Help with in-laws investment- 100% in stocks with 5 years left to retire

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jack1234
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Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by jack1234 » Sun May 06, 2018 7:50 am

My in laws plan to retire in 5 years and have everything in 100% stocks. From reading bogleheads, I know this is not a recommended strategy. How do I discuss with them that they should be taking less risk?

Their mortgage is paid off and they have no significant debt. Both of them will get a pension at retirement and they plan to do a lot of travel then as well.

Any advice would be appreciated.

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jack1234
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Re: Help with in laws retirement- 100% in stocks with 5 years left to retire

Post by jack1234 » Sun May 06, 2018 7:52 am

jack1234 wrote:
Sun May 06, 2018 7:50 am
My in laws plan to retire in 5 years and have everything in 100% stocks. From reading bogleheads, I know this is not a recommended strategy. How do I discuss with them that they should be taking less risk?

Their mortgage is paid off and they have no significant debt. Both of them will get a pension at retirement and they plan to do a lot of travel then as well.

Any advice would be appreciated.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by aristotelian » Sun May 06, 2018 7:54 am

Totally fine if they have a high risk tolerance, especially with a pensions and SS. Age is only one factor in determining asset allocation.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by RadAudit » Sun May 06, 2018 8:03 am

Why do they need help? Did they ask you? Do you have to pick up the pieces if their approach tanks? Did they reach their "number"?

Now, their approach is not one I'd advocate. But, they have pensions and probably SS. The house is paid for. They are going to have to change their minds. So, I'd recommend education. Taylor has a new book coming out next month. Might be helpful. And either one or both of the current Boglehead books would be helpful.

Not knowing their portfolio, I'd be concerned about single stock risk / lack of diversification for starters.
Last edited by RadAudit on Sun May 06, 2018 8:09 am, edited 2 times in total.
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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by student » Sun May 06, 2018 8:07 am

The main question is did they ask for advice. Are they the parents of your fiancee? You mentioned in another thread

viewtopic.php?f=2&t=248578

that you are engaged. How does your fiancee feel about giving advice, if my deduction is correct.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by JW-Retired » Sun May 06, 2018 8:31 am

jack1234 wrote:
Sun May 06, 2018 7:50 am
My in laws plan to retire in 5 years and have everything in 100% stocks. From reading bogleheads, I know this is not a recommended strategy. How do I discuss with them that they should be taking less risk?
I would have some floor amount of bonds that I could survive on...... but given they each will have pensions and maybe Social Security too, their 100% stocks risk may be pretty minimal.

How old will they be when they retire? How much of their savings will they actually need for living expenses?
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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by msk » Sun May 06, 2018 8:32 am

Obviously they have a high tolerance for volatility. If they can retire totally on their pensions and SS, I see nil reason to be in anything other than 100% stocks (diversified).It really depends on how much of their stocks portfolio they will NEED to withdraw from regularly. If it is less than, say, 3% p.a., why on earth should they not be in 100% stocks? I am 100% in stocks and I have been retired and invested the same way for 18 years, but also with a reasonably healthy pension.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by Pops1860 » Sun May 06, 2018 8:44 am

They are doing what has worked (so far) for us.

Prior to retirement, we paid off house mortgage, had no other debt, had pensions and SS benefits upon retirement. We kept all our 'retirement investments' (401ks, IRAs, taxable accounts) almost entirely in equities. Prior to retirement, during retirement process (no reallocation), and still now while retired.

We understand the risks, but our judgement is that this is the best plan for us. We are satisfied so far.

If they are knowledgable investors, and understand the situation for what it is, suggest you not intrude. Unless all involved like to discuss financial topics (not argue, just discuss) as a family choice. We do that with some of our kids (adults) who like to compare notes, as they say. But that's all it is.

