Help?! My 70 year old father is 100% invested in equities

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Messner8000
Posts: 57
Joined: Sun May 21, 2017 8:03 am

Help?! My 70 year old father is 100% invested in equities

Post by Messner8000 » Sat Sep 23, 2017 6:04 am

Since discovering this forum about six months ago, I've been busy reading books about investing and trying to determine what my AA should be (as a 35-year old). Upon deciding on an 80/20 stocks/bonds AA, I got curious and asked my retired 70-year-old father what his AA is for his sizable retirement portfolio, and I was shocked when he said he doesn't own bonds and is 100% invested in equities. When I pressed him on why, he said:

(1) he preferred to own dividend-producing stocks and funds and that his financial adviser (who he pays a considerable fee to each year - 1% of his 7-figure assets under management) said that he needs to remain invested in equities in order for his portfolio to maintain enough growth to ensure he can maintain his quality of life and not run out of money.

(2) He owned a decent % of bonds (I'm not sure how much) during the 2008 market crash, and his portfolio still tanked, and so he doesn't think bonds are really the secret weapon everyone says they are. (I asked him if he compared how his portfolio did with how it would had done in the crash if he had had no bonds - i.e., did his having bonds result in his portfolio decreasing less than an all-equities portfolio would have- and he said he hadn't checked). He also mentioned something about how he didn't think bonds were a great investment given likely future interest rates, but I don't know enough about investing to quite understand what he was saying (although I know no one can predict interest rates!)

From what I've read on this board and in books, a 100% AA for a 70-year old is crazy. I don't know a ton else, but my sense is that my dad relies on his investment portfolio for about 50% of his annual income (he also has a pension and Social Security) and utilizes a 3% withdrawal rate from the portfolio.

Am I nuts, or is the 100% AA insane? My dad is a very smart guy who follows the markets very closely and has read lots of books, etc. He just doesn't seem to care for bonds. Any advice on books or articles I could give him that might change his mind? I don't think I can get him to leave his financial guy, as he likes knowing that there is someone there to give him advice in the next downturn. But geez, this just makes me nervous for him.

mptfan
Posts: 4210
Joined: Mon Mar 05, 2007 9:58 am

Re: Help?! My 70 year old father is 100% invested in equities

Post by mptfan » Sat Sep 23, 2017 6:31 am

Did your father ask for your advice, or did you raise the issue with him? Based on what you wrote, it seems that he did not ask for your advice so my advice to you is drop the issue and leave it alone. You said your dad is a smart guy so he is clearly not incompetent, therefore he has the right to invest his money how he wishes, and you should back off.
I eat risk for breakfast. :)

Messner8000
Posts: 57
Joined: Sun May 21, 2017 8:03 am

Re: Help?! My 70 year old father is 100% invested in equities

Post by Messner8000 » Sat Sep 23, 2017 6:35 am

A very fair point. No - he did not ask for (and probably does not want) my advice. But he is always eager to learn more, and I feel like if I said "dad, I know you're doing X, Y, Z, but you should read these couple chapters in these couple investment books, and then use what you learn as a basis for a conversation with your financial adviser" he may well listen to that.

livesoft
Posts: 57209
Joined: Thu Mar 01, 2007 8:00 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by livesoft » Sat Sep 23, 2017 6:39 am

My mom in her 80's found bonds boring so she didh't own any. She liked individual stocks. SS paid most of her expenses.
This signature message sponsored by sscritic: Learn to fish.

TravelforFun
Posts: 894
Joined: Tue Dec 04, 2012 11:05 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by TravelforFun » Sat Sep 23, 2017 6:46 am

I'd send the link to this forum to your dad and hopefully after he reads it for a while, he would adjust his AA and get rid of the advisor.

PhilosophyAndrew
Posts: 20
Joined: Sat Aug 13, 2016 10:06 am

Re: Help?! My 70 year old father is 100% invested in equities

Post by PhilosophyAndrew » Sat Sep 23, 2017 6:48 am

What is your dad’s life expectancy? How large is his portfolio as compared to his annual expenses not covered by SS or pension? If, given his assets and life expectancy, he has won the proverbial game, he may well be able to tolerate the risk of 100% equities.

If you don’t know this information, you cant know whether this allocation is too risky for you Dad (and neither can anyone here; we know even less than you do). If your Dad doesn’t wish to share this information with you, the most you can reasonably do is raise the question of risk with him — since he is a competent adult, it is then up to him to answer the question for himself if he wishes to. (Since you seem to have already had that conversation with him, I would let the matter drop unless he initiates a conversation with you.)

mptfan
Posts: 4210
Joined: Mon Mar 05, 2007 9:58 am

Re: Help?! My 70 year old father is 100% invested in equities

Post by mptfan » Sat Sep 23, 2017 6:56 am

Messner8000 wrote:
Sat Sep 23, 2017 6:35 am
A very fair point. No - he did not ask for (and probably does not want) my advice.
Then back off. You have already raised the issue with him and he has responded and you should let it go at that.

