AA is much harder than I thought...

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rudeboy
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AA is much harder than I thought...

Post by rudeboy » Sat Jan 13, 2018 3:07 pm

I'm 33 and have only been in the markets about a year. I'm doing my best to learn from the masters -- my first investing read was Common Sense and I just finished The Four Pillars.

Everything I have learned tells me that I should be buying bonds right now -- the 'trendiness' of 100% stocks (and their meteoric rise), the bleak projections for bonds, etc.. but yet, yesterday I logged into my 401k and bought 3k more of the Total Stock Index, bringing my allocation to 97/3.

It's alarming, because I do believe my portfolio should be at least 80/20, and this is how I'm acting when times are good. It makes me seriously wonder how I will handle a decline...

I've noticed that no one flat out announces 'I'm making a bad decision!' when they buy high/sell low. Rather, the investor psychology tricks one into believing one is making a good decision ( REITs are too complicated, I'll simplify by sliding them this into stocks... it's the Boglehead way!). I think that's what makes investing so tricky -- doing it right requires an extraordinary amount of honesty with oneself.

Anyway, just a stray observation about putting theory to practice.

The Wizard
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Re: AA is much harder than I thought...

Post by The Wizard » Sat Jan 13, 2018 3:11 pm

Strive to get to 90/10 by the end of February...
Attempted new signature...

PFInterest
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Re: AA is much harder than I thought...

Post by PFInterest » Sat Jan 13, 2018 3:15 pm

AA is not hard.
the problem is knowing if its right.....

rebalance over 3/6/9/12 months. move on.

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Re: AA is much harder than I thought...

Post by MotoTrojan » Sat Jan 13, 2018 3:18 pm

All the threads/posts of people regretting being in cash for the last 1,3, or even 7 years is why I feel good investing every dollar I can, the moment I can.

But I’m also 26 years old and know if the market goes down I’ll just be excited to get a better deal than the day before.

I suggest you search for the market top invester article. He made out just fine :). I’m too much of a tinkerer to do anything else.

Having said that, at 33 and depending on your retirement timeline, 10-30% in bonds wouldn’t be unreasonable. If you can do the change in one step via tax-advantaged accounts, you should do it Tuesday AM. No reason to slowly transition unless there are tax implications.

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Re: AA is much harder than I thought...

Post by Tyler Aspect » Sat Jan 13, 2018 3:21 pm

Total bond market should be fairly well behaved; maybe a tiny bit of loss from time to time, but nothing to get excited about.
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Re: AA is much harder than I thought...

Post by racy » Sat Jan 13, 2018 3:24 pm

rudeboy wrote:
Sat Jan 13, 2018 3:07 pm
I'm 33 and have only been in the markets about a year. I'm doing my best to learn from the masters..... I do believe my portfolio should be at least 80/20, and this is how I'm acting when times are good. It makes me seriously wonder how I will handle a decline... Rather, the investor psychology tricks one into believing one is making a good decision...
Well, at least you're self-aware. That should help when you go through the next market decline. 8-)

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Re: AA is much harder than I thought...

Post by TheHouse7 » Sat Jan 13, 2018 3:26 pm

It is not.

I'm 30, with 80/20 25% stock international.

I keep thinking I need to buy more stock when I really mean save more. :)

Contributions matter so much more than AA it's not even funny.
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Re: AA is much harder than I thought...

Post by livesoft » Sat Jan 13, 2018 3:28 pm

I like these stray observations. It is always interesting to me to see behavioral finance/economics tricks and traps popping up routinely at bogleheads.org. I have just come to expect it.

Key phrases that signal these things are: "peace of mind", "piece of mind", "sleep well at night", "mental accounting", "dividend growth stocks", "gold", "buckets", and many others.

So you may enjoy reading two or more books on behavioral economics.
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mega317
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Re: AA is much harder than I thought...

Post by mega317 » Sat Jan 13, 2018 3:36 pm

rudeboy wrote:
Sat Jan 13, 2018 3:07 pm
Everything I have learned tells me that I should be buying bonds right now -- the 'trendiness' of 100% stocks (and their meteoric rise), the bleak projections for bonds, etc..
Then you haven't learned anything valuable. You shouldn't base your allocation decisions on trendiness or projections.

Why did you buy total stock and increase to 97/3 if you want to be 80/20?

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Re: AA is much harder than I thought...