I would only be concerned if their 'equities' were limited to a small number of stocks, as opposed to index funds for example. But this is a diversification concern, not a concern with 'total equities' per se.
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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by goingup » Sun May 06, 2018 9:13 am

jack1234 wrote:
Sun May 06, 2018 7:50 am
My in laws plan to retire in 5 years and have everything in 100% stocks. From reading bogleheads, I know this is not a recommended strategy.
The BH recommendation is to "never bear too much or too little risk". With a paid off house and pensions, I think your in-laws are probably in good shape.

Apart from that, it may be unwise to inject yourself into their financial affairs. Seems like an overstep.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by RadAudit » Sun May 06, 2018 10:32 am

Duplicate?
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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by delamer » Sun May 06, 2018 10:50 am

If your in-laws will have enough income from pensions and Social Security to cover all of their retirement expenses, then keeping 100% stock allocation is not misguided. It is aggressive, but it may be that their goal is to grow their assets for heirs and/or charity. It does make sense to have some cash set aside for emergencies though.

A more conservative allocation is recommended if the assets will need to be drawn down during retirement. But it sounds like maybe they don’t need to do that?

And, maybe most important, did they ask for your opinion or guidance regarding their investments?

If not, then stay out of their finances.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by ThriftyPhD » Sun May 06, 2018 10:52 am

delamer wrote:
Sun May 06, 2018 10:50 am
If your in-laws will have enough income from pensions and Social Security to cover all of their retirement expenses, then keeping 100% stock allocation is not misguided. It is aggressive, but it may be that their goal is to grow their assets for heirs and/or charity. It does make sense to have some cash set aside for emergencies though.

A more conservative allocation is recommended if the assets will need to be drawn down during retirement. But it sounds like maybe they don’t need to do that?

And, maybe most important, did they ask for your opinion or guidance regarding their investments?

If not, then stay out of their finances.
Lots of excellent points.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by Larry2623 » Sun May 06, 2018 11:25 am

"And, maybe most important, did they ask for your opinion or guidance regarding their investments?

If not, then stay out of their finances."

+1

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by pkcrafter » Sun May 06, 2018 2:15 pm

I don't know what the replies are going to tell you, but first, if they didn't ask for your opinion, it might not be wise to interfere. On the other hand, if losing 40%-50% of assets will cause serious problems, then you might approach the subject as a concern. Note also that pension amounts are not written in stone, so in-laws could get a double whammy. What does their daughter say?

My opinion is probably different than most, but I would say it's a poor decision. People who have financial ability to take that much risk can do it, but they don't have much need; therefore the risk is unnecessary and not a very smart choice. Stocks are risky. How much? Well, losses are not limited to 40%-50%, nor is the time to full recovery limited to 10 years or less. People in their 20s and 30s might successfully go 100%, but in retirement or near retirement, time is shorter and there is no regular income that is not tied to the stock market.


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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by gwrvmd » Sun May 06, 2018 3:40 pm

If they both have pensions they must have long employment histories so they should each get $2,000/month in SS
With 2 pensions and $4,000/month in SS, an asset allocation of 100% stocks is not excessively risky......Gordon
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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by LadyGeek » Sun May 06, 2018 3:54 pm

jack1234 - You had a duplicate post, which I've removed. I merged the replies into here. I also fixed the spelling in the thread title "retu" to "retire".
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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by basspond » Sun May 06, 2018 4:56 pm

As long as one individual stock doesn’t make up more then 10% of their portfolio and they are using less then 3% of their balance for living expenses.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by MathWizard » Sun May 06, 2018 4:57 pm

Jack,

My wife and I were 100% stocks until about a year ago, and about 5 yrs to retirement.

I would hope that a SIL or DIL would be smart enough not to question how I invest my own money.

I never discussed my FIL's finances with him. I did with my widowed MIL when she asked me, but not otherwise.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by pennywise » Sun May 06, 2018 6:55 pm

Larry2623 wrote:
Sun May 06, 2018 11:25 am
"And, maybe most important, did they ask for your opinion or guidance regarding their investments?

