glide path vs. fixed asset allocation [POLL]

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

Do you primarily utilize a fixed asset allocation or a glide path strategy for your investments?

fixed asset allocation (for example, 60% stock / 40% bonds)
72
52%
glide path strategy (for example, vanguard target retirement funds)
55
40%
I have not decided yet
11
8%
 
Total votes: 138

datamonkee
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glide path vs. fixed asset allocation [POLL]

Post by datamonkee » Wed May 22, 2013 7:34 am

Currently, I use a fixed asset allocation (like that outlined in David Swensen's book) strategy for my investments. But, I recently read Lifecycle Investing (Ayres / Nalebuff) and a 2008 Kotlikoff article that seem to indicate that glide path strategy is the way to go. I am posting this poll to try to see what the general bogleheads consensus is.

Are there any comments of pros/cons on either strategy?

Thanks.

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Re: glide path vs. fixed asset allocation [POLL]

Post by QBoy » Wed May 22, 2013 7:44 am

I use a fixed 60/40. I think of myself as investing not just for my own retirement but also for my kids' inheritance. As a result, my time horizon does not shrink as I age. In effect, I am investing for the infinitely-lived QBoy dynasty!

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Re: glide path vs. fixed asset allocation [POLL]

Post by ObliviousInvestor » Wed May 22, 2013 7:47 am

I currently use a fixed allocation, but I'm well away from retirement. The plan as it stands now is to allocate more to inflation-adjusted lifetime annuities as I age, though not necessarily bonds. (Important factor: No kids, no bequest motive.)
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Re: glide path vs. fixed asset allocation [POLL]

Post by Grt2bOutdoors » Wed May 22, 2013 7:50 am

I'm not sold on target or lifecycle investing primarily because there doesn't seem to be a firm consensus backed in fact with risk/reward. These glide path funds are relatively new, there is no history of an investor starting out 30 years ago in one of these funds and now approaching retirement finds that it works or it doesn't work. What I mean, is one fund company such as TR Price (good funds) seem to be extremely aggressive with their model is constantly making tweaks or asset allocation decisions based upon the market - that speaks of market timing. Vanguard on the other hand has made changes, albeit more slowly, to the composition of the funds with the recent addition of inflation protected bonds and I also find their target funds to also be far more aggressive than I like. A traditional defined benefit pension for which there is a track record tended to follow a fixed allocation plan. It's tried and true.
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Re: glide path vs. fixed asset allocation [POLL]

Post by Iorek » Wed May 22, 2013 8:36 am

Grt2bOutdoors wrote:I'm not sold on target or lifecycle investing primarily because there doesn't seem to be a firm consensus backed in fact with risk/reward. These glide path funds are relatively new, there is no history of an investor starting out 30 years ago in one of these funds and now approaching retirement finds that it works or it doesn't work. What I mean, is one fund company such as TR Price (good funds) seem to be extremely aggressive with their model is constantly making tweaks or asset allocation decisions based upon the market - that speaks of market timing. Vanguard on the other hand has made changes, albeit more slowly, to the composition of the funds with the recent addition of inflation protected bonds and I also find their target funds to also be far more aggressive than I like. A traditional defined benefit pension for which there is a track record tended to follow a fixed allocation plan. It's tried and true.



Pension plans are investing for people with lots of different timelines, so what is good for the group may not be good for a specific individual?

I am at a point where I think it makes sense to transition from a primarily equity-based portfolio to a more balanced portfolio, so I like that the glide path funds both rebalance and manage the transition for me in a disciplined way-- in some ways they are the equivalent of being lashed to the mast while you listen to siren call of the bull market. :)

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Re: glide path vs. fixed asset allocation [POLL]

Post by scone » Wed May 22, 2013 8:37 am

I'm using a "home brew" glide path strategy as we get closer to retirement, namely lowering my stock allocation slightly, and shortening my bond duration. I'm also considering locking up a larger portion of the funds in Stable Value and CDs, so I have a secure "backup plan" for income in case the stock market crashes just as we are entering the retirement years.
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Re: glide path vs. fixed asset allocation [POLL]

Post by Steelersfan » Wed May 22, 2013 8:41 am

I've been retired five years, have held steady at 60%/40% and plan to stay that way.

Ask me again in five years and I may give you a different answer.

