that I will still participate in any rally that occurs.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
IlliniDave
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by IlliniDave »

bottlecap wrote:I think market timing is making investment decisions based on what we think (really guess) the market will do.
I buy stocks because I think they will provide positive returns (in the future). Does that make me a market-timer? :D

Actually I am, in the small sense of being willing to adjust my AA 10% every now and again when events warrant. I just get amused when any activity pertaining to stocks where future performance is a consideration is labeled "market timing" when the fundamental reason anyone would consider buying them is because they expect stocks to have positive returns in the future.

Congrats Freebeer, for having won the game!! :sharebeer
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LongerPrimer
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by LongerPrimer »

[quote=sbux]One of the things I am trying to work through is to determine if it is excess investable cash or money I need to have set a side for items coming up in the next 5 years. I will probably be buying 2 cars in the next 3-4 years but I really didn't have that on my radar until recently. I an also likely to have wse in home maintenance over the next few years and I am closing in on a reitement in my 50's faster than I had projected. So I think maybe the best way to characterize what I am doing is not putting anything additional into risk assets until I get a handle on my likely cash needs over the next 3-5 years. I can live with losing 2% while doing that better than losing 10% or 15%. And I have enough invested that I will still participate in any rally that occurs.[/quote]

I am deathly afraid of another bubble or 9/11 occurrence. We are 64 & 67 and 6 years ago we where 100% invested in balanced funds, 20% of income into Roth-401k, max individual Roths. Didn't make difference on the allocation, everything tanked as we know. Today we are allocated to equity and cash, and forced retirements. The equity - cash ratio fluctuates substantially, but I always keep core amounts of equity and cash. I am near the minimum cash level and getting a bit nervous. I use cash opportunistically-trading.

I used what if's:
If there is a another bubble or BlackSwan-what happens in an equity portfolio, balanced portfolio, cash holdings.
If there is inflation or deflation?
If there is a death?
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matjen
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by matjen »

Freedeer I adjust my AA from about 85/15 to 75/25 a few days ago. Wish I had waited to close of today. ;-)
A man is rich in proportion to the number of things he can afford to let alone.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by inbox788 »

freebeer wrote:We "stayed the course" from 2006 onwards so it feels kind of drag to "flinch" now but Dr. Bernstein's maxim "if you've won the game, why keep playing?" had been resonating like a drum beat given recent market highs... if we stopped working today our annual expenses would be sub 2% of retirement assets. And our stock allocation is tilted (55% TSM, 25% Total International, 10% Emerging Markets, 10% Small-Cap) so the potential volatility is increased accordingly. Anyway we figured if the market keeps hitting new highs we will still participate and be in good shape, but if there's a downturn we will feel a lot better rebalancing in from a 50/50 position and with early retirement still a theoretical possibility. Intellectually I believe we are sacrificing total return in so doing and I hate to get that "market timer" scarlet letter... but oh well. Anyone else thinking about "trimming their sails"?
What was your AA in 2006? When was your last change? What happened to the rule of thumb of 100-age (or 110-age)? What is your IPS regarding AA changes as you near retirement? What do you plan your AA to be in 10 years?

Seems like going from 60/40 to 50/50 in about a decade is just about the glidepath that many people ascribe to.
basspond
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by basspond »

freebeer wrote:... if we stopped working today our annual expenses would be sub 2% of retirement assets.
That is great. The issue is you have enough assets to be in the 60/40 or 60+ higher split, while people that have to get a higher return go to riskier investments when they can ill afford to loose any of their principle.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by jdilla1107 »

StarbuxInvestor wrote:I don't see bonds as necessarily safer than stocks at their valuations.
:oops:

It's a never ending battle here with the bond fear, uncertainty, and doubt. With 1000+ posts are you being flippant, or do you actually believe this?
lhl12
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by lhl12 »

berntson wrote:I think the move from 60/40 to 50/50 is a bad idea.

Think of yourself as having two portfolios, one for your retirement and one for your kids. Say that you think of 75% of your current assets as being in your retirement portfolio and 25% in a portfolio for your kids. This leaves you with a retirement portfolio that can support your standard of living with a withdrawal rate of less than 3%. And that number will continue to go down as you continue to save.

What should be the allocation for your retirement portfolio? 50/50 seems like a very safe and conservative choice, so let's go with that. What should be the allocation of your kids portfolio? Well, that depends on their age and on how you intend for them to use it. If your kids' money is for their retirement, it should be invested using an allocation that would be appropriate if the money was already theirs. If they are fairly young, that would be something like a 90/10 or 80/20 portfolio. Heck, it may even be 100% stocks if they are still in middle school.

Let's say that 90/10 is the right portfolio for your kids. Holding a 50/50 portfolio (with 75% of your current assets) and a 90/10 portfolio (with 25% or your current assets) leaves you with exactly the portfolio you have right now: 60/40. Moving to a 50/50 allocation either means that you are adopting an even more conservative allocation for your retirement portfolio (unnecessary in my opinion) or that you are investing for your children with a 50/50 portfolio (unwise in my opinion).

