Am I making a mistake being too conservative?

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jnet2000
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Am I making a mistake being too conservative?

Post by jnet2000 » Wed Jan 14, 2015 5:51 pm

I went from a 100% all stock portfolio during the great recession of 2008 to having an investment policy with a 60% stock/ 40% bond allocation for a number of years now. I have always been a buy & hold investor and a saver.

Over the last few months, I hit some major goals by my mid 30s. My portfolio broke the 7 figure mark and I paid off my mortgage. I am officially debt free and plan to never go into debt again.

I am considering changing my asset allocation to 40% stock / 60% bonds and keeping this for allocation for the next 20+ years. I feel my need to take risk is diminishing because my current portfolio will still grow, plus I plan to continue to contribute 20-30% of my income for retirement for the next two decades. Also, I feel like I take most of my risk as a small business owner and entrepreneur.

Am I making a sound decision?

You don’t hear from many conservative investors that are younger here so I feel out of the norm. Most of the posts I have seen from folks who have a conservative asset allocation are retired or near retirement. It seems like many of the posts I am reading are members who have a very high stock allocation. I understand AA is a personal decision.

However, I just need to run my idea by you to make sure I am making a good educated decision. I appreciate your comments. Thank you.
Last edited by jnet2000 on Thu Jan 15, 2015 8:52 am, edited 1 time in total.
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retiredjg
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Re: Am I making a mistake being too conservative?

Post by retiredjg » Wed Jan 14, 2015 5:56 pm

If you can meet your goals at 40% stock and if you are comfortable at 40% stock, I see no reason to be anywhere else. It seems like a very sound decision to me.

Gropes & Ray
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Re: Am I making a mistake being too conservative?

Post by Gropes & Ray » Wed Jan 14, 2015 5:58 pm

It's more conservative than is typical, but you have a lot more money than is typical for someone your age. You need to be conservative enough that you won't panic and go sell a ton of equities during the next market downturn. If that's 40/60 stocks/bonds, then it's the right amount for you.

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backpacker
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Re: Am I making a mistake being too conservative?

Post by backpacker » Wed Jan 14, 2015 6:12 pm

There are no right or wrong answers here, just preferences. I've always thought 50/50 was a nice allocation (and the lowest stock allocation I would personally hold). You can't get more balanced than half bonds and half stocks! :beer

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Watty
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Re: Am I making a mistake being too conservative?

Post by Watty » Wed Jan 14, 2015 6:31 pm

Also, I feel like I take most of my risk as a small business owner and entrepreneur.
It would be reasonable to look at your asset allocation of your net worth, including the value of your business, instead of just your investment portfolio.

I would be cautious though in thinking of bonds as being a safe market since rising interest rates, higher levels of defaults, and inflation can have a big impact on bonds. Part of the reason for owning some bonds is that they do correlate to stocks real closely so the combination of stocks and bonds can be less volatile.

REITS are sometimes mentioned as being the an asset class to invest in after stock and bonds. You might want to gradually shift a modest percentage of your portfolio into REITS

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FelixTheCat
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Re: Am I making a mistake being too conservative?

Post by FelixTheCat » Wed Jan 14, 2015 6:39 pm

I recently went to 40/60. It was based on a discussion with Vanguard saying why tolerate unnecessary risk if you have achieved your goal. Also, I don't handle market swings well like the 2008/2009 crash.
Felix is a wonderful, wonderful cat.

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zaboomafoozarg
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Re: Am I making a mistake being too conservative?

Post by zaboomafoozarg » Wed Jan 14, 2015 6:48 pm

You should use a tool like http://www.cfiresim.com or http://firecalc.com to see how an asset allocation like that has fared over the past 100+ years.

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obgyn65
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Re: Am I making a mistake being too conservative?

Post by obgyn65 » Wed Jan 14, 2015 7:13 pm

To the OP- I am more conservative than you are. Why keep playing if you won the game ?
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Toons
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Re: Am I making a mistake being too conservative?

Post by Toons » Wed Jan 14, 2015 7:34 pm

"40% stock / 60% bonds"

You are debt free,7 figure net worth,nothing wrong at all with that asset allocation,you can always adjust if necessary :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

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Re: Am I making a mistake being too conservative?

Post by RoxieII » Wed Jan 14, 2015 8:41 pm

[quote="jnet2000Over the last few months, I hit some major goals by my mid 30s. My portfolio broke the 7 figure mark and I paid off my mortgage. I am officially debt free and plan to never go into debt again.