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Re: glide path vs. fixed asset allocation [POLL]

Post by nisiprius » Wed May 22, 2013 8:52 am

Lowering stock allocation with age is just plain common sense. It doesn't need to be any particular mathematical curve. Your general risk tolerance tells you what your rough overall lifetime average stock/bond allocation should be. But, whatever it is, you don't want your portfolio value to fluctuate as much when you are retired and depending on it. So you want a lower stock allocation in retirement than your lifetime average. So the only place to make up for it is to have a higher stock allocation during accumulation, when fluctuations don't matter so much.

So, you need some kind of systematic plan to get you from a high stock allocation when young to a low stock allocation when old, and the best way is to do it gradually because if you try to do it in one big jump you will go nuts trying to pick the "right time" for it. You may end up at age 65 suddenly realizing you are very uncomfortable with a high stock allocation, because you never got around to trimming it down.

The financial economists create an abstraction, "human capital," a misnomer because your job is not your property, and can't be bought or sold. But anyway, it is the present value of all of your future salary. And, uncertain as it is, that number fluctuates less than stock market investments. But it goes down steadily with age, because you have fewer earnings years ahead of you. They do these insanely overprecise calculations, and (fortunately) get the same result as common sense. While you are young, your relatively stable human capital balances your relatively volatile stocks. As your human capital declines, it is less able to balance your stocks, so your stock allocation ought to decrease, and bonds provide the stability that your "human capital" is less able provide.

In other words, risk tolerance decreases with age, not because old fogies are silly fraidycats, but for perfectly good rational, financial-economics reasons--recognizing the decreasing ability to make up stock market losses out of salary. If you are reasonably in tune with your life situation and your gut feelings, you will find that your own intuition tells you to reduce stock allocation with time. What glide slopes, or a rule of thumb like "age in bonds" do, is to give you a plan and a way to do it systematically and steadily.
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Re: glide path vs. fixed asset allocation [POLL]

Post by bobcat2 » Wed May 22, 2013 9:34 am

Grt2bOutdoors wrote:
A traditional defined benefit pension for which there is a track record tended to follow a fixed allocation plan. It's tried and true.

A db pension has, for all practical purposes, an infinite investment horizon. The same would be true for a university endowment like the one Swensen runs. An individual investor who is investing for his or her own retirement has an investment horizon limited to, at most, a few decades, not centuries. The situations are not comparable.

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Re: glide path vs. fixed asset allocation [POLL]

Post by Grt2bOutdoors » Wed May 22, 2013 9:37 am

Iorek wrote:
Grt2bOutdoors wrote:I'm not sold on target or lifecycle investing primarily because there doesn't seem to be a firm consensus backed in fact with risk/reward. These glide path funds are relatively new, there is no history of an investor starting out 30 years ago in one of these funds and now approaching retirement finds that it works or it doesn't work. What I mean, is one fund company such as TR Price (good funds) seem to be extremely aggressive with their model is constantly making tweaks or asset allocation decisions based upon the market - that speaks of market timing. Vanguard on the other hand has made changes, albeit more slowly, to the composition of the funds with the recent addition of inflation protected bonds and I also find their target funds to also be far more aggressive than I like. A traditional defined benefit pension for which there is a track record tended to follow a fixed allocation plan. It's tried and true.



Pension plans are investing for people with lots of different timelines, so what is good for the group may not be good for a specific individual?


The same could be said of these "one size fits all" Target Retirement funds - they are catering towards someones biological age, however they are not tailored for each individuals specific financial condition. You invest according to your willingness, ability and need to take risk. YMMV.
I am disciplined in my asset allocation, for those who aren't they can go with a more managerial hands-on approach.
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Re: glide path vs. fixed asset allocation [POLL]

Post by Grt2bOutdoors » Wed May 22, 2013 9:40 am

bobcat2 wrote:Grt2bOutdoors wrote:
A traditional defined benefit pension for which there is a track record tended to follow a fixed allocation plan. It's tried and true.

A db pension has, for all practical purposes, an infinite investment horizon. The same would be true for a university endowment like the one Swensen runs. An individual investor who is investing for his or her own retirement has an investment horizon limited to, at most, a few decades, not centuries. The situations are not comparable.

