What is an appropriate lower risk asset allocation once one has "won the game"

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Grateful1
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What is an appropriate lower risk asset allocation once one has "won the game"

Post by Grateful1 » Tue Aug 08, 2017 1:41 am

The wiki says "once the investor has "won the game" by accumulating sufficient wealth, it is unwise to take more risk than is needed, since the value of additional gains is much less important than the consequences of severe losses".

What would be an appropriate asset allocation if one's main objective is asset preservation to at least keep up with inflation?

Age 65, retired 3 years. Combination of a substantial Pension with COLA and Social Security has exceed our expenses by $50K/yr while maintaining the same LBYM middle class lifestyle we had while working. These guaranteed income streams have allowed us to continue to save rather than obsess about a safe withdrawal rate (so far using 0%), nor have we had to increase risk to squeeze more out of our other assets.

Yet I suspect we have been violating a Bogelhead tenant by taking too little risk.

Current situation:
Primary residence and 2nd home: fully paid for
Debt: none
Income from Pension with COLA and S.S. exceeds living expenses by $50K/yr.
Other Retirement assets: A bit more than $1.5 million allocated currently as 10% Stocks, 22% Bonds, 14% 2nd home, 54% Cash Equiv
The stocks and bonds are contained in a combination of VTINX, VBIAX, & TSP G fund. The cash in bank savings & Vanguard
money market accounts.

What would be a better asset allocation given a goal of asset protection to keep up with inflation? More bonds? CDs?, Treasuries?, perhaps increase stocks to 20% ?

Yes I know this is still probably not risky enough. But I have little need for more income and am by nature risk adverse. We may need to start spending and gifting a bit more from income. The idea of withdrawing from assets still seems radical though I know that was what the money was saved for.

Lobster
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by Lobster » Tue Aug 08, 2017 2:26 am

Grateful1 wrote:54% Cash Equiv
You might not be as risk averse as you think. Here are a few excerpts from Charlie Ellis' excellent book 'Winning the Loser's Game' about inflation:
The message is not just how wonderfully compounding increases real wealth. The message has two parts: The second part is that inflation relentlessly destroy wealth's purchasing power almost as rapidly as economic gains build wealth.

The corrosive power of inflation is the investor’s worst enemy.

To purchase an item costing $100 in 1960 would have cost over $700 in 2008.
TIPS are absolutely worth looking into based on your desire to be risk averse, as they protect against precisely your biggest risk (unexpected inflation). Bonds (other than TIPS) generally do not keep up with inflation, while equities tend to fare much better. A 40-60 portfolio is a strong risk averse portfolio.

Good luck, congrats on doing so well :sharebeer
Submit to the relentless rules of humble arithmetic and avoid the tyranny of compounding costs.

JBTX
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by JBTX » Tue Aug 08, 2017 2:39 am

You have an enviable position. Guaranteed inflation adjusted income streams that significantly exceed your expected expenses. As I read it the $1.5 million is either "mad money" or something you hope to pass on to others.

Going 50% cash isn't going to keep up with inflation. If in a retirement account consider TIPS or if not in retirement consider Ibonds. (But you can only invest $20k per year in Ibonds for couple).

If it were me since the money is not necessarily needed I may tend to be a bit more aggressive. You already have a substantial fixed income stream then equities may make more sense. But if the thought of a stock market downturn keeps you up at night then probably not worth it.

msk
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by msk » Tue Aug 08, 2017 2:56 am

I am in a somewhat similar situation, COLA pension meets our needs, so all portfolio is in a way superfluous, or purchasing totally unneeded toys. At age 73 my wants are few and getting fewer. I think only you can determine what you wish to do with that excess portfolio. You can pass it to your heirs, give to charity, etc. In my case, I have 6 heirs, varying in age from 19 to 74 and I would like to leave each one enough that he/she is secure for life, say, a withdrawal of circa $50k annually, rising with inflation. I would also like to add to an endowment that I have set up at my alma mater. Hence my desire for portfolio size is open ended, and my portfolio is 100% stocks, world-wide by market weight. And if there is a 50% calamity drop in the markets, too bad. The addition to my endowment will suffer first, followed by my heirs. If there is another calamity and my pension disappears then my heirs will miss out on something they have not received nor are aware is coming, but myself and DW ought to be OK. So, what are you planning to do with your excess? If it is there just to replace the possible total loss of your current income, and you feel that has a significant to high probability of happening then 100% TIPS is the way to go. Somehow my view of the world is not as bad as all that, but TIPS would be an excellent way to not worry :D Anywhere between 100% TIPS and 100% stocks can be appropriate depending on your desires and view of the future.

