85/15 too aggressive at age 35?

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ancho
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85/15 too aggressive at age 35?

Post by ancho » Thu Aug 03, 2017 12:25 pm

My wife and I are both 35, and our $325k in retirement savings are currently at an 85/15 asset allocation, using the 3-fund portfolio (well, more like 87/13 at the moment due to drift).

We're heavy savers ($50-$55k/year), and live in a VHCOL area. We would love to retire early if we can, but aren't counting on anything. Speaking VERY roughly, we probably need to hit $2.5M or so in savings (in 2017 dollars) to retire, given our desired spending.

We made it through the 2007 crash without panicking and selling anything (we only had ~$60k in investments prior to the crash, but that sure felt like a lot of money to see cut in half at the tender age of 25). And we were fairly naive investors at the time, and have a whole lot more knowledge now to help us stay the course. To be honest, part of me is hoping for a downturn soon so we can do some "buying low" while we're still in the heavy accumulation phase.

Of course, a 50% market drop with our current savings would be different than what we experienced 10 years ago.

But, assuming that we will indeed stay the course through any market correction, is 85/15 too aggressive for our age and time horizon?

I realize there's no right or wrong answer to this, but would welcome some input.

rkhusky
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Re: 85/15 too aggressive at age 35?

Post by rkhusky » Thu Aug 03, 2017 12:32 pm

That (age-20 in bonds) is at the upper end of my reasonable allocation zone, assuming retirement at 60 - 65.

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TxAg
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Re: 85/15 too aggressive at age 35?

Post by TxAg » Thu Aug 03, 2017 12:44 pm

Similar age and 100/0

We sleep fine at night

ecotone
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Re: 85/15 too aggressive at age 35?

Post by ecotone » Thu Aug 03, 2017 12:48 pm

my wife and i are 36 and we are at 85/15. my plan is to reassess at age 40.

Iliketoridemybike
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Re: 85/15 too aggressive at age 35?

Post by Iliketoridemybike » Thu Aug 03, 2017 12:48 pm

I was 100% equites up to about age 45....

Then 2008 happened and I realized how quickly hard earning savings can evaporate, literally over night.

That made me realize that my risk tolerance was really more like 60/40. I have hung around this AA for awhile and know its probably right for me. Your results may vary.

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celia
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Re: 85/15 too aggressive at age 35?

Post by celia » Thu Aug 03, 2017 12:49 pm

No, because you have lots of time to make up any loss, whether that be from growth and/or earning power.

Even with occasional markets drops, you will be better off than someone who is 15/85 and never has a market drop. Of course, this all implies you don't sell when things go south.

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Peter Foley
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Re: 85/15 too aggressive at age 35?

Post by Peter Foley » Thu Aug 03, 2017 12:53 pm

If you have the ability and willingness to take risk you are fine. I was at 70/30 until close to age 60. Personally, I would dial it back a bit. Benjamin Graham recommended 75% as the top limit and 25% as the bottom limit for stocks.

At a minimum, reassess when you are 50 years old.

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siamond
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Re: 85/15 too aggressive at age 35?

Post by siamond » Thu Aug 03, 2017 12:54 pm

Ancho, your wife and yourself are doing GREAT. I wish I had been as wise as you are when I was your age... By all means, do not change a thing and stay the course. Also remember that life (and your investments) doesn't stop when you retire... You have a LOT of time in front of you... I wish you the best.

coupleofcents
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Re: 85/15 too aggressive at age 35?

Post by coupleofcents » Thu Aug 03, 2017 12:58 pm

We are both 32 and about 85/15. Probably will move to 80/20 when we hit 35. Given your long horizon, I don't see any problems. At our age, the savings rate is far more important than anything else.

Finance-MD
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Re: 85/15 too aggressive at age 35?

Post by Finance-MD » Thu Aug 03, 2017 1:03 pm

Not sure when you were thinking/hoping to retire early, just for reference, both vanguard and fidelity target date funds are 90/10 until about 25 years out (vanguard) and ~20 years out (fidelity) from retirement.

Some think vanguards TD funds are a bit riskier than needed, but stock markets rarely show a loss over a 20 year period.

If you can tolerate the risk, mathematically 85/15 is fine if your holding period is long enough.

viewtopic.php?t=216248

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David Jay
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Re: 85/15 too aggressive at age 35?

Post by David Jay » Thu Aug 03, 2017 1:04 pm

ancho wrote:To be honest, part of me is hoping for a downturn soon so we can do some "buying low" while we're still in the heavy accumulation phase.
If you can fully internalize this thought then you are prepared for the next downturn.

Someone else said here on BH recently: "The stock market is the only place where - when things go on sale - people head for the exits"
Last edited by David Jay on Thu Aug 03, 2017 1:04 pm, edited 1 time in total.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

CnC
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Re: 85/15 too aggressive at age 35?

