Asset Allocation Revised

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Duffydog1
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Joined: Sat Dec 03, 2016 1:42 pm

Asset Allocation Revised

Post by Duffydog1 » Sat Jan 13, 2018 8:15 am

By way of introduction, I am turning 78 and my wife is turning 71. I have 2 questions and would appreciate your thoughts. We have remained substantially in cash and bonds with a handful of blue chip stocks, Now given my retirement we are entering the market in a conservative fashion as we are not risk takers. Our financial advisor has recommended an AA of 35(equities) to 60 (fixed) and 5 in cash. Based on my research I think we should be at 20 (equity) and 75 fixed and 5 cash. First question is 35% reasonable, and am I too conservative with 20%. I have over $2 million. Given our intolerance for loss, is there another consideration? Our advisor indicated that we should invest based on the younger spouses age (71) and not mine (78), but she is more conservative than me.

Secondly I have been advised place all cash in on alum sum basis and not to average over 12 or more months. I have no experience with this subject and would appreciate your thoughts.

3funder
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Re: Asset Allocation Revised

Post by 3funder » Sat Jan 13, 2018 8:47 am

Go 30/60/10 and call it a day?

boyntonstu
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Joined: Tue Dec 26, 2017 11:18 pm

Re: Asset Allocation Revised

Post by boyntonstu » Sat Jan 13, 2018 9:07 am

By way of introduction, I am turning 78 and my wife is turning 71. I have 2 questions and would appreciate your thoughts. We have remained substantially in cash and bonds with a handful of blue chip stocks, Now given my retirement we are entering the market in a conservative fashion as we are not risk takers. Our financial advisor has recommended an AA of 35(equities) to 60 (fixed) and 5 in cash. Based on my research I think we should be at 20 (equity) and 75 fixed and 5 cash. First question is 35% reasonable, and am I too conservative with 20%. I have over $2 million. Given our intolerance for loss, is there another consideration? Our advisor indicated that we should invest based on the younger spouses age (71) and not mine (78), but she is more conservative than me.

Secondly I have been advised place all cash in on alum sum basis and not to average over 12 or more months. I have no experience with this subject and would appreciate your thoughts.
[/quote]

By way of introduction, I am turning 78 and my wife is turning 71. I have 2 questions and would appreciate your thoughts.

You guys are 1 yer behind us.

By way of introduction, I am 79 and my wife is 71. I have 2 questions and would appreciate your thoughts.

This is what Vanguard recommended yesterday.

Image

retiredjg
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Re: Asset Allocation Revised

Post by retiredjg » Sat Jan 13, 2018 9:08 am

Your stock to bond ratio should be dependent on your need and willingness to take risk. I don't think the 3rd component, ability to take risk, has much to do with your situation.

Apparently, you are willing to take the risk of 20% stock. Do you have a need to take more risk? If so, it is not indicated in your post. You have $2 million. How much of that do you need/spend each year?

The advisor's recommendation of 35% is certainly reasonable for people who are comfortable with it. It does not appear you would be. And it is certainly reasonable to invest based on your wife's age. Again, it does not sound like either of you would be comfortable with a full 35% in stocks.

There was a chart posted some time in the past indicating that a portfolio with a small allocation to stocks was actually less risky than a portfolio of all bonds. I think the magic number was 25% stocks, but it might have been 20%. My thinking at that time is that I might want to always have at least 25%. That 25% also happens to be the minimum number suggested by investing great Ben Graham.

My caution would be about leaving a great deal in cash which has little to no hope of keeping up with inflation. I'd have little in cash. CDs and short term bonds at the very least.

I'm a lump sum investor, but I'm not sure you are. I think 12 months is too long a time to get your portfolio up to 20% stock. Consider setting up a regular schedule and buy a certain amount every week or 2 weeks and get 'r done within 6 months. The buying should be "no matter what". In fact, if the market dips, you might want to buy a little extra that time.

Duffydog1
Posts: 61
Joined: Sat Dec 03, 2016 1:42 pm

Re: Asset Allocation Revised

Post by Duffydog1 » Sat Jan 13, 2018 9:39 am

boyntonstu wrote:
Sat Jan 13, 2018 9:07 am
By way of introduction, I am turning 78 and my wife is turning 71. I have 2 questions and would appreciate your thoughts. We have remained substantially in cash and bonds with a handful of blue chip stocks, Now given my retirement we are entering the market in a conservative fashion as we are not risk takers. Our financial advisor has recommended an AA of 35(equities) to 60 (fixed) and 5 in cash. Based on my research I think we should be at 20 (equity) and 75 fixed and 5 cash. First question is 35% reasonable, and am I too conservative with 20%. I have over $2 million. Given our intolerance for loss, is there another consideration? Our advisor indicated that we should invest based on the younger spouses age (71) and not mine (78), but she is more conservative than me.