BobK


They can be comparable if the investor has a pool of assets that for all intents and purposes will exceed their retirement needs and is being managed for the "next generation" or an "inheritance". In that case, the time horizon may be fifty years or longer. At the current rate we are going, pensions are going the way of the dodo bird, so I wouldn't exactly say they will be investing for centuries, either. :wink:
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Re: glide path vs. fixed asset allocation [POLL]

Post by Aptenodytes » Wed May 22, 2013 9:51 am

I do a simplified version of the kind of glide path that the target date funds use. When I worked up my plan a few years ago, I was comfortable with a very aggressive allocation, but I knew I'd want something more conservative when I got older. I drew a straight line from where I was in equity percentage back then to 25% at age 75. That defines my glide path. In practice it leaves me inside the band defined by the 120-age and 100-age benchmarks for most of the next two decades, but with a downward trend.

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Re: glide path vs. fixed asset allocation [POLL]

Post by englishgirl » Wed May 22, 2013 9:54 am

I am doing: other.

I decided on a "stair step" approach. I am going for a fixed 60:40 for, ooh, 20 years or so (let's say ages 35-55), then 50:50 for another 20 or so (55-75), then 40:60 until I shuffle off this mortal coil, which hopefully will be another 20 years or so (75-95+).

Also mixed in there will likely be the buying of an SPIA (annuity) or two or three, starting at retirement or thereabouts. So my portfolio will become a little removed from my need for income from it. I don't know how to factor this in other than to say that, given that I will have an income stream from the annuities, I can be a bit riskier than I would otherwise think I need to be going strictly on "age in bonds".
Sarah

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Re: glide path vs. fixed asset allocation [POLL]

Post by bobcat2 » Wed May 22, 2013 10:33 am

nisiprius writes.
The financial economists create an abstraction, "human capital," a misnomer because your job is not your property, and can't be bought or sold. But anyway, it is the present value of all of your future salary. ...
What glide slopes, or a rule of thumb like "age in bonds" do, is to give you a plan and a way to do it systematically and steadily.

The present value of SS and a db pension are like human capital, in that they also cannot be bought or sold, but like human capital are important elements in providing for retirement.

What's important in your human capital with regard to your retirement is the future safe contributions from that human capital you or your employer will be making to SS, your db pension, your dc retirement plan, and any other contributions you set aside for retirement. It is these safe expected future contributions toward retirement income that come out of your human capital that allow investors to take more investment risk when they are young.

OTOH it is quite possible that when you are relative young you should not have a high allocation to stocks. Here are some of the situations where you should not have a high allocation to stocks even though you are relatively young. You should also definitely not be applying the Ayles and Nalebuff leverage strategy if any of these situations apply to you.

You have credit card debt.
You have auto loan debt.
You have student loan debt.
You have less than $4,000 to invest.
You need the money to pay for your kids' college education.
You need the money to make a down payment on a house.
Your salary is correlated with the stock market.
You would worry too much about losing money.
Your human capital has well above average riskiness when compared to the riskiness of the human capital of all working age investors. (Basically occupations where the chances of being laid off or having your hours reduced are very high compared to most occupations.)

In other words a simple rule like age in bonds is too simple. You have to take your expected future contributions to your retirement into account. These are relatively safe and allow you to take on more risk when you are many years from retirement. But you also have to take into account the set of situations you face that militate against holding a high percentage of your portfolio in stocks even though you are relatively young.

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Re: glide path vs. fixed asset allocation [POLL]

Post by gerrym51 » Wed May 22, 2013 10:38 am

i have 2/3 of my(our) money in target date funds. could i do better on my own-maybe-could i do worse on my own -maybe :mrgreen:

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Re: glide path vs. fixed asset allocation [POLL]

Post by bobcat2 » Wed May 22, 2013 10:43 am

Grt2bOutdoors wrote:
They can be comparable if the investor has a pool of assets that for all intents and purposes will exceed their retirement needs and is being managed for the "next generation" or an "inheritance". In that case, the time horizon may be fifty years or longer.
That is an estate strategy. An estate strategy is not the same thing as a retirement strategy.

At the current rate we are going, pensions are going the way of the dodo bird, so I wouldn't exactly say they will be investing for centuries, either.
Pension plans are going away because the fixed allocation plans they followed failed.

BobK
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Re: glide path vs. fixed asset allocation [POLL]

Post by Grt2bOutdoors » Wed May 22, 2013 10:49 am

bobcat2 wrote:Grt2bOutdoors wrote:
They can be comparable if the investor has a pool of assets that for all intents and purposes will exceed their retirement needs and is being managed for the "next generation" or an "inheritance". In that case, the time horizon may be fifty years or longer.
That is an estate strategy. An estate strategy is not the same thing as a retirement strategy.

