Farther out on the risk curve than you'd like to be?

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namajones
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Farther out on the risk curve than you'd like to be?

Post by namajones »

Retirees, soon-to-be retirees, and others: Are you farther out on the risk curve (equities and the like) because of low interest rates and bond yields? I read today that U.S. equity exposure is the highest in history. I keep fighting the urge to get riskier myself.

If you are farther out, when will you pull back? Prepared to go the distance if your equities fall substantially and don't come back for a long time?

Bucket approach? What's your strategy?
lazynovice
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Re: Farther out on the risk curve than you'd like to be?

Post by lazynovice »

My AA isn’t really based on interest rates and yields. It is based on risk tolerance.

But I guess if interest rates were 8%, I’d have more FI, so who knows.

I am always right where I want to be on the risk curve. If I’m not, I change it.

I am a near retiree who has the option of working for quite some time and my spouse is retired but is employable. We are roughly 68/32. We have set FI at 10x expenses and the rest to equities. We will revisit if it drifts to 70/30 but that hasn’t happened yet.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
retiredjg
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Re: Farther out on the risk curve than you'd like to be?

Post by retiredjg »

My strategy is to have everything (except $10k) invested at about 50:50 and to rebalance when it wanders from that more than 5%. No buckets.

So no, I'm not farther out of the risk curve than I'd like. And prepared to "go the distance" staying at 50:50 when the bad times come.
dbr
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Re: Farther out on the risk curve than you'd like to be?

Post by dbr »

No, we have been at 50/50 for a very long time and have no reason to take more risk because bonds appear to offer less in return now.

It almost seems inevitable that there will be people learning what risk in stocks means sooner or later, but I would not change asset allocation for that reason either. The plan is supposed to be set recognizing that returns come and go.
Candor
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Re: Farther out on the risk curve than you'd like to be?

Post by Candor »

A recent retiree here with 50/50 or more accurately 50/28/22 equities/bond/cash(cd's & ibonds). I was 50/50 at the start of the pandemic and got up to 60-65 equities after the downturn and just recently went back to 50/50. I was planning to keep 55/45 in an effort to offset the low expectations for bonds but I'm just more comfortable at 50/50 for now which I intend to keep indefinitely unless there is a significant drop in the market and then I will increase equities 10-15% again.

There is a part of me that would like to just be done with the market but I realize that would not be a prudent move. The other side of me 'knows" I would most likely be better off with a 70/30 AA so my compromise is 50/50. Invest we must.
The fool, with all his other faults, has this also - he is always getting ready to live. - Epicurus
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JoeRetire
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Re: Farther out on the risk curve than you'd like to be?

Post by JoeRetire »

namajones wrote: Tue Oct 12, 2021 12:28 pm Are you farther out on the risk curve (equities and the like) because of low interest rates and bond yields?
We're not farther out than we would like to be.
Just remember: it's not a lie if you believe it.
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birdog
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Re: Farther out on the risk curve than you'd like to be?

Post by birdog »

Recently retired and at about 80/20 but I don't use that as my guide. I decided to keep 10 years of desired retirement spending in bonds and cash and put the rest in equities. I actually had to buy a lot of bonds to get me to that level, which could be described as a bucket approach I guess. I've never wanted to be anywhere near a traditional 50/50 or 60/40. I've been 90/10 for so long that 80/20 was a stretch for me. I'm quite comfortable with downturns and buy stocks aggressively when that happens. I guess to answer your question, I'm right where I want to be on the risk curve and am emboldened in that decision by today's low interest rates.
KlangFool
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Re: Farther out on the risk curve than you'd like to be?

Post by KlangFool »

OP,

No. Why do I know this? Because, I can "Sleep Well At Night" (SWAN). And, I know that even if the stock market drop down to ZERO, I will be fine. Or, it is not longer a money problem.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
dbr
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Re: Farther out on the risk curve than you'd like to be?