I do not think it is necessarily crazy for a 70 year old to be 100% equities. Historically speaking, 100% equities has performed better than having bonds, albeit with much more volatility, so if he is comfortable with the volatility, and If most of his expenses are covered by SS and a pension, and assuming he does not panic and sell during a down market, then he is likely to do better in the long run than owning bonds. I would not call that crazy, I would call that sane.
Last edited by mptfan on Sat Sep 23, 2017 7:31 am, edited 1 time in total.
I eat risk for breakfast. :)

msk
Posts: 532
Joined: Mon Aug 15, 2016 10:40 am

Re: Help?! My 70 year old father is 100% invested in equities

Post by msk » Sat Sep 23, 2017 7:11 am

IMHO the only silly thing your Dad is doing is pay the adviser 1%. I am soon going to be 73, retired since 55, increased my net worth from 7 figures to 8 figures since retirement by being 100% in stocks. If your Dad withdraws 3% from his portfolio and that silly 1% fee (=4%!), AND he can comfortably survive a significant temporary reduction in withdrawals from his portfolio (i.e. after a major market fall) then I see no reason for his being in bonds. It's the pain or lack of pain in surviving a major market fall that ought to be the determinant of bonds or no bonds. I live primarily on my pension, your Dad 50% on similar. My strategy is as follows: 100% stocks all the time (world wide ETFs), max 5% withdrawal annually, EVEN if the market falls, no more than 5% of then current value as annual withdrawal. 50 year history, Monte Carlo simulations, whatever, show that such a policy ought to deliver a median withdrawal in real-term $ that keeps up with inflation for more than 50 years. You stand to inherit the most by his being 100% in stocks ETFs. Better if he can dump the adviser. 100% VT (Vanguard Total World) is as simple and as diversified as stocks get.

User avatar
bengal22
Posts: 1307
Joined: Sat Dec 03, 2011 6:20 pm
Location: Ohio

Re: Help?! My 70 year old father is 100% invested in equities

Post by bengal22 » Sat Sep 23, 2017 7:31 am

1). Most 70 year old still have active, fully functioning minds.

2). Your dad must be relatively savvy if he has 7 figures.

3). He must be very comfortable on how he is managing his money

4). Let him be unless asked.

Several roads leading to Dublin.

Ron
Posts: 6132
Joined: Fri Feb 23, 2007 7:46 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by Ron » Sat Sep 23, 2017 7:49 am

bengal22 wrote:
Sat Sep 23, 2017 7:31 am
1). Most 70 year old still have active, fully functioning minds.

2). Your dad must be relatively savvy if he has 7 figures.

3). He must be very comfortable on how he is managing his money

4). Let him be unless asked.

Several roads leading to Dublin.
Yup :annoyed

(I'll be 70 in early January :twisted: )...

- Ron

JW-Retired
Posts: 6526
Joined: Sun Dec 16, 2007 12:25 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by JW-Retired » Sat Sep 23, 2017 8:47 am

Messner8000 wrote:
Sat Sep 23, 2017 6:04 am
I don't know a ton else, but my sense is that my dad relies on his investment portfolio for about 50% of his annual income (he also has a pension and Social Security) and utilizes a 3% withdrawal rate from the portfolio.
Am I nuts, or is the 100% AA insane? My dad is a very smart guy who follows the markets very closely and has read lots of books, etc. He just doesn't seem to care for bonds.
............................................
I don't think I can get him to leave his financial guy, as he likes knowing that there is someone there to give him advice in the next downturn.
No bonds is not insane if he wouldn't dream of selling low in a crisis and could live on his pension & SS in a pinch. If he still has a big mortgage or other such commitments, and would be in serious trouble in a prolonged bear market, then it's cuckoo to take such a risk. It's also pretty nuts to pay so much to an FA, but with the 100% stocks maybe the guy might really be a help in a downturn.

Either way, nothing you can or should be doing about it.
JW
Retired at Last

lostdog
Posts: 659
Joined: Thu Feb 04, 2016 2:15 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by lostdog » Sat Sep 23, 2017 8:56 am

Let him be. If you make changes for him and something happens, he'll blame you.
Financial Independence is the best revenge. | "Our life is frittered away by detail. Simplify, simplify." -Thoreau

zaraxious
Posts: 2
Joined: Wed Jun 14, 2017 12:02 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by zaraxious » Sat Sep 23, 2017 8:59 am

Ultimately he just has a higher risk portfolio, which is his right. Even with the 1% brokerage fee, he will make more (on average) than with the 50-50 portfolio normally recommended at his age. So really he just has a non-Bogleheads investment strategy and is paying his financial advisor to help him reach it. You could of course try to convert him to Boglehead-ism, but I don't think he's necessarily doing anything wrong or stupid here.

Messner8000
Posts: 57
Joined: Sun May 21, 2017 8:03 am

Re: Help?! My 70 year old father is 100% invested in equities

Post by Messner8000 » Sat Sep 23, 2017 9:17 am

Thanks for all the responses. To be honest, I was expecting everyone to say that he needs to read book X or article Y, and I wasn't expecting folks to tell me to lay off him! But thinking about it, I think that is probably darn good advice. I raised the point, he wasn't too thrilled about it, and so I think upon further reflection I will just let it go, unless he happens to raise it with me again.

As always, good advice here. Thanks!

dbr
Posts: 24132
Joined: Sun Mar 04, 2007 9:50 am

Re: Help?! My 70 year old father is 100% invested in equities

Post by dbr » Sat Sep 23, 2017 9:20 am

If he is drawing money he needs from this portfolio, then the more useful concept of risk is whether or not he will run out of money before he dies. Among things he can control that is determined by his withdrawal rate. Assuming he is in a safe range around 4%, the 1% he pays his advisor siphons off 25% of his income from investments. The advisor has not mentioned that aspect of having enough money to support his income.