Post by daveydoo » Sat Jan 13, 2018 3:47 pm

rudeboy wrote:
Sat Jan 13, 2018 3:07 pm
... but yet, yesterday I logged into my 401k and bought 3k more of the Total Stock Index, bringing my allocation to 97/3.
It's harder because you're market-timing. A fixed and pre-defined asset allocation ensures that you are only market-timing away from the over-performing asset. (You just did the opposite. again.) It is the only way I know -- apart from dollar-cost averaging (i.e., investing same fixed dollar amount every month or every pay period) -- to ensure that you are buying more low-priced asset and selling more high-priced asset.

Another problem here is that the other side of the equation -- bonds -- is not super-attractive right now. Under more "normal" circumstances, I think it would be emotionally easier to re-balance into bonds. I've sacrificed some equity appreciation over the past year or two by re-balancing into bonds. I've lived through three "crashes" but i don't have that many more earning years ahead.
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Re: AA is much harder than I thought...

Post by JBTX » Sat Jan 13, 2018 3:53 pm

mega317 wrote:
Sat Jan 13, 2018 3:36 pm
rudeboy wrote:
Sat Jan 13, 2018 3:07 pm
Everything I have learned tells me that I should be buying bonds right now -- the 'trendiness' of 100% stocks (and their meteoric rise), the bleak projections for bonds, etc..
Then you haven't learned anything valuable. You shouldn't base your allocation decisions on trendiness or projections.

Why did you buy total stock and increase to 97/3 if you want to be 80/20?
There can be points in time when the markets keep going where to keep your allocation in line basically all of your new contribtions need to go into bonds. I can see how this seems unappealing when bond yields are so low.

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Watty
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Re: AA is much harder than I thought...

Post by Watty » Sat Jan 13, 2018 4:23 pm

You might want to just consider putting the money into a target date 2050(?) fund if you don't have a clear reason not to.

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Re: AA is much harder than I thought...

Post by dbr » Sat Jan 13, 2018 4:47 pm

At least if you are 100/0 you can ignore all the threads on what bonds to buy, let along whether one should have CDs or I bonds. As an extra bonus you don't have to read the threads on rebalancing, target retirement funds, or which account to put what fund in (mostly). On the other hand you will have to be severely concerned how much you should tilt and whether or not to add REITs and Emerging Market.

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Re: AA is much harder than I thought...

Post by staythecourse » Sat Jan 13, 2018 5:00 pm

rudeboy wrote:
Sat Jan 13, 2018 3:07 pm

I've noticed that no one flat out announces 'I'm making a bad decision!' when they buy high/sell low. Rather, the investor psychology tricks one into believing one is making a good decision ( REITs are too complicated, I'll simplify by sliding them this into stocks... it's the Boglehead way!). I think that's what makes investing so tricky -- doing it right requires an extraordinary amount of honesty with oneself.
Astute observation. I have seen much market timing even from Bogleheads. The difference is it is not the common novice approach of, "Hey I think markets are going to crash so I will put my money in bonds instead". With bogleheads you see a lot of rationalization and intellectualizing (both common defense mechanisms) to justify the movement. You see a lot of, "Well it would be more simple if I just do x,y, or z" or "valuations are really pointing to doing x, y, or z" or "Hey this is why I am doing x, y, or z. Either way it is approached it is market timing.

My advice has always been that NEVER make an adjustment in one's AA towards what is the current returns. Meaning. for example, never increase equities when they are doing well. Never decrease an asset class because it is doing poorly at the moment.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: AA is much harder than I thought...

Post by WL2034 » Sun Jan 14, 2018 12:46 am

Watty wrote:
Sat Jan 13, 2018 4:23 pm
You might want to just consider putting the money into a target date 2050(?) fund if you don't have a clear reason not to.
I think this is a good idea for more of us than we'd like to admit. As I consider it more, if tax considerations weren't an issue I think I'd prefer to pay the extra 0.1% ER and put everything in a target date fund. No need to ever do the math or rebalance. I wonder how many of us will make behavioral mistakes more costly than 0.1% during the next bear market. After the market has just dropped 50%, will we wait an extra 3 or 6 months to rebalance into equities (just don't quite get around to it earlier than that)?

Because we have retirement accounts, taxable, TLH opportunities, I will keep the more complicated porfolio, but if it was only a retirement account I would really consider the target date.

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Re: AA is much harder than I thought...

