Asset Allocation heading into retirement

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jvini
Posts: 83
Joined: Tue Apr 06, 2010 11:55 am

Asset Allocation heading into retirement

Post by jvini » Fri Oct 19, 2018 9:32 am

Hi all. I'm 4-6 years from some sort of retirement. I will have a comfortable cushion in retirement, thankfully. We own our home. Educations are paid for. I'll be around 56-57.

Since 2004 I've divided my equity allocation evenly:
IJR a pure S&P 600 small cap blend
IJH mid
IVV S&P 500.

I've rebalanced and dollar cost averaged and am happy with the returns. It's beat VTI (Total stock market by over 1.5% a year over that time and that's made a large difference in the worth of my portfolio).

Since January of 2017, however, large caps have been outpacing small caps, and as I said, I'm thinking about retiring or at least cutting way back. I'm wondering if I should give up the small cap tilt and just invest in VTI. I don't mind rebalancing the three etfs yearly and I do believe in dancing with the girl who brung ya, and during the Great Recession the three etf portfolio actually did better. I still wonder, however, if it's time to change. I'm not sure why I wonder based on all my research which says stay the course, but I always like to hear what the great people on this board think. Thanks!

bloom2708
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Location: Fargo, ND

Re: Asset Allocation heading into retirement

Post by bloom2708 » Fri Oct 19, 2018 9:46 am

You have a heavy mid/small tilt. No international. No bonds?

Sometimes betting against the market itself (market cap weighting) works. Sometimes it doesn't.

I am unsure what you back test against to know that your 33/33/33 split is 1.5% over "the market". It may well be for select periods of time.

I can't tell you to do something different. A total market portfolio is good enough for some. Your market cap weighted portfolio follows the trends and represents the market at the end of each day. I prefer 70% US and 30% International. I also have bonds appropriate for my age/risk tolerance and goals.

I think it might be easier to "stay the course" with a total market approach. But, there are many paths.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

jvini
Posts: 83
Joined: Tue Apr 06, 2010 11:55 am

Re: Asset Allocation heading into retirement

Post by jvini » Fri Oct 19, 2018 9:51 am

bloom2708 wrote:
Fri Oct 19, 2018 9:46 am
You have a heavy mid/small tilt. No international. No bonds?

Sometimes betting against the market itself (market cap weighting) works. Sometimes it doesn't.

I am unsure what you back test against to know that your 33/33/33 split is 1.5% over "the market". It may well be for select periods of time.

I can't tell you to do something different. A total market portfolio is good enough for some. Your market cap weighted portfolio follows the trends and represents the market at the end of each day. I prefer 70% US and 30% International. I also have bonds appropriate for my age/risk tolerance and goals.

I think it might be easier to "stay the course" with a total market approach. But, there are many paths.
Sorry, this is just my U.S. equity portion I am asking about. I should have mentioned that. My mistake. I have 40% bonds (BND) and 15% of my equity portion is in international (VXUS). My bond allocation has been age - 13 all the way through, but will stay at 60/40 indefinitely. Also, I used a great portfolio back tester and have used these specific ETF's, but also just large, mid, and small capitalization categories for periods before these ETFs existed, and over most periods of time from 1972 to today, the evenly split allocation has outperformed the market cap weighted portfolio.

bloom2708
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Location: Fargo, ND

Re: Asset Allocation heading into retirement

Post by bloom2708 » Fri Oct 19, 2018 9:59 am

jvini wrote:
Fri Oct 19, 2018 9:51 am
Sorry, this is just my U.S. equity portion I am asking about. I should have mentioned that. My mistake. I have 40% bonds (BND) and 15% of my equity portion is in international (VXUS). My bond allocation has been age - 13 all the way through, but will stay at 60/40 indefinitely.
Very good. Your 33/33/33 US mix is "within the bounds of reasonable".

Anyone who tilts has to be OK with sometimes out performing and sometimes under performing.