Lou354
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by Lou354 » Tue Aug 08, 2017 5:15 am

Putting aside the value of the second house, I'd go with 30% of the remainder in stocks. That should let you keep up with inflation while still being comfortable enough for a risk averse person.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by jbolden1517 » Tue Aug 08, 2017 7:26 am

In general if you have "won the game" and have no desire to increase spending then you are back to an accumulation portfolio. The goal is to rack up money for the grandkids. The main difference is there is no income coming in, which means you aren't dollar cost averaging so wealth preservation becomes slightly more important. I'd diversify extra broadly. Be slightly less worried about costs. Use more active strategies which have a risk of underperformance but substantially reduce portfolio volatility and after those small adjustments to a standard growth portfolio compound as fast as possible.

As for the portfolio: 10% Stocks, 22% Bonds, 14% 2nd home, 54% Cash Equiv
That's a crazy risky portfolio. It isn't safe at all. You aren't being risk adverse you are just taking on a lot of inflation risk and in exchange for all that inflation risk you get terrible returns. You are enormously tied to dollar risk with very little defense. If the USA decides to inflate you get creamed, only 24% of the portfolio is likely to keep up. Do the math assume you are getting 2% on your cash, 3% on your bonds and inflation is running 5% for a decade after a sharp 20% initial spike. Don't think about the sustained but gradually rising inflation of the 1960-1980s. We are potentially coming off deflation, you can experience the sorts of sudden spikes we had in the late 1930s and all through the 1940s. 1946 2%, 1947 7%, 1948 15%, 1949 7%, 1950 - .5%. What does that do to your cash in real terms?

I think you know this portfolio is bad from your comment. But I'm not sure whether you are open to making changes or not. I don't see any reason to make minor adjustments to a poor return, high risk portfolio. You just need a totally different portfolio.

J295
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by J295 » Tue Aug 08, 2017 7:34 am

OP.Good question and I hope you get some helpful replies. I'll leave those replies to others.

However, I need to call out jbolden1517 for a comment that seems harsh and doesn't offer up a solution for consideration. Let's congratulate OP for being in a good financial position and being open to reaching out to his/her "friends" here for insights and help.

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William4u
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by William4u » Tue Aug 08, 2017 7:52 am

jbolden1517 wrote:I'd diversify extra broadly... As for the portfolio: 10% Stocks, 22% Bonds, 14% 2nd home, 54% Cash Equiv. That's a crazy risky portfolio. It isn't safe at all. You aren't being risk adverse you are just taking on a lot of inflation risk and in exchange for all that inflation risk you get terrible returns.
I'm afraid the above is true. This is a risky portfolio. If I had won the game, I would do a low risk portfolio, but this isn't it. I'd up the stocks to at least 30%, with about 50/50 domestic to international for diversity (60/40 or even 70/30 is ok too). I would hold close to 50% in a wide diversity of bonds, including TIPS, ibonds, treasuries, etc. I would hold no more than 10% cash, mostly in a CD ladder.

jbolden1517
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by jbolden1517 » Tue Aug 08, 2017 8:31 am

J295 wrote:OP.Good question and I hope you get some helpful replies. I'll leave those replies to others.

However, I need to call out jbolden1517 for a comment that seems harsh and doesn't offer up a solution for consideration. Let's congratulate OP for being in a good financial position and being open to reaching out to his/her "friends" here for insights and help.
I most certainly did offer up a solution. Build a standard accumulation portfolio with minor adjustments that are typical of wealth preservation. The details of that are complex and are only worth discussing once someone is thinking rationally about what the goal of the portfolio is: intergenerational trust, single inheritance, start making immediate payments to heirs now....

The "harshness" though is part of the more important solution. Stop lying to yourself. The OP pretty clearly knows he is doing the wrong thing and is doing it anyway. His portfolio is much worse than stock investors who buy "good markets" and sell "bad markets". One of the worst things in investing, and IMHO in life in general a person can do is lie to themselves. If OP were to admit "I am going to deliberately set out to construct a portfolio which exposes myself and my heirs to tremendous inflation risk and guarantees extremely subpar returns. I fully understand the inflation adjusted portfolio they inherit will be be minimized doing this. But I am doing it so as to accomplish the more important goal of me not feeling bad on down days in the market" them we could look at that portfolio and maybe offer a few minor tweaks. But I assume that's not intention, so the goal is first to get him to see that the portfolio he built is structured to accomplish that rather negative goal not what he probably really wants.

I'm "harsh" with people who plan to drive drunk too.

Kennyt7
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by Kennyt7 » Tue Aug 08, 2017 8:44 am

100% equities age 73 is preposterous When you win the game you need to only thibk about capital preservation(marginal utility of wealth)
I am 67 and have 18% of a 5.2 million dollar portfolio in fixed income
Happy to get 4-5% yearly income plus 40k SS and not touch principal
If you cannot afford to lose 50% equities in one year, you are overexposed :?

goingup
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by goingup » Tue Aug 08, 2017 8:53 am

OP-
Sounds like you're in a great position. At my age (mid-50s) I like that old saw about staying between 25%-75%. No less than 25% or more than 75% stocks or bonds. I also don't include 2nd homes when I run our asset allocation. Just investable assets.

