Why not be more aggressive about stocks?

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Newieinvestor
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Why not be more aggressive about stocks?

Post by Newieinvestor » Sat Apr 25, 2020 10:15 am

Hi all! I'm a relatively new investor and curious if people around here roughly believe in the 100 minus your age stock allocation recommendation (i.e. a 40 year old should have 60% stocks, 40% bonds).

I was actually wondering why not have close to all stocks until about 10 years before planned retirement, as even in a bad recession/depression things should improve within 10 years. Is this mostly because retirement age is unpredictable due to unforeseen illness/disability?

I'm really tempted to use a more aggressive stock ratio with the funds I add to my retirement and brokerage accounts (especially since everything is down now), but I'm not sure if I'm being foolish. Part of this is driven by getting a late start in the stock market due to my husband and I being physicians (we weren't able to start putting much in the stock market until mid 30s when finished training), and a desire to be more aggressive to hopefully "catch up." We're 37 and 40 now.

I'm using VTSAX for all our stocks and VBTLX for all our bonds right now. This is my first bear market and so far I haven't been too spooked yet.


Thanks so much!
Last edited by Newieinvestor on Sat Apr 25, 2020 11:29 am, edited 1 time in total.

FoolMeOnce
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Re: Why not be more aggressive about stocks?

Post by FoolMeOnce » Sat Apr 25, 2020 10:21 am

Plenty of 100% equities folks here. Just search for the threads.

nix4me
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Re: Why not be more aggressive about stocks?

Post by nix4me » Sat Apr 25, 2020 10:21 am

Some of us are. I hold 95% stocks and 5% cash right now. No bonds. Age 48.

dbr
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Re: Why not be more aggressive about stocks?

Post by dbr » Sat Apr 25, 2020 10:25 am

Plenty of people are very aggressive in stocks but it is not based on an age rule.

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JonnyDVM
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Re: Why not be more aggressive about stocks?

Post by JonnyDVM » Sat Apr 25, 2020 10:32 am

You will find a great variety of opinions here. Some will say 100% stock is fine if you can handle the big downturns. Others will point out that 70/30 stocks to bonds has historically similar returns with less risk. The main factor is going to be your savings rate. We are in a similar situation as you. My personal allocation was 80/20 but with the recent downturn I moved to be more stock heavy which is also controversial. You will want to check out White Coat Investors website. His advice is specifically targeted to physicians.

https://www.whitecoatinvestor.com/

The best advice I could give is to peruse the Wiki here, as well as the WCI website and decide for yourselves the investing approach you are most comfortable with.
I’d trade it all for a little more | -C Montgomery Burns

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WoodSpinner
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Re: Why not be more aggressive about stocks?

Post by WoodSpinner » Sat Apr 25, 2020 10:37 am

Newieinvestor wrote:
Sat Apr 25, 2020 10:15 am
Hi all! I'm a relatively new investor and curious if people around here roughly believe in the 100 minus your age stock allocation recommendation (i.e. a 40 year old should have 70% stocks, 30% bonds).
Umm, perhaps check your math before committing?

:D

WoodSpinner

tibbitts
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Re: Why not be more aggressive about stocks?

Post by tibbitts » Sat Apr 25, 2020 10:38 am

Newieinvestor wrote:
Sat Apr 25, 2020 10:15 am
Hi all! I'm a relatively new investor and curious if people around here roughly believe in the 100 minus your age stock allocation recommendation (i.e. a 40 year old should have 70% stocks, 30% bonds).

I was actually wondering why not have close to all stocks until about 10 years before planned retirement, as even in a bad recession/depression things should improve within 10 years. Is this mostly because retirement age is unpredictable due to unforeseen illness/disability?

I'm really tempted to use a more aggressive stock ratio with the funds I add to my retirement and brokerage accounts (especially since everything is down now), but I'm not sure if I'm being foolish. Part of this is driven by getting a late start in the stock market due to my husband and I being physicians (we weren't able to start putting much in the stock market until mid 30s when finished training), and a desire to be more aggressive to hopefully "catch up." We're 37 and 40 now.

