Determining my AA: wisdom vs guts feelings.

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Lauretta
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Determining my AA: wisdom vs guts feelings.

Post by Lauretta » Mon Jun 29, 2020 1:03 am

I am about to retire (or at least take a long sabbatical) and my typical yearly expenses are between 1% and 2% of my accumulated assets (this might sound quite impressive but it's also because I don't really need to spend that much :wink: ) Quite a lot of my assets are in rental properties, but I am worried about the AA of my liquid assets.

Reading threads here like this one viewtopic.php?f=10&t=318201 where one of the points is:
60/40 is risky, 75/25 is a wiser AA given the bond environment and risk of inflation. I think a growing group of Bogleheads have already figured this out.
or this one viewtopic.php?f=1&t=269063&p=4308830&hi ... t#p4308195
it looks wise to have more than 60% in stocks. And bonds are worse than in the US here in Europe where I live.

So from a wisdom, calculating point of view, having more than 60% of one's liquid wealth in stocks (vs bonds or cash) seems like a good decision, at least for the long term.

But emotionally if I were to lose say 1M$ (at least as a paper loss) from a drawdown in stocks, I would feel terrible. So should I avoid this risk by having a lower allocation to stocks? But in this case the negative yielding bonds in Europe are a slow bleed that in the long term will erode my wealth. In other words having more in bonds/cash will feel safer as I don't have the risk of having huge DD, but in the long term does not look like a wise decision.

What do you think?
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Re: Determining my AA: wisdom vs guts feelings.

Post by rossington » Mon Jun 29, 2020 3:39 am

Lauretta wrote:
Mon Jun 29, 2020 1:03 am
I am about to retire (or at least take a long sabbatical) and my typical yearly expenses are between 1% and 2% of my accumulated assets (this might sound quite impressive but it's also because I don't really need to spend that much :wink: ) Quite a lot of my assets are in rental properties, but I am worried about the AA of my liquid assets.

Reading threads here like this one viewtopic.php?f=10&t=318201 where one of the points is:
60/40 is risky, 75/25 is a wiser AA given the bond environment and risk of inflation. I think a growing group of Bogleheads have already figured this out.
or this one viewtopic.php?f=1&t=269063&p=4308830&hi ... t#p4308195
it looks wise to have more than 60% in stocks. And bonds are worse than in the US here in Europe where I live.

So from a wisdom, calculating point of view, having more than 60% of one's liquid wealth in stocks (vs bonds or cash) seems like a good decision, at least for the long term.

But emotionally if I were to lose say 1M$ (at least as a paper loss) from a drawdown in stocks, I would feel terrible. So should I avoid this risk by having a lower allocation to stocks? But in this case the negative yielding bonds in Europe are a slow bleed that in the long term will erode my wealth. In other words having more in bonds/cash will feel safer as I don't have the risk of having huge DD, but in the long term does not look like a wise decision.

What do you think?
Assuming a major market decline of 50%: if you lose 1M in stock value that means you have at least 2M in equities...is this assumption of your equity value correct? Is this plus your rental income?
What is your AA now? What is your age?
Not knowing the actual numbers but if your portfolio is large enough and you can tolerate the higher risk then a higher stock AA seems fine.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

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Re: Determining my AA: wisdom vs guts feelings.

Post by Lauretta » Mon Jun 29, 2020 3:53 am

rossington wrote:
Mon Jun 29, 2020 3:39 am
Lauretta wrote:
Mon Jun 29, 2020 1:03 am
I am about to retire (or at least take a long sabbatical) and my typical yearly expenses are between 1% and 2% of my accumulated assets (this might sound quite impressive but it's also because I don't really need to spend that much :wink: ) Quite a lot of my assets are in rental properties, but I am worried about the AA of my liquid assets.

Reading threads here like this one viewtopic.php?f=10&t=318201 where one of the points is:
60/40 is risky, 75/25 is a wiser AA given the bond environment and risk of inflation. I think a growing group of Bogleheads have already figured this out.
or this one viewtopic.php?f=1&t=269063&p=4308830&hi ... t#p4308195
it looks wise to have more than 60% in stocks. And bonds are worse than in the US here in Europe where I live.