Post by House Blend » Sun Jan 14, 2018 8:47 am

rudeboy wrote:
Sat Jan 13, 2018 3:07 pm
I'm 33 and have only been in the markets about a year.
Accept that you won't have a real understanding of your risk tolerance until you've been through a market crash. Just about anyone who started investing after 2010 is in the same boat.

In the meantime, it's a good idea to have an allocation to bonds/fixed income so you can learn the routine of maintaining an AA before it actually matters.

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Re: AA is much harder than I thought...

Post by Dottie57 » Sun Jan 14, 2018 10:15 am

House Blend wrote:
Sun Jan 14, 2018 8:47 am
rudeboy wrote:
Sat Jan 13, 2018 3:07 pm
I'm 33 and have only been in the markets about a year.
Accept that you won't have a real understanding of your risk tolerance until you've been through a market crash. Just about anyone who started investing after 2010 is in the same boat.

In the meantime, it's a good idea to have an allocation to bonds/fixed income so you can learn the routine of maintaining an AA before it actually matters.
+1

Also, as you accumulate more wealth you might change and be more conservative. Experience will tell.

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Re: AA is much harder than I thought...

Post by Random Walker » Sun Jan 14, 2018 11:28 am

Hi Rudeboy,
You are off to a great start. I think you are developing some excellent contrarian instincts! That being said, here’s what I think. You are young, and with many years of human capital ahead of you, you can afford to take risk. Moreover, current high equity valuations imply lower future expected returns. So perhaps somewhat ironically, it can make sense for a young person to increase their equity allocation in the presence of lower future expected returns because they need to in order to meet goals. Given that you have many investing years ahead of you, I think a high equity allocation is a good idea. But I would not go 100% equities, and here’s why. I think you should have at least 10-20% bonds to develop the psychological discipline to stick to a plan, rebalance, tax loss harvest. The difference between 80% equities and 100% equities is surprisingly little. The 80% equity portfolio probably has > 95% of its risk on the equity side. The behavioral / psychological muscles you’ll develop from rebalancing (selling bonds to buy equities when equities are tanking) will serve you very well for decades to come I think.

Dave

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Re: AA is much harder than I thought...

Post by Scott S » Sun Jan 14, 2018 1:33 pm

rudeboy wrote:
Sat Jan 13, 2018 3:07 pm
I'm 33 and have only been in the markets about a year. I'm doing my best to learn from the masters -- my first investing read was Common Sense and I just finished The Four Pillars.

Everything I have learned tells me that I should be buying bonds right now -- the 'trendiness' of 100% stocks (and their meteoric rise), the bleak projections for bonds, etc.. but yet, yesterday I logged into my 401k and bought 3k more of the Total Stock Index, bringing my allocation to 97/3.

It's alarming, because I do believe my portfolio should be at least 80/20, and this is how I'm acting when times are good. It makes me seriously wonder how I will handle a decline...

I've noticed that no one flat out announces 'I'm making a bad decision!' when they buy high/sell low. Rather, the investor psychology tricks one into believing one is making a good decision ( REITs are too complicated, I'll simplify by sliding them this into stocks... it's the Boglehead way!). I think that's what makes investing so tricky -- doing it right requires an extraordinary amount of honesty with oneself.

Anyway, just a stray observation about putting theory to practice.
One of my favorite sayings about investing goes something like this: "When you are well-diversified, you will always be unhappy with some part of your portfolio." ;)
My Plan: (Age-10)% in bonds until I reach age 60, 50/50 thereafter. Equity split: 50/50 US/Int'l, Bond split: 50/50 TBM/TIPS.

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wander
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Re: AA is much harder than I thought...

Post by wander » Sun Jan 14, 2018 1:52 pm

Easy, just buy a target retirement or Vanguard Life Strategy fund that has the AA you want and leave it alone.

rudeboy
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Re: AA is much harder than I thought...

Post by rudeboy » Sun Jan 14, 2018 2:36 pm

Thanks for all of the thoughts and insights. Yes, I am beginning to think a lifestrategy/target date fund may be right for me. I can always keep a total stock fund on the side that I can contribute to in the event of a major downturn.

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Exige
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Re: AA is much harder than I thought...

Post by Exige » Mon Jan 15, 2018 12:52 pm

This is extremely true in the early accumulation phase as the OP, you and I are at. I was struggling with AA and went back and compared my 80/20 to a full 100% stocks and the difference I would have made over the last 10 years was so minimal my contributions were making up WAY more.

TheHouse7 wrote:
Sat Jan 13, 2018 3:26 pm
It is not.

