Who follows Age in Bonds

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stemikger
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Who follows Age in Bonds

Post by stemikger » Thu Apr 23, 2015 9:56 am

In my younger years, before I knew what kind of investor I was and didn't really know much, I was very conservative. In my 30s, I was 50/50 and then as I learned I gradually was 60/40 for many years.

I know age in bonds is a starting place, but are there any folks who invested this way and stayed with it for may years. If so, do you have any regrets and do you think it is too conservative in today's bond environment. After losing my mind last year and changed my AA due to confusion and trying to do the right thing, I am now settling in to where I should be at my age (50).

I think age minus 10 seems to be a comfortable place for me and after thinking about age in bonds, I think age minus 10 or even 15 is a great place. Minus 20 might be pushing it for me.

So, how many do this and how many think it is too conservative to reach your goals. Also, how many are taking on my equity risk because they think it is different this time when it comes to bonds.
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watchnerd
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Re: Who follows Age in Bonds

Post by watchnerd » Thu Apr 23, 2015 10:05 am

I don't view my portfolio through the usual binary stock/bond split.

I have equities, hard assets (MLPs, REITs), and bonds/cash. I'm 45. I'm 55% equities, 20% hard assets, 25% bonds/cash.

I think there is room for 'other' in a portfolio if one has the right assets (low correlation) that provides additional diversification and potential inflation protection, as well as yield, that is different from bonds and, in our current low yield environment, often better.

So do I follow it? Eh....kind of...I'm 55% equities (the inverse of age in bonds), but I'm not 45% bonds.
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Re: Who follows Age in Bonds

Post by LateStarter1975 » Thu Apr 23, 2015 10:08 am

I wrestled with this too. At the end, I arrived at my AA of Age minus 20 in bonds. Yes, it's pretty aggressive but I also started late, so need to be aggressive. If I get close to reaching my number before my 20 years timeline, I'll of course adjust my AA to a more conservative number
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Re: Who follows Age in Bonds

Post by pointyhead » Thu Apr 23, 2015 10:09 am

I turn 50 next month. I'm 70/30 stocks/bonds. I feel pretty comfortable with that as I currently work but have other retirement income that can pretty much support my current lifestyle. I am thinking of going 60/40 when I turn 50 or age-10. Interested to see what others do.

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Professor Emeritus
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Re: Who follows Age in Bonds

Post by Professor Emeritus » Thu Apr 23, 2015 10:10 am

Age is only a proxy for life expectancy. as you get older life expectancy becomes much easier to deal with
60 is a convenient year to shift from worrying about age to worrying about life expectancy
it fundamentally changes your portfolio asset allocation strategy.

if you are 60 and a typical male boglehead with no special health problem you have a very high level of confidence that your life expectancy is 83 + or - 10 females add 2 years.

You can buy an deferred annuity as a response to longevity risk. (deferring SS is the cheapest and best.)

As noted elsewhere your consumption requirements are
1) routine
2) discretionary
3) Catastrophic

These drive your portfolio asset allocations. Age or life expectancy is only important for the first.

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mhc
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Re: Who follows Age in Bonds

Post by mhc » Thu Apr 23, 2015 10:11 am

I don't follow age in bonds. I think it is better to set AA based on phases of life. For example, right now I am 80/20. Once I hit my next goal, I will glide to 70/30. When I retire, I will glide to 60/40. Later in retirement, I may glide to 50/50. Since the market does not care about my age, I do not factor it into my AA. If everything in life was controlled by age, then I might base my AA on age, but since it is not, I'll leave age out of the equation.

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Re: Who follows Age in Bonds

Post by Index Fan » Thu Apr 23, 2015 10:14 am

I follow age in bonds as a great rule of thumb. I have close to my age in bonds right now. I sleep well.
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Re: Who follows Age in Bonds

Post by Professor Emeritus » Thu Apr 23, 2015 10:14 am

watchnerd wrote:hard assets (MLPs, REITs)

Just curious, I agree these are assets, what makes them "hard" assets
I see them as complex
My FIL loved these and as the attorney for his estate, they were an administrative nightmare

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greg24
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Re: Who follows Age in Bonds

Post by greg24 » Thu Apr 23, 2015 10:17 am

I used to. I followed it from about age 30 to age 40. I appreciated the historic place for bonds in a portfolio, and knew I was being "conservative" according to most modern investors.