So from a wisdom, calculating point of view, having more than 60% of one's liquid wealth in stocks (vs bonds or cash) seems like a good decision, at least for the long term.

But emotionally if I were to lose say 1M$ (at least as a paper loss) from a drawdown in stocks, I would feel terrible. So should I avoid this risk by having a lower allocation to stocks? But in this case the negative yielding bonds in Europe are a slow bleed that in the long term will erode my wealth. In other words having more in bonds/cash will feel safer as I don't have the risk of having huge DD, but in the long term does not look like a wise decision.

What do you think?
Assuming a major market decline of 50%: if you lose 1M in stock value that means you have at least 2M in equities...is this assumption of your equity value correct? Is this plus your rental income?
What is your AA now? What is your age?
Not knowing the actual numbers but if your portfolio is large enough and you can tolerate the higher risk then a higher stock AA seems fine.
If I invest new money coming in this week from a house sale into my portfolio to achieve 75/25 I will be more than 2M$ in equities.
I can live from rental income, assuming tenants will be able to continue paying (with Covid 19 you never know...)
My AA target up to now has been around 60/40 .
I am 50.
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Re: Determining my AA: wisdom vs guts feelings.

Post by tre3sori » Mon Jun 29, 2020 4:53 am

...my typical yearly expenses are between 1% and 2% of my accumulated assets...
...I can live from rental income...
...Quite a lot of my assets are in rental properties
So you have the ability to be more aggressive and go with a 75/25 stock/bond portfolio, but maybe not the willingness nor the need, typical yearly expenses being between 1% and 2%. I think you have to take a look at your portfolio INCLUDING real estate. Assuming you have 60% in real estate, with a 60/40 financial portfolio you actually have a real estate/stock/bond 60%/24%/16% portfolio. You then sell a house (assuming 20% portfolio value).
With 60/40 you would have a real estate/stock/bond 40%/36%/24% asset allocation.
With 75/25 you would have a real estate/stock/bond 40%/39%/21% asset allocation.
The difference between investing into 60/40 vs. 75/25 becomes much smaller, almost negligible, as soon as you view your total assets.
I would not be too concerned about inflation with only 20-25% in nominal assets.
Also the volatility of your total assets value including real estate is smaller than the volatility of your financial portfolio value only.
One trick to stand the volatility of a 75/25 portfolio (if you want to go that way) would be to always view your assets as a whole.
Two Vanguard papers on inflation
https://personal.vanguard.com/pdf/icruih.pdf
https://personal.vanguard.com/pdf/ISGCTIPS.pdf
Last edited by tre3sori on Mon Jun 29, 2020 10:49 am, edited 1 time in total.
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Re: Determining my AA: wisdom vs guts feelings.

Post by sean.mcgrath » Mon Jun 29, 2020 5:50 am

tre3sori wrote:
Mon Jun 29, 2020 4:53 am
...my typical yearly expenses are between 1% and 2% of my accumulated assets...
...I can live from rental income...
...Quite a lot of my assets are in rental properties
So you have the ability to be more aggressive and go with a 75/25 stock/bond portfolio, but maybe not the willingness nor the need, typical yearly expenses being between 1% and 2%.
This. The allocation is always a personal decision. You don't have the need, and it makes you feel uncomfortable. There is absolutely nothing wrong with 60/40 for you.

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Re: Determining my AA: wisdom vs guts feelings.

Post by Steve Reading » Mon Jun 29, 2020 10:33 am

Lauretta wrote:
Mon Jun 29, 2020 1:03 am
And bonds are worse than in the US here in Europe where I live.
This is the second time I've seen you write that, presumably as a reason for adding more stocks. But fear not, it's not correct.
Because of arbitrage, the real return on bonds should be very similar throughout the entire world. The lower European yields are exactly offset by their lower inflation because the differing levels of inflation between currencies IS the inflation rate between the currencies.

