Asset allocation when you don't expect to need the money

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michaelingp
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Asset allocation when you don't expect to need the money

Post by michaelingp » Sun May 19, 2019 4:01 pm

What are the BH thoughts on AA if you don't expect to need your investments ever (i.e. you're really investing for your heirs)? If you say you'll never need the money, the various calculators say 100% equities, as do some posters here. But wouldn't it make more sense to say you'll need the money when you die? In other words, when your heirs get the money, they may need it for a house or something, and not want to keep it invested. For example, if I guess I'll live another 20 years (and then need the money), the calculators give me a 60/40 AA. Or are AA calculators just not useful for this situation? Thoughts?

jzachary
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Re: Asset allocation when you don't expect to need the money

Post by jzachary » Sun May 19, 2019 4:03 pm

I would probably put it all in Vanguard Wellington in a trust fund with instructions to distribute dividends only.

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vineviz
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Re: Asset allocation when you don't expect to need the money

Post by vineviz » Sun May 19, 2019 4:21 pm

michaelingp wrote:
Sun May 19, 2019 4:01 pm
But wouldn't it make more sense to say you'll need the money when you die? In other words, when your heirs get the money, they may need it for a house or something, and not want to keep it invested.
It seems to me that assuming heirs will NEED to spend the entire inheritance immediately upon your death is an unreasonably radical assumption. As such, a 60/40 allocation is probably recklessly conservative.

An asset allocation tool designed for retirement savings probably isn’t going to give you a good plug-and-play answer.

Vanguard’s model portfolios for endowments are 70/30, but even endowments have some level of current withdrawal. I’d imagine that 80/20 is probably closer to optimal for your situation.

Maybe Vanguard LifeStrategy Growth Fund (VASGX) or Vanguard Target Retirement 2040 Fund (VFORX) would be good options?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Dale_G
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Re: Asset allocation when you don't expect to need the money

Post by Dale_G » Sun May 19, 2019 4:37 pm

Even though the money will probably be used by someone else, there may still be an emotional impact on you when the market throws a hissyfit. There is nothing wrong in setting an allocation the you are comfortable with.

Dale
Volatility is my friend

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tennisplyr
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Re: Asset allocation when you don't expect to need the money

Post by tennisplyr » Sun May 19, 2019 4:44 pm

How about 70-80% in low cost equity index fund.
Those who move forward with a happy spirit will find that things always work out.

sport
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Re: Asset allocation when you don't expect to need the money

Post by sport » Sun May 19, 2019 4:55 pm

Dale_G wrote:
Sun May 19, 2019 4:37 pm
Even though the money will probably be used by someone else, there may still be an emotional impact on you when the market throws a hissyfit. There is nothing wrong in setting an allocation the you are comfortable with.
This is my thought as well. Let's say you decide on 80/20, and the stock market drops 50%. How will you feel if/when that happens. Would you have regrets, or would you just shrug. Asset allocation is a personal thing, and you have to decide on one that is right for you.

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J G Bankerton
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Re: Asset allocation when you don't expect to need the money

Post by J G Bankerton » Sun May 19, 2019 5:07 pm

I'm 100% debt free, I have enough cash and life insurance to have an Irish Wake so I'm all stock; except for the fixed cash amount.

One must truly never need to sell stock and look at declines as a buying opportunity. It has been proven in the real world by the Oracle of Omaha that nothing beats Vanguard's S&P 500 fund.

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michaelingp
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Re: Asset allocation when you don't expect to need the money

Post by michaelingp » Sun May 19, 2019 5:27 pm

Dale_G wrote:
Sun May 19, 2019 4:37 pm
Even though the money will probably be used by someone else, there may still be an emotional impact on you when the market throws a hissyfit. There is nothing wrong in setting an allocation the you are comfortable with.

Dale
This is sort of my point. The AA calculators ask you all kinds of questions about what you'd do in a decline and try to assess your emotional response to risk, but throw that all out the window if you say you don't anticipate needing the money.

dbr
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Re: Asset allocation when you don't expect to need the money

Post by dbr » Sun May 19, 2019 5:58 pm

It could be anything depending on what you have in mind.

It would be logical to set an objective of maximum hope for growth resulting in a need to take risk while the consequences to the heirs of great uncertainty are small, hence high ability to take risk. That would be 100% stocks.

On the other hand, for some reason, you might be happy with modest or no growth and want to be very definite about how much would be passed on. That would be no need to take risk and also no ability to take risk. You would probably put everything in TIPS.

There are, of course, positions in between.

You can't use a calculator without thinking about what you want first.

Tdubs
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Re: Asset allocation when you don't expect to need the money

Post by Tdubs » Sun May 19, 2019 6:09 pm

jzachary wrote:
Sun May 19, 2019 4:03 pm
I would probably put it all in Vanguard Wellington in a trust fund with instructions to distribute dividends only.
Ditto, you need a trust. Vanguard provides trust fund management services--0.3% fee, I believe.

delamer
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Re: Asset allocation when you don't expect to need the money

Post by delamer » Sun May 19, 2019 8:18 pm

Consider gifting money to your heirs now if you are confident that you won’t need it. That way they can invest (or spend) according to their goals.

If you are going to do that, then it probably makes sense to keep a cash allocation to use for gifting.

drk
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Re: Asset allocation when you don't expect to need the money

Post by drk » Sun May 19, 2019 8:39 pm

J G Bankerton wrote:
Sun May 19, 2019 5:07 pm
It has been proven in the real world by the Oracle of Omaha that nothing beats Vanguard's S&P 500 fund.
Technically, both Berkshire and Vanguard Total Stock Market beat Vanguard 500 over the bet's time period. But, hey, close enough. :mrgreen:

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J G Bankerton
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Re: Asset allocation when you don't expect to need the money

Post by J G Bankerton » Mon May 20, 2019 12:29 pm

delamer wrote:
Sun May 19, 2019 8:18 pm
Consider gifting money to your heirs now if you are confident that you won’t need it. That way they can invest (or spend) according to their goals.

If you are going to do that, then it probably makes sense to keep a cash allocation to use for gifting.
I gift my children a Roth IRA and Boglehead advice. The Roth is a gift that will keep on giving.
drk wrote:
Sun May 19, 2019 8:39 pm
J G Bankerton wrote:
Sun May 19, 2019 5:07 pm
It has been proven in the real world by the Oracle of Omaha that nothing beats Vanguard's S&P 500 fund.
Technically, both Berkshire and Vanguard Total Stock Market beat Vanguard 500 over the bet's time period. But, hey, close enough. :mrgreen:
I would like to know how the hedge funds did before fees. I'll bet many beat the market before the Two and Twenty fees they charge.

Chicago60
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Re: Asset allocation when you don't expect to need the money

Post by Chicago60 » Mon May 20, 2019 12:37 pm

delamer wrote:
Sun May 19, 2019 8:18 pm
Consider gifting money to your heirs now if you are confident that you won’t need it. That way they can invest (or spend) according to their goals.
This seems like excellent advice, and you get the added benefit of being around to watch them put those gifts to (hopefully) good use.

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