I'm using VTSAX for all our stocks and VBTLX for all our bonds right now. This is my first bear market and so far I haven't been too spooked yet.


Thanks so much!
First, I have no idea how you're doing that math in your second sentence. 100 - 40 would seem to yield 60% stocks, 40% bonds.

Second, there is no reasonable expectation that in "bad" recession or depression, things should improve within 10 years. Or ever, certainly not within the remainder of a 40-year-old's investing lifetime.

As long as you realize you're only "hopefully" going to catch up, that's fine. I would question who or what you feel you have to catch up to. For physicians, a late start is normal, but typically later earnings are higher than average as well - more so with two in a family. So I'm not sure you need to depend on an aggressive allocation to meet any reasonable goals.

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HomerJ
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Re: Why not be more aggressive about stocks?

Post by HomerJ » Sat Apr 25, 2020 10:38 am

Newieinvestor wrote:
Sat Apr 25, 2020 10:15 am
I was actually wondering why not have close to all stocks until about 10 years before planned retirement, as even in a bad recession/depression things should improve within 10 years. Is this mostly because retirement age is unpredictable due to unforeseen illness/disability?
Yes.

I have no problems with younger people being nearly 100% stocks for many years (you should always have a emergency fund, in case you get laid off).

Like you said, you never know what your exact retirement age will precisely be..

I would think by 40-50, one would definitely want to start to getting some money in bonds/CDs. And add more and more as you get older and closer to retirement. You're more likely to laid off during a recession which is the same time that stocks usually crash. You don't want to lose your job at 50 with 100% in stocks that just crashed 40% in value. It's extremely nice to have a bond/CD/cash buffer to help you get through the hard times.

It all depends on your job/career I guess. Individual choice.

I'm really tempted to use a more aggressive stock ratio with the funds I add to my retirement and brokerage accounts (especially since everything is down now), but I'm not sure if I'm being foolish.
Putting NEW money 100% in stocks is fine, and easy. Besides it's another to rebalance. If you were 70/30 before, after this crash you may be 62/38 or something, so nothing wrong with putting NEW money in each month to get you back to 70/30.
Part of this is driven by getting a late start in the stock market due to my husband and I being physicians (we weren't able to start putting much in the stock market until mid 30s when finished training), and a desire to be more aggressive to hopefully "catch up." We're 37 and 40 now.

I'm using VTSAX for all our stocks and VBTLX for all our bonds right now. This is my first bear market and so far I haven't been too spooked yet.
As dual-income doctor household, it seems reasonable you could be more aggressive... 90/10 or 80/20 would make sense... Just keeping new money 100% into stocks until the allocation gets to your new target.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

dbr
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Re: Why not be more aggressive about stocks?

Post by dbr » Sat Apr 25, 2020 10:42 am

It would be a good idea to look at the consequences of different choices. To do that you need to look at a retirement planner. There are a number of them but for starters try www.firecalc.com. The reason I suggest that program is that part of the output is a chart that shows what the actual result of a given asset allocation and contribution rate has been starting in each of over 100 past years. The idea is to be aware of how uncertain the result can be and the effect of making the result more certain but lower in wealth by adding more and more bonds. The program does not allow the asset allocation to change over time, but it is a start. You can make a selection on the analysis tab to save the results to a spreadsheet so you can review things more easily.

BV3273
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Re: Why not be more aggressive about stocks?

Post by BV3273 » Sat Apr 25, 2020 10:43 am

There are a lot of folks here that are 100% equity and some who hold a mix of bonds and cash. I’m 34. I never held bonds or much fixed income except a few grand in cash. I’m reallocating to some fixed income after this last crash and my wife getting laid off. Probably going to come in around 90/10 or 80/20. I’m going to be in HYS, LTT, STT, and some Total Bond. After I hit a years worth of expenses I’ll start funneling the rest of this cash towards a total market fund.