If not, then stay out of their finances."

+1
+1000

With a side of 'and just who do you think you are to decide you have any right to try to advise people who sound like quite a financially successful couple, young'un?!' :wink:

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by Lieutenant.Columbo » Sun May 06, 2018 7:33 pm

Off topic stricto sensu, but relevant to the "100% in stocks" question:
msk wrote:
Sun May 06, 2018 8:32 am
I am 100% in stocks and I have been retired and invested the same way for 18 years, but also with a reasonably healthy pension.
msk,
1. does 100% stocks mean your stocks are your emergency fund?
If not, how did you decide the size of your emergency fund?
2. were you 100% before retirement?
Pops1860 wrote:
Sun May 06, 2018 8:44 am
They are doing what has worked (so far) for us.

Prior to retirement, we paid off house mortgage, had no other debt, had pensions and SS benefits upon retirement. We kept all our 'retirement investments' (401ks, IRAs, taxable accounts) almost entirely in equities. Prior to retirement, during retirement process (no reallocation), and still now while retired.

We understand the risks, but our judgement is that this is the best plan for us. We are satisfied so far.
Pops1860,
does "almost entirely equities" mean your stocks are your emergency fund?
If not, how did you decide the size of your emergency fund?

Thank you both.
L.C.
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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by jack1234 » Sun May 06, 2018 10:08 pm

RadAudit wrote:
Sun May 06, 2018 8:03 am
Why do they need help? Did they ask you? Do you have to pick up the pieces if their approach tanks? Did they reach their "number"?

Now, their approach is not one I'd advocate. But, they have pensions and probably SS. The house is paid for. They are going to have to change their minds. So, I'd recommend education. Taylor has a new book coming out next month. Might be helpful. And either one or both of the current Boglehead books would be helpful.

Not knowing their portfolio, I'd be concerned about single stock risk / lack of diversification for starters.
I imagine we would help them if they needed it in retirement. Their pensions won't be a LOT and they do have SS but I think they will depend on their brokerage account as well. Taylor's book? I'd love to get it. Is there a link?

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by jack1234 » Sun May 06, 2018 10:09 pm

student wrote:
Sun May 06, 2018 8:07 am
The main question is did they ask for advice. Are they the parents of your fiancee? You mentioned in another thread

viewtopic.php?f=2&t=248578

that you are engaged. How does your fiancee feel about giving advice, if my deduction is correct.
Fiance agrees that they need help. We have a great relationship with them, but just not sure how to approach this subject and if our advice is even needed.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by jack1234 » Sun May 06, 2018 10:11 pm

msk wrote:
Sun May 06, 2018 8:32 am
Obviously they have a high tolerance for volatility. If they can retire totally on their pensions and SS, I see nil reason to be in anything other than 100% stocks (diversified).It really depends on how much of their stocks portfolio they will NEED to withdraw from regularly. If it is less than, say, 3% p.a., why on earth should they not be in 100% stocks? I am 100% in stocks and I have been retired and invested the same way for 18 years, but also with a reasonably healthy pension.
Good points. They will need about 15% so quite a bit more than 3%. They don't have a huge pension.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by jack1234 » Sun May 06, 2018 10:14 pm

delamer wrote:
Sun May 06, 2018 10:50 am
If your in-laws will have enough income from pensions and Social Security to cover all of their retirement expenses, then keeping 100% stock allocation is not misguided. It is aggressive, but it may be that their goal is to grow their assets for heirs and/or charity. It does make sense to have some cash set aside for emergencies though.

A more conservative allocation is recommended if the assets will need to be drawn down during retirement. But it sounds like maybe they don’t need to do that?

And, maybe most important, did they ask for your opinion or guidance regarding their investments?