Looking at the last hundred years of investing we can see that risk of running out money while withdrawing from a portfolio has little or no dependence on stock allocation unless there is too little in stocks, such as less than 30% or so. It is possible 50/50 is a little more optimum than 100/0. The risk in 100/0 is to panic and sell out during a large down turn. Your father is apparently not susceptible to this. The benefit of staying 100% stocks is that this increases the range of wealth likely to be left at death. If you are the heir, it is in your interest for him to be 100% stocks. What is in his interest is less clear. Common advice would be to take no more stock risk than necessary. In that case he should be 40/60 unless he wants to leave someone a lot of money.

However, you do need to verify how fast he is spending money from this portfolio.

pkcrafter
Posts: 12163
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Help?! My 70 year old father is 100% invested in equities

Post by pkcrafter » Sat Sep 23, 2017 9:33 am

Messner8000 wrote:
Sat Sep 23, 2017 6:04 am
Since discovering this forum about six months ago, I've been busy reading books about investing and trying to determine what my AA should be (as a 35-year old). Upon deciding on an 80/20 stocks/bonds AA, I got curious and asked my retired 70-year-old father what his AA is for his sizable retirement portfolio, and I was shocked when he said he doesn't own bonds and is 100% invested in equities. When I pressed him on why, he said:

(1) he preferred to own dividend-producing stocks and funds and that his financial adviser (who he pays a considerable fee to each year - 1% of his 7-figure assets under management) said that he needs to remain invested in equities in order for his portfolio to maintain enough growth to ensure he can maintain his quality of life and not run out of money.

That's 1% plus the cost of the funds, and maybe more in taxes if he's got dividend stocks/funds in taxable. I'm surprised an advisor would recommend 100% stocks UNLESS your father told him that's what he wanted. If the withdrawal rate is 3%, he also must count the advisor's fee, which brings the withdrawal up to 4%. Unlikely, but he could see that nest egg reduced by 40% at some point, which would take the withdrawal rate up to <6%. If he's got room to cut back on spending, he might be OK, but 100% stock does not seem appropriate for the situation.

(2) He owned a decent % of bonds (I'm not sure how much) during the 2008 market crash, and his portfolio still tanked, and so he doesn't think bonds are really the secret weapon everyone says they are. (I asked him if he compared how his portfolio did with how it would had done in the crash if he had had no bonds - i.e., did his having bonds result in his portfolio decreasing less than an all-equities portfolio would have- and he said he hadn't checked).

This is uninformed reasoning because his bonds did reduce the loss, unless, of course, he was holding high yield bonds, which would have been inappropriate. The concern here is, are these decisions your father's, or is he getting screwy advice from the advisor.

He also mentioned something about how he didn't think bonds were a great investment given likely future interest rates, but I don't know enough about investing to quite understand what he was saying (although I know no one can predict interest rates!)

We are seeing a lot of posters using this faulty reasoning. There is no doubt that stocks are far riskier than high grade, short term bonds.

From what I've read on this board and in books, a 100% AA for a 70-year old is crazy. I don't know a ton else, but my sense is that my dad relies on his investment portfolio for about 50% of his annual income (he also has a pension and Social Security) and utilizes a 3% withdrawal rate from the portfolio.

In your father's case, 100% stocks seems risky. If his total withdrawal rate was 2%, then he would have ability to take more risk. As things appear to be right now, father does not have need to go 100% stocks either. If he insists on 100% stocks, he should be fully aware of the possible consequences, including seeing his portfolio reduced to 600k and the need to reduce withdrawals. If the advisor is pushing this, your father needs a new advisor.


Am I nuts, or is the 100% AA insane? My dad is a very smart guy who follows the markets very closely and has read lots of books, etc.

Following the markets is not a good idea, and reading lots of books is also not a good idea if they are the wrong kind of books. This also makes me wonder if your father is constantly changing the portfolio, which the advisor would love because that adds costs too.


He just doesn't seem to care for bonds. Any advice on books or articles I could give him that might change his mind? I don't think I can get him to leave his financial guy, as he likes knowing that there is someone there to give him advice in the next downturn. But geez, this just makes me nervous for him.

Here's a whole list of recommend books along with Taylor Larimore's gems (quotes from the books). Pick any book from the Start0Up list.

https://www.bogleheads.org/wiki/Books:_ ... nd_reviews

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

User avatar
dougger5
Posts: 216
Joined: Fri Nov 27, 2015 11:58 am
Location: Not far from Malvern

Re: Help?! My 70 year old father is 100% invested in equities

Post by dougger5 » Sat Sep 23, 2017 9:42 am

Similar situation here. My late-70's mother's mid-6-figure invested portfolio is about 80/20, which the equity part composed of a half-dozen individual stocks that are parts of 2 major sectors.

My approach has evolved to a point where my primary goal is no longer about critiquing the composition of her portfolio directly, but rather trying to get her to a point to where she at least understands the inherent risks. I think she's far behind the OP's father in that regard.

