How has your AA philosophy changed over the years?

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Ron Scott
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How has your AA philosophy changed over the years?

Post by Ron Scott » Fri Nov 03, 2017 2:48 pm

From the late 1990s until recently I was heavily barbelled, with about 85% of my investable assets in a single stock (my employer). Another 5% was in index funds and the remainder in cash like accounts. While I borrowed heavily to exercise and hold instead of sell I never considered myself a risk taker, just a believer in what we were doing. I was too busy working to think about managing money.

I retired this year and now have a 30–70 portfolio, arranged in what most of you would consider a conservative and boring Bogleheads tax-efficient manner. Sometimes I look back on how I lived in it scares the hell out of me…

I recently asked my accountant, who owns a decent sized firm and sees scores of individual tax returns, how other people manage their asset allocations. He told me half of them never thought about it and appeared to have a hodgepodge of investments assembled over time without thought to diversification or tax management—in spite of his attemps to educate them.

I know we are all enlightened now, but how have you changed over time?

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Taylor Larimore
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Re: How has your AA philosophy changed over the years?

Post by Taylor Larimore » Fri Nov 03, 2017 3:26 pm

Ron:

In the 50s and 60s I had several friends who were stock brokers who convinced me to invest in individual stocks. As a result, I became a member of the American Association of Individual Investors with regular meetings at the Holiday Inn in Coral Gables, Florida.

One of our speakers was a young man named Harold Evensky. He brought with him handouts which were unusual for our speakers His speech was about "Controlling risk with your stock/bond allocation," a concept I had never heard.

Mr. Evensky's talk that evening changed the way I invest.

Thank you Harold!

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

BogleMelon
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Re: How has your AA philosophy changed over the years?

Post by BogleMelon » Fri Nov 03, 2017 3:36 pm

I came from country where investing industry is so chaotic. No retirement accounts. No financial books anywhere for the public. 100% of people depend on SS system (horrible compared to US) to retire poor!
Although I am an accountant, but I never dared to "play the stock market" back in that country. No need to say that no index funds are there. The concept is still even not heard of till this time! I was 100% cash. For retirement purposes I used a whole life policy! I thought that is the way to go. Now I look back and think "I was so stupid"! :oops:
For those who are interested: I couldn't cancel the whole life policy after arriving and living in USA. I have to be physically in my country. But I stopped the payments. I don't care anyways about what I have already put in. Another sunk cost. The cost of "once lived in a doomed country"!
(US is a financial heaven comparing to other places.. and I appreciate it!)
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Re: How has your AA philosophy changed over the years?

Post by Fallible » Fri Nov 03, 2017 3:38 pm

It really hasn't changed much for me since I started investing in the market 30 years ago. I think that's because I read a lot about mutual funds and the market before getting in. Still, I stumbled out of the starting gate by going with a commission-based broker, but soon realized the mistake, discovered Jack Bogle, and began indexing with Vanguard and generally going by age in bonds ever since.
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Hevensky
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Re: How has your AA philosophy changed over the years?

Post by Hevensky » Fri Nov 03, 2017 3:54 pm

Taylor, what a nice note. You made my day. Thank you.

Harold Evensky

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Phineas J. Whoopee
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Re: How has your AA philosophy changed over the years?

Post by Phineas J. Whoopee » Fri Nov 03, 2017 4:08 pm

Here's what I did, and a couple of years later I answered some questions about it.

For most investors I think an age-based asset allocation approach will be far more practical, but certainly any carefully considered allocation is likely to be better than the random ones OP's accountant referred to.

PJW

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celia
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Re: How has your AA philosophy changed over the years?

Post by celia » Fri Nov 03, 2017 4:57 pm

For those who are retired, like I am, their answer will depend on what was available at the time.

During my earlier working years, I was fortunate to work for a small company who contributed to a 401K for each employee. (Originally it was held by a private management firm but older employees complained about the lack of good choices and growth opportunities. So they talked management into moving it to Vanguard!) Employee contributions were optional, but I realized that the more money that was deposited early on, the more time it would have to grow. So I chose mainly funds that had the most opportunity for growth as I wouldn't be withdrawing from the account for 30+ years. When tIRAs first became available, and later Roths, I took advantage of them when I could afford to and initially bought all stock funds, for the long-term reasons. When we had about $100K, we probably started using some "balanced" funds, but, of course, we were sometimes limited to what our choices were at the time. We now have pensions that provide a nice safety net so still can afford to take more risk than is recommended for those in our age group.

At work, I associated with some older people who were more interested in investments since they were closer to retirement than I was. I learned from them. During my first year of a professional job, one person "mentored" me on finances and told me we should buy a house before we had ever considered it. So we saved up all our excess income and put it into our first house after about 2 years. About 2 years later, we moved to a better neighborhood.and still live in our second house. Since we live in California, the value of the house is more than every single dollar we have put into it (interest from a long-paid-off mortgage, property taxes, insurance, additions, landscaping, maintenance, etc). I am so glad we first bought when we did as it worked out well for us. (Yeah, for prop 13!)

We always took advantage of our employer benefits and often compared his and her choices for medical insurance, Flexible Spending Accounts, tax-deferred retirement accounts, etc and considered how much each employer would contribute. The savings added up over time.

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Re: How has your AA philosophy changed over the years?

Post by Jackson12 » Fri Nov 03, 2017 5:16 pm

Taylor Larimore wrote:
Fri Nov 03, 2017 3:26 pm
Ron:

In the 50s and 60s I had several friends who were stock brokers who convinced me to invest in individual stocks. As a result, I became a member of the American Association of Individual Investors with regular meetings at the Holiday Inn in Coral Gables, Florida.

One of our speakers was a young man named Harold Evensky. He brought with him handouts which were unusual for our speakers His speech was about "Controlling risk with your stock/bond allocation," a concept I had never heard.

