Under age 50 and have a stock allocation less than 50%?

[X528]

Anybody under age 50 here have a STOCK portfolio allocation less than 50%?

I'm thinking I may be more conservative and risk-averse than most people my age (mid-40's).

Using portfoliovisualizer.com, it looks like I could reasonably get my preferred retirement account balance ($3 million at minimum) without actually taking too much risk with a very high savings rate. I'm just worried about the possibility of a 50% or greater bear stock market using a 60/40 allocation now. Potentially long and deep bear markets scare me.

I'm thinking of using a 40/60 stock/bond allocation.

[Mike Scott]

Risk is a very individual thing. No one knows you as well as you. My bottom end is 50/50 but then I'm not you.

[LilyFleur]

At your age, I was 80/20, and it did so well, eventually it got to 90/10 because I didn't ever rebalance.

Now I have diversified and am at about 50/50. Retired (early).

[JoeRetire]

I'm thinking I may be more conservative and risk-averse than most people my age (mid-40's).

I suspect you are indeed more risk-averse. But so what?

Using portfoliovisualizer.com, it looks like I could reasonably get my preferred retirement account balance ($3 million at minimum) without actually taking too much risk with a very high savings rate. I'm just worried about the possibility of a 50% or greater bear stock market using a 60/40 allocation now. Potentially long and deep bear markets scare me.

I'm thinking of using a 40/60 stock/bond allocation.

So do it. As long as you achieve your goals, why bother taking more risk when it scares you that much?

[AerialWombat]

I'm thinking of using a 40/60 stock/bond allocation.

My target AA is 30/70. I’m 41, plan to semi-retire in 9 months. I chose 30/70 for my securities portfolio because I have significant stock-like risk in my rental properties and private company equity.

I see nothing wrong with 40/60, if it meets your needs.

[Watty]

Using portfoliovisualizer.com, it looks like I could reasonably get my preferred retirement account balance ($3 million at minimum) without actually taking too much risk with a very high savings rate.

A big question is if you would be OK if your plan fell 50% short and you retired with $1.5 million dollars, Social Security, and maybe a paid off house.

[9-5 Suited]

As long as you can achieve your goals with a clear plan, you can have a very conservative allocation and be fine. In fact, it may be wise to do so if you're on a great track to hitting goals without the help of market returns.

I'd only offer a caution to investigate "money illusion" which is the tendency to focus on nominal vs. real (after inflation) dollars, especially when looking at risk. Make sure your fixed income investments are secure against high inflation, as you could be bitten by a risk you didn't envision when your $3M doesn't buy you what you thought it would.

[7eight9]

Sitting at 20/80 at 53 years of age. Spouse is 50. We have always been in this area. Low expenses. Don't necessarily see the need to take any additional risk. If the markets drop 50% we lose 10% (contingent upon bonds/fixed income staying stable). Not going to be happy about losing 10% but a lot more tolerable than watching a higher percentage of equities get halved. Stock markets don't have to recover in an investor's time frame, life time or ever.

[vipertom1970]

from 2006-2008 my 401k(100 % equities)went from 400k to $250k and now back to over 1 mill was a major lesson not to worry about the bear market and keep on investing. I turned 50 last month, retired at 50 and my AA is now 60/40 with 2 years of emergency $$ in a ladder CD but I do have income from building rentals to cover my living expenses.

[am]

Sitting at 20/80 at 53 years of age. Spouse is 50. We have always been in this area. Low expenses. Don't necessarily see the need to take any additional risk. If the markets drop 50% we lose 10% (contingent upon bonds/fixed income staying stable). Not going to be happy about losing 10% but a lot more tolerable than watching a higher percentage of equities get halved. Stock markets don't have to recover in an investor's time frame, life time or ever.

Seems like the markets always have recovered in the US over the last 100 yrs. Thats an unsettling statement you make. Could really derail plans.

I am getting close to 2 mil in mid 40s and have been thinking hard about going conservative with higher bond allocation and preserving what I have with a current high savings rate. But then I think that I have decades left in the market (hopefully) and it has always gone higher. What to do? First world problems.