I'm 30, with 80/20 25% stock international.

I keep thinking I need to buy more stock when I really mean save more. :)

Contributions matter so much more than AA it's not even funny.
‘I found the road to wealth when I decided that a part of all I earned was mine to keep. And so will you.'

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Re: AA is much harder than I thought...

Post by retireearly » Mon Jan 15, 2018 2:16 pm

rudeboy wrote:
Sat Jan 13, 2018 3:07 pm
I'm 33 and have only been in the markets about a year. I'm doing my best to learn from the masters -- my first investing read was Common Sense and I just finished The Four Pillars.

Everything I have learned tells me that I should be buying bonds right now -- the 'trendiness' of 100% stocks (and their meteoric rise), the bleak projections for bonds, etc.. but yet, yesterday I logged into my 401k and bought 3k more of the Total Stock Index, bringing my allocation to 97/3.

It's alarming, because I do believe my portfolio should be at least 80/20, and this is how I'm acting when times are good. It makes me seriously wonder how I will handle a decline...

I've noticed that no one flat out announces 'I'm making a bad decision!' when they buy high/sell low. Rather, the investor psychology tricks one into believing one is making a good decision ( REITs are too complicated, I'll simplify by sliding them this into stocks... it's the Boglehead way!). I think that's what makes investing so tricky -- doing it right requires an extraordinary amount of honesty with oneself.

Anyway, just a stray observation about putting theory to practice.

It doesn't have to be hard but it's hard because you are struggling with risk/reward. I was 100% stock until 44 and then found my way here since I knew it was time for less risk.

What is your goal? At 33, if you truly don't need any of these funds until say 65, then you are fine at 100 stock% if you can handle the future correction/collapse and when it happens, smile and continue to buy in as you have been doing. However, if you feel that you cannot handle that, or need a % of those funds in the next 10-20 years, then you should have some in Fixed Income. I've read a lot into AA and think about it frequently and it's all about risk/reward, or risk tolerance.

That said, there is probably a range where most would agree and that is probably between 0-35% fixed income. As you get near each pole, know that you are either being real aggressive or real conservative. We're due for a good drop, 20, 30%, whatever, but nobody knows when, for how long, etc. At the other end, low bond yields and inflation are real risks, too. Some at 33 that has 50% bonds will surely come out way behind of someone with fewer bonds at the age of 70.
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.

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Re: AA is much harder than I thought...

Post by Greenie » Mon Jan 15, 2018 2:36 pm

House Blend wrote:
Sun Jan 14, 2018 8:47 am
rudeboy wrote:
Sat Jan 13, 2018 3:07 pm
I'm 33 and have only been in the markets about a year.
Accept that you won't have a real understanding of your risk tolerance until you've been through a market crash. Just about anyone who started investing after 2010 is in the same boat.

In the meantime, it's a good idea to have an allocation to bonds/fixed income so you can learn the routine of maintaining an AA before it actually matters.
Rudeboy, I was 100% equities until the crash of 2008. I thought I could endure much more pain from a crashing market then I was actually capable of. I saw my portfolio drop 50% and realized I would have to double my future returns to get back to even. I took this risk far to close to retirement and had many sleepless nights. The goods news was I didn't capitulate and sell everything but the emotional roll coaster wasn't worth it. I have learned what risk I can actually tolerate and having a serious stash of cash equivalents is a very good thing. Maybe you should consider CDs, MM, and just save more.

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Re: AA is much harder than I thought...

Post by ruralavalon » Mon Jan 15, 2018 2:52 pm

rudeboy wrote:
Sat Jan 13, 2018 3:07 pm
I'm 33 and have only been in the markets about a year. I'm doing my best to learn from the masters -- my first investing read was Common Sense and I just finished The Four Pillars.
Those were excellent choices for books to read.

rudeboy wrote:Everything I have learned tells me that I should be buying bonds right now -- the 'trendiness' of 100% stocks (and their meteoric rise), the bleak projections for bonds, etc.. but yet, yesterday I logged into my 401k and bought 3k more of the Total Stock Index, bringing my allocation to 97/3.

It's alarming, because I do believe my portfolio should be at least 80/20, and this is how I'm acting when times are good. It makes me seriously wonder how I will handle a decline...

I've noticed that no one flat out announces 'I'm making a bad decision!' when they buy high/sell low. Rather, the investor psychology tricks one into believing one is making a good decision ( REITs are too complicated, I'll simplify by sliding them this into stocks... it's the Boglehead way!). I think that's what makes investing so tricky -- doing it right requires an extraordinary amount of honesty with oneself.

