What should a mid 30s Asset Allocation be?

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masonstone
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What should a mid 30s Asset Allocation be?

Post by masonstone » Tue Oct 29, 2019 9:13 am

So one of the things I think about is what should my AA be. As a background I have a net worth of $2.5 million and a low 7 figure income. About 1/3 of my worth is in a commercial building and the rest is in VTSAX. I'm thinking that I should start putting some money into bonds but I'm hesitant due to the incredibly low returns. What would you do in my position?

jello_nailer
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Re: What should a mid 30s Asset Allocation be?

Post by jello_nailer » Tue Oct 29, 2019 9:15 am

How much is in cash?

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Re: What should a mid 30s Asset Allocation be?

Post by KlangFool » Tue Oct 29, 2019 9:17 am

OP,

1) How long can you last when the recession hits?

2) How much money would you lose if the recession lasted 2 years if

A) You are unemployed.

B) Your building cannot be rented out

C) The stock market drops 50%

KlangFool

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Re: What should a mid 30s Asset Allocation be?

Post by junior » Tue Oct 29, 2019 9:20 am

masonstone wrote:
Tue Oct 29, 2019 9:13 am
So one of the things I think about is what should my AA be. As a background I have a net worth of $2.5 million and a low 7 figure income. About 1/3 of my worth is in a commercial building and the rest is in VTSAX. I'm thinking that I should start putting some money into bonds but I'm hesitant due to the incredibly low returns. What would you do in my position?
Vanguard Target Retirement funds reflect what Vanguard thinks it should be.

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masonstone
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Re: What should a mid 30s Asset Allocation be?

Post by masonstone » Tue Oct 29, 2019 9:24 am

jello_nailer wrote:
Tue Oct 29, 2019 9:15 am
How much is in cash?
~40k in cash

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masonstone
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Re: What should a mid 30s Asset Allocation be?

Post by masonstone » Tue Oct 29, 2019 9:28 am

KlangFool wrote:
Tue Oct 29, 2019 9:17 am
OP,

1) How long can you last when the recession hits?

2) How much money would you lose if the recession lasted 2 years if

A) You are unemployed.

B) Your building cannot be rented out

C) The stock market drops 50%
I’ve read enough books and listened to enough podcasts to know the worst thing you can do in a recession is to sell. My building has 10 years remaining on its lease and the tenant is doing well. I’m in a 2 physician household but if I become unemployed I’ll do locums that would pay for my household expenses ~8k/month (including mortgage). We’d also cut back on our biggest expense which is eating out (3k/month). Our cars are paid off.

danielnash
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Re: What should a mid 30s Asset Allocation be?

Post by danielnash » Tue Oct 29, 2019 9:33 am

I'm in a somewhat similar financial situation. Besides some emergency cash, I would keep all your money in stocks. I think bonds are a really stupid investment at the current interest rates for anyone who isn't retiring for another 30+ years. You just need to be comfortable with the volatility of stocks. Some people can't see their investments get cut 20%+ in a month (like we saw last December). As long as you are okay with mark-to-market volatility, stocks are a much better investment over the long-term.

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Re: What should a mid 30s Asset Allocation be?

Post by KlangFool » Tue Oct 29, 2019 9:35 am

masonstone wrote:
Tue Oct 29, 2019 9:28 am
KlangFool wrote:
Tue Oct 29, 2019 9:17 am
OP,

1) How long can you last when the recession hits?

2) How much money would you lose if the recession lasted 2 years if

A) You are unemployed.

B) Your building cannot be rented out

C) The stock market drops 50%
I’ve read enough books and listened to enough podcasts to know the worst thing you can do in a recession is to sell. My building has 10 years remaining on its lease and the tenant is doing well. I’m in a 2 physician household but if I become unemployed I’ll do locums that would pay for my household expenses ~8k/month (including mortgage). We’d also cut back on our biggest expense which is eating out (3k/month). Our cars are paid off.
masonstone,

1) I wish you the best of luck. In summary, you are not prepared for the possibility of zero income.

2) Your emergency fund is 40K and it covers 8 months.

<<I’ve read enough books and listened to enough podcasts to know the worst thing you can do in a recession is to sell.>>

3) Then, you should read enough that most people do not prepare for the possibility of zero income over a long period in a recession. They were forced to sell their stocks.

KlangFool

rkhusky
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Re: What should a mid 30s Asset Allocation be?

Post by rkhusky » Tue Oct 29, 2019 9:46 am

You have enough that you needn’t worry about low return of bonds. And intermediate bond returns are not that low. Incredibly low would be 0.5% or less. More important is to set up a plan on how to introduce bonds over time. Starting with 10% in bonds is a good first step.

You also don’t have any international stocks for diversity. Starting with 20% of stocks in international would be a good first step.

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Re: What should a mid 30s Asset Allocation be?

Post by goodenyou » Tue Oct 29, 2019 11:09 am

Pigs get fat and hogs get slaughtered. Everyone has a different attitude about risk and reward. My decision was/is different than yours. I wanted to be in a position of freedom from the changes in healthcare that were beyond my control. That is, declining reimbursement and increased regulation. Therefore, I didn't take undue risk, saved like crazy and lived (very) well below my means. It turned out to be a winning formula, for me and my family. I had some bonds along the way, from my late 30s up and until now in my mid 50s. My rule of thumb:

30-40 80% stocks 20% bonds

40-50 70% stocks 30% bonds

50-Up 60% stocks 40% bonds (or 50/50).