Secondly I have been advised place all cash in on alum sum basis and not to average over 12 or more months. I have no experience with this subject and would appreciate your thoughts.
By way of introduction, I am turning 78 and my wife is turning 71. I have 2 questions and would appreciate your thoughts.

You guys are 1 yer behind us.

By way of introduction, I am 79 and my wife is 71. I have 2 questions and would appreciate your thoughts.

This is what Vanguard recommended yesterday.

Image
[/quote]
Very interesting as our Vanguard advisor quoted almost the identical portfolio except for the mix. He quoted 35 stock, 69 bond and 5 short term reserve. You are somewhat higher for stocks.Quite frankly at my age both stock allocations are too high as I don't have time to recover. I have been and still am a small business owner and age has allowed me to learn there are both good and bad times. So we are considering going down to 25%. I just looked at a Merriman chart that stated the worst 12 months at @20/80=-8.6%, then @30/70=-13.7%, and then @40/60=-18.5%. The statistics are from 1970-2016. I am more comfortable with 20/80 or perhaps 25/75. I appreciate advice.

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cfs
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Re: Asset Allocation Revised

Post by cfs » Sat Jan 13, 2018 9:49 am

Just go with Vanguard Life Strategy Income = 20% equities, or Vanguard Target Retirement Income = 30% equities. Good luck and thanks for reading / cfs
~ Member of the Active Retired Force since 2014 ~

boyntonstu
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Re: Asset Allocation Revised

Post by boyntonstu » Sat Jan 13, 2018 2:45 pm

"Very interesting as our Vanguard advisor quoted almost the identical portfolio except for the mix. He quoted 35 stock, 69 bond and 5 short term reserve. You are somewhat higher for stocks.Quite frankly at my age both stock allocations are too high as I don't have time to recover. I have been and still am a small business owner and age has allowed me to learn there are both good and bad times. So we are considering going down to 25%. I just looked at a Merriman chart that stated the worst 12 months at @20/80=-8.6%, then @30/70=-13.7%, and then @40/60=-18.5%. The statistics are from 1970-2016. I am more comfortable with 20/80 or perhaps 25/75. I appreciate advice."

If I had confidence than bonds would not drop like a stone, I find this backtracked portfolio very interesting:

VTI/BND 15/85

$10,000 $15,978 4.80% 3.90% 7.88% 0.28% -7.19% 1.14 1.87 0.59
No losing year between Dec 2007 to 2018. -0.28% in 2008

Duffydog1
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Re: Asset Allocation Revised

Post by Duffydog1 » Sun Jan 14, 2018 7:46 am

I just looked at the Charts you posted from your VG advisor and 40% seems very high for people of our age. He must feel this will be the best alternative for your financial position. If the market prevails it will obviously do better but based on the charts the worst 12 months since 1970 produced a loss of -18.5%. That is of course looking backward but certainly something to consider. It also depends on your risk tolerance, and if this is money you can place at risk. For my wife and myself we are far more conservative. I sometime wonder if young financial advisors have enough life experience to advise us older folks who have made it this far without their help. After steering my small business through 47 years of ups and downs I prevailed with a very conservative approach. I would temper VG recommendation with your own life experience and a recognition that when you turn around 75, you will not be able to recover from a significant drop in the market. Some where on this forum it was stated not to take risk when you have reached your goal. I would amend that thought by suggesting not to take unnecessary risk when your are NEAR or APPROACHING
your goal. Quite frankly I wish i did not need to invest in the market at all but given my circumstance I will do so on the most conservative basis.
Good Luck

livesoft
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Re: Asset Allocation Revised

Post by livesoft » Sun Jan 14, 2018 7:51 am

I don't understand what is going on here. If you don't like equities / stocks, then don't buy them. The question should be: Will your money last as long as needed if it just stays in cash and/or high quality Treasuries? If the answer is Yes, then there is your answer.
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michaeljc70
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Re: Asset Allocation Revised

