Anybody 50/50?

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satxdrummer
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Anybody 50/50?

Post by satxdrummer »

Hello, first of all thanks for reading. I've learned so much from this forum and its wonderful to have such a wealth on knowledge available. I've been reading books, forums, articles, talking to people, ect and have took in SO much information about investing this year. There are so many different choices, strategies, portfolio recommendations, allocations, its enough to almost overwhelm me. Just when I think I've got a plan or an investment direction I get to thinking about a different route. I'm young (25) and would really like to get a very simple, very easy, game plan that I can stick with for the long haul. I don't want to be trying to change horses in the middle of the river and also I seems like once you get a decent portfolio built up it can get more complicated and have more tax consequences when you start changing stuff around.

After much thought I'm seriously considering going 50/50 stock/bond across the board with all of my investments. Basically go Total US and International for Stock and Total US bond (with maybe a little international) for my Roth and 401k. For taxable same stock but use tax exempt intermediate for the bonds. If its good enough for a Noble Prize winner, should be good enough for me? Seems like it'd offer good returns with WAY less volatility than a 100%stock or 90/10 that Im currently at for Roth and 401k. Honestly I don't know what my risk tolerance is because I just started investing this year. I get the concept of market cycles and I know Stocks have performed better than bonds over time, but I haven't been in a bad market and seen my 401k look like a 101k so I don't know how Id feel or act. Also, I've seen where at points in time bonds do better than stocks and also points where a mix of both did better than 100% either way.

Inputs, Opinions? Thanks!
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BolderBoy
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Re: Anybody 50/50?

Post by BolderBoy »

satxdrummer wrote:Inputs, Opinions? Thanks!
Doubt anyone could fault you for that. The sweet spot seems to be between 60/40 and 40/60. Knowing what I know now and didn't know at age 25, I would probably go with 60/40 if I were 25 again (I'm presently at 40/60, age 64).
asif408
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Re: Anybody 50/50?

Post by asif408 »

If you can stand the possibility of losing 20-25% in a bad year (https://personal.vanguard.com/us/insigh ... llocations), it sounds perfectly reasonable. Since you don't know your risk tolerance I think your idea to be conservative is smart. You can always up your allocation after the next bear market if you find your risk tolerance is higher. The main thing is having a plan and sticking with it.
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TomatoTomahto
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Re: Anybody 50/50?

Post by TomatoTomahto »

We're approaching 50/50, and at last tally, we're close (52/48).
That said, we went through 2008/2009 without panicking, so risk aversion is not driving this. My wife is starting a new job shortly, so I might even get more conservative going forward on the "you've won the game, take some money off the table" theory.

I don't think there's anything wrong with 50/50. As an added bonus, it's got built-in regret avoidance :D
I get the FI part but not the RE part of FIRE.
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jhfenton
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Re: Anybody 50/50?

Post by jhfenton »

Unless you just couldn't sleep with a more equities-heavy portfolio or you have a large inheritance to safeguard, then I think you'd be making a mistake going 50/50 at age 25. At your age, you should be investing in stocks and praying for a decade-long bear market so that you can buy lots of cheap shares.

You've come to the right place for positive reinforcement, though. This board is full of conservative investors. I couldn't sleep with a 50/50 portfolio thinking about the long-term gains I would fear that I was leaving on the table.
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TomatoTomahto
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Re: Anybody 50/50?

Post by TomatoTomahto »

jhfenton wrote:Unless you just couldn't sleep with a more equities-heavy portfolio or you have a large inheritance to safeguard, then I think you'd be making a mistake going 50/50 at age 25. At your age, you should be investing in stocks and praying for a decade-long bear market so that you can buy lots of cheap shares.

You've come to the right place for positive reinforcement, though. This board is full of conservative investors. I couldn't sleep with a 50/50 portfolio thinking about the long-term gains I would fear that I was leaving on the table.
I think that a 50/50 allocation will come out ahead if a person would be susceptible to selling in a downturn. 70/30 or 60/40 is probably more appropriate for a 25 y.o., but OP knows himself better than I do.
I get the FI part but not the RE part of FIRE.
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leonidas
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Re: Anybody 50/50?

Post by leonidas »

I am 52/48 at the moment with 26% US, 26% Foreign and 50 Total Bond. I sleep well at night.
JDot
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Re: Anybody 50/50?

Post by JDot »

jhfenton wrote:Unless you just couldn't sleep with a more equities-heavy portfolio or you have a large inheritance to safeguard, then I think you'd be making a mistake going 50/50 at age 25. At your age, you should be investing in stocks and praying for a decade-long bear market so that you can buy lots of cheap shares.