Anyway, just a stray observation about putting theory to practice.
You know better, there is no reason to leave it 97/3, so you could just exchange funds to get your 80/20 asset allocation.

wander wrote:
Sun Jan 14, 2018 1:52 pm
Easy, just buy a target retirement or Vanguard Life Strategy fund that has the AA you want and leave it alone.
rudeboy wrote:
Sun Jan 14, 2018 2:36 pm
Thanks for all of the thoughts and insights. Yes, I am beginning to think a lifestrategy/target date fund may be right for me. I can always keep a total stock fund on the side that I can contribute to in the event of a major downturn.
That's a good idea, you could just switch everything to a target date fund with an 80/20 asset allocation or Vanguard LifeStrategy Growth Fund (VASGX). People who use a balanced fund do tend to leave it alone and not get seduced by trends.

. . . . .

Make sure you save and invest as much as is practical for you. When starting out that influences portfolio growth more than any other factor under your control.
Last edited by ruralavalon on Mon Jan 15, 2018 3:02 pm, edited 1 time in total.
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Re: AA is much harder than I thought...

Post by pennstater2005 » Mon Jan 15, 2018 2:58 pm

I didn’t trust myself so I went with a Lifestrategy Fund and set it to automatic. Mine happened to be 80/20. Otherwise I probably would screw things up.
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Re: AA is much harder than I thought...

Post by midareff » Mon Jan 15, 2018 3:13 pm

Back in 1997 I could not understand the logic of owning any bonds and had a very tech heavy portfolio. The daily grind of watching $1.3M dwindle to $589K was .. well, without 4 letter words, horrid. It took more than a decade for me to recover. I'm now 45/55 with 18 years draw in bonds sans dividends and am 70. How hard or how easy you learn is up to you.

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Re: AA is much harder than I thought...

Post by pkcrafter » Tue Jan 16, 2018 10:12 am

rudeboy:
Everything I have learned tells me that I should be buying bonds right now -- the 'trendiness' of 100% stocks (and their meteoric rise), the bleak projections for bonds, etc.. but yet, yesterday I logged into my 401k and bought 3k more of the Total Stock Index, bringing my allocation to 97/3.
Something wrong here. If your AA is 80/20, why would you buy stocks? Do you have a written investment policy statement that says your AA is 80/20? Do not use "the voices" to make investment decisions.
IPS

https://www.bogleheads.org/wiki/Investm ... _statement


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: AA is much harder than I thought...

Post by fmzip » Thu Jan 18, 2018 9:53 am

midareff wrote:
Mon Jan 15, 2018 3:13 pm
Back in 1997 I could not understand the logic of owning any bonds and had a very tech heavy portfolio. The daily grind of watching $1.3M dwindle to $589K was .. well, without 4 letter words, horrid. It took more than a decade for me to recover. I'm now 45/55 with 18 years draw in bonds sans dividends and am 70. How hard or how easy you learn is up to you.
THIS!

I wish it was as simple as not having to go through the pain to have a young investor grasp this. Words can't describe the anguish of watching your life's saving vanish in a very short period of time. Getting that portfolio back to what it was could take a decade, depending on your age, you may never recover. Many people I know are still sidelined sitting on the short portion of cash they have left. They became too scared to be in the market because the AA was too risky.

Stick to the AA and be okay with giving up some of the massive gains as it's way better than enduring, the massive losses! What you think you can stomach versus reality are likely two different things.

rudeboy wrote:
Sat Jan 13, 2018 3:07 pm

It's alarming, because I do believe my portfolio should be at least 80/20, and this is how I'm acting when times are good. It makes me seriously wonder how I will handle a decline...
"If I could do it all over again".......

That's what you will be saying unless you act intelligently. Avoid the greed my friend :)

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Re: AA is much harder than I thought...

Post by rudeboy » Thu Jan 18, 2018 10:26 am

fmzip wrote:
Thu Jan 18, 2018 9:53 am


rudeboy wrote:
Sat Jan 13, 2018 3:07 pm

It's alarming, because I do believe my portfolio should be at least 80/20, and this is how I'm acting when times are good. It makes me seriously wonder how I will handle a decline...
"If I could do it all over again".......