As I approached 40, I began to question age in bonds. At age 50, I'd have half my portfolio in bonds. I was uncomfortable with that idea. I appreciate the balance that bonds provide, but having half, and then a majority of my allocation in a somewhat lower performing asset just didn't make sense to me.

So, I decided that I am sticking with 60/40 for the foreseeable future. If it works for institutional portfolios, it will work for me.

I've been at it for 2 years now, and plan on sticking with it. But I also know perspective can change. Maybe if I've "won the game" at 50, I'll decide to go back to age in bonds.

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Re: Who follows Age in Bonds

Post by Peter Foley » Thu Apr 23, 2015 10:27 am

Professor Emeritus wrote:
Age is only a proxy for life expectancy. as you get older life expectancy becomes much easier to deal with
60 is a convenient year to shift from worrying about age to worrying about life expectancy
it fundamentally changes your portfolio asset allocation strategy.
I hadn't thought of age in bonds in this light, but I think this line of thinking has a lot of merit.

I followed the age minus 10 formula for many years. My perspective changed when I realized my retirement savings goals earlier than I had anticipated. At that point I has less need to take risk and modified my AA accordingly.

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Re: Who follows Age in Bonds

Post by gkaplan » Thu Apr 23, 2015 3:34 pm

I turn seventy-two in July, so my bond allocation is forty percent.
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Re: Who follows Age in Bonds

Post by dbr » Thu Apr 23, 2015 3:37 pm

I use a "Fountain of Youth" tonic to adjust my age to my allocation in bonds :mrgreen:

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watchnerd
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Re: Who follows Age in Bonds

Post by watchnerd » Thu Apr 23, 2015 3:45 pm

Professor Emeritus wrote:
watchnerd wrote:hard assets (MLPs, REITs)

Just curious, I agree these are assets, what makes them "hard" assets
I see them as complex
My FIL loved these and as the attorney for his estate, they were an administrative nightmare
For MLPS, correlation, ownership structure, earnings payout structure.
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Re: Who follows Age in Bonds

Post by Chadnudj » Thu Apr 23, 2015 3:50 pm

I'm currently 35. I'm pretty sure I'm going to go 80-20 stocks-bonds, and I'm not sure if I will ever change that....

Maybe when I'm 50, I'll have a change of heart and think that I'd sleep better with more bonds. But for right now, 20% bonds is plenty of ballast in my portfolio, and since I'm in this game for the long term, I'm sticking with stocks for the vast majority of my portfolio.

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Re: Who follows Age in Bonds

Post by letsgobobby » Thu Apr 23, 2015 3:51 pm

I'm coming around to the idea that my least risky allocation should occur the day I retire: I no longer have income to pump up my portfolio; and I have the most number of years remaining in retirement.

Five years later, I have 5 fewer years I need to support myself: I can take a little more risk (though I might not want or need to; on the other hand my heirs my want or need me to).

Five years earlier, I still have 5 years of income and savings with which to replenish, to buy risky assets low if they go on sale.

So I am age in bonds now (60/40, 41 years old). I think I will not change much for the next decade and then drift pretty quickly to 50/50 by 55 or so, barring major changes in stock or bond valuations/prices. Not strictly age in bonds, but following the principle anyway.

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tyrion
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Re: Who follows Age in Bonds

Post by tyrion » Thu Apr 23, 2015 4:29 pm

This is a timely question. I just switched to 40% bonds (from 34%) today. Change in need, willingness, ability to take risk prompted me to switch to a slightly safer allocation.

Edited to add: Age 43. Trying to follow age-5 in bonds, up to a certain age yet to be determined.
Last edited by tyrion on Fri Apr 24, 2015 10:15 am, edited 1 time in total.

tenkuky
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Re: Who follows Age in Bonds

Post by tenkuky » Thu Apr 23, 2015 4:57 pm

Age-20 for me
Till I realized I was at 12-15% bonds only (at 45 years age, eek)
So I've been rebalancing regularly.
Upto 20% now and getting there (to 25%) by mid-year.

