retiree allocation - tilt more towards equity in low yield environment?

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cafe72
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Joined: Sat Oct 05, 2019 11:41 am

retiree allocation - tilt more towards equity in low yield environment?

Post by cafe72 » Thu Mar 26, 2020 6:56 am

Fellow bogleheads,

In a low yield environment, do you recommend retirees to hold more equity?

So instead of a 40/60 portfolio when you're 60, have a 60/40 portfolio?

I have an increased ability to take risk (10M+ portfolio), but less of a need.

My target allocation is 40/60 and I'm wondering if I should change that. Especially since equity is on the cheap now.

Would love to know your thoughts :happy

cork
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Joined: Thu Aug 01, 2019 12:37 pm

Re: retiree allocation - tilt more towards equity in low yield environment?

Post by cork » Thu Mar 26, 2020 7:04 am

cafe72 wrote:
Thu Mar 26, 2020 6:56 am
Fellow bogleheads,

In a low yield environment, do you recommend retirees to hold more equity?

So instead of a 40/60 portfolio when you're 60, have a 60/40 portfolio?

I have an increased ability to take risk (10M+ portfolio), but less of a need.

My target allocation is 40/60 and I'm wondering if I should change that. Especially since equity is on the cheap now.

Would love to know your thoughts :happy
I would not change it. I'm just a rookie at investing, but from what I've read, and learned on this site, your AA seems spot on.
No need to take unnecessary risk if you don't have to. My $.02

Old Sage(brush)
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Joined: Sat Dec 08, 2018 8:27 am

Re: retiree allocation - tilt more towards equity in low yield environment?

Post by Old Sage(brush) » Thu Mar 26, 2020 7:22 am

I think it depends on your time horizon and what the goals are for those funds. With that high a level of assets if I assume that your have a longer time horizon and the funds in long term are for heirs or charity donations, I’d be inclined to shift AA as long as you’ve taken care of your own expense needs with a portion in more conservative AA.

Call_Me_Op
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Re: retiree allocation - tilt more towards equity in low yield environment?

Post by Call_Me_Op » Thu Mar 26, 2020 7:26 am

cafe72 wrote:
Thu Mar 26, 2020 6:56 am
Fellow bogleheads,

In a low yield environment, do you recommend retirees to hold more equity?

So instead of a 40/60 portfolio when you're 60, have a 60/40 portfolio?

I have an increased ability to take risk (10M+ portfolio), but less of a need.

My target allocation is 40/60 and I'm wondering if I should change that. Especially since equity is on the cheap now.

Would love to know your thoughts :happy
The third question is your willingness to take the risk. How would you feel if you lost 3+ million in a few weeks?
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

Dandy
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Re: retiree allocation - tilt more towards equity in low yield environment?

Post by Dandy » Thu Mar 26, 2020 7:54 am

What is the goal of your investments? With 10 million you have surely enough to fund a wonderful retirement and leave heirs and/or charity a nice bundle. Since you can't take it with you --what is the goal? Double your money quickly? for what purpose? If you don't have a meaningful growth goal -- then why tilt to more growth?

Truth be told it probably doesn't matter in your case since the size of your nest egg is such that either 40/60 or 60/40 won't change your favorable overall condition.

3funder
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Re: retiree allocation - tilt more towards equity in low yield environment?

Post by 3funder » Thu Mar 26, 2020 7:56 am

Dandy wrote:
Thu Mar 26, 2020 7:54 am
What is the goal of your investments? With 10 million you have surely enough to fund a wonderful retirement and leave heirs and/or charity a nice bundle. Since you can't take it with you --what is the goal? Double your money quickly? for what purpose? If you don't have a meaningful growth goal -- then why tilt to more growth?

Truth be told it probably doesn't matter in your case since the size of your nest egg is such that either 40/60 or 60/40 won't change your favorable overall condition.
+1

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Sandtrap
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Re: retiree allocation - tilt more towards equity in low yield environment?

Post by Sandtrap » Thu Mar 26, 2020 8:05 am

cafe72 wrote:
Thu Mar 26, 2020 6:56 am
Fellow bogleheads,

In a low yield environment, do you recommend retirees to hold more equity?

So instead of a 40/60 portfolio when you're 60, have a 60/40 portfolio?

I have an increased ability to take risk (10M+ portfolio), but less of a need.