The single most important investing (behavioral) decision for me was to live below my means and stay out of debt.
"Ignorance more frequently begets confidence than does knowledge" | Do you know how to make a rain dance work? Dance until it rains.

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Re: What should a mid 30s Asset Allocation be?

Post by masonstone » Tue Oct 29, 2019 11:18 am

KlangFool wrote:
Tue Oct 29, 2019 9:35 am
masonstone wrote:
Tue Oct 29, 2019 9:28 am
KlangFool wrote:
Tue Oct 29, 2019 9:17 am
OP,

1) How long can you last when the recession hits?

2) How much money would you lose if the recession lasted 2 years if

A) You are unemployed.

B) Your building cannot be rented out

C) The stock market drops 50%
I’ve read enough books and listened to enough podcasts to know the worst thing you can do in a recession is to sell. My building has 10 years remaining on its lease and the tenant is doing well. I’m in a 2 physician household but if I become unemployed I’ll do locums that would pay for my household expenses ~8k/month (including mortgage). We’d also cut back on our biggest expense which is eating out (3k/month). Our cars are paid off.
masonstone,

1) I wish you the best of luck. In summary, you are not prepared for the possibility of zero income.

2) Your emergency fund is 40K and it covers 8 months.

<<I’ve read enough books and listened to enough podcasts to know the worst thing you can do in a recession is to sell.>>

3) Then, you should read enough that most people do not prepare for the possibility of zero income over a long period in a recession. They were forced to sell their stocks.

KlangFool
Well unless all diseases become cured there will always be a need for doctors. So there will always be a need for my skills. Also my expenses are less than 10% of my income so I would be able to weather a significant decrease in reimbursements well. If I become disabled I have more than enough disability insurance to cover all expenses. Same goes for death w/ life-insurance.
Pigs get fat and hogs get slaughtered. Everyone has a different attitude about risk and reward. My decision was/is different than yours. I wanted to be in a position of freedom from the changes in healthcare that were beyond my control. That is, declining reimbursement and increased regulation. Therefore, I didn't take undue risk, saved like crazy and lived (very) well below my means. It turned out to be a winning formula, for me and my family. I had some bonds along the way, from my late 30s up and until now in my mid 50s. My rule of thumb:

30-40 80% stocks 20% bonds

40-50 70% stocks 30% bonds

50-Up 60% stocks 40% bonds (or 50/50).

The single most important investing (behavioral) decision for me was to live below my means and stay out of debt.
Though I do agree that I should probably go to 80/20 once I hit the age of 40 and I anticipate my net worth will be ~5 million by then.

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Re: What should a mid 30s Asset Allocation be?

Post by KlangFool » Tue Oct 29, 2019 11:40 am

masonstone wrote:
Tue Oct 29, 2019 11:18 am

Well unless all diseases become cured there will always be a need for doctors. So there will always be a need for my skills.
masonstone,

1) Unless you are working for free (which you do not plan to), the need may not translate into income.

2) With the amount of population that is uninsured, the ability to pay will go down even more substantially in a recession.

KlangFool

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Re: What should a mid 30s Asset Allocation be?

Post by masonstone » Tue Oct 29, 2019 11:50 am

KlangFool wrote:
Tue Oct 29, 2019 11:40 am
masonstone wrote:
Tue Oct 29, 2019 11:18 am

Well unless all diseases become cured there will always be a need for doctors. So there will always be a need for my skills.
masonstone,

1) Unless you are working for free (which you do not plan to), the need may not translate into income.

2) With the amount of population that is uninsured, the ability to pay will go down even more substantially in a recession.

KlangFool
Most patients don't have the ability to pay for their care even now. The government pays for them (Medicare/Medicaid). So realistically my income stream is very secure.

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Re: What should a mid 30s Asset Allocation be?

Post by KlangFool » Tue Oct 29, 2019 11:56 am

masonstone wrote:
Tue Oct 29, 2019 11:50 am
KlangFool wrote:
Tue Oct 29, 2019 11:40 am
masonstone wrote:
Tue Oct 29, 2019 11:18 am

Well unless all diseases become cured there will always be a need for doctors. So there will always be a need for my skills.
masonstone,

1) Unless you are working for free (which you do not plan to), the need may not translate into income.

2) With the amount of population that is uninsured, the ability to pay will go down even more substantially in a recession.

KlangFool
Most patients don't have the ability to pay for their care even now. The government pays for them. So realistically my income stream is very secure.
Good luck!

I do not understand your mindset. With your income and saving rate, you could put 200K into the fixed income and it would not make a bit of difference to you. But, you choose to take this additional risk that would not make a difference to you if things went well. But, if it goes badly, it will be very bad.

Why takes unnecessary risk? Especially when the reward is so insignificant.

KlangFool

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masonstone
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Re: What should a mid 30s Asset Allocation be?

Post by masonstone » Tue Oct 29, 2019 11:58 am

KlangFool wrote:
Tue Oct 29, 2019 11:56 am
masonstone wrote:
Tue Oct 29, 2019 11:50 am
KlangFool wrote:
Tue Oct 29, 2019 11:40 am
masonstone wrote:
Tue Oct 29, 2019 11:18 am

Well unless all diseases become cured there will always be a need for doctors. So there will always be a need for my skills.
masonstone,

1) Unless you are working for free (which you do not plan to), the need may not translate into income.

2) With the amount of population that is uninsured, the ability to pay will go down even more substantially in a recession.

KlangFool
Most patients don't have the ability to pay for their care even now. The government pays for them. So realistically my income stream is very secure.
Good luck!