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Re: Who follows Age in Bonds

Post by FelixTheCat » Thu Apr 23, 2015 5:23 pm

Losing 20% of my portfolio during a major market correction is about as much as I can handle. I am very conservative 40/60 at age 52.
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William Million
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Re: Who follows Age in Bonds

Post by William Million » Thu Apr 23, 2015 7:11 pm

I'm age = +5 bonds.

Reason: I've hit my "number" so am a bit more conservative. I also tend to be cautious a the end of a 6 year bull market.

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Re: Who follows Age in Bonds

Post by columbia » Thu Apr 23, 2015 8:35 pm

Age - 20 and plan to switch to age - 10 at retirement.
Why? It just seems appropriate (for me).

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stemikger
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Re: Who follows Age in Bonds

Post by stemikger » Fri Apr 24, 2015 1:16 am

FelixTheCat wrote:Losing 20% of my portfolio during a major market correction is about as much as I can handle. I am very conservative 40/60 at age 52.
I know. It's easy to forget how that felt when the market keeps going up especially when you hit 50 and the amount is substantial compared to when you first started out.

I really love Warren Buffett and I'm sure he is right about being 90% in the Vanguard 500 Index (long term) for the average investor, but he really is underestimating the way regular people might react when that happens a few years before or in retirement. Losing half of a $500K or $1 million dollar portfolio will not feel so good after 20 years of saving.

I may be looking at this all wrong, but that is the reality behind my 60/40 portfolio at 50.
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Re: Who follows Age in Bonds

Post by 2comma » Fri Apr 24, 2015 2:22 am

FelixTheCat wrote:Losing 20% of my portfolio during a major market correction is about as much as I can handle. I am very conservative 40/60 at age 52.
That's my thinking as well. I am 60 and (retired at 58) so I am in "The Red Zone" and want to be a little more conservative at 40/60. I think more about keeping what I have than growing it, the "Tortuous and the Hare" and about getting too greedy. I was 80/20 during the accumulation phase so I didn't follow the age-in-bonds then and I probably won't go below 30% stocks beyond age 70 but I used it as my North Star for navigation purposes.
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Re: Who follows Age in Bonds

Post by tibbitts » Fri Apr 24, 2015 7:58 am

Given access to, for example, freshly-minted 3.6% ibonds, I think the responses would be a lot different. So really this is showing some recency bias - people looking at negative or break-even real yields on bonds, and coming off a couple of recent severe equity downturns that turned out to be very, very temporary. Ask the question after a 20-year equity market downturn and you won't the same responses, even on this forum, where people claim to create plans and stick with them, more or less independent of environmental factors.

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Re: Who follows Age in Bonds

Post by Grt2bOutdoors » Fri Apr 24, 2015 8:15 am

I've never really subscribed to "age in bonds". We're at 70/30 right now, as we check off goal posts we will dial back on equities and add more to fixed income. It's more about keeping what I have plus some growth for legacy purposes. I don't care if I'm not the richest man in the graveyard. I plan on being at 50/50 come retirement.
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Re: Who follows Age in Bonds

Post by wander » Fri Apr 24, 2015 8:23 am

No, but I follow Vanguard Target Retirement closely in term of equity/bonds allocation.

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Re: Who follows Age in Bonds

Post by kingsnake » Fri Apr 24, 2015 8:28 am

As Total Stock Market has taken off the past few years my bond allocation has drifted down and I haven't rebalanced. Probably at 25% bonds at age 41. Problem is almost all my bond allocation needs to be Muni's and I'm not sure about having 80% of my bond allocation all in Munis.

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Re: Who follows Age in Bonds

Post by ourbrooks » Fri Apr 24, 2015 2:56 pm

Get yourself a copy of the latest American Association of Individual Investors Journal. It has two articles that look at retirement withdrawals with two different analyses. Both articles included "age in bonds." In both articles, "age in bonds" was better than all cash or all bonds, but was worse than every other strategy, by the criterion of not running out of money.

Glidepath strategies trade off reduced volatility for reduced income, so if a period of higher inflation hits late in retirement, the chances of running out of money increase. When John Bogle gave his original advice about "age in bonds" life expectancies were lower so this didn't matter as much. Also, he's gone back and modified his advice to suggest including the present value of Social Security and pensions as part of the bonds. For someone with $500,000 in investments and a $20,000 a year Social Security payout, they'd still have to be 56% in stocks at age 65 to follow the "age in bonds" guideline.