Your portfolio may be losing a bit of ground to inflation, but your ample pension and SS are COLA'd so you're not jeopardizing your standard of living. The consequence of taking so little risk is, of course, dampening your portfolio return. But if you are truly risk averse it may be right for you.

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SquawkIdent
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by SquawkIdent » Tue Aug 08, 2017 9:10 am

OP - First off, congratulations. You have won the game but it's great that you are still thinking about the future and what you can do.

Lots of question come to mind including what kind of bear market can you handle? What kind of risk do you want to take to try to increase this money in the future? I think first you need to look at all types of outcomes and what you can handle. IMHO, if a 10% decline in stocks will send you into a panic, that is better to know ahead of time. I also look at that situation in dollar figures, not percentages. It makes the decline more real and needs to be seen as such.

With all that said, I would move to a 30S/70B or 40S/60B portfolio. But, that is just me. I would also try to use the G Fund to the greatest extent. There is no alternative available that would give you what that fund does.

Congratulations and enjoy your retirement, you've earned it! :sharebeer

not4me
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by not4me » Tue Aug 08, 2017 9:49 am

Grateful1 wrote:
given a goal of asset protection to keep up with inflation?

We may need to start spending and gifting a bit more from income.
I'd start by sharpening your goals. While I understand the sense of having "won the game", it seems to me that you still see yourself in the game. When the game ends, where do you want things to stand? Why do you want to preserve assets & keep up with inflation? Where will those $s go post-game? How does that fit with your giving more? Would you like to leave even more to a charitable cause?

Part of my point is in agreement with others...Congratulations on getting to this point...now enjoy it, don't let it become a burden. You got here by doing things right & you'll know what is right for you going forward.

I'd recommend you NOT change IF that will diminish your enjoyment & not move you toward your goals. Others have been negative on your portfolio approach...SO? Don't spend more to make other posters happy & you less happy. Don't take on more risk to get a "Good Boglehead" award if it isn't really you. Posters tend to project their values. To me, I'd look at risk in terms of whether or not it will achieve your goals....

ThrustVectoring
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by ThrustVectoring » Tue Aug 08, 2017 10:05 am

IIRC, John Bogle has investments for his inheritance as something like 60% equity / 40% bonds.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by Fallible » Tue Aug 08, 2017 10:48 am

Grateful1 wrote:The wiki says "once the investor has "won the game" by accumulating sufficient wealth, it is unwise to take more risk than is needed, since the value of additional gains is much less important than the consequences of severe losses".

What would be an appropriate asset allocation if one's main objective is asset preservation to at least keep up with inflation? ...
You appear to have sufficient wealth. That and your inflation goal would seem to indicate that your allocation can depend largely on whether you want to deal emotionally with those "consequences of severe losses." Just because you can afford to lose money doesn't mean the idea of losing it won't be stressful. It all depends on, as it always should, whatever is right for the individual.
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

Broken Man 1999
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by Broken Man 1999 » Tue Aug 08, 2017 11:09 am

Our AA (two years into retirement, both 64yrs old) is 50% equities and 50% bonds & cash.

Our equities might be a bit high for some retirees, but we are investing for retirement and legacy gifts.

Broken Man 1999
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by bertilak » Tue Aug 08, 2017 11:45 am

OP:

Portfolio risk is not the same as lifestyle risk. In you case, your lifestyle depends little on your portfolio. Taking risk in your portfolio adds little risk to your lifestyle. Your portfolio does provide for the unexpected so it has insurance value.

In thinking about a legacy, you can look at (much of) your portfolio as as having an investment horizon going through and past your grand kids. These kinds of portfolios generally take on more risk than portfolios destined to provide retirement income.

So, no specific advice but food for thought.
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by Dottie57 » Tue Aug 08, 2017 11:53 am

Grateful1 wrote:The wiki says "once the investor has "won the game" by accumulating sufficient wealth, it is unwise to take more risk than is needed, since the value of additional gains is much less important than the consequences of severe losses".

What would be an appropriate asset allocation if one's main objective is asset preservation to at least keep up with inflation?

Age 65, retired 3 years. Combination of a substantial Pension with COLA and Social Security has exceed our expenses by $50K/yr while maintaining the same LBYM middle class lifestyle we had while working. These guaranteed income streams have allowed us to continue to save rather than obsess about a safe withdrawal rate (so far using 0%), nor have we had to increase risk to squeeze more out of our other assets.