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galeno
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Re: Why not be more aggressive about stocks?

Post by galeno » Sat Apr 25, 2020 10:47 am

I love firecalc.
USA-NRA. TER = 0.47%. Expected real CAGR = 2.00%. AWR = 4.00%.: Port: 50% World Stocks + 15% TIPS + 15% Corps + 15% US Treas + 5% CASH.

aristotelian
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Re: Why not be more aggressive about stocks?

Post by aristotelian » Sat Apr 25, 2020 10:51 am

Newieinvestor wrote:
Sat Apr 25, 2020 10:15 am
Hi all! I'm a relatively new investor and curious if people around here roughly believe in the 100 minus your age stock allocation recommendation (i.e. a 40 year old should have 70% stocks, 30% bonds).

I was actually wondering why not have close to all stocks until about 10 years before planned retirement, as even in a bad recession/depression things should improve within 10 years. Is this mostly because retirement age is unpredictable due to unforeseen illness/disability?

I'm really tempted to use a more aggressive stock ratio with the funds I add to my retirement and brokerage accounts (especially since everything is down now), but I'm not sure if I'm being foolish. Part of this is driven by getting a late start in the stock market due to my husband and I being physicians (we weren't able to start putting much in the stock market until mid 30s when finished training), and a desire to be more aggressive to hopefully "catch up." We're 37 and 40 now.

I'm using VTSAX for all our stocks and VBTLX for all our bonds right now. This is my first bear market and so far I haven't been too spooked yet.


Thanks so much!
100 - 40 = 70?

We were about 90% stock until age 40. Paid off the mortgage and then dailed back to 70/25 around that time. Currently 70/30 at age 45 because I haven't pulled the trigger on rebalancing. Part of that is because I would like the option of retiring at age 50. I have also accumulated enough that I have less need to take risk and asset protection is a higher priority for me.

Some would regard 70/30 as conservative, some think it is too aggressive. It is really more about your risk tolerance and personal situation.

justsomeguy2018
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Re: Why not be more aggressive about stocks?

Post by justsomeguy2018 » Sat Apr 25, 2020 10:56 am

Newieinvestor wrote:
Sat Apr 25, 2020 10:15 am
Hi all! I'm a relatively new investor and curious if people around here roughly believe in the 100 minus your age stock allocation recommendation (i.e. a 40 year old should have 70% stocks, 30% bonds).

I was actually wondering why not have close to all stocks until about 10 years before planned retirement, as even in a bad recession/depression things should improve within 10 years. Is this mostly because retirement age is unpredictable due to unforeseen illness/disability?

I'm really tempted to use a more aggressive stock ratio with the funds I add to my retirement and brokerage accounts (especially since everything is down now), but I'm not sure if I'm being foolish. Part of this is driven by getting a late start in the stock market due to my husband and I being physicians (we weren't able to start putting much in the stock market until mid 30s when finished training), and a desire to be more aggressive to hopefully "catch up." We're 37 and 40 now.

I'm using VTSAX for all our stocks and VBTLX for all our bonds right now. This is my first bear market and so far I haven't been too spooked yet.


Thanks so much!
I struggle with AA as well...part of me thinks, with 25 years to go til 65, I can be more aggressive. The other part of me thinks, past market performance is no indication of future performance.

The adage used to be 100 minus age for stocks. Then as people started living longer, it became 110 minus age. Now some folks say 120 minus age due to longevity.

I landed on 115 minus age. I switched from 80/20 to 75/25 in November. Though part of that was driven by the market looking overvalued/frothy. Not very BH of me.

justsomeguy2018
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Re: Why not be more aggressive about stocks?

