seeking advice on asset allocation, or is Vanguard crazy

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eye.surgeon
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seeking advice on asset allocation, or is Vanguard crazy

Post by eye.surgeon » Tue Oct 17, 2017 10:33 am

Vanguard's asset allocation calculator recommends a 80/20 retirement portfolio for me based on their series of questions. Their target fund for my age, target 2035, is 80/20. My current AA is 72/28. I know age in bonds has fallen out of fashion, but that recommendation is bonds = age -28! Am I depriving myself of higher returns by being too conservative? I realize there is no right answer, just interested in opinions.

age 48
goal is $3 million + by retirement at age 65-70, so 20 years
retirement assets $550k in the market (I know, it should be more but my income wasn't always this high)
income $450k/ year gross, physician, secure job
$400k in home equity, home paid off in 5 years
risk tolerance is medium to more aggressive (Survived 2008 without panicking)
"I would rather be certain of a good return than hopeful of a great one" | Warren Buffett

Dandy
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by Dandy » Tue Oct 17, 2017 10:44 am

Vanguard seems to be on the aggressive side for my taste. Awhile back they amped up their Target Date and Life Strategy Fund's equity allocation. Age in bonds is not a bad starting point. Seems like your risk tolerance is reasonably high I see no compelling need to raise it beyond your comfort level.

You understand that equities usually outperform non equities so in theory everyone should be 100% equities. They also can have frightening impacts on your nest egg every once in a while. That is why most guru's recommend an allocation to fixed income usually a minimum of 20-25%. I'm not a guru but it makes sense to me.

AlohaJoe
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by AlohaJoe » Tue Oct 17, 2017 10:49 am

Age in bonds had no factual, empirical, or theoretical basis.

Why do you care if it doesn't line up with some random benchmark made up decades ago with no research other than "sounds good to me!"

Also, age in bonds assumed counting your Social Security as a bond, which is usually conveniently ignored.

EHEngineer
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by EHEngineer » Tue Oct 17, 2017 10:52 am

Vanguard has to follow the crowd because their cost advantage won't be obvious if the portfolio construction differences mask the cost savings.

I think your 72/28 is fine. My AA is age in bonds minus 14. Age 48 is 66/34.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

pkcrafter
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by pkcrafter » Tue Oct 17, 2017 11:00 am

There is no consensus on how much equity an investor should hold. I would agree with Dandy that Vanguard's recommendations are too high, but many here will disagree with that opinion. I would also say that 72% equity at age 48 is still within reason.
Am I depriving myself of higher returns by being too conservative?
I don't know, but you are also depriving yourself of greater losses. :happy

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.

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eye.surgeon
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by eye.surgeon » Tue Oct 17, 2017 11:59 am

pkcrafter wrote:
Tue Oct 17, 2017 11:00 am

Am I depriving myself of higher returns by being too conservative?
I don't know, but you are also depriving yourself of greater losses. :happy

Paul
:D good point
"I would rather be certain of a good return than hopeful of a great one" | Warren Buffett

dbr
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by dbr » Tue Oct 17, 2017 12:25 pm

Both age in bonds and some recommendation from Vanguard without more thought on your part as to what you are doing is equally useless.

I take your post to be exercise of thought on your part.

I recommend reading Larry Swedroe for the the concept of need/ability/willingness to take risk. The need part is based on modeling what you need to do to meet your retirement objectives. At age 48 it is probably a good idea to explore some of the retirement models.

rkhusky
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by rkhusky » Tue Oct 17, 2017 12:39 pm

The correct answer will only be known in hindsight. You can combine estimates of what you will be contributing over the next 20 years with estimates of stock and bond returns, which are based on past history, to estimate what your AA needs to be to reach your goals. You should also compute the potential dispersion and determine whether you can live with the worst case scenarios in case market risk shows up at the worst time for you.

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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by bloom2708 » Tue Oct 17, 2017 12:46 pm

At 48, I'd recommend somewhere between 80/20 and 60/40.

