Retirees: Who's increasing their equities as they age?

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Dandy
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Re: Retirees: Who's increasing their equities as they age?

Post by Dandy » Tue Apr 10, 2018 4:58 pm

Not intentionally. TIRA is large and mostly fixed income about 20/80 and taxable is pretty much the opposite. Both about equal. So TIRA RMDs will tend to deplete fixed income and since equities outperform fixed income over the long run I will likely experience increasing equity allocation overall.

Do I really want to incur cap gains tax to rebalance? I have a high income floor and the RMD puts me well over the income I really need. Selling taxable equities that have large cap gains will cause tax stress!! :happy I may try to gift appreciated equities to heirs or charity but I was hoping to leave heirs stepped up value instead of just transferring tax liability.

I'm not complaining just underestimated the situation during the accumulation and early retirement years.

bayview
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Re: Retirees: Who's increasing their equities as they age?

Post by bayview » Tue Apr 10, 2018 5:08 pm

Hoping to retire in nine months...

With our relatively (compared to BH’ers) limited retirement savings, we have a floor of 15 - 20 years’ worth of withdrawals in the G fund. Everything else is equity.

If stocks do well, we will draw some from stocks as well as G, but otherwise, we’ll just draw down the bonds, allowing stocks to grow, one hopes.

So under that plan, there’s a good chance that we will increase our equities.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

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Will do good
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Re: Retirees: Who's increasing their equities as they age?

Post by Will do good » Tue Apr 10, 2018 6:07 pm

We will increase our equities as we age, current AA 55/45

1. When we gets Medicare
2. When we collect SS at 70

Our goal is to grow the portfolio for future generations.

RAchip
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Re: Retirees: Who's increasing their equities as they age?

Post by RAchip » Tue Apr 10, 2018 8:12 pm

Pops1860 wrote:
Tue Apr 10, 2018 2:13 pm
Just our 2 cts. DW and I may be bogleheads with an aversion to risk-aversion?? If such a thing exists...

DW and I have always been 95+% equities since we started investing, back when we were in our mid to late 30's. 401Ks, trad and Roth IRAs, taxable, didn't matter. Kept 95+% during entire working career, kept it for 'between years' from 66 to 70 while we did some Roth IRA conversions, still keeping it now 70+ and now getting both SS (DW and I) as well as 3 pensions (that started at or before 66). Doing the 'spousal restricted SS claim' for me, full SS claim for DW between 66-70 helped. Between working, pensions, and (two step) SS claiming strategy, always had the cash flow we needed.

Yes, just sat on AA during 2008-2009 excitement, saw it drop and then come back and then some. Have no regrets so far. I vaguely remember one or two other 'significant market drops' that happened before then as well. So, yes, I think we know our risk tolerance limits.

We have never (so far) had to draw on our investments, so we fit the category 'have enough cash flow to cover everything comfortably without drawing down investments.' We have bought into the long-term equities vision, and we see our investments at this point as estate assets (family beneficiaries and some charities), as well as 'emergency fund' for medical expenses if we end up needing it for this purpose. Will probably start pulling some out and spending (more) on ourselves and special family activities as well, we'll see.

So, we just sit and watch, enjoy the excitement, and go along for the ride. Not recommending this approach, just sayin' that's what we've been doing, and each to his/her own.
RAchip wrote:
Tue Apr 10, 2018 1:00 pm
My parents passed away recently (both in their 80's). They were 100% equities (mostly individual stocks) their whole lives up until they died except they built up a little more cash than normal when it became apparent they were getting sick. Through this approach they amassed a large amount of wealth.
Just wanted RAchip to note we probably would have enjoyed meeting your parents to trade stories. Always looking for 'confirmation bias' feedback when we can get it.
My parents did not have any pensions of any significance (my Dad had one but it was miniscule). They lived off their savings/investments. My Dad was a buy-and-hold stock picker. They held many stocks for decades. My Dad thought bonds were for suckers. It worked out for them. I am not quite as brave. I have some municipal bonds and a decent amount in s&p funds but a lot in individual blue chip dividend type stocks because I have seen first hand how that can work.

snarlyjack
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Re: Retirees: Who's increasing their equities as they age?

Post by snarlyjack » Tue Apr 10, 2018 10:09 pm

RAchip,

I just wanted to chime in & say...way to go...they work out good... :sharebeer

MrPotatoHead
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Re: Retirees: Who's increasing their equities as they age?

Post by MrPotatoHead » Tue Apr 10, 2018 11:28 pm

For some it is simply that retirement is a math equation and an increase in your asset base or a decrease in the need for your portfolio to generate revenue (i.e. the onset of SS or a pension) may dramatically your asset allocation as a matter of practicality.

For example I am still vacillating on keeping 10 or 15 years expenses in short term safe investments (CDs, treasures etc). Which ever number I choose effectively means that I am free to put the rest of my assets in equities. In my case that means 14 - 22% in short terms and 78 - 86% in equities. Once we hit Social Security the same 10-15 years in expenses would shift us to a 3 - 5% in short term and 95 - 97% in equities.

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Re: Retirees: Who's increasing their equities as they age?

Post by MrPotatoHead » Tue Apr 10, 2018 11:29 pm

Will do good wrote:
Tue Apr 10, 2018 6:07 pm
We will increase our equities as we age, current AA 55/45

1. When we gets Medicare
2. When we collect SS at 70

Our goal is to grow the portfolio for future generations.
+1

heyyou
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Re: Retirees: Who's increasing their equities as they age?