You've come to the right place for positive reinforcement, though. This board is full of conservative investors. I couldn't sleep with a 50/50 portfolio thinking about the long-term gains I would fear that I was leaving on the table.

I'm probably the least experienced poster in this thread so take what I say with a grain of salt. But I agree with this post. Have you calculated how much money you could potentially be missing out by doing this? Do you think there's a chance you would need the money in the next 10 years? I'm about 8 years older than you and I'm closer to 90/10 in stocks. But I feel secure that I'll continue to be employed. My wife earns about the same as I do, and we could live off that easily and still invest. So I took this stuff in consideration before deciding on my "aggressive" stock/bond split.

Cheers!
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satxdrummer
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Re: Anybody 50/50?

Post by satxdrummer »

TomatoTomahto wrote:
jhfenton wrote:Unless you just couldn't sleep with a more equities-heavy portfolio or you have a large inheritance to safeguard, then I think you'd be making a mistake going 50/50 at age 25. At your age, you should be investing in stocks and praying for a decade-long bear market so that you can buy lots of cheap shares.

You've come to the right place for positive reinforcement, though. This board is full of conservative investors. I couldn't sleep with a 50/50 portfolio thinking about the long-term gains I would fear that I was leaving on the table.
I think that a 50/50 allocation will come out ahead if a person would be susceptible to selling in a downturn. 70/30 or 60/40 is probably more appropriate for a 25 y.o., but OP knows himself better than I do.
I don't know myself haha!!!!! That's my biggest problem I guess. I'm pretty sure I'd hold and continue to buy as much as I can when the market is down. I just wont be sure until it actually happens. I remember watching the news when I was 18/19 before I had investments. It was nothing but horrible news and they made it sound like the world as we knew it was ending. It must have been rough to hold through that

At the same time though, Id really hate to be looking at my investments 20yrs from now and wonder what they might have been if I had had more stocks
Last edited by satxdrummer on Mon May 11, 2015 2:21 pm, edited 1 time in total.
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Riprap
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Re: Anybody 50/50?

Post by Riprap »

I was 50/50, but no longer due growth in the value of equities over the years.

Due to my low withdrawal rate and the fact that most of my portfolio is in a taxable account subject to capital gains, I do not plan to rebalance to a lower ratio of equities to fixed income. I think it would be a case of the costs outweighing any benefits.

My rebalancing consists of redirecting dividends and interest to the underweighted portion of my equity portfolio. I seriously doubt I will ever purchase any more fixed income investments in my lifetime although I may hold dividends and interest as cash for an extended period of time. For my personal investing goals, inflation poses the greatest risk IMO.

And if I'm wrong, I will be ok (I think). :wink:
OatmealAddict
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Re: Anybody 50/50?

Post by OatmealAddict »

I'm 33 and sitting at 85% stocks and 15% bonds. Like others have stated, at 50/50, I'd be too nervous of missing out on potential gains for so many years. At 26, you have DECADES worth of time on your side to ride out any storms in the equities market.

I've seen a book by the name of "All About Asset Allocation" (http://amzn.to/1FgeXFx) mentioned here on Bogleheads MANY times to folks who have not yet figured out their ideal allocation. I'm actually planning to read it over Memorial Day weekend.
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backpacker
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Re: Anybody 50/50?

Post by backpacker »

satxdrummer wrote:Honestly I don't know what my risk tolerance is because I just started investing this year. I get the concept of market cycles and I know Stocks have performed better than bonds over time, but I haven't been in a bad market and seen my 401k look like a 101k so I don't know how Id feel or act.
Bill Bernstein recommends that young investors hold a 50/50 portfolio until they see how they feel going through a bear market. That's not bad advice IMO. You can always increase your stock allocation in the future.

On the other hand, you could think (as I do) of your real portfolio as including all your human capital (all the money you have saved and are likely to save in the future). Say that you plan on saving $50,000 a year for 40 years and are two years in. Yes, putting all $100,000 in stocks feels risky. That could easily be worth $30,000 given a severe enough crash. On the other hand, your total human capital is worth something like $2 million. Holding only 5% of that in stocks doesn't feel so risky. If you were a retiree with no future earnings, would you think it was risky to have 95% of your portfolio is inflation adjusted bonds and 5% in stocks?
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BolderBoy
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Re: Anybody 50/50?

Post by BolderBoy »

jimday1982 wrote:At 26, you have DECADES worth of time on your side to ride out any storms in the equities market.
... and that covers the "ability" limb of the 3 considerations: need, ability and willingness to increase risk. Next, does he have the "need"? If he already maxes out his 401k plan every year, probably not. Finally, does he have the "willingness"? Only he can determine that.
kmurp
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Re: Anybody 50/50?