I know I'm not probably helping answer "should I keep tilting". We are all guessing to some extent. I think it is less expensive and less stressful to simply follow the market. Others may disagree.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

3funder
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Joined: Sun Oct 15, 2017 9:35 pm

Re: Asset Allocation heading into retirement

Post by 3funder » Fri Oct 19, 2018 12:29 pm

bloom2708 wrote:
Fri Oct 19, 2018 9:59 am
jvini wrote:
Fri Oct 19, 2018 9:51 am
Sorry, this is just my U.S. equity portion I am asking about. I should have mentioned that. My mistake. I have 40% bonds (BND) and 15% of my equity portion is in international (VXUS). My bond allocation has been age - 13 all the way through, but will stay at 60/40 indefinitely.
Very good. Your 33/33/33 US mix is "within the bounds of reasonable".

Anyone who tilts has to be OK with sometimes out performing and sometimes under performing.

I know I'm not probably helping answer "should I keep tilting". We are all guessing to some extent. I think it is less expensive and less stressful to simply follow the market. Others may disagree.
+1; couldn't have said it better myself.

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David Jay
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Re: Asset Allocation heading into retirement

Post by David Jay » Fri Oct 19, 2018 12:42 pm

I have chosen to follow a "bond tent" strategy, where my most conservative allocation (maximum bond percentage) is at retirement. Kitces discusses the concept here: https://www.kitces.com/blog/managing-po ... -red-zone/

This is the key graphic:
Image

I am 45/55 heading into retirement (in 3 months). I will be spending down my bonds (moving my AA) while I delay taking my SS benefit.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

dcarste
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Re: Asset Allocation heading into retirement

Post by dcarste » Fri Oct 19, 2018 3:31 pm

I highly recommend decreasing your allocation to stocks now until 3 years after retirement, unless you want to keep the door open to possibly not be able to retire on your timeline. Usually good to reduce stock exposure 4 or 5 years before retirement and 3 years after, and then decide after that what you want your allocation to be.

I would go for 40% stocks 60% bonds from now until 3 years after retirement. As they say, Pigs get fat, hogs get slaughtered.

How would your life/retirement plans change if you lost 25% of the value of your portfolio for a decade (higher asset allocation to stocks), or gained a little more with this increased risk? Why take the risk right now?

How would your life change if you gained just a little big of money with only a 40% stock allocation?

If you want to be safe to make your goal, I'd recommend the above.

hirlaw
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Re: Asset Allocation heading into retirement

Post by hirlaw » Fri Oct 19, 2018 7:18 pm

I have chosen to follow a "bond tent" strategy, where my most conservative allocation (maximum bond percentage) is at retirement. Kitces discusses the concept here: https://www.kitces.com/blog/managing-po ... -red-zone/
...
am 45/55 heading into retirement (in 3 months). I will be spending down my bonds (moving my AA) while I delay taking my SS benefit.
David Jay: I just retired and my wife will be retiring in a few months. I am also planning to use the "bond tent"/rising glide path strategy. We are at about 37/63 (I was aiming for 35% bonds). I was curious how you settled on a 45/55 allocation. Do you think that's more appropriate?

Thanks!

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David Jay
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Location: Michigan

Re: Asset Allocation heading into retirement

Post by David Jay » Fri Oct 19, 2018 11:38 pm

hirlaw wrote:
Fri Oct 19, 2018 7:18 pm
David Jay: I just retired and my wife will be retiring in a few months. I am also planning to use the "bond tent"/rising glide path strategy. We are at about 37/63 (I was aiming for 35% bonds). I was curious how you settled on a 45/55 allocation. Do you think that's more appropriate?
This is very personal.

I am basically emotionally immune to volatility, I was 100% stocks 4 years ago at age 58. So in preparation for retirement I reduced my stock allocation over 50 percentage points. How far did you move your AA in preparation for retirement?

I will also be going back up to perhaps 70% stocks by about age 70. I have willingness to take risk. I would not expect anyone to copy me.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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