At the current rate we are going, pensions are going the way of the dodo bird, so I wouldn't exactly say they will be investing for centuries, either.
Pension plans are going away because the fixed allocation plans they followed failed.

BobK


As an aside, there is an article in today's WSJ talking about the $29.5 billion University of Texas Management Co. (2nd largest endowment in the US) taking it on the chin litterally with a $300MM decline in value due to their inflation hedge "gold" getting hammered. Now they are talking about picking up some more gold at these prices - although different than a pension fund, endowments can also go the way of dodo birds when alternative investments take on a more shall we say "prominent role in asset management" and fails to deliver.
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Re: glide path vs. fixed asset allocation [POLL]

Post by stan1 » Wed May 22, 2013 10:52 am

This is simply a discussion about willingness, ability, and need to take risk.

Current retirees with account balances in the multiple millions (especially if they also have pensions) can pretty much choose whatever asset allocation they want as they are able to take more risk. There isn't a need (other than maximizing inheritiances) so it comes down to willingness.

A single 60 year old with no pension and $300K in a 401K faces a much more difficult scenario. A person in this group could do a whole lot worse than a target retirement fund.

There is no one size fits all solution, but keep in mind among the U.S. population there are a lot more people in the $300K/no pension group than there are in the millions group. The single 60 year old with $300K/no pension group is underrepresented in posts on this board.

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Re: glide path vs. fixed asset allocation [POLL]

Post by Grt2bOutdoors » Wed May 22, 2013 10:55 am

stan1 wrote:This is simply a discussion about willingness, ability, and need to take risk.

Current retirees with account balances in the multiple millions (especially if they also have pensions) can pretty much choose whatever asset allocation they want as they are able to take more risk. There isn't a need (other than maximizing inheritiances) so it comes down to willingness.

A single 60 year old with no pension and $300K in a 401K faces a much more difficult scenario.

There is no one size fits all solution, but keep in mind among the U.S. population there are a lot more people in the $300K/no pension group than there are in the millions group. The single 60 year old with $300K/no pension group is underrepresented in posts on this board.


I agree to an extent, but will go a bit farther and say most 60 year olds don't even have $300K in net assets and are still in the no pension group.
That's because they don't know about this forum or even where to go for information.
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Re: glide path vs. fixed asset allocation [POLL]

Post by inbox788 » Wed May 22, 2013 11:42 am

bobcat2 wrote:Grt2bOutdoors wrote:
They can be comparable if the investor has a pool of assets that for all intents and purposes will exceed their retirement needs and is being managed for the "next generation" or an "inheritance". In that case, the time horizon may be fifty years or longer.
That is an estate strategy. An estate strategy is not the same thing as a retirement strategy.


Yes, but at what point does a retirement strategy shift into an estate strategy, and is there a glide path in either time base or fund size based? Wealthy families, where estate strategy is overwhelming can pretty much ignore retirement planning. Is $10m or $50m sufficient to take this view? Most regular folks won't have his problem (ignore retirement planning), and those folks with this problem are unlikely to be here.

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Re: glide path vs. fixed asset allocation [POLL]

Post by Donnie Baseball Fan » Wed May 22, 2013 12:07 pm

nisiprius wrote:Lowering stock allocation with age is just plain common sense. It doesn't need to be any particular mathematical curve. Your general risk tolerance tells you what your rough overall lifetime average stock/bond allocation should be. But, whatever it is, you don't want your portfolio value to fluctuate as much when you are retired and depending on it. So you want a lower stock allocation in retirement than your lifetime average. So the only place to make up for it is to have a higher stock allocation during accumulation, when fluctuations don't matter so much.

So, you need some kind of systematic plan to get you from a high stock allocation when young to a low stock allocation when old, and the best way is to do it gradually because if you try to do it in one big jump you will go nuts trying to pick the "right time" for it. You may end up at age 65 suddenly realizing you are very uncomfortable with a high stock allocation, because you never got around to trimming it down.


+1

This is one reason to choose a target fund. I also find it aligns perfectly with the mentality of "setting it and forgetting it." I don't want to be losing hours of sleep over when it is the right time to move funds from one fund to another. Moreover, it helps me forget about the stock market, something that helped me weather the 2008 crash without worrying too much about it.

