60/40 now or closer to retirement?

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applejack123
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60/40 now or closer to retirement?

Post by applejack123 »

When people say they go to 60/40, is that at any age, or closer to retirement?

Im confused with the "wealth building phase"

Basically, any pointers?

Thanks
Tedd
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Re: 60/40 now or closer to retirement?

Post by Tedd »

My pointer would be to read Rick Ferri's book, "All About Asset Allocation." Page turner and will help you noodle through precisely that type of question...
DoctorWu
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Re: 60/40 now or closer to retirement?

Post by DoctorWu »

Closer to retirement. To get a better understanding in only a few minutes take a look at some of Vanguards Target Retirement Funds and the allocations within them. See their allocations say 35, 20 and 5 years out from projected retirement date and you will instantly see how allocations change.
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Wiggums
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Re: 60/40 now or closer to retirement?

Post by Wiggums »

Vanguard has a questionnaire that might help you answer your question.

https://personal.vanguard.com/us/FundsInvQuestionnaire

Link to BHs info on asset allocation

https://www.bogleheads.org/wiki/Asset_allocation
moshe
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Re: 60/40 now or closer to retirement?

Post by moshe »

In my opinion it depends of how large the 40% is at some point.

If I have enough, as I define it, in the lower risk asset bucket, the so called 40%, then why not then take more risk with future investments? Why continue to amass lower risk, lower return assets at the same rate when I have already "won the game?"

I have set an absolute number goal for my lower risk bucket and plan to increase my going forward investments allocations to equity assets.

~Moshe
My money has no emotions. ~Moshe | | I'm the world's greatest expert on my own opinion. ~Bruce Williams
deltaneutral83
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Re: 60/40 now or closer to retirement?

Post by deltaneutral83 »

moshe wrote: Tue Mar 26, 2019 12:59 pm In my opinion it depends of how large the 40% is at some point.

If I have enough, as I define it, in the lower risk asset bucket, the so called 40%, then why not then take more risk with future investments? Why continue to amass lower risk, lower return assets at the same rate when I have already "won the game?"

I have set an absolute number goal for my lower risk bucket and plan to increase my going forward investments allocations to equity assets.

~Moshe
Understanding risk tolerance in general is necessary but also as things change, tolerance changes. I know when the time comes I have no urge to watch more than 25% of my portfolio evaporate in a 2008-2009 situation so 60/40 will be the best AA for that. I can say that if I have "won the game" that I should be more aggressive on paper but I know I won't feel that way unless I've won the game to a degree of 100x expenses. Even 50x at age 65 wouldn't feel good enough for me to go more aggressively than 60/40. Of course, risk tolerance can also change as life moves on and needs change as well.
UpperNwGuy
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Re: 60/40 now or closer to retirement?

Post by UpperNwGuy »

If you follow the "age in bonds" rule, you'll hit 60/40 at age 40. I am a fan of the "age minus 20 in bonds" in which you hit 60/40 at age 60.
Stonebr
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Re: 60/40 now or closer to retirement?

Post by Stonebr »

I used 60/40 as a portfolio allocation from 1981 through 2011. (This included a long stretch before bogleheads existed.) I chose this allocation because I had read that big pension and endowment funds tended toward 60/40. In 2011 I retired and went to 40/60. Simple and effective.

You don't need to make things complicated to meet your goals.
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Earl Lemongrab
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Re: 60/40 now or closer to retirement?

Post by Earl Lemongrab »

If you want personal experience, I started my portfolio in 2007 (yes, right at the high before the crash) at age 50 with 70/30. At some point during the recovery, progress towards goals was such that I went to 60/40. I have been there since. I retired in January 2018.
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ruralavalon
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Re: 60/40 now or closer to retirement?

Post by ruralavalon »

applejack123 wrote: Tue Mar 26, 2019 11:41 am When people say they go to 60/40, is that at any age, or closer to retirement?

Im confused with the "wealth building phase"

Basically, any pointers?

Thanks
At age 40 an asset allocation of 60/40 equity/fixed income is within the range of what is reasonable, but is probably more conservative than many prefer. I think it is fine.

About how long until you expect to retire? Do you have any debt? If so what types, amounts and interest rates? Do you have any dependents?