I did convince her to transfer the assets out of Morgan Stanley and into Vanguard, so we're making progress. And now that Dad's no longer with us, having passed about 18 months ago, it gives us something to talk about. So I try to keep it a discussion, rather than a lecture.
"I've been ionized, but I'm okay now." -Buckaroo Banzai

tibbitts
Posts: 6991
Joined: Tue Feb 27, 2007 6:50 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by tibbitts » Sat Sep 23, 2017 9:50 am

Even the most dedicated Bogleheads (including Bogle himself) are amending their ideas in this low-rate environment that virtually nobody anticipated. The talk of no more than 50% equities around here (during 2008/9) has been replaced by "why not 100% stocks?", but you see it in more subtle ways, like moving more toward corporate bonds and even dividend-paying stocks. Almost nobody here is exempt, so yes 8 or 9 years ago almost everybody would have said he was nuts to have 100% stocks (when it turned out to be the best time to have them, of course.) It does depend on whether he has "enough", but given he pays 1% plus, taxable bonds paying a negative real (net) rate paint a very bleak picture and I can understand him avoiding them. Today we pay a lot more for "insurance" than we often have in the past.

KyleAAA
Posts: 6368
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: Help?! My 70 year old father is 100% invested in equities

Post by KyleAAA » Sat Sep 23, 2017 10:03 am

If your dad's portfolio is large enough that he only needs to withdraw 3% per year, 100% in equities isn't crazy. Aggressive, yes, but not crazy. When you're 70 and only need 3% to live, pretty much any reasonable portfolio will work. I'd suggest you stay out of it.

Nate79
Posts: 1438
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: Help?! My 70 year old father is 100% invested in equities

Post by Nate79 » Sat Sep 23, 2017 10:29 am

You can find many 100% stock threads on here. It's not as crazy as you think. The 1% for an advisor is more crazy than 100% stock. Does he have any cash, CD's, pensions, Social Security, annuities, etc? Some people count these as fixed incomes.

MnD
Posts: 3088
Joined: Mon Jan 14, 2008 12:41 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by MnD » Sat Sep 23, 2017 10:33 am

Pension
Social Security
7-figure 100% equity portfolio with 3% SWR

Probably a better situation than 99% of 70 YO retirees.

livesoft
Posts: 57209
Joined: Thu Mar 01, 2007 8:00 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by livesoft » Sat Sep 23, 2017 10:54 am

I keep thinking that I just saw a thread on another forum:

Help?! My 35 year old kid is only 80% invested in equites. From what I've read on this board and in books, a 80% AA for a 35-year old is crazy. Am I nuts, or is the 80% AA insane? My kid just seems to care too much for bonds. Any advice on books or articles I could give him that might change his mind?
This signature message sponsored by sscritic: Learn to fish.

Messner8000
Posts: 57
Joined: Sun May 21, 2017 8:03 am

Re: Help?! My 70 year old father is 100% invested in equities

Post by Messner8000 » Sat Sep 23, 2017 11:57 am

Wow - thanks for all the thoughts. Livesoft - was your post a joke? If so, it rang close to home as I recently revamped my portfolio and adopted a 3-fund approach that is 80% stocks and 20% bonds. Since all this money (low-mid six figures) is in retirement accounts I won't access for 25+ years, I can't stop thinking about whether I'm being too conservative and need 100% equities AA. Anyway, I guess your joke hit a little too close to home!

User avatar
rocket354
Posts: 119
Joined: Mon Dec 14, 2015 12:31 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by rocket354 » Sat Sep 23, 2017 12:10 pm

Messner8000 wrote:
Sat Sep 23, 2017 6:04 am
(he also has a pension and Social Security)
This is key. He basically has the equivalent (or better) of the security of bonds as a portion of his portfolio because of the above two. Now, if his pension and SS added to a really small portion of his expenses, maybe there's cause for concern, but we don't have those exact numbers.

My dad is 74 and 100% equities because of his pension and SS. I don't see a problem with that, because those two sources cover 80%+ of his expenses, which include international cruises and many domestic trips to visit family.

pascalwager
Posts: 906
Joined: Mon Oct 31, 2011 8:36 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by pascalwager » Sat Sep 23, 2017 12:26 pm

Messner8000 wrote:
Sat Sep 23, 2017 11:57 am
Wow - thanks for all the thoughts. Livesoft - was your post a joke? If so, it rang close to home as I recently revamped my portfolio and adopted a 3-fund approach that is 80% stocks and 20% bonds. Since all this money (low-mid six figures) is in retirement accounts I won't access for 25+ years, I can't stop thinking about whether I'm being too conservative and need 100% equities AA. Anyway, I guess your joke hit a little too close to home!
85/15 is the AA used by the Vanguard Target Retirement 2040 (2038 to 2042) Fund. So, at 80/20, you're a little more conservative than Vanguard.

I was 90/10 until age 74. Now I'm 57/43 at age 75. But also have pension and large slug of cash.

So actually, I'm 51/49 stocks/bonds-cash.
Last edited by pascalwager on Sat Sep 23, 2017 12:34 pm, edited 1 time in total.

jalbert
Posts: 2282
Joined: Fri Apr 10, 2015 12:29 am

Re: Help?! My 70 year old father is 100% invested in equities

Post by jalbert » Sat Sep 23, 2017 12:32 pm

The answer centers around whether he can tolerate say a 50% drop in equities without having to sell some near the bottom to generate enough income to cover expenses.
Risk is not a guarantor of return.

