Asset Allocation for 47 year old

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swellkarl
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Asset Allocation for 47 year old

Post by swellkarl »

I have a two-fund $1.5M portfolio using Vanguard 500 Index (VFIAX) and Vanguard Core Bond (VCOBX) and some cash, mostly in a rollover IRA (74%) and a Roth IRA (21%). I will soon be 47 years old and would like to retire in 5-8 years. My asset allocation is currently 68% 500 Index, 28% Core Bond, and 4% cash.

Questions:
Is my allocation to bonds too low? If I did my age in bonds, almost half my portfolio would be in bonds today.
At retirement (age 52-55), should I really have more than 40% in bonds? Or more than 50% in bonds?

Thanks.

Karl
Swansea
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Re: Asset Allocation for 47 year old

Post by Swansea »

Karl,
Will you have a pension or other source of income at retirement? That would influence the allocation.
Grt2bOutdoors
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Re: Asset Allocation for 47 year old

Post by Grt2bOutdoors »

It all comes down to need, ability and willingness to take risk. If you are retiring in 5-8 years you need to decide your sustainable withdrawal rate. How much will you be adding to the portfolio each year until then? What percentage were you planning on taking come retirement? A 60/40 portfolio works for retirement as does a 50/50 portfolio. I don’t think you’d want to go lower than that if you are retiring early as you plan.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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swellkarl
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Re: Asset Allocation for 47 year old

Post by swellkarl »

Great questions.
I do not have a pension.
My current employer isn’t providing a 401k match so the only money I am adding to the portfolio is in the Roth IRA.
I would like to have a 4% withdrawal rate at retirement.

Thanks.

Karl
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Re: Asset Allocation for 47 year old

Post by abuss368 »

swellkarl wrote: Fri Aug 28, 2020 7:12 am I have a two-fund $1.5M portfolio using Vanguard 500 Index (VFIAX) and Vanguard Core Bond (VCOBX) and some cash, mostly in a rollover IRA (74%) and a Roth IRA (21%). I will soon be 47 years old and would like to retire in 5-8 years. My asset allocation is currently 68% 500 Index, 28% Core Bond, and 4% cash.

Questions:
Is my allocation to bonds too low? If I did my age in bonds, almost half my portfolio would be in bonds today.
At retirement (age 52-55), should I really have more than 40% in bonds? Or more than 50% in bonds?

Thanks.

Karl
Hi Karl -

Unfortunately no one can answer that except you. Asset allocation is the most important decision an investor will make. Everyone's goals, timeframe, and tolerance for risk are different.

If the thought of your stock dropping by half (or greater) in the next downturn does not bother you then you are probably fine.
John C. Bogle: “Simplicity is the master key to financial success."
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greg24
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Re: Asset Allocation for 47 year old

Post by greg24 »

I am the same age as you. We were doing age in bonds (which is now considered a conservative allocation) until we hit 40, but at that point, sticking with age in bonds seemed like too much in bonds.

We've been at 60/40 since turning 40, and are going to stick with 60/40 for the foreseeable future, maybe forever. Gives us upside opportunity with plenty of fixed income protection.
Last edited by greg24 on Fri Aug 28, 2020 7:19 pm, edited 1 time in total.
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tennisplyr
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Re: Asset Allocation for 47 year old

Post by tennisplyr »

You may find this Vanguard tool helpful:

https://personal.vanguard.com/us/FundsInvQuestionnaire
Those who move forward with a happy spirit will find that things always work out.
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swellkarl
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Re: Asset Allocation for 47 year old

Post by swellkarl »

tennisplyr wrote: Fri Aug 28, 2020 7:47 am You may find this Vanguard tool helpful:

https://personal.vanguard.com/us/FundsInvQuestionnaire
It said 70/30.
mc2
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Re: Asset Allocation for 47 year old

Post by mc2 »

Karl-

I'm in a pretty similar situation and we are 65/35. The last market drop got my attention but Ive been able to stomach it. We are going to rebalance from about 68 equity back to 65 today in fact. With low bond rates in the future, I've decided to stay 65/35 vs 60/40. Once I hit 30x expenses I think I'll go to 50/50.

The hardest part for me has been finding the best strategy for my non-equity part of the portfolio. Most is total bond market (probably 75%), and a short term tax exempt fund/money market for the rest.

Best of luck-
mc2
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Re: Asset Allocation for 47 year old

Post by bloom2708 »

49 here. Very similar AA. Total US + Int-Term Treasuries + Cash for the most part.

I think you are in a pretty good place. We are going to stay 65/35 to 70/30 until closer to known retirement.
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mc2
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Re: Asset Allocation for 47 year old

Post by mc2 »

One more thing-I've poured many hours thinking about 60/40 vs 70/30 knowing that those truly are my risk tolerances and every time I want to adjust/tinker, I remember that the difference between 60 and 70 is likely to be fairly marginal long term and that consistency with an allocation (almost any allocation) can be better than floating between several allocations.