There is no equation that works for everyone. If you have $3 million now and need $4 million in 15 years, then you do not have to take as much risk. To get from $550k to $3 million you will have to save a large percentage. That would be true for 60/40 or 100/0. I would sleep much better at 60/40 and power saving.

Pick target date funds based on the mix of stocks/bonds and not on the year that somewhat aligns with you hitting 65. The target fund may be far to aggressive based on where you are at.

I think age in bonds is a good starting point until you hit late 30s, early 40s. Then it really depends on where you are at and how well your AA can allow you to sleep at night.
Last edited by bloom2708 on Tue Oct 17, 2017 2:41 pm, edited 1 time in total.
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Grt2bOutdoors
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by Grt2bOutdoors » Tue Oct 17, 2017 1:09 pm

The most important lever in reaching your goal of $3-4 million will not be that of holding an extra 10% in equities, it will be that of how much you can save and continue saving over the next 20 years. You have $550K now, you have 20 years to go, adding another $18K per year is not going to get you there, you clearly need to save more. The things you have going for you - steady income, high income, will pay home off in next 5 years freeing up even more savings. Keep chugging along, see my signature for reconfirmation of what another earlier poster said.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

onthecusp
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by onthecusp » Tue Oct 17, 2017 1:34 pm

Grt2bOutdoors wrote:
Tue Oct 17, 2017 1:09 pm
The most important lever in reaching your goal of $3-4 million will not be that of holding an extra 10% in equities, it will be that of how much you can save and continue saving over the next 20 years. You have $550K now, you have 20 years to go, adding another $18K per year is not going to get you there, you clearly need to save more. The things you have going for you - steady income, high income, will pay home off in next 5 years freeing up even more savings. Keep chugging along, see my signature for reconfirmation of what another earlier poster said.
I think so too. 20 years is not really that long for compounding above inflation.
Saving 15% of income from here on should easily make the stated goal of $3 million in 20 years with any reasonable AA, 20% to make $4 million plus or get to $3 million in 15 years.

Katietsu
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by Katietsu » Tue Oct 17, 2017 2:09 pm

My concern is that your inputs are based on working until near 70. As a physician, you probably realize the high percentage of people who are unable to continue working full time into their late sixties. For this reason, I think going more conservative is very reasonable.

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celia
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by celia » Tue Oct 17, 2017 2:31 pm

The thing about an Asset Allocation is you can come up with anything reasonable, but you will never know if it is appropriate for you until you've lived through a bear market with significant invested assets. Do you change anything during that time? Do you wish you had a different allocation?

In other words, two people in the exact same situation will each react differently when the "test" comes around. There is no right or wrong answer for everyone in the same situation.

3funder
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by 3funder » Tue Oct 17, 2017 3:05 pm

Your AA is reasonable. That's all that matters. Another poster mentioned somewhere between 80/20 and 60/40 as a range to stay within; I agree. Being any more conservative or aggressive than that could wind up needlessly dampening returns or exposing you to excessive risk.

pptiger
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by pptiger » Tue Oct 17, 2017 3:32 pm

eye.surgeon wrote:
Tue Oct 17, 2017 10:33 am
Vanguard's asset allocation calculator recommends a 80/20 retirement portfolio for me based on their series of questions. Their target fund for my age, target 2035, is 80/20. My current AA is 72/28. I know age in bonds has fallen out of fashion, but that recommendation is bonds = age -28! Am I depriving myself of higher returns by being too conservative? I realize there is no right answer, just interested in opinions.

age 48
goal is $3 million + by retirement at age 65-70, so 20 years
retirement assets $550k in the market (I know, it should be more but my income wasn't always this high)
income $450k/ year gross, physician, secure job
$400k in home equity, home paid off in 5 years
risk tolerance is medium to more aggressive (Survived 2008 without panicking)
If your job is secure and you won't touch the money for another 20 years, what is the risk? Suppose the market drop 50% tomorrow, what effect does it have on you? This is not a rhetorical question because I'm in the same boat (with very secure jobs). I keep thinking I should just go in with 100% but did I miss any potential risk? Of course one can argue no job is safe, but if that's the risk I can take it.

