asset allocation anxiety

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Arabesque
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asset allocation anxiety

Post by Arabesque » Wed Jul 17, 2019 1:51 pm

Dear Wise Bogleheads, who have taught me so much,

I have always had a high risk tolerance and consequently a stock heavy allocation (80/20 or more over the decades).

I am now 68 and planning to retire in the next 12-24 months. Rationally I understand that this is a time to be cautious, though I probably could live off of my social security, to be started at 70. Given my retirement plan and the runup, I have been selling stocks, slowly changing my allocation over the last year or two. As of now, I am 40% stock (mutual funds), 40% bond funds and CDs, and 20% cash (I will buy a few CDs). This allocation is making me crazy. I feel like I am missing out on all sorts of returns, even at these inflated prices.

Please explain to me the benefits of caution around retirement (and in old age generally). I think I understand it, but it sure isn't resonating.

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Cyclesafe
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Re: asset allocation anxiety

Post by Cyclesafe » Wed Jul 17, 2019 2:05 pm

If you have won the game, why keep playing? What will you be able to do with more money; what will you not be able to do if you have less? Is it worth taking the risk? You have less time than before to recover from a loss.
"Plans are useless; planning is indispensable.” - Dwight Eisenhower

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FelixTheCat
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Re: asset allocation anxiety

Post by FelixTheCat » Wed Jul 17, 2019 2:20 pm

Think 2009. How would you feel with 40% less during retirement?
Felix is a wonderful, wonderful cat.

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Watty
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Re: asset allocation anxiety

Post by Watty » Wed Jul 17, 2019 2:21 pm

Arabesque wrote:
Wed Jul 17, 2019 1:51 pm
As of now, I am 40% stock (mutual funds), 40% bond funds and CDs, and 20% cash (I will buy a few CDs). This allocation is making me crazy. I feel like I am missing out on all sorts of returns, even at these inflated prices.
For comparison the Vanguard Target Retirement 2020 fund is about 55% stocks so your asset allocation is a lot more conservative than that.

https://investor.vanguard.com/mutual-fu ... file/VTWNX

There is not one magic "right" number but increasing your stock asset allocation back up to 55% would seem to be a reasonable thing to me. You might want to adjust it each year to mimic the 2020 fund as it decreases the stock asset allocation.

The low cost target retirement funds are actually a really good choice in a retirement account where tax efficiency is not an issue. If most of your money is in retirement accounts you might want to just use a 2020 fund. When I retired in 2015 most of my money was in retirement accounts so I put most of my funds into a 2015 fund.

CedarWaxWing
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Re: asset allocation anxiety

Post by CedarWaxWing » Wed Jul 17, 2019 2:35 pm

I am your age and doing ok financially.

We have a 50:50 allocation and am very comfortable with that. When we start SS at age my age 70, I will likely go to 60/40 Stocks/Bonds and stay there likely forever. I was 80:20 for decades and did fine in the recent recession years... but now I am retired decided to de-risk things so to speak for my non salaried years.

Since you are comfortable with more risk, but don't need to take that risk, perhaps a 50/50 AA would help you relax a bit about "missing out"... but only you can know if that is true.

Then again... If you can, consider asking VG , if you are invested there, for a one time review of your portfolio, and advise as to how to resolve your "problem"?

Best,

M

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willthrill81
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Re: asset allocation anxiety

Post by willthrill81 » Wed Jul 17, 2019 2:53 pm

Arabesque wrote:
Wed Jul 17, 2019 1:51 pm
Dear Wise Bogleheads, who have taught me so much,

I have always had a high risk tolerance and consequently a stock heavy allocation (80/20 or more over the decades).

I am now 68 and planning to retire in the next 12-24 months. Rationally I understand that this is a time to be cautious, though I probably could live off of my social security, to be started at 70. Given my retirement plan and the runup, I have been selling stocks, slowly changing my allocation over the last year or two. As of now, I am 40% stock (mutual funds), 40% bond funds and CDs, and 20% cash (I will buy a few CDs). This allocation is making me crazy. I feel like I am missing out on all sorts of returns, even at these inflated prices.

Please explain to me the benefits of caution around retirement (and in old age generally). I think I understand it, but it sure isn't resonating.
Fear of missing out (FOMO) is real. Unfortunately, it can cut both ways. You can feel it when stocks are on a tear and you're missing out on gains, and you can feel it when stocks are plummeting and bonds are rock solid. There isn't a good Boglehead-approved solution to this, IMHO.
Cyclesafe wrote:
Wed Jul 17, 2019 2:05 pm
If you have won the game, why keep playing?
The 'game' isn't over until you're dead (and probably your spouse as well, if applicable), so you can't know for sure that you've 'won' while you're alive. I'm not joking.