However, I just need to run my idea by you to make sure I am making a good education decision. I appreciate your comments. Thank you.[/quote]

jnet2000,
This is where we were. About that time, we transitioned from investing everything in stock funds (max growth) to tax deferring being still all growth and everything non tax deferred into fixed income (to build cash flow). We have been 50/50ish for several years now. Decent growth and no worries when the market steps back. Could we handle market fluctations, sure, but why?

Your decisions seem logical, sound and emotionally smart.

All the best,
RoxieII

lack_ey
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Re: Am I making a mistake being too conservative?

Post by lack_ey » Wed Jan 14, 2015 8:46 pm

The overall market capitalization of stocks and bonds is actually not far from 40 stocks / 60 bonds, from what I've seen. Somehow 60/40 is some kind of standard that gets thrown around a lot, perhaps without good reason.

Anyway, if 40/60 gets you where you need to go, full speed ahead.

I consider myself a relatively conservative investor too. But I'm younger and just don't mind market declines yet and am forced into a high stock allocation because there is no other choice to accumulate wealth at this stage. Playing it too safe is more risky at this point. If you want to work twenty more years and can save at that rate with the current figure, you don't need to overweight stocks like I do.

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backpacker
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Re: Am I making a mistake being too conservative?

Post by backpacker » Thu Jan 15, 2015 6:18 am

Ah, just a had a thought OP. If you go with 60% bonds, you definitely want a large chunk of those to be inflation adjusted (i.e. TIPs). With a small bond allocation, you can trust the stocks in your portfolio to help the bonds along during a period of high inflation. With a 60% bond allocation, you'll want some actual inflation adjusted bonds.

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Re: Am I making a mistake being too conservative?

Post by randomguy » Thu Jan 15, 2015 7:52 am

obgyn65 wrote:To the OP- I am more conservative than you are. Why keep playing if you won the game ?
OP hasn't won the game. He is planning on working for 20+ years.

40/60 has enough to stocks that you should see some real growth. The downside of going with it versus 60/40 is that you are likely to have to work another 5 years. Is that trade off work it in order to in order to only drop 15% versus 25%? That is a very personal choice and is going to depend on things we can not know like future health. Personally I think 40-60% stocks is the type of number that works for anyone and is the type of AA you can hold pretty much forever.

jnet2000
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Re: Am I making a mistake being too conservative?

Post by jnet2000 » Thu Jan 15, 2015 8:51 am

Thanks for the replies and affirmation. I am a firm believer to educating yourself and asking for opinions from trusted fiduciary sources before making a decision. It sounds like my decision is sound. I just wasn't sure about it since there aren't many younger, accumulators, who are conservative with their asset allocation that I have run into here. But it looks like i am not along.
randomguy wrote:
obgyn65 wrote:To the OP- I am more conservative than you are. Why keep playing if you won the game ?
OP hasn't won the game. He is planning on working for 20+ years.

40/60 has enough to stocks that you should see some real growth. The downside of going with it versus 60/40 is that you are likely to have to work another 5 years. Is that trade off work it in order to in order to only drop 15% versus 25%? That is a very personal choice and is going to depend on things we can not know like future health. Personally I think 40-60% stocks is the type of number that works for anyone and is the type of AA you can hold pretty much forever.
Yep, I plan to continue to play the game. I am way to young to retire early 8-) ! I still plan to work until 60 so I have over two decades to go, I have too many business goals I still want to obtain before hanging it up.

However, paying off the mortgage and knowing my portfolio will decrease around 20% in a down market does give me comfort and reduce my stress. :sharebeer

Again, thank you!!!
"You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing" Warren Buffet

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Re: Am I making a mistake being too conservative?

Post by lazyday » Thu Jan 15, 2015 9:22 am

jnet2000 wrote:I feel my need to take risk is diminishing
changing my asset allocation... and keeping this allocation for the next 20+ years
I'm neither young nor conservative, and only 40% equity would be quite painful for me. But it seems like your reasoning is sound.

Many people justify reducing risk after the market has fallen and stocks are cheap. Much better to do this at a time like today.

jnet2000
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Re: Am I making a mistake being too conservative?

Post by jnet2000 » Thu Jan 15, 2015 9:36 am

lazyday wrote:
jnet2000 wrote:I feel my need to take risk is diminishing
changing my asset allocation... and keeping this allocation for the next 20+ years
I'm neither young nor conservative, and only 40% equity would be quite painful for me. But it seems like your reasoning is sound.