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Re: glide path vs. fixed asset allocation [POLL]

Post by ogd » Wed May 22, 2013 12:09 pm

Manual glide path, for me. Target retirement funds are tax inefficient and they keep tweaking the allocations, which I don't agree with.

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Re: glide path vs. fixed asset allocation [POLL]

Post by Blues » Wed May 22, 2013 12:12 pm

ogd wrote:Manual glide path, for me. Target retirement funds are tax inefficient and they keep tweaking the allocations, which I don't agree with.


The "LifeStrategy" funds maintain a fixed allocation (depending upon which you choose): 80/20, 60/40, 40/60, and 20/80 invested in TSM, TI and TBM (and soon to include the international bond fund from what I've read). However, your point about not being perfectly tax efficient holds.
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Re: glide path vs. fixed asset allocation [POLL]

Post by ogd » Wed May 22, 2013 12:19 pm

Blues: I'd still want a glide path even if fully tax-advantaged, I just want it known and fixed (the "tweaks" I object to are to the glide path itself, not the normal passing of time). I do like and recommend LifeStrategy funds for people who I'm not confident would stay the course if they could see the moving parts independently.

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Re: glide path vs. fixed asset allocation [POLL]

Post by Blues » Wed May 22, 2013 12:30 pm

I like them as well. They would make more sense (for the way I manage our portfolio) than something like the Target Retirement funds would.
(Mostly because I'm already retired and have a set allocation in mind.)
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Re: glide path vs. fixed asset allocation [POLL]

Post by Rodc » Wed May 22, 2013 4:13 pm

Here is something I did a few years ago. Historically it really has not mattered in the end. See graph number 3.

http://home.comcast.net/~rodec/finance/ ... nBonds.pdf

Now it might psychologically matter.

If an investment goes from $1000 to $10,000 in a fairly steady progress you feel great. If it goes to $20,000 and drops to $10,000 you feel terrible.

Something like age in bonds lets you swing for the fence early and hit for singles later.

Personally, I think a better approach is to fix an allocation for say 5 years, then at the end of the five years simply reassess where you, have you done well or not, have your goals changed, have there been other changes that would change your need or desire for risk and return. Of course if a life change happened you could reassess earlier. I think most people have no need for a glide path between there 20 and 40s. I see it having more relevance once you are farther along. Maybe you have the game won. Maybe you see being forced into early retirement, or you love you job and expect to work past 65. All sorts of things can come up to change your circumstances that might result in a change to your investing.
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Re: glide path vs. fixed asset allocation [POLL]

Post by Rodc » Wed May 22, 2013 4:29 pm

It is also worth noting that not only can ability to survive risk be low when young but it also can go up with age. It might be harder to get back money lost if you are older, but if you have enough because you have been successful you might be able to do just fine even if you lose a bunch.

I think these things are best approached on an individual case by case basis.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: glide path vs. fixed asset allocation [POLL]

Post by Artsdoctor » Wed May 22, 2013 5:56 pm

You could make a reasonable argument for both. However, I would strongly discourage anyone from investing in Life Strategy funds or Target Retirement funds in a taxable account. In a tax-deferred or Roth account, no problem. But people's needs change, their risk tolerance changes, their health changes, etc., etc. Having to sell a "glide path" fund in a taxable account because of any of these natural changes exposes you to capital gains taxes unnecessarily.

I've tried very hard to buy only those mutual funds that I can hold "forever" in my taxable account, and a "glide path" fund would almost certainly not fit that criterion for most people.

Artsdoctor

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Re: glide path vs. fixed asset allocation [POLL]

Post by ruralavalon » Wed May 22, 2013 6:01 pm

Both age 67.

We have a 50/50 asset allocation, and intend to stay there for the forseeable future.
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Re: glide path vs. fixed asset allocation [POLL]

Post by Blues » Wed May 22, 2013 6:03 pm

Artsdoctor wrote:You could make a reasonable argument for both. However, I would strongly discourage anyone from investing in Life Strategy funds or Target Retirement funds in a taxable account. In a tax-deferred or Roth account, no problem. But people's needs change, their risk tolerance changes, their health changes, etc., etc. Having to sell a "glide path" fund in a taxable account because of any of these natural changes exposes you to capital gains taxes unnecessarily.