Mr. Evensky's talk that evening changed the way I invest.

Thank you Harold!



Best wishes.
Taylor
Is he still an advisor?

briansmt4
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Re: How has your AA philosophy changed over the years?

Post by briansmt4 » Fri Nov 03, 2017 5:50 pm

When I was just getting started 30 years ago, I was all in stock mutual funds. I was a performance chaser, going after the number one funds and as we know, they tended to underperform following that. I did that for about 10 years, and also was in an investment club in which we bought individual stocks. We each were to present a stock and voted on several of them to purchase. That actually did better than the mutual funds, surprisingly.

About 20 years I read one of John Bogle's books and got the true religion. I moved everything to Vanguard, using it for my cash savings in the money market fund, and bought stock index funds. I didn't purchase any substantial bond funds until more recently. I was at about 80% stocks at age 55. I'm now 63 and looking at retirement in 2020. I've been able to afford to do so for several years, but have chosen to continue working because I still enjoy doing so. I have spread the indexing idea to my partners and employees, and our business 401k has been with Vanguard from its inception. It is all in index funds (we have a pooled account that we direct, with advice from our 3rd party financial advisor.)

I'm currently at 55% stocks, 36% bonds and the rest cash.I'm currently considering lowering my stock exposure...probably to 50%. It is bordering on market timing to think this way, but I'll probably make that change via selling to cash...the market seems pretty high right now.
I guess my biggest philosophical change was to go to a passive approach and not trying to kill it. It has done well for me.

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Taylor Larimore
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Re: How has your AA philosophy changed over the years?

Post by Taylor Larimore » Fri Nov 03, 2017 7:58 pm

Is he still an advisor?
Jackson12:

His firm is one of the largest and he is one of the best. You can read about him here:

https://www.sec.gov/spotlight/mutualrec ... vensky.pdf

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Dandy
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Re: How has your AA philosophy changed over the years?

Post by Dandy » Fri Nov 03, 2017 8:13 pm

Twice

In 2008 I was forced to retire and then saw my moderate portfolio allocation suffer the largest losses in my career. I had not taken into account retiring that early. That taught me that my moderate allocation which had served me well was a bit riskier near retirement than I had thought. I changed from an equity allocation of the mid 50's to the mid 40's.

A few years later, after a decent portfolio recovery I read Dr. Bernstein's ideas that if you had "enough" stop playing. That resulted in me changing the nature of my fixed income so that I had assets of low or no risk to fund my yearly drawdown until age 90. My overall allocation didn't change much but I now had a "safe" portfolio of low or no fixed income and a "risk" portfolio of intermediate bond funds and equities allocated 66/34 for an overall 43/57. For, me a sleep well arrangement.

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munemaker
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Re: How has your AA philosophy changed over the years?

Post by munemaker » Fri Nov 03, 2017 9:23 pm

Here's how mine has changed:

When I was in my 20's, I was 100% in equities.

Over the years the % equities has steadily been reduced. Now I am retired and at 50% equities. I am comfortable there and don't expect to reduce it early.

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Re: How has your AA philosophy changed over the years?

Post by Sheepdog » Fri Nov 03, 2017 10:13 pm

Hevensky wrote:
Fri Nov 03, 2017 3:54 pm
Taylor, what a nice note. You made my day. Thank you.

Harold Evensky
Welcome, Mr. Evensky. That was a nice first post to thank our wonderful mentor.
People should not say everything they think. They should think about everything they say.

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TinkerPDX
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Re: How has your AA philosophy changed over the years?

Post by TinkerPDX » Fri Nov 03, 2017 10:28 pm

First had some real money and I a) foolishly paid down a bunch of 2.625% student debt and b) invested in CDs and clean energy stocks in a taxable account because I had no idea what I was doing.

At some point I learned about IRAs and opened one. Eventually found this site (and others) and learned about indexing.

As I came into real earning phase, I settled on a small and value tilted AA (sorry Taylor ;-)), 50/50 us/ex us, and on age-10 in bonds (50-25-25 us/tips/ex us).

I've had some second guesses about that specific AA since then, but have so far concluded that staying the course is likely best. I imagine at some point I'll streamline to the three-fund, maybe st retirement, maybe sooner.

That's only ~9 years...I'll report back if my perspective changes further once I have more of it, though unless my will breaks, I expect my AA won't.
Last edited by TinkerPDX on Fri Nov 03, 2017 10:30 pm, edited 2 times in total.

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Sheepdog
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Re: How has your AA philosophy changed over the years?

Post by Sheepdog » Fri Nov 03, 2017 10:29 pm

Most of my life I didn't trust the stock market so I didn't buy any. Bank CDs and Savings Bonds were my king. Then I read some magazines and obscure investment books and I bought some stocks in my early 50s. Then the October1987 crash happened and then I knew I really didn't trust the stock market. I read some more and bought some stocks, bonds and mutual funds in the early 90s as I approached my 60s. It was a hodge podge mix, but at least I was in and invested in up to about 65% stocks. Then I found in 1998 the Morningstar Vanguard Diehard forum started by Taylor, Mel and others just as I was about to retire. Everything changed then for me.....my AA....my successful retirement financial well being. And, as my retirement moved along, my asset allocation gradually changed to more conservative until I was 72 (2005) where it has remained, but my net worth continues to grow. This shows that it is never too late to learn something new.

You all are so very fortunate to have this forum now.
People should not say everything they think. They should think about everything they say.

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Re: How has your AA philosophy changed over the years?

Post by crumbone » Sat Nov 04, 2017 12:31 am

Taylor Larimore wrote:
Fri Nov 03, 2017 3:26 pm
Ron:

In the 50s and 60s I had several friends who were stock brokers who convinced me to invest in individual stocks. As a result, I became a member of the American Association of Individual Investors with regular meetings at the Holiday Inn in Coral Gables, Florida.