User avatar
whodidntante
Posts: 2321
Joined: Thu Jan 21, 2016 11:11 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by whodidntante » Sat Sep 23, 2017 12:36 pm

My father is 0% equities and makes statements about his investments like "I need a guarantee." I think that's worse, but it's his money.

itstoomuch
Posts: 4823
Joined: Mon Dec 15, 2014 12:17 pm
Location: midValley OR

Re: Help?! My 70 year old father is 100% invested in equities

Post by itstoomuch » Sat Sep 23, 2017 12:37 pm

Livesoft, made a funny but correct.
We are 100% equity too. (disclaimer: 100% equity in the Discretionary, emergency fund, elastic fund).
Our other 3 buckets of income (SS + pension, Annuities, rental) are more Income secure. We only need 2 buckets.

Our son (32) is 100% equity too. He has human capital and will stand to inherit, provided he produces an heir in 8 years :twisted: .
YMMV
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

Phil DeMuth
Posts: 130
Joined: Thu Mar 06, 2008 7:02 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by Phil DeMuth » Sat Sep 23, 2017 12:39 pm

There are millions of stories of gullible seniors getting fleeced by their high-priced advisors in the naked city. This doesn't strike me as one of them.

If it is any consolation, one day you will probably inherit far more money from your father than you otherwise would have thanks to his aggressive investment posture.

TheAncientOne
Posts: 74
Joined: Wed Jul 19, 2017 8:53 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by TheAncientOne » Sat Sep 23, 2017 12:48 pm

Messner, given that your father's portfolio is heavily (or exclusively?) weighted toward dividend paying stocks, you can think of his situation as not unlike someone who's 80% in the S&P 500 index fund, with its significant weighting in Amazon, Google, Facebook and other non-dividend paying stocks, and 20% in fixed income. Given that he's conservative with his withdrawal rate, I'd let this issue go.

Like everyone here, I'd be frustrated with him putting 1% of his portfolio into his adviser's pocket every year. If you can talk him out of that, great, assuming you're comfortable that he won't wind up hooking up with someone else with much worse advice for him. Just to warn you though, I tried talking my uncle out of just this sort of situation and found that when they've had a stockbroker for 30 years or more that this may be an impossible task.

CurlyDave
Posts: 219
Joined: Thu Jul 28, 2016 11:37 am

Re: Help?! My 70 year old father is 100% invested in equities

Post by CurlyDave » Sat Sep 23, 2017 12:55 pm

Messner8000 wrote:
Sat Sep 23, 2017 6:04 am
...From what I've read on this board and in books, a 100% AA for a 70-year old is crazy. I don't know a ton else, but my sense is that my dad relies on his investment portfolio for about 50% of his annual income (he also has a pension and Social Security) and utilizes a 3% withdrawal rate from the portfolio.

Am I nuts, or is the 100% AA insane? My dad is a very smart guy who follows the markets very closely and has read lots of books, etc. He just doesn't seem to care for bonds. Any advice on books or articles I could give him that might change his mind? I don't think I can get him to leave his financial guy, as he likes knowing that there is someone there to give him advice in the next downturn. But geez, this just makes me nervous for him.
I am 72, retired for over 10 years, and IMHO the answer to your question: "Am I nuts, or is the 100% AA insane?" is neither, but there is a very common misinterpretation of AA among many on this board and in many books. You just have not read the right books, or seen the right advice.

There are many of us, including no less a guiding light than Jack Bogle himself, who feel that pensions and SS should be included as bond-like investments in AA. In general this board is very, very conservative, sometimes to a fault, and most people here just don't want to include pensions and SS in their AA. If one does this, it is often the case, even with a 7 figure investable portfolio, 100% equities underweights stocks. But, short of taking up bank robbery as a hobby, there really isn't any way to get this into balance.

In my case, if I count SS and pensions as "phantom bonds" we are about 40% bonds, 40% stocks and 20% real estate. But I hold no actual bonds, and I consider the SS and pensions to be bond-like investments returning 4%. Since the actual return on a bond these days is closer to 2%, the involuntary "bond" holdings we have could be considered to be a lot higher.

The assets under our control are 100% in either stocks or real estate, and there are 7 figures in those categories.

BTW, the instant that one or both of us passes, part of the pensions and SS will cease and the survivor or heir(s) will need to re-evaluate the AA of the estate in light of this fact and their own age.

* * * * * * * * * * *
I do think that your dad could do without the advisor. But, for right now, it is his money, not yours. When he passes, you can do whatever you want with the advisor and the AA, but I think you should seriously consider calculating the value of the SS and any pension you expect to receive and including it in your AA.

dbr
Posts: 24132
Joined: Sun Mar 04, 2007 9:50 am

Re: Help?! My 70 year old father is 100% invested in equities

Post by dbr » Sat Sep 23, 2017 1:02 pm

CurlyDave wrote:
Sat Sep 23, 2017 12:55 pm
ce.

There are many of us, including no less a guiding light than Jack Bogle himself, who feel that pensions and SS should be included as bond-like investments in AA. In general this board is very, very conservative, sometimes to a fault, and most people here just don't want to include pensions and SS in their AA. If one does this, it is often the case, even with a 7 figure investable portfolio, 100% equities underweights stocks. But, short of taking up bank robbery as a hobby, there really isn't any way to get this into balance.

In my case, if I count SS and pensions as "phantom bonds" we are about 40% bonds, 40% stocks and 20% real estate. But I hold no actual bonds, and I consider the SS and pensions to be bond-like investments returning 4%. Since the actual return on a bond these days is closer to 2%, the involuntary "bond" holdings we have could be considered to be a lot higher.
A person with pension and SS income streams does not have to call things what they are not to be comfortable with 100% stocks. It all goes back to how you decide on asset allocation in the first place. If you use a rigid formula such as Bogle's age in bonds the only way you can hold more stocks on account of all that income is to do an income as bonds illogic. It is perfectly simple to avoid formulas altogether and arrive at a reasonable conclusion that 100% stocks is fine in any particular circumstance - if it is.