Yet I suspect we have been violating a Bogelhead tenant by taking too little risk.

Current situation:
Primary residence and 2nd home: fully paid for
Debt: none
Income from Pension with COLA and S.S. exceeds living expenses by $50K/yr.
Other Retirement assets: A bit more than $1.5 million allocated currently as 10% Stocks, 22% Bonds, 14% 2nd home, 54% Cash Equiv
The stocks and bonds are contained in a combination of VTINX, VBIAX, & TSP G fund. The cash in bank savings & Vanguard
money market accounts.

What would be a better asset allocation given a goal of asset protection to keep up with inflation? More bonds? CDs?, Treasuries?, perhaps increase stocks to 20% ?

Yes I know this is still probably not risky enough. But I have little need for more income and am by nature risk adverse. We may need to start spending and gifting a bit more from income. The idea of withdrawing from assets still seems radical though I know that was what the money was saved for.

All I can say is that I am in the very near retirement zone and have 50/50 split of stocks/fixed income. I plan on that for retirement too. Quite a bit of safety but still enough stocks to grow.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by Enkidu » Tue Aug 08, 2017 12:08 pm

Grateful1 wrote:The stocks and bonds are contained in a combination of VTINX, VBIAX, & TSP G fund. The cash in bank savings & Vanguard money market accounts.

What would be a better asset allocation given a goal of asset protection to keep up with inflation? More bonds? CDs?, Treasuries?, perhaps increase stocks to 20% ?
Grateful1

You are exposed to considerable inflation risk, but you have some good options. Here is a suggestion:
1. Move cash and VBIAX to VTINX.
2. Leave 5% to 10% in cash.
3. Leave TSP G alone.
4. Investigate Treasury Direct where you can buy TIPS and iBonds directly from the US Treasury for part of your 5-10% cash holdings to further decrease your inflation risk.

VTIAX is 30% stocks and includes diverse bonds so BVIAX is not needed. TSP G is very safe and should at least keep up with inflation. 5%-10% cash should provide plenty of liquidity, though is still an inflation drag. Using some of this cash to buy TIPS or iBonds decreases your inflation risk with minor change in liquidity. Overall, this is a very simple and safe portfolio, and in my opinion, safer than your current holdings.

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Pajamas
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by Pajamas » Tue Aug 08, 2017 12:09 pm

I would not count the second home as a retirement asset unless you are planning to sell it in the near or intermediate future OR if it were a source of rental income. Otherwise, it is only a source of expense. It might appreciate, but it also might depreciate.

The easiest and most obvious way to decrease inflation risk would be to look at your cash holdings and move them into higher-yielding or perhaps inflation-adjusted investments that are still cash-like, just not quite so literally so.

You don't have any NEED to take on additional risk given that your pension and Social Security more than cover your living expenses.

You might think in terms of estate planning and minimizing taxes during your life and for your heirs. Something else you might plan for now is the possibility of needing long-term care and the protection of assets for the spouse and heirs in that case.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by MathWizard » Tue Aug 08, 2017 12:23 pm

Nobody can say what you should have, only what has been reported in historical studies,
or what they have done and why. I'll do the latter.

I am risk averse, but having started marriage (and taking in debt) in the very early 1980's,
inflation is one of the biggest risks to me.

I remember the phrase "rising tide lifts all boats". To me, the wealth in the US resides primarily in the
businesses in the US. The closest I can be to tracking all of them is a total stock market index fund.

I don't see any alternative, so I expect to hold a higher than 50% stake in equities in retirement.

The 50% loss is measured from peak of a bubble to the trough of a recession, and ignores the
out-sized buildup during the bubble. When these are averaged out, you get rid of the
speculative portion of equities, and are left with things that come out of profit (dividends and company growth
through re-investment). That is what I am after.

This may not be for you, but I expect to have something like a 70/20/10 split, 70% equities, 20% bonds, 10% CDs.

With my estimate of what I will get from SS, 10% cash affords me 3 years of expenses even without touching
stocks or bonds.

The cash will be eroded over time by inflation, but the equities should be a bulwark against that.
Many may call this crazy, but only time will tell.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by TBillT » Tue Aug 08, 2017 12:58 pm

Did anyone say look at Jack Bogle's holdings -- but I think it's muni bond funds and stuff like that

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by friar1610 » Tue Aug 08, 2017 8:33 pm

Somewhat similar situation to OP although inflation adjusted income streams don't exceed expenses by as much as his. Ages 72/70 w/no debt. Equities in 40-45% range works for us. (20-25% Int.) Might go to 50% If market correction puts stocks on sale but will be happy to stay where we are and let market take us to 50% if it wants to.
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by bloom2708 » Tue Aug 08, 2017 8:55 pm

My parents are in a similar situation. All expenses covered by pension/SS. My dad wants to go to 100% cash/bonds with each market blip.