One of our speakers was a young man named Harold Evensky. He brought with him handouts which were unusual for our speakers His speech was about "Controlling risk with your stock/bond allocation," a concept I had never heard.

Mr. Evensky's talk that evening changed the way I invest.

Thank you Harold!

Best wishes.
Taylor
Hevensky wrote:
Fri Nov 03, 2017 3:54 pm
Taylor, what a nice note. You made my day. Thank you.

Harold Evensky
Sheepdog wrote:
Fri Nov 03, 2017 10:13 pm

Welcome, Mr. Evensky. That was a nice first post to thank our wonderful mentor.
This really is a remarkable community. Thank you (all three) for making it one.

msk
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Re: How has your AA philosophy changed over the years?

Post by msk » Sat Nov 04, 2017 1:53 am

Started off in RE in my early 30s; bought 3 houses (each classified as my "home") with 90% mortgages in 3 different countries, simultaneously. So when I applied for each mortgage, I did in fact have no loans at all. Easy approvals since I had a very high income as an expatriated employee. Each mortgage was less than a year's income. What else to do when you have little capital :mrgreen: Added to RE in partnership with Dad and Sister. Decades later some had done spectacularly well, rest kept up with inflation. Location, location; remember, in both space and time!

Started dabbling in stocks mid 1980s, zapped by the crash of 1987. That taught me to be resilient to all future crashes :mrgreen: Discovered and enjoyed SPY and BRK, for decades. Dabbled in a tiny stock market of a country I was then working in. What I learned after decades dabbling: tiny stock markets can be very inefficient (but illiquid), hence ripe for stock-picking if you have nerves of steel and confident in your reading of financial reports (provided the management is not cheating!). Stock-picking in major markets is a loser's game, but all BHs know that!

Retired at age 55 on 1.1.2000. Started getting rid of all RE (the location, location bits have moved on. In time, all hot markets cool...). That tiny stock market has grown and become much more efficient :annoyed so only play left was Options on SPY. Worked well through the couple of crashes in the 2000s but now I think it's time to retire from stock market dabbling altogether. Over a couple of years currently shifting to worldwide stock ETFs by market weight. That is my "moderation" of volatility and risk, and is perhaps appropriate at my NW that will mostly pass onto my heirs. Never bought bonds and I do not intend to as long as bonds yield < 3% real. I do not expect to see that happen during my remaining lifetime.

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Re: How has your AA philosophy changed over the years?

Post by SGM » Sat Nov 04, 2017 4:17 am

For many years I have owned individual stock and no bonds.I did learn about investing in individual stocks from conversations with older employees. Now that I am retired, I am more conservative and own bond funds as well. Over time I have been selling individual stocks and buying broad index stock and bond funds. I still have large capital gains so I have been selling individual stocks over several years.

I have had some Vanguard index funds for 30 years. Now low cost index stock and bond funds make up the majority of my portfolio.

As I am early in retirement I am concerned less about the total value of my portfolio and more about having sufficient income over the next 40 years for the two of us. I am using a number of strategies that should protect against a poor sequence of returns early in retirement.

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stemikger
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Re: How has your AA philosophy changed over the years?

Post by stemikger » Sat Nov 04, 2017 4:52 am

Other than the first year or two I started investing and started reading, I always held a two fund portfolio. Reading Paul Farrell's book "The Lazy Person's Guide to Investing" changed my investing life. I held a 50/50 two fund couch potato portfolio that was created by Scott Burns. For many years in my 30s and 40s I was 50/50. Now I'm 53 and hold the same two funds but 60/40. I never held international.

Being a big fan of Warren Buffett, I took to heart about holding more equities, but I would not attempt his 90/10 portfolio he is leaving for his wife. I follow Jack's advice and hold two funds and one day I will put it in the Vanguard Balanced Fund unless I feel that is too risky for me at that time. I take my social security into consideration so 60/40 may be good for life. I would like to still get decent growth in retirement and leave some behind to my daughter and charity.

Having said that, if I had to do it all over again with what I know now, I would have been 90% equities in my 30s and early 40s and bring it to 60/40 eventually. Being so conservative that young was a mistake, but I was still learning.

I was lucky enough to be young enough to benefit from index funds from the very beginning.

Never held a single stock in my life.
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Re: How has your AA philosophy changed over the years?

Post by Longtermgrowth » Sat Nov 04, 2017 5:11 am

I have to say, I didn't know anything before discovering Bogleheads. My searches brought me here first and foremost. Another reason I'm happy and yet sad about Google (I almost put a decent amount of money in their stock many years ago).

Once here, no matter what asset allocation you decide on between domestic and international stocks, there's a good chance you'll come out much better than any other options presented.

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Re: How has your AA philosophy changed over the years?

Post by ruralavalon » Sat Nov 04, 2017 5:40 am

Hevensky wrote:
Fri Nov 03, 2017 3:54 pm
Taylor, what a nice note. You made my day. Thank you.

Harold Evensky
Welcome to the forum :) . You have inspired and helped many people. Thank you.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: How has your AA philosophy changed over the years?

Post by angelescrest » Sat Nov 04, 2017 6:56 am

Sheepdog wrote:
Fri Nov 03, 2017 10:13 pm
Hevensky wrote:
Fri Nov 03, 2017 3:54 pm
Taylor, what a nice note. You made my day. Thank you.

Harold Evensky
Welcome, Mr. Evensky. That was a nice first post to thank our wonderful mentor.
Indeed, beautiful story by Taylor and what a lovely way for the gentleman to join in response. Welcome to the forum!

SimplicityNow
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Re: How has your AA philosophy changed over the years?

