Re-balancing-Reducing risk

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Topic Author
Chip Shot
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Joined: Tue Apr 30, 2019 5:42 am

Re-balancing-Reducing risk

Post by Chip Shot »

My AA has creeped up a little farther than I am comfortable. I am at a stage where I am thinking about lowering my AA. My issue is where to put the money from selling stocks. I guess I could hold it in cash, but I think I already have too much.

My portfolio looks like this:

Cash, CDs, savings bonds and stable value accounts. 32%
Total Bond -26%
Stocks- 42%

I would like to lower my stock % to 35%. I am 2-3 yrs out from retirement and I am more concerned with preserving what I have.
Would it be unwise to add to my Total Bond position? Any other suggestions are welcome. Thanks!
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Wiggums
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Re: Re-balancing-Reducing risk

Post by Wiggums »

I’m holding some Vanguard Ultra short bonds and I-bonds in addition to my three fund portfolio. Unfortunately the current interest rates are still low for us and this is one reason why stocks push higher.
wetgear
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Re: Re-balancing-Reducing risk

Post by wetgear »

Adding more total bond isn't unwise but a 7% addition to your fixed income (bonds, cash, cds...) isn't really going to move the needle much either way though so probably no need to stress too much about such a small change. Getting close to retirement might be a good time to add some inflation protection so some/more iBonds or TIPS might be worth looking at if you are keen on increasing the fixed income portion, this is good because moving away from equities reduces your hedge against inflation.
delamer
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Re: Re-balancing-Reducing risk

Post by delamer »

The difference between 35% stocks and 42% stocks over the longer term is going to be small, both in returns and volatility: https://investor.vanguard.com/investing ... allocation

If you’re going to hold that much cash, don’t reduce your stock percentage.

You could put 25 years of residual expenses (total expenses after Social Security/pensions) into TIPS, and the remainder of your portfolio in stocks. See Bernstein’s idea here: https://www.whitecoatinvestor.com/berns ... -the-game/
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
dbr
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Re: Re-balancing-Reducing risk

Post by dbr »

You have already chosen an array of fixed income holdings. The obvious path to reallocate out of stocks is to put the proceeds proportionately in the existing investments. What is giving rise to the question?
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retired@50
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Re: Re-balancing-Reducing risk

Post by retired@50 »

Do you have an investment policy statement?
https://www.bogleheads.org/wiki/Investm ... _statement

I don't think adding to total bond would be a mistake, but I'm wondering what are your long term plans for stock allocation?

Going below 40% before retirement either implies an awfully big portfolio, or a high level of risk aversion.

Typically, at least 30% in stock is seen as a minimum, even for retirees. Where does the risk reduction end?

Regards,
This is one person's opinion. Nothing more.
Topic Author
Chip Shot
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Re: Re-balancing-Reducing risk

Post by Chip Shot »

dbr wrote: Fri May 07, 2021 6:05 pm You have already chosen an array of fixed income holdings. The obvious path to reallocate out of stocks is to put the proceeds proportionately in the existing investments. What is giving rise to the question?
I would like to work down to something like 30/70 in a couple of years to reduce sequence of return risk at the start of retirement, but with the current bond yield and extremely low interest rates, I am concerned about losing money in bonds.
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Chip Shot
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Re: Re-balancing-Reducing risk

Post by Chip Shot »

retired@50 wrote: Fri May 07, 2021 7:01 pm Do you have an investment policy statement?
https://www.bogleheads.org/wiki/Investm ... _statement

I don't think adding to total bond would be a mistake, but I'm wondering what are your long term plans for stock allocation?

Going below 40% before retirement either implies an awfully big portfolio, or a high level of risk aversion.

Typically, at least 30% in stock is seen as a minimum, even for retirees. Where does the risk reduction end?

Regards,
The portfolio isn't overly large, but it is large enough though that if I could a 3.5% annual return, it will last me 40yrs. I think I have way more to lose than I have to gain. Thats the reason for the de-risk. I would not go lower than 30% stock though, possibly even raising the percentage after 10 yrs of retirement or so
pkcrafter
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Re: Re-balancing-Reducing risk

Post by pkcrafter »

Chip Shot wrote: Fri May 07, 2021 4:57 pm My AA has creeped up a little farther than I am comfortable. I am at a stage where I am thinking about lowering my AA. My issue is where to put the money from selling stocks. I guess I could hold it in cash, but I think I already have too much.

There really isn't enough information here regarding what type of accounts you have.

There is only two places you can put the money--in cash or in bonds.


My portfolio looks like this:

Cash, CDs, savings bonds and stable value accounts. 32%
Total Bond -26%
Stocks- 42%

You haven't mentioned any tax-deferred accounts. Do you have any?

I would like to lower my stock % to 35%. I am 2-3 yrs out from retirement and I am more concerned with preserving what I have.
Would it be unwise to add to my Total Bond position? Any other suggestions are welcome. Thanks!

What is your withdrawal rate going to be? I started retirement with about 32% stock and a 3.5% withdrawal rate, but I found out it wasn't enough to maintain the portfolio, so I upped it to 40% stock and it has maintained the portfolio nicely ever since.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
dbr
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Re: Re-balancing-Reducing risk

Post by dbr »

Chip Shot wrote: Fri May 07, 2021 7:47 pm
dbr wrote: Fri May 07, 2021 6:05 pm You have already chosen an array of fixed income holdings. The obvious path to reallocate out of stocks is to put the proceeds proportionately in the existing investments. What is giving rise to the question?
I would like to work down to something like 30/70 in a couple of years to reduce sequence of return risk at the start of retirement, but with the current bond yield and extremely low interest rates, I am concerned about losing money in bonds.
Maybe a fixed income tent is not such a good idea when you have to give up so much possible return to do that. I think cutting all the way down to 30/70 is excessive. Are you expecting an unusually high rate of withdrawal at the start of retirement, perhaps due to delaying Social Security?

But if you are worried about near term losses in bonds, you can put the money in CDs, savings bonds, and stable value.
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