[7eight9]

Sitting at 20/80 at 53 years of age. Spouse is 50. We have always been in this area. Low expenses. Don't necessarily see the need to take any additional risk. If the markets drop 50% we lose 10% (contingent upon bonds/fixed income staying stable). Not going to be happy about losing 10% but a lot more tolerable than watching a higher percentage of equities get halved. Stock markets don't have to recover in an investor's time frame, life time or ever.

Seems like the markets always have recovered in the US over the last 100 yrs. Thats an unsettling statement you make. Could really derail plans.

I am getting close to 2 mil in mid 40s and have been thinking hard about going conservative with higher bond allocation and preserving what I have with a current high savings rate. But then I think that I have decades left in the market (hopefully) and it has always gone higher. What to do? First world problems.

It is unsettling. And a first world problem to be sure.

You would probably agree that you were born lucky. In the right place at the right time. You are a US investor (I presume). What if you had been born in Japan? Their market hasn't recovered. Yet in 1989 the Japanese stock market represented 45% of the global stock market capitalization. The US was second place at 33%. Things have obviously changed since 1989. Will the US stay dominant? Perhaps. However, things seek equilibrium - reversion to the mean. You have to pick an allocation that you can live with (and a loss percentage that you can accept - and 50% is far from the maximum draw down the US market has experienced). I've made peace with my 20/80 choice a long time ago. Best of luck in your decision.

[BernardShakey]

I like it. I subscribe to the idea of not taking more risk than you have to in order to meet your goals. As someone mentioned in an earlier post, you do want to make sure your combined investments keep you well ahead of inflation. I'm 56 years old and am looking at a 50% stock / 35% bond /15% cash allocation as I head toward retirement. I was 45 years old in 2008 and I wish I had been closer to 50/50 when that market crashed. I was close to 100% stocks and it was scary. Good luck!

[poppa23]

59 years old 20 stock 70 bond (individ muni and bond funds) 10 cash...was the same 10 years ago..already won the game. can retire now if i wanted. working 25 hours a week. no need to take on more risk than needed in my opinion just to leave more for my children..

[minimalistmarc]

50% is conservative in bogleheads but most people I know avoid stocks altogether or at best have negligible exposure because stocks are “too risky.”

A few years ago I tried to convince my parents on their retirement to put a 250k lump sum into a very conservative vanguard fund 40:60 and withdraw no more than 10% per year. Along with a rubbish annuuity and state pension this would have given them a comfortable and stable retirement income.

The money stayed in cash and 4 years later the pot is almost gone having been frittered away on luxury holidays/entertainment/booze. They are now facing the prospect of having to lead a frugal life for the first time ever. I am watching with concerned interest.

[Dude2]

Just note that around here, for bond-heavy portfolios, the smart people recommend TIPS because you can really get killed by inflation with bonds. Then the more bonds you have, the more you might need to be worried about that. This sentiment is in isolation from the current economic climate which makes us tend to think that inflation will not be a factor. It's just a rule of thumb (which is by no means universally accepted and can lead to endless arguing) that if you are bond-heavy, consider TIPS. I use both short and intermediate TIPS funds for at least half of my bond portion, and it doesn't bother me that they may seem to perform slightly worse than nominals.

[Sisyfos]

You have sizable portfolio already it seems. Have you ever gone through a bear market with a lot of stocks in your portfolio? People react very differently to those situations. Generally I have personally just went through the bear markets while increasing my investment amounts to stocks during them and thinking that "they will bounce back" or "at least I am getting dividends". The last bear market was a bit rough as some of my best dividend stocks were on financial sector and actually went bankrupt or got nationalized so there was no bouncing back from the market for them. But there were other parts of the portfolio that did just fine. I learned a lesson on diversified sector allocation during that period. It seems that every bear market teaches one something but there are only so many of those that a person meets during their lifetime.

I would reiterate what others have said: "you know you". I would at least go with the conservative route until you have experience on how you think and react during bear markets. I think that one of my regrets during them has been that as I hold very little bonds myself, I have not had much "dry powder" to buy new stocks during them except to what I get from my profession. Having bonds and doing rebalancing also on bear markets towards stocks would have felt pretty good at that time. Do you think you can also rebalance to that direction?

[Dandy]

Investing is a means to an end. If you can get to the end you want e.g. 3 million with less risk -- why not. I got to my "end" and never had an equity allocation greater than 55%. With the US equity market at an all time high after a long bull run a slightly more conservative allocation might also be a good idea.

