Out of the norm all-equity portfolio to compliment pensions

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MrVargas
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Joined: Sat Sep 11, 2010 4:35 pm

Out of the norm all-equity portfolio to compliment pensions

Postby MrVargas » Sun Mar 19, 2017 9:25 am

My wife and I both contribute to government pensions (mine is state, her's is local). In addition to that we have begun contributing to a 403B. At first our choices were mostly overpriced actively managed funds. I was in a T Rowe Price target date fund. They have now added some index funds and I am excited!

I was thinking of doing the following:

25% S&P 500
25% US Small Cap stocks
25% Developed International
25% Emerging markets

We are in our mid 30's. This is obviously very aggressive but my logic is that we already have pensions which I look at as a more conservative investment. Our pensions should be enough for us to retire on so I feel like this is money I can afford to be riskier with.

I know it's overweight on Emerging and Small cap but I love equal weighted allocations. It has helped me stay the course in the past.

Am I crazy?
Last edited by MrVargas on Sun Mar 19, 2017 9:43 am, edited 1 time in total.

orca91
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Re: Out of the norm all-equity portfolio to compliment pensions

Postby orca91 » Sun Mar 19, 2017 9:35 am

You already have pensions... in your 30's??

Or, you contribute to pension plans and don't know what the future holds between now and when you start receiving your pension? :wink:

I would treat your 403b account(s) as if you don't have a pension to look forward to.... you just never know. If all goes as planned, your pensions should cover your expenses someday. You have the ability to take risk. But, do you need to take the risk?

As with many things, it comes down to personal preference and your own risk tolerance.

rgs92
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Re: Out of the norm all-equity portfolio to compliment pensions

Postby rgs92 » Sun Mar 19, 2017 9:38 am

It looks like people are rushing into emerging markets now that they've had a nice 15% pop. Fools rush in you know.
Overall, 50% international is too much for your equity allocation, let alone your entire portfolio.
Try going 50% total stock market, 15% total int'l stock mkt, 35% bonds.
(Note: it's complement, not compliment). (Unless I get your meaning wrong, I think that's right.)
Last edited by rgs92 on Sun Mar 19, 2017 12:50 pm, edited 4 times in total.

dbr
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Re: Out of the norm all-equity portfolio to compliment pensions

Postby dbr » Sun Mar 19, 2017 9:47 am

orca91 wrote:You already have pensions... in your 30's??



Right. You don't have pensions. You are enrolled in a pension plan. One thing that could happen is you don't stay employed at that employer until you retire. You could be fired, move, get divorced, etc., etc. Pension plans could be changed or even go bankrupt. Local pension plans are especially at risk. Federal plans are less at risk. Especially risky would be the case if you have a pension plan that replaces Social Security so that you are not earning SS credits.
Last edited by dbr on Sun Mar 19, 2017 10:33 am, edited 1 time in total.

delamer
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Re: Out of the norm all-equity portfolio to compliment pensions

Postby delamer » Sun Mar 19, 2017 10:03 am

An aggressive portfolio means a volatile portfolio. How will you react if your portfolio loses 50% of its value? Will you be able to hang on or will you panic and sell when you see its value collapse?

One if the reasons for bond exposure and a more moderate portfolio is to keep both the portfolio and its owner on a more even keel.

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Watty
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Re: Out of the norm all-equity portfolio to compliment pensions

Postby Watty » Sun Mar 19, 2017 10:33 am

MrVargas wrote:on so I feel like this is money I can afford to be riskier with.


The problem with that is that the extra risk really doesn't get you much if any extra return but it makes your portfolio a lot more volatile. You can research "Modern portfolio theory" and "efficient frontier". The reason is that by having some bonds whenever you rebalance you will automatically be "selling high and buying low" and this at least in part helps make of for the lower expected return that bonds have.

The Vanguard 2045 fund is about 10% bonds so it would be good to have about that much too.

If you do decide to go with 100% stocks now then you should also have a plan on what your "glide path" will be and what your asset allocation will be when you are 45, 55, and 65 since you will not want to be 100% stocks as you get older.

An alternative would be to just mimic the asset allocation that the 2045 target date fund used.

MrVargas wrote:25% Emerging markets


I'm not a big fan of emerging market stocks since many of the countries that the money is invested in don't have very well developed legal systems. Be sure to look at the names of the companies that they are investing in and research them a bit to see if you feel real comfortable that they are giving accurate financial statement, not corrupt, and that any lawsuits in that country can be be handled fairly.

Emerging market funds do have some value for diversification so I'm not suggesting that you omit emerging market stocks from your portfolio it is just that overweighting with them could be a lot riskier than you realize.

MrVargas wrote:Our pensions should be enough for us to retire on so I feel like this is money I can afford to be riskier with.