If not, then stay out of their finances.
Sorry, I should clarify. Yes, they asked for advice. They recently switched it to 100% stocks but have voiced concerns. They actually disagree on it. One wanted the switch, the other did not.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by jack1234 » Sun May 06, 2018 10:18 pm

jack1234 wrote:
Sun May 06, 2018 7:50 am
My in laws plan to retire in 5 years and have everything in 100% stocks. From reading bogleheads, I know this is not a recommended strategy. How do I discuss with them that they should be taking less risk?

Their mortgage is paid off and they have no significant debt. Both of them will get a pension at retirement and they plan to do a lot of travel then as well.

Any advice would be appreciated.

EDIT: They have asked for help. I am not voluntarily getting involved in their finances. Trust me, my OWN finances keep me busy enough!! ;)

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by delamer » Sun May 06, 2018 10:56 pm

jack1234 wrote:
Sun May 06, 2018 10:14 pm
delamer wrote:
Sun May 06, 2018 10:50 am
If your in-laws will have enough income from pensions and Social Security to cover all of their retirement expenses, then keeping 100% stock allocation is not misguided. It is aggressive, but it may be that their goal is to grow their assets for heirs and/or charity. It does make sense to have some cash set aside for emergencies though.

A more conservative allocation is recommended if the assets will need to be drawn down during retirement. But it sounds like maybe they don’t need to do that?

And, maybe most important, did they ask for your opinion or guidance regarding their investments?

If not, then stay out of their finances.
Sorry, I should clarify. Yes, they asked for advice. They recently switched it to 100% stocks but have voiced concerns. They actually disagree on it. One wanted the switch, the other did not.
It isn’t unusual for people to post about friend’s/relative’s finances and then have it turn out that they are offering (or trying to offer) unsolicited advice. So I tend to be skeptical until it is clear that the advice is solicited.😊

But if they want you to referee about the proper allocation then that is a minefield for you to step into — as I am sure you know.

You could show them these charts that demonstrate the risk, reward, and volatility that go with different allocations:

https://personal.vanguard.com/us/insigh ... llocations

My feeling is that in a disagreement like this, a married couple should split the difference. If he wants 50% stocks and she wants 100%, then you go with 75% and call it a day.

Good luck.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by gotester2000 » Sun May 06, 2018 11:47 pm

100% stock allocation is not high risk if it is invested in the index and fixed income requirement(expenses) is met through pension and SS.
On the other hand, if they are looking at income from stocks then 100% allocation is high risk - do 70/30.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by student » Mon May 07, 2018 5:42 am

jack1234 wrote:
Sun May 06, 2018 10:09 pm
student wrote:
Sun May 06, 2018 8:07 am
The main question is did they ask for advice. Are they the parents of your fiancee? You mentioned in another thread

viewtopic.php?f=2&t=248578

that you are engaged. How does your fiancee feel about giving advice, if my deduction is correct.
Fiance agrees that they need help. We have a great relationship with them, but just not sure how to approach this subject and if our advice is even needed.
It is good that your fiancee and you are on the same page. I think the other posters have already given you a number of suggestions. I do not have anything to add. Congratulations on your engagement.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by munemaker » Mon May 07, 2018 5:58 am

If they both have pensions, they are fine. They could handle a 50% decline in the market and still be good. I wouldn't worry about it.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by blaugranamd » Mon May 07, 2018 6:10 am

Larry2623 wrote:
Sun May 06, 2018 11:25 am
"And, maybe most important, did they ask for your opinion or guidance regarding their investments?

If not, then stay out of their finances."

+1
Such a touchy subject to bring up. I agree. I tried to go subtle with just buying my in laws a Boglehead book as a congrats on retiring gift. Backfired. It's stupid people can't be more open and receptive to talking about money but it is what it is.