Post by michaeljc70 » Sun Jan 14, 2018 9:47 am

If you don't like risk, isn't diversification a good thing? What if we enter a period of high inflation? How will your portfolio perform? I think 35% is fine. But if you really aren't comfortable with it, don't do it. There are a lot of different types of risk. It seems you may be subject to inflation risk. Of course, I don't know what your specific investments look like (it could be all TIPS and then that would alleviate inflation risk). You could also be subject to interest rate risk as rates rise.
Last edited by michaeljc70 on Sun Jan 14, 2018 10:17 am, edited 1 time in total.

dbr
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Re: Asset Allocation Revised

Post by dbr » Sun Jan 14, 2018 9:52 am

Since you don't say what you want this money for, there is no answer to your question.

A start on that would be whether or not you plan to withdraw money to live on and, if so, how much.

The Wizard
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Re: Asset Allocation Revised

Post by The Wizard » Sun Jan 14, 2018 10:05 am

Two question areas I have:
First, what has your allocation to stocks been over the past few decades? I worry that if 35% is higher than you are comfortable with, that you will make the wrong move when the next Stock Market Crash happens.

Second, where is your retirement income coming from and how dependent is it on your portfolio?
If SS and pension income covers most of your expenses, then there's less to be nervous about when your portfolio fluctuates in value. And conversely...
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OldSport
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Re: Asset Allocation Revised

Post by OldSport » Sun Jan 14, 2018 10:11 am

I've read that 30% equities is most conservative allocation that should still have long term returns. Bonds can lose when interest rates rise, so less than 30% exposes the portfolio to be dominated by bond movements.

Lower than 30% and FIRECalc sees much more portfolio failures.

I'd recommend at least 30% equities and no higher if you are very risk averse. Vanguard Target Retirement Income does this well. Vanguard Wellesley is a great fund.

dbr
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Re: Asset Allocation Revised

Post by dbr » Sun Jan 14, 2018 10:15 am

OldSport wrote:
Sun Jan 14, 2018 10:11 am
I've read that 30% equities is most conservative allocation that should still have long term returns. Bonds can lose when interest rates rise, so less than 30% exposes the portfolio to be dominated by bond movements.

Lower than 30% and FIRECalc sees much more portfolio failures.

I'd recommend at least 30% equities and no higher if you are very risk averse. Vanguard Target Retirement Income does this well. Vanguard Wellesley is a great fund.
It still depends on what he wants to do. For small enough or no withdrawals there are no portfolio failures. For too large withdrawals asset allocation can't help you. The OP may have objectives other than supporting spending. The most important information of all is still missing.

pkcrafter
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Re: Asset Allocation Revised

Post by pkcrafter » Sun Jan 14, 2018 10:50 am

livesoft wrote:
Sun Jan 14, 2018 7:51 am
I don't understand what is going on here. If you don't like equities / stocks, then don't buy them. The question should be: Will your money last as long as needed if it just stays in cash and/or high quality Treasuries? If the answer is Yes, then there is your answer.
Livesoft has provided the right answer. My answer without anymore input would be don't go below 30% in equity, but that depends on your need to take risk. If your withdrawal rate is low enough (3% or less) then you may have little need to take more risk than 20% in equities. If you have a higher withdrawal rate, then 20% equity probably won't be enough to sustain portfolio value.

What you invest in depends on how much tax-advantaged space you have and your tax bracket, but what would be ideal is target retirement income fund at 30% equity. At 20%, then LifeStrategy Income. These funds are good for risk sensitive investors because the equity volatility is subdued by the other non-equity holdings in the fund.

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.

Duffydog1
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Joined: Sat Dec 03, 2016 1:42 pm

Re: Asset Allocation Revised

Post by Duffydog1 » Mon Jan 15, 2018 8:33 am

I asked the VG advisor if my older age should play a significant role in my AA.He surprised me when he said no. My conservatism id establishing anAA has a great deal to do with my age....about78. If I was 40-50 i would have a totally different approach to investing. I plan a withdrawal rate of ±4%, and I appreciate the great advice on this forum as it is very helpful, and has given me the opportunity to consider different points of view. We each have different financial circumstances and age brackets, so undoubtedly we will have differing points of view. I am looking collectively at the recommendations from VG as well as this Forum and believe I have settled on an AA. I think VG is right on at about 30%, since they suggested investing in context of the age of the youngest spouse. My wife is 8 years younger. She has her own retirement account and she decided to hers at 30% and I will do mine at 25%.
Thanks

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