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eye.surgeon
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by eye.surgeon » Tue Oct 17, 2017 7:03 pm

Appreciate all the input. I know it's an unanswerable question but it's helpful to get input from other like-minded investors, which I value far more than financial advisers.

This forum has really changed my life for the better, between white coat investor and here my approach to retirement has completely changed. Wish I had a pro-retirement outlook 15 years ago but better late than never. Fortunately I'm still on house and wife #1 and with a net worth about a million I'm still doing OK. Funny how a million dollars seemed like a fortune as a kid but now it's just a good starter to your retirement fund.
"I would rather be certain of a good return than hopeful of a great one" | Warren Buffett

Dottie57
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by Dottie57 » Tue Oct 17, 2017 7:53 pm

eye.surgeon wrote:
Tue Oct 17, 2017 7:03 pm
Appreciate all the input. I know it's an unanswerable question but it's helpful to get input from other like-minded investors, which I value far more than financial advisers.

This forum has really changed my life for the better, between white coat investor and here my approach to retirement has completely changed. Wish I had a pro-retirement outlook 15 years ago but better late than never. Fortunately I'm still on house and wife #1 and with a net worth about a million I'm still doing OK. Funny how a million dollars seemed like a fortune as a kid but now it's just a good starter to your retirement fund.


For some of us $1m isstill a fortune! :D

Johm221122
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by Johm221122 » Tue Oct 17, 2017 8:23 pm

Whenever I question my AA,I look at
Vanguard portfolio allocation models
https://personal.vanguard.com/us/insigh ... llocations

How much difference would it make to have 10% more equities

Grt2bOutdoors
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by Grt2bOutdoors » Tue Oct 17, 2017 8:38 pm

pptiger wrote:
Tue Oct 17, 2017 3:32 pm
eye.surgeon wrote:
Tue Oct 17, 2017 10:33 am
Vanguard's asset allocation calculator recommends a 80/20 retirement portfolio for me based on their series of questions. Their target fund for my age, target 2035, is 80/20. My current AA is 72/28. I know age in bonds has fallen out of fashion, but that recommendation is bonds = age -28! Am I depriving myself of higher returns by being too conservative? I realize there is no right answer, just interested in opinions.

age 48
goal is $3 million + by retirement at age 65-70, so 20 years
retirement assets $550k in the market (I know, it should be more but my income wasn't always this high)
income $450k/ year gross, physician, secure job
$400k in home equity, home paid off in 5 years
risk tolerance is medium to more aggressive (Survived 2008 without panicking)
If your job is secure and you won't touch the money for another 20 years, what is the risk? Suppose the market drop 50% tomorrow, what effect does it have on you? This is not a rhetorical question because I'm in the same boat (with very secure jobs). I keep thinking I should just go in with 100% but did I miss any potential risk? Of course one can argue no job is safe, but if that's the risk I can take it.
The risk is you encounter an equities market like Japan, which has still not recovered from its peak over twenty years ago! So, my question you need to ask yourself: is are you feeling lucky? Well, are ya?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by Grt2bOutdoors » Tue Oct 17, 2017 8:40 pm

eye.surgeon wrote:
Tue Oct 17, 2017 7:03 pm
Appreciate all the input. I know it's an unanswerable question but it's helpful to get input from other like-minded investors, which I value far more than financial advisers.

Funny how a million dollars seemed like a fortune as a kid but now it's just a good starter to your retirement fund.
^^ That is due to the corrosive effect of inflation. The other side of the coin is those who start later and have high expectations will need to accumulate even more, spend less or downsize expectations.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

pptiger
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by pptiger » Tue Oct 17, 2017 8:45 pm

Grt2bOutdoors wrote:
Tue Oct 17, 2017 8:38 pm
pptiger wrote:
Tue Oct 17, 2017 3:32 pm
eye.surgeon wrote:
Tue Oct 17, 2017 10:33 am
Vanguard's asset allocation calculator recommends a 80/20 retirement portfolio for me based on their series of questions. Their target fund for my age, target 2035, is 80/20. My current AA is 72/28. I know age in bonds has fallen out of fashion, but that recommendation is bonds = age -28! Am I depriving myself of higher returns by being too conservative? I realize there is no right answer, just interested in opinions.