I do not understand your mindset. With your income and saving rate, you could put 200K into the fixed income and it would not make a bit of difference to you. But, you choose to take this additional risk that would not make a difference to you if things went well. But, if it goes badly, it will be very bad.

Why takes unnecessary risk? Especially when the reward is so insignificant.

KlangFool
You have a good point, thank you.

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Re: What should a mid 30s Asset Allocation be?

Post by junior » Tue Oct 29, 2019 12:05 pm

KlangFool wrote:
Tue Oct 29, 2019 11:40 am
masonstone wrote:
Tue Oct 29, 2019 11:18 am

Well unless all diseases become cured there will always be a need for doctors. So there will always be a need for my skills.
masonstone,

1) Unless you are working for free (which you do not plan to), the need may not translate into income.

2) With the amount of population that is uninsured, the ability to pay will go down even more substantially in a recession.

KlangFool
The Average physician salary in america is $237,000. Assuming the two doctor household lost 50% of income in a recession that's still 237,500 a year to life off of, which is much more than most families have. I have a feeling OP will be okay even in a recession.

Assuming med school loans are paid off the asset allocation should be based on what OP is psychologically comfortable with, Op could keep everything in cash and still have enough money for retirement with prudent savings, or could put in all in stocks and hope to live a more lavish lifestyle in retirement or to pursue charitable interests in retirement.

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Re: What should a mid 30s Asset Allocation be?

Post by KlangFool » Tue Oct 29, 2019 12:12 pm

junior wrote:
Tue Oct 29, 2019 12:05 pm

The Average physician salary in america is $237,000. Assuming the two doctor household lost 50% of income in a recession that's still 237,500 a year to life off of, which is much more than most families have. I have a feeling OP will be okay even in a recession.

Assuming med school loans are paid off the asset allocation should be based on what OP is psychologically comfortable with, Op could keep everything in cash and still have enough money for retirement with prudent savings, or could put in all in stocks and hope to live a more lavish lifestyle in retirement or to pursue charitable interests in retirement.
junior,

Why take the risk? That is the correct question. At OP's income and saving level, 200K in fixed income is insignificant. But, this ensures OP against all possible bad outcomes.

<<could put in all in stocks and hope to live a more lavish lifestyle in retirement or to pursue charitable interests in retirement.>>

It does not change a bit in terms of outcome even if the 200K is in stock. So, why bother?

KlangFool

LiterallyIronic
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Re: What should a mid 30s Asset Allocation be?

Post by LiterallyIronic » Tue Oct 29, 2019 12:18 pm

masonstone wrote:
Tue Oct 29, 2019 9:13 am
So one of the things I think about is what should my AA be. As a background I have a net worth of $2.5 million and a low 7 figure income. About 1/3 of my worth is in a commercial building and the rest is in VTSAX. I'm thinking that I should start putting some money into bonds but I'm hesitant due to the incredibly low returns. What would you do in my position?
You're going to get so many different answers as to what AA should be. I'm mid-30s and my 401k is 100/0 and my IRA is 90/10 (the most aggressive target retirement fund). But if I were in your position, I'd sell the building, drop down to 60/40, and retire.
masonstone wrote:
Tue Oct 29, 2019 11:50 am
Most patients don't have the ability to pay for their care even now. The government pays for them (Medicare/Medicaid). So realistically my income stream is very secure.
This is the exact answer that I got when I talked to the local hospital billing department after we had our baby. Went in to pay our $12k bill (half via our HSA and half on credit card, which I paid off immediately) and asked, "How do most people pay bills of this magnitude?" The answer was "Most people either: 1) use government assistance; or 2) skip town and we never hear from them again." Sure loved to hear that I was subsidizing that.
Last edited by LiterallyIronic on Tue Oct 29, 2019 12:22 pm, edited 1 time in total.

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Re: What should a mid 30s Asset Allocation be?

Post by Momus » Tue Oct 29, 2019 12:19 pm

Do whatever you want with 1M+/yr income household. It's not gonna matter if you put 50% in bonds as long as you keep your expenses low. You should be able to amass 30M before you retire pretty easily.

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Re: What should a mid 30s Asset Allocation be?

Post by goodenyou » Tue Oct 29, 2019 12:27 pm

LiterallyIronic wrote:
Tue Oct 29, 2019 12:18 pm
masonstone wrote:
Tue Oct 29, 2019 9:13 am
So one of the things I think about is what should my AA be. As a background I have a net worth of $2.5 million and a low 7 figure income. About 1/3 of my worth is in a commercial building and the rest is in VTSAX. I'm thinking that I should start putting some money into bonds but I'm hesitant due to the incredibly low returns. What would you do in my position?
You're going to get so many different answers as to what AA should be. I'm mid-30s and my 401k is 100/0 and my IRA is 90/10 (the most aggressive target retirement fund). But if I were in your position, I'd sell the building, drop down to 60/40, and retire.
masonstone wrote:
Tue Oct 29, 2019 11:50 am
Most patients don't have the ability to pay for their care even now. The government pays for them (Medicare/Medicaid). So realistically my income stream is very secure.
This is the exact answer that I got when I talked to the local hospital billing department after we had our baby. Went in to pay our $12k bill (half via our HSA and half on credit card, which I paid off immediately) and asked, "How do most people pay bills of this magnitude?" The answer was "Most people either: 1) use government assistance; or 2) skip town and we never hear from them again." Sure loved to hear that I was subsidizing that.
The vast majority of doctors don't retire early. Especially after less than 10 years out of residency. It's a long haul to get there and much more a career than a job. I am seeing many doctors still operating into their 70s, and several of them could have retired 20 years ago. My partner is one of them.
"Ignorance more frequently begets confidence than does knowledge" | Do you know how to make a rain dance work? Dance until it rains.