Also agree with others that if they have pension and SS and no debt they're probably going to be fine regardless of their risk level in their portfolio.
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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by marcopolo » Mon May 07, 2018 7:08 am

munemaker wrote:
Mon May 07, 2018 5:58 am
If they both have pensions, they are fine. They could handle a 50% decline in the market and still be good. I wouldn't worry about it.
A lot of people have said this on the thread, but I am not sure we have enough information to know for sure. We don't know the size of the pensions/SS. and more importantly what their expenses are. What if the pensions/SS only cover 20% of expense, and they need to pull the other 80% from the portfolio, and it is a sizable withdrawal rate?
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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by marcopolo » Mon May 07, 2018 7:09 am

jack1234 wrote:
Sun May 06, 2018 10:11 pm
msk wrote:
Sun May 06, 2018 8:32 am
Obviously they have a high tolerance for volatility. If they can retire totally on their pensions and SS, I see nil reason to be in anything other than 100% stocks (diversified).It really depends on how much of their stocks portfolio they will NEED to withdraw from regularly. If it is less than, say, 3% p.a., why on earth should they not be in 100% stocks? I am 100% in stocks and I have been retired and invested the same way for 18 years, but also with a reasonably healthy pension.
Good points. They will need about 15% so quite a bit more than 3%. They don't have a huge pension.
Are you saying they need to pull 15% of their portfolio each year to support their spending level? If so, i would say they are probably not within 5 years of retiring.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by marcopolo » Mon May 07, 2018 7:13 am

I am still confused about whether the in-laws have actually asked for help.

you say:
jack1234 wrote:
Sun May 06, 2018 10:18 pm
EDIT: They have asked for help. I am not voluntarily getting involved in their finances. Trust me, my OWN finances keep me busy enough!! ;)
and:

jack1234 wrote:
Sun May 06, 2018 10:14 pm
Sorry, I should clarify. Yes, they asked for advice. They recently switched it to 100% stocks but have voiced concerns. They actually disagree on it. One wanted the switch, the other did not.

But, you also say:
jack1234 wrote:
Sun May 06, 2018 10:09 pm
Fiance agrees that they need help. We have a great relationship with them, but just not sure how to approach this subject and if our advice is even needed.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by RadAudit » Mon May 07, 2018 7:45 am

jack1234 wrote:
Sun May 06, 2018 10:08 pm
Taylor's book? I'd love to get it. Is there a link?
Not yet. Due out in a month.

Links to Boglehead books are here or in the library. https://www.bogleheads.org/RecommendedReading.php
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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by munemaker » Mon May 07, 2018 8:56 am

marcopolo wrote:
Mon May 07, 2018 7:08 am
What if the pensions/SS only cover 20% of expense, and they need to pull the other 80% from the portfolio, and it is a sizable withdrawal rate?
Well, uh, sure...the pensions would have to be large enough to cover most of their living expenses. If the pensions are small, then this thought process goes out the window.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by pkcrafter » Mon May 07, 2018 9:01 am

Jack, can you clarify what this means? Is it a 15% needed withdrawal in addition to SS and pensions?
Good points. They will need about 15% so quite a bit more than 3%. They don't have a huge pension.



Paul
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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by dbr » Mon May 07, 2018 9:06 am

munemaker wrote:
Mon May 07, 2018 8:56 am
marcopolo wrote:
Mon May 07, 2018 7:08 am
What if the pensions/SS only cover 20% of expense, and they need to pull the other 80% from the portfolio, and it is a sizable withdrawal rate?
Well, uh, sure...the pensions would have to be large enough to cover most of their living expenses. If the pensions are small, then this thought process goes out the window.
You can address the question of what is an optimal asset allocation for withdrawals. The answer is not very interesting because asset allocation does not have a large effect on safe withdrawal rate. Once one lowers the rate of withdrawal enough to get low probability of portfolio failure, it doesn't matter what the asset allocation is providing one has at least a minimum, say 30%, in stocks. At even lower rates of withdrawal asset allocation doesn't matter at all. For longer time periods there is a trend to wanting to own a bit more in stocks. A different issue is the question of how much wealth will be left unspent at death. High stock allocations result in a much wider range in residual assets and possibly worse worst cases. A consideration that can be made is whether or not a person with low income streams should not annuitize to bet a better balance. It depends on end point objectives, among other things.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by dbr » Mon May 07, 2018 9:10 am

pkcrafter wrote:
Mon May 07, 2018 9:01 am
Jack, can you clarify what this means? Is it a 15% needed withdrawal in addition to SS and pensions?
Good points. They will need about 15% so quite a bit more than 3%. They don't have a huge pension.