The odds on you both actually getting the pensions are not great even if there are not big changes in your pension plan. Think back over 2016 about how many new employees started where you work and compare that to how many people retired in 2016. There were likely a lot more new employees than people retiring. That is roughly your odds of being there until you retire.
Last edited by Watty on Sun Mar 19, 2017 10:37 am, edited 1 time in total.

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midareff
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Location: Biscayne Bay, South Florida

Re: Out of the norm all-equity portfolio to compliment pensions

Postby midareff » Sun Mar 19, 2017 10:37 am

MrVargas wrote:My wife and I both contribute to government pensions (mine is state, her's is local). In addition to that we have begun contributing to a 403B. At first our choices were mostly overpriced actively managed funds. I was in a T Rowe Price target date fund. They have now added some index funds and I am excited!

I was thinking of doing the following:

25% S&P 500
25% US Small Cap stocks
25% Developed International
25% Emerging markets

We are in our mid 30's. This is obviously very aggressive but my logic is that we already have pensions which I look at as a more conservative investment. Our pensions should be enough for us to retire on so I feel like this is money I can afford to be riskier with.

I know it's overweight on Emerging and Small cap but I love equal weighted allocations. It has helped me stay the course in the past.

Am I crazy?


Not crazy at all. My taxable account looked like that as I approached retirement with a government pension and SS. The older I get the simpler I get too. Now Total US and Total International in taxable and some muni bonds.

msk
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Re: Out of the norm all-equity portfolio to compliment pensions

Postby msk » Sun Mar 19, 2017 10:38 am

Just purchase VT (Vanguard Total World) and sleep till retirement. OK, and just keep adding to it. Chances are that you will be very pleased.

TIAX
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Re: Out of the norm all-equity portfolio to compliment pensions

Postby TIAX » Sun Mar 19, 2017 10:45 am

It may be helpful if you post your salaries, how much you have in your 403(b)s, and information about your pensions (when you become vested, how much it will be, whether the pensions are funded, etc.).

Wagnerjb
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Location: Houston, Texas

Re: Out of the norm all-equity portfolio to compliment pensions

Postby Wagnerjb » Sun Mar 19, 2017 10:50 am

In my mid-30's my asset allocation was around 80% equities. With your pension values included, you may be in that same range. I see nothing odd about your asset allocation, especially if you understand financial markets and can stand the volatility.

Best wishes.
Andy

magneto
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Re: Out of the norm all-equity portfolio to compliment pensions

Postby magneto » Sun Mar 19, 2017 10:58 am

MrVargas wrote:I was thinking of doing the following:

25% S&P 500
25% US Small Cap stocks
25% Developed International
25% Emerging markets

We are in our mid 30's. This is obviously very aggressive but my logic is that we already have pensions which I look at as a more conservative investment. Our pensions should be enough for us to retire on so I feel like this is money I can afford to be riskier with.
Am I crazy?


Someone once observed that if high risk equalled high returns, then high risk would not in fact be risky :!:

Also have doubts there is a convincing case for 'upside potential' versus 'downside risk' in today's Stock Markets; so as noted above some other low or non-correlated assets could prove useful as a reserve, to buy/add when the balance might incline more favourably :?:
'There is a tide in the affairs of men ...', Brutus (Market Timer)

dbltrbl
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Joined: Thu Mar 01, 2007 11:52 am

Re: Out of the norm all-equity portfolio to compliment pensions

Postby dbltrbl » Sun Mar 19, 2017 11:04 am

Go with what you and your spouse are comfortable with. Iam retired and still 90% stocks as I have pension. Just do not gamble. If you are 25% allocation stay with it for next 25-30 years. I would agree with suggestion of Vanguard world and sleep better but your choice. You will always have nay sayers pension will not be around and yes it can happen but reverse is also possible. Think positive and move on.

NiceUnparticularMan
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Joined: Sat Mar 11, 2017 7:51 am

Re: Out of the norm all-equity portfolio to compliment pensions

Postby NiceUnparticularMan » Sun Mar 19, 2017 11:05 am

That could be completely reasonable, but I think the first question you need to ask yourself is what purpose these investments are actually supposed to serve in the long run. Are you investing for your eventual heirs? Additional income in retirement? Possibly an early retirement? Bragging rights? Whatever it might be, you have to start with what you are trying to accomplish and then work back from there to a reasonable plan.

MrVargas
Posts: 68
Joined: Sat Sep 11, 2010 4:35 pm

Re: Out of the norm all-equity portfolio to compliment pensions

Postby MrVargas » Mon Mar 20, 2017 12:36 pm

rgs92 wrote:It looks like people are rushing into emerging markets now that they've had a nice 15% pop. Fools rush in you know.
I didn't even know that they had done well. I thought they were still down. I don't really follow markets besides the S&P 500 (and whatever is in my portfolio). I am not one to chase recently hot markets, if anything I might do the opposite of that (which also might be foolish because it is market timing).


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