Post by SimplicityNow » Sat Nov 04, 2017 9:13 am

When I started investing I first purchased individual stocks and like Taylor I joined the AAII. I started an investment club and we did quite well although it was hard not to do well during those years (1995-1999). remember spending a lot of time in the library researching the value line.
After spending a lot of time trying to convince members of the club that listening to Maria Bartiromo and CNBC was not a reliable method to choose stocks I left the club and began investing more heavily in our work retirement plans at about an 80/20 ratio of stocks/bonds.
Luck had it that, for reasons totally unrelated to any prescience, we lowered our ratio to about 30/70 in 2006-2007 but I was more conservative with new money invested.
As I neared retirement I started researching the internet and found the Bogleheads and saw the light! (Thanks Jack and all the people here).

Today we are 60/40 and will probably stay there for the foreseeable future.

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Re: How has your AA philosophy changed over the years?

Post by TheTimeLord » Sat Nov 04, 2017 9:48 am

The older I get and the larger my portfolio becomes the lower my equity allocation is. 10 years ago I might have tattooed 65/35 for life on my buttocks, but today 55/45 would sound aggressive to me. It seems once I got close to having enough my brain switched from worrying about growth and accumulation to focusing on risk management. Basically, I have traded a fair amount in gains over the past 5 years ago for the ability to SWAN. I think it is a good trade because I didn't need to take the risk and who knew what those 5 years were going to hold back then. The way things have worked out I am beyond where I ever realistically thought I would be so I am starting to take more risk with new contributions but I am even questioning that now. Including 2017, 4 of the last 5 years have been a fair bit beyond expectations from a absolute dollar perspective and it has been quite a learning experience figuring out how to handle it with lots of mental ebbs and flows as I try to find and maintain balance in life with this new found financial success and security.
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ruralavalon
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Re: How has your AA philosophy changed over the years?

Post by ruralavalon » Sat Nov 04, 2017 10:09 am

I finished school in 1971, am 72 years old, and comfortably retired since 2011.

I began a post which became a very long rambling reminiscence. So I will shrink that down to just 3 points.
1) It is a big mistake to believe that the investing landscape will remain static over 30-40 years of a working life.
2) Starting early is good, but the 30s or 40s or even 50s is not too late if a concentrated effort is made.
3) I made what are clearly big mistakes, did few things right until later in life, but learned good lessons from both a commission-based broker early and from a fee-only planner later.

After graduation in 1971 I worked for three firms, I never worked anyplace that ever offered a defined benefit pension. The 401k made my retirement possible, even though 401ks didn't exist the 10 years I worked, and I couldn't use a 401k until about 20 years after I started working.

Congress enacted ERISA in 1974 allowing deductible IRAs, contribution limit $1.5k.

What became Section 401k of the tax code was first enacted in 1978, and a very few companies started operations of the first 401k plans in 1982. Employee Benefit Research Institute, February 2005, "History of 401(k) Plans: An Update".

I ignored investing. I concentrated on my work, and raising a family. Our financial activity consisted of saving, buying a home, raising 4 children and paying for their university educations. I first had an IRA around 1980. I first had a 401k available later in the 1980s, and didn't begin serious contributions until about 1990 (age 45).

We had a broker with a major national brokerage firm, who was a personal friend. Over the years I really didn't make investing decisions, the broker or an outside manager, made suggestions, explained a reason, and I simply agreed without thought. I was initially 100% individual stocks, and late in the 1990s added an actively managed stock mutual fund. I don't even recall the fund name, but am sure it wasn't an index fund.

Our broker friend drilled into my head that it is good stay invested, not to try to jump in and out to the market.

Staying invested no matter what is something I did well, and still do.

Not paying attention is something I did well, and can still do.

Not paying attention to the market I sailed through 1987 and 2000-01 without a care, and sold nothing in a panic.

Around 2005 (age 60) I stated to worry about retirement, realized that my broker friend could not help plan for that, and realized we were paying him several thousand dollars per year. I knew that index funds were a good idea, read somewhere that there was such a thing as a fee-only advisor, and located one about 90 miles away. We hired a fee-only planner, and for about 6-7 half day long conferences paid her a one time fee of about $7k, an amount roughly equal to what we had been paying our broker friend every year.

I learned to care about fees. She had us both read a book on investing, learn what asset allocation is, start estimating retirement living expenses, start tracking current expenses, review websites of several fund firms to chose a firm to use, learn to use Morningstar to decide on funds to use, and consider taxes. She had me pick funds and an asset allocation. Well worth the fee in my opinion. I have managed our investments since then.

I still care about asset allocation, expenses, and fund selection.

I have read around a dozen good books on investing, and still use Morningstar as a resource.

. . . . .

EDIT: When I fired our broker that was a very brief phone call, I told him we needed retirement planning and were going to move to Vanguard. We remained friends, and are friends to this day.
Last edited by ruralavalon on Sat Nov 04, 2017 10:45 am, edited 8 times in total.
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Wildebeest
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Re: How has your AA philosophy changed over the years?

Post by Wildebeest » Sat Nov 04, 2017 10:14 am

When we sold our business in 2007, we looked at real estate investments or index funds. We went for index funds, because as far as we could determine for the same return, there is little work associated with it.

Our assets were halved in the next 2 years. I was miserable. I did not check our brokerage accounts for a year or more when it turned it out there was no quick enough bounce for me. I feel very fortunate that we are in a great bull market.

It is nice getting older so that this AA stuff has lost it's poignancy ( a raging bull market helps).
The Golden Rule: One should treat others as one would like others to treat oneself.

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Re: How has your AA philosophy changed over the years?