Post by justsomeguy2018 » Sat Apr 25, 2020 10:58 am

aristotelian wrote:
Sat Apr 25, 2020 10:51 am
Newieinvestor wrote:
Sat Apr 25, 2020 10:15 am
Hi all! I'm a relatively new investor and curious if people around here roughly believe in the 100 minus your age stock allocation recommendation (i.e. a 40 year old should have 70% stocks, 30% bonds).

I was actually wondering why not have close to all stocks until about 10 years before planned retirement, as even in a bad recession/depression things should improve within 10 years. Is this mostly because retirement age is unpredictable due to unforeseen illness/disability?

I'm really tempted to use a more aggressive stock ratio with the funds I add to my retirement and brokerage accounts (especially since everything is down now), but I'm not sure if I'm being foolish. Part of this is driven by getting a late start in the stock market due to my husband and I being physicians (we weren't able to start putting much in the stock market until mid 30s when finished training), and a desire to be more aggressive to hopefully "catch up." We're 37 and 40 now.

I'm using VTSAX for all our stocks and VBTLX for all our bonds right now. This is my first bear market and so far I haven't been too spooked yet.


Thanks so much!
100 - 40 = 70?

We were about 90% stock until age 40. Paid off the mortgage and then dailed back to 70/25 around that time. Currently 70/30 at age 45 because I haven't pulled the trigger on rebalancing. Part of that is because I would like the option of retiring at age 50. I have also accumulated enough that I have less need to take risk and asset protection is a higher priority for me.

Some would regard 70/30 as conservative, some think it is too aggressive. It is really more about your risk tolerance and personal situation.
90% stock, but how long had you been investing for at that time? Sounds like the OP just got started in their mid to late 30s. Market valuations have been high-ish the last 5 years that they've been investing.

dbr
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Re: Why not be more aggressive about stocks?

Post by dbr » Sat Apr 25, 2020 11:05 am

justsomeguy2018 wrote:
Sat Apr 25, 2020 10:56 am

The other part of me thinks, past market performance is no indication of future performance.
The first dimension of that is that average performance in the past does not say what specific experience your one single roll of the dice will produce. It is like realizing that the average score of rolling a die being 3.5 does not mean that if you roll the die once you are going to roll a 3.5. Hence the reference to what you see in FireCalc or other tools that show distributions of future chances.

The second dimension is that the overall history of the next 30-60 years may not be represented by the overall history of the last hundred years, or whatever sample one wants to choose. This is a difficult factor to evaluate.

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quisp65
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Re: Why not be more aggressive about stocks?

Post by quisp65 » Sat Apr 25, 2020 11:10 am

Retired on 75/25 stock index/cash investments with one way balance into cash during market highs. I can cut my spending by at least 33% if the cash runs out.
Plan: 75/25 stock index/cash investments, one-way balance market highs, 3.2% withdrawal rate at 54, can lower expenses easily by 1/3rd

Pikel
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Re: Why not be more aggressive about stocks?

Post by Pikel » Sat Apr 25, 2020 11:15 am

What happens if your employment is a casualty of a recession or depression?

We are over 20% unemployment after <2 months of the current pandemic. Included in those numbers are healthcare providers - who would have thought that doctors would be filing for unemployment during a pandemic?

This is all very unpredictable. Do not take more risk than you need.

If you are too aggressive with stocks you could be forced to sell low.

whereskyle
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Re: Why not be more aggressive about stocks?

Post by whereskyle » Sat Apr 25, 2020 11:19 am

I'll be 100% stocks until I have more substantial wealth to protect. Then I plan to glide into an 80/20 allocation. Also considering simply buying more stable market sectors when I'm older. The consumer staples sector has been remarkably stable in both 08-09 and the current downturn. If it continues this performance in the next couple downturns I may lean on it in retirement instead of bonds. But again, I think 100% equity exposure is more a question of your wealth. If you're extremely wealthy, I say you can probably afford to be just cash and stocks. If you're not at all wealthy, I don't see how you can afford bonds if you intend to accumulate wealth.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

Valuethinker
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Re: Why not be more aggressive about stocks?

