Stock/Bond fund ratio?

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LXEX55
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Stock/Bond fund ratio?

Post by LXEX55 » Tue Mar 06, 2018 8:51 pm

What is the minium percentage of stock funds I would need to own (the remainder being in bond funds) in order to allow for a 3.2% withdrawal rate? Being risk averse, I would like the minimum amount of stock funds possible, yet still have a 3.2% withdrawal rate. Thanks very much.

lack_ey
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Re: Stock/Bond fund ratio?

Post by lack_ey » Tue Mar 06, 2018 9:13 pm

You need to be a little more specific.

That's a 3.2% [yearly] withdrawal rate, with the percentage being what exactly? Money withdrawn relative to starting account balance? Current balance? Is there any inflation adjustment?

What kind of returns are you specifying from stocks and bonds, or are you asking for a probabilistic assessment? Are you asking about past history or asking for forward projections (if the latter, how would those be done)?

How long do the withdrawals continue? Indefinitely? A fixed number of years? Or an unknown number of years, modeled probibalistically along with returns and so on?

What would you be using for stock and bond funds?

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Alexa9
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Re: Stock/Bond fund ratio?

Post by Alexa9 » Tue Mar 06, 2018 9:22 pm

40/60 is conservative and 80/20 is very conservative. It depends on how much you have and how much you spend each year. If you're risk averse, use Lifestrategy Funds and don't peek often.

mhalley
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Re: Stock/Bond fund ratio?

Post by mhalley » Tue Mar 06, 2018 9:36 pm

At 3.2% you can go much lower than the typical 60 or 50% that is a common beginning retirement stock percentage and still be ok. According to this article,(by Wade Pfau) anywhere between 100 and 25% stocks will give a 98% chance of success for a 40 year retirement at 3%. Bump that up to 3.2%, just a guess but 30% would be fine.
https://retirementresearcher.com/safe-w ... ity-study/

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Sandtrap
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Re: Stock/Bond fund ratio?

Post by Sandtrap » Tue Mar 06, 2018 10:02 pm

You can also run various fund/allocation scenarios here:
ONLINE FINANCIAL TOOLS
PORFOLIO VISUALIZERS, PROJECTIONS, AND ANALYSIS
https://www.portfoliovisualizer.com
Firecalc. Retirement. How long will your money last?
https://www.firecalc.com
Morningstar Instant Xray
https://members.morningstar.com/Registe ... L100&vUrl=

Read:
https://www.bogleheads.org/wiki/Safe_withdrawal_rates

j :D

LXEX55
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Re: Stock/Bond fund ratio?

Post by LXEX55 » Wed Mar 07, 2018 8:16 am

Thank you all very much. Just so you folks know how great you, I posted this same question on another board and got nothing but wise ass answers. I honestly don't know why people do that. I think I will keep it at 25% stocks. Thanks again.

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dwickenh
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Re: Stock/Bond fund ratio?

Post by dwickenh » Wed Mar 07, 2018 8:50 am

LXEX55 wrote:
Wed Mar 07, 2018 8:16 am
Thank you all very much. Just so you folks know how great you, I posted this same question on another board and got nothing but wise ass answers. I honestly don't know why people do that. I think I will keep it at 25% stocks. Thanks again.
To be fair, you got one wise-ass answer. There is one in every crowd. 25% was also my recommendation and I am glad you have made your decision.

Again, good luck and future success,

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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rustymutt
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Re: Stock/Bond fund ratio?

Post by rustymutt » Wed Mar 07, 2018 8:56 am

So you're wanting the asset allocation of your investments. Equities, and bonds. The ratio of stocks to bonds.
I'm amazed at the wealth of Knowledge others gather, and share over a lifetime of learning. The mind is truly unique. It's nice when we use it!

dbr
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Re: Stock/Bond fund ratio?

Post by dbr » Wed Mar 07, 2018 9:09 am

I agree 25% might be a good estimate, but please be aware this sort of "calculation" is subject to some uncertainty. When you look at the models that produce this estimate success rates tend to fall off a cliff as stock allocation is reduced. I'm not sure you want to plan on being on the edge of a cliff. I think maybe 35% is a better idea. Part of the question is what is the origin of the idea of holding as little in stocks as possible?

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goodenyou
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Re: Stock/Bond fund ratio?

Post by goodenyou » Wed Mar 07, 2018 9:27 am

dbr wrote:
Wed Mar 07, 2018 9:09 am
I agree 25% might be a good estimate, but please be aware this sort of "calculation" is subject to some uncertainty. When you look at the models that produce this estimate success rates tend to fall off a cliff as stock allocation is reduced. I'm not sure you want to plan on being on the edge of a cliff. I think maybe 35% is a better idea. Part of the question is what is the origin of the idea of holding as little in stocks as possible?
This. The conventional wisdom of novice investors is to increase bond allocation to decrease risk. There is a diminishing benefit to this notion and actually reverses to increase risk of portfolio failure with excessive bond exposure in relation to stocks. This is not a subtle point, and it took me a while to understand it as well.
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

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tennisplyr
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Re: Stock/Bond fund ratio?

Post by tennisplyr » Thu Mar 08, 2018 7:52 am

Here's another simple calculator worth trying:

https://www.retirementsimulation.com/
Those who move forward with a happy spirit will find that things always work out.

Iliketoridemybike
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Re: Stock/Bond fund ratio?

Post by Iliketoridemybike » Thu Mar 08, 2018 8:46 am

LXEX55 wrote:
Wed Mar 07, 2018 8:16 am
Thank you all very much. Just so you folks know how great you, I posted this same question on another board and got nothing but wise ass answers. I honestly don't know why people do that. I think I will keep it at 25% stocks. Thanks again.
I saw your other post and many folks were very helpful including links to tools that can help you arrive at your own answer. Let’s be honest, OK? To bash another board based on one response is not fair.

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