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Re: Who follows Age in Bonds

Post by dc81584 » Fri Apr 24, 2015 5:47 pm

Age in bonds is too conservative for me. I'm 30 years old, and my AA is roughly 85/15. I plan on sticking with this AA for the next 20 years, as I do not take pleasure in splurging on fancy material possessions, have little debt, and would like to work full-time until I am at least 67.

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Re: Who follows Age in Bonds

Post by cjackson0 » Fri Apr 24, 2015 6:16 pm

Wow. I must be the only one actually (roughly) following age in bonds.
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Re: Who follows Age in Bonds

Post by dh » Fri Apr 24, 2015 7:17 pm

This is a fascinating thread with some variability. The following is purely anecdotal (I would be interested in being directed to any studies available): I have talked with many friends in their late 50s and early 60s who are comfortable being 65%, 70%, 75%, even 80% in equities; while my late 20 year old nieces and nephews who have some money available hold less than 25% in equities. It seems like they fear equity markets more than they should, and some of my older friends may not fear it enough. I imagine that experience has been a teacher for both age groups, yet I find it fascinating that my observation is opposite the age in bonds (or fairly close) formula. Does my limited observation "fit" the research findings, or is my world anomalous? :?

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Re: Who follows Age in Bonds

Post by backpacker » Fri Apr 24, 2015 7:31 pm

dh wrote:This is a fascinating thread with some variability. The following is purely anecdotal (I would be interested in being directed to any studies available): I have talked with many friends in their late 50s and early 60s who are comfortable being 65%, 70%, 75%, even 80% in equities; while my late 20 year old nieces and nephews who have some money available hold less than 25% in equities. It seems like they fear equity markets more than they should, and some of my older friends may not fear it enough. I imagine that experience has been a teacher for both age groups, yet I find it fascinating that my observation is opposite the age in bonds (or fairly close) formula. Does my limited observation "fit" the research findings, or is my world anomalous? :?
Maybe they're on to something? This paper shows that historically, reverse glide paths (e.g. age in stocks) have had both higher average returns and higher minimum returns. It's both safer and more profitable to own less stock when you're young and more stock when you're old.

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Re: Who follows Age in Bonds

Post by MKP » Fri Apr 24, 2015 7:58 pm

cjackson0 wrote:Wow. I must be the only one actually (roughly) following age in bonds.
I am pretty close.

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Re: Who follows Age in Bonds

Post by Sunny Sarkar » Fri Apr 24, 2015 9:23 pm

stemikger wrote:In my 30s, I was 50/50 and then as I learned I gradually was 60/40 for many years.
Relative to your age,
You need to be conservative in your 30s because you need to make a down payment for a home soon.
You need to be conservative in your 40s because you need to pay for college soon.
You need to be conservative in your 50s & 60s because you are going to retire soon.
You need to be aggressive in your 70s and thereafter because you need to keep up with inflation.
It all boils down to... just do 60/40 all the way! :sharebeer
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Re: Who follows Age in Bonds

Post by pennstater2005 » Fri Apr 24, 2015 9:45 pm

20% in bonds at age 36. I'll revisit this when I'm 40 per my IPS. Doesn't mean I'll change anything though. Just, revisit.
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Re: Who follows Age in Bonds

Post by Rebecca_S » Fri Apr 24, 2015 10:22 pm

I am 38 and have had our asset allocation set at age=bonds for the past 5 years; prior that that it was age-10 in bonds. We were frugal and lucky, accumulated a lot for a while and now are earning less. I want to protect what we have more than I want to risk it. I imagine I will keep age=bonds until about age 60.

Honestly, I'm not sure a 10% swing in asset allocation would matter in the long run but I feel like this is a stage of our lives to be conservative with our investments.

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stemikger
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Re: Who follows Age in Bonds

Post by stemikger » Sat Apr 25, 2015 3:10 am

Sunny Sarkar wrote:
stemikger wrote:In my 30s, I was 50/50 and then as I learned I gradually was 60/40 for many years.
Relative to your age,
You need to be conservative in your 30s because you need to make a down payment for a home soon.
You need to be conservative in your 40s because you need to pay for college soon.
You need to be conservative in your 50s & 60s because you are going to retire soon.
You need to be aggressive in your 70s and thereafter because you need to keep up with inflation.
It all boils down to... just do 60/40 all the way! :sharebeer
Fantastic!! This looks like something I could have written. :beer

Not that much different from Scott Burns Couch Potato Portfolio.