Many people justify reducing risk after the market has fallen and stocks are cheap. Much better to do this at a time like today.
I felt that pain when someone suggested i buy bonds about 10 years ago. I remember thinking, that's for retired people. I ran with a 100% stock allocation from age 18 until the last 5 years. I never sold during the recession when I saw my portfolio lose half its value. I kept buying VTI at the bottom of the market and buy it to this day.

However, my need to take that much risk has diminished so now I plan to take that risk in my small business. My business has equity like characteristics so I will still receive the benefits of an up market by increased profits.
"You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing" Warren Buffet

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Re: Am I making a mistake being too conservative?

Post by JupiterJones » Thu Jan 15, 2015 10:00 am

jnet2000 wrote:my current portfolio will still grow
Well, just to be pedantic, you actually can't know that. It probably will grow, but it might not. There's also the risk of it not growing enough to keep pace with inflation, which is financially equivalent to not growing.

All that said, it sounds like you're making the right choice for yourself. If you can reasonably expect to reach your goals with a conservative asset allocation that you're comfortable with, then go for it! :beer
Stay on target...

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Re: Am I making a mistake being too conservative?

Post by Grt2bOutdoors » Thu Jan 15, 2015 10:07 am

You've got to know when to hold them, know when to fold them, know when to walk away, know when to stay, you can't count your money when your sitting at the table, they'll be time enough for counting when the dealings done.............. :D
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Re: Am I making a mistake being too conservative?

Post by thx1138 » Thu Jan 15, 2015 10:17 am

There is a lot of obsessing about AA. And for any given past history of market returns it clearly can make a difference - particularly in expected return, by which we mean the average of all possible outcomes.

However, if instead of looking at expected return we look at portfolio success, by which we mean reaching your grave without running out of money, things are a bit different. A fairly wide range of AA, roughly from 25/75 all the way up to 75/25, results in nearly the same portfolio success rates. As you go more stock the expected value of your estate at death rises and the maximum possible value increases. But you run out of money in just about the same number of cases for 25/75 as you do for 75/25. Now keep in mind these numbers are for portfolios in retirement (withdrawal) and for a young person like you who is still working (accumulation) things are certainly different. But the exercise is still worthwhile, AA has a wide range of acceptable values.

If you expect behavioral errors are going to show up with a high stock allocation that in itself is a really good reason not to have a high stock allocation. Behavioral errors will lose way more money than the difference between 60/40 and 40/60.

Lastly, if you truly are conservative and tilting heavily to bonds then be sure not to kid yourself about the safety of your bonds and fall into the "chasing yield" trap. Stick with treasuries and AAA corporate debt. Keep durations modest. Having a giant bond allocation but filling it with 20 yr high yield bonds isn't conservative at all - it is a behavioral error. You'd be better served by a higher stock allocation and higher quality shorter duration bonds.

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Re: Am I making a mistake being too conservative?

Post by YDNAL » Thu Jan 15, 2015 11:46 am

jnet2000 [OP] » Wed Jan 14, 2015 6:51 pm wrote:I am considering changing my asset allocation to 40% stock / 60% bonds and keeping this for allocation for the next 20+ years.
JupiterJones wrote:
jnet2000 wrote:my current portfolio will still grow
Well, just to be pedantic, you actually can't know that. It probably will grow, but it might not. There's also the risk of it not growing enough to keep pace with inflation, which is financially equivalent to not growing.
Statements as yours need to be addressed with some numbers.

Code: Select all

             Returns*		
Stk	Bnd	6%	  2%	 Total
80	 20	4.8%	0.4%	5.2%
70	 30	4.2%	0.6%	4.8%
60	 40	3.6%	0.8%	4.4%
50	 50	3.0%	1.0%	4.0%
40	 60	2.4%	1.2%	3.6%
30	 70	1.8%	1.4%	3.2%
20	 80	1.2%	1.6%	2.8%
				
* Projected (use your own projections as you find appropriate!)
There is not a hell of a lot of difference in projected returns between 40/60 vs. 60/40 AA. Thus, the "risk of it not growing enough to keep up with inflation" can be over-dramatized.

jnet200 (OP), you should only take the stock market risk dictated by your ability & need for risk -- 40/60 is just fine. You must also be *willing* (psychological) to take the risk, plus should consider the marginal utility of wealth.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Re: Am I making a mistake being too conservative?

Post by hornet96 » Thu Jan 15, 2015 11:49 am

jnet2000 wrote:Also, I feel like I take most of my risk as a small business owner and entrepreneur.
I think this is an important point that needs to be factored into your *overall* asset allocation. You are asking a question about how to configure your asset allocation by only looking at your financial capital; however, the riskiness of your human captial should likely also be considered when doing your analysis. i.e., since your human capital is more equity-like (volatile), it may indeed be appropriate to allocate your financial capital more conservatively than you would otherwise, in order to dampen the effects of that human capital volatility.