Post by DrGoogle2017 » Sat Nov 04, 2017 10:52 am

I didn’t discover Boggle forum until after I retired. Same with Firecacl. I did it my way like one of Frank Sinatra’s songs .
I used to pick individual stocks back in early 80s, after college. Then I moved to mutual funds and trade options. But was in 100% stocks for my retirement money. I only reduced to less stocks after 2009, but I didn’t lose any money in 2009, I was in cash. I learned my lesson really well after 2000-2001. Had I not being at a start up working 12 hours a day, hoping to make $25 million by the time I was 45, I might not have been so exuberant. Now I’m older and wiser, I treat my money carefully. I have lower AA, with no more than 50% in stocks. I was assigned some stocks this year and made my AA went up to 65% and I got nervous. I quickly reduced my portfolio to stay within range.

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ruralavalon
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Re: How has your AA philosophy changed over the years?

Post by ruralavalon » Sat Nov 04, 2017 11:47 am

I guess I forgot to discuss asset allocation.

1) No IRA or 401k until the 1980s, age around 35.
2) No serious contributions until about 1990, around age 45.
3) We were 100% individual stocks until the 1990s.
4) We added an actively managed stock mutual fund around age 50, still 100% equities.
5) Starting 2005, age 60, we were 65/35 stock/bond.
6) The 2008 crash (age 63) reversed that to about 35/65, I continued contributions and sold some Treasury bonds to buy stock index funds to get to 50/50.
7) I retired 2011, still 50/50, still at 50/50 today with no plans to change.

This is not what you would call a "glidepath".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Thrifty Femme
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Re: How has your AA philosophy changed over the years?

Post by Thrifty Femme » Sat Nov 04, 2017 5:33 pm

When I first found this site in 2015, my household was 100% stocks. We were 100% stocks because Suze Orman said bond funds were dumb. Since she didn't recommend an individual bond, we didn't buy any bonds. We road out the great recession by not looking at our statements! Soon I learned this was an unnecessary risk. Now we are about 75/25.

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Re: How has your AA philosophy changed over the years?

Post by MrPotatoHead » Sat Nov 04, 2017 6:36 pm

My asset allocation has been dramatically altered as my assets grew. When I was at 25 x expenses I originally thought I would retire with a classic 60-40 stock to bond allocation and just keep it there indefinitely and use a 4% withdraw rate for the first 15 years and 2% (post social security)thereafter.

Once I was at 37.5 x Expenses I started thinking more like 75-25 stock to bond allocation.

Once I was at 50 x Expenses I still thought 75-25 seemed about right.

Now at over 62.5 x Expenses I am thinking 80-20 may be right.

If I get to 75 x Expenses I am thinking more along the lines of 85-15.

Essentially my thought is once I have 10 years of expenses in CDs/low volatility bond like instruments I should be able to weather most any storm. My planned withdraw rate target is now 1.6%.

As a related aside, a lot of my thoughts are guided in part by my religious views which I only mention as I see how some people in this forum react to low withdraw rates.

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TheTimeLord
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Re: How has your AA philosophy changed over the years?

Post by TheTimeLord » Sun Nov 05, 2017 9:43 am

MrPotatoHead wrote:
Sat Nov 04, 2017 6:36 pm
My asset allocation has been dramatically altered as my assets grew. When I was at 25 x expenses I originally thought I would retire with a classic 60-40 stock to bond allocation and just keep it there indefinitely and use a 4% withdraw rate for the first 15 years and 2% (post social security)thereafter.

Once I was at 37.5 x Expenses I started thinking more like 75-25 stock to bond allocation.

Once I was at 50 x Expenses I still thought 75-25 seemed about right.

Now at over 62.5 x Expenses I am thinking 80-20 may be right.

If I get to 75 x Expenses I am thinking more along the lines of 85-15.

Essentially my thought is once I have 10 years of expenses in CDs/low volatility bond like instruments I should be able to weather most any storm. My planned withdraw rate target is now 1.6%.

As a related aside, a lot of my thoughts are guided in part by my religious views which I only mention as I see how some people in this forum react to low withdraw rates.
Probably 18 months ago I was totally aligned with your thinking, right down to the 10 years of expenses. What has been challenging for me is as my portfolio has grown I have raised the amount I plan to have available to spend each month (lifestyle creep or enhancement) so the idea of taking on large amounts of extra risk which could cause me to retrench my lifestyle has become less attractive. Add to that my valuing the early years of my retirement over the later years I discovered my AA desires have moderated quite a lot. I became more focused on have X dollars allocated to equities so I could still participate in any gains in a meaningful way but not so much that my target lifestyle could be effected by a significant pullback of 30%-40%. I would also have to admit deep down when I see my portfolio value grow day after day I do think this isn't going to go on forever, I have seen this movie and know how it ends. So to some extent, if I am honesty, market timing is creeping into my decisions because I have no need to take the risk . At the moment I am of the mind I would rather push a large amount of the chips on the table after the next large correction or bear market than today, not saying I will make money that way just feel I risk losing less money. Still with all that I do put additional funds into to the market each month, just not as aggressively as 18 months ago me would have thought.
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Re: How has your AA philosophy changed over the years?

Post by TomatoTomahto » Sun Nov 05, 2017 10:42 am

Initially, before Bogleheads, I was all equities and a ragtag lot of them.

After BH, I moved to 60/40.

Then I started migrating to 50/50.

At that point, after doing a sanity check on BH, I moved to something like a Liability Matching Portfolio, for lack of a better term, and have $3M in Fixed Income (mostly TBM in tax deferred accounts, some Intermediate Tax-Free in taxable, some I-bonds, etc.) in which I reinvest dividends. My "upper bound" is $3.5M, and sometimes I purchase TBM in tax deferred; no rush. Additional incoming monies that are to be saved in taxable go into equities, as much as the limit allows in PRIMECAP annually, then TSM and TISM, more TISM than in the past.

I find this new AA philosophy less "finicky" than always wondering what percentage I had in bonds, whether I needed to rebalance, etc.