Post by Valuethinker » Sat Apr 25, 2020 11:24 am

Newieinvestor wrote:
Sat Apr 25, 2020 10:15 am
Hi all! I'm a relatively new investor and curious if people around here roughly believe in the 100 minus your age stock allocation recommendation (i.e. a 40 year old should have 70% stocks, 30% bonds).

I was actually wondering why not have close to all stocks until about 10 years before planned retirement, as even in a bad recession/depression things should improve within 10 years. Is this mostly because retirement age is unpredictable due to unforeseen illness/disability?
No. It comes down to statistical evidence.

Stocks and bonds are not perfectly correlated. If the highest return portfolio is 100% stocks, and the lowest return portfolio is 100% bonds, then if they were perfectly correlated you could plot them with risk (volatility, usually measured by annual standard deviation, or little sigma) on the x axis and expected return on the Y axis.

If perfectly correlated this would be a straight line from 100% bonds at the lower left to 100% stocks at the upper right.

But the correlation is not 1. So instead you get a leftward bend, a curve, between the 2 points. That's called The Efficient Frontier. Any point along that curve is one where you cannot get a better return without taking on more risk, or for the same risk you cannot get a better return. You are at the leftmost edge of the set of points made up of all points below the curve (lower returns) and to the right of the curve (higher volatility).

Except it curves so far to the left, anchored still by those 2 points, that empirically you *can* improve your position. It turns out that a 20% equity 80% bond portfolio had historically lower risk and higher return than a 100% bond portfolio. The curve is like the beginning of a snail shell at low percentages of equity.

It also turns out that the difference in long run return between a 100% stock and a 75% stock/ 25% bond portfolio is very small (the slope of the line is quite flat) BUT the reduction in volatility (the change in the X axis) is quite large.

Note this assumes you rebalance frequently and don't let your percentages "drift".
I'm really tempted to use a more aggressive stock ratio with the funds I add to my retirement and brokerage accounts (especially since everything is down now), but I'm not sure if I'm being foolish. Part of this is driven by getting a late start in the stock market due to my husband and I being physicians (we weren't able to start putting much in the stock market until mid 30s when finished training), and a desire to be more aggressive to hopefully "catch up." We're 37 and 40 now.

I'm using VTSAX for all our stocks and VBTLX for all our bonds right now. This is my first bear market and so far I haven't been too spooked yet.


Thanks so much!
I would say most people are, by default, best off with 60% stocks 40% bonds, and I think that's why the Vanguard Balanced Fund is so set. Some of the greatest professors in Finance have said as much.

But it's certainly possible to be more aggressive.

I would generally say almost no one should be more than 80% stocks (or less than 20% stocks). Ben Graham, who is one of the people who invented modern investing back in the 1930s & 40s, said 75/25%.

viewtopic.php?f=1&t=313079&newpost=5211876#p5211796

I do recommend reading everything the retired neurologist William Bernstein has written about investing. He posts here and is a big supporter of bogleheads.

One exception. If you have large debts e.g. student loans, then it's perfectly possible to repay debts rather than holding bonds. Right now a US Treasury bond fund has an expected return long run of less than 1% p.a. (roughly speaking, the average Yield to Maturity of the bonds in the fund gives you a good guide to likely long run returns). And if in a taxable account, your after tax returns are even lower.

Whereas you may be paying anywhere from 3-6% on a loan? So repaying debt is a "negative bond" and gives you an after tax return of 3%+.

The cost, and this is a reason NOT to repay your mortgage faster than the amortization schedule mandates, is a loss of liquidity. You put that money into repaying debt and that's it, it is gone. If the loan is at 5% then ignoring tax it will take you 20 years to have recouped in interest not paid the $1 you repaid.