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Re: What should a mid 30s Asset Allocation be?

Post by masonstone » Tue Oct 29, 2019 1:14 pm

LiterallyIronic wrote:
Tue Oct 29, 2019 12:18 pm

This is the exact answer that I got when I talked to the local hospital billing department after we had our baby. Went in to pay our $12k bill (half via our HSA and half on credit card, which I paid off immediately) and asked, "How do most people pay bills of this magnitude?" The answer was "Most people either: 1) use government assistance; or 2) skip town and we never hear from them again." Sure loved to hear that I was subsidizing that.
The "skip town and never hear from again" answer made me LOL. Honestly I don't mind doing charity work for those in need, especially if it involved helping secure a safe delivery (I'm not an OB though so I don't see those kinds of patients).

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Re: What should a mid 30s Asset Allocation be?

Post by bgf » Tue Oct 29, 2019 1:30 pm

interesting situation. my wife and i are mid-30s with a fraction of your income (attorney and teacher), and we are 100% equities. while our income and costs are nowhere near yours ($3k a month eating out!?!?!?!? :shock: unfathomable to me, honestly) our emergency fund isn't that far off. i think that's the kicker. if you want to stay 100% equities thats fine, but i'd have a much larger emergency fund...
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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Re: What should a mid 30s Asset Allocation be?

Post by masonstone » Tue Oct 29, 2019 2:33 pm

bgf wrote:
Tue Oct 29, 2019 1:30 pm
interesting situation. my wife and i are mid-30s with a fraction of your income (attorney and teacher), and we are 100% equities. while our income and costs are nowhere near yours ($3k a month eating out!?!?!?!? :shock: unfathomable to me, honestly) our emergency fund isn't that far off. i think that's the kicker. if you want to stay 100% equities thats fine, but i'd have a much larger emergency fund...
Though realistically since the eating out cost isn't a fixed cost it could be rapidly decreased (with a one hour notice infact). The breakfast and lunch I eat are free and provided at the hospital's doctors lounge. It's mostly dinners and weekend outings.

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Re: What should a mid 30s Asset Allocation be?

Post by Grt2bOutdoors » Tue Oct 29, 2019 2:44 pm

masonstone wrote:
Tue Oct 29, 2019 9:13 am
So one of the things I think about is what should my AA be. As a background I have a net worth of $2.5 million and a low 7 figure income. About 1/3 of my worth is in a commercial building and the rest is in VTSAX. I'm thinking that I should start putting some money into bonds but I'm hesitant due to the incredibly low returns. What would you do in my position?
Excluding the building, you should have 20% in fixed income. Remember, it's not the return on fixed income, it's the return of your money that is paramount. It's the amount of money that enables you to live another day, month, year(s). Ignore what everyone else is doing.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: What should a mid 30s Asset Allocation be?

Post by Grt2bOutdoors » Tue Oct 29, 2019 2:46 pm

danielnash wrote:
Tue Oct 29, 2019 9:33 am
I'm in a somewhat similar financial situation. Besides some emergency cash, I would keep all your money in stocks. I think bonds are a really stupid investment at the current interest rates for anyone who isn't retiring for another 30+ years. You just need to be comfortable with the volatility of stocks. Some people can't see their investments get cut 20%+ in a month (like we saw last December). As long as you are okay with mark-to-market volatility, stocks are a much better investment over the long-term.
Those who fail to understand the purpose of bonds need to do more reading.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: What should a mid 30s Asset Allocation be?

Post by Vanguard Fan 1367 » Tue Oct 29, 2019 2:50 pm

I like the classic 65% stock index funds 35% bond index funds to go with age 35.

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Re: What should a mid 30s Asset Allocation be?

Post by Big Dog » Tue Oct 29, 2019 2:54 pm

I was 100% equities till I hit my early 60's.

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Re: What should a mid 30s Asset Allocation be?

Post by masonstone » Tue Oct 29, 2019 3:26 pm

Grt2bOutdoors wrote:
Tue Oct 29, 2019 2:46 pm
danielnash wrote:
Tue Oct 29, 2019 9:33 am
I'm in a somewhat similar financial situation. Besides some emergency cash, I would keep all your money in stocks. I think bonds are a really stupid investment at the current interest rates for anyone who isn't retiring for another 30+ years. You just need to be comfortable with the volatility of stocks. Some people can't see their investments get cut 20%+ in a month (like we saw last December). As long as you are okay with mark-to-market volatility, stocks are a much better investment over the long-term.
Those who fail to understand the purpose of bonds need to do more reading.
Part of the reason for my low bond portion is the very secure income I have. But I agree with Klangfool that in the long-term, considering the risk/benefits ratio its wise to have at least a small bond allocation.

Another question: is it better to pay off a house or to have some money in bonds? I have 3% interest and 400k left on the mortgage.

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Re: What should a mid 30s Asset Allocation be?