Post by CnC » Thu Aug 03, 2017 1:04 pm

Rebalance at 40. But right now the upside out weighs the downside since you have time on your side.


We are 90+% stock at 30. But I also have a pension so I'm going to always be heavy in stocks since my pension is a fixed asset.

miamivice
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Re: 85/15 too aggressive at age 35?

Post by miamivice » Thu Aug 03, 2017 1:04 pm

I'm 38 and hold 100% stocks. Many say it's too risky but I don't have immediate needs for the money and figure I have time to ride out any bear markets.

I'll reassess at probably 7 years before retirement age. Right now that scheduled for 55, so in 9 years I'll start to move more to safer investments.

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Re: 85/15 too aggressive at age 35?

Post by KyleAAA » Thu Aug 03, 2017 1:08 pm

Totally reasonable so long as you don't panic in a bear market.

John Laurens
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Re: 85/15 too aggressive at age 35?

Post by John Laurens » Thu Aug 03, 2017 1:17 pm

I am age minus 25 in bonds. Some would say that is very aggressive. It's not that I have a high tolerance for risk. Quite the opposite.

I am completely debt free including home, have 1 year living expenses in cash, and fairly secure multiple sources of income.

There are many factors that determine one's AA besides age.

Regards,
John

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bottlecap
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Re: 85/15 too aggressive at age 35?

Post by bottlecap » Thu Aug 03, 2017 1:19 pm

It's fine if you can't take it. But you wouldn't lose much by going 80/20, either.

JT

mcxavierdaniel
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Re: 85/15 too aggressive at age 35?

Post by mcxavierdaniel » Thu Aug 03, 2017 1:23 pm

I am 43. My AA is 98% equity / 2% fixed income. Of the 98% in equity, 11% is international. The 2% in bonds is due to recently allocating a portion of my 401(k) contributions to a bond fund. Otherwise, been 100% equities my whole working career. Mostly index funds, but i do have 33% allocated to VG Primecap, which I've owned forever and am very happy with. In 2008, obviously portfolios took a hit, but I made no changes and slept fine at night. Everything rebounded. I'll prob reassess when I turn 45-50 and allocate more to fixed income. Until then, I am staying the course. I think it really depends on your time horizon, risk tolerance, and goals. My wife is 42. She's a teacher and has a great pension. She also doesn't have any interest in investments. For her Roth IRA and 403(b) I recommended she be in the VG Target 2040 fund and just forget all about it, save for a couple checks per year.

onthecusp
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Re: 85/15 too aggressive at age 35?

Post by onthecusp » Thu Aug 03, 2017 1:25 pm

Whenever you feel it is right to adjust to more bond allocation you have the option to do it gradually by buying bonds with new investments. With the market doing well it is exceedingly gradual for me.

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nedsaid
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Re: 85/15 too aggressive at age 35?

Post by nedsaid » Thu Aug 03, 2017 1:36 pm

ancho wrote:My wife and I are both 35, and our $325k in retirement savings are currently at an 85/15 asset allocation, using the 3-fund portfolio (well, more like 87/13 at the moment due to drift).

We're heavy savers ($50-$55k/year), and live in a VHCOL area. We would love to retire early if we can, but aren't counting on anything. Speaking VERY roughly, we probably need to hit $2.5M or so in savings (in 2017 dollars) to retire, given our desired spending.

We made it through the 2007 crash without panicking and selling anything (we only had ~$60k in investments prior to the crash, but that sure felt like a lot of money to see cut in half at the tender age of 25). And we were fairly naive investors at the time, and have a whole lot more knowledge now to help us stay the course. To be honest, part of me is hoping for a downturn soon so we can do some "buying low" while we're still in the heavy accumulation phase.

Of course, a 50% market drop with our current savings would be different than what we experienced 10 years ago.

But, assuming that we will indeed stay the course through any market correction, is 85/15 too aggressive for our age and time horizon?

I realize there's no right or wrong answer to this, but would welcome some input.
At age 35 you are doing just fine. If you experienced a really bad bear market, you have many years to recover plus the opportunity to buy new stock at low prices. Bear markets are really when you make your money as an investor, it is counterintuitive but if you think it through you will realize this is right.

I think age 40 is a good time to start de-risking. I myself went to 80/20 at age 40 and worked my way down to 70/30. At age 58, I am 2/3 stocks and 1/3 bonds. An easy way to check on age appropriate asset allocation is to check the Target Date Funds corresponding to your projected retirement date. Check and see what Vanguard, Fidelity, and T. Rowe Price are doing. Doesn't mean they are right but it does give you a good idea what the best minds in the mutual fund industry are thinking.
A fool and his money are good for business.

aristotelian
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Re: 85/15 too aggressive at age 35?