So the rule of thumb is:

- make sure you invest enough to use all tax deferred accounts in a given year, employer match for 401k etc

- repay high interest non-housing related loans - student loans, credit cards, car loans etc

- consider between investing in taxable investments vs earlier repayment of mortgage. For many of us, becoming debt free at the earliest possible age was an important goal, but mortgage money is the cheapest finance you will ever get

(You also want to check White Coat Investor website, set up by an ER doc who posts here; there's good stuff about what insurance you need etc I believe).
Last edited by Valuethinker on Sat Apr 25, 2020 11:38 am, edited 1 time in total.

Topic Author
Newieinvestor
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Re: Why not be more aggressive about stocks?

Post by Newieinvestor » Sat Apr 25, 2020 11:31 am

Lol, I just fixed my numbers, that's embarrassing. I had originally written age 30 but then made it more specific to our situation, and I forgot to change the other numbers. Gonna go back and read all of these helpful posts now.
WoodSpinner wrote:
Sat Apr 25, 2020 10:37 am
Newieinvestor wrote:
Sat Apr 25, 2020 10:15 am
Hi all! I'm a relatively new investor and curious if people around here roughly believe in the 100 minus your age stock allocation recommendation (i.e. a 40 year old should have 70% stocks, 30% bonds).
Umm, perhaps check your math before committing?

:D

WoodSpinner

Northern Flicker
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Re: Why not be more aggressive about stocks?

Post by Northern Flicker » Sat Apr 25, 2020 12:22 pm

newieinvestor wrote: Hi all! I'm a relatively new investor and curious if people around here roughly believe in the 100 minus your age stock allocation recommendation (i.e. a 40 year old should have 60% stocks, 40% bonds).
My own belief is that the benefits of a glide path are somewhat overrated and most retirement savers also could just be 60-40 from start of career to retirement.

If Vanguard Target Retirement funds are designed with the assumption that the target year is when the investor turns 65, then they are much more aggressive than (age in bonds) at alot of points on the glide path but decrease to 30% stocks in the Target Retirement Income fund.

For example, Vanguard Target Retirement 2030 is 68% stocks. For a 55-year-old turning 65 in 2030, that is (123-age) in stocks.

One idea might be to consider the allocations used by Vanguard in their Target Retirement funds as an upper bound on stock allocation at a given age, and (100-age) in stocks as a lower bound, and then decide where in that range you feel comfortable with the risk involved.
Risk is not a guarantor of return.

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ruralavalon
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Re: Why not be more aggressive about stocks?

Post by ruralavalon » Sat Apr 25, 2020 12:29 pm

Newieinvestor wrote:
Sat Apr 25, 2020 10:15 am
Hi all! I'm a relatively new investor and curious if people around here roughly believe in the 100 minus your age stock allocation recommendation (i.e. a 40 year old should have 60% stocks, 40% bonds).
In my opinion a 60/40 asset allocation could be reasonable at ages 37 and 40, and for nearly anyone at nearly any age. 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"".


See also:
1) Risk/return graph, "An Efficient Frontier: the power of diversification".
2) wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk"; and
3) wiki article, "Asset allocation".

The rule of thumb is not simply "age in bonds". John Bogle recommended "roughly your age in bonds", as just "a crude starting point" which "[c]learly . . . must be adjusted to reflect an investor's objectives, risk tolerance, and overall financial position". Age in bonds is the start of the analysis, not the end of the analysis.


Newieinvestor wrote:
Sat Apr 25, 2020 10:15 am
I was actually wondering why not have close to all stocks until about 10 years before planned retirement, as even in a bad recession/depression things should improve within 10 years. Is this mostly because retirement age is unpredictable due to unforeseen illness/disability?
Regardless of your asset allocation you should each definitely have "own occupation" disability insurance. I had a hemorrhagic stroke at age 49, was able to return to work almost full-time in about a year, but my policy helped defray expenses and definitely helped my peace of mind during the time off. You can eliminate risk of disability as a factor in setting your desired asset allocation.