Also, do you have a large chunk of capital tied up in your business? That should be counted in your equity allocation.

For instance, you may think "well, I've got $400 in equity index funds, and $600 in a bond index fund, so my AA is 40/60." However, when you pull back the covers on your whole situation, you might find that "oh yeah, I've also got $1000 invested in my very risky, small business." When that is factored in, suddenly you *real* AA is 70/30 ($1400/$2000 = 70%), and 71% of that equity allocation is an undiversified, concentrated asset position.

Just some additional food for thought as you think through your AA decisions. Best of luck and congrats on being so successful so early! :sharebeer

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bertie wooster
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Re: Am I making a mistake being too conservative?

Post by bertie wooster » Thu Jan 15, 2015 11:59 am

You've been very successful and have done very well for yourself - congrats!

You have no need to take risk with your savings and it sounds like you're sleeping well at night.

Stick with 40/60.

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bertie wooster
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Re: Am I making a mistake being too conservative?

Post by bertie wooster » Thu Jan 15, 2015 12:00 pm

thx1138 wrote:There is a lot of obsessing about AA. And for any given past history of market returns it clearly can make a difference - particularly in expected return, by which we mean the average of all possible outcomes.

However, if instead of looking at expected return we look at portfolio success, by which we mean reaching your grave without running out of money, things are a bit different. A fairly wide range of AA, roughly from 25/75 all the way up to 75/25, results in nearly the same portfolio success rates. As you go more stock the expected value of your estate at death rises and the maximum possible value increases. But you run out of money in just about the same number of cases for 25/75 as you do for 75/25. Now keep in mind these numbers are for portfolios in retirement (withdrawal) and for a young person like you who is still working (accumulation) things are certainly different. But the exercise is still worthwhile, AA has a wide range of acceptable values.

If you expect behavioral errors are going to show up with a high stock allocation that in itself is a really good reason not to have a high stock allocation. Behavioral errors will lose way more money than the difference between 60/40 and 40/60.
This is a great thought, thanks for sharing this.

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Re: Am I making a mistake being too conservative?

Post by jnet2000 » Thu Jan 15, 2015 1:06 pm

hornet96 wrote:
jnet2000 wrote:Also, I feel like I take most of my risk as a small business owner and entrepreneur.
I think this is an important point that needs to be factored into your *overall* asset allocation. You are asking a question about how to configure your asset allocation by only looking at your financial capital; however, the riskiness of your human captial should likely also be considered when doing your analysis. i.e., since your human capital is more equity-like (volatile), it may indeed be appropriate to allocate your financial capital more conservatively than you would otherwise, in order to dampen the effects of that human capital volatility.

Also, do you have a large chunk of capital tied up in your business? That should be counted in your equity allocation.

For instance, you may think "well, I've got $400 in equity index funds, and $600 in a bond index fund, so my AA is 40/60." However, when you pull back the covers on your whole situation, you might find that "oh yeah, I've also got $1000 invested in my very risky, small business." When that is factored in, suddenly you *real* AA is 70/30 ($1400/$2000 = 70%), and 71% of that equity allocation is an undiversified, concentrated asset position.

Just some additional food for thought as you think through your AA decisions. Best of luck and congrats on being so successful so early! :sharebeer
This is exactly why I am considering going to a more conservative approach with my overall allocation. My business performed similar to equities during the recession.

I need to figure what amount to count of the business in my overall portfolio.
I wonder if I should consider what the business would sell (what someone would pay to buy it) today? I don't plan to sell it for at least another 20+ years but life changes may occur that I am not expecting.
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Re: Am I making a mistake being too conservative?

Post by YDNAL » Thu Jan 15, 2015 1:24 pm

jnet2000 wrote:I need to figure what amount to count of the business in my overall portfolio.
I wonder if I should consider what the business would sell (what someone would pay to buy it) today? I don't plan to sell it for at least another 20+ years but life changes may occur that I am not expecting.
The business is part of net worth, and it impacts ability & need for risk. The fact you paid the house, it also impacts ability & need for risk.
jnet2000 wrote:Over the last few months, I hit some major goals by my mid 30s. My portfolio broke the 7 figure mark and I paid off my mortgage. I am officially debt free and plan to never go into debt again.
Certainly, all significant financial assets must be considered in determining the level of risk taken with other investable assets -- "7 figure mark" as you said.
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Re: Am I making a mistake being too conservative?