Post by kmurp »

I started out at 50:50 in 1991. It kind of hurt me during that decade. I am now right around that number again, with 4-7 years to retirement.
reisner
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Re: Anybody 50/50?

Post by reisner »

We went into the recession somewhere between 70/30 and 60/40. As the market rose, I kept having to rebalance to stay close to 60% stock. Age now is 69 1/2, wife 55. I have a traditional pension and took SS at 66. We never spend more than the dividends from Vanguard, so I reduced us to 53/47 once we passed a number I never thought we'd reach, 800K. The reduction came from selling all our FTSE All World Except US, because that was where the capital gains were smallest. I'd probably reduce the stocks even more (Total Stock Market) but don't want to pay tax on gains of more than 50%.
dc81584
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Re: Anybody 50/50?

Post by dc81584 »

OP,

You're potentially 40 years from retirement. While I applaud your reasonable, thoughtful approach, I do think you should seriously consider the long-term gains on which you'd be undoubtedly missing out with a 50/50 AA. A 50/50 AA would protect you rather well in the near term, but over the long haul (20+ years), you're going to miss out on those dear equity returns. I would not suggest being any more conservative than 70/30 at this point in your life, and I'm only saying that because we've had a run-up in the market. If it were more fairly valued, that figure would change to 80/20.
Toup
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Re: Anybody 50/50?

Post by Toup »

For simplicity, tax efficiency and decent stable returns I put my taxable funds in the Tax managed balanced fund. Quality intermediate Muni's and LC/500 US. Very happy and the balancing is done for you.

Toup
sawhorse
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Re: Anybody 50/50?

Post by sawhorse »

backpacker wrote:
satxdrummer wrote:Honestly I don't know what my risk tolerance is because I just started investing this year. I get the concept of market cycles and I know Stocks have performed better than bonds over time, but I haven't been in a bad market and seen my 401k look like a 101k so I don't know how Id feel or act.
Bill Bernstein recommends that young investors hold a 50/50 portfolio until they see how they feel going through a bear market. That's not bad advice IMO. You can always increase your stock allocation in the future.
I know I "should" be more aggressive at my age, so I felt better after reading that recommendation from Bernstein. The truth is, what we think we'll do and what we'll actually do may not be the same.
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CyberBob
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Re: Anybody 50/50?

Post by CyberBob »

Harry Markowitz, best known for his pioneering work in modern portfolio theory, is famous for once saying “I visualized my grief if the stock market went way up and I wasn’t in it — or if it went way down and I was completely in it. So I split my contributions 50/50 between stocks and bonds.”

But more recently he's amended that, saying "A lot has happened. We have a lot of data now. In 1952, we hired a student to collect data on securities. But between the top down view, knowledge of data, and our experience, we are better now. When I was at Rand in 1950, I just did 50/50. That’s all I knew then, it’s not what I would do now and it’s not what I would recommend to a 25 year old. My profession and I have learned a lot."

Personally, I think the gold-standard is John Bogle's advice from his first book Bogle on Mutual Funds:

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Index Fan
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Re: Anybody 50/50?

Post by Index Fan »

50/50 AA here- the 'sleep well' factor is great.
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blueblock
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Re: Anybody 50/50?

Post by blueblock »

satxdrummer wrote:Honestly I don't know what my risk tolerance is because I just started investing this year. I get the concept of market cycles and I know Stocks have performed better than bonds over time, but I haven't been in a bad market and seen my 401k look like a 101k so I don't know how I'd feel or act.
I'm 63, just retired, and am perfectly comfortable with 60/40. I never lost a minute's sleep during the recession. In the next few weeks, when I transfer my 401K to a self-manged IRA, I might go 70/30... I haven't decided yet.

Something you might consider: I keep a years' living expenses in cash, so that I'm not forced to sell in a down market. My goal is two years' expenses, for an increased cushion, but I can't get there in 2015 due to earned income Jan-Apr.
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Re: Anybody 50/50?

Post by Broken Man 1999 »

Wife and I were at 65% equity and 35% bonds until a couple of years ago.

As we moved into our sixties, I changed to a 50% equities and 50% bonds. Feels comfortable to me.

I am also seriously thinking of going with a balanced fund. If not now, soon. Such a move would simplify greatly our portfolio, and would be an easy portfolio for wife if I passed.

Can't get much simpler than a 50/50 balanced fund.

Broken Man 1999
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basspond
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Re: Anybody 50/50?

Post by basspond »

Over 50 and never have been more than 10% bonds/cash until late forties(still under 20%). I don't have any problems sleeping and I change my allocations by adjusting my contributions. If you watch and fret about the market constantly, 50/50 won't ease any of your fears. Remember there are risks in any investment allocation you do. The equalizer is time and the only investment that substantially beats inflation is the market.