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Re: Determining my AA: wisdom vs guts feelings.

Post by Lauretta » Mon Jun 29, 2020 10:35 am

tre3sori wrote:
Mon Jun 29, 2020 4:53 am
...my typical yearly expenses are between 1% and 2% of my accumulated assets...
...I can live from rental income...
...Quite a lot of my assets are in rental properties
So you have the ability to be more aggressive and go with a 75/25 stock/bond portfolio, but maybe not the willingness nor the need, typical yearly expenses being between 1% and 2%. I think you have to take a look at your portfolio INCLUDING real estate. Assuming you have 60% in real estate, with a 60/40 financial portfolio you actually have a real estate/stock/bond 60%/24%/16% portfolio. You then sell a house (assuming 20% portfolio value).
With 60/40 you would have a real estate/stock/bond 40%/36%/24% asset allocation.
With 75/25 you would have a real estate/stock/bond 40%/39%/21% asset allocation.
The difference between investing into 60/40 vs. 75/25 becomes much smaller, almost negligible, as soon as you view your total assets.
I would not be too concerned about inflation with only 20-25% in nominal assets.
Also the volatility of your total assets value including real estate is smaller than your financial portfolio value only.
One trick to stand the volatility of a 75/25 portfolio (if you want to go that way) would be to always view your assets as a whole.
Two Vanguard papers on inflation
https://personal.vanguard.com/pdf/icruih.pdf
https://personal.vanguard.com/pdf/ISGCTIPS.pdf
Thank you, yes that is a good way to think about it; I try to do it, still the magnitude of the possible DD feels big, but in terms of percentage of total assets it's much less shocking...
Thank you also for the links on inflation. Indeed bonds are quite risky in case of unexpected inflation, so I might buy more gold (or perhaps some commodities futures which I never owned) to hedge for that.
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Re: Determining my AA: wisdom vs guts feelings.

Post by Lauretta » Mon Jun 29, 2020 10:41 am

Steve Reading wrote:
Mon Jun 29, 2020 10:33 am
Lauretta wrote:
Mon Jun 29, 2020 1:03 am
And bonds are worse than in the US here in Europe where I live.
This is the second time I've seen you write that, presumably as a reason for adding more stocks. But fear not, it's not correct.
Because of arbitrage, the real return on bonds should be very similar throughout the entire world. The lower European yields are exactly offset by their lower inflation because the differing levels of inflation between currencies IS the inflation rate between the currencies.
I don't understand what you mean. :?: :?: :?:
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Re: Determining my AA: wisdom vs guts feelings.

Post by Steve Reading » Mon Jun 29, 2020 10:58 am

Lauretta wrote:
Mon Jun 29, 2020 10:41 am
Steve Reading wrote:
Mon Jun 29, 2020 10:33 am
Lauretta wrote:
Mon Jun 29, 2020 1:03 am
And bonds are worse than in the US here in Europe where I live.
This is the second time I've seen you write that, presumably as a reason for adding more stocks. But fear not, it's not correct.
Because of arbitrage, the real return on bonds should be very similar throughout the entire world. The lower European yields are exactly offset by their lower inflation because the differing levels of inflation between currencies IS the inflation rate between the currencies.
I don't understand what you mean. :?: :?: :?:
What part is tripping you up? Do you realize that bonds of different currencies must offer a similar real return?

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Re: Determining my AA: wisdom vs guts feelings.

Post by dbr » Mon Jun 29, 2020 10:59 am

The essence of this whole thing is for the investor to understand the consequences of what their asset allocation is and then decide what they want. The investor should do this instead of reading that someone says this thing is risky and that thing is risky.

But understanding consequences takes some study and learning and asking people about it. For example, why someone is saying something is risky is important because then you learn about the consequences -- if the person is able to explain and is not just parroting someone else.

Feeling are important because how you feel is among the consequences, but feeling are not the whole story. If it is "gut feelings" a person should probably be working harder to identify what the issue is.