Much of your success and security will come from cost containment, delayed gratification, living within/below your means.

You didn't mention kids, significant other. If it's just you, $1.5M at 60/40 should provide a great deal of security and material comfort. Now that you have that, pursue psychological comfort and emotional happiness!
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swellkarl
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Re: Asset Allocation for 47 year old

Post by swellkarl »

mc2 wrote: Fri Aug 28, 2020 8:51 am You didn't mention kids, significant other. If it's just you, $1.5M at 60/40 should provide a great deal of security and material comfort. Now that you have that, pursue psychological comfort and emotional happiness!
No kids but I did meet someone and got married about 3 years ago. She does not work outside the home, and I want to retire early so we can have many years to enjoy each other.
nix4me
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Re: Asset Allocation for 47 year old

Post by nix4me »

I'm 48 and targeting retirement in 7 years. My AA is:

Stocks - 97%
REIT - 0.5%
Bonds - 0.5%
Cash - 2%

So just do what makes you feel ok. I haven't decided totally on what i'm going to do when i hit 55 and retire. but i will likely set aside 3-5 years of expenses into Bonds/Cash and leave the rest in stocks. Whatever AA that is is what ill have i guess. I totally disagree with set percentages and one size fits all rules.
Last edited by nix4me on Fri Aug 28, 2020 10:10 am, edited 1 time in total.
winterfan
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Re: Asset Allocation for 47 year old

Post by winterfan »

My husband and I are late 50s/40s and our allocation is roughly 70/30. We were 100% stocks until about two years ago. Our accounts have held up pretty well this year. I feel better having some bond $ that we can access if we need to (DH is over 59.5).
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Re: Asset Allocation for 47 year old

Post by abuss368 »

greg24 wrote: Fri Aug 28, 2020 7:40 am I am the same age as you. We were doing age in bonds (which is now considered a conservative allocation) until we hit 40, but at that point, sticking with age in bonds seemed like too much in bonds.

We're been at 60/40 since turning 40, and are going to stick with 60/40 for the foreseeable future, maybe forever. Gives us upside opportunity with plenty of fixed income protection.
60% stocks and 40% bonds is a very popular allocation. Many balanced funds also use that allocation. At retirement, the flip side of 40% stocks and 60% bonds may be ideal. I too am wondering if 70% in bonds at retirement (i.e. Vanguard's Target Retirement fund) is too much.
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swellkarl
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Re: Asset Allocation for 47 year old

Post by swellkarl »

Thanks for all the replies. I’m feeling better about my 68/28/4 allocation, but I may start moving closer to 66/30/4.
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Re: Asset Allocation for 47 year old

Post by ruralavalon »

swellkarl wrote: Fri Aug 28, 2020 7:12 am I have a two-fund $1.5M portfolio using Vanguard 500 Index (VFIAX) and Vanguard Core Bond (VCOBX) and some cash, mostly in a rollover IRA (74%) and a Roth IRA (21%). I will soon be 47 years old and would like to retire in 5-8 years. My asset allocation is currently 68% 500 Index, 28% Core Bond, and 4% cash.

Questions:
Is my allocation to bonds too low? If I did my age in bonds, almost half my portfolio would be in bonds today.
At retirement (age 52-55), should I really have more than 40% in bonds? Or more than 50% in bonds?

Thanks.

Karl
swellkarl wrote: Fri Aug 28, 2020 7:26 am Great questions.
I do not have a pension.
My current employer isn’t providing a 401k match so the only money I am adding to the portfolio is in the Roth IRA.
I would like to have a 4% withdrawal rate at retirement.

Thanks.

Karl
swellkarl wrote: Fri Aug 28, 2020 9:46 am
mc2 wrote: Fri Aug 28, 2020 8:51 am You didn't mention kids, significant other. If it's just you, $1.5M at 60/40 should provide a great deal of security and material comfort. Now that you have that, pursue psychological comfort and emotional happiness!
No kids but I did meet someone and got married about 3 years ago. She does not work outside the home, and I want to retire early so we can have many years to enjoy each other.
In my opinion at age 47, retiring in 5-8 years (age 52-55), with no pension, an asset allocation of 68/32 equity/fixed income is within the range of what is reasonable.

I wonder why you do not contribute at all to your employer's 401k plan? Even without any employer match its helpful to contribute if any decent funds are offered, the tax deduction and tax-deferral are still very valuable. In addition to your contributions to a Roth IRA, does she contribute to a Roth IRA? Do you contribute to a taxable brokerage account also?
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JimmyJammy
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Re: Asset Allocation for 47 year old

Post by JimmyJammy »

Historically, stocks have outperformed bonds over the long haul.