50/50 Total Stock Index and Total Bond Index (For the rest of your natural life).

I'm sure if someone did something like the Vanguard Balanced Index fund from cradle to grave, in the end they would have done very well.
Last edited by stemikger on Sat Apr 25, 2015 6:56 am, edited 3 times in total.
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pennstater2005
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Re: Who follows Age in Bonds

Post by pennstater2005 » Sat Apr 25, 2015 6:09 am

It boils down to need, ability, and willingness to take risk.
“If you think nobody cares if you're alive, try missing a couple of car payments.” – Earl Wilson

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Re: Who follows Age in Bonds

Post by sai » Sat Apr 25, 2015 8:13 am

I am 30 and have 40 percent in bonds, I am a very conservative, it's hard to tolerate losses, willing to modify the lifestyle based on whatever the final value of portfolio is, thus I see a little need to take more risk than that.
Sunny Sarkar wrote:
stemikger wrote:In my 30s, I was 50/50 and then as I learned I gradually was 60/40 for many years.
Relative to your age,
You need to be conservative in your 30s because you need to make a down payment for a home soon.
You need to be conservative in your 40s because you need to pay for college soon.
You need to be conservative in your 50s & 60s because you are going to retire soon.
You need to be aggressive in your 70s and thereafter because you need to keep up with inflation.
It all boils down to... just do 60/40 all the way! :sharebeer
May be I will stick to 60/40 all the way...

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Re: Who follows Age in Bonds

Post by snoopdoug1 » Sat Apr 25, 2015 8:16 am

age-10 for me as well. Seems to work well. If I'm lucky enough to retire at 55, I'll be 55% stocks and 45% bonds which is where I think I want to be in retirement. Or maybe I'll stop at 60/40. Long ways to go!

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Re: Who follows Age in Bonds

Post by peppers » Sat Apr 25, 2015 8:27 am

Averaging our ages...yep...we are spot on age in bonds.
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Re: Who follows Age in Bonds

Post by rgs92 » Sat Apr 25, 2015 8:44 am

I just use Firecalc to determine my asset allocation to get a near 100% chance of never running out of money.

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Re: Who follows Age in Bonds

Post by htdrag11 » Sat Apr 25, 2015 9:14 am

rgs92 wrote:I just use Firecalc to determine my asset allocation to get a near 100% chance of never running out of money.
In my early 60's, still invest in 70-30 mix. Debt free and could afford another 2008 debacle w/o losing sleep at night. Would consider going to 60-40 at 70, unless my health deteriorate.

Yes, I do count my blessing, still live below our means and maintain a fairly healthy life style. :happy

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Re: Who follows Age in Bonds

Post by blevine » Sat Apr 25, 2015 9:57 am

Age-5 in bonds. Like the idea but seemed too conservative, so I tweaked a tiny bit.

A related question is how often to adjust to your age, every year, every 5 years ?
I do this every year, usually after New Years day I adjust my target allocation,
and then make deposits/withdrawals/div reinvestment decisions to gradually
move towards my slowing moving target.

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Re: Who follows Age in Bonds

Post by invest0 » Sat Apr 25, 2015 11:13 am

Am 30 but doing a 60/40, for the reason that I sold a business and got it with a big lump sum just a year ago.

Waiting for time to pass / possibly a bear before going fully age in bonds.

That is, if at all, as the idea of an early semi-retirement is appealing.

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Re: Who follows Age in Bonds

Post by letsgobobby » Sat Apr 25, 2015 12:45 pm

blevine wrote:
A related question is how often to adjust to your age, every year, every 5 years ?
the best time would be right before the next market crash. That's what I'm planning to do.

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Rx 4 investing
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Re: Who follows Age in Bonds

Post by Rx 4 investing » Sat Apr 25, 2015 12:48 pm

I am 57, and have struggled with this too. For whatever it's worth, here's some things I've read and thought about...