Post by aristotelian » Thu Aug 03, 2017 1:52 pm

We made it through 2008 and stuck with 90% until this year at age 42. Recently shifted to 75/25. Market is high and we are on track to retire comfortably, so less need to take risk. I don't think 85% is too much if you feel comfortable at that level...but maybe if you are posting on this board that may suggest you would be better off with less.

Vanguard Fan 1367
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Re: 85/15 too aggressive at age 35?

Post by Vanguard Fan 1367 » Thu Aug 03, 2017 2:08 pm

ancho wrote:My wife and I are both 35, and our $325k in retirement savings are currently at an 85/15 asset allocation, using the 3-fund portfolio (well, more like 87/13 at the moment due to drift).

We're heavy savers ($50-$55k/year), and live in a VHCOL area. We would love to retire early if we can, but aren't counting on anything. Speaking VERY roughly, we probably need to hit $2.5M or so in savings (in 2017 dollars) to retire, given our desired spending.

We made it through the 2007 crash without panicking and selling anything (we only had ~$60k in investments prior to the crash, but that sure felt like a lot of money to see cut in half at the tender age of 25). And we were fairly naive investors at the time, and have a whole lot more knowledge now to help us stay the course. To be honest, part of me is hoping for a downturn soon so we can do some "buying low" while we're still in the heavy accumulation phase.

Of course, a 50% market drop with our current savings would be different than what we experienced 10 years ago.

But, assuming that we will indeed stay the course through any market correction, is 85/15 too aggressive for our age and time horizon?

I realize there's no right or wrong answer to this, but would welcome some input.
Given the current situation with bond yields I don't think your allotment is too aggressive. I am 64, my wife is 63 and we have an 82/18 AA. Yes if the market drops 50 percent we are prepared to deal with that.

ugaDAWGS09
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Re: 85/15 too aggressive at age 35?

Post by ugaDAWGS09 » Thu Aug 03, 2017 2:15 pm

My wife and I are 32 years old and we choose to stay 60/40. I know this may be way too conservative for most, but we feel comfortable here and are big savers so riskier investment growth isn't as important as long term consistent growth. We use Wellington for our Roths, and stay around 60/40 in our 401's/taxable accounts. We both have good paying jobs and currently have about 600k in our investments/emergency funds, and only about four years left on our mortgage. I may go 65/35 once my mortgage is paid off by adding extra funds to my taxable account, but I don't see myself going with more than 70% stocks.

KlangFool
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Re: 85/15 too aggressive at age 35?

Post by KlangFool » Thu Aug 03, 2017 2:21 pm

OP,

Starting Net Worth $325,000
Annual Savings $55,000
Years
Annual Return Rate 5 10 15 20
5.00% $718,701 $1,221,175 $1,862,473 $2,680,949
6.00% $744,963 $1,306,969 $2,059,060 $3,065,527
7.00% $772,120 $1,399,229 $2,278,781 $3,512,400
8.00% $800,195 $1,498,412 $2,524,321 $4,031,719
9.00% $829,212 $1,605,004 $2,798,657 $4,635,240


You can reach your goal in 15 to 20 years with 6% to 8% average return.

https://personal.vanguard.com/us/insigh ... llocations

You can reach your goal easily with 60/40 portfolio. The average return is 8.7%.

So, why are you taking an unnecessary risk?

The average return of 80/20 portfolio is 9.5%. Only 0.8% more.

You are not compensated for your additional risk. So, why are you doing this?

KlangFool

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marti038
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Re: 85/15 too aggressive at age 35?

Post by marti038 » Thu Aug 03, 2017 2:22 pm

TxAg wrote:Similar age and 100/0

We sleep fine at night
+1

aristotelian
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Re: 85/15 too aggressive at age 35?

Post by aristotelian » Thu Aug 03, 2017 3:06 pm

marti038 wrote:
TxAg wrote:Similar age and 100/0

We sleep fine at night
+1
How much money do you have? That may work with someone who is either way ahead of their number or someone just starting with nothing to lose. In OP's actual situation, he has accumulated a lot and is on track to make his number without taking risk. What works for you may not work for someone else. In OP's situation, I am pretty sure 100% stock is bad advice.

RRAAYY3
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Re: 85/15 too aggressive at age 35?

Post by RRAAYY3 » Thu Aug 03, 2017 3:07 pm

I am 100/0 and will continue to be because I only invest what I know I don't need in the near future ... I plan on being 100/0 until I'm 40 - then reassess depending on portfolio size

thinking 100/0 ... 80/20 ... 70/30 ... 60/40 by retirement (20-30 years from now)

FootballFan5548
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Re: 85/15 too aggressive at age 35?