They are at 40/60 which has been a good spot for them. I explain inflation risk to my parents and talk them through wanting to "sell it all".

My thought would be 30% stocks would be a sweet spot. Keep 2 years cash. Invest the rest at 30/70 with a good Total Bond/Intermediate bond fund to anchor. 25% International would also be good for diversity.
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by munemaker » Tue Aug 08, 2017 8:57 pm

When I "won the game," I went to a 50-50 asset allocation.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by itstoomuch » Tue Aug 08, 2017 9:59 pm

When I saw that we had achieved a secured FundedRatio>1.1, I repurposed "alternative retirement funds" to Discretionary.
Discretionary Accts can be anything that I chose; 2018 I have been 85% cash to now 85% invested. Much of the Discretionary has been moved to a Down payment home/rental account. We hold No bonds at these rates and risks.

OP, your asset profile is similar to ours, only bigger and we had to purchase the pension.
We have buckets of Income Streams and FundedRatio retirement(see BH wiki for definition). I use "risk asset allocation" differently.
YMMV
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by msk » Tue Aug 08, 2017 10:17 pm

Kennyt7 wrote:100% equities age 73 is preposterous When you win the game you need to only thibk about capital preservation(marginal utility of wealth)
I am 67 and have 18% of a 5.2 million dollar portfolio in fixed income
Happy to get 4-5% yearly income plus 40k SS and not touch principal
If you cannot afford to lose 50% equities in one year, you are overexposed :?
Presumably you refer to my situation as mentioned in my earlier posting, age 73 and 100% stocks. Retired at 55. I have never viewed stocks as very risky, but merely as very volatile. Once you are diversified enough, world wide, the only major risk is that the world economic system is damaged irrevocably. Possible in any one country, but unlikely to be widespread. Ups and downs, even 50%, are mere volatility, simply to be waited out. Been through all the drama since 1985. Japan in the late 1980s taught me the beauty of investing by market weight. As Japan shrunk, so did my Japanese holdings, making room for growth markets. I am wary that, just as the US looks invincible today with very high P/E, so did Japan look invincible when the Nikkei topped 30,000 and we were all buying Japanese cars and electronics. Current US invincibility seems anchored in Apple, Google, Facebook, etc. I hardly ever withdrew cash from my stock portfolio over decades, primarily because I lived within my job income, and later on within my COLA pension. I suspect that quite a few elderly BHs may fall into a similar category. Technically, at age 73 I am well into the withdrawal phase but, frankly, all my investment portfolio is not to meet my foreseeable needs, but for ongoing gifts to potential heirs and charity. I would love to pass on to them the most that I can generate during my remaining years. Hence 100% stocks seems the most sensible. I would even urge them to leave any inheritances in 100% stocks and withdraw no more than 5% of the portfolio annually (yes, with ups and downs from market volatility but basically ought to keep up with inflation for 50+ years beyond my death). So, context is important. At retirement age (65?) one's attitude towards stock market volatility (NB I do not recognize it as risk once you are diversified enough :wink: ) varies depending on whether one's portfolio is $500k, 5 million, 50 million or 500 million. Somewhere in that range, current low interest bonds lose appeal. 18% sounds comfortable for you, but is probably too low an allocation for the guy with only $500k, and perhaps too high for the chap with $500 million. I may consider allocating to bonds if interest rates inched up beyond, say, 5% and even then I would probably prefer TIPS. But I never bought a bond in my life. CDs, yes; for temporary parking of cash to pay for a new car, etc. There is a whole spectrum for AA out there, depending on needs, wants, age, comfort zone vs volatility, etc.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by aristotelian » Tue Aug 08, 2017 11:47 pm

Inflation risk is also what jumped out at me.

20% US Stock
10% International stock
40% Total Bond Market
20% TIPS
10% Cash

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by Steelersfan » Wed Aug 09, 2017 6:57 am

ThrustVectoring wrote:IIRC, John Bogle has investments for his inheritance as something like 60% equity / 40% bonds.
While nowhere near Bogle's level of assets but with the same objective, that's what I stick with.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by CWRadio » Wed Aug 09, 2017 8:30 am

When the members of this post suggests TIPS, do they mean TIPS funds or ETF or buying real TIPS from the government? Thanks Paul

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by book lover » Wed Aug 09, 2017 8:33 am

Lots of interesting ideas posted.We like 30% equity/70% bonds.When the topic turns to inflation, I only consider our personal inflation rate which we track on a yearly basis which has averaged about 1.5% over the past twenty seven years. That is one of the advantages to living in a low cost of living area.
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by ryman554 » Wed Aug 09, 2017 8:49 am

Questions like this draw comments from all angles. It boils down to this:

Forget about the wiki. OP: Ask yourself, what are you investing for?