That's what you will be saying unless you act intelligently. Avoid the greed my friend :)
TBH it's actually fear that has caused me to lean into equities. I'm young-ish (33) and I fear that this will be the last stock market run up for 30 years, I fear that Bernstein & Bogle are right that the days of 10% returns are over, I fear that I'm behind on my retirement savings (compared to Bogleheads, definitely, compared to gen pop, I'm doing pretty well).

But . . . point taken :happy

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Re: AA is much harder than I thought...

Post by fmzip » Thu Jan 18, 2018 1:44 pm

rudeboy wrote:
Thu Jan 18, 2018 10:26 am

TBH it's actually fear that has caused me to lean into equities. I'm young-ish (33) and I fear that this will be the last stock market run up for 30 years, I fear that Bernstein & Bogle are right that the days of 10% returns are over, I fear that I'm behind on my retirement savings (compared to Bogleheads, definitely, compared to gen pop, I'm doing pretty well).

But . . . point taken :happy
I will be 52 in a few months and just stumbled across this forum back in 2014. I too feel I am behind the curve in regards to what I have accumulated and where I stand compared to boglehead standards. But I refuse to succumb to the idea that "this is that" or "that is this" or "I should have this because of that". That kind of thinking will put you behind the curve forever. The second guessing and listening to the noise will ultimately cost you in the end. Making up for lost time never works until you come up with a solid plan and stop deviating from it. Age in bonds minus ten is where I am at.

This chart in the Wiki helped me sort things out rather quickly. The huge difference in volatility near 40% (in bold STDev) comparing an 80/20 portfolio over a 60/40 portfolio showed me that chasing higher returns with far more risk may provide minimal returns over an extended period of time. 80/20 is plenty aggressive at your age. You will be invested for another 50 years most likely! You have a lot of earning years left.

https://www.bogleheads.org/blog/three-f ... o-returns/



80/20 allocation

3-YEAR 5-YEAR 10-YEAR 15-YEAR 17-YEAR

CAGR 11.12% 14.45% 7.61% 5.79% 7.26%

STDev 11.87% 10.51% 15.72% 16.43% 15.87%


60/40 allocation

3-YEAR 5-YEAR 10-YEAR 15-YEAR 17-YEAR

CAGR 9.26% 12.02% 7.11% 5.92% 7.11%

STDev 7.75% 7.44% 11.61% 11.88% 11.59%

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Re: AA is much harder than I thought...

Post by tesuzuki2002 » Thu Jan 18, 2018 2:06 pm

rudeboy wrote:
Sat Jan 13, 2018 3:07 pm
I'm 33 and have only been in the markets about a year. I'm doing my best to learn from the masters -- my first investing read was Common Sense and I just finished The Four Pillars.

Everything I have learned tells me that I should be buying bonds right now -- the 'trendiness' of 100% stocks (and their meteoric rise), the bleak projections for bonds, etc.. but yet, yesterday I logged into my 401k and bought 3k more of the Total Stock Index, bringing my allocation to 97/3.

It's alarming, because I do believe my portfolio should be at least 80/20, and this is how I'm acting when times are good. It makes me seriously wonder how I will handle a decline...

I've noticed that no one flat out announces 'I'm making a bad decision!' when they buy high/sell low. Rather, the investor psychology tricks one into believing one is making a good decision ( REITs are too complicated, I'll simplify by sliding them this into stocks... it's the Boglehead way!). I think that's what makes investing so tricky -- doing it right requires an extraordinary amount of honesty with oneself.

Anyway, just a stray observation about putting theory to practice.
Keep doing what you're doing.. it's an art... I'm still at 92/8 equity to bonds... I'm 36. Have decent income... I'm moving into bonds more with new investments since the market is so high at the moment. but it takes a lot to move then needle now that my portfolio is much larger than what I can contribute.

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Garco
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Re: AA is much harder than I thought...

Post by Garco » Thu Jan 18, 2018 2:26 pm

I'm not 27 or 33. I'm 72. It pains me to be missing out on all those stock increases. I could have earned hundreds of thousands more in the last 12 months if I'd been all equities! Ouch!!! But deep down I'm laughing all the way to the bank.

The fact is that even if I might have had those hundreds of thousands more in 2017, I don't need them. And I don't have to take substantial risk in my retirement investments. Instead, by being reasonable and planful over a career of investing, I went from $0.00 saved at age 27 to a few million dollars saved and invested at age 72 (after also paying out required minimum distributions the last couple of years).