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Re: Determining my AA: wisdom vs guts feelings.

Post by Lauretta » Mon Jun 29, 2020 11:06 am

dbr wrote:
Mon Jun 29, 2020 10:59 am
The essence of this whole thing is for the investor to understand the consequences of what their asset allocation is and then decide what they want. The investor should do this instead of reading that someone says this thing is risky and that thing is risky.

But understanding consequences takes some study and learning and asking people about it. For example, why someone is saying something is risky is important because then you learn about the consequences -- if the person is able to explain and is not just parroting someone else.

Feeling are important because how you feel is among the consequences, but feeling are not the whole story. If it is "gut feelings" a person should probably be working harder to identify what the issue is.
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Re: Determining my AA: wisdom vs guts feelings.

Post by BeBH65 » Mon Jun 29, 2020 11:17 am

Also do a search on the forum for "sequence of return" risk and "bond tent".... This might be the moment to lower your equity exposure.
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Re: Determining my AA: wisdom vs guts feelings.

Post by Lauretta » Mon Jun 29, 2020 11:26 am

Steve Reading wrote:
Mon Jun 29, 2020 10:58 am
Lauretta wrote:
Mon Jun 29, 2020 10:41 am
Steve Reading wrote:
Mon Jun 29, 2020 10:33 am
Lauretta wrote:
Mon Jun 29, 2020 1:03 am
And bonds are worse than in the US here in Europe where I live.
This is the second time I've seen you write that, presumably as a reason for adding more stocks. But fear not, it's not correct.
Because of arbitrage, the real return on bonds should be very similar throughout the entire world. The lower European yields are exactly offset by their lower inflation because the differing levels of inflation between currencies IS the inflation rate between the currencies.
I don't understand what you mean. :?: :?: :?:
What part is tripping you up? Do you realize that bonds of different currencies must offer a similar real return?
well no, for example people do the carry trade which apparently often works. I also understand that interest rates are set by central banks based on considerations which are beyond me; so unless there were a coordinantion at the global level of central banks decisions I don't see how interest rates are adjusted to offer the same real returns.
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Re: Determining my AA: wisdom vs guts feelings.

Post by Steve Reading » Mon Jun 29, 2020 12:19 pm

Lauretta wrote:
Mon Jun 29, 2020 11:26 am
well no, for example people do the carry trade which apparently often works. I also understand that interest rates are set by central banks based on considerations which are beyond me; so unless there were a coordinantion at the global level of central banks decisions I don't see how interest rates are adjusted to offer the same real returns.
Remember the nominal return = the real return + the expected inflation. Some times unexpected inflation/deflation occurs and the real return you get on a bond of a certain currency ends up larger or smaller.

For instance, for the past twelve years, the carry trade has actually produced negative returns. Whoever thought there was a free lunch shorting Euros and Yens to invest in dollars (Australian, Canadian and US) ended up behind.

As for Central Banks, they can peg nominal bonds all they want; the market will trade the real-yield bonds based on that nominal bond and expected inflation as per my equation above. For instance, the Euro Inflation-linked Gov fund (IBCI) offers -0.35% real return right now while its nominal counterpart (SEGA) offers 0% nominal. So an expected inflation of 0.35% in the Euro.
OTOH, treasuries at 7yr offers 0.49% while the 7yr TIPs offers -0.8%. So an expected inflation of 1.3% in the USD.

So now let's talk nominal and equalize on credit quality: What's better, a 7yr Bund offering -0.6% or a 7yr treasury offering 0.5%? The former has an expected real yield of -0.6%-0.35% = -0.95% while the latter has an expected real yield of -0.8%

Are they perfectly exact? No, these are all rough figures and I don't have the most up-to-date figures. But they're extremely close. A Bund for a European investor will produce a similar real return, on average, to a treasury for the American investor. And they should produce very nearly the same real return if expected inflation goes as expected.

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Re: Determining my AA: wisdom vs guts feelings.