I've tried very hard to buy only those mutual funds that I can hold "forever" in my taxable account, and a "glide path" fund would almost certainly not fit that criterion for most people.

Artsdoctor


Agree...for this very reason the only two funds we hold in taxable are TSM and TI...(well, actually the two FTSE Int'l funds due to TI being a different animal back then).
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Re: glide path vs. fixed asset allocation [POLL]

Post by givewell » Wed May 22, 2013 7:52 pm

I voted for glidepath.

Roughly, I use my wife's age in bonds. I am 71 and she is 65.

In addition to Total Stock, total international, total bond and vanguard tips, we have TiAA Real Estate Account.

So, that's the roughly. But, basically, it is a glide path.

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Re: glide path vs. fixed asset allocation [POLL]

Post by aquifer » Wed May 22, 2013 9:17 pm

I voted glidepath. I have my 401k money in Vanguard TR 2035 and my IPS calls for me to mirror that allocation outside the 401k. Before investing new money outside the 401k I check to see if Vanguard has changed the 2035 allocation and invest accordingly. They seem to change the allocation along its glidepath every month or two. I invest monthly and have so far been able to rebalance with each new investment because the changes are incremental.

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Re: glide path vs. fixed asset allocation [POLL]

Post by rkhusky » Thu May 23, 2013 6:48 am

I am at 70/30 (stocks/bonds) now and want to be 50/50 by the time I retire, so I created a linear glide path to realize that. I adjust my AA yearly to fit that path.

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Re: glide path vs. fixed asset allocation [POLL]

Post by rkhusky » Thu May 23, 2013 6:53 am

Artsdoctor wrote:You could make a reasonable argument for both. However, I would strongly discourage anyone from investing in Life Strategy funds or Target Retirement funds in a taxable account. In a tax-deferred or Roth account, no problem. But people's needs change, their risk tolerance changes, their health changes, etc., etc. Having to sell a "glide path" fund in a taxable account because of any of these natural changes exposes you to capital gains taxes unnecessarily.

I've tried very hard to buy only those mutual funds that I can hold "forever" in my taxable account, and a "glide path" fund would almost certainly not fit that criterion for most people.

Artsdoctor


Plus the bonds in the TR funds are not tax efficient. However, if taxable is all you've got and your risk tolerance changes in the accumulation stage (beyond the normal risk reduction most people want when nearing retirement and which the TR funds already include) and you have a lot of unrealized capital gains, there is nothing to prevent you from either buying Total Stock or Total Bond or a second TR fund to lower/raise your risk level.

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FabLab
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Re: glide path vs. fixed asset allocation [POLL]

Post by FabLab » Thu May 23, 2013 7:22 am

Mid-sixties couple and maintain a 50/50 fixed allocation. Been that way for years, and we have no plans to change it.

When I know where I'm going, I like to get there. So, glide paths don't much interest me.
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Re: glide path vs. fixed asset allocation [POLL]

Post by Scott S » Thu May 23, 2013 1:39 pm

I'm on a glide path to 50/50. :sharebeer
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. * Everything over 2 months' expenses gets invested.

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Re: glide path vs. fixed asset allocation [POLL]

Post by lostdog » Thu Aug 25, 2016 12:55 pm

rkhusky wrote:I am at 70/30 (stocks/bonds) now and want to be 50/50 by the time I retire, so I created a linear glide path to realize that. I adjust my AA yearly to fit that path.


+1

I am at 80/20 and will be at 60/40 or 55/45 buy the time I retire. I do the same glide path method as mentioned above. Next year I'll be 79/21.
"Our life is frittered away by detail. Simplify, simplify." -Thoreau | Vanguard Total World Index-buy the haystack.

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Re: glide path vs. fixed asset allocation [POLL]

Post by miles monroe » Thu Aug 25, 2016 1:12 pm

most of my tax deferred stuff has been in the target retirement funds. the fund recently dipped to just below 50% equities and when that happened i realized i did not want to be below 50%. so a change will be made in the near future.

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Re: glide path vs. fixed asset allocation [POLL]

Post by Brian 2016 » Thu Aug 25, 2016 1:31 pm

I voted fixed allocation in the poll since I have just retired, but in reality I did my own version of a glide path over 35 years of investing. I was 90/10 S/B mix when I wore a younger mans clothes, then 80/20, then 70/30 until I reached my current 40/60 S/B mix (age 59, no SS, no pension). Once I start pulling SS at full retirement age (or later), I will likely bump my S/B fix to 45/55 or 50/50.