I saw several severe market crashes, none of which bankrupted me. For two reasons: A) I did not have an overwhelming commitment to stocks. During most of my working career, I contributed 75-25, reduced to 65-35 as I approached retirement; my retirement AA now is less than 50% equities. B) I kept working and contributing 15%+ per year, for ~40 years -- each and every year, each and every paycheck.

Nobody knows what the stock market is going to do tomorrow, next month, next year, 10 years from now, 30 years from now. But (a) staying employed and steadily improving your salary, (b) contributing at least 15% of your gross salary to tax deferred accounts even in a moderately aggressive (70-30) but not overwhelmingly aggressive (90-10) ratio, and (c) moderating your spending on toys and luxuries (but assuring college educations for your children) will provide a very comfortable retirement.

rudeboy
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Re: AA is much harder than I thought...

Post by rudeboy » Sun Jan 21, 2018 10:09 am

On the advice given here I have developed an IPS, so thank you all for that.

I wanted to run one thing by you guys to make sure I'm being sensible.

I realized that while I stated I am 97% stock/3% bond, this is not necessarily accurate because I have a relatively large cash reserve. My total net worth would be more like 60% stock/38% cash/2% bonds. So I have put a provision in my IPS that cash will stand in for bonds until the allocation between stocks and cash reaches 80/20, at which point I'll drop cash from the AA calculations and exchange my Total Stock fund for the Lifestrategy Growth fund.

Sound reasonable?

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Re: AA is much harder than I thought...

Post by Toons » Sun Jan 21, 2018 10:10 am

midareff wrote:
Mon Jan 15, 2018 3:13 pm
Back in 1997 I could not understand the logic of owning any bonds and had a very tech heavy portfolio. The daily grind of watching $1.3M dwindle to $589K was .. well, without 4 letter words, horrid. It took more than a decade for me to recover. I'm now 45/55 with 18 years draw in bonds sans dividends and am 70. How hard or how easy you learn is up to you.
+1
Excellent Advice :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

H-Town
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Re: AA is much harder than I thought...

Post by H-Town » Sun Jan 21, 2018 10:16 am

rudeboy wrote:
Sun Jan 21, 2018 10:09 am
On the advice given here I have developed an IPS, so thank you all for that.

I wanted to run one thing by you guys to make sure I'm being sensible.

I realized that while I stated I am 97% stock/3% bond, this is not necessarily accurate because I have a relatively large cash reserve. My total net worth would be more like 60% stock/38% cash/2% bonds. So I have put a provision in my IPS that cash will stand in for bonds until the allocation between stocks and cash reaches 80/20, at which point I'll drop cash from the AA calculations and exchange my Total Stock fund for the Lifestrategy Growth fund.

Sound reasonable?
Except that cash should always be in your AA. It's not a good thing to have a large cash reserve that has no immediate purpose other than long-term investing. Cash has negative growth rate and you are more inclined to try market timing (which you might get lucky or you might not).

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Re: AA is much harder than I thought...

Post by rudeboy » Sun Jan 21, 2018 10:19 am

That cash reserve is my emergency fund. On top of that, I am self-employed with about 10k in overhead/year, so I have one years' worth of that set aside as well.

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Re: AA is much harder than I thought...

Post by ruralavalon » Sun Jan 21, 2018 11:49 am

rudeboy wrote:
Sun Jan 21, 2018 10:19 am
That cash reserve is my emergency fund. On top of that, I am self-employed with about 10k in overhead/year, so I have one years' worth of that set aside as well.
I don't think its a good idea to count your personal emergency fund and the capital reserves for your business as a part of the bond allocation in your retirement portfolio.

You initial post talked about the " 'trendliness' of 100% stocks", investing in stocks when everything you learned told you that you needed more bonds, and investor psychology tricking themselves into believing that a bad decision is a good decision.

In my opinion something like Vanguard LifeStrategy Growth Fund (VASGX) with the fixed 80/20 asset allocation will help you maintain the discipline of a 20% bond allocation, will not let you be swept away by trends, and not let you trick yourself.
Last edited by ruralavalon on Sun Jan 21, 2018 12:06 pm, edited 1 time in total.
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Re: AA is much harder than I thought...

Post by TonyDAntonio » Sun Jan 21, 2018 12:05 pm

Investing for retirement at 33 couldn't be easier:

Pick an allocation. Flip a coin if you have to. 100-0, 90-10, whatever. Half international, some international, no international, whatever. Again flip a coin if you can't decide.
Then pour as much money into it with each paycheck. Rebalance whenever you want: with bands, once a year, whenever.
What you are reading is confusing because there are a thousand ways to do this and there is no exact right one that you can know about in advance.
Just invest the money...early and often and a lot of it.