Post by Fallible » Mon Jun 29, 2020 12:39 pm

Lauretta wrote:
Mon Jun 29, 2020 1:03 am
...
So from a wisdom, calculating point of view, having more than 60% of one's liquid wealth in stocks (vs bonds or cash) seems like a good decision, at least for the long term.

But emotionally if I were to lose say 1M$ (at least as a paper loss) from a drawdown in stocks, I would feel terrible. So should I avoid this risk by having a lower allocation to stocks? ...
I think whether you should lower risk depends largely on how "terrible" you would feel, i.e., whether you would feel terrible enough to suffer anxiety leading to sleep loss and selling low, or whether you would feel terrible but still able to handle/control the emotions and ride out the downturns. It's possible that your raising the matter is itself an indication that you should lower risk; but it could also be a way to prepare emotionally to stay the course.
The first principle is that you must not fool yourself – and you are the easiest person to fool. ~Richard Feynman

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Re: Determining my AA: wisdom vs guts feelings.

Post by dbr » Mon Jun 29, 2020 12:52 pm

Another thing about feelings is that they can be controlled by means other than letting them dictate how you invest. There are also some feelings that can't be fixed no matter now you invest.

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Re: Determining my AA: wisdom vs guts feelings.

Post by Lauretta » Mon Jun 29, 2020 1:10 pm

Fallible wrote:
Mon Jun 29, 2020 12:39 pm
Lauretta wrote:
Mon Jun 29, 2020 1:03 am
...
So from a wisdom, calculating point of view, having more than 60% of one's liquid wealth in stocks (vs bonds or cash) seems like a good decision, at least for the long term.

But emotionally if I were to lose say 1M$ (at least as a paper loss) from a drawdown in stocks, I would feel terrible. So should I avoid this risk by having a lower allocation to stocks? ...
I think whether you should lower risk depends largely on how "terrible" you would feel, i.e., whether you would feel terrible enough to suffer anxiety leading to sleep loss and selling low, or whether you would feel terrible but still able to handle/control the emotions and ride out the downturns. It's possible that your raising the matter is itself an indication that you should lower risk; but it could also be a way to prepare emotionally to stay the course.
I would not sell low. I never did (neither in stocks nor in real estate). What happens to me when things go bad is that I just disengage from things and withdraw into myself. But I wouldn't take action that I know rationally is stupid.
Probably I would get sleep loss though (I often do for much less important things!)
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Re: Determining my AA: wisdom vs guts feelings.

Post by Lauretta » Mon Jun 29, 2020 1:14 pm

dbr wrote:
Mon Jun 29, 2020 12:52 pm
Another thing about feelings is that they can be controlled by means other than letting them dictate how you invest. There are also some feelings that can't be fixed no matter now you invest.
That's quite a good point actually. In fact I am taking a coursera course on emotions right now (just out of interest), so I am presently learning about psychology and emotions. So it could become useful for investing too! :happy
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Re: Determining my AA: wisdom vs guts feelings.

Post by retiredjg » Mon Jun 29, 2020 2:20 pm

Lauretta wrote:
Mon Jun 29, 2020 1:03 am
So from a wisdom, calculating point of view, having more than 60% of one's liquid wealth in stocks (vs bonds or cash) seems like a good decision, at least for the long term.
I don't think that there is any accepted wisdom that 60% stocks is not enough. There are some individuals who have that opinion. Opinion is not wisdom. It's just opinion.

Many of us in retirement have less than that. Many have a lot less than that.

I do not know what to suggest about bonds in the UK. But I definitely do not suggest holding a larger stock allocation that your gut is comfortable with. That is sure to backfire.

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Re: Determining my AA: wisdom vs guts feelings.