So I think my approach to AA is to put most of my assets in stocks and risky bonds but then have a portion in "safe" cash/bonds. I don't consider a core bond fund as that safe these days (though I do have a bunch in there).

My "safe" assets are cash (in a Vanguard money market) and short term treasuries, and short-term inflation protected (TIPS).
How much? Right now, I'm timing the market somewhat plus I'm furloughed so my "safe" assets are worth 3 years of expenses. I normally just have 1 year.

I'm 44 and 58% US, 20% Foreign, 12% Bond, and 10% Cash.

This site helped me determine my Asset Allocation: https://www.financialsamurai.com/the-pr ... ds-by-age/
7eight9
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Re: Asset Allocation for 47 year old

Post by 7eight9 »

One way to think about it is if equities declined 50% and did not recover how would that impact your retirement. Yes, they can (and have) gone down more. And they aren't guaranteed to recover despite having done so thus far in the United States. What is the most you can afford to lose?
I guess it all could be much worse. | They could be warming up my hearse.
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Re: Asset Allocation for 47 year old

Post by tennisplyr »

swellkarl wrote: Fri Aug 28, 2020 8:22 am
tennisplyr wrote: Fri Aug 28, 2020 7:47 am You may find this Vanguard tool helpful:

https://personal.vanguard.com/us/FundsInvQuestionnaire
It said 70/30.
Cool, for what it's worth, I'm 70, retired 9 years and at 45/55....might drift down to 40/60.
Those who move forward with a happy spirit will find that things always work out.
renegade06
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Re: Asset Allocation for 47 year old

Post by renegade06 »

I’m 45 yo and I’m really re-thinking my 80% stock, 15% bonds, 3% gold/silver, and 2% cash allocation after reading this helpful thread.....
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Admiral Fun
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Re: Asset Allocation for 47 year old

Post by Admiral Fun »

I’m in this age range and around 88/12 stock/bond. I’m amazed at how conservative these allocations are. For a long time I’ve felt too bond heavy.
sailaway
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Re: Asset Allocation for 47 year old

Post by sailaway »

swellkarl wrote: Fri Aug 28, 2020 7:12 am I have a two-fund $1.5M portfolio using Vanguard 500 Index (VFIAX) and Vanguard Core Bond (VCOBX) and some cash, mostly in a rollover IRA (74%) and a Roth IRA (21%). I will soon be 47 years old and would like to retire in 5-8 years. My asset allocation is currently 68% 500 Index, 28% Core Bond, and 4% cash.

Questions:
Is my allocation to bonds too low? If I did my age in bonds, almost half my portfolio would be in bonds today.
At retirement (age 52-55), should I really have more than 40% in bonds? Or more than 50% in bonds?

Thanks.

Karl
Our average age is 42, we expect to "retire" in two years and we had almost your exact allocation at our last snapshot, which we considered appropriate and let it be. We currently have not found any convincing argument to take us beyond 40% bonds. The 60/40 to 70/30 range seems to be ideal for longevity.
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Re: Asset Allocation for 47 year old

Post by flaccidsteele »

swellkarl wrote: Fri Aug 28, 2020 7:12 am I have a two-fund $1.5M portfolio using Vanguard 500 Index (VFIAX) and Vanguard Core Bond (VCOBX) and some cash, mostly in a rollover IRA (74%) and a Roth IRA (21%). I will soon be 47 years old and would like to retire in 5-8 years. My asset allocation is currently 68% 500 Index, 28% Core Bond, and 4% cash.

Questions:
Is my allocation to bonds too low? If I did my age in bonds, almost half my portfolio would be in bonds today.
At retirement (age 52-55), should I really have more than 40% in bonds? Or more than 50% in bonds?
If you’re comfortable with that bond allocation then it’s the right allocation

Speaking for myself, as someone in the same cohort, that’s way more than I would ever allocate to bonds. Ever
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
WannabeBogleHead01
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Re: Asset Allocation for 47 year old

Post by WannabeBogleHead01 »

51 here; been 70/30 for last 5 years. Plan on staying there for 5-10 more, then 60/40.
theorist
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Re: Asset Allocation for 47 year old

Post by theorist »

I just turned 50, and have been at 70/30 for a few years. But after my reaction to the recent crash (buying on the way down and up without much worry — of course the recovery was quick), I wonder whether I could be a bit more aggressive and move to 75/25 or 80/20. The lifetime allocation indexes from Morningstar visible here

https://indexes.morningstar.com/resourc ... 0FINAL.pdf

suggest that for retirement in 2035 (which is the early end of where I see myself retiring; I enjoy my work!), one can reasonably be considerably more aggressive than I’ve normally thought is recommended.

(I guess one thing I’ve learned by spending time here and thinking about it, though, it that shifting the allocation to stocks by 5% probably isn’t a big deal one way or the other anyway, in the long run.)
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