That saying is definitely not Bernstein's best work.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Time2Quit
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Re: asset allocation anxiety

Post by Time2Quit » Wed Jul 17, 2019 3:04 pm

I compare it to the team that got the lead during game and is trying to preserve the lead during the last few minutes of the game. They try to preserve the lead instead of adding to it.

IMO. I would add the lead as the game is not over till you are gone.
"It is not the man who has too little, but the man who craves more, that is poor." --Seneca

livesoft
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Re: asset allocation anxiety

Post by livesoft » Wed Jul 17, 2019 3:22 pm

I don't think it matters that much, so if you have anxiety because you have too little allocated to equities, then bump up your allocation to equities. There, problem solved.
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X528
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Re: asset allocation anxiety

Post by X528 » Wed Jul 17, 2019 3:29 pm

Stocks can fall 50% or more in a year.

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goodenyou
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Re: asset allocation anxiety

Post by goodenyou » Wed Jul 17, 2019 3:44 pm

You will likely feel relief on bad days and regret on good days. It’s called the relief-regret cycle. It’s common. If your asset allocation doesn’t materially change your life, and you can meet all your goals, why worry? Your dilemma and frustration comes from the inability to predict the future. Time is the only thing that will smooth out volatility. When you age, you don’t have that luxury.
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

victw
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Re: asset allocation anxiety

Post by victw » Wed Jul 17, 2019 3:51 pm

Arabesque wrote:
Wed Jul 17, 2019 1:51 pm
As of now, I am 40% stock (mutual funds), 40% bond funds and CDs, and 20% cash (I will buy a few CDs). This allocation is making me crazy. I feel like I am missing out on all sorts of returns, even at these inflated prices.

Please explain to me the benefits of caution around retirement (and in old age generally). I think I understand it, but it sure isn't resonating.
How did you decide on 40%?

Livesoft is correct - it probably doesn't matter much. I've seen numbers that show the returns based on allocations - might be in the wiki. But allocation won't change it that much. And it might not actually change your income much. Have you run any calculations to determine how much your income will change with a higher/lower allocation?

We are 58/42 right now - in our 50s and not more than 2 years out for FIRE. I also am feeling the back and forth of FOMO. I'd like the upside of a higher stock allocation. But in our years till SS I want the base for a bridge. We will be letting our stock allocation climb as we burn the bridge before SS.

Wow - the behavioral aspects...Super interesting.

Vic

Broken Man 1999
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Re: asset allocation anxiety

Post by Broken Man 1999 » Wed Jul 17, 2019 4:05 pm

We are at a 50/50 AA, and our returns are still very nice.

As we age a few more years, I might be comfortable enough to let the equity allocation rise a bit, assuming the expenses stay decent, and if the bull is still running.

The reason would be for legacy more than anything.

Lots can happen, though. Market might fall deeply, expenses might rise greatly, it is a crap shoot.

I certainly won't reach for more equities at the expense of our retirement lifestyle safety.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

MotoTrojan
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Re: asset allocation anxiety

Post by MotoTrojan » Wed Jul 17, 2019 4:12 pm

I agree with the sentiment to pick something and let it ride the rest of your life. What’s your expected withdrawal rate? 40/60 if you’re nervous. 50/50-70/30 for most anyone else.

Dandy
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Re: asset allocation anxiety

Post by Dandy » Wed Jul 17, 2019 4:19 pm

My view is if you have reached your number you should be looking more toward asset preservation than growth. A lot depends on your draw down percentage. If your draw down percentage is 3% or less you are in great shape, 3.5% pretty good. Even at age 70 4% is probably pretty good.

So, if your draw down percentage is pretty good (or better) a moderate or conservative allocation should be fine. Since you can't take it with you the key is assuring, as much as practical, that you won't run out of money. You need enough growth to help offset moderate inflation - 40% equity allocation should be adequate.

I was never an aggressive investor -- 55% equities was about my highest. When I retired with almost zero earning power and facing possibly 30 years of retirement funding I couldn't decide if I should be 60/40 or 40/60. I roughly adopted Dr. Wm Bernstein's idea of putting X years (20-25 was suggested) of draw down dollars in "safe" fixed income and the rest invest anyway you want. Basically, secure your retirement and then decide how much risk you want to take with the rest. This bottom up approach sounded good to me. I decided at age 68 to put 22 years worth of draw down in FDIC products and short term bond funds -- that was about 2/3 of my fixed income. I'm at 43/57 overall. I sleep well. Not everyone is fortunate to make that much of their nest egg "safe". I think their is value in the approach even if you do fewer years.