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Re: How has your AA philosophy changed over the years?

Post by midareff » Sun Nov 05, 2017 10:56 am

In the 70's and 80's I was invested in individual stocks which changed to equity funds in the 90's. The late 90's taught me to own bonds and diversify across sectors using the total market. The 2000's taught me to just follow my plan and the post 2007-8 decline convinced me to be more conservative with my AA. Presently I'm re-balancing back to my conservative stance as this year's run up has changed some percentages and with a Shiller near 31.5 my internal AA will be adjusted to include a bump in international to the 42.5% to 45% of equities range. 70 next month and RMD starts next year. AA roughly 45% equities 55% FI.

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Re: How has your AA philosophy changed over the years?

Post by magneto » Sun Nov 05, 2017 11:10 am

TheTimeLord wrote:
Sun Nov 05, 2017 9:43 am
when I see my portfolio value grow day after day I do think this isn't going to go on forever, I have seen this movie and know how it ends. So to some extent, if I am honesty, market timing is creeping into my decisions because I have no need to take the risk . At the moment I am of the mind I would rather push a large amount of the chips on the table after the next large correction or bear market than today, not saying I will make money that way just feel I risk losing less money. Still with all that I do put additional funds into to the market each month, just not as aggressively as 18 months ago me would have thought.
Anyone who follows an Investment Formula Plan other than Constant Ratio, seems to feel the need to be apologetic :!:
Remember Constant Ratio is just one of a number of formula plans.
The big advantage with CR seems to be that in common with some others, it enables the investor to focus purely on their own portfolio and ignore the outside world ?
And that advantage should not be underestimated.
There are plenty of distractions out there.
'There is a tide in the affairs of men ...', Brutus (Market Timer)

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TheTimeLord
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Re: How has your AA philosophy changed over the years?

Post by TheTimeLord » Sun Nov 05, 2017 11:18 am

magneto wrote:
Sun Nov 05, 2017 11:10 am
TheTimeLord wrote:
Sun Nov 05, 2017 9:43 am
when I see my portfolio value grow day after day I do think this isn't going to go on forever, I have seen this movie and know how it ends. So to some extent, if I am honesty, market timing is creeping into my decisions because I have no need to take the risk . At the moment I am of the mind I would rather push a large amount of the chips on the table after the next large correction or bear market than today, not saying I will make money that way just feel I risk losing less money. Still with all that I do put additional funds into to the market each month, just not as aggressively as 18 months ago me would have thought.
Anyone who follows an Investment Formula Plan other than Constant Ratio, seems to feel the need to be apologetic :!:
Remember Constant Ratio is just one of a number of formula plans.
The big advantage with CR seems to be that in common with some others, it enables the investor to focus purely on their own portfolio and ignore the outside world ?
And that advantage should not be underestimated.
There are plenty of distractions out there.
Not apologetic since I regret none of the adjustments I have made, more trying to note how growing older (shortening time horizon) and increased portfolio value (less need to take risk) can alter what I thought were almost absolutes in my investing beliefs.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: How has your AA philosophy changed over the years?

Post by magneto » Sun Nov 05, 2017 11:24 am

TheTimeLord wrote:
Sun Nov 05, 2017 11:18 am
magneto wrote:
Sun Nov 05, 2017 11:10 am
TheTimeLord wrote:
Sun Nov 05, 2017 9:43 am
when I see my portfolio value grow day after day I do think this isn't going to go on forever, I have seen this movie and know how it ends. So to some extent, if I am honesty, market timing is creeping into my decisions because I have no need to take the risk . At the moment I am of the mind I would rather push a large amount of the chips on the table after the next large correction or bear market than today, not saying I will make money that way just feel I risk losing less money. Still with all that I do put additional funds into to the market each month, just not as aggressively as 18 months ago me would have thought.
Anyone who follows an Investment Formula Plan other than Constant Ratio, seems to feel the need to be apologetic :!:
Remember Constant Ratio is just one of a number of formula plans.
The big advantage with CR seems to be that in common with some others, it enables the investor to focus purely on their own portfolio and ignore the outside world ?
And that advantage should not be underestimated.
There are plenty of distractions out there.
Not apologetic since I regret none of the adjustments I have made, more trying to note how growing older (shortening time horizon) and increased portfolio value (less need to take risk) can alter what I thought were almost absolutes in my investing beliefs.
Then feel free to drop the moniker 'market timing'.
That is arguably something entirely different.
Good Luck
25/25/50.
'There is a tide in the affairs of men ...', Brutus (Market Timer)

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Re: How has your AA philosophy changed over the years?

Post by Dottie57 » Sun Nov 05, 2017 12:21 pm

When Inwas 31, the small company I worked for started a 401k with a small regional investment company. The investment funds were created by the 401k company and there were 3. We had a stock fund, a bond fund and a stable value fund. Twice a year the investment advisor for our company came out for a meeting where we could ask questions. Many of employees were engineers so the questions wwere pointed and interesting and the meeting were always fun and free wheeling. I was fairly conservative with 70% stock.

Now I work for megacorp and have a 401k with Fidelity. At 60 I am at 50/50 allocation. I want to maintain what I have but also have some growth.

This group has been so helpful. It has given me the courage to exit from non-beneficial relationship with a Financial Advisor and to go with a simple 3 fund.

Philosophy is: I can manage my own money!

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Re: How has your AA philosophy changed over the years?

Post by ruralavalon » Sun Nov 05, 2017 12:27 pm

MrPotatoHead wrote:
Sat Nov 04, 2017 6:36 pm
My asset allocation has been dramatically altered as my assets grew. When I was at 25 x expenses I originally thought I would retire with a classic 60-40 stock to bond allocation and just keep it there indefinitely and use a 4% withdraw rate for the first 15 years and 2% (post social security)thereafter.

