4 million dream safe portfolio

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central nj
Posts: 28
Joined: Fri Sep 28, 2012 6:05 am

4 million dream safe portfolio

Post by central nj » Sat Mar 09, 2013 8:10 am

Hi,
I appreciate the wake up call on my asset allocation from a previous post. I'm my early 40s, at 80/20 stocks/bonds. I was just hit with a lightning bolt that I have enough money, so why take undue risk. Rather than the thinking that i don't need the money (i'm happy at work), so i was sort of blindly accepting risk. I've read this form, and peoples links for dozens of hours, but would appreciate specific advice.

I'm also having trouble defining what the less risk portfolio would even mean----I thinking something that would have the highest chance of keeping pace with inflation, but not losing much under horrible circumstances (N. Korean war, US becoming Japan's stagnant economy). And i guess accessible, if on the perhaps unlikely event that i wish to quit work (i.e. one of my family members getting cancer needing my help).

May I ask (as specificially as you feel) how you would allocate a low risk 4 million? 1 is tax sheltered, 3 is taxable. (this excludes house/college funds/and i have all the usual things like life/disability/emergency fund).

Thanks.

Steve

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matjen
Posts: 1911
Joined: Sun Nov 20, 2011 11:30 pm

Re: 4 million dream safe portfolio

Post by matjen » Sat Mar 09, 2013 8:21 am

Sounds like a good candidate for the "Larry Portfolio." Google Larry Swedroe for more info or reach out to his firm. The basic nuts and bolts (there are different variations) are:

70% AAA/AA munis and TIPS Put Tips in your tax advantaged accounts)
equities split 40 US/60 int'l with US as SV and int'l split between ISV and EMV with ratio about
3:1 and small allocation to CCF
A man is rich in proportion to the number of things he can afford to let alone.

ResNullius
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Joined: Wed Oct 24, 2007 3:22 pm

Re: 4 million dream safe portfolio

Post by ResNullius » Sat Mar 09, 2013 8:52 am

55% fixed (short and intermediate) and 45% equities (SP500 and Total Market). A 50% drop in equities would still leave you with more than $3M, which isn't a bad fallback position, particularly since equities would make a comeback.

MN Finance
Posts: 1828
Joined: Sat Dec 22, 2012 10:46 am

Re: 4 million dream safe portfolio

Post by MN Finance » Sat Mar 09, 2013 10:36 am

It's a good question. This is exactly why all the factors of your financial goals need to be considered. Let's assume for a moment that you will have enough to live on. It may be the case that you will be able to spend $X per year at retirement and have a 99% chance of success (not running out) in portfolio A. It may also be the case that you have a 99% chance of success in portfolio B. If we imagine portfolio A is 70/30 and portfolio B is 30/70, then the follow up is that, even though the failure rate is the same, portfolio A will have a mean value at death of $10M and B will have $5M. And of course the risk associated with each is very different (and the 1% failures may be entirely different economic conditions). An alternate might be portfolio A has the 99% chance of success at 150% of $X per year but portfolio B has increased failures at that higher level of spending.

My point is that, I agree 100% that if you no longer have the need to take risk, and choose not to, then that might be the correct choice. But you'll want to consider what you may want to spend in retirement (is there a chance you want/need more income) and of course what legacy you plan to leave. Given other factors, I would want to run some scenarios so that it's not "simply" a question of taking less risk because you can. It may be that you can fund your own goals and other goals as well given certain risk levels but not others

letsgobobby
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Re: 4 million dream safe portfolio

Post by letsgobobby » Sat Mar 09, 2013 11:46 am

A lot depends on your lifestyle. How much do you live on each year? This gets to whether this money is really for you, or for your children/grandchildren/charity.

I don't have $4,000,000. But I have enough to have consciously taken risk off the table. I'm 60/40 age 39 and plan to leave it there for a long time, barring valuation extremes (which are all written into my IPS).

I do tilt moderately to small and value so my portfolio is a little riskier than a 3 fund 60/40 would be.

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Mister Whale
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Joined: Sat Jan 02, 2010 10:39 am

Re: 4 million dream safe portfolio

Post by Mister Whale » Sat Mar 09, 2013 12:45 pm

central nj wrote:I thinking something that would have the highest chance of keeping pace with inflation, but not losing much under horrible circumstances (N. Korean war, US becoming Japan's stagnant economy). And i guess accessible, if on the perhaps unlikely event that i wish to quit work (i.e. one of my family members getting cancer needing my help).
For me at age 43 (still in acquisition stage), here's how I do it (my portfolio is not as large as the one you describe).

Allocate 45/45/10, with the 10% being cash.

Here's how I break down the allocation:
30% US stock index
15% int'l stock index
15% Total Bond
15% Interm. Term Tax-Exempt Bond
15% TIPS
" ... advice is most useful and at its best, not when it is telling you what to do, but when it is illuminating aspects of the situation you hadn't thought about." --nisiprius

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Mister Whale
Posts: 484
Joined: Sat Jan 02, 2010 10:39 am

Re: 4 million dream safe portfolio

Post by Mister Whale » Sat Mar 09, 2013 12:51 pm

Here's a somewhat recent thread along the same lines: "In the long run we're all dead": Stock vs Bond fund alloc
" ... advice is most useful and at its best, not when it is telling you what to do, but when it is illuminating aspects of the situation you hadn't thought about." --nisiprius

E5797
Posts: 22
Joined: Wed Feb 17, 2016 7:23 am

Re: 4 million dream safe portfolio

Post by E5797 » Wed Apr 11, 2018 7:05 pm

How have things worked out over the past 7 years. I'm at a similar place currently.

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