Post by dbr »

birdog wrote: Tue Oct 12, 2021 3:30 pm Recently retired and at about 80/20 but I don't use that as my guide. I decided to keep 10 years of desired retirement spending in bonds and cash and put the rest in equities. I actually had to buy a lot of bonds to get me to that level, which could be described as a bucket approach I guess. I've never wanted to be anywhere near a traditional 50/50 or 60/40. I've been 90/10 for so long that 80/20 was a stretch for me. I'm quite comfortable with downturns and buy stocks aggressively when that happens. I guess to answer your question, I'm right where I want to be on the risk curve and am emboldened in that decision by today's low interest rates.
A note, not necessarily of any significance, is that if 10 years expenses is 20% of your portfolio, then the total portfolio amounts to about 50 times your annual spending. In that case you are not wrestling with how to safely fund your spending but instead have other priorities. Those priorities would seem to be to take lots of risk for the rewards thereof while having a high tolerance for risk. There is certainly nothing wrong with that except that probably you don't need to be that conservative.
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birdog
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Re: Farther out on the risk curve than you'd like to be?

Post by birdog »

dbr wrote: Tue Oct 12, 2021 3:52 pm
birdog wrote: Tue Oct 12, 2021 3:30 pm Recently retired and at about 80/20 but I don't use that as my guide. I decided to keep 10 years of desired retirement spending in bonds and cash and put the rest in equities. I actually had to buy a lot of bonds to get me to that level, which could be described as a bucket approach I guess. I've never wanted to be anywhere near a traditional 50/50 or 60/40. I've been 90/10 for so long that 80/20 was a stretch for me. I'm quite comfortable with downturns and buy stocks aggressively when that happens. I guess to answer your question, I'm right where I want to be on the risk curve and am emboldened in that decision by today's low interest rates.
A note, not necessarily of any significance, is that if 10 years expenses is 20% of your portfolio, then the total portfolio amounts to about 50 times your annual spending. In that case you are not wrestling with how to safely fund your spending but instead have other priorities. Those priorities would seem to be to take lots of risk for the rewards thereof while having a high tolerance for risk. There is certainly nothing wrong with that except that probably you don't need to be that conservative.
I assume you're suggesting that because my annual spending is small relative to my portfolio that even a retirement asset allocation of 80/20 is too conservative? I had not thought of it that way. If I keep 10 years in bonds/cash and the rest in equities then the higher expected return of the equities should slowly push my subsequent asset allocation towards a higher allocation to equities and down the road I'll be 85/15 or even 90/10 again. I'm fine with that. I only want enough bonds/cash to fill the role I have for it in my portfolio.
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Re: Farther out on the risk curve than you'd like to be?

Post by Soon2BXProgrammer »

namajones wrote: Tue Oct 12, 2021 12:28 pm Retirees, soon-to-be retirees, and others: Are you farther out on the risk curve (equities and the like) because of low interest rates and bond yields? I read today that U.S. equity exposure is the highest in history. I keep fighting the urge to get riskier myself.

If you are farther out, when will you pull back? Prepared to go the distance if your equities fall substantially and don't come back for a long time?

Bucket approach? What's your strategy?
I choose to take my risk on the equity side, which means i tend to have less fixed income then maybe others, but it is more stable, think higher grade and shorter duration. I hold just enough fixed income, that I can hold both my equities at market weight between US and International equities forever.
Earned 34 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
dbr
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Re: Farther out on the risk curve than you'd like to be?

Post by dbr »