Post by FootballFan5548 » Thu Aug 03, 2017 3:43 pm

My wife and I are 34, and have nearly $800k invested. We felt comfortable at 80/20 and were happily sitting at that level.... until I realized I have $200k in cash not invested (from sale of company stock)... so all the while I was so focused on 80/20 AA for invested funds, I never considered I've really been 60/40 this whole time for my total picture.

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StormShadow
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Re: 85/15 too aggressive at age 35?

Post by StormShadow » Thu Aug 03, 2017 3:50 pm

ancho wrote:We made it through the 2007 crash without panicking and selling anything (we only had ~$60k in investments prior to the crash, but that sure felt like a lot of money to see cut in half at the tender age of 25). And we were fairly naive investors at the time, and have a whole lot more knowledge now to help us stay the course. To be honest, part of me is hoping for a downturn soon so we can do some "buying low" while we're still in the heavy accumulation phase.
$60k is nothing to sneeze at, so I think the '07 crash was a good litmus test for your risk tolerance. 85/15 (which would be "age minus 20" in bonds) sounds fine to me assuming you aren't saving for something substantial in the near future (e.g. house).

Stay the course.

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willthrill81
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Re: 85/15 too aggressive at age 35?

Post by willthrill81 » Thu Aug 03, 2017 3:57 pm

I'm 36 and plan on being FI by age 55. I'm virtually 100% in equities and plan to continue to be so until age 45, when I'll start moving one year's of retirement spending into bonds or a stable value fund every year until age 55, at which point I'll have a decade of spending safely set aside. Whatever else I have left will be put in stocks. This is a classic 'bucket' strategy, and it just makes intuitive sense to me.

I think you're in a great position, and it sounds like you have the emotional stability to tolerate the big swings the market can bring your way. As a strictly cautionary measure, you might want to avoid looking at your investment balances more than annually (i.e. when you rebalance). You might even just set everything on auto-pilot if possible and only look in every five years or so. The less you look, the less likely you are to fiddle with things and especially sell out when the market nosedives.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

dspencer
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Re: 85/15 too aggressive at age 35?

Post by dspencer » Thu Aug 03, 2017 4:26 pm

willthrill81 wrote:I'm 36 and plan on being FI by age 55. I'm virtually 100% in equities and plan to continue to be so until age 45, when I'll start moving one year's of retirement spending into bonds or a stable value fund every year until age 55, at which point I'll have a decade of spending safely set aside. Whatever else I have left will be put in stocks. This is a classic 'bucket' strategy, and it just makes intuitive sense to me.

I think you're in a great position, and it sounds like you have the emotional stability to tolerate the big swings the market can bring your way. As a strictly cautionary measure, you might want to avoid looking at your investment balances more than annually (i.e. when you rebalance). You might even just set everything on auto-pilot if possible and only look in every five years or so. The less you look, the less likely you are to fiddle with things and especially sell out when the market nosedives.
Are there really people that manage to just look at their investment balance every 5 years? I simply can't fathom that. Although I'm on the opposite side of the spectrum checking basically everyday. It seems borderline irresponsible to not check your account for 5 years. What happens if there is a glitch and you don't find out for several years that somehow your auto-invest turned off and all your money is in cash or something?

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bligh
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Re: 85/15 too aggressive at age 35?

Post by bligh » Thu Aug 03, 2017 4:37 pm

Here is my input since you are asking for it.

I think 85/15 is a tad on the aggressive side in my opinion. I would suggest 80/20 , in fact that is exactly where I was at 35 so I have practiced what I am preaching right now.

I would say 85/15 or even 90/10 could make sense if the market had just had a huge correction of 20% or more. At current valuations you are being needlessly aggressive. Be fearful when others are greedy, and greedy when others are fearful.

furikake
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Re: 85/15 too aggressive at age 35?

Post by furikake » Thu Aug 03, 2017 4:50 pm

Mid 40s here, whenever I log into Vanguard, it tells me I should be at 85/15, so I think you're not too aggressive.

Matador
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Re: 85/15 too aggressive at age 35?

Post by Matador » Thu Aug 03, 2017 5:06 pm

KlangFool wrote:OP,

Starting Net Worth $325,000
Annual Savings $55,000
Years
Annual Return Rate 5 10 15 20
5.00% $718,701 $1,221,175 $1,862,473 $2,680,949
6.00% $744,963 $1,306,969 $2,059,060 $3,065,527
7.00% $772,120 $1,399,229 $2,278,781 $3,512,400
8.00% $800,195 $1,498,412 $2,524,321 $4,031,719
9.00% $829,212 $1,605,004 $2,798,657 $4,635,240


You can reach your goal in 15 to 20 years with 6% to 8% average return.

https://personal.vanguard.com/us/insigh ... llocations

You can reach your goal easily with 60/40 portfolio. The average return is 8.7%.

So, why are you taking an unnecessary risk?