1. Rick Ferri's Feb '15 blog post on the "centers of gravity" for investors puts forth a 60/40 allocation for pre-retirees, and 30 % stocks / 70 % bonds for retirees.

http://www.rickferri.com/blog/investmen ... ri+Blog%29

2. Cliff Asness is quick to remind and caution that the cannonical 60/40 split is an equity-heavy portfolio. It is subject to sharp losses in a severe market downturn. I agree with Felix's thought that allocation decisions should start with the basic question, "How much can I afford to lose?" Investing experts William Bernstein and Larry Swedroe both have put forward tables that can help with this. The behavioral finance literature suggests that a -20% loss is around the maximum that most average investors can tolerate before they panic and start selling low. See "Notes" under 'Asset Allocation' at Bogleheads.org. to find the Swedroe "tolerable loss" table. The 50% / 50% portfolio exposes the investor to a potential - 20% loss---roughly the "house of pain" maximum for most small investors.

http://www.bogleheads.org/wiki/Asset_allocation

3. Value investors should take stock market levels into account. For perspective on this, I have found John Kingham's (The UK Value investor) "formula' to be helpful.

Formula: Stock allocation = 100 - 100 x {(CAPE - AvgCAPE / 2) divided by (AvgCAPE x 2 - Avg CAPE / 2)}

BTW--Larry Swedroe disagrees with Shiller's long-term mean for CAPE 10 of 16.5. Larry has re-calculated the mean from the last 50+ years and believes it should be around 19. I have been using Swedroe's 19.

100 minus 100 x {(27.38 * - 19 / 2) divided by (19 x 2 - 19 / 2)}

Doing the math...US stock allocation roughly 40%.

* Source: Multpl.com as 4-24-15

--Using Kingham's non-emotional formulaic approach, the higher the market climbs, the lower our stock allocation should go. The logic recognizes the reducing expected future returns of stocks, and the increasing risk.

--The formula also recognizes the increased likelihood of the market falling from the current levels based on historical valuation and regression to the mean, rather than from volatility. Most value investors should align with this concept.

4. What about international allocations ? Vanguard's research suggests that a maximum international stock allocation of 40% is optimal for most US investors. However at the present time, the US market has substantially out-performed international markets over the last few years, and by comparative standards ( CAPE 10s) has gotten expensive. Cliff Asness has also noted that "international investing works...eventually.'

My conclusion? Taking all of the above into consideration, I have landed at the present time on a 50% / 50% stock-bond portfolio---which tries to incorporate my personalized -20% tolerable loss, current US valuation level, and Vanguard's suggested international allocation. Drilling down...

--Within the stock allocation: I split the difference at 50 % US and 50 % international.

-- On the bond side: I am 90% domestic bonds / 10% international bonds. The international portion is divided equally-- 5% emerging markets + 5% diversified international. ( I believe a Vanguard white paper suggested 10 -20% international bond allocation is acceptable for most small investors. See website)

Although my time to retirement is narrowing, I am able to SWAN (sleep well at night) with these allocations. Best wishes for continuing success, and hope you too can find your SWAN allocations !
“Everyone is a disciplined, long-term investor until the market goes down.” – Steve Forbes

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Index Fan
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Re: Who follows Age in Bonds

Post by Index Fan » Sat Apr 25, 2015 1:31 pm

"Optimum est pati quod emendare non possis." | -Seneca

J295
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Re: Who follows Age in Bonds

Post by J295 » Sat Apr 25, 2015 1:38 pm

I am 55 and have 50% equities and 5% alternatives. The rest is combination of "fixed" which for us are taxable bond funds, non-taxable bonds, savings (Amx), floating rate fund, etc. So, roughly, age in "bonds" minus 10

DanMacMan
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Re: Who follows Age in Bonds

Post by DanMacMan » Sat Apr 25, 2015 2:05 pm

pointyhead wrote:I turn 50 next month. I'm 70/30 stocks/bonds. I feel pretty comfortable with that as I currently work but have other retirement income that can pretty much support my current lifestyle. I am thinking of going 60/40 when I turn 50 or age-10. Interested to see what others do.

PH
Same here. Age 50. 70/30 and some AAPL

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stemikger
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Re: Who follows Age in Bonds

Post by stemikger » Sat Apr 25, 2015 2:29 pm

Rx 4 Investing. Great information. Thanks for posting it.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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