Paul
Well, I can't advise on what you should do, but it comes out now that what their asset allocation is simply doesn't matter because the money will all be gone in short order. But, in reality, they surely don't think they can spend the money that fast, do they? Again, I don't know where this leaves you.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by tibbitts » Mon May 07, 2018 9:54 am

jack1234 wrote:
Sun May 06, 2018 7:50 am
My in laws plan to retire in 5 years and have everything in 100% stocks. From reading bogleheads, I know this is not a recommended strategy. How do I discuss with them that they should be taking less risk?

Their mortgage is paid off and they have no significant debt. Both of them will get a pension at retirement and they plan to do a lot of travel then as well.

Any advice would be appreciated.
Recommendations around here vary;100% stocks is among them. You have reached the wrong conclusion. I don't see an issue unless losses would result in you having to support your parents.

For what it's worth, a couple of years ago, 100% stocks would have been universally shot down here. The world moves on, even if some of us don't get on board.

soccerrules
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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by soccerrules » Mon May 07, 2018 9:58 am

Jack-
I would ask them what does "help" look like to them ?
They have asked for your advice. What do they have in mind ?
The more they clarify what they are seeking the better it will be for you and them. If they want a "full picture" recommendation, or just with X account or if one spouse is trying to get you to side with them -- you need to know before wading in.

If they truly want your advice and opinion then you may need to ask them for more data points (pension info, SS statements,investment statements) before moving forward.
Then if you decide to provide an opinion-- it should be "if I were you, this is what I would do and here is why. This is your money and retirement, so this needs to be your decision not mine"
Don't let your outflow exceed your income or your upkeep will be your downfall.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by delamer » Mon May 07, 2018 10:41 am

jack1234 wrote:
Sun May 06, 2018 10:11 pm

Good points. They will need about 15% so quite a bit more than 3%. They don't have a huge pension.
Some how I missed this comment when reading yesterday.

If they need to spend 15% of their assets each year to pay their expenses, there is no allocation that is going to work. They will run out of assets before they run out of years.

Likewise, if they need to earn 15% on their investments in order to have a large enough nest egg to retire, there is no allocation that will provide that.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by James Kiff » Mon May 07, 2018 11:46 am

I think others have covered most of my thoughts, I will only second what some others have said about pension creating a warped investment portfolio compared to recommendations.

I have investments from past jobs and current contributions, but my current employment has a good pension. I view the pension as the "bond" portion of my portfolio and keep all other investments 100% stocks. The further I get toward retirement the greater the value of that pension, which mimics the increase in bonds that would normally be recommended. I plan to never own bonds unless I exceed my "number" to the extent that equity protection becomes more valuable to me than equity growth.

Regarding the OP, now is definitely a great time to sort this out. With the market at relatively good valuations they should feel good about moving to whatever allocation makes sense after figuring out all the options. It doesn't sound like you have all the info needed, so we definitely don't. A per hour financial planner might be their best bet, rather than advice from a relative. Let's say after finding out all the details you realize 50% bonds would be much better, so they follow your advice. The following year the market goes up 25% and now you have "lost" them 50% of those gains. Or you say stocks are fine, and they drop in half next year. Don't put yourself in that position if you can help it, help them find the advice they need, but don't put yourself in a position you will regret later.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by Pops1860 » Mon May 07, 2018 12:20 pm

Lieutenant.Columbo -

"Pops1860,
does "almost entirely equities" mean your stocks are your emergency fund?
If not, how did you decide the size of your emergency fund?"