The average return of 80/20 portfolio is 9.5%. Only 0.8% more.

You are not compensated for your additional risk. So, why are you doing this?

KlangFool
I agree OP is fine and may be taking on unnecessary risk, but ONLY 0.8% more? He's being compensated just as much as someone who chooses a fund with an ER of 0.1% over a similar fund that charges 0.9%. 0.8% is usually considered to be a lot in these parts.

DetroitRick
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Re: 85/15 too aggressive at age 35?

Post by DetroitRick » Thu Aug 03, 2017 5:12 pm

Based on what I would infer from your background comments, that seems fine to me. As you've pointed out, you weathered one crash without huge worry, and you have gained knowledge since then that should help you to weather the next crashes. That, and your time horizon and savings rates, are key factors in deciding, in my opinion. Some people need more of a fixed income basis to provide stability, others don't.

Actually your allocation is very similar to what mine was at age 40 (probably at 35 too, but I don't recall for sure). I generally ran about 17% to 18% fixed income or so and through two big downturns. The resulting volatility didn't bother me, like your experience, based on my time horizon, savings rate, growing income and a willingness to hold (and even bargain shop) during tough times. In my case, even in at market worst, that simple small slice of fixed income served to give me peace of mind. Even now at 61, early in retirement, I'm running about 71%/29% in my investment and retirement accounts, and have no plans to change. But that's just me.

Like you said, there's no right or wrong answer. Knowing yourself (the whole behavioral thing) is important.

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willthrill81
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Re: 85/15 too aggressive at age 35?

Post by willthrill81 » Thu Aug 03, 2017 5:35 pm

dspencer wrote:
willthrill81 wrote:I'm 36 and plan on being FI by age 55. I'm virtually 100% in equities and plan to continue to be so until age 45, when I'll start moving one year's of retirement spending into bonds or a stable value fund every year until age 55, at which point I'll have a decade of spending safely set aside. Whatever else I have left will be put in stocks. This is a classic 'bucket' strategy, and it just makes intuitive sense to me.

I think you're in a great position, and it sounds like you have the emotional stability to tolerate the big swings the market can bring your way. As a strictly cautionary measure, you might want to avoid looking at your investment balances more than annually (i.e. when you rebalance). You might even just set everything on auto-pilot if possible and only look in every five years or so. The less you look, the less likely you are to fiddle with things and especially sell out when the market nosedives.
Are there really people that manage to just look at their investment balance every 5 years? I simply can't fathom that. Although I'm on the opposite side of the spectrum checking basically everyday. It seems borderline irresponsible to not check your account for 5 years. What happens if there is a glitch and you don't find out for several years that somehow your auto-invest turned off and all your money is in cash or something?
We have one poster here, NiceUnparticularMan, who doesn't check his balances more than once a year, and I'm not sure if he even checks them that often. I have no problem checking mine often just to avoid the situation you describe, but there are lots of folks out there who just can't handle watching their balance fluctuate (especially downward if you get my drift).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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stemikger
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Re: 85/15 too aggressive at age 35?

Post by stemikger » Thu Aug 03, 2017 5:41 pm

bottlecap wrote:It's fine if you can't take it. But you wouldn't lose much by going 80/20, either.

JT
+1

Agreed! Either way, you are not being unreasonable. There are so many variables to this question but the main one is, can you stick with it. If you answer yes without hesitation, you are good to go.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

KlangFool
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Re: 85/15 too aggressive at age 35?

Post by KlangFool » Thu Aug 03, 2017 5:48 pm

Matador wrote:
KlangFool wrote:OP,

Starting Net Worth $325,000
Annual Savings $55,000
Years
Annual Return Rate 5 10 15 20
5.00% $718,701 $1,221,175 $1,862,473 $2,680,949
6.00% $744,963 $1,306,969 $2,059,060 $3,065,527
7.00% $772,120 $1,399,229 $2,278,781 $3,512,400
8.00% $800,195 $1,498,412 $2,524,321 $4,031,719
9.00% $829,212 $1,605,004 $2,798,657 $4,635,240


You can reach your goal in 15 to 20 years with 6% to 8% average return.

https://personal.vanguard.com/us/insigh ... llocations

You can reach your goal easily with 60/40 portfolio. The average return is 8.7%.

So, why are you taking an unnecessary risk?

The average return of 80/20 portfolio is 9.5%. Only 0.8% more.

You are not compensated for your additional risk. So, why are you doing this?

KlangFool
I agree OP is fine and may be taking on unnecessary risk, but ONLY 0.8% more? He's being compensated just as much as someone who chooses a fund with an ER of 0.1% over a similar fund that charges 0.9%. 0.8% is usually considered to be a lot in these parts.
Matador,

60/40 -> Worst case one-year loss ~ 30%, Average return = 8.7%
80/20 -> Worst case one-year loss ~ 40%, Average return = 9.5%

So, OP is taking on the possibility of losing 10% more in any year for the average return of 0.8% more. OP has to pray that he did not hit one of those worst years in (10%/0.8%) = 12.5 years in order to break even.