Post by bgf » Tue Oct 29, 2019 3:33 pm

Grt2bOutdoors wrote:
Tue Oct 29, 2019 2:46 pm
danielnash wrote:
Tue Oct 29, 2019 9:33 am
I'm in a somewhat similar financial situation. Besides some emergency cash, I would keep all your money in stocks. I think bonds are a really stupid investment at the current interest rates for anyone who isn't retiring for another 30+ years. You just need to be comfortable with the volatility of stocks. Some people can't see their investments get cut 20%+ in a month (like we saw last December). As long as you are okay with mark-to-market volatility, stocks are a much better investment over the long-term.
Those who fail to understand the purpose of bonds need to do more reading.
yea, the purpose of bonds is to loan someone money in exchange for regular payments for a term, at which point you get your money back (assuming they don't default along the way). simple as that.

if you don't need regular payments for cash flow needs, and you don't need the money that you are investing, then why would you invest in bonds over equities? i dont want to loan my money to the US government for 10 years just to earn 1.8%. i can invest in thousands of companies with a dividend yield above that and an earnings year 3-4x that. id rather give them my money for the next 10 years.

not to mention, i have a 15 year mortgage at 2.875%, and I'm supposed to buy bonds yielding less? in tax advantaged space no less!!!! no thanks.
Last edited by bgf on Tue Oct 29, 2019 3:34 pm, edited 1 time in total.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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Re: What should a mid 30s Asset Allocation be?

Post by Grt2bOutdoors » Tue Oct 29, 2019 3:34 pm

Big Dog wrote:
Tue Oct 29, 2019 2:54 pm
I was 100% equities till I hit my early 60's.
This statement doesn't really say much.


I'll give you an example. An acquaintance of mine says I'm 100% in equities, but he also doesn't say that he has two fully paid houses, $100K in the bank in cash, secure employment with a pension. Basically, no worries if the market went to zero. But then will make an idiotic statement like he saved his nickels while working and that's why he has no worries. Not totally forthcoming.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: What should a mid 30s Asset Allocation be?

Post by Grt2bOutdoors » Tue Oct 29, 2019 3:39 pm

bgf wrote:
Tue Oct 29, 2019 3:33 pm
Grt2bOutdoors wrote:
Tue Oct 29, 2019 2:46 pm
danielnash wrote:
Tue Oct 29, 2019 9:33 am
I'm in a somewhat similar financial situation. Besides some emergency cash, I would keep all your money in stocks. I think bonds are a really stupid investment at the current interest rates for anyone who isn't retiring for another 30+ years. You just need to be comfortable with the volatility of stocks. Some people can't see their investments get cut 20%+ in a month (like we saw last December). As long as you are okay with mark-to-market volatility, stocks are a much better investment over the long-term.
Those who fail to understand the purpose of bonds need to do more reading.
yea, the purpose of bonds is to loan someone money in exchange for regular payments for a term, at which point you get your money back (assuming they don't default along the way). simple as that.

if you don't need regular payments for cash flow needs, and you don't need the money that you are investing, then why would you invest in bonds over equities? i dont want to loan my money to the US government for 10 years just to earn 1.8%. i can invest in thousands of companies with a dividend yield above that and an earnings year 3-4x that. id rather give them my money for the next 10 years.

not to mention, i have a 15 year mortgage at 2.875%, and I'm supposed to buy bonds yielding less? in tax advantaged space no less!!!! no thanks.
Congratulations, you hit the lottery. The difference is NOT everyone is walking in your shoes. You have a choice where to invest your money, there is not rule that says you must hold fixed income. The OP asked what is traditionally used by someone in their mid-30s, a 100% equities allocation is not traditionally used, not even the most riskiest target allocation funds hold 100% equity. You selected 10 year treasuries as your example, you can choose to hold corporates and pick up extra yield and risk or other securities.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Topic Author
masonstone
Posts: 498
Joined: Thu Feb 01, 2018 4:01 pm

Re: What should a mid 30s Asset Allocation be?

Post by masonstone » Tue Oct 29, 2019 3:41 pm

bgf wrote:
Tue Oct 29, 2019 3:33 pm
Grt2bOutdoors wrote:
Tue Oct 29, 2019 2:46 pm
danielnash wrote:
Tue Oct 29, 2019 9:33 am
I'm in a somewhat similar financial situation. Besides some emergency cash, I would keep all your money in stocks. I think bonds are a really stupid investment at the current interest rates for anyone who isn't retiring for another 30+ years. You just need to be comfortable with the volatility of stocks. Some people can't see their investments get cut 20%+ in a month (like we saw last December). As long as you are okay with mark-to-market volatility, stocks are a much better investment over the long-term.
Those who fail to understand the purpose of bonds need to do more reading.
not to mention, i have a 15 year mortgage at 2.875%, and I'm supposed to buy bonds yielding less? in tax advantaged space no less!!!! no thanks.
Realistically though for me a 2.875% mortgage comes out at 1.06% since the mortgage is tax deductible.

Grt2bOutdoors
Posts: 21459
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Location: New York

Re: What should a mid 30s Asset Allocation be?

Post by Grt2bOutdoors » Tue Oct 29, 2019 3:44 pm

masonstone wrote:
Tue Oct 29, 2019 3:26 pm
Grt2bOutdoors wrote:
Tue Oct 29, 2019 2:46 pm
danielnash wrote:
Tue Oct 29, 2019 9:33 am
I'm in a somewhat similar financial situation. Besides some emergency cash, I would keep all your money in stocks. I think bonds are a really stupid investment at the current interest rates for anyone who isn't retiring for another 30+ years. You just need to be comfortable with the volatility of stocks. Some people can't see their investments get cut 20%+ in a month (like we saw last December). As long as you are okay with mark-to-market volatility, stocks are a much better investment over the long-term.
Those who fail to understand the purpose of bonds need to do more reading.
Part of the reason for my low bond portion is the very secure income I have. But I agree with Klangfool that in the long-term, considering the risk/benefits ratio its wise to have at least a small bond allocation.