PS Do you really want your virtual asset allocation to come out different for every variation in prevailing interest rates?

aristotelian
Posts: 3151
Joined: Wed Jan 11, 2017 8:05 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by aristotelian » Sat Sep 23, 2017 2:49 pm

It's not what I would do, but if he has 7 figures invested, he can probably afford to lose half of it and come out OK. He probably amassed that 7 figures in large part by being aggressively invested.

The 1% financial advisor fee is the bigger problem, IMO.

User avatar
raven15
Posts: 290
Joined: Sun Nov 30, 2014 8:01 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by raven15 » Sat Sep 23, 2017 3:20 pm

I'd say that is very reasonable. First, a 4% withdrawal rate from a 100% stock portfolio has succeeded 95% of the time in US history and since it didn't fail in 2008 it probably won't now. Second, Social Security counts as a bond. If it is 50% of his income, you could say he is 50% bonds. Third, he seems like the kind of guy who would own a house. A reverse mortage on that would put him on very secure footing. Summary: he will be fine.
It's Time. Adding Interest.

delamer
Posts: 3233
Joined: Tue Feb 08, 2011 6:13 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by delamer » Sat Sep 23, 2017 3:23 pm

You might want to give your father "The Bogleheads Guide To Investing" and tell him that you learned a few things from it.

People often respond better to a neutral third party than their own smart-alecky kid. :wink:

pascalwager
Posts: 906
Joined: Mon Oct 31, 2011 8:36 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by pascalwager » Sat Sep 23, 2017 5:48 pm

Any investor needs to consider whether he has the ability, willingness, and need to take risk. Larry Swedroe covers these criteria in his books and articles.

Does your father need to take the risk of 100% stocks? That might be the main question here.

User avatar
randomizer
Posts: 706
Joined: Sun Jul 06, 2014 3:46 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by randomizer » Sat Sep 23, 2017 5:54 pm

Dad seems to know what he is doing, and was comfortable with 100% equities in the last crash.

pkcrafter
Posts: 12163
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Help?! My 70 year old father is 100% invested in equities

Post by pkcrafter » Sat Sep 23, 2017 6:09 pm

Note, father's withdrawal rate is not 3%, it's 4% counting the 1% advisor fee. That does not leave much wiggle room. If father can get by with lower withdrawals if stocks tank, then maybe Ok.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

User avatar
czeckers
Posts: 933
Joined: Thu May 17, 2007 3:49 pm
Location: Upstate NY

Re: Help?! My 70 year old father is 100% invested in equities

Post by czeckers » Sat Sep 23, 2017 6:22 pm

Depending on the size of the portfolio, his withdrawal rate, and his life expectancy, 100% stocks might be entirely reasonable.
The Espresso portfolio: | | 16% LCV, 16% SCV, 16% EM, 8% Int'l Value, 8% Int'l Sm, 8% US REIT, 8% Int'l REIT, 20% Inter-term US Treas | | "A journey of a thousand miles begins with a single step."

User avatar
FIREchief
Posts: 1415
Joined: Fri Aug 19, 2016 6:40 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by FIREchief » Sat Sep 23, 2017 7:09 pm

If he's been 100% in stocks for the past 6 - 8 years, then his bet has paid off handsomely and he can easily cover a few losing hands, even if he has to sell some at a market bottom to pay the rent.

OP: it wouldn't cost your father a dime to ask his advisor to lower his fees. Perhaps an "I've ran the numbers and you've made $20,000 a year off my portfolio over the past five years; why don't we cut that to $10,000 going forward." Would the advisor risk $10,000 to lose this type of client? Would looking at the raw numbers perhaps change your father's thoughts about Boglehead investing? As I mentioned, it likely wouldn't hurt to ask. 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

galectin
Posts: 190
Joined: Thu Jan 27, 2011 1:57 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by galectin » Sat Sep 23, 2017 7:37 pm

delamer wrote:
Sat Sep 23, 2017 3:23 pm
You might want to give your father "The Bogleheads Guide To Investing" and tell him that you learned a few things from it.

People often respond better to a neutral third party . . .
+1

I was recently discussing retirement investments with my younger (age 63) and she mentioned that she and her husband were considering getting help from an advisor who charges 1.5 percent because they weren't sure what to do. I told her that I used index funds and cautioned her about high advisor fees. I am getting The Bogleheads Guide to Investing for them as an early Christmas present.

Messner8000
Posts: 57
Joined: Sun May 21, 2017 8:03 am

Re: Help?! My 70 year old father is 100% invested in equities

Post by Messner8000 » Sat Sep 23, 2017 8:08 pm

Thanks for all the thoughtful responses. I completely agree that the 1% for the adviser seems not good (especially since I don't like the adviser, who says things like "I've had very good success in my career picking winners...." and stuff like that). But my dad has always had an adviser and it's just one of those things that at this stage in his life he isn't going to change. And he's the type of guy that would never try to re-negotiate the terms, no matter how much sense that would make. (He made his money in a job that did not require good negotiation skills!)