Post by WoodSpinner » Mon Jun 29, 2020 2:31 pm

Steve Reading wrote:
Mon Jun 29, 2020 10:33 am
Lauretta wrote:
Mon Jun 29, 2020 1:03 am
And bonds are worse than in the US here in Europe where I live.
This is the second time I've seen you write that, presumably as a reason for adding more stocks. But fear not, it's not correct.
Because of arbitrage, the real return on bonds should be very similar throughout the entire world. The lower European yields are exactly offset by their lower inflation because the differing levels of inflation between currencies IS the inflation rate between the currencies.
Steve,

Trying to understand this ....

Isn’t there also a credit quality difference that affects the bond price/yield? For instance, Italy vs. Germany vs. US?

Also, doesn’t the exchange rate play in to the decision?

Bonds are complicated :?

Thanks in advance

Joel

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Re: Determining my AA: wisdom vs guts feelings.

Post by Steve Reading » Mon Jun 29, 2020 2:51 pm

WoodSpinner wrote:
Mon Jun 29, 2020 2:31 pm
Steve Reading wrote:
Mon Jun 29, 2020 10:33 am
Lauretta wrote:
Mon Jun 29, 2020 1:03 am
And bonds are worse than in the US here in Europe where I live.
This is the second time I've seen you write that, presumably as a reason for adding more stocks. But fear not, it's not correct.
Because of arbitrage, the real return on bonds should be very similar throughout the entire world. The lower European yields are exactly offset by their lower inflation because the differing levels of inflation between currencies IS the inflation rate between the currencies.
Steve,

Trying to understand this ....

Isn’t there also a credit quality difference that affects the bond price/yield? For instance, Italy vs. Germany vs. US?

Also, doesn’t the exchange rate play in to the decision?

Bonds are complicated :?

Thanks in advance

Joel
Yes, all things equal (credit quality, maturity, etc) bonds from different currencies should have very similar expected real returns.

The expected future exchange rate is such that the above is maintained.

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Re: Determining my AA: wisdom vs guts feelings.

Post by geerhardusvos » Mon Jun 29, 2020 3:02 pm

Lauretta wrote:
Mon Jun 29, 2020 1:03 am
I am about to retire (or at least take a long sabbatical) and my typical yearly expenses are between 1% and 2% of my accumulated assets (this might sound quite impressive but it's also because I don't really need to spend that much :wink: ) Quite a lot of my assets are in rental properties, but I am worried about the AA of my liquid assets.

Reading threads here like this one viewtopic.php?f=10&t=318201 where one of the points is:
60/40 is risky, 75/25 is a wiser AA given the bond environment and risk of inflation. I think a growing group of Bogleheads have already figured this out.
or this one viewtopic.php?f=1&t=269063&p=4308830&hi ... t#p4308195
it looks wise to have more than 60% in stocks. And bonds are worse than in the US here in Europe where I live.

So from a wisdom, calculating point of view, having more than 60% of one's liquid wealth in stocks (vs bonds or cash) seems like a good decision, at least for the long term.

But emotionally if I were to lose say 1M$ (at least as a paper loss) from a drawdown in stocks, I would feel terrible. So should I avoid this risk by having a lower allocation to stocks? But in this case the negative yielding bonds in Europe are a slow bleed that in the long term will erode my wealth. In other words having more in bonds/cash will feel safer as I don't have the risk of having huge DD, but in the long term does not look like a wise decision.

What do you think?
The difference between 60/40 and 70/30 is not that much. I say, either be 100/0 or 50/50 or 0/100. Everything in between doesn’t make a huge difference. Ultimately these things are very personal and need to be selected by each individual based on their comfort level. For the longevity of a portfolio beyond 30 years, it does make a difference to stay in equities, and I think you are correct in that assessment. In my personal investment plan, I will never be less than 80% equities throughout my entire retirement (I am 10 years away from retirement and I’m almost 100% stocks besides my 6 month EF). Here’s a look at the success rates of AA and WR based on the available US data, and stocks tend to go the distance:

Image
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Re: Determining my AA: wisdom vs guts feelings.

Post by nix4me » Mon Jun 29, 2020 3:39 pm

Do they have cd’s in Europe?

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Re: Determining my AA: wisdom vs guts feelings.