It has worked for me but every investor is different. Good luck!
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FreeAtLast
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Re: Anybody 50/50?

Post by FreeAtLast »

Retired now for 1.36 years and presently set at 55/45.....with a strong inclination to adjust to 50/50 in the next 3-6 months.....but when I was accumulating, did not own any bonds until 3 years before retirement....and yes, that was a significantly risky choice which I happened to "win", but in a parallel universe I could have "lost".....I still believe that at your age you could live with a 70/30 or 80/20 allocation.....why not study the history of the stock market from the Great Depression onward and decide what your stomach can tolerate during a long and nasty bear market (I think that dc81584 is right on the money with his/her advice).
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Lafder
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Re: Anybody 50/50?

Post by Lafder »

What about a Target Date Retirement account? You do not need to change horses mid stream, the same horse adjusts for you over the years :) There are other All in one funds such as Life Strategy Funds as well.

50/50 is considered "conservative" at your age, when there is a general recommendation of age in bonds which would put you closer to 75/25.

As others are mentioning, stocks are more risky and your account value can drop quickly in a stock market crash. If you will lose sleep and be sick about it, or worse sell when stocks are down, then 50/50 might be right for you.

I would say 50/50 beats keeping your money in a bank account or under your mattress.

In addition to investing you can pay yourself by paying off your mortgage.

It also depends on how much money you have. If many times your annual expenses already saved, why not be more cautious?

You might need to be at 50/50 for awhile to see how it feels then reassess.

(we are at 70/30 which is closer to age -20 in bonds)

lafder
Last edited by Lafder on Mon May 11, 2015 7:40 pm, edited 1 time in total.
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joe8d
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Re: Anybody 50/50?

Post by joe8d »

I"m 50/50, but retired.I think accumulators should be 80-100% Stock in Retirement Accounts
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Rx 4 investing
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Re: Anybody 50/50?

Post by Rx 4 investing »

For your consideration...

I always appreciated the simple-but-elegant "all purpose program" put forth by the greatest value investor of his day, Benjamin Graham. This can be found in The Intelligent Investor, Chapter 4 entitled "General Portfolio Policy" :

"...we are convinced that our 50-50 version...makes good sense for the defensive* investor. It is extremely simple; it aims unquestionably in the right direction; it gives the follower the feeling that he is at least making some moves in response to market development; most important of all, it will restrain him from being drawn more and more heavily into common stocks as the market rises to more and more dangerous heights."

"Furthermore, a truly conservative investor will be satisfied with the gains shown on half his portfolio in a rising market, while in a severe decline he may derive much solace from reflecting how much better off he is than many of his more venturesome friends. While our proposed 50-50 division is undoubtedly the simplest "all purpose program' deviseable, it may not turn out to be the in terms of results achieved. Of course, no approach, mechanical or otherwise, can be advanced with any assurance that it will work out better than another."


*Graham's defining characteristics of the "defensive" (or passive) investor: 1. Will place his chief emphasis on the avoidance of serious mistakes 2. His second aim will be freedom from effort, annoyance, and the need for making frequent decisions.

--Here's some wisdom from our leader, Mr. Jack Bogle, on the advice of Wall Street experts: [/i] ( 0:49 ) https://www.youtube.com/watch?v=A0gQiz0pCyI

--Bob Farrell's 10 investment rules:
1. Markets tend to return to the mean (average price) over time.
2. Excesses in one direction will lead to an opposite excess in the other direction.
3. There are no new eras – excesses are never permanent.
4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
5. The public buys the most at the top and the least at the bottom.
6. Fear and greed are stronger than long-term resolve.
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names
8. Bear markets have three stages – sharp down, reflexive rebound and a drawn-out fundamental downtrend
9. When all the experts and forecasts agree – something else is going to happen.
10. Bull markets are more fun than bear markets

For whatever it's worth, here's some 401-k advice I recently gave my 25 year old daughter...

--We had this conversation not too long ago, after she landed her first full time job. The 50:50 portfolio seemed too conservative, but at the current CAPE 10 level (a long-term valuation measure) of the S & P 500, 80% / 20% didn't seem prudent. And, she too does not yet know her "risk tolerance."