age 48
goal is $3 million + by retirement at age 65-70, so 20 years
retirement assets $550k in the market (I know, it should be more but my income wasn't always this high)
income $450k/ year gross, physician, secure job
$400k in home equity, home paid off in 5 years
risk tolerance is medium to more aggressive (Survived 2008 without panicking)
If your job is secure and you won't touch the money for another 20 years, what is the risk? Suppose the market drop 50% tomorrow, what effect does it have on you? This is not a rhetorical question because I'm in the same boat (with very secure jobs). I keep thinking I should just go in with 100% but did I miss any potential risk? Of course one can argue no job is safe, but if that's the risk I can take it.
The risk is you encounter an equities market like Japan, which has still not recovered from its peak over twenty years ago! So, my question you need to ask yourself: is are you feeling lucky? Well, are ya?
I don’t feel particularly lucky, but the USA aren’t Japan either.

Grt2bOutdoors
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by Grt2bOutdoors » Tue Oct 17, 2017 8:50 pm

pptiger wrote:
Tue Oct 17, 2017 8:45 pm
Grt2bOutdoors wrote:
Tue Oct 17, 2017 8:38 pm
pptiger wrote:
Tue Oct 17, 2017 3:32 pm
eye.surgeon wrote:
Tue Oct 17, 2017 10:33 am
Vanguard's asset allocation calculator recommends a 80/20 retirement portfolio for me based on their series of questions. Their target fund for my age, target 2035, is 80/20. My current AA is 72/28. I know age in bonds has fallen out of fashion, but that recommendation is bonds = age -28! Am I depriving myself of higher returns by being too conservative? I realize there is no right answer, just interested in opinions.

age 48
goal is $3 million + by retirement at age 65-70, so 20 years
retirement assets $550k in the market (I know, it should be more but my income wasn't always this high)
income $450k/ year gross, physician, secure job
$400k in home equity, home paid off in 5 years
risk tolerance is medium to more aggressive (Survived 2008 without panicking)
If your job is secure and you won't touch the money for another 20 years, what is the risk? Suppose the market drop 50% tomorrow, what effect does it have on you? This is not a rhetorical question because I'm in the same boat (with very secure jobs). I keep thinking I should just go in with 100% but did I miss any potential risk? Of course one can argue no job is safe, but if that's the risk I can take it.
The risk is you encounter an equities market like Japan, which has still not recovered from its peak over twenty years ago! So, my question you need to ask yourself: is are you feeling lucky? Well, are ya?
I don’t feel particularly lucky, but the USA aren’t Japan either.
My point is, never say never, because anything can happen and you may not receive advance warning about it either. Some folks learn that earlier than others....
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

pptiger
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by pptiger » Tue Oct 17, 2017 8:57 pm

Grt2bOutdoors wrote:
Tue Oct 17, 2017 8:50 pm
pptiger wrote:
Tue Oct 17, 2017 8:45 pm
Grt2bOutdoors wrote:
Tue Oct 17, 2017 8:38 pm
pptiger wrote:
Tue Oct 17, 2017 3:32 pm
eye.surgeon wrote:
Tue Oct 17, 2017 10:33 am
Vanguard's asset allocation calculator recommends a 80/20 retirement portfolio for me based on their series of questions. Their target fund for my age, target 2035, is 80/20. My current AA is 72/28. I know age in bonds has fallen out of fashion, but that recommendation is bonds = age -28! Am I depriving myself of higher returns by being too conservative? I realize there is no right answer, just interested in opinions.