The bigger epiphany for me from this thread is the idea of counting SS, pensions and even emergency fund/cash reserves as part of your AA. That is blowing my mind. I'm about 85/15 stocks/bonds across all my accounts all-told, but my wife and I will both have government/public school pensions (respectively) when we retire, and I also have a 6 month rainy day fund in cash in a 1.2% money market account. So when I factor all that in, my stock/bond ratio is much more conservative than I thought. Very thought provoking as to whether I'm actually too conservative (never would have guessed!)

livesoft
Posts: 57209
Joined: Thu Mar 01, 2007 8:00 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by livesoft » Sat Sep 23, 2017 8:35 pm

You could offer to calculate the annual performance (or over any 2 dates) for the portfolio that you dad has by using XIRR(), Quicken, or MS Money. You would need to know the transaction information which he may not give you. Then if his portfolio does better than say Total Stock Market, he should be incredibly pleased. And if it does worse, it might give him something to think about.
This signature message sponsored by sscritic: Learn to fish.

CurlyDave
Posts: 219
Joined: Thu Jul 28, 2016 11:37 am

Re: Help?! My 70 year old father is 100% invested in equities

Post by CurlyDave » Sun Sep 24, 2017 1:32 am

Messner8000 wrote:
Sat Sep 23, 2017 8:08 pm
...The bigger epiphany for me from this thread is the idea of counting SS, pensions and even emergency fund/cash reserves as part of your AA. That is blowing my mind. I'm about 85/15 stocks/bonds across all my accounts all-told, but my wife and I will both have government/public school pensions (respectively) when we retire, and I also have a 6 month rainy day fund in cash in a 1.2% money market account. So when I factor all that in, my stock/bond ratio is much more conservative than I thought. Very thought provoking as to whether I'm actually too conservative (never would have guessed!)
Even if you decide you are "too conservative" what can you do about it? Even if you increase your stock allocation to 95+%, which I find is good for me, that is only 10% more of your investable assets in stocks. 100% equities is not actually achievable -- a bank account requires some cash just to stay open.

This is why I say it is sometimes impossible to achieve a reasonable AA -- SS and pensions mean we have more fixed income than we can balance. This is not a bad thing, just a fact.

* * * * * * * * * * *

To see the validity of counting SS pensions and all assets as part of your AA, consider two twins. Call them Harry and Jim. they each have an investable portfolio of $1M. But Harry has a pension and SS which will pay him $50k per year. Jim has on a small SS payment of $10k per year.

If you don't count pensions and SS in AA, advisors would say both twins should have exactly the same AA in their investable portfolio. I think you can intuitively see that Harry is clearly better off, and has a guaranteed income which is equal to Jim's income from SS plus a 4% annual withdrawal. In fact Harry's total income with a 4% withdrawal would be $90k.

If you aren't going to count the pensions and SS as "phantom bonds", just what do you count them as?

Maybe a better way to look at the whole issue would be to turn the AA procedure around and say X% of one's retirement income should come from a 4% withdrawal from equities and the remainder should come from fixed income and entitlements. This is a little more complex mathematically, but at least it doesn't push us into overly conservative portfolios.

But, even on the Bogleheads board a majority prefer simplified math, even if it leads to a sub-optimal result.

denovo
Posts: 3524
Joined: Sun Oct 13, 2013 1:04 pm

Re: Help?! My 70 year old father is 100% invested in equities

Post by denovo » Sun Sep 24, 2017 1:52 am

Messner8000 wrote:
Sat Sep 23, 2017 6:04 am


(1) he preferred to own dividend-producing stocks and funds and that his financial adviser (who he pays a considerable fee to each year - 1% of his 7-figure assets under management) said that he needs to remain invested in equities in order for his portfolio to maintain enough growth to ensure he can maintain his quality of life and not run out of money.


From what I've read on this board and in books, a 100% AA for a 70-year old is crazy. I don't know a ton else, but my sense is that my dad relies on his investment portfolio for about 50% of his annual income (he also has a pension and Social Security) and utilizes a 3% withdrawal rate from the portfolio.


I am way more bothered by the advisor skimming 1 percent than 100 percent equities.

CurlyDave
Posts: 219
Joined: Thu Jul 28, 2016 11:37 am

Re: Help?! My 70 year old father is 100% invested in equities

Post by CurlyDave » Sun Sep 24, 2017 1:58 am

dbr wrote:
Sat Sep 23, 2017 1:02 pm
...A person with pension and SS income streams does not have to call things what they are not to be comfortable with 100% stocks. It all goes back to how you decide on asset allocation in the first place. If you use a rigid formula such as Bogle's age in bonds the only way you can hold more stocks on account of all that income is to do an income as bonds illogic. It is perfectly simple to avoid formulas altogether and arrive at a reasonable conclusion that 100% stocks is fine in any particular circumstance - if it is.

PS Do you really want your virtual asset allocation to come out different for every variation in prevailing interest rates?
Economists call pensions and SS "entitlements", a guaranteed future income stream. I am not so much advocating calling them what they are not, because I know they are not really bonds, as I am saying it is even more ludicrous to pretend that they are not assets. When we say an AA ought to be "age in bonds", or the more current "120-age" in equities, and don't count entitlements, we are ignoring a major asset. In fact, for the majority of current US retirees, SS and pensions represent the majority of their income. We are pretending that the elephant in the living room isn't there.

So, we have to deal with them somehow, and if we are going to fit them into the AA way of thinking, capitalizing them and considering them a quasi-bond is a whole lot better than leaving them out of the picture. And this is exactly what Jack Bogle recommends.