I shared with her that it is hard for anyone, regardless of age group, to see their hard earned nest egg shrink 25% -50%. I then showed her Paul Merriman's "fine tuning your asset allocation table" (link), and based on the maximum draw-down (see bottom of chart), we settled on 60 % / 40% for her. As suggested by other posters, it is best to wait and see how she reacts. I advised her to consider getting more aggressive--if she was so inclined ---toward 80/20 in the next bear market. That's when her $$$ can buy more, when stocks to go "on sale."

http://paulmerriman.com/fine-tuning-you ... tion-2014/

You've received great advice so far from BH nation. With this you can't go wrong...start your investment plan ASAP !!! Time is on your side. As Ben Franklin said, "the money money makes, makes money." (i.e. the magic of compounding; start early). Cheers, and best wishes for much success! :beer

Disclosure: I am 50%- Stock / 50%- Bond ; age 57. (1/2 of my stock allocation is US; 1/2 international)
“Everyone is a disciplined, long-term investor until the market goes down.” – Steve Forbes
chessmannextmove
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Re: Anybody 50/50?

Post by chessmannextmove »

Ridiculously consevative for your age.

If you're just starting off why would do you care about a 75% crash in the stock market? Seriously? It's going to be 40 years before touch that money. Just relax. It ain't that bad.
Gecko10x
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Re: Anybody 50/50?

Post by Gecko10x »

IMO, nothing wrong with 50/50, especially since you don't know your tolerance yet. I won't rehash the advice above.

If, however, you are swayed by those that think you are leaving too much on the table, you could read some Swedroe. You might then be swayed to increase the risk of your equities, while keeping 50% bonds, and get the best of both worlds (maybe) :wink:

FWIW, I would be 50/50 if I had control of my investment choices (ability to choose riskier equities). As it is, I am 60/40, at age 35.
lumberingc
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Re: Anybody 50/50?

Post by lumberingc »

I'm ~30 yo

I'm 50/50 in a taxable account where I'm saving to buy a home (which is probably too aggressive if anything).

My 401K is 100:0 currently, but I'm going to change it to around 80:20

I think 50:50 is too conservative for a retirement account for people our age

Regardless of your allocation, you are 90-95% invested in human capital (your own potential to earn money), so it is ridiculous to say that owning bonds decreases your risk. Your biggest risk right now is getting fired or becoming disabled.

chessmannextmove is right. Lets say the stock market loses 75% this year, and your 401K account goes from...say $50,000 to $12,500. Who cares? Just keep earning, investing, and dollar cost averaging.
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oneleaf
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Re: Anybody 50/50?

Post by oneleaf »

For what it's worth, I am about 10 years older but have been at around 60/40 for over a decade (maybe slightly higher since I take some extra risk on the equity side with emerging and small cap stocks), which would be considered very conservative by most. I learned through the last 2 bear markets that I would rather sacrifice gains over the long term rather than deal with the stress of an equity-heavy portfolio. You will always be told you are conservative with anything less than age-in-bonds, but only you know yourself best.
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satxdrummer
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Re: Anybody 50/50?

Post by satxdrummer »

Thanks for all of the great input amazing people of Bogleheads. I think age in bonds will probably be my best bet. (75/25 currently) I'll have enough stock, that I wont feel like I'm leaving a ton of money on the table, but also have a nice little anchor of bonds. I really believe that I have the strength to hold during a down market, I think its just going to be stress and worry more than anything. Once I go through a bad market and get a real world assessment of my tolerance I might consider going to age in bonds-10 or something like that if I find I can stomach it or might I might dial back to 50/50 if the stress was to much.
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bertilak
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Re: Anybody 50/50?

Post by bertilak »

jhfenton wrote:I couldn't sleep with a 50/50 portfolio thinking about the long-term gains I would fear that I was leaving on the table.
Look at it this way --- you ARE getting those long term gains with a huge chunk (half) of your portfolio. Why get greedy and put the whole thing at high risk?

That's the way I look at my 50/50 portfolio but I am retired and don't get to add new money in a down market. All I get to do is spend it.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
keystone
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Re: Anybody 50/50?

Post by keystone »

I'm 41 and currently right around 60/40 and I think I will gradually shift to 50/50 as I get closer to age 50 and then keep it at 50/50 indefinitely.
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in_reality
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Re: Anybody 50/50?

Post by in_reality »

satxdrummer wrote:Thanks for all of the great input amazing people of Bogleheads. I think age in bonds will probably be my best bet. (75/25 currently) I'll have enough stock, that I wont feel like I'm leaving a ton of money on the table, but also have a nice little anchor of bonds. I really believe that I have the strength to hold during a down market, I think its just going to be stress and worry more than anything. Once I go through a bad market and get a real world assessment of my tolerance I might consider going to age in bonds-10 or something like that if I find I can stomach it or might I might dial back to 50/50 if the stress was to much.
Uncertainty does stress, and who really knows what stocks will do over the next 24 months.

Still, if you are like many, then the possibility of being underfunded should be unnerving too. Take as much risk as you can and have to.