Post by hornet96 » Thu Jan 15, 2015 1:43 pm

YDNAL wrote:The business is part of net worth, and it impacts ability & need for risk. The fact you paid the house, it also impacts ability & need for risk.
Technically the fair value of his business is part of his net worth, which goes hand-in-hand with his follow up question:
jnet2000 wrote:I need to figure what amount to count of the business in my overall portfolio.
I wonder if I should consider what the business would sell (what someone would pay to buy it) today? I don't plan to sell it for at least another 20+ years but life changes may occur that I am not expecting.
There are various methods that can be employed to estimate the fair value of your business (I assume you are the sole owner, i.e. 100% equity investor). Most of these methods (Gordon growth/discounted cash flow models, comparable company ratios, guideline market transactions, etc.) are probably OT for purposes of this thread, but whatever number the fair value of your business is should be the figure that is added to the equity portion of your total portfolio (and would need to be updated periodically, as circumstances change).

For a simplistic overview of private company valuations, take a look at http://www.investopedia.com/articles/fu ... panies.asp. For a bit more of a deep dive, I'd recommend the CFA Institute materials, such as http://www.cfainstitute.org/learning/pr ... pter7.pptx.

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Re: Am I making a mistake being too conservative?

Post by Caduceus » Thu Jan 15, 2015 1:52 pm

Congrats. Just a thought - I think you need to identify for yourself what kind of risks you are most afraid of in the very long-run. I think it's a mistake to think that bonds are "safe" and stocks are "risky." If you're thinking about the patterns on a chart, then sure, stocks go up and down more than bonds do.

But over the very long run, over several many more decades, the true risk (though it does not feel like it now), is inflation. You can buy a zero-coupon bond with a yield-to-maturity of 3% and inflation in excess of that and lose money.

Reducing volatility of returns is important when you need to draw down your assets in short order. You don't intend to do that. With retirement 30 or 40 years away, what is your definition of "risk"?

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Re: Am I making a mistake being too conservative?

Post by wassabi » Thu Jan 15, 2015 8:14 pm

obgyn65 wrote:To the OP- I am more conservative than you are. Why keep playing if you won the game ?
:thumbsup :thumbsup

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Re: Am I making a mistake being too conservative?

Post by BogleBoogie » Thu Jan 15, 2015 10:14 pm

bertie wooster wrote:You've been very successful and have done very well for yourself - congrats!

You have no need to take risk with your savings and it sounds like you're sleeping well at night.

Stick with 40/60.
+1

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Re: Am I making a mistake being too conservative?

Post by randomguy » Thu Jan 15, 2015 10:52 pm

thx1138 wrote:There is a lot of obsessing about AA. And for any given past history of market returns it clearly can make a difference - particularly in expected return, by which we mean the average of all possible outcomes.

However, if instead of looking at expected return we look at portfolio success, by which we mean reaching your grave without running out of money, things are a bit different. A fairly wide range of AA, roughly from 25/75 all the way up to 75/25, results in nearly the same portfolio success rates. As you go more stock the expected value of your estate at death rises and the maximum possible value increases. But you run out of money in just about the same number of cases for 25/75 as you do for 75/25. Now keep in mind these numbers are for portfolios in retirement (withdrawal) and for a young person like you who is still working (accumulation) things are certainly different. But the exercise is still worthwhile, AA has a wide range of acceptable values.

If you only plan on needing money for 30 years AA doesn't matter much (you need ~1.5% real to make the money last. Historically that has been easy to achieve. Who knows going forward) until you start diversifing heavily into small caps, gold or international (things that did well in the 1970s which is the limiting factor for the 4% rule. Real bond and stock performance during the 1966-1981 period was about the same so it didn't matter what you picked). Live 35 years though and your in trouble. You have basically traded market risk for longevity risk.

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Re: Am I making a mistake being too conservative?

Post by Random Musings » Thu Jan 15, 2015 11:03 pm

If you can reach your goals with a 40/60 portfolio, you are being prudent, not conservative. Being aggressive can bring upside more often than not, but the fat tail is what you are avoiding by sticking to your need of risk.

RM
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Re: Am I making a mistake being too conservative?

Post by cromwell » Thu Jan 15, 2015 11:33 pm

Caduceus wrote:Congrats. Just a thought - I think you need to identify for yourself what kind of risks you are most afraid of in the very long-run. I think it's a mistake to think that bonds are "safe" and stocks are "risky." If you're thinking about the patterns on a chart, then sure, stocks go up and down more than bonds do.

But over the very long run, over several many more decades, the true risk (though it does not feel like it now), is inflation. You can buy a zero-coupon bond with a yield-to-maturity of 3% and inflation in excess of that and lose money.