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Phased Retirement with May 2016 exit date

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FIREchief
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Re: glide path vs. fixed asset allocation [POLL]

Post by FIREchief » Thu Aug 25, 2016 2:35 pm

I think we're missing some options here.

a) a rising equity glide path (the poll doesn't specify, but the context of the responses have suggested most are reading "glide path" as a shifting away from equities)
b) a stable floor / liability matching portfolio, where FI is matched to future liabilities and equities can ebb and flow with the market

I realize that these aren't the topic of as much discussion, but here on BH.org, there are probably a larger percentage of folks who consider allocations beyond "fixed" and "age in bonds" (or similar glide path).
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: glide path vs. fixed asset allocation [POLL]

Post by JRA » Thu Aug 25, 2016 2:39 pm

I voted for a glide path, but I do not follow one in the traditional sense. I reduce my exposure to equities as my need for the risk of equities diminishes. As I decrease my exposure to equities, I am increasing the degree to which my portfolio is exposed to certain risk factors such as small and value equally distributed in domestic and international markets. I am currently down to about 40% equities in that I have already met my goal of establishing a LMP. My ultimate goal is to reach a point in which my assets provide both an LMP and a risk portfolio that is at least 25 time expenses without SS, i.e. the convergence of these two objectives. I may or may not retire at that point; I don't really want to retire right now.

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Re: glide path vs. fixed asset allocation [POLL]

Post by Engineer250 » Thu Aug 25, 2016 4:13 pm

ogd wrote:Manual glide path, for me. Target retirement funds are tax inefficient and they keep tweaking the allocations, which I don't agree with.


Same. Not a fan of international bonds in the VG target date funds. And VG and TSP both hold too little equities for me. I plan to stay very heavy in equities than do a short and steep glide path somewhere around age 40. TSP's only goes out to 2050 and their allocation is still too conservative for me right now. That said, 2040 might be just fine when I hit 40.

I still recommend the target date funds to a lot of people for the reasons you stated. Most people don't want to mess with their accounts so target date doing a nice glide path for them and rebalancing for them is great I think. If someone is very risk averse and nervous about stock market ups and downs doing the rebalancing themselves might make them more apt to panic and sell.
Where the tides of fortune take us, no man can know.

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Re: glide path vs. fixed asset allocation [POLL]

Post by bertilak » Fri Aug 26, 2016 10:19 am

ObliviousInvestor wrote:I currently use a fixed allocation, but I'm well away from retirement. The plan as it stands now is to allocate more to inflation-adjusted lifetime annuities as I age, though not necessarily bonds. (Important factor: No kids, no bequest motive.)

I also use a fixed allocation but that's because I am already six years INTO retirement!

I adjust allocations if and when I feel it is justified. For example, I changed from 50/50 to 60/40 when I eliminated my mortgage payment. With this guaranteed improvement in my cash flow I felt I could take a bit more risk and 60/40 is still pretty middle of the road.
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Re: glide path vs. fixed asset allocation [POLL]

Post by dharrythomas » Sat Aug 27, 2016 9:57 am

Glide Path, though it's hard to argue with fixed allocation except that your value at risk can get very high. We talk in percentages but feel the lose in absolute dollar terms. With interest rates at current levels, it's hard for me to view bonds as low risk, at least the risk is different, related to the equity interest rate risk but different nonetheless.

TSP: Lifecycle (using 2030/2040/2050 because the drawdown is too fast but the current stock allocations of the later funds are higher than I want with this category.
Traditional IRAs: Target Retirement
Roth IRAs: Moving with weekly automatic transfers from LifeStrategy Growth to LifeStrategy Moderate Growth. (May never get it all moved, new contributions going into LSG)
Taxable: Tax Managed Balanced, Total World Stock Index, a few start-up bank stocks. (Will be financing future Roth contributions with sales from the Total World Index, until my USAR pension starts, so there will be some equity drawdown here also)

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Re: glide path vs. fixed asset allocation [POLL]

Post by jkirkmd » Sun Aug 28, 2016 3:57 pm

Glide path, at this point, to mitigate SOR risk. Currently 2 years from retirement, and gliding DOWN to 40% equities at retirement. Once I retire, plan to glide UP to 55% over 3 years, then stay there for the duration.