I keep a spreadsheet of my portfolio with 10%, 25% (in larger bold font), 50% and 70% equity loss calculated, and tell myself the only reason Japan (the poster child for long term poor performance) had a down market for so long was that companies legally couldn't restructure and reduce staff which greatly hindered them.

I'm at 47% equities (age 47) because my damn wife keeps out-earning me and won't own any stocks with her money. Had it to 55% stocks but she lost her job, got severance, and then got rehired immediately.
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stemikger
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Re: Anybody 50/50?

Post by stemikger »

jhfenton wrote:Unless you just couldn't sleep with a more equities-heavy portfolio or you have a large inheritance to safeguard, then I think you'd be making a mistake going 50/50 at age 25. At your age, you should be investing in stocks and praying for a decade-long bear market so that you can buy lots of cheap shares.

You've come to the right place for positive reinforcement, though. This board is full of conservative investors. I couldn't sleep with a 50/50 portfolio thinking about the long-term gains I would fear that I was leaving on the table.
+1

I totally agree. I made a similar mistake wen I was your age. I had very little money in there, which is why being too conservative is almost as bad as being too risky. At your age 100% stocks is not unreasonable. I personally think 80/20 is the most conservative you should be at 25. You have so much time ahead of you, now is the time, to get the most growth with equities. Also, every single expert agrees, that going forward bonds will be paying very little. Too heavy in bonds at your age is a lot of missed opportunities. Having said that, bonds should still be part of your portfolio to be used as a diversifier when you get older. I suggest you read Warren Buffett's 2014 Berkshire Letter to Shareholders and read what Warren says about risk. It is a different way of looking at risk that would help a younger investor who is considering such a conservative portfolio.
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stemikger
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Re: Anybody 50/50?

Post by stemikger »

satxdrummer wrote:Thanks for all of the great input amazing people of Bogleheads. I think age in bonds will probably be my best bet. (75/25 currently) I'll have enough stock, that I wont feel like I'm leaving a ton of money on the table, but also have a nice little anchor of bonds. I really believe that I have the strength to hold during a down market, I think its just going to be stress and worry more than anything. Once I go through a bad market and get a real world assessment of my tolerance I might consider going to age in bonds-10 or something like that if I find I can stomach it or might I might dial back to 50/50 if the stress was to much.
I'm happy to see this. Age in bonds is considered very conservative. It's a good rule of thumb. You will not go wrong with this rule. In 25 years from now, you will be 50/50 and you will be glad you did age in bonds.
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mrbry
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Re: Anybody 50/50?

Post by mrbry »

Another +1 for 50/50, I think that's a solid choice. I was around your age when the recession started and turns out I was a bit too stock heavy (90/10). I didn't rebalance and liquidated stock before it got worse. Ended up trading my way back to even in a year but I'm not proud of what I did and I got terribly lucky in hindsight. I'm now closer to 60/40 and don't bat an eye on daily market movements and only check in for rebalancing purposes when making contributions. Wish I had closer to 50/50 when I was your age and then feel the waters after at least one market crash.

It's easy to say go 'heavy stocks' when the market's been on a tear the past few years. You won't know how you'd react to a market downturn until you've been in one with substantial savings invested (and lost on paper). I'd say probably 5% of the population can really handle a stock heavy portfolio.
onepocket
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Re: Anybody 50/50?

Post by onepocket »

My wife and I are 43 & 38 respectively and we have been at 50/50 since 2009. All situations are different of course, but we are striving to balance her risk tolerance (which was/is relatively unknown) with mine (aggressive). I am still unsure if it is optimal for us, but it certainly allows us to sleep well at night AND STAY THE COURSE, which is critical to investing success, IMO. Further, I have come to believe as others have that success in investing is hugely determined be doing a few critical things correctly and avoiding costly mistakes. 50/50 has fit this bill nicely and is super simple, which I really like. If I may borrow from Taylor Larimore, "there are many roads to Dublin"...but some are less bumpy. :happy
bobk100
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Re: Anybody 50/50?

Post by bobk100 »

satxdrummer wrote:Thanks for all of the great input amazing people of Bogleheads. I think age in bonds will probably be my best bet. (75/25 currently) I'll have enough stock, that I wont feel like I'm leaving a ton of money on the table, but also have a nice little anchor of bonds. I really believe that I have the strength to hold during a down market, I think its just going to be stress and worry more than anything. Once I go through a bad market and get a real world assessment of my tolerance I might consider going to age in bonds-10 or something like that if I find I can stomach it or might I might dial back to 50/50 if the stress was to much.