birdog wrote: Wed Oct 13, 2021 7:56 am
dbr wrote: Tue Oct 12, 2021 3:52 pm
birdog wrote: Tue Oct 12, 2021 3:30 pm Recently retired and at about 80/20 but I don't use that as my guide. I decided to keep 10 years of desired retirement spending in bonds and cash and put the rest in equities. I actually had to buy a lot of bonds to get me to that level, which could be described as a bucket approach I guess. I've never wanted to be anywhere near a traditional 50/50 or 60/40. I've been 90/10 for so long that 80/20 was a stretch for me. I'm quite comfortable with downturns and buy stocks aggressively when that happens. I guess to answer your question, I'm right where I want to be on the risk curve and am emboldened in that decision by today's low interest rates.
A note, not necessarily of any significance, is that if 10 years expenses is 20% of your portfolio, then the total portfolio amounts to about 50 times your annual spending. In that case you are not wrestling with how to safely fund your spending but instead have other priorities. Those priorities would seem to be to take lots of risk for the rewards thereof while having a high tolerance for risk. There is certainly nothing wrong with that except that probably you don't need to be that conservative.
I assume you're suggesting that because my annual spending is small relative to my portfolio that even a retirement asset allocation of 80/20 is too conservative? I had not thought of it that way. If I keep 10 years in bonds/cash and the rest in equities then the higher expected return of the equities should slowly push my subsequent asset allocation towards a higher allocation to equities and down the road I'll be 85/15 or even 90/10 again. I'm fine with that. I only want enough bonds/cash to fill the role I have for it in my portfolio.
I am not saying it IS too conservative. I am saying you could justify deciding for yourself that it is too conservative. The suggestion is that you decide what you want then find the best match to those objectives. I speculated regarding what your priorities might be, but that is for you to say, not me.
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Re: Farther out on the risk curve than you'd like to be?

Post by Sandtrap »

namajones wrote: Tue Oct 12, 2021 12:28 pm Retirees, soon-to-be retirees, and others: Are you farther out on the risk curve (equities and the like) because of low interest rates and bond yields? I read today that U.S. equity exposure is the highest in history. I keep fighting the urge to get riskier myself.

If you are farther out, when will you pull back? Prepared to go the distance if your equities fall substantially and don't come back for a long time?

Bucket approach? What's your strategy?
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The primary impetus to action and reaction and response, is "fear".

Stick to your long term financial strategy and your IPS.
Ignore TV and other input.
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Don''t take the "Blue Pill" (matrix).
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Last edited by Sandtrap on Wed Oct 13, 2021 8:13 am, edited 1 time in total.
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birdog
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Re: Farther out on the risk curve than you'd like to be?

Post by birdog »

dbr wrote: Wed Oct 13, 2021 8:02 am
birdog wrote: Wed Oct 13, 2021 7:56 am
dbr wrote: Tue Oct 12, 2021 3:52 pm
birdog wrote: Tue Oct 12, 2021 3:30 pm Recently retired and at about 80/20 but I don't use that as my guide. I decided to keep 10 years of desired retirement spending in bonds and cash and put the rest in equities. I actually had to buy a lot of bonds to get me to that level, which could be described as a bucket approach I guess. I've never wanted to be anywhere near a traditional 50/50 or 60/40. I've been 90/10 for so long that 80/20 was a stretch for me. I'm quite comfortable with downturns and buy stocks aggressively when that happens. I guess to answer your question, I'm right where I want to be on the risk curve and am emboldened in that decision by today's low interest rates.
A note, not necessarily of any significance, is that if 10 years expenses is 20% of your portfolio, then the total portfolio amounts to about 50 times your annual spending. In that case you are not wrestling with how to safely fund your spending but instead have other priorities. Those priorities would seem to be to take lots of risk for the rewards thereof while having a high tolerance for risk. There is certainly nothing wrong with that except that probably you don't need to be that conservative.
I assume you're suggesting that because my annual spending is small relative to my portfolio that even a retirement asset allocation of 80/20 is too conservative? I had not thought of it that way. If I keep 10 years in bonds/cash and the rest in equities then the higher expected return of the equities should slowly push my subsequent asset allocation towards a higher allocation to equities and down the road I'll be 85/15 or even 90/10 again. I'm fine with that. I only want enough bonds/cash to fill the role I have for it in my portfolio.
I am not saying it IS too conservative. I am saying you could justify deciding for yourself that it is too conservative. The suggestion is that you decide what you want then find the best match to those objectives. I speculated regarding what your priorities might be, but that is for you to say, not me.
Gotcha. That reinforces my plan of straying from the traditional 50/50 or 60/40. As portfolio size (relative to spending) increases then it does seem reasonable to cover one's bases with bonds/cash and put the rest in something with a higher expected return, like equities.
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Re: Farther out on the risk curve than you'd like to be?

Post by fortunefavored »

I'd say "Yes" - I had planned to be 60/40 when retiring early, but am staying with 70/30.