Another question: is it better to pay off a house or to have some money in bonds? I have 3% interest and 400k left on the mortgage.
Given the choice, if I were comparing a 3% mortgage versus current taxable equivalents like a 2% money market or a 2.3% 5 year CD - I'd pay off the mortgage. If you are comfortable keeping the debt, then I'd invest it in a more volatile asset like equities. It's really up to you. Once that mortgage is paid off, you could always take a new mortgage out if you really wanted to. But how many people go out and get a mortgage after paying it off? Not many. Not many are going to borrow against the house to play the stock market.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

bgf
Posts: 1089
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Re: What should a mid 30s Asset Allocation be?

Post by bgf » Tue Oct 29, 2019 3:44 pm

Grt2bOutdoors wrote:
Tue Oct 29, 2019 3:39 pm
bgf wrote:
Tue Oct 29, 2019 3:33 pm
Grt2bOutdoors wrote:
Tue Oct 29, 2019 2:46 pm
danielnash wrote:
Tue Oct 29, 2019 9:33 am
I'm in a somewhat similar financial situation. Besides some emergency cash, I would keep all your money in stocks. I think bonds are a really stupid investment at the current interest rates for anyone who isn't retiring for another 30+ years. You just need to be comfortable with the volatility of stocks. Some people can't see their investments get cut 20%+ in a month (like we saw last December). As long as you are okay with mark-to-market volatility, stocks are a much better investment over the long-term.
Those who fail to understand the purpose of bonds need to do more reading.
yea, the purpose of bonds is to loan someone money in exchange for regular payments for a term, at which point you get your money back (assuming they don't default along the way). simple as that.

if you don't need regular payments for cash flow needs, and you don't need the money that you are investing, then why would you invest in bonds over equities? i dont want to loan my money to the US government for 10 years just to earn 1.8%. i can invest in thousands of companies with a dividend yield above that and an earnings year 3-4x that. id rather give them my money for the next 10 years.

not to mention, i have a 15 year mortgage at 2.875%, and I'm supposed to buy bonds yielding less? in tax advantaged space no less!!!! no thanks.
Congratulations, you hit the lottery. The difference is NOT everyone is walking in your shoes. You have a choice where to invest your money, there is not rule that says you must hold fixed income. The OP asked what is traditionally used by someone in their mid-30s, a 100% equities allocation is not traditionally used, not even the most riskiest target allocation funds hold 100% equity. You selected 10 year treasuries as your example, you can choose to hold corporates and pick up extra yield and risk or other securities.
when the question is what should a mid 30s asset allocation be? and people give advice generally, i think i should also be allowed to give my advice, as someone in his mid 30s, even if based entirely on my personal experience. could be worse, i could give advice that contradicts what i actually do!

investing in equities is easy; investing in bonds sounds really tough. im not looking foward to when i actually am in the position that i need the safety and consistency of bonds. i still don't know what im going to invest in.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

Grt2bOutdoors
Posts: 21459
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Location: New York

Re: What should a mid 30s Asset Allocation be?

Post by Grt2bOutdoors » Tue Oct 29, 2019 3:45 pm

masonstone wrote:
Tue Oct 29, 2019 3:41 pm
bgf wrote:
Tue Oct 29, 2019 3:33 pm
Grt2bOutdoors wrote:
Tue Oct 29, 2019 2:46 pm
danielnash wrote:
Tue Oct 29, 2019 9:33 am
I'm in a somewhat similar financial situation. Besides some emergency cash, I would keep all your money in stocks. I think bonds are a really stupid investment at the current interest rates for anyone who isn't retiring for another 30+ years. You just need to be comfortable with the volatility of stocks. Some people can't see their investments get cut 20%+ in a month (like we saw last December). As long as you are okay with mark-to-market volatility, stocks are a much better investment over the long-term.
Those who fail to understand the purpose of bonds need to do more reading.
not to mention, i have a 15 year mortgage at 2.875%, and I'm supposed to buy bonds yielding less? in tax advantaged space no less!!!! no thanks.
Realistically though for me a 2.875% mortgage comes out at 1.06% since the mortgage is tax deductible.
Then don't pay it off, after inflation the bank is paying you to live in the house.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

bgf
Posts: 1089
Joined: Fri Nov 10, 2017 9:35 am

Re: What should a mid 30s Asset Allocation be?

Post by bgf » Tue Oct 29, 2019 3:46 pm

masonstone wrote:
Tue Oct 29, 2019 3:41 pm
bgf wrote:
Tue Oct 29, 2019 3:33 pm
Grt2bOutdoors wrote:
Tue Oct 29, 2019 2:46 pm
danielnash wrote:
Tue Oct 29, 2019 9:33 am
I'm in a somewhat similar financial situation. Besides some emergency cash, I would keep all your money in stocks. I think bonds are a really stupid investment at the current interest rates for anyone who isn't retiring for another 30+ years. You just need to be comfortable with the volatility of stocks. Some people can't see their investments get cut 20%+ in a month (like we saw last December). As long as you are okay with mark-to-market volatility, stocks are a much better investment over the long-term.
Those who fail to understand the purpose of bonds need to do more reading.
not to mention, i have a 15 year mortgage at 2.875%, and I'm supposed to buy bonds yielding less? in tax advantaged space no less!!!! no thanks.
Realistically though for me a 2.875% mortgage comes out at 1.06% since the mortgage is tax deductible.
our mortgage interest is a pittance, not deductible, but for you that makes a massive difference. im surprised its so much.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

Topic Author
masonstone
Posts: 498
Joined: Thu Feb 01, 2018 4:01 pm

Re: What should a mid 30s Asset Allocation be?