Rick Ferri, ETF.com (2/25/2015), "Wisdom Of 60/40 Portfolios Timeless". "The 60/40 mix is a solid starting point for a discussion about asset allocation for investors who are accumulating assets for retirement."

Peter Bernstein, Bloomberg Personal Finance (2002),"The 60/40 Solution"

Also see:
1) Wiki article "Asset allocation".
2) Wiki article Bogleheads Investment Philosophy, "Never bear too much or too little risk".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Olemiss540
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Re: 60/40 now or closer to retirement?

Post by Olemiss540 »

Earl Lemongrab wrote: Tue Mar 26, 2019 4:36 pm If you want personal experience, I started my portfolio in 2007 (yes, right at the high before the crash) at age 50 with 70/30. At some point during the recovery, progress towards goals was such that I went to 60/40. I have been there since. I retired in January 2018.
Aren't you 55/35/10 with 10% being bank and credit card rewards points??

:D :D
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pward
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Re: 60/40 now or closer to retirement?

Post by pward »

Food for thought: these days, 10 years into a bull market, a 60/40 portfolio is commonly looked at as too conservative. Back in Jan 2009, a 60/40 was commonly looked at as too aggressive.

Find the amount of risk you can live with and go for it. It doesn't matter whether you're in accumulations or in retirement. The most important variable in accumulations is your savings rate. So, just find an asset allocation you can stomach and then save as much as you can.
TheDDC
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Re: 60/40 now or closer to retirement?

Post by TheDDC »

applejack123 wrote: Tue Mar 26, 2019 11:41 am When people say they go to 60/40, is that at any age, or closer to retirement?

Im confused with the "wealth building phase"

Basically, any pointers?

Thanks
I view it as too conservative, personally, but I also factor a pension into the equation as a fixed income component. As long as you are not vested in a pension I guess 60/40 would be fine.

-TheDDC
Rules to wealth building: 90-100% VTSAX piled high and deep, 0-10% VIGAX tilt, 0% given away to banks, minimize amount given to medical-industrial complex
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stemikger
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Re: 60/40 now or closer to retirement?

Post by stemikger »

I plan on working ten more years and I'm 60/40 and plan to stay there for life. The main thing is it helps me ignore the crazy market fluctuations and it still grows nicely when stocks rise. I hold the Vanguard Balanced Index Fund and it stays at a constant 60/40. IMHO investing doesn't get much better.
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yogesh
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Re: 60/40 now or closer to retirement?

Post by yogesh »

Target date funds are like “125 - age”.
Some say “100 - age”. Others say “120 - age”
I am sleeping well with 110 - age :-).
Emergency: FDIC | Taxable: VTMFX | Retirement: TR2040
Topic Author
applejack123
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Re: 60/40 now or closer to retirement?

Post by applejack123 »

yogesh wrote: Tue Mar 26, 2019 10:04 pm Target date funds are like “125 - age”.
Some say “100 - age”. Others say “120 - age”
I am sleeping well with 110 - age :-).
110-age=?

Stocks or bonds
yogesh
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Re: 60/40 now or closer to retirement?

Post by yogesh »

Stocks = 110 - age. Staying between 120/100 - age
Emergency: FDIC | Taxable: VTMFX | Retirement: TR2040
sksavers3
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Re: 60/40 now or closer to retirement?

Post by sksavers3 »

moshe wrote: Tue Mar 26, 2019 12:59 pm In my opinion it depends of how large the 40% is at some point.

If I have enough, as I define it, in the lower risk asset bucket, the so called 40%, then why not then take more risk with future investments? Why continue to amass lower risk, lower return assets at the same rate when I have already "won the game?"
I think maybe the opposite: Because I’ve won the game, I want to take on less risk and preserve what I have. We went to 60/40 when we hit $1 million which was around when DH was 40.
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tennisplyr
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Re: 60/40 now or closer to retirement?

Post by tennisplyr »

I've been at roughly 50/50 since age 40...now retired late sixties and still at 50/50. For me, through saving, living within my means and some good fortune, I'm in a good place. One thing you have which don't is time to build wealth. Pick a risk level you can live with and stay the course.
Those who move forward with a happy spirit will find that things always work out.
GAAP
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Re: 60/40 now or closer to retirement?

Post by GAAP »

Part of the answer has to be your tolerance for price drops. Unfortunately, that is difficult to assess prior to a market event.