My withdrawals come from a mix of "safe" and "risk" assets so the "safe" portfolio is more like insurance than an ATM. If equities have a really bad year I'll take most or all from the "safe" assets. Thus, the "safe" assets will tend to be under used. I can decide whether to extend the "safe" coverage years, spend the "excess" or invest it.

delamer
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Re: asset allocation anxiety

Post by delamer » Wed Jul 17, 2019 4:45 pm

If you truly can live fine just on your Social Security, then there is little downside to a higher stock allocation. Just like there is little downside to a lower stock allocation.

My personal preference with a high stock allocation is to put most of fixed income in cash rather than bonds.

Your current allocation seems like an extreme step away from 80/20.

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Arabesque
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Re: asset allocation anxiety

Post by Arabesque » Wed Jul 17, 2019 4:53 pm

@livesoft and others are right about slight variations in asset allocations not making much difference in terms of income. I have seen those tables on the Boglehead wiki, and I know that we are talking small percentages. Before I started this thread, I reviewed the wiki trying to reduce my anxiety.

So if it's not simple FOMO, perhaps I'm worried about all the mortality implications of cutting back and accepting the shorter recovery horizon. Asset change = death or fear of missing out on fun (FOMOOF)? I also think my anxiety (and too much cash) is related to selling the last of my Apple last week. I bought Apple pre-iPhone and did very well. I sold about a third of it almost 2 years ago and, in true Boglehead style, last week I finally accepted it was unwise to have a big position in a single stock. I was fond of it though as we had been together awhile.

Thanks to all the advice, I am less anxious, and I will move up my stock allocation 10 or 20%. Since we have entered a period of exuberance, I may try to time the market. It is very hard to stay the course.

mojorisin
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Re: asset allocation anxiety

Post by mojorisin » Wed Jul 17, 2019 5:06 pm

You have done quite well at 80/20 all those years.

I'm currently at 60/40 in my late 40's, feel like I've missed out on some returns.

Enjoy all those years of run up, and don't get greedy. Go enjoy your retirement. You won the game. Go pop some champagne.

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goodenyou
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Re: asset allocation anxiety

Post by goodenyou » Wed Jul 17, 2019 7:21 pm

You could read some posts circa 2008-2009 on this forum. It may temper your fear of missing out.
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

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Re: asset allocation anxiety

Post by pkcrafter » Wed Jul 17, 2019 8:20 pm

Arabesque, what will your initial withdrawal rate be? The answer to that will have an impact on recommendations.

You have to look at ability, need and willingness to take risk. You obviously have willingness, but some investors actually have a risk taking gene, and it might be throwing off your decisions a bit. For instance, what would have happened to your proposed withdrawal rate if you had lost 40% of assets a year ago?


Paul
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kcxie
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Re: asset allocation anxiety

Post by kcxie » Wed Jul 17, 2019 8:31 pm

50!50 is the best assets allocation to avoid fear of missing out. when you have a good day for stocks . You’re just looking at the 50th% on the Stocks site when the stocks decline you just to focus on the bonds side. Yes you will be happy ever after!

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Sandtrap
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Re: asset allocation anxiety

Post by Sandtrap » Wed Jul 17, 2019 9:40 pm

OP:
Take a look at these Vanguard Allocation Models:
VANGUARD PORTFOLIO ALLOCATION MODELS
https://personal.vanguard.com/us/insig ... s?lang=en

Notice how there's not a huge amount of difference between allocations as a sub group.
Relatively speaking, IE: between 60/40 and 40/60.

Short of 100% in equities and an allocation of 100/0, there will always be a FOMO Fear Of Missing Out as long as the markets are positive. It helps to look at the other end of things. How would you feel if in a severe market downturn, the value of your equities dropped 50% or much much more?

j
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Topic Author
Arabesque
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Re: asset allocation anxiety

Post by Arabesque » Wed Jul 17, 2019 10:19 pm

pkcrafter,

I will take my RMDs which I believe will be about 4 %. Actually I'm not sure what I would do with all the money as I know by my personality that once I retire I will go into frugal mode, no more exotic trips.I can be really, really cheap, and still happy with a trip to the library and a good walk. As I said earlier, I could live on Social Security.

I just have deep FOMO. FOMO is probably why I have kept working. I want to see what happens next.

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Stinky
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Re: asset allocation anxiety

Post by Stinky » Wed Jul 17, 2019 10:29 pm

Arabesque wrote:
Wed Jul 17, 2019 4:53 pm

Thanks to all the advice, I am less anxious, and I will move up my stock allocation 10 or 20%.
This sounds like a good answer for you. It makes you feel good, and your need for income from your portfolio is low since you say that you could live on Social Security.