It is a lousy deal.

KlangFool

Dottie57
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Re: 85/15 too aggressive at age 35?

Post by Dottie57 » Thu Aug 03, 2017 5:55 pm

TxAg wrote:Similar age and 100/0

We sleep fine at night

I always wonder how much money those who are at 100/0 had in 2007 -2009.

I went through market problem through 2007 and nothing bothered me. But at that time I had enough accumulated, that the deep market drop terrified me. Terror was enhanced by the belief that the who system would fail.

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Re: 85/15 too aggressive at age 35?

Post by Dottie57 » Thu Aug 03, 2017 6:00 pm

KlangFool wrote:
Matador wrote:
KlangFool wrote:OP,

Starting Net Worth $325,000
Annual Savings $55,000
Years
Annual Return Rate 5 10 15 20
5.00% $718,701 $1,221,175 $1,862,473 $2,680,949
6.00% $744,963 $1,306,969 $2,059,060 $3,065,527
7.00% $772,120 $1,399,229 $2,278,781 $3,512,400
8.00% $800,195 $1,498,412 $2,524,321 $4,031,719
9.00% $829,212 $1,605,004 $2,798,657 $4,635,240


You can reach your goal in 15 to 20 years with 6% to 8% average return.

https://personal.vanguard.com/us/insigh ... llocations

You can reach your goal easily with 60/40 portfolio. The average return is 8.7%.

So, why are you taking an unnecessary risk?

The average return of 80/20 portfolio is 9.5%. Only 0.8% more.

You are not compensated for your additional risk. So, why are you doing this?

KlangFool
I agree OP is fine and may be taking on unnecessary risk, but ONLY 0.8% more? He's being compensated just as much as someone who chooses a fund with an ER of 0.1% over a similar fund that charges 0.9%. 0.8% is usually considered to be a lot in these parts.
Matador,

60/40 -> Worst case one-year loss ~ 30%, Average return = 8.7%
80/20 -> Worst case one-year loss ~ 40%, Average return = 9.5%

So, OP is taking on the possibility of losing 10% more in any year for the average return of 0.8% more. OP has to pray that he did not hit one of those worst years in (10%/0.8%) = 12.5 years in order to break even.

It is a lousy deal.

KlangFool
Do you have the averge return for 50/50 portfolio?

User avatar
bligh
Posts: 569
Joined: Wed Jul 27, 2016 9:13 pm

Re: 85/15 too aggressive at age 35?

Post by bligh » Thu Aug 03, 2017 6:05 pm

Dottie57 wrote:
KlangFool wrote:
Matador wrote:
KlangFool wrote:OP,

Starting Net Worth $325,000
Annual Savings $55,000
Years
Annual Return Rate 5 10 15 20
5.00% $718,701 $1,221,175 $1,862,473 $2,680,949
6.00% $744,963 $1,306,969 $2,059,060 $3,065,527
7.00% $772,120 $1,399,229 $2,278,781 $3,512,400
8.00% $800,195 $1,498,412 $2,524,321 $4,031,719
9.00% $829,212 $1,605,004 $2,798,657 $4,635,240


You can reach your goal in 15 to 20 years with 6% to 8% average return.

https://personal.vanguard.com/us/insigh ... llocations

You can reach your goal easily with 60/40 portfolio. The average return is 8.7%.

So, why are you taking an unnecessary risk?

The average return of 80/20 portfolio is 9.5%. Only 0.8% more.

You are not compensated for your additional risk. So, why are you doing this?

KlangFool
I agree OP is fine and may be taking on unnecessary risk, but ONLY 0.8% more? He's being compensated just as much as someone who chooses a fund with an ER of 0.1% over a similar fund that charges 0.9%. 0.8% is usually considered to be a lot in these parts.
Matador,

60/40 -> Worst case one-year loss ~ 30%, Average return = 8.7%
80/20 -> Worst case one-year loss ~ 40%, Average return = 9.5%

So, OP is taking on the possibility of losing 10% more in any year for the average return of 0.8% more. OP has to pray that he did not hit one of those worst years in (10%/0.8%) = 12.5 years in order to break even.

It is a lousy deal.

KlangFool
Do you have the averge return for 50/50 portfolio?
I believe he is using this site for his numbers :
https://personal.vanguard.com/us/insigh ... llocations

50/50 appears to have an average annual return of 8.3%. I would take those numbers with a grain of salt though. The current interest rates really are unprecedented. You would have to take on long term junk bonds to get 5.4% yield out of them as shown in the 100% bond portfolio.
Last edited by bligh on Thu Aug 03, 2017 6:10 pm, edited 2 times in total.