Post by masonstone » Tue Oct 29, 2019 3:50 pm

bgf wrote:
Tue Oct 29, 2019 3:46 pm
masonstone wrote:
Tue Oct 29, 2019 3:41 pm
bgf wrote:
Tue Oct 29, 2019 3:33 pm
Grt2bOutdoors wrote:
Tue Oct 29, 2019 2:46 pm
danielnash wrote:
Tue Oct 29, 2019 9:33 am
I'm in a somewhat similar financial situation. Besides some emergency cash, I would keep all your money in stocks. I think bonds are a really stupid investment at the current interest rates for anyone who isn't retiring for another 30+ years. You just need to be comfortable with the volatility of stocks. Some people can't see their investments get cut 20%+ in a month (like we saw last December). As long as you are okay with mark-to-market volatility, stocks are a much better investment over the long-term.
Those who fail to understand the purpose of bonds need to do more reading.
not to mention, i have a 15 year mortgage at 2.875%, and I'm supposed to buy bonds yielding less? in tax advantaged space no less!!!! no thanks.
Realistically though for me a 2.875% mortgage comes out at 1.06% since the mortgage is tax deductible.
our mortgage interest is a pittance, not deductible, but for you that makes a massive difference. im surprised its so much.
Well I'm in the highest tax bracket so the interest is tax deductible.

Topic Author
masonstone
Posts: 498
Joined: Thu Feb 01, 2018 4:01 pm

Re: What should a mid 30s Asset Allocation be?

Post by masonstone » Tue Oct 29, 2019 3:56 pm

Grt2bOutdoors wrote:
Tue Oct 29, 2019 3:45 pm
masonstone wrote:
Tue Oct 29, 2019 3:41 pm
bgf wrote:
Tue Oct 29, 2019 3:33 pm
Grt2bOutdoors wrote:
Tue Oct 29, 2019 2:46 pm
danielnash wrote:
Tue Oct 29, 2019 9:33 am
I'm in a somewhat similar financial situation. Besides some emergency cash, I would keep all your money in stocks. I think bonds are a really stupid investment at the current interest rates for anyone who isn't retiring for another 30+ years. You just need to be comfortable with the volatility of stocks. Some people can't see their investments get cut 20%+ in a month (like we saw last December). As long as you are okay with mark-to-market volatility, stocks are a much better investment over the long-term.
Those who fail to understand the purpose of bonds need to do more reading.
not to mention, i have a 15 year mortgage at 2.875%, and I'm supposed to buy bonds yielding less? in tax advantaged space no less!!!! no thanks.
Realistically though for me a 2.875% mortgage comes out at 1.06% since the mortgage is tax deductible.
Then don't pay it off, after inflation the bank is paying you to live in the house.
It's really the government since their allowing me to deduct the mortgage interest from my taxes. It's interesting that the government subsidizes rich peoples housing more than poor peoples housing.

CnC
Posts: 840
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Re: What should a mid 30s Asset Allocation be?

Post by CnC » Tue Oct 29, 2019 3:57 pm

KlangFool wrote:
Tue Oct 29, 2019 9:35 am
3) Then, you should read enough that most people do not prepare for the possibility of zero income over a long period in a recession. They were forced to sell their stocks.

KlangFool

Klang, I have to play the devil's advocate here.

Please tell me how long you are prepared for with a 50% drop in the stock market a 25% drop in bonds and zero income?

Is it 1 year? If so what is your plan for year 2?

Is it 5 years? If so what is your plan for year 6?

Is it 10 years? If so what is your plan for year 11?


Is it 20 years? If so what is your plan for the apocalypse?


Trying to scare someone with what ifs doesn't really help them. If anything the response will be, well it it happens in screwed so I may as well not even care because I can assure you if a 2 doctor household in their 30's and 2.5 million in net worth can't make it 99.9% of the US will have talked along with them. And the .1% will have to worry about being cooked and eaten by the other 99.9

KlangFool
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Re: What should a mid 30s Asset Allocation be?

Post by KlangFool » Tue Oct 29, 2019 4:04 pm

masonstone wrote:
Tue Oct 29, 2019 3:26 pm
Grt2bOutdoors wrote:
Tue Oct 29, 2019 2:46 pm
danielnash wrote:
Tue Oct 29, 2019 9:33 am
I'm in a somewhat similar financial situation. Besides some emergency cash, I would keep all your money in stocks. I think bonds are a really stupid investment at the current interest rates for anyone who isn't retiring for another 30+ years. You just need to be comfortable with the volatility of stocks. Some people can't see their investments get cut 20%+ in a month (like we saw last December). As long as you are okay with mark-to-market volatility, stocks are a much better investment over the long-term.
Those who fail to understand the purpose of bonds need to do more reading.
Part of the reason for my low bond portion is the very secure income I have. But I agree with Klangfool that in the long-term, considering the risk/benefits ratio its wise to have at least a small bond allocation.

Another question: is it better to pay off a house or to have some money in bonds? I have 3% interest and 400k left on the mortgage.
masonstone,

You should have more money in bond and/or increase your emergency fund. The greatest danger to you is a short-term liquidity issue. You have commercial real estate and putting more money into your house just increases exposure to the real estate even more.

You have enough money. It is more important to reach your goal safely.

KlangFool

KlangFool
Posts: 14114
Joined: Sat Oct 11, 2008 12:35 pm

Re: What should a mid 30s Asset Allocation be?