age 48
goal is $3 million + by retirement at age 65-70, so 20 years
retirement assets $550k in the market (I know, it should be more but my income wasn't always this high)
income $450k/ year gross, physician, secure job
$400k in home equity, home paid off in 5 years
risk tolerance is medium to more aggressive (Survived 2008 without panicking)
If your job is secure and you won't touch the money for another 20 years, what is the risk? Suppose the market drop 50% tomorrow, what effect does it have on you? This is not a rhetorical question because I'm in the same boat (with very secure jobs). I keep thinking I should just go in with 100% but did I miss any potential risk? Of course one can argue no job is safe, but if that's the risk I can take it.
The risk is you encounter an equities market like Japan, which has still not recovered from its peak over twenty years ago! So, my question you need to ask yourself: is are you feeling lucky? Well, are ya?
I don’t feel particularly lucky, but the USA aren’t Japan either.
My point is, never say never, because anything can happen and you may not receive advance warning about it either. Some folks learn that earlier than others....
Point well taken. What I meant to say is that sometimes it seems we are preparing for doomsday scenario, which, I guess, should be accounted for. The question is how much one is willing to put up with. Well, to each his own.

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stemikger
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by stemikger » Wed Oct 18, 2017 4:22 am

Dottie57 wrote:
Tue Oct 17, 2017 7:53 pm
eye.surgeon wrote:
Tue Oct 17, 2017 7:03 pm
Appreciate all the input. I know it's an unanswerable question but it's helpful to get input from other like-minded investors, which I value far more than financial advisers.

This forum has really changed my life for the better, between white coat investor and here my approach to retirement has completely changed. Wish I had a pro-retirement outlook 15 years ago but better late than never. Fortunately I'm still on house and wife #1 and with a net worth about a million I'm still doing OK. Funny how a million dollars seemed like a fortune as a kid but now it's just a good starter to your retirement fund.


For some of us $1m isstill a fortune! :D
This is very true, but I guess it's all relative. The OP makes $450K a year, so I'm sure he is used to a certain lifestyle many of us here are not. One million suits my income and lifestyle just fine.

To the OP, I think your AA is good where it is at.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

CnC
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by CnC » Wed Oct 18, 2017 8:32 am

eye.surgeon wrote:
Tue Oct 17, 2017 10:33 am
Vanguard's asset allocation calculator recommends a 80/20 retirement portfolio for me based on their series of questions. Their target fund for my age, target 2035, is 80/20. My current AA is 72/28. I know age in bonds has fallen out of fashion, but that recommendation is bonds = age -28! Am I depriving myself of higher returns by being too conservative? I realize there is no right answer, just interested in opinions.

age 48
goal is $3 million + by retirement at age 65-70, so 20 years
retirement assets $550k in the market (I know, it should be more but my income wasn't always this high)
income $450k/ year gross, physician, secure job
$400k in home equity, home paid off in 5 years
risk tolerance is medium to more aggressive (Survived 2008 without panicking)

I think 72/28 is in the ballpark. They provide have you at such a high AA because you are nearly 50 and only have 1x your income saved.

If you get 4+ times your income I'm betting they would back you off.

Mors
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by Mors » Wed Oct 18, 2017 2:10 pm

The standard advice nowadays is the TDFs one: 90/10 until 25 years until retirement, then gradually decreasing the stocks allocation until reaching 50/50 at the day if retirement, and then cintinue to decrease it for the rest 5(?) years until reaching 30/70.

Compared to the past, bonds return significantly less, thanks in big part to QE, so it makes sense to increase the risk taken in order to reach the expected result. Remember that failing to achieve your financial goal because of too little risk taken is a "risk" by itself.

GMT-8
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Re: seeking advice on asset allocation, or is Vanguard crazy

Post by GMT-8 » Wed Oct 18, 2017 2:27 pm

I'd say the single most important factor in reaching your goals is making sure you retain two assets allocated in 50/50 balance:
the first wife, and one house.

Why people (specifically retirees) run out of money:

1 Too many dependents that weigh over 50 lbs (kids, horses, etc)
2 Divorce (see pt 1)
3 Second home or yacht
4 Sucked dry by parasitic children (see pt 1)
5 Starting a small business, esp real estate
6 heath care expenses
7 Over-spending or zealous distributions from assets (see pt 1)
8 Swindled by investment fraud or power of attorney/guardian

I can't attribute the source but I am sure it was on this site.

GMT-8

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