You’ve won the game. Enjoy your retirement years.
It's a GREAT day to be alive - Travis Tritt

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ruralavalon
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Re: asset allocation anxiety

Post by ruralavalon » Thu Jul 18, 2019 9:06 am

Arabesque wrote:
Wed Jul 17, 2019 1:51 pm
Dear Wise Bogleheads, who have taught me so much,

I have always had a high risk tolerance and consequently a stock heavy allocation (80/20 or more over the decades).

I am now 68 and planning to retire in the next 12-24 months. Rationally I understand that this is a time to be cautious, though I probably could live off of my social security, to be started at 70. Given my retirement plan and the runup, I have been selling stocks, slowly changing my allocation over the last year or two. As of now, I am 40% stock (mutual funds), 40% bond funds and CDs, and 20% cash (I will buy a few CDs). This allocation is making me crazy. I feel like I am missing out on all sorts of returns, even at these inflated prices.

Please explain to me the benefits of caution around retirement (and in old age generally). I think I understand it, but it sure isn't resonating.
There is a problem called "sequence of returns risk". Market losses soon (10 years) before or after retirement cannot easily be recovered while withdrawing from the portfolio. Investopedia, "Sequence risk." .

In my opinion a 60/40 equities/fixed income asset allocation is within the range of what is reasonable at age 68, retirement in 12-24 months, with Social Security close to covering living expenses.

Here are two good articles on the classic 60/40 stock/bond allocation:
1) Peter Bernstein, Bloomberg Personal Finance (2002) , "The 60/40 Solution"; and
2) Rick Ferri, etf.com (2/25/2015), "Wisdom Of 60/40 Portfolios Timeless"".

The second article does discuss the "sequence risk" aspect, using 2007-09 as an illustration.


Arabesque wrote:
Wed Jul 17, 2019 4:53 pm
@livesoft and others are right about slight variations in asset allocations not making much difference in terms of income. I have seen those tables on the Boglehead wiki, and I know that we are talking small percentages. Before I started this thread, I reviewed the wiki trying to reduce my anxiety.

So if it's not simple FOMO, perhaps I'm worried about all the mortality implications of cutting back and accepting the shorter recovery horizon. Asset change = death or fear of missing out on fun (FOMOOF)? I also think my anxiety (and too much cash) is related to selling the last of my Apple last week. I bought Apple pre-iPhone and did very well. I sold about a third of it almost 2 years ago and, in true Boglehead style, last week I finally accepted it was unwise to have a big position in a single stock. I was fond of it though as we had been together awhile.

Thanks to all the advice, I am less anxious, and I will move up my stock allocation 10 or 20%. Since we have entered a period of exuberance, I may try to time the market. It is very hard to stay the course.
Arabesque wrote:
Wed Jul 17, 2019 10:19 pm
pkcrafter,

I will take my RMDs which I believe will be about 4 %. Actually I'm not sure what I would do with all the money as I know by my personality that once I retire I will go into frugal mode, no more exotic trips.I can be really, really cheap, and still happy with a trip to the library and a good walk. As I said earlier, I could live on Social Security.

I just have deep FOMO. FOMO is probably why I have kept working. I want to see what happens next.
Have fun, enjoy your retirement. Don't become over-cautious. Take exotic trips and enjoy yourself. Keep working if you enjoy your work.
Last edited by ruralavalon on Thu Jul 18, 2019 9:29 am, edited 3 times in total.
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bradpevans
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Re: asset allocation anxiety

Post by bradpevans » Thu Jul 18, 2019 9:21 am

Arabesque wrote:
Wed Jul 17, 2019 1:51 pm
Dear Wise Bogleheads, who have taught me so much,

I have always had a high risk tolerance and consequently a stock heavy allocation (80/20 or more over the decades).

I am now 68 and planning to retire in the next 12-24 months. Rationally I understand that this is a time to be cautious, though I probably could live off of my social security, to be started at 70. Given my retirement plan and the runup, I have been selling stocks, slowly changing my allocation over the last year or two. As of now, I am 40% stock (mutual funds), 40% bond funds and CDs, and 20% cash (I will buy a few CDs). This allocation is making me crazy. I feel like I am missing out on all sorts of returns, even at these inflated prices.

Please explain to me the benefits of caution around retirement (and in old age generally). I think I understand it, but it sure isn't resonating.
When you are accumulating, market drops mean "buying low"
When you are de-cumulating, market drops mean "selling low"

Nothing prohibits you from keeping your AA BUT that AA in de-cumulation it certainly poses greater risk than in accumulation.
If you can live of SS, then you might be more aggressive.