[am]

Investing is a means to an end. If you can get to the end you want e.g. 3 million with less risk -- why not. I got to my "end" and never had an equity allocation greater than 55%. With the US equity market at an all time high after a long bull run a slightly more conservative allocation might also be a good idea.

If you’ve got decades left and knowing the history of the US market, isn’t that leaving money on the table? Few to no 10-20+ year stretches that weren’t positive returns. Why think this time is different?

[Dandy]

If you’ve got decades left and knowing the history of the US market, isn’t that leaving money on the table? Few to no 10-20+ year stretches that weren’t positive returns. Why think this time is different?

The OP feels the goal of 3 million can be reached with a less conservative allocation than 60/40 - with a heavy emphasis on saving. dialing back the risk a bit shouldn't be an issue.

Leaving money on the table is always a issue with lower equity allocation but we don't recommend everyone have 80% or 100% allocated to equities. Also, money left on the table is a side issue that can distract for the main one - reaching a specific goal by taking a bit less risk. Of course the goal should be well thought out and reasonably attainable with reasonably conservative assumptions which I assume has been the case.

[dh]

Making a plan, setting goals, and sticking to your plan is key. My overriding goal is to meet income my needs, by taking as little risk as possible. Good luck to us all!

[am]

If you’ve got decades left and knowing the history of the US market, isn’t that leaving money on the table? Few to no 10-20+ year stretches that weren’t positive returns. Why think this time is different?

The OP feels the goal of 3 million can be reached with a less conservative allocation than 60/40 - with a heavy emphasis on saving. dialing back the risk a bit shouldn't be an issue.

Leaving money on the table is always a issue with lower equity allocation but we don't recommend everyone have 80% or 100% allocated to equities. Also, money left on the table is a side issue that can distract for the main one - reaching a specific goal by taking a bit less risk. Of course the goal should be well thought out and reasonably attainable with reasonably conservative assumptions which I assume has been the case.

It’s interesting how we equate equity risk with short term volatility which is just noise. The long term returns of equities over decades are fairly consistent over history and almost always positive and generous (see Stocks For the Long Run).

While bonds (especially non tips) give relative short term stability but nearly always lead to worse returns, and can get slaughtered during inflationary periods.

Seems like by going heavy on bonds, your facing a different long term risk of your money being “stable” but potentially losing purchasing power over time. While the equity owners face short term risk in the form of volatility but almost always make out better over decades.

[ram]

You state that you are risk averse. You have an appropriate stock: bond allocation for your risk averse status. Nothing wrong with this.

You trying to do what the investment gurus suggest for an average person and then bailing when stocks go down would be a worse situation than the current status.

[quantAndHold]

For a very long timeline (and someone in their 40’s who’s saving for retirement has a very long timeline), I would think that inflation is actually a bigger, scarier risk than stock market volatility.

[Dandy]

Seems like by going heavy on bonds, your facing a different long term risk of your money being “stable” but potentially losing purchasing power over time. While the equity owners face short term risk in the form of volatility but almost always make out better over decades.

Part of the issue is what is the risk the OP "needs" to take to reach the goal of 3 million. If we had more detail on current portfolio, planned savings rate, new overall allocation and other assumptions we would be in a better place to opine on whether the goal could be reached.

You don't necessarily need a 60% equity allocation to offset moderate inflation. The OP isn't setting a priority on growth he is looking for the path with lower risk to reach his goal. Not everyone has the same risk tolerance or need for the same level of risk. But it is true that trying to preserve purchasing power is a valid concern.

[MikeG62]

I am 57 and DW is 54. Our asset allocation is ~40% equities with the rest in fixed income/cash. When we retired four years ago, our target AA for equities was 47.5%. Much more comfortable with our new AA.

[ER2023]

We are 56 and 50 and have been around 46/54 and even as low as 39/61. No bonds, just stable value in 401ks and CDs. We also will be downsizing, projecting a net of at least $200k after we buy next house. This money will also be put into stable. I realize this is conservative, but it's my SWAN factor. I may adjust in the future, but right now I'm so focused on retiring in three years and don't want to risk it.

To be honest, I often want to go even more conservative.