I will assume that your income stream > 100% of your current burn rate. I don't believe in "winning the game", but this is as close as one is going to get to doing so. Anyway, here's the three kind of things you'll invest for:

1. Hedge/insurance against big medical bills -- ie, unexpected personal needs.
2. Fun for you/Charity during your lifetime -- ie, fun/optional stuff
3. Heirs/Endowments -- ie, your legacy

In the case of #1, you want something safe and "large enough" to see you through. *this* is where the "go conservative" should enter, something that keeps up with / slightly exceeds inflation while having very low volatility. TIPS. 30/70 portfolios. Probably not annuities. It's hard to predict these things, so you'll likely overshoot, but it helps you sleep at night.

In the case of #3, you are investing for the long term. You need something that grows, and you really don't care about short-term volatility. This is the 80+ stocks, or an "accumulation portfolio" and mentioned above.

In the case of #2, these are "nice to have" items. Depending on how important these are to you, you put them into bucket #1 (I really really want it and would regret not having it on my deathbed) or bucket #3 (if it happens, great, otherwise I'll live without) and go forward.

Good luck!

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Peter Foley
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by Peter Foley » Wed Aug 09, 2017 9:14 am

You have received a lot of well thought out, although varied, responses. Returning to the original question . . .

I particularly like the response that characterizes your situation as being a return to the accumulation phase. With that in mind, and thinking of the need to add some more inflation protection, something in the range of 25% to 40% strikes me as being "an appropriate lower risk asset allocation once one has 'won the game.'"

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William4u
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by William4u » Thu Aug 10, 2017 12:34 pm

aristotelian wrote:Inflation risk is also what jumped out at me.

20% US Stock
10% International stock
40% Total Bond Market
20% TIPS
10% Cash
A lot of people are recommending something like a 30%/70% stock/bond portfolio. I concur.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by Prudence » Thu Aug 10, 2017 1:35 pm

CWRadio wrote:When the members of this post suggests TIPS, do they mean TIPS funds or ETF or buying real TIPS from the government? Thanks Paul
Most folks on this forum probably buy the TIPS bonds from the Treasury and hold them until maturity so they can avoid exposure to annual taxes and/or loss of principal value. Some folks prefer funds because they believe they are simpler to deal with.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by Sheepdog » Thu Aug 10, 2017 1:54 pm

I can't say what you or anyone else should have as a lower risk allocation when you have your perceived "won the game" figure. What is your game, by the way ? I felt that I was in good enough shape in my mid 70s even with no pension and without "millions", so I let my stock allocation gradually drop to 100 minus my age. When it reached 22% stock at age 78, that is where I remained (now 84). Plus I have 22% of my investment in those ultra safe 3% to 3.6% plus inflation I Bonds. That is keeping me in good enough shape with some growth. I "won MY game". I don't want or need more, so that 22% is good for me.
Last edited by Sheepdog on Thu Aug 10, 2017 1:58 pm, edited 1 time in total.
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by freebeer » Thu Aug 10, 2017 1:58 pm

JBTX wrote:...
If it were me since the money is not necessarily needed I may tend to be a bit more aggressive. You already have a substantial fixed income stream then equities may make more sense. But if the thought of a stock market downturn keeps you up at night then probably not worth it.
What may matter more to you is what your heirs will think 20+ years from now. Since it seems this money is really for them, not for you. How will they feel if you left 90% of your money in inflation-decimated cash instead of investing via a balanced portfolio that would have returned a very large increase in real value?

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by CWRadio » Thu Aug 10, 2017 1:59 pm

Prudence wrote:
CWRadio wrote:When the members of this post suggests TIPS, do they mean TIPS funds or ETF or buying real TIPS from the government? Thanks Paul
Most folks on this forum probably buy the TIPS bonds from the Treasury and hold them until maturity so they can avoid exposure to annual taxes and/or loss of principal value. Some folks prefer funds because they believe they are simpler to deal with.
Can you but TIPS bonds from the Treasury in a IRA account? Thanks

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by itstoomuch » Thu Aug 10, 2017 2:08 pm

bertilak wrote:OP:

Portfolio risk is not the same as lifestyle risk. In you case, your lifestyle depends little on your portfolio. Taking risk in your portfolio adds little risk to your lifestyle. Your portfolio does provide for the unexpected so it has insurance value.

In thinking about a legacy, you can look at (much of) your portfolio as as having an investment horizon going through and past your grand kids. These kinds of portfolios generally take on more risk than portfolios destined to provide retirement income.