What you are trying to avoid is these two:
1) I need to sell of holdings (to get cash to live off)
2) Holdings are down
which, when combined, means your remaining holdings are now smaller yet.

CoastalWinds
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Re: asset allocation anxiety

Post by CoastalWinds » Thu Jul 18, 2019 9:26 am

Time2Quit wrote:
Wed Jul 17, 2019 3:04 pm
I compare it to the team that got the lead during game and is trying to preserve the lead during the last few minutes of the game. They try to preserve the lead instead of adding to it.

IMO. I would add the lead as the game is not over till you are gone.
I’d bring in Mariano Rivera and call it done.😁

Topic Author
Arabesque
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Re: asset allocation anxiety

Post by Arabesque » Thu Jul 18, 2019 10:50 am

Mariano Rivera, I would bring Mariano Rivera into my retirement in a heartbeat (and I'm a Red Sox fan)!

I think it was the Rick Ferri article I was thinking of when I started to reduce my stock funds, "ruralavalon." I had read it and forgot its details, and It is really very helpful for understanding the difference between accumulating and retiring. I may still increase my stock allocation, but I know that it is irrational and neurotic now. If I am going to be irrational and neurotic, I might as well take off for a year in Indonesia, too. If I am invested as a Boglehead, I need not be much worried about managing finances.

cashboy
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Re: asset allocation anxiety

Post by cashboy » Thu Jul 18, 2019 12:59 pm

for me, i found that the 'psychology' of 'investing at retirement' is different that 'investing while working' (unless one is very wealthy); it is not just numbers.

BH advice is to stay the course. good advice. but, once near retirement, or retired, one must consider the 'course' one is on - and adjust, or not, accordingly. there is a difference between how much 'one needs' to endlessly seeking more and more (well beyond what one needs).

for me, i was between 60/40 and 70/30 while 'investing while working'. i entered retirement (courtesy of megacorp job eliminations last year ) and found that 70/30 would not let me 'sleep at night'. i had anxiety for a reason the opposite of yours - i was not afraid of losing large gains, but was afraid of losing what i had already gained (within reason) at a point in time of my life that i am, and will continue to be, vulnerable.

so, i adjusted my AA down in stages (65/35, 60/40, 55/45) until it reached a point (50/50) where i still had a good rate of return (to more than meet my needs) while also allowing me to sleep well at night. i had what i 'needed' and then some. i am content.

might i lose some potential gains? yes
am i better protected against large downturns? yes

as others have suggested, adjust your AA until comfortable if the AA you have does not work for you. you can always change it.

also, if you have not done so already, consider reading the threads here at BH on 2008/2009, like this one:
viewtopic.php?t=207809

and the famous sheepdog thread.
viewtopic.php?t=25126

my sincere wish for a long, happy, and healthy retirement for you.

:sharebeer
FSPSX - FXAIX - FXNAX - CD - CASH - canned beans - rice

longinvest
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Re: asset allocation anxiety

Post by longinvest » Fri Jul 19, 2019 7:06 am

ruralavalon wrote:
Thu Jul 18, 2019 9:06 am
There is a problem called "sequence of returns risk". Market losses soon (10 years) before or after retirement cannot easily be recovered while withdrawing from the portfolio. Investopedia, "Sequence risk." .
It's quite easy to completely eliminate sequence of returns risk by simply using a sensible portfolio withdrawal approach, like our wiki's variable percentage withdrawal (VPW) method. VPW allows the retiree to spend most of the portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

There's a convenient VPW Accumulation And Retirement Worksheet. Its Retirement sheet (screenshot) takes into account current and future pensions (with and without cost of living adjustments) like a work pension or Social Security delayed to age 70 to calculate a withdrawal amount for the current year. Every year of retirement, input information must be updated (new age, new portfolio balance, new current and projected pension amounts) to calculate a new withdrawal amount. The VPW Worksheet also informs the retiree of the required flexibility the must be maintained at all times in the spending budget to adapt to the consequences of unfavorable market returns.
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

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Arabesque
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Re: asset allocation anxiety

Post by Arabesque » Fri Jul 19, 2019 9:43 am

longinvest wrote:
Fri Jul 19, 2019 7:06 am

There's a convenient VPW Accumulation And Retirement Worksheet. Its Retirement sheet (screenshot) takes into account current and future pensions (with and without cost of living adjustments) like a work pension or Social Security delayed to age 70 to calculate a withdrawal amount for the current year.


WOW! I had never seen this in my explorations! I haven't started seriously filling out the worksheet, but by looking at some basics, I feel rich and in control already. Thank you so much for this.

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