My target allocation is 40/60 and I'm wondering if I should change that. Especially since equity is on the cheap now.

Would love to know your thoughts :happy
Considerations:
1 Your portfolio is large enough to sustain the increased losses in a downturn due to the increased volatility of a higher equity allocation.

2 The difference between 40/60 and 60/40 as far as returns and losses in a downturn are not as great as you might think.

VANGUARD PORTFOLIO ALLOCATION MODELS
https://personal.vanguard.com/us/insig ... locations
Historical Risk/Return (1926–2018)
40/60
Average annual return 7.7%
Best year (1933) 27.9%
Worst year (1931) –18.4%
Years with a loss 17 of 93

60/40
Historical Risk/Return (1926–2018)
Average annual return 8.6%
Best year (1933) 36.7%
Worst year (1931) –26.6%
Years with a loss 22 of 93
*Notice the level of loss between the allocations is far greater proportionally than the difference of average annual return.

3 Your question based on a "Portfolio Review" would get better suggestions because you've given limited data about your financial status. You can edit your post to include more data (use the pencil icon). Otherwise, your suggestions will be "generic".
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212

4 While 10 million in assets at age 60 might seem like a lot, we don't know your income needs, debt, level of reliance on dividend/interest portfolio yield, etc, etc. The answer to your question here is "yes and no . . . but you'll be fine either way".

5 Why are you concerned with increasing portfolio yield? :?:

j :D
Wiki Bogleheads Wiki: Everything You Need to Know

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Wiggums
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Re: retiree allocation - tilt more towards equity in low yield environment?

Post by Wiggums » Thu Mar 26, 2020 8:16 am

You received a lot of good answers. We don’t know much about your regarding your Expenses or goals. 40/60 to 60/40 is reasonable for most people.

tibbitts
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Re: retiree allocation - tilt more towards equity in low yield environment?

Post by tibbitts » Thu Mar 26, 2020 8:38 am

cafe72 wrote:
Thu Mar 26, 2020 6:56 am
Fellow bogleheads,

In a low yield environment, do you recommend retirees to hold more equity?

So instead of a 40/60 portfolio when you're 60, have a 60/40 portfolio?

I have an increased ability to take risk (10M+ portfolio), but less of a need.

My target allocation is 40/60 and I'm wondering if I should change that. Especially since equity is on the cheap now.

Would love to know your thoughts :happy
If you were on target at 40/60 a few weeks ago, you aren't now. We don't know enough to comment further - maybe your minimum spend to maintain your lifestyle is $1M/year. For most of us, if we had $10M it wouldn't matter much. Also credit spread have widened so you could consider that as another alternative to equities, although not super-common among Bogleheads.

Topic Author
cafe72
Posts: 25
Joined: Sat Oct 05, 2019 11:41 am

Re: retiree allocation - tilt more towards equity in low yield environment?

Post by cafe72 » Fri Mar 27, 2020 7:14 am

Thanks for the feedback guys! I think I'll rebalance DCA to 50/50 over the next few weeks.

I'm also considering looking into hedging as a portfolio strategy next time things look dire. :happy

MikeG62
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Re: retiree allocation - tilt more towards equity in low yield environment?

Post by MikeG62 » Fri Mar 27, 2020 8:50 am

cafe72 wrote:
Thu Mar 26, 2020 6:56 am

My target allocation is 40/60 and I'm wondering if I should change that. Especially since equity is on the cheap now.
Just because equities are down >20% from their highs, does not necessarily make them cheap. Assessments of the richness of valuations should be based upon future earnings expectations and no one knows the extent to which future earnings could/will be affected by Covid-19. Also, the market was pretty expensive by historical measures two months ago (S&P 500 for example trading at almost 20 times forward earnings estimates over the ensuring 12-months).

Nothing in my comment should be interpreted as my making a market timing call or suggesting you or anyone should engage in market timing.
Real Knowledge Comes Only From Experience

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Sandtrap
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Re: retiree allocation - tilt more towards equity in low yield environment?

Post by Sandtrap » Fri Mar 27, 2020 8:55 am

cafe72 wrote:
Fri Mar 27, 2020 7:14 am
Thanks for the feedback guys! I think I'll rebalance DCA to 50/50 over the next few weeks.

I'm also considering looking into hedging as a portfolio strategy next time things look dire. :happy
Why Hedging?

j🌺
Wiki Bogleheads Wiki: Everything You Need to Know

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