Post by KlangFool » Tue Oct 29, 2019 4:10 pm

CnC wrote:
Tue Oct 29, 2019 3:57 pm
KlangFool wrote:
Tue Oct 29, 2019 9:35 am
3) Then, you should read enough that most people do not prepare for the possibility of zero income over a long period in a recession. They were forced to sell their stocks.

KlangFool

Klang, I have to play the devil's advocate here.

Please tell me how long you are prepared for with a 50% drop in the stock market a 25% drop in bonds and zero income?

Is it 1 year? If so what is your plan for year 2?

Is it 5 years? If so what is your plan for year 6?

Is it 10 years? If so what is your plan for year 11?


Is it 20 years? If so what is your plan for the apocalypse?


Trying to scare someone with what ifs doesn't really help them. If anything the response will be, well it it happens in screwed so I may as well not even care because I can assure you if a 2 doctor household in their 30's and 2.5 million in net worth can't make it 99.9% of the US will have talked along with them. And the .1% will have to worry about being cooked and eaten by the other 99.9
CnC,

1) 5 years. I have plan to move elsewhere before the 5 years.

<< I can assure you if a 2 doctor household in their 30's and 2.5 million in net worth can't make it 99.9% of the US will have talked along with them>>

2) This is personal finance. If OP can ensure that he can survive even if the 99.9% goes to hell, why not? Especially, the cost of the insurance (200K in fixed income ) is minimal.

3) Please note that OP has commercial real estate exposure.

KlangFool

lukestuckenhymer
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Re: What should a mid 30s Asset Allocation be?

Post by lukestuckenhymer » Tue Oct 29, 2019 4:26 pm

LiterallyIronic wrote:
Tue Oct 29, 2019 12:18 pm
masonstone wrote:
Tue Oct 29, 2019 11:50 am
Most patients don't have the ability to pay for their care even now. The government pays for them (Medicare/Medicaid). So realistically my income stream is very secure.
This is the exact answer that I got when I talked to the local hospital billing department after we had our baby. Went in to pay our $12k bill (half via our HSA and half on credit card, which I paid off immediately) and asked, "How do most people pay bills of this magnitude?" The answer was "Most people either: 1) use government assistance; or 2) skip town and we never hear from them again." Sure loved to hear that I was subsidizing that.
Really makes you think. What does the future hold for a society where having a child could cause financial ruin for almost all of its inhabitants?

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Meg77
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Re: What should a mid 30s Asset Allocation be?

Post by Meg77 » Tue Oct 29, 2019 4:44 pm

I'm in a similar position age and net worth wise but with about half your household income. Our AA is a bit nontraditional:

40% real estate (4 rentals and several RE syndication apartment building deals),
50% stocks (20% of which are international)
7% cash (about 18 months expenses)
3% bonds

I'm comfortable very little to no fixed income because the cash flowing real estate acts as a fixed income stream. I do want to keep 5-10% in cash/bonds (which are pretty much interchangeable from a risk and return perspective in my mind) just for liquidity and rebalancing purposes, but I don't need any of this money any time soon so I'm not worried about volatility. I also - like you - am in a dual income household where we both have fairly stable employment (and access to other options in the event of a layoff).

Long story short: You don't need bonds early in the accumulation phase, especially with 30% real estate exposure which diversifies your stock holdings.
"An investment in knowledge pays the best interest." - Benjamin Franklin

H-Town
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Re: What should a mid 30s Asset Allocation be?

Post by H-Town » Tue Oct 29, 2019 4:50 pm

masonstone wrote:
Tue Oct 29, 2019 9:13 am
So one of the things I think about is what should my AA be. As a background I have a net worth of $2.5 million and a low 7 figure income. About 1/3 of my worth is in a commercial building and the rest is in VTSAX. I'm thinking that I should start putting some money into bonds but I'm hesitant due to the incredibly low returns. What would you do in my position?
I think it's a fine asset allocation: 1/3 on commercial building and the rest in stock index funds.

Just a few thoughts:
1) I would diversify U.S. and International stock. But I guess it won't matter much.
2) I would hold some bond funds/fixed income to take advantage of a recession. It's not for the low return of bond funds, but for a higher return coming out of a recession.

gr7070
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Re: What should a mid 30s Asset Allocation be?

Post by gr7070 » Tue Oct 29, 2019 5:34 pm

I would definitely be paying extra on the house - I'd want to ultimately remove that debt sooner for the sake of it; regardless of optimization, but it does potentially bring some financial value to do so as well.

I'd also add some bonds, for the typical reasons expressed above. You could get away with as low as 10, if desired. And I wouldn't hold more than 25%. Probably ever, with your likely future worth???

Just pick a number, frankly.

I'd take a serious look at my giving rate, too.

Topic Author
masonstone
Posts: 498
Joined: Thu Feb 01, 2018 4:01 pm

Re: What should a mid 30s Asset Allocation be?

Post by masonstone » Wed Oct 30, 2019 1:43 pm

gr7070 wrote:
Tue Oct 29, 2019 5:34 pm
I would definitely be paying extra on the house - I'd want to ultimately remove that debt sooner for the sake of it; regardless of optimization, but it does potentially bring some financial value to do so as well.

I'd also add some bonds, for the typical reasons expressed above. You could get away with as low as 10, if desired. And I wouldn't hold more than 25%. Probably ever, with your likely future worth???

Just pick a number, frankly.

I'd take a serious look at my giving rate, too.
I think I'll be going 10% bonds until I reach a net worth of 5 million, then I'll increase that to closer to 20%.

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