Answer -

We keep 10-20K in a 'cash/MoneyMarket" checking account, we use this for normal expenditures (paying off credit cards monthly, utility bills, etc.).

We consider our taxable accounts (mutual funds, index, SP500 or Total Market) as our emergency fund. The amount of money in these accounts well exceeds any 'emergency' need we could anticipate, even if there was a market drop of any significance; the money is there in taxable because we have sufficient other funds in other tax-advantaged accounts, which have limits on contributions allowed (while we were still not-yet-retired).

Because these are mutual funds, where we have re-invested distributions, the basis in these funds is 80% +/- of the fund value, and most of the remaining gain would be long term capital gains (if we withdrew any $$), so this money is essentially available on demand with a relatively low tax hit.

We didn't plan it this way, it's just where we are now, and we're comfortable looking at these taxable fund accounts as 'first withdraw option' should an emergency occur. But yes, short answer, we consider some of our stock mutual funds as our emergency fund.
The power of accurate observation is often called cynicism by those who do not have it. ~George Bernard Shaw

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Lieutenant.Columbo
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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by Lieutenant.Columbo » Mon May 07, 2018 12:51 pm

Pops1860 wrote:
Mon May 07, 2018 12:20 pm
Lieutenant.Columbo -

"Pops1860,
does "almost entirely equities" mean your stocks are your emergency fund?
If not, how did you decide the size of your emergency fund?"

Answer -

We keep 10-20K in a 'cash/MoneyMarket" checking account, we use this for normal expenditures (paying off credit cards monthly, utility bills, etc.).

We consider our taxable accounts (mutual funds, index, SP500 or Total Market) as our emergency fund. The amount of money in these accounts well exceeds any 'emergency' need we could anticipate, even if there was a market drop of any significance; the money is there in taxable because we have sufficient other funds in other tax-advantaged accounts, which have limits on contributions allowed (while we were still not-yet-retired).

Because these are mutual funds, where we have re-invested distributions, the basis in these funds is 80% +/- of the fund value, and most of the remaining gain would be long term capital gains (if we withdrew any $$), so this money is essentially available on demand with a relatively low tax hit.

We didn't plan it this way, it's just where we are now, and we're comfortable looking at these taxable fund accounts as 'first withdraw option' should an emergency occur. But yes, short answer, we consider some of our stock mutual funds as our emergency fund.
Pops1860,
Thank you for sharing your approach.
One more question. Say the market goes & stays down for 4 years. Will you worry that selling your then-devaluated equities will be your (only?) source of income?
Thank you.
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

Pops1860
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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by Pops1860 » Mon May 07, 2018 1:40 pm

Lieutenant -

"Pops1860,
One more question. Say the market goes & stays down for 4 years. Will you worry that selling your then-devaluated equities will be your (only?) source of income?"

Last reply (I think we might be at risk of hijacking this thread) -

As many posters say, in many different situations, 'it all depends on the details.' This is true in our situation.

Between 3 pensions and both our SS benefits (including waiting till 70 before I claimed on my own earnings record), we have a very comfortable cash flow stream that is totally independent of our investments/savings. So, for us, we could literally lose everything in the stock market and still survive comfortably on 'just' the pensions/SS cash flow and our mortgage-free house.