Newieinvestor wrote:
Sat Apr 25, 2020 10:15 am
I'm really tempted to use a more aggressive stock ratio with the funds I add to my retirement and brokerage accounts (especially since everything is down now), but I'm not sure if I'm being foolish. Part of this is driven by getting a late start in the stock market due to my husband and I being physicians (we weren't able to start putting much in the stock market until mid 30s when finished training), and a desire to be more aggressive to hopefully "catch up." We're 37 and 40 now.
In general I think it's a bad idea to take extra risk trying to pay "catch up". The better strategy is to establish a high rate of contributions.

There is a range of what is reasonable. In my opinion 20-40% of bonds might be reasonable in your situation. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.


Newieinvestor wrote:
Sat Apr 25, 2020 10:15 am
I'm using VTSAX for all our stocks and VBTLX for all our bonds right now. This is my first bear market and so far I haven't been too spooked yet.
Those are excellent fund choices in my opinion.

It's great that you have not been "spooked" by this bear market. Actual experience in a market crash is probably the best test of a person's risk tolerance.

What was your asset allocation before and during this crash? Have you continued regular contributions every pay period during this crash? During this crash have you rebalanced by exchanging from the bond fund to the stock fund?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

indeterminancy
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Re: Why not be more aggressive about stocks?

Post by indeterminancy » Sat Apr 25, 2020 12:39 pm

justsomeguy2018 wrote:
Sat Apr 25, 2020 10:56 am
Newieinvestor wrote:
Sat Apr 25, 2020 10:15 am
Hi all! I'm a relatively new investor and curious if people around here roughly believe in the 100 minus your age stock allocation recommendation (i.e. a 40 year old should have 70% stocks, 30% bonds).

I was actually wondering why not have close to all stocks until about 10 years before planned retirement, as even in a bad recession/depression things should improve within 10 years. Is this mostly because retirement age is unpredictable due to unforeseen illness/disability?

I'm really tempted to use a more aggressive stock ratio with the funds I add to my retirement and brokerage accounts (especially since everything is down now), but I'm not sure if I'm being foolish. Part of this is driven by getting a late start in the stock market due to my husband and I being physicians (we weren't able to start putting much in the stock market until mid 30s when finished training), and a desire to be more aggressive to hopefully "catch up." We're 37 and 40 now.

I'm using VTSAX for all our stocks and VBTLX for all our bonds right now. This is my first bear market and so far I haven't been too spooked yet.


Thanks so much!
I struggle with AA as well...part of me thinks, with 25 years to go til 65, I can be more aggressive. The other part of me thinks, past market performance is no indication of future performance.

The adage used to be 100 minus age for stocks. Then as people started living longer, it became 110 minus age. Now some folks say 120 minus age due to longevity.

I landed on 115 minus age. I switched from 80/20 to 75/25 in November. Though part of that was driven by the market looking overvalued/frothy. Not very BH of me.
I do 115 minus age, as well. I'm 40 y/o.

For one, I don't want to be drifting to different plans as time goes on; I want to stick with a solid plan, and I believe the math supports this plan.

Secondly, in my taxable account, while it's primarily designed for retirement, I might buy a 2nd home at some point and would like to offset stock price volatility with the bond allocation to have semi-liquid options if it makes sense to apply funds toward a down payment on a 2nd home.

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galeno
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Re: Why not be more aggressive about stocks?

Post by galeno » Sat Apr 25, 2020 4:17 pm

We follow the 50/50 AA recommended by Vanguard Target Retirement Fund 2020.

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David Jay
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Re: Why not be more aggressive about stocks?

Post by David Jay » Sat Apr 25, 2020 5:11 pm

Newieinvestor:

AA is intensively personal. In the accumulation phase I think one should have as high an allocation as one can hold and not “freak out” over a 50% decline in the stock market. Here are two examples from my immediate family:

1. I am essentially immune to volatility. I went through the 2008-2009 downturn with 100% stocks and didn't change a thing, other than not opening my quarterly IRA/401K statements (I knew they were down, didn't need to know by how much). I only began to add bonds as I approached retirement (entered retirement about 45/55).