Reducing volatility of returns is important when you need to draw down your assets in short order. You don't intend to do that. With retirement 30 or 40 years away, what is your definition of "risk"?
If 40% stocks does not offset inflation, we may need to add guns, ammunition, and farmland to our portfolios.

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Re: Am I making a mistake being too conservative?

Post by Fallible » Fri Jan 16, 2015 2:34 pm

Random Musings wrote:If you can reach your goals with a 40/60 portfolio, you are being prudent, not conservative. Being aggressive can bring upside more often than not, but the fat tail is what you are avoiding by sticking to your need of risk.

RM
I agree with the criteria (also mentioned by other posters) of reaching financial goals and staying within risk tolerance. OP, conservative is prudent if it's the right course for you. Go 40/60.
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Re: Am I making a mistake being too conservative?

Post by Caduceus » Sun Jan 18, 2015 10:56 pm

If 40% stocks does not offset inflation, we may need to add guns, ammunition, and farmland to our portfolios.
Well, if exactly offsetting inflation is the point, maybe OP should just put everything into TIPS. Also, maybe 40% equities is too much. How about 15%?

As for guns and ammunition, I agree one is useless without the other. Farmland is actually likely a good hedge against inflation, so there might be a double irony to that recommendation.

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Re: Am I making a mistake being too conservative?

Post by hoops777 » Sun Jan 18, 2015 11:35 pm

Maybe it is just me but I think a major factor is how much money you are making in your business.You have to be making a good six figure income and saving a large sum of money each year.That being the case it can really affect how you look at your investments and your allocation.It certainly is different from someone saving a much smaller amount that really needs more return to grow their portfolio.I don't know of course but you may be able to put it under your mattress and still really grow your net worth.
K.I.S.S........so easy to say so difficult to do.

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Re: Am I making a mistake being too conservative?

Post by itstoomuch » Sun Jan 18, 2015 11:42 pm

Question. When OP says he is S amount in stocks and B amount in bonds, is he saying S in individual stocks or stock mutual funds?
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Am I making a mistake being too conservative?

Post by Yesterdaysnews » Sun Jan 18, 2015 11:44 pm

I think you may want to rethink things a bit. Really, the major benefit of the bonds is to prevent you from panic selling. There are other ways to do that, the primary being to not look at your account when the market gets choppy.

I used this strategy during the recent bear market despite having a stock heavy portfolio (90%+) -- I did not look at my Vanguard portfolio for a long time. I put new money coming in into similar funds in a new account at Fidelity. This worked well for me as it prevented me from selling at the low in my Vanguard account and ended up buying a low prices at Fidelity.

Stocks have historically outperformed bonds and will continue to do due to elevated risk. The key is to find a method to not be your own worst enemy when the market tanks, which it will. Bonds are really just a psychological tool for people to help them through the ups and downs of the market.

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Re: Am I making a mistake being too conservative?

Post by IPer » Mon Jan 19, 2015 12:29 am

I believe 7 figures is irrelevant. The answer to your questions should mainly be about how much you are spending vs how much you are saving.
You should run the simulations at firecalc.com and cfiresim.com with your figures. I ran mine and it says I am fine, working the next 15 years
and contributing minimally (maxing Roth IRA only) based on my income / spending and so forth. It said I am fine at 20% bonds through 50% bonds,
I did not try it for 60% bonds but I imagine it is not that much different. So you could most likely choose whichever allocation you feel is right within
that context, either continue to contribute at that allocation and rebalancing or putting the new monies into a new allocation as you desire and
all will be fine. Make sense?

yeah, I went and plugged in 40%/60% s/b and it is fine, I also dropped off any contributions (no more Roth IRA) and it still works so I guess I am
golden for now barring any unforeseen emergencies, so cannot quit just yet! :)
Read the Wiki Wiki !

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Re: Am I making a mistake being too conservative?

Post by itstoomuch » Mon Jan 19, 2015 12:41 am

If you had 120% of what you required, how would you treat that extra 20%?
Would you save it in a short term or long term CD?
Would you buy a intermediate of longterm bond fund?
Would you buy a total stock market portfolio?
Would you buy something more aggressive?

I ask my self (currently 65/68) periodically these questions concerning our retirement portfolio consisting of annuities, Indexes, and trading accounts.
Year end analysis tells me that we have a "bit" more than enough and "More" than enough in 3 years, RMD, first 70.5 yo. My question is whether I can take the "bit" and "more" and make "A Lot" in the interim. Or can I lose the "bit" and "more" and still be fine? The GLWB annuities, I want to know if I can achieve a higher annual reset thus a higher minimum payout from each annuity. The trading accounts I know I can lose a substantial amount and be fine.