Another part has to be where you are in your accumulation phase. At the start, new contributions will likely contribute more to portfolio growth than any earnings on the portfolio.

If I had it all to do over, didn't know my tolerance for price drops, and didn't have my mother's example to follow, I would probably start at 50/50 and ramp-up 1%/year until I reached 70/30 or until I learned from an event that I was no longer comfortable with my stock allocation.

FWIW, I'm retired with 70/30 AA.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
radeon962
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Re: 60/40 now or closer to retirement?

Post by radeon962 »

moshe wrote: Tue Mar 26, 2019 12:59 pm In my opinion it depends of how large the 40% is at some point.

If I have enough, as I define it, in the lower risk asset bucket, the so called 40%, then why not then take more risk with future investments? Why continue to amass lower risk, lower return assets at the same rate when I have already "won the game?"

I have set an absolute number goal for my lower risk bucket and plan to increase my going forward investments allocations to equity assets.

~Moshe
I never thought about it that way. How did you develop or determine that #?
TravelforFun
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Re: 60/40 now or closer to retirement?

Post by TravelforFun »

It's all about risk tolerance. If you cannot handle paper loss, 60/40 is way too risky for you at any age. My risk tolerance is high and therefore, I'm at around 75/25 even though I'm retiring in August.

TravelforFun
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Re: 60/40 now or closer to retirement?

Post by Fallible »

applejack123 wrote: Tue Mar 26, 2019 11:41 am When people say they go to 60/40, is that at any age, or closer to retirement?

Im confused with the "wealth building phase"

Basically, any pointers?
Thanks
Deciding an asset allocation at any age is best based on your ability, willingness (risk tolerance), and need to take risk. Check out these links for information on all and also (as noted earlier here) Rick Ferri's book, "All About Asset Allocation," 2nd ed.):

https://www.bogleheads.org/wiki/Asset_Allocation
https://www.bogleheads.org/wiki/Risk_tolerance (under "References" are Larry Swedroe's blogs on need, willingness, and ability to take risk).
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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welderwannabe
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Re: 60/40 now or closer to retirement?

Post by welderwannabe »

applejack123 wrote: Tue Mar 26, 2019 11:41 am When people say they go to 60/40, is that at any age, or closer to retirement?

Im confused with the "wealth building phase"

Basically, any pointers?

Thanks
There is nothing wrong with a 60/40 for your entire life.Its a little on the conservative side, but it works for many people.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.
goblue100
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Re: 60/40 now or closer to retirement?

Post by goblue100 »

moshe wrote: Tue Mar 26, 2019 12:59 pm In my opinion it depends of how large the 40% is at some point.

If I have enough, as I define it, in the lower risk asset bucket, the so called 40%, then why not then take more risk with future investments? Why continue to amass lower risk, lower return assets at the same rate when I have already "won the game?"
~Moshe
The counterpoint to that argument is why risk what you have to make money you won't need? I remember reading an article from Larry Swedroe (I believe) telling the sad tale of a couple that lost something like 80% of a large portfolio in the 2008 crash, when they had more than enough to last the rest of their lives.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns
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Re: 60/40 now or closer to retirement?

Post by moshe »

radeon962 wrote: Wed Mar 27, 2019 12:00 pm
moshe wrote: Tue Mar 26, 2019 12:59 pm In my opinion it depends of how large the 40% is at some point.

If I have enough, as I define it, in the lower risk asset bucket, the so called 40%, then why not then take more risk with future investments? Why continue to amass lower risk, lower return assets at the same rate when I have already "won the game?"

I have set an absolute number goal for my lower risk bucket and plan to increase my going forward investments allocations to equity assets.

~Moshe
I never thought about it that way. How did you develop or determine that #?
I'd suggest thinking about a multiple of after retirement yearly spending. Obviously this is very individualistic and based on many post retirement factors; tax burdens, housing costs, pensions, healthcare, etc. I'm not sure the goal is, at least for me, 30 years of retirement rather than enough to wait out any downdraft. Admittedly this may be a more risky strategy in the short term, however in the long term we should do much better. Life is risk.
My money has no emotions. ~Moshe | | I'm the world's greatest expert on my own opinion. ~Bruce Williams
moshe
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Re: 60/40 now or closer to retirement?

Post by moshe »

goblue100 wrote: Wed Mar 27, 2019 3:55 pm
moshe wrote: Tue Mar 26, 2019 12:59 pm In my opinion it depends of how large the 40% is at some point.