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Re: AA is much harder than I thought...

Post by IlliniDave » Sun Jan 21, 2018 12:08 pm

Does your 401k allow you to direct contributions directly into the bond fund you want to buy? If so you can put all your incoming money into bonds automatically until you reach your desired AA. Then you can switch it back to something else when you get there. That might sound like a brain-dead suggestion, but it is what I had to do get over the reticence I felt towards logging in and performing the transactions myself.
Don't do something. Just stand there!

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Re: AA is much harder than I thought...

Post by ThrustVectoring » Sun Jan 21, 2018 12:10 pm

Sounds like you really want to be 100% equities. You're early in your accumulation, so what's going to matter is savings rate and how well you can take advantage of bull markets. If you have a good exit plan for when to start buying bonds to stabilize your portfolio, I'd say drop the bond portion and go 100% equities for a while.

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Re: AA is much harder than I thought...

Post by ruralavalon » Sun Jan 21, 2018 12:24 pm

rudeboy

What bond funds and what balanced funds are offered in your 401k? Please give fund names, tickers and expense ratios.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

dbr
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Re: AA is much harder than I thought...

Post by dbr » Sun Jan 21, 2018 12:43 pm

Whether or not you invest 100% in stocks or add some bonds depends on your need to get the return. You pretty much have to run a model estimating the outcomes to compare the two. You also have to assess your ability to cope if you don't get the return you really want. Young age and ability to earn, save, and adapt predicts high ability to cope. Lastly you have to decide and commit yourself to not doing something stupid if stocks have a major downturn. It is probably not very useful to agonize over whether stocks are overvalued, that bonds are a lousy investment, etc.

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randomizer
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Re: AA is much harder than I thought...

Post by randomizer » Sun Jan 21, 2018 12:53 pm

One has to fetishize sticking to one's plan. Make it into a religion. And if you want to have more, save more.
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Re: AA is much harder than I thought...

Post by Dolcetto » Sun Jan 21, 2018 3:06 pm

I am about your age and only started getting serious about investing for retirement a few years ago. My plan is to retire early sometime in my 50s. I decided on a 20% bonds/80% stocks because it is an allocation that I can be comfortable with well into my 40s. For me, having a static allocation for so long helps me ignore the day to day fluctuations of the market and stay the course. At some point in my 40s I will begin to move my allocation more toward bonds. Exactly when I do that won't depend on what I think the market will do, it will depend on the amount I have in my accounts, my desired lifestyle, and what the math says about my ability to retire. Until that point, I don't want to think too much about this -- and I don't have to because I have a simple plan.

My advice to you is come up with a plan that you are comfortable with and stick to it. (And save as much as you can, but you know that.)

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Re: AA is much harder than I thought...

Post by rudeboy » Sun Jan 21, 2018 4:18 pm

ruralavalon wrote:
Sun Jan 21, 2018 11:49 am
rudeboy wrote:
Sun Jan 21, 2018 10:19 am
That cash reserve is my emergency fund. On top of that, I am self-employed with about 10k in overhead/year, so I have one years' worth of that set aside as well.
I don't think its a good idea to count your personal emergency fund and the capital reserves for your business as a part of the bond allocation in your retirement portfolio.

You initial post talked about the " 'trendliness' of 100% stocks", investing in stocks when everything you learned told you that you needed more bonds, and investor psychology tricking themselves into believing that a bad decision is a good decision.

In my opinion something like Vanguard LifeStrategy Growth Fund (VASGX) with the fixed 80/20 asset allocation will help you maintain the discipline of a 20% bond allocation, will not let you be swept away by trends, and not let you trick yourself.
Yeah, I think you're right. Thanks for calling me out, haha. I think I've actually figured out what's tripping me up -- I *think* I'd do fine with all stocks during a downturn, but I'm less comfortable buying all stocks during this run-up, due to (possible) high prices. I think I'd feel better building up some dry powder during this run.

By the way I don't see how to multi-quote on here but thanks everyone for your help with this, I'm reading and processing every comment :happy

I have a solo 401k through Vanguard, so I believe I have access to all their funds, but only in investor shares, which actually makes the Lifestyle funds more attractive in regards to ER.

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