So, no specific advice but food for thought.
This is Good! :idea:

For Investment Risk, I am of 2 minds. I)More more :moneybag . If you start with 100 and today you are up to 110, You could lose 10 tomorrow and be fine; II) If you start with 100 in a conservative portfolio and you lose 3 tomorrow, you'd be OK but down a little.
YMMV :greedy
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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by azanon » Thu Aug 10, 2017 3:29 pm

The least risky portfolio (in my opinion) is roughly 30% equities but if you want a range, I'd say something between 25-40%. Lower than that, and the overall pendulum swings too high on inflation risk. Higher than that, and of course you have volatility/loss of principle risk increasing faster than the risk reduction of inflation. This is definitely a great strategy where your portfolio should easily be able to cover living expenses with a low withdrawal rate for your anticipated time horizon.

However, if I read your post right, your guaranteed income (non-portfolio) exceeds your income needs by 50K/year. If that's true, then I don't understand why you feel like you have to go conservative on the portfolio. I get a defensive approach where you need the money to live on, but if you know you don't need it at all, I'd consider something with a much greater growth potential. You're essentially investing for your heirs in that case, and if your heirs are investment savvy, then they likely would prefer you to invest for growth instead.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by Prudence » Thu Aug 10, 2017 3:33 pm

CWRadio wrote:
Prudence wrote:
CWRadio wrote:When the members of this post suggests TIPS, do they mean TIPS funds or ETF or buying real TIPS from the government? Thanks Paul
Most folks on this forum probably buy the TIPS bonds from the Treasury and hold them until maturity so they can avoid exposure to annual taxes and/or loss of principal value. Some folks prefer funds because they believe they are simpler to deal with.
Can you but TIPS bonds from the Treasury in a IRA account? Thanks
No you can't buy a TIPS bond from Treasury Direct. You can buy them using a brokerage account on the secondary market though. (As you probably know, TIPS work best in a tax advantaged account).

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by JBTX » Thu Aug 10, 2017 4:06 pm

msk wrote:
Kennyt7 wrote:100% equities age 73 is preposterous When you win the game you need to only thibk about capital preservation(marginal utility of wealth)
I am 67 and have 18% of a 5.2 million dollar portfolio in fixed income
Happy to get 4-5% yearly income plus 40k SS and not touch principal
If you cannot afford to lose 50% equities in one year, you are overexposed :?
Presumably you refer to my situation as mentioned in my earlier posting, age 73 and 100% stocks. Retired at 55. I have never viewed stocks as very risky, but merely as very volatile. Once you are diversified enough, world wide, the only major risk is that the world economic system is damaged irrevocably. Possible in any one country, but unlikely to be widespread. Ups and downs, even 50%, are mere volatility, simply to be waited out. Been through all the drama since 1985. Japan in the late 1980s taught me the beauty of investing by market weight. As Japan shrunk, so did my Japanese holdings, making room for growth markets. I am wary that, just as the US looks invincible today with very high P/E, so did Japan look invincible when the Nikkei topped 30,000 and we were all buying Japanese cars and electronics. Current US invincibility seems anchored in Apple, Google, Facebook, etc. I hardly ever withdrew cash from my stock portfolio over decades, primarily because I lived within my job income, and later on within my COLA pension. I suspect that quite a few elderly BHs may fall into a similar category. Technically, at age 73 I am well into the withdrawal phase but, frankly, all my investment portfolio is not to meet my foreseeable needs, but for ongoing gifts to potential heirs and charity. I would love to pass on to them the most that I can generate during my remaining years. Hence 100% stocks seems the most sensible. I would even urge them to leave any inheritances in 100% stocks and withdraw no more than 5% of the portfolio annually (yes, with ups and downs from market volatility but basically ought to keep up with inflation for 50+ years beyond my death). So, context is important. At retirement age (65?) one's attitude towards stock market volatility (NB I do not recognize it as risk once you are diversified enough :wink: ) varies depending on whether one's portfolio is $500k, 5 million, 50 million or 500 million. Somewhere in that range, current low interest bonds lose appeal. 18% sounds comfortable for you, but is probably too low an allocation for the guy with only $500k, and perhaps too high for the chap with $500 million. I may consider allocating to bonds if interest rates inched up beyond, say, 5% and even then I would probably prefer TIPS. But I never bought a bond in my life. CDs, yes; for temporary parking of cash to pay for a new car, etc. There is a whole spectrum for AA out there, depending on needs, wants, age, comfort zone vs volatility, etc.
I understand what you are saying but these days correlations between equity markets and asset classes in general is increasing and the short term value of diversification is somewhat decreasing. Sure, long term globally it will probably recover but at 73 I wouldn't want to have to wait around for it. In 2008 everything except bonds crashed and interest rates are now at record lows now. No one can tell the future but the risk of a major worldwide prolonged downturn is more than trivial.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by JBTX » Thu Aug 10, 2017 4:09 pm