2. On the other hand, my sister and BIL freaked and sold all their stock holdings (less than 20% of their portfolio) at the bottom in 2008: "We had lost over 1/3 of our investment, so we sold all our stocks".

If one is going to hold 100% (or even 90%) stocks, one has to be able to subjugate your emotions to your intellect. It sounds easy but it is not. As the last 3 months have shown.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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galeno
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Re: Why not be more aggressive about stocks?

Post by galeno » Sat Apr 25, 2020 7:12 pm

We started investing in Jan 1984. Our AAs:

1984-1993 (10 yr) 100/0. 27 - 36 y/o
1994-2005 (12 yr) 80/20. 37 - 48 y/o
2006-2008 (3yr) 60/40*. 49 - 51 y/o
2009-2011 (3 yr) 70/30**. 52 - 54 y/o
2012-2016 (5 yr) 60/40*. 55 - 59 y/o
2017-2019 (3 yr) 40/60. 60 - 62 y/o
2020-YTD (~4 mo) 45/55** 63 y/o

Will go to 50/50 by early January.

* Under rebalance when port recuperates its previous nominal high.

* *Over rebalance due to BEAR market.
Last edited by galeno on Sat Apr 25, 2020 7:31 pm, edited 1 time in total.

justsomeguy2018
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Re: Why not be more aggressive about stocks?

Post by justsomeguy2018 » Sat Apr 25, 2020 7:18 pm

David Jay wrote:
Sat Apr 25, 2020 5:11 pm
Newieinvestor:

AA is intensively personal. In the accumulation phase I think one should have as high an allocation as one can hold and not “freak out” over a 50% decline in the stock market. Here are two examples from my immediate family:

1. I am essentially immune to volatility. I went through the 2008-2009 downturn with 100% stocks and didn't change a thing, other than not opening my quarterly IRA/401K statements (I knew they were down, didn't need to know by how much). I only began to add bonds as I approached retirement (entered retirement about 45/55).

2. On the other hand, my sister and BIL freaked and sold all their stock holdings (less than 20% of their portfolio) at the bottom in 2008: "We had lost over 1/3 of our investment, so we sold all our stocks".

If one is going to hold 100% (or even 90%) stocks, one has to be able to subjugate your emotions to your intellect. It sounds easy but it is not. As the last 3 months have shown.
I will say this - I've sometimes regretted holding a large cash cushion over the years but it helps psychologically with not wanting to sell during major market crashes. Because you have the cash to weather the storm.

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grabiner
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Re: Why not be more aggressive about stocks?

Post by grabiner » Sat Apr 25, 2020 9:21 pm

Newieinvestor wrote:
Sat Apr 25, 2020 10:15 am
I was actually wondering why not have close to all stocks until about 10 years before planned retirement, as even in a bad recession/depression things should improve within 10 years. Is this mostly because retirement age is unpredictable due to unforeseen illness/disability?
Two reasons:

Will you actually stay with all stock when the market crashes? You know this now, since your stocks lost 1/3 of their value in one month, and you know how you reacted; you may have rebalanced to buy more stock. But this was a more serious issue until the current bear market; I never recommend 100% stock for anyone who hasn't been through a bear market (including myself from 1997-2002; after losing a quarter of my portfolio in 2000-2002, I changed to a riskier allocation).

Will you be able to retire when planned? This depends on your job security. If you get laid off ten years before your planned retirement date, you may find it difficult to get a job at a similar salary.

If you meet these criteria, then 100% stock is reasonable if you are a long way from retirement, or even a moderate distance from retirement if you have other sources of retirement income (a pension, a paid-off house which effectively gives you income equal to its rent).
Wiki David Grabiner

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