Once I was at 37.5 x Expenses I started thinking more like 75-25 stock to bond allocation.

Once I was at 50 x Expenses I still thought 75-25 seemed about right.

Now at over 62.5 x Expenses I am thinking 80-20 may be right.

If I get to 75 x Expenses I am thinking more along the lines of 85-15.

Essentially my thought is once I have 10 years of expenses in CDs/low volatility bond like instruments I should be able to weather most any storm. My planned withdraw rate target is now 1.6%.

As a related aside, a lot of my thoughts are guided in part by my religious views which I only mention as I see how some people in this forum react to low withdraw rates.
We don't have nearly as high a multiple of expenses, or nearly as low a withdrawal rate. Our asset allocation is 50/50, and the withdrawal rate is currently 3.23%.

We do have about 14 years of expenses in bonds or bond funds, which is longer than our life expectancies per period life table, and even longer than medical underwriting would give us on a fixed annuity.

I have been considering a new asset allocation, around 60/40, based on an thought process similar to yours plus a desire to simplify our portfolio down to a single fund like Vanguard LifeStrategy Moderate Growth or Vanguard Balanced Index Fund. I don't see a single fund solution with a 50/50 allocation.

I have weathered past investing storms without panic selling, we seem to have "enough" in bonds or bond funds to live on for the rest of our lives, so why not? Still I hesitate.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: How has your AA philosophy changed over the years?

Post by MrPotatoHead » Sun Nov 05, 2017 8:10 pm

TheTimeLord wrote:
Sun Nov 05, 2017 9:43 am

Probably 18 months ago I was totally aligned with your thinking, right down to the 10 years of expenses. What has been challenging for me is as my portfolio has grown I have raised the amount I plan to have available to spend each month (lifestyle creep or enhancement) so the idea of taking on large amounts of extra risk which could cause me to retrench my lifestyle has become less attractive. Add to that my valuing the early years of my retirement over the later years I discovered my AA desires have moderated quite a lot. I became more focused on have X dollars allocated to equities so I could still participate in any gains in a meaningful way but not so much that my target lifestyle could be effected by a significant pullback of 30%-40%. I would also have to admit deep down when I see my portfolio value grow day after day I do think this isn't going to go on forever, I have seen this movie and know how it ends. So to some extent, if I am honesty, market timing is creeping into my decisions because I have no need to take the risk . At the moment I am of the mind I would rather push a large amount of the chips on the table after the next large correction or bear market than today, not saying I will make money that way just feel I risk losing less money. Still with all that I do put additional funds into to the market each month, just not as aggressively as 18 months ago me would have thought.
I appreciate your sentiments. Part of my sentient is watching elderly extended family members sitting on piles of assess afraid to spend it for fear of running out. We have long lived relations of each side, moreover the research I am seeing indicate we may be on the cusp of increasing lifespans again for the select few and then my relative age (middle 50s).

Constitution wise I batted an eye in the 2008 downturn but that was about it. In fact I turned it into a bit of game, whenever I checked on my investments or when making those yearly Roth IRA contributions I played Surfaris' Wipeout. I could see myself doing the same even if I took a million plus hit. What the heck, a sense of humor does help the situation.

The other thing that changed is my growing disdain for individual stocks during a downturn. I have no issue with indexes or even active mutual funds that can reallocate capital but in a strong downturn some companies simply do not come back. As a buy and holder I have made far too many round trips with individual stocks to see them suitable for a set it and forget it portfolio like a broad based index presents. And of course there is the age based issues that occur that make me think that indexes or active mutual funds are a better choice as one ages.

On the other had, I can still see dumpster diving for quality stocks as I have done in the past (Coach, Mattel, Tupperware as examples) and then parting with them as the market matures.

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Re: How has your AA philosophy changed over the years?

Post by MrPotatoHead » Sun Nov 05, 2017 8:28 pm

ruralavalon wrote:
Sun Nov 05, 2017 12:27 pm
I have weathered past investing storms without panic selling, we seem to have "enough" in bonds or bond funds to live on for the rest of our lives, so why not? Still I hesitate.
While this may seem overly simplistic I remember Martin Zweig making a comment 30 plus years ago about why the stock market rose on a given day; he said "Because there were more buyers than sellers."

So simplifying everything, I think the relevant question is, do you think capitalism (in the generic sense, not splitting hairs over pure capitalism etc) will persist in the future? My answer to that question is yes. The next piece is, do you think population growth will continue, well globally that appears true, though on a country by country basis it clearly is not true But when I combine those two disparate factors I tend to see a very long term upward bias on equities.

So with 10 to 15 years of expenses under the belt, I tend to think, overall, equities are a logical move.

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Re: How has your AA philosophy changed over the years?

Post by JW-Retired » Sun Nov 05, 2017 9:02 pm

I've always been fairly Bogleheaded, but on top of that we had the spectacular luck to find this forum in 2007. That has made our investment approach perfect! There is no other forum like it.

Thank you Taylor, SScritic, livesoft, and many others! :beer
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Re: How has your AA philosophy changed over the years?