Prudence wrote:
CWRadio wrote:
Prudence wrote:
CWRadio wrote:When the members of this post suggests TIPS, do they mean TIPS funds or ETF or buying real TIPS from the government? Thanks Paul
Most folks on this forum probably buy the TIPS bonds from the Treasury and hold them until maturity so they can avoid exposure to annual taxes and/or loss of principal value. Some folks prefer funds because they believe they are simpler to deal with.
Can you but TIPS bonds from the Treasury in a IRA account? Thanks
No you can't buy a TIPS bond from Treasury Direct. You can buy them using a brokerage account on the secondary market though. (As you probably know, TIPS work best in a tax advantaged account).
https://www.treasurydirect.gov/indiv/pr ... glance.htm

Yes you can buy through TD but you probably better off buying via broker or in a mutual fund.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by LeeInTN » Thu Aug 10, 2017 4:24 pm

Steelersfan wrote:
ThrustVectoring wrote:IIRC, John Bogle has investments for his inheritance as something like 60% equity / 40% bonds.
While nowhere near Bogle's level of assets but with the same objective, that's what I stick with.
We're in early retirement, have won the game, but have no pensions and are a few years from SS. We're maintaining the 60/40 too, because we're investing partly for the inheritors and are will to assume the higher risk after winning the game. IOW, after winning the game, it's not such a big deal if equities take a beating, and the higher risk delivers a better outcome over the long term.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by JBTX » Thu Aug 10, 2017 4:52 pm

freebeer wrote:
JBTX wrote:...
If it were me since the money is not necessarily needed I may tend to be a bit more aggressive. You already have a substantial fixed income stream then equities may make more sense. But if the thought of a stock market downturn keeps you up at night then probably not worth it.
What may matter more to you is what your heirs will think 20+ years from now. Since it seems this money is really for them, not for you. How will they feel if you left 90% of your money in inflation-decimated cash instead of investing via a balanced portfolio that would have returned a very large increase in real value?
I think we are in agreement here.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by FIREchief » Thu Aug 10, 2017 4:55 pm

Prudence wrote:
CWRadio wrote:
Prudence wrote:
CWRadio wrote:When the members of this post suggests TIPS, do they mean TIPS funds or ETF or buying real TIPS from the government? Thanks Paul
Most folks on this forum probably buy the TIPS bonds from the Treasury and hold them until maturity so they can avoid exposure to annual taxes and/or loss of principal value. Some folks prefer funds because they believe they are simpler to deal with.
Can you but TIPS bonds from the Treasury in a IRA account? Thanks
No you can't buy a TIPS bond from Treasury Direct. You can buy them using a brokerage account on the secondary market though. (As you probably know, TIPS work best in a tax advantaged account).
There may be some confusion here. You absolutely can buy TIPS, at auction, within an IRA through a brokerage account. You can also buy them in the secondary market. Fidelity charges zero fees for buying TIPS through treasury auctions.

I prefer to hold individual TIPS because I can control the duration and also avoid paying a mutual fund expense ratio.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by patrick013 » Thu Aug 10, 2017 5:17 pm

Won the game should be a certainty where a conservative portfolio
allocation is used. No surprises. As long as income - expenses = savings
and savings may or may not exceed an amount to beat inflation at least
some headway is being made thru savings regarding inflation. Why
worry.

Most 50-50 portfolios do well spending stocks or bonds at different
appropriate times to meet withdrawal needs juggling risks back and
forth. Won the game portfolios shouldn't be spending principal just
interest and dividends.
age in bonds, buy-and-hold, 10 year business cycle

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by TomatoTomahto » Thu Aug 10, 2017 7:22 pm

When I determined that we had won the game, I didn't want to track AA by percentages any longer.

We have around $2.5M in bonds, mostly in tax advantaged accounts (401ks, not Roth). Everything else goes to equities, domestic and international, and we also max out our PRIMECAP.

Our portfolio should weather any storm, and the growth will probably exceed inflation. What's on TV?

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by jainn » Thu Aug 10, 2017 8:06 pm

.....
Last edited by jainn on Thu Aug 17, 2017 10:29 pm, edited 1 time in total.

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Re: What is an appropriate lower risk asset allocation once one has "won the game"

Post by Tyler9000 » Thu Aug 10, 2017 11:33 pm

Grateful1 wrote: What would be a better asset allocation given a goal of asset protection to keep up with inflation? More bonds? CDs?, Treasuries?, perhaps increase stocks to 20% ?
I'd recommend reading about the Permanent Portfolio. Specifically, pick up the book by Rowland and Lawson. Even if it's ultimately not for you, I think you'll appreciate the thought process as it is one of the most historically consistent portfolios out there and is designed to make a reasonable profit above inflation no matter what happens in the markets.

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