My 30% includes stable value, cash and total us/int'l bonds, which is ~10 years of expenses.

A long 10 or 15 year bear market would probably make me cut back expenses or get a job, but not my AA. The amount of regret between 60/40 and 70/30 is minimal.
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Re: Farther out on the risk curve than you'd like to be?

Post by JoMoney »

I'm not sure how far I am from retiring, so I'm probably in the "others" category.
I have been trying to get up to a 10% cash/bond allocation for awhile now, all through new contributions (I am kind of a bucket'er.) I had reached that point back in early 2020 when the market took a large plunge, but now I'm out of "balance" again. I don't mind that the stock market has been rising at such a pace that it makes it hard to catch up through new contributions. The low interest rates available make it especially challenging (mentally) to keep cash/bonds, and a roughly 10% allocation represents a large to me dollar amount, several years of expenses, and I still have a regular paycheck with no plans for that to change any time soon. But it does help me sleep well knowing there's a nice cushion between me and having to worry about where the stock market is at to make ends meet, even without my job.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Farther out on the risk curve than you'd like to be?

Post by calmaniac »

namajones wrote: Tue Oct 12, 2021 12:28 pm Bucket approach? What's your strategy?
Currently have state and fed pensions that provide ≈60% of expenses, and with that are ≈4X overfunded. That effectively halves the amount of funds we will need to withdraw in case of bad events in the future. All of this which dramatically lowers risk. Once we take SS at age 70, cash flow will be such that I can't imagine we would need more than 1% annual withdrawal.
AA 70/30: 30% S&P, 16% SCV&LCV, 14% intl, 10% EM, 30% short/int govt bonds. Pension now ≈60% of expenses. Taking SS @age 70--> pension+SS ≈100% of expenses. What me worry?
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Re: Farther out on the risk curve than you'd like to be?

Post by Wannaretireearly »

At 80/20, and 7 years out from target ER date, Perhaps.

But I'm buying CA muni funds to help me a. Get to 75/25 and b. have a non-equity taxable cushion. in case of job loss. It's like eating bitter gourd, given how CA long term muni prices have dropped last few months 😀

Anecdotally, I've been thinking about having more of my AA allocated to bonds in my taxable account. Is this a symptom of getting older? I just want to be done/FI soon, and have a significant stash 'safe' in taxable to actually use!! ;)
Death and taxes. Only one is under your control!
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Re: Farther out on the risk curve than you'd like to be?

Post by EfficientInvestor »

Let's assume the person in the question you pose would otherwise be a 60/40 investor. If they are feeling the need to get some additional return due to low interest rates, there are alternatives to going further to the right on the efficient frontier curve. For instance, they could just apply some leverage to their 60/40 portfolio by using NTSX (90% S&P 500/60% US Treasury Bonds) and NTSI (90% Developed Intl/60% US Treasury Bonds). They could then pair this with either a stable value fund (mine is currently paying 1.5%) or a ladder of MYGAs (a 4 year pays around 2.5%) so that their total risk is still in line with their 60/40 portfolio. By doing this, you are essentially borrowing at the risk free rate (almost 0) via the futures contracts inside of NTSX and NTSI and lending at a higher "risk-free" rate via the stable value or MYGAs. You could also throw i-bonds into the mix of fixed income options. Below is a depiction of how I think about it. The "provided portfolio" is 40% US Large Cap, 20% Intl Developed, and 40% 10-year treasury. If you put 1/3 of portfolio in Stable Value and 2/3 of portfolio in NTSX and NTSI, you would effectively move up the green arrow.

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celia
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Re: Farther out on the risk curve than you'd like to be?

Post by celia »

JoeRetire wrote: Tue Oct 12, 2021 3:18 pm
namajones wrote: Tue Oct 12, 2021 12:28 pm Are you farther out on the risk curve (equities and the like) because of low interest rates and bond yields?
We're not farther out than we would like to be.
+1
OP, what holds you back from being where you want to be?

If you share your current portfolio and where you want to be, we will offer suggestions. No use talking theory when we all have different levels of risk tolerance, goals, and portfolios/income streams.
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