Post by 2comma » Sun Nov 05, 2017 11:27 pm

My company had a good Vanguard plan. It took me a few years to build up to the max 401k contributions and a few years to find the BHs and decide 80/20 was the right AA for me during the accumulation phase. I planned to follow the age in bonds as I got older. I stumbled as the recession started. I was getting close to retirement and I really, really wanted to retire as early as possible. My investing mentor, the guy that told me about John Bogle was a little older and perhaps wanted to retire more than I did, mentioned he was concerned about the economy and had moved a lot of his money into bonds. I felt the full force of fear and trotted back to my desk, logged into Vanguard and made some drastic changes to my AA. Over the next few months I finally settled on 20/80. What they say about being right twice I completely understand now. I kept track of how much I didn't loose but once the market improved I lost track of how much I would gained if I had just stayed the course. I suspect I more or less broke even. The most important thing I learned is that when I was close to retirement I could ignore the noise but I couldn't stomach large dollar amount losses. Once I felt safe again I decided that all I needed to accomplish was to beat inflation by a little, I didn't need more and if things really went south I couldn't stay the course let alone rebalance back into stocks. Turns out I retired at 58 with a nice buyout offer, I decided 30/70 would work for me (I won't be tempted to sell no matter what). The more I've looked at my and DW's pensions, our SS and our combined savings I've relaxed a little and let the AA grow to 35/65. Once I've been retired for a while I might decide on 40/60 but I know I'll never go beyond that. Since the recession I've been gaining about 5%/year, I know if I was more aggressive I'd have a lot more but it doesn't bother me at all. Actually, I'm a little over 35% of stocks and keep thinking I need to rebalance just a little.
If I am stupid I will pay.

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Re: How has your AA philosophy changed over the years?

Post by technovelist » Mon Nov 06, 2017 1:00 am

Probably my first conscious AA was when I held a 4x25 HBPP (gold, stocks, cash, and long bonds) for about 10 years in the 80's and 90's. Then I switched to mostly gold before Y2K (not trusting the financial system). I started retirement planning by buying Swiss franc annuities in the mid 00's.

I never sold any significant amount of gold until 2012, when taxes were going up, which was a pretty good call considering how much it went up in that period.

However, I bought most of it back with a reset basis that has protected me against capital gains for the subsequent years. :oops:

Now I'm about 50% gold, 35% Swiss francs, and 15% US dollars. My house is paid off, but I don't count it in my net worth.
In theory, theory and practice are identical. In practice, they often differ.

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Re: How has your AA philosophy changed over the years?

Post by ruralavalon » Mon Nov 06, 2017 9:43 am

MrPotatoHead wrote:
Sun Nov 05, 2017 8:28 pm
ruralavalon wrote:
Sun Nov 05, 2017 12:27 pm
I have weathered past investing storms without panic selling, we seem to have "enough" in bonds or bond funds to live on for the rest of our lives, so why not? Still I hesitate.
While this may seem overly simplistic I remember Martin Zweig making a comment 30 plus years ago about why the stock market rose on a given day; he said "Because there were more buyers than sellers."

So simplifying everything, I think the relevant question is, do you think capitalism (in the generic sense, not splitting hairs over pure capitalism etc) will persist in the future? My answer to that question is yes. The next piece is, do you think population growth will continue, well globally that appears true, though on a country by country basis it clearly is not true But when I combine those two disparate factors I tend to see a very long term upward bias on equities.

So with 10 to 15 years of expenses under the belt, I tend to think, overall, equities are a logical move.
You are probably right.

I will probably eventually go ahead with a single fund 60/40 asset allocation (either Vanguard LifeStrategy Moderate Growth or Vanguard Balanced Index Fund), after mulling it over some more.

Our current asset allocation of 50/50 using 5 funds and Treasury bonds is good, there really no need to simplify down to one fund right now. Will probably make the change over the next 1-3 years.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: How has your AA philosophy changed over the years?

Post by Omo » Mon Nov 06, 2017 7:26 pm

I started buying individual shares in about 1998 when I had very little money but lived at home. My dad was a share market guru of sorts and loved technical analysis. I gave it a try but it made no sense to me.

I then lost a bit in the ensuing 2000 crash but then got embroiled with life, buying a home etc and had no money to invest. Between 2006 and 2009 I did a LOT of reading. One of the books I read in 2007 was "The Four Pillars of Investing". It made more sense to me, was a lot more structured/ordered and was the catalyst to me reading more about passive investing. I think the book also had a link to this forum.

I started making a bit more money by 2008 and started passive investing with about a 60/40 split. That drifted to 50/50 which I was comfortable with but recently has climbed back up to 60/40 or 70/30 or so owing to market factors beyond my control. In the past 1-1.5 years I have "re-balanced" solely into cash to try and tilt me back toward 50/50 but this hasn't really worked as the market continues rise, inexorably it seems and despite commonish sense.

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TheTimeLord
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Re: How has your AA philosophy changed over the years?

Post by TheTimeLord » Tue Nov 07, 2017 8:30 am

MrPotatoHead wrote:
Sat Nov 04, 2017 6:36 pm
My asset allocation has been dramatically altered as my assets grew. When I was at 25 x expenses I originally thought I would retire with a classic 60-40 stock to bond allocation and just keep it there indefinitely and use a 4% withdraw rate for the first 15 years and 2% (post social security)thereafter.

Once I was at 37.5 x Expenses I started thinking more like 75-25 stock to bond allocation.

Once I was at 50 x Expenses I still thought 75-25 seemed about right.

Now at over 62.5 x Expenses I am thinking 80-20 may be right.

If I get to 75 x Expenses I am thinking more along the lines of 85-15.

Essentially my thought is once I have 10 years of expenses in CDs/low volatility bond like instruments I should be able to weather most any storm. My planned withdraw rate target is now 1.6%.

As a related aside, a lot of my thoughts are guided in part by my religious views which I only mention as I see how some people in this forum react to low withdraw rates.
This post has definitely got me thinking that maybe I have turned too conservative by peeking at the market valuations. Given that I believe I have enough and that I am still cashing in on my human capital I am rethinking how I invest my future contributions. Even if this is a horrible time to invest I would estimate that every dollar I invest today in the market would still be worth somewhere around 60 cents in a bear market and that 60 cents would be on top of what I consider enough. Of course, I also believe that longer term, 10-15 years, that the same dollar would have actually increased in value, so I am reassessing how I am deploying my capital going forward given I have a secure base of 10 years of expenses in FI instruments. Thanks for the thought provoking post.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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