PS: The reply to your PS is: "so what if my virtual asset allocation comes out different for every change in prevailing interest rates?" Until prevailing interest rates hit 6 or 7% my investable portfolio remains at 100% stocks. If the prevailing interest rate gets high enough my virtual AA tells me to move some money from equities to bonds. I keep my sanity by not having to recalculate every time the prevailing rate changes.

magneto
Posts: 896
Joined: Sun Dec 19, 2010 10:57 am
Location: On Chesil Beach

Re: Help?! My 70 year old father is 100% invested in equities

Post by magneto » Sun Sep 24, 2017 4:48 am

JW-Retired wrote:
Sat Sep 23, 2017 8:47 am

No bonds is not insane if he wouldn't dream of selling low in a crisis
This is the key takeaway.

100% Stocks may or may not prove optimal; but for 100%ers strength of determination is essential.

Good Luck to him
'There is a tide in the affairs of men ...', Brutus (Market Timer)

User avatar
Jazztonight
Posts: 801
Joined: Wed Feb 28, 2007 12:21 am
Location: Lake Merritt

Re: Help?! My 70 year old father is 100% invested in equities

Post by Jazztonight » Sun Sep 24, 2017 7:53 am

In their 80s and 90s, my parents were attending "seminars" and then investing relatively large sums with this or that "nice young man" from a brokerage or bank who came to talk at their residence apartment facility or club. In other words, they were "sold," and didn't ask my opinion on anything.

When they finally allowed my sister and me to take over as Trustees of their Trust, it was a scattered mess. I did what I could, moved as much as I could to Vanguard (avoiding taxable events), and that was that until each parent passed (from Alzheimer's).

I remember meeting one of their financial advisors, a charming "nice young man" in a classy suit who'd taken them to lunch a couple of times. Afterwards I remarked to my parents that they were sending the guy's kids to private elementary school. Their response was that "he works hard and is entitled to make his commission." That's how they viewed it, and it was their money to do with as they wished. Until it was our money. And that's what I'd say to the OP. It can be a very frustrating time.
"What does not destroy me, makes me stronger." Nietzsche

User avatar
grabiner
Advisory Board
Posts: 20975
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Help?! My 70 year old father is 100% invested in equities

Post by grabiner » Sun Sep 24, 2017 8:14 am

CurlyDave wrote:
Sun Sep 24, 2017 1:32 am

To see the validity of counting SS pensions and all assets as part of your AA, consider two twins. Call them Harry and Jim. they each have an investable portfolio of $1M. But Harry has a pension and SS which will pay him $50k per year. Jim has on a small SS payment of $10k per year.

If you don't count pensions and SS in AA, advisors would say both twins should have exactly the same AA in their investable portfolio. I think you can intuitively see that Harry is clearly better off, and has a guaranteed income which is equal to Jim's income from SS plus a 4% annual withdrawal. In fact Harry's total income with a 4% withdrawal would be $90k.

If you aren't going to count the pensions and SS as "phantom bonds", just what do you count them as?
Pensions and annuities are income streams. They aren't bonds, but they serve the same purpose of bonds, increasing your risk tolerance.

If you have a $1M portfolio and an inflation-linked pension of $20K per year, then you expect to be able to spend $60K per year at a 4% withdrawal rate. If your portfolio loses 25% of its value before you retire, your spending will decrease to $50K per year; if it gains 25%, your spending will increase to $70K per year.

If you have a $500K portfolio and an inflation-linked pension of $40K per year, then you expect to be able to spend $60K per year at the same 4% withdrawal rate. But now you can lose 50% of your portfolio and still be able to spend $50K per year. Therefore, it makes sense to have a more aggressive allocation of the smaller portfolio, as if the extra $20K of pension were $500K in bonds.

The same principle applies to other sources of income, or reductions of needs. If you buy a house, you may want to change to a more aggressive allocation, because the house provides you a place to live rent-free, giving you a source of living expenses which do not depend on your investments. (Conversely, if you take out a mortgage, I recommend counting that as a negative bond in your asset allocation, because the mortgage takes away a fixed amount of money every month, increasing the risk compared to not having a mortgage.)
David Grabiner

dbr
Posts: 24132
Joined: Sun Mar 04, 2007 9:50 am

Re: Help?! My 70 year old father is 100% invested in equities

Post by dbr » Sun Sep 24, 2017 8:36 am

CurlyDave wrote:
Sun Sep 24, 2017 1:58 am

Economists call pensions and SS "entitlements", a guaranteed future income stream. I am not so much advocating calling them what they are not, because I know they are not really bonds, as I am saying it is even more ludicrous to pretend that they are not assets. When we say an AA ought to be "age in bonds", or the more current "120-age" in equities, and don't count entitlements, we are ignoring a major asset. In fact, for the majority of current US retirees, SS and pensions represent the majority of their income. We are pretending that the elephant in the living room isn't there.
No one has ever said to ignore significant sources of income. That is a common misconception in this discussion. The problem originates in how one determines asset allocation. One of the many things wrong with a formula generating asset allocation from age only is that it does ignore income streams. This leads to illogical accounting such as creating bond holdings from income. There are better ways to decide on an asset allocation. The actual result for various investors may be that taking income streams into account should lead to holding less in stocks than otherwise or to holding more in stocks than otherwise, depending on what best suits the situation of the investor.

Post Reply