Post by protagonist » Mon Jun 29, 2020 3:55 pm

Lauretta wrote:
Mon Jun 29, 2020 1:03 am
I am about to retire (or at least take a long sabbatical) and my typical yearly expenses are between 1% and 2% of my accumulated assets (this might sound quite impressive but it's also because I don't really need to spend that much :wink: ) Quite a lot of my assets are in rental properties, but I am worried about the AA of my liquid assets.

Reading threads here like this one viewtopic.php?f=10&t=318201 where one of the points is:
60/40 is risky, 75/25 is a wiser AA given the bond environment and risk of inflation. I think a growing group of Bogleheads have already figured this out.
or this one viewtopic.php?f=1&t=269063&p=4308830&hi ... t#p4308195
it looks wise to have more than 60% in stocks. And bonds are worse than in the US here in Europe where I live.

So from a wisdom, calculating point of view, having more than 60% of one's liquid wealth in stocks (vs bonds or cash) seems like a good decision, at least for the long term.

But emotionally if I were to lose say 1M$ (at least as a paper loss) from a drawdown in stocks, I would feel terrible. So should I avoid this risk by having a lower allocation to stocks? But in this case the negative yielding bonds in Europe are a slow bleed that in the long term will erode my wealth. In other words having more in bonds/cash will feel safer as I don't have the risk of having huge DD, but in the long term does not look like a wise decision.

What do you think?
If you have enough to theoretically live out your retirement without significant lifestyle compromise (I assume you prob. do if you are only spending 1-2%/yr), I would scrap the whole AA dilemma.

Just put what you need to live on, with a little buffer, into ultra-safe investments (eg: CDs with good EWPs, I-bonds, etc.) These should theoretically keep up with inflation, or at worst come very close. So even if you are only getting 1% today, you are beating inflation and you don't have to worry about lifestyle compromise.

The rest is gambling money which you can safely invest in the stock market. Whether it is 10% or 90% of your portfolio is not important. Invest in low cost index funds and forget about them.

This is a more worry-free approach. The next time the market crashes you will hardly care. If the market loses 90 plus percent of its value and never recovers during your lifetime, you won't lose sleep. If it quadruples in a decade like it did the previous decade, you will be really rich, and if you want to up your lifestyle, you can move some of that into the safe bucket. Plus you won't waste the rest of your life thinking whether 60/40 or 70/30 was a better idea and if you should switch, every time the market rallies or tanks. Your life will be financially simple. IMHO, the biggest key to a successful retirement is to worry as little as possible.


(This also assumes that you have paid off all your debts, which I think should be a #1 priority).

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cashboy
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Re: Determining my AA: wisdom vs guts feelings.

Post by cashboy » Mon Jun 29, 2020 4:08 pm

Lauretta wrote:
Mon Jun 29, 2020 3:53 am

If I invest new money coming in this week from a house sale into my portfolio to achieve 75/25 I will be more than 2M$ in equities.
I can live from rental income, assuming tenants will be able to continue paying (with Covid 19 you never know...)
My AA target up to now has been around 60/40 .
I am 50.
of course, an AA is always a personal decision based on many things unique to the individual.

but, in general,
an AA of 60/40
at age 50
with the portfolio amounts you mentioned
is not a bad choice.

60/40 is one of those AAs always referred to, so there is a lot of data to back it up as a reasonable choice.

as an example,

say one had $1,000,000 in 60/40
$600,000 in stocks
$400,000 in bonds
and then stocks lost 50% of their value.

that portfolio now has
$300,000 in stocks (ouch!)
$400,000 in bonds

even with that major 50% hit to stocks one still has 70% of their portfolio at that moment in time.

if you have not seen it already, look here for examples of AA returns:

https://personal.vanguard.com/us/insigh ... llocations

now, what you use to populate that AA is a whole subject in itself. :wink:
Three-Fund Portfolio: FSPSX - FXAIX - FXNAX (with slight tilt of CDs - CASH - Canned Beans - Rice - Bottled Water)

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