KlangFool
Posts: 7195
Joined: Sat Oct 11, 2008 12:35 pm

Re: 85/15 too aggressive at age 35?

Post by KlangFool » Thu Aug 03, 2017 6:06 pm

Dottie57 wrote:
KlangFool wrote:
Matador wrote:
KlangFool wrote:OP,

Starting Net Worth $325,000
Annual Savings $55,000
Years
Annual Return Rate 5 10 15 20
5.00% $718,701 $1,221,175 $1,862,473 $2,680,949
6.00% $744,963 $1,306,969 $2,059,060 $3,065,527
7.00% $772,120 $1,399,229 $2,278,781 $3,512,400
8.00% $800,195 $1,498,412 $2,524,321 $4,031,719
9.00% $829,212 $1,605,004 $2,798,657 $4,635,240


You can reach your goal in 15 to 20 years with 6% to 8% average return.

https://personal.vanguard.com/us/insigh ... llocations

You can reach your goal easily with 60/40 portfolio. The average return is 8.7%.

So, why are you taking an unnecessary risk?

The average return of 80/20 portfolio is 9.5%. Only 0.8% more.

You are not compensated for your additional risk. So, why are you doing this?

KlangFool
I agree OP is fine and may be taking on unnecessary risk, but ONLY 0.8% more? He's being compensated just as much as someone who chooses a fund with an ER of 0.1% over a similar fund that charges 0.9%. 0.8% is usually considered to be a lot in these parts.
Matador,

60/40 -> Worst case one-year loss ~ 30%, Average return = 8.7%
80/20 -> Worst case one-year loss ~ 40%, Average return = 9.5%

So, OP is taking on the possibility of losing 10% more in any year for the average return of 0.8% more. OP has to pray that he did not hit one of those worst years in (10%/0.8%) = 12.5 years in order to break even.

It is a lousy deal.

KlangFool
Do you have the averge return for 50/50 portfolio?
Dottie57,

It is 8.3%. Please check out below URL.

https://personal.vanguard.com/us/insigh ... llocations

In summary, the best AA in term of risk versus return is between 70/30 to 30/70. Any number outside of that, you are taking too little or too much risk for the average return.

KlangFool

texas lawdog
Posts: 53
Joined: Tue Jun 07, 2016 5:33 pm

Re: 85/15 too aggressive at age 35?

Post by texas lawdog » Thu Aug 03, 2017 6:21 pm

IMHO, we are overdue a market correction and time to de-risk by moving more of your investment over into bonds.
Of course you might miss out on some additional upside, but that is a small price to pay in taking money off the table.
I'd slowly move the dial over to a 75/25 split, which still allows you to enjoy most market gains while protecting most of what you have enjoyed.

aristotelian
Posts: 3157
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Re: 85/15 too aggressive at age 35?

Post by aristotelian » Thu Aug 03, 2017 6:38 pm

RRAAYY3 wrote:I am 100/0 and will continue to be because I only invest what I know I don't need in the near future ... I plan on being 100/0 until I'm 40 - then reassess depending on portfolio size

thinking 100/0 ... 80/20 ... 70/30 ... 60/40 by retirement (20-30 years from now)
That actually means you are some percentage of stock and some percentage of cash. Please be clear so that OP does not put his emergency fund in stock.

johan_s
Posts: 27
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Re: 85/15 too aggressive at age 35?

Post by johan_s » Thu Aug 03, 2017 6:45 pm

My wife and I are also at 85/15, with about $325 in retirement assets. I'm 38 and DW is 35. We are both career federal employees, so we'll have two pensions with 30-35 years of service each.

ancho
Posts: 43
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Re: 85/15 too aggressive at age 35?

Post by ancho » Thu Aug 03, 2017 6:50 pm

Thanks for all the feedback so far. Seems like most feel that given my risk tolerance, I'm ok where I am, though it wouldn't be unreasonable to shift to a slightly more conservative AA.

I think what I'm feeling in my gut is that we've been on a decade-long run-up and valuations are through the roof, so maybe it's time to bank some of those gains and move to 80-20. But then my rational brain tells me that sounds suspiciously like market timing, or at the very least "tactical asset allocation" which I believe is best avoided.

If the market drops 40% in the next few months and I'm at 85/15, would I wish I'd moved to a more conservative AA before hand? Well, sure. I'd have more money. But I wouldn't sell a thing, and would keep buying as much as I could into the downturn.

So given that I'm 99% confident I'll stay the course no matter what, would listening to my gut & moving to 80/20 be market timing, and should be avoided? If I stay at 85/15 and there's a crash, I still get to keep buying, and I get to rebalance into stocks, and my long-term expected returns are still theoretically higher at that more aggressive AA.