Given your current age and how many years you have to invest before retirement you should have as much in stocks as you can tolerate. If you would like to back test various AA over any number of time periods since 1972 and see what it does to your potential total balance you can use the following site.

https://www.portfoliovisualizer.com/
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bertilak
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Re: Anybody 50/50?

Post by bertilak »

onepocket wrote:If I may borrow from Taylor Larimore, "there are many roads to Dublin"...but some are less bumpy. :happy
I like to say there are many roads but the best is not the fastest nor the most fun to drive. The best is the one where you won't get lost!

I think "fun to drive" has a great attraction, from slice-and-dice, EMH, MPT, all the way up to day-trading options. Those in the "fun to drive" crowd will mostly deny it and say they are part of the "fastest" crowd!

I've been on the rightmost end of that list. Now I am completely OFF that list with a two-fund 50/50 portfolio. I admit adding International could be a good move for me. Still thinking on it.
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bertilak
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Re: Anybody 50/50?

Post by bertilak »

blueblock wrote:
satxdrummer wrote:Honestly I don't know what my risk tolerance is because I just started investing this year. I get the concept of market cycles and I know Stocks have performed better than bonds over time, but I haven't been in a bad market and seen my 401k look like a 101k so I don't know how I'd feel or act.
I'm 63, just retired, and am perfectly comfortable with 60/40. I never lost a minute's sleep during the recession. In the next few weeks, when I transfer my 401K to a self-manged IRA, I might go 70/30... I haven't decided yet.

Something you might consider: I keep a years' living expenses in cash, so that I'm not forced to sell in a down market. My goal is two years' expenses, for an increased cushion, but I can't get there in 2015 due to earned income Jan-Apr.
If you add your 1 or 2 years cash to the fixed income side of that 60/40 or 70/30 what do you get?
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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siamond
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Re: Anybody 50/50?

Post by siamond »

Personally, at the OP's age, I would be 90/10 without sweating it... Sacrificing long-term returns in favor of short-term stability isn't a good strategy for wealthy retirement decades down the road. But I am not the OP. Trouble is many of the answers on this thread simply describe what the poster feels based on his/her own situation, which isn't quite relevant.

OP, I second the idea of you using a target-date retirement fund. Not only this should make you feel good because it is carefully designed for your age, but also you should be a bit less subject to emotions that might drive you to unfortunate decisions when the market dives... While still benefitting from a nicely designed portfolio that will deliver the goods on the long run. Here is an example:
https://investor.vanguard.com/mutual-fu ... irement/#/
Dandy
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Re: Anybody 50/50?

Post by Dandy »

During my accumulation years I think the highest equity allocation was 55% - now at 67 it is 42%. I did fine asset wise and sleep wise. It was a bit tense during 2008-09 when I had just retired but it would have been much scarier if I had a higher equity allocation. I was lucky with a generally favorable stock and bond market -- who knows what the future will be.
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warner25
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Re: Anybody 50/50?

Post by warner25 »

My wife and I are not much older, with not much more than 50% stocks. My thoughts: People say, “you are decades away from needing this money,” or “you have millions in human capital,” and maybe that’s true, but maybe not. I’ve made good money early in my career, but I’m not convinced that I can always expect similar earnings going forward. Failure of my (or a family member’s) health, long-term unemployment due to political/economic changes, and/or career change (maybe to something that pays permanently less) could put an unexpected demand on our savings much sooner. This stuff isn’t unheard of, and it could easily happen at a bad time for the stock market, so the risk goes beyond whether or not you can simply stomach the ups and downs on paper. Somewhere I read the suggestion to “treat earnings like lottery winnings," which really stuck with me. We choose to spend less, save more, and be more conservative than conventional wisdom suggests.
jayhawkerbeef
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Re: Anybody 50/50?

Post by jayhawkerbeef »

Heck no, be more aggressive and just keep investing as much as possible. Don't even look at it until retirement, except when rebalancing or changing your bond ratio as you near retirement.
smashhand
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Re: Anybody 50/50?

Post by smashhand »

My ideal asset allocation has been 50/50 for the past twelve years with both tax-deferred (75% of portfolio) and taxable in Vanguard index funds. Presently, I'm about 53% stocks and the balance in bonds. My cash emergency fund is good for nine months of recurring monthly expenses. According to Vanguard, my portfolio has earned an average of 8% annually over the past ten years. (I've only rebalanced once during that time when VG's portfolio analyzer flagged a seven percent imbalance of stocks over bonds. Haven't seen any of those kinds of flags over the past couple of years.) Like many others above, 50/50 gets me as close to the edge of the risk ledge as I care to get as a retiree. DW and I are living comfortably on COLAed pensions and Social Security, and continuing to salt away ten percent of our monthly income in the taxable accounts. We are very fortunate and very grateful for that good fortune.
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Re: Anybody 50/50?