I exaggerate here, of course; we have no plans to be oblivious to 'losing everything in a market crash,' it's just that for us, looking at the big picture, we can afford to take risks with our investments that we would not take if we had less pension/SS benefits. With this in mind, we recognize that an emergency need withdrawal, coincident with a significant market drop, would be unfortunate. But such a situation is unlikely, in our opinion, and coupled with the fact even then we would survive comfortably financially, we are comfortable.
The power of accurate observation is often called cynicism by those who do not have it. ~George Bernard Shaw

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retu

Post by msk » Tue May 08, 2018 4:00 am

Lieutenant.Columbo wrote:
Sun May 06, 2018 7:33 pm
Off topic stricto sensu, but relevant to the "100% in stocks" question:
msk wrote:
Sun May 06, 2018 8:32 am
I am 100% in stocks and I have been retired and invested the same way for 18 years, but also with a reasonably healthy pension.
msk,
1. does 100% stocks mean your stocks are your emergency fund?
If not, how did you decide the size of your emergency fund?
2. were you 100% before retirement?
1. My emergency fund is my stocks portfolio. Interactive Brokers charge 2.6% (?latest rate?) interest on margin loan, so it's not that I even have to sell any holdings. It also depends on how large an emergency fund is deemed adequate. A couple of years ago I was faced with a possible $260k bill for some fancy cardiac surgery, so I sold some stocks. Turned out my surgery cost me about $1 :D So I blew the cash on 2 luxury cars instead, one for DW.
2. Pre-retirement I owned some 30 rental units (Real Estate) and any cash I got went straight into 100% stocks. Post-retirement I sold off the rental units and I am still in the process of getting rid of individual stocks, i.e. going solely into VT (Stocks Worldwide including Emerging Markets) and similar.

My view is that, indeed, we have all done very well with the US market over the past decades, so I would like some more diversification in the immediate future. If over the next decade the US continues to excel and any diversification leads to weaker outcomes, I would still prefer to get the hit from other countries' economies rather than plodding along with bonds. YMMV.

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Re: Help with in-laws investment- 100% in stocks with 5 years left to retire

Post by Watty » Tue May 08, 2018 5:14 am

There have been a lot of threads and posts here about how having 100% stocks is OK for people who have a long time frame and can tolerate risks.

A lot of that is just noise with nothing to back it up. The stock market is still near an all time high after a record breaking bull market. There is quote by Warren Buffett;
You only find out who is swimming naked when the tide goes out.
It has been about ten years since the "tide has been out" so a lot of people have forgotten what a bad stock market is really like.

In addition to a normal bad market there is a non-zero chance that there could be some historic event like the Great Depression while they are still alive. Even without a catastrophe there have been times when there have been decade long periods of poor stock market returns.

For reference here is what the historic returns have been for different asset allocations.

https://personal.vanguard.com/us/insigh ... llocations

Note that going from 0% bonds to 20% bonds only decreased the historic returns from 10.2% to 9.5% so that it does not cost a lot to greatly reduce the volatility. In dollar terms if they have a million dollars invested that 0.7% difference is $7,000 before paying taxes. In comparison if there is a bad year the stock market could decline by 25% and not really be exceptional. That would be a loss of $250,000.

A huge risk is that after seeing a big drop like that, and possibly several years like that in a row, and they will change their mind about being 100% stocks and sell the stocks when they are low and not have the money invested for 30+ years to get the long term historical returns.

It sounds like they have good pensions so that they are not concerned about needing the money but a few things to consider since it could turn out that the money is needed sooner than they might be thinking. For example;

1) One of them could be laid or have to stop working for something like a health reason. With five years until retirement that could greatly impact their pension.

2) Their pension may not be adjusted for inflation, the inflation rate used(even if accurate) may not affect their personal inflation rate. For example the effective inflation rate for the average family in California will be different than in Nebraska and the things a retired couple spend their money on may change price differently than the mythical average family.

3) If one of them dies then the pension may be reduced or stop. The survivor will also then be filing taxes in the higher single tax brackets and their tax expenses could go way up

4) They may decide to spend the money on some large expense like an RV or retirement home.

5) If they need assisted living then their expenses could go way up and they may need to dip into their nest egg.

They have gotten really lucky by being 100% in stocks in a historic bull market. It would be good to not press their luck. There is a point of view that says, "When you have won the game, stop playing." and suggests just putting your money into TIPS at that point. That is very extreme to but somewhere in the middle would make a lot of sense.

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