Regardless of whether you agree with the above analysis, I think it would pay to think of yourself as running two different portfolios. This reflects the very different goals you have for your investments. You can then make separate asset allocation decisions for the two portfolios keeping in mind their very different purposes. I suspect that this will lead to an overall asset allocation that fits your needs and goals.
Yes! I think this is exactly the right way to think of it. Furthermore, you could even run your retirement portfolio a bit more aggressively than you might otherwise because you have your kids' portfolio to fall back on just in case things go badly. Alternatively, you could set the percentage of your total portfolio that is "yours" by taking your projected expenses and dividing by a 4% SWR and use a 50/50 allocation for that, then set the remainder as the "kids" portfolio and use a more aggressive AA for that. Either way, I think you end up with more (maybe much more, depending on the numbers) equities than 50% overall.
Last edited by lhl12 on Fri Jun 06, 2014 5:46 pm, edited 1 time in total.
island
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by island »

matjen wrote:Freedeer I adjust my AA from about 85/15 to 75/25 a few days ago. Wish I had waited to close of today. ;-)
When you rebalance in mutual funds does it happen instantly, at close of day, next business day or? Same in taxable and in a 401K?
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TheTimeLord
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by TheTimeLord »

jdilla1107 wrote:
StarbuxInvestor wrote:I don't see bonds as necessarily safer than stocks at their valuations.
:oops:

It's a never ending battle here with the bond fear, uncertainty, and doubt. With 1000+ posts are you being flippant, or do you actually believe this?
Yes. Although I could probably come up with a better word than "safer".
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
bogle2013
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by bogle2013 »

StarbuxInvestor wrote:
jdilla1107 wrote:
StarbuxInvestor wrote:I don't see bonds as necessarily safer than stocks at their valuations.
:oops:

It's a never ending battle here with the bond fear, uncertainty, and doubt. With 1000+ posts are you being flippant, or do you actually believe this?
Yes. Although I could probably come up with a better word than "safer".
I am like a sky diver jumping without a parachute - i bought some vanguard short term investment grade today. hey, you only live once.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by bertilak »

bogle2013 wrote:i bought some vanguard short term investment grade today.
Was this part of an overall plan?
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
bogle2013
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by bogle2013 »

bertilak wrote:
bogle2013 wrote:i bought some vanguard short term investment grade today.
Was this part of an overall plan?
yes, new money came in and needed to be allocated. stocks at record high again so spreadsheet called for bonds.
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by bertilak »

bogle2013 wrote:
bertilak wrote:
bogle2013 wrote:i bought some vanguard short term investment grade today.
Was this part of an overall plan?
yes, new money came in and needed to be allocated. stocks at record high again so spreadsheet called for bonds.
OK, maintaining your AA plan. Good.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
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TheTimeLord
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by TheTimeLord »

bogle2013 wrote:
StarbuxInvestor wrote:
jdilla1107 wrote:
StarbuxInvestor wrote:I don't see bonds as necessarily safer than stocks at their valuations.
:oops:

It's a never ending battle here with the bond fear, uncertainty, and doubt. With 1000+ posts are you being flippant, or do you actually believe this?
Yes. Although I could probably come up with a better word than "safer".
I am like a sky diver jumping without a parachute - i bought some vanguard short term investment grade today. hey, you only live once.
Great. I believe as long as someone is willing to live with the consequences of their investment decision it is their right to make them.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
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Re: Changed asset allocation from 60/40 to 50/50 today

Post by rca1824 »

berntson wrote:I think the move from 60/40 to 50/50 is a bad idea.

Think of yourself as having two portfolios, one for your retirement and one for your kids. Say that you think of 75% of your current assets as being in your retirement portfolio and 25% in a portfolio for your kids. This leaves you with a retirement portfolio that can support your standard of living with a withdrawal rate of less than 3%. And that number will continue to go down as you continue to save.

What should be the allocation for your retirement portfolio? 50/50 seems like a very safe and conservative choice, so let's go with that. What should be the allocation of your kids portfolio? Well, that depends on their age and on how you intend for them to use it. If your kids' money is for their retirement, it should be invested using an allocation that would be appropriate if the money was already theirs. If they are fairly young, that would be something like a 90/10 or 80/20 portfolio. Heck, it may even be 100% stocks if they are still in middle school.

Let's say that 90/10 is the right portfolio for your kids. Holding a 50/50 portfolio (with 75% of your current assets) and a 90/10 portfolio (with 25% or your current assets) leaves you with exactly the portfolio you have right now: 60/40. Moving to a 50/50 allocation either means that you are adopting an even more conservative allocation for your retirement portfolio (unnecessary in my opinion) or that you are investing for your children with a 50/50 portfolio (unwise in my opinion).

Regardless of whether you agree with the above analysis, I think it would pay to think of yourself as running two different portfolios. This reflects the very different goals you have for your investments. You can then make separate asset allocation decisions for the two portfolios keeping in mind their very different purposes. I suspect that this will lead to an overall asset allocation that fits your needs and goals.
I agree with this reasoning completely! The more you have, the more you can risk since you know you're not going to consume it all by the time you die so there is very little real risk of ever "not having enough". I'm not sure if it's necessary to split the portfolios though.
But I think it's better to just keep it as one 60/40 portfolio. Better rebalancing bonus and barbell effect.
Monthly or yearly movements of stocks are often erratic and not indicative of changes in intrinsic value. Over time, however, stock prices and intrinsic value almost invariably converge. ~ WB
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