Post by lack_ey »

warner25 wrote:My wife and I are not much older, with not much more than 50% stocks. My thoughts: People say, “you are decades away from needing this money,” or “you have millions in human capital,” and maybe that’s true, but maybe not. I’ve made good money early in my career, but I’m not convinced that I can always expect similar earnings going forward. Failure of my (or a family member’s) health, long-term unemployment due to political/economic changes, and/or career change (maybe to something that pays permanently less) could put an unexpected demand on our savings much sooner. This stuff isn’t unheard of, and it could easily happen at a bad time for the stock market, so the risk goes beyond whether or not you can simply stomach the ups and downs on paper. Somewhere I read the suggestion to “treat earnings like lottery winnings," which really stuck with me. We choose to spend less, save more, and be more conservative than conventional wisdom suggests.
Good post. I don't quite agree with everything here, but I am sympathetic to the view.

The long time horizon talked about is an assumption, not a certainty. Sometimes you get unlucky, and life does not always cooperate. Stocks make no guarantees, and stock performance may not show up when you need it or in relevant parts of your lifetime. US investors in particular are biased by very favorable conditions over the last 100 years for a buy-and-hold strategy of stocks, at least for those for whom extenuating circumstances didn't force a change in plans. The personal experience of everyone who waited long enough here and had the opportunity to was that they didn't get burned. Those treated to markets of some other countries didn't always have the same success.

Some have mentioned regretting not being more aggressively allocated in the past, saying it was a mistake. I disagree with this line of thinking. When looking back at the past, the only outcome we see is the one that happened, not all the ones that could have been. On an ex-ante basis, you had no way of knowing. Now, if the allocation wasn't well reasoned in the first place, it might have been suboptimal, but that's not because of what ended up happening.

I'm not saying stocks aren't good investments, and it's a very bad idea to bet against long-term human economic output and progress. But I disagree with rationalizing heavy risk concentration in equities, even if this is balanced by the notion of human capital (an argument I agree with but with the above reservations), with the argument of trying to avoid "leaving a ton of money on the table." We don't know how much money is going to be on the table or when you might need it. We can make some educated guesses—and I think this is a good idea and am not disparaging the approach, even though many here laugh off forecasting yet somehow are confident in their allocations—but those depend on our current understanding of the world, which is incomplete at best and perhaps flat-out wrong in places.

In my opinion, it seems to make more sense to budget and allocate in a very rough probabilistic sense and pay close attention to risk and the uncertainty of future outcomes, both in our personal lives as well as the financial markets. With more stocks, you have less of an idea of what the value might be at any point in the future. Increasing a stock allocation increases the long-term uncertainty, not just short-term volatility. Stocks are leveraged investments under the hood, and even an equal allocation of stocks and bonds is very heavily driven in returns and risk by the stock component. Rather than think, "I'm giving up _____ returns by being too conservative," think in terms of "it doesn't matter if I lose _______," "I can tolerate _____ amount of risk," and "I am willing to make ______ amount of sacrifices to play the odds."

On the other hand, many people make strong delineations between "retirement money" and other savings, and in effect high stock allocations for retirement money may be balanced by all kinds of other assets and savings for many investors. (I do not make the distinction.) Someone attempting to be 100% stocks but with a large emergency fund not counted, maybe home equity, savings for college, or who knows what else is actually sitting on a pile of other assets that aren't stocks, in addition to their human capital.

Also, all considerations of asset allocation are relatively unimportant when younger and with smaller balances, so it may not be worth thinking about that much. May as well enjoy things and maybe work on the savings rate and increasing income.

Personally I'm at about 70% stocks at age 27, but that includes all assets including the day-to-day checking account, all savings, and no home equity.
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warner25
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Re: Anybody 50/50?

Post by warner25 »

lack_ey wrote:many people make strong delineations between "retirement money" and other savings, and in effect high stock allocations for retirement money may be balanced by all kinds of other assets and savings for many investors. (I do not make the distinction.)
We don't make this distinction either, partially because of the agnostic attitude (with respect to time horizon) described earlier. It's all one pot of savings to us. Best case is that it funds early retirement. Worst case is that it gets us through some unforeseen catastrophe in the relatively near future.
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Yesterdaysnews
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Re: Anybody 50/50?

Post by Yesterdaysnews »

Sorry 50/50 seems way too conservative fore 25 year old. I would buy US stocks only and even would consider using some margin to maximize wealth 40 to 50 years down the road. The advantage of starting that young is massive. Would be a waste to hold any bonds imo at 25 yo.
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