If I have enough, as I define it, in the lower risk asset bucket, the so called 40%, then why not then take more risk with future investments? Why continue to amass lower risk, lower return assets at the same rate when I have already "won the game?"
~Moshe
The counterpoint to that argument is why risk what you have to make money you won't need? I remember reading an article from Larry Swedroe (I believe) telling the sad tale of a couple that lost something like 80% of a large portfolio in the 2008 crash, when they had more than enough to last the rest of their lives.
A very valid point. Worth considering my personal definition of what "winning" means.
My money has no emotions. ~Moshe | | I'm the world's greatest expert on my own opinion. ~Bruce Williams
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Earl Lemongrab
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Re: 60/40 now or closer to retirement?

Post by Earl Lemongrab »

goblue100 wrote: Wed Mar 27, 2019 3:55 pm The counterpoint to that argument is why risk what you have to make money you won't need? I remember reading an article from Larry Swedroe (I believe) telling the sad tale of a couple that lost something like 80% of a large portfolio in the 2008 crash, when they had more than enough to last the rest of their lives.
What were they invested in that caused an 80% drop over the entire portfolio?
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Re: 60/40 now or closer to retirement?

Post by gamboolman »

Getting ready to turn 60.
Planning to retire at the end of this year.
Over the last 5 year we have eased our AA to ~55%stocks 40%bonds & 5% cash
We have 2 to 3 years in cash for the “sleep good at night monies “
But that’s just us
Life’s A Dance And You Learn As You Go
Gamboolman....
BanquetBeer
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Re: 60/40 now or closer to retirement?

Post by BanquetBeer »

60:40 at 25x is 15 years stocks and 10 years bonds. If you think 10 years is enough (would be more during a downturn if you have a high discretionary spend) then any future multiples can go to stock

28x = 18x stock 10x bond, etc.

I like this methodology because using low FIRE withdrawal rates your balance will likely grow in early years before re-evaluation. I also expect in a major downturn I could cut spend significantly and be fine for a couple years.

Oh yea, the original question.. I plan on changing contributions to bonds about 5-7 years out (divodends and new money). If the market crashes significantly I’ll just keep adding to stocks and retire stock heavy and rebalance then.
Dandy
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Re: 60/40 now or closer to retirement?

Post by Dandy »

I think we are all a little spoiled by the long bull market and the quick recovery of the last significant "correction". I think you should consider how much risk you need to take to get to your "number" or if close to it to preserve it. Age in bonds is a decent starting point for that decision. Try to determine why you would have a significantly different allocation than age in bonds.

One way to look at it is to take your current portfolio and annual adds and look at possible assets at different average growth rates e.g. 3, 4, 6% - what age do those rates reach your number? Is that realistic? What do the assets look like at 50, 55 and 60. This might give you some insight as to what risk/equity allocation you might need. Do a rough calc of what your retirement expenses might be and what pension, SS or other income you might receive. There is usually a need for tapping your portfolio to meet retirement expenses. What dollars would be needed annually? Will you likely have 25 or more times that annual drawdown in retirement assets when you think you will retire? How about 5 years before that date in case your employer makes your retirement decision?

If an annual growth of your portfolio is 3% to reach your number you probably don't need to take more risk than 60/40 or age in bonds if you need 6% or more you might need to consider more equity allocation.
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Re: 60/40 now or closer to retirement?

Post by goblue100 »

Earl Lemongrab wrote: Wed Mar 27, 2019 5:37 pm
What were they invested in that caused an 80% drop over the entire portfolio?
I believe they had a lot of individual stocks. I wish I could find that article, my memory is a little fuzzy, but they had a LOT of money. Post crash they still had what a lot of of us would consider a lot of money, but watching that much money go down the drain is not something I want to do.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns
3funder
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Re: 60/40 now or closer to retirement?

Post by 3funder »

DoctorWu wrote: Tue Mar 26, 2019 12:11 pm Closer to retirement. To get a better understanding in only a few minutes take a look at some of Vanguards Target Retirement Funds and the allocations within them. See their allocations say 35, 20 and 5 years out from projected retirement date and you will instantly see how allocations change.
+1. For what it's worth, I don't plan on moving to 60/40 until I'm about 60 years old.
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