We have Zero "human capital" and very little time capital, so the only way I can make more capital is to risk the financial capital. :?
You are 35yo have much "human capital", time and financial capital to make more of all three. :annoyed
\GL :greedy
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Am I making a mistake being too conservative?

Post by retiredjg » Mon Jan 19, 2015 6:17 am

itstoomuch wrote:Question. When OP says he is S amount in stocks and B amount in bonds, is he saying S in individual stocks or stock mutual funds?
It could be individual stocks or it could be stock mutual funds - or a combination.

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Re: Am I making a mistake being too conservative?

Post by VPP » Mon Jan 19, 2015 6:50 am

jnet2000 wrote:
hornet96 wrote:
jnet2000 wrote:Also, I feel like I take most of my risk as a small business owner and entrepreneur.
This is exactly why I am considering going to a more conservative approach with my overall allocation. My business performed similar to equities during the recession.

I need to figure what amount to count of the business in my overall portfolio.
I wonder if I should consider what the business would sell (what someone would pay to buy it) today? I don't plan to sell it for at least another 20+ years but life changes may occur that I am not expecting.
Jnet2000, you are on the right track considering that over much of the last 42 years portfolios with 40% stocks performed very close to 100% stock portfolios. In 42 years 40% stock/40% long bonds/20%gold returned 10.78 versus 11.31% for 60% total/20% small value and 20% international and in the last 23 years it was only 9.37 to 9.11 so stocks do not automatically give more returns. I find 40-50% stocks are the sweet spot for low volatility when combined with the correct assets. This is just an example to demonstrate that more stocks reaches a point of diminishing returns unless we constantly relive the 80's and 90's, good luck, sounds like you are a very bright young person with a wonderful future ahead.

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Re: Am I making a mistake being too conservative?

Post by lolbatross » Mon Jan 19, 2015 7:05 am

For those of us at Megacorps the advice is usually not to invest (other than awarded options or discounted purchases) in the company we work for. Too much risk alignment. As a small business owner this is unavoidable. Furthermore your small business is more likely to fail than most megacorps. Thus it seems appropriate that you are conservative with your assets not tied up in your business. As long as your savings are putting you on a track to accomplish your goals I don't see a problem.

Personally I am nearly a 100% stock guy, but feel like a small business ownership is too risky for me.

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Re: Am I making a mistake being too conservative?

Post by jheez » Mon Jan 19, 2015 9:32 am

I think this is one time I'd look at expected returns. If bonds are priced for approximately 0% real returns and stocks maybe around 4%, you're looking at about a 1.5% real return with 40/60. If you that's all you need, go for it. Put it in an online calculator and see how it grows. In contrast, your current 60/40 "expected" real return is closer to the 2 - 2.5% range.

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Re: Am I making a mistake being too conservative?

Post by marathonwmn » Mon Jan 19, 2015 11:11 am

Off topic, but it came to mind: Why is everyone assuming jnet2000 is a he? :confused
The race goes not to the swift, but to those who keep on running. . .

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Re: Am I making a mistake being too conservative?

Post by novicemoney » Mon Jan 19, 2015 12:47 pm

jnet2000 wrote:I went from a 100% all stock portfolio during the great recession of 2008 to having an investment policy with a 60% stock/ 40% bond allocation for a number of years now. I have always been a buy & hold investor and a saver.

Over the last few months, I hit some major goals by my mid 30s. My portfolio broke the 7 figure mark and I paid off my mortgage. I am officially debt free and plan to never go into debt again.

I am considering changing my asset allocation to 40% stock / 60% bonds and keeping this for allocation for the next 20+ years. I feel my need to take risk is diminishing because my current portfolio will still grow, plus I plan to continue to contribute 20-30% of my income for retirement for the next two decades. Also, I feel like I take most of my risk as a small business owner and entrepreneur.

Am I making a sound decision?

You don’t hear from many conservative investors that are younger here so I feel out of the norm. Most of the posts I have seen from folks who have a conservative asset allocation are retired or near retirement. It seems like many of the posts I am reading are members who have a very high stock allocation. I understand AA is a personal decision.