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Re: glide path vs. fixed asset allocation [POLL]

Post by Dandy » Mon Aug 29, 2016 7:15 am

I think it is great to have a plan but there are too many variables in the retirement decades to have a set it and forget it plan. I would normally be very happy with my current 42/58 allocation. My TIRA is fixed income heavy so RMDs will gradually and maybe not so gradually push my equity percentage higher. Am I going to sell taxable equities and incur cap gains on top on the RMD income? If equities take a huge hit am I going to want to fully rebalance into equities? I plan to sell my house and rent in a few years how will that affect my assets and expenses? If negative interest rates come to the U.S. will I want to have 58% in fixed income?

So, for now I'm maintaining my current allocation but am not sure how future events will affect it, if at all. I'm pretty good at not letting emotions dictate my actions. But as captain of my retirement ship I reserve the right to change course a bit. You only have one retirement so you don't want to base it all on some plan you set in motion a decade or 2 in the past. My goal is to have a standard of living that will last through retirement the goal isn't to stick to my "plan".

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Re: glide path vs. fixed asset allocation [POLL]

Post by in_reality » Mon Aug 29, 2016 7:39 am

Neither

50%-50% AA
Spend from bonds
When stocks are up 20% over inflation, will rebalance into bonds.

Not sure where that will leave my AA exactly, but I won't be selling bonds (safer asset) after a drop to rebalance into a risker one (stocks).

Hmmn .... viewtopic.php?f=10&t=192105&start=200#p2986478

1965 doesn't look so good in that method....
Last edited by in_reality on Mon Aug 29, 2016 7:49 am, edited 1 time in total.
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Re: glide path vs. fixed asset allocation [POLL]

Post by sschullo » Mon Aug 29, 2016 7:41 am

also neither,
30/70 since 2004. Age 69.
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Re: glide path vs. fixed asset allocation [POLL]

Post by convert949 » Wed Aug 31, 2016 7:34 am

Fixed allocation for each 5 year period starting at 65. Currently 35% Equities. IPS states to reconsider every 5 years and fix a percentage for the following 5 years. Fixed percentage determined by matching liabilities to time period with minimum 15 years fixed income.

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Re: glide path vs. fixed asset allocation [POLL]

Post by Kevin K » Wed Aug 31, 2016 10:43 am

Interesting discussion.

Two options not discussed in any detail so far:

1. A true liability-matching portfolio such as DFA is now offering with its target date retirement and income funds. There's a good thread on these funds here already, with luminaries such as Bill Bernstein chiming in. Essentially they're using a large swath of TIPS to guarantee a predictable level of spending in retirement. DFA's argument - backed up by plenty of evidence, of course - is that plain vanilla target date funds like Vanguard's don't offer meaningful protection against the specific liabilities faced by retirees.

2. Choosing a portfolio at the outset that supports a reasonable safe withdrawal rate (SWR) under all market conditions and sticking with it. Tyler over at Portfolio Charts offers not only a useful stand-alone SWR calculator but includes historical data on SWR's for a bunch of allocations. Like many others here I've spent hours pouring over this site, and for retirees in particular I think the Golden Butterfly, Permanent Portfolio and Larry Swedroe's "Larry" portfolio are arguably far better choices in both accumulation and withdrawal than either target date or manually-implemented glide path allocations. Bogleheads won't like the fact that pretty much all of the most successful portfolios (in terms of offering decent SWR's with no long periods of sharp drawdowns) include gold, but when you take a look at the "ride" of these allocations vs., say, 40:60 TBM/TSM or even 100% Wellesley they're hard to not take into consideration, IMHO:

https://portfoliocharts.com/portfolios/

And speaking of 40:60, here's an iteration of the Larry Portfolio that reflects the analysis of all-weather allocations like the PP on Tyler's site that looks to me to be about as perfect a risk-averse retiree allocation as I've seen. Yes it's based on back-testing, but underneath the hood there's the Larry Porfoilio's minimization of fat tails through a modest percentage allocation to carefully chosen equities plus a small but meaningful allocation to gold:

https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=2&startYear=1975&endYear=2015&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&rebalanceType=1&portfolio1=Custom&portfolio2=Custom&portfolio3=Custom&TotalStockMarket1=10&SmallCapValue1=10&EmergingMarket1=10&FiveYearTBills1=60&Gold1=10

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