Again, I realize there's no single answer to this. I'm just thinking out loud here.

Daryl
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Location: Malvern, PA (I like to sleep near my money!)

Re: 85/15 too aggressive at age 35?

Post by Daryl » Thu Aug 03, 2017 7:07 pm

KlangFool wrote:In summary, the best AA in term of risk versus return is between 70/30 to 30/70. Any number outside of that, you are taking too little or too much risk for the average return.
KlangFool
Thanks for sharing. Like the OP, I'm in my early thirties and it is tough thinking about asset allocation when I didn't have a lot of skin in the game during 2008-2009. During the financial crisis, I maintained a very high equity allocation; however, now, almost a decade later, I'm re-assessing. I'm between 15x and 20x annual living expenses and it feels awesome! I don't feel the need to shoot for the moon with a super high equity allocation. I'll just keep chugging along. Slow and steady wins the race!

Nate79
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Location: Portland, OR

Re: 85/15 too aggressive at age 35?

Post by Nate79 » Thu Aug 03, 2017 7:14 pm

This is a behavioral issue on one hand but it is a real life issue on the other. I think that the 2008 stock market drop was not the worst possible. 1929 great depression is the maybe the worst. Suppose -80%, significant unemployment (which means perhaps your job is at risk), and no recovery for many years. Things can be much worse than 2008.

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bligh
Posts: 569
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Re: 85/15 too aggressive at age 35?

Post by bligh » Thu Aug 03, 2017 7:27 pm

Nate79 wrote:This is a behavioral issue on one hand but it is a real life issue on the other. I think that the 2008 stock market drop was not the worst possible. 1929 great depression is the maybe the worst. Suppose -80%, significant unemployment (which means perhaps your job is at risk), and no recovery for many years. Things can be much worse than 2008.
Also Japan.

TheHouse7
Posts: 236
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Re: 85/15 too aggressive at age 35?

Post by TheHouse7 » Thu Aug 03, 2017 7:32 pm

Matador,

60/40 -> Worst case one-year loss ~ 30%, Average return = 8.7%
80/20 -> Worst case one-year loss ~ 40%, Average return = 9.5%

So, OP is taking on the possibility of losing 10% more in any year for the average return of 0.8% more. OP has to pray that he did not hit one of those worst years in (10%/0.8%) = 12.5 years in order to break even.

It is a lousy deal.

KlangFool[/quote]

Thanks for the comments KlangFool, I'm sticking with 80/20 @ 30
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

aristotelian
Posts: 3157
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Re: 85/15 too aggressive at age 35?

Post by aristotelian » Thu Aug 03, 2017 7:53 pm

ancho wrote:Thanks for all the feedback so far. Seems like most feel that given my risk tolerance, I'm ok where I am, though it wouldn't be unreasonable to shift to a slightly more conservative AA.

I think what I'm feeling in my gut is that we've been on a decade-long run-up and valuations are through the roof, so maybe it's time to bank some of those gains and move to 80-20. But then my rational brain tells me that sounds suspiciously like market timing, or at the very least "tactical asset allocation" which I believe is best avoided.

If the market drops 40% in the next few months and I'm at 85/15, would I wish I'd moved to a more conservative AA before hand? Well, sure. I'd have more money. But I wouldn't sell a thing, and would keep buying as much as I could into the downturn.

So given that I'm 99% confident I'll stay the course no matter what, would listening to my gut & moving to 80/20 be market timing, and should be avoided? If I stay at 85/15 and there's a crash, I still get to keep buying, and I get to rebalance into stocks, and my long-term expected returns are still theoretically higher at that more aggressive AA.

Again, I realize there's no single answer to this. I'm just thinking out loud here.
If you stay at 80/20, it's not market timing. If you are worried about the impact of a crash, your allocation is probably too high and you should be more conservative.

Forget your current allocation. Forget about what others are doing. Allocation is based on need, willingness, and ability to take risk. It is a personal decision based on your unique goals and attitudes. Do you have all three?

Need - Can you achieve your goals with less risk? If you would be on track with 80/20 or 70/30, then you do not need to be so aggressive. Is your thinking behind 85/15 based on need to take risk, or greed for as much money, as quickly as possible? (My IPS states that greed is not an acceptable motivation for aggressive allocation and I should achieve my goals with as little risk as possible).

Willingness - Sounds like you have some hesitation. You understand abstractly that you are still young and you would have time for the market to come back, but it would hurt more now to lose your accumulation than it did in '08. Are you willing to put your current accumulation at risk of a major depression scenario? (I am not talking about 2008. That could go down as a hiccup compared to the next one).

Ability - Is your portfolio so big that you can absorb a major loss? Are you in a recession-proof job that would allow you to continue contributions even in a down market?

Please answer these for yourself. Neither I nor anyone on this board can answer for you.

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