However, I just need to run my idea by you to make sure I am making a good educated decision. I appreciate your comments. Thank you.
If you have run simulations and you look good at this point I think what you propose is fine. Just keep up your investment habits and you should be even better. We are in a similar situation although we are in our mid fifties. Our fee only financial planner says we can go even more conservative that you at 30/70. We have run every simultion we can find and it appears to be true. However I feel like you and fudged the AA to 35/65. It probably won't make a difference but it satisfies the nagging little voice that says 30/70 is too conservative. You have done well at such a young age. Now you have a different problem: how to structure a diversified FI allocation since it is so large. It's always one dang thing after another :confused !I always tended to think stocks were more complicated than bonds, but I was wrong and have been following the numerous threads on bond strategies with interest. Good luck.

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Re: Am I making a mistake being too conservative?

Post by jnet2000 » Mon Jan 19, 2015 2:33 pm

IPer wrote:I believe 7 figures is irrelevant. The answer to your questions should mainly be about how much you are spending vs how much you are saving.
You should run the simulations at firecalc.com and cfiresim.com with your figures. I ran mine and it says I am fine, working the next 15 years
and contributing minimally (maxing Roth IRA only) based on my income / spending and so forth. It said I am fine at 20% bonds through 50% bonds,
I did not try it for 60% bonds but I imagine it is not that much different. So you could most likely choose whichever allocation you feel is right within
that context, either continue to contribute at that allocation and rebalancing or putting the new monies into a new allocation as you desire and
all will be fine. Make sense?

yeah, I went and plugged in 40%/60% s/b and it is fine, I also dropped off any contributions (no more Roth IRA) and it still works so I guess I am
golden for now barring any unforeseen emergencies, so cannot quit just yet! :)
I ran multiple scenarios using firecalc.com and I have a 100% success rate going down as low as 5% stocks as long as I continue to save 10-20% of my income during my working years. I guess I have to learn to spend more money :oops: I don't plan to go below 40% for my stock index allocation until I am fully retired because I know there are life changes I can not control.
novicemoney wrote:

If you have run simulations and you look good at this point I think what you propose is fine. Just keep up your investment habits and you should be even better. We are in a similar situation although we are in our mid fifties. Our fee only financial planner says we can go even more conservative that you at 30/70. We have run every simultion we can find and it appears to be true. However I feel like you and fudged the AA to 35/65. It probably won't make a difference but it satisfies the nagging little voice that says 30/70 is too conservative. You have done well at such a young age. Now you have a different problem: how to structure a diversified FI allocation since it is so large. It's always one dang thing after another :confused !I always tended to think stocks were more complicated than bonds, but I was wrong and have been following the numerous threads on bond strategies with interest. Good luck.
I completely agree with you. I don't understand bonds like I do stocks. I hold only two bond funds, Total Bond Market & CA Intermediate Term. My portfolio is very, very simple but I need to become more educated on fixed income options regardless if I decide to add more funds.

I plan to have Vanguard provide a financial plan so I can get a second opinion. I am even considering using their Personal Advisory Services to make sure I don't make an emotional decision that is detrimental.

Again, I really appreciate all the comments and encouragement. It means a lot! This forum is amazing!
"You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing" Warren Buffet

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Re: Am I making a mistake being too conservative?

Post by Confused » Mon Jan 19, 2015 2:36 pm

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Re: Am I making a mistake being too conservative?

Post by linenfort » Mon Jan 19, 2015 6:54 pm

Grt2bOutdoors wrote:You've got to know when to hold them, know when to fold them, know when to walk away, know when to stay, you can't count your money when your sitting at the table, they'll be time enough for counting when the dealings done.............. :D

when to run!
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Re: Am I making a mistake being too conservative?

Post by alpenglow » Tue Jan 20, 2015 7:16 pm

I am glad to see another conservative younger Boglehead. My profile is similar to yours - mid 30s, almost $1m net worth, and close to a paid off mortgage. I live a low-key lifestyle and save about 25-30% of my salary a year. Using every available calculator, I should be more than covered (and that doesn't include my pension). It is easy to have a high equity allocation in a bull market. I remember 2008, the tech bubble, and even 1987, so I sleep well at night with a 40/60 allocation. I totally support your move to a more conservative allocation.

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Re: Am I making a mistake being too conservative?

Post by hoops777 » Tue Jan 20, 2015 11:00 pm

You have won the game as long as you making money and invest in an intelligent conservative manor.Right now you are at halftime but there is a reason they play all 4 quarters.Right now you are up 25 at the half.Watch the last 5 minutes of the Seattle/Green Bay game played Sunday and see why one should never celebrate too early.I am surprised so many here are calling the game with you being so young.You never know what is going to happen in life and you have a lot of years for the unexpected to happen......40/60 sounds good to me.
K.I.S.S........so easy to say so difficult to do.

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