Post by heyyou » Wed Apr 11, 2018 12:33 am

Currently age 68, spending from portfolio and no-COLA pension. SS at age 70 plus the pension, will be more than our nominal work income. We might try McClung's spending from bonds first to let the equities grow, thus inadvertently increasing equities.

SGM
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Re: Retirees: Who's increasing their equities as they age?

Post by SGM » Wed Apr 11, 2018 4:51 am

I read these studies about rising equity allocation as one ages in retirement some time ago and found them intriguing. On approaching retirement I cut back on equities from 100 to currently 70%. This seems pretty aggressive for a retiree so I don't think I will increase my stock allocation any time in the near future. I am only 4 years into retirement and have yet to take SS. We are considering a SPIA ladder at some later date with a part of the portfolio.

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munemaker
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Re: Retirees: Who's increasing their equities as they age?

Post by munemaker » Wed Apr 11, 2018 7:08 am

snarlyjack wrote:
Tue Apr 10, 2018 10:09 pm
RAchip,

I just wanted to chime in & say...way to go...they work out good... :sharebeer
On the individual stocks, I say just make sure you are well diversified and don't have too much in any one stock. They can and do blow up. Most recent example GE.

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munemaker
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Re: Retirees: Who's increasing their equities as they age?

Post by munemaker » Wed Apr 11, 2018 7:11 am

MrPotatoHead wrote:
Tue Apr 10, 2018 11:29 pm
Will do good wrote:
Tue Apr 10, 2018 6:07 pm
We will increase our equities as we age, current AA 55/45

1. When we gets Medicare
2. When we collect SS at 70

Our goal is to grow the portfolio for future generations.
+1
MrPotatoHead and Will do good: I understand changing asset allocation when you collect SS at 70 because you will have a lower withdrawal rate from your portfolio. What is your reasoning for increasing equities when drawing Medicare, presumably at 65? I am approaching 65 and was thinking I should have a relatively low equity allocation for a few years due to the sequence of withdrawal risk.

Thanks!

RetiredWithDementia
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Re: Retirees: Who's increasing their equities as they age?

Post by RetiredWithDementia » Wed Apr 11, 2018 8:04 am

This original post is like something I saw on CNBC web about lowing fixed allocation. My feeling is, hey why do we all just switch to Day Trading? That sounds like fun, why not, must work better than what we're doing. Me, I do nothing, as in nothing. I could not do anything well even if I worked at it. I was satisfied a couple years ago, asked my wife to totally stay the course, and suggested to my son that his family stay the course after they inherit. I spent long time earning the money and investing with Vanguard, and getting things I think right as rain, so why mess up a good plan.

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Re: Retirees: Who's increasing their equities as they age?

Post by Jeff Albertson » Wed Apr 11, 2018 8:28 am

William Bernstein discussed the Pfau and Kitces study in a 2014 WSJ article, "How to Think About Risk in Retirement" (available to non-subscribers).
https://www.wsj.com/articles/how-to-thi ... 1417408070

People become bullish during a long bull market. You may be better off re-balancing or reducing your stock allocation when stocks are expensive.

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Will do good
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Re: Retirees: Who's increasing their equities as they age?

Post by Will do good » Wed Apr 11, 2018 1:34 pm

munemaker wrote:
Wed Apr 11, 2018 7:11 am
MrPotatoHead wrote:
Tue Apr 10, 2018 11:29 pm
Will do good wrote:
Tue Apr 10, 2018 6:07 pm
We will increase our equities as we age, current AA 55/45

1. When we gets Medicare
2. When we collect SS at 70

Our goal is to grow the portfolio for future generations.
+1
MrPotatoHead and Will do good: I understand changing asset allocation when you collect SS at 70 because you will have a lower withdrawal rate from your portfolio. What is your reasoning for increasing equities when drawing Medicare, presumably at 65? I am approaching 65 and was thinking I should have a relatively low equity allocation for a few years due to the sequence of withdrawal risk.

Thanks!
I retired early and paying private insurance out of pocket, by 65 our health insurance will drop (hopefully by much), than need to spend less out of the portfolio. Aiming AA 75/25 @70 yo.

Larry2623
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Re: Retirees: Who's increasing their equities as they age?

Post by Larry2623 » Wed Apr 11, 2018 1:47 pm

eli80 wrote:
Tue Apr 10, 2018 8:57 am
Once one is at the point where they can safely withdraw the funds they need to live, why not increase equities to get more? Get more in order to leave more to their heirs, charities. Get more to increase spending -for themselves for those that they care to share.

During my working career, even though I could live on what I was making, I sought promotions and employment changes to be able to increase my income. why settle?
That is assuming the market always goes up...what if it goes down for last 10-15 years of your life

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Meg77
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Re: Retirees: Who's increasing their equities as they age?

Post by Meg77 » Wed Apr 11, 2018 3:39 pm

nisiprius wrote:
Tue Apr 10, 2018 12:46 pm
Meg77 wrote:
Tue Apr 10, 2018 9:47 am
There is evidence in some of the most recent retirement studies that starting lower and increasing equity exposure throughout retirement - as opposed to the traditional advice to decrease equity exposure steadily over time - is actually preferable. I can't remember the exact metrics (I think it decreased the likelihood of running out of money and/or enabled a slightly higher safe withdrawal rate), but I believe the original was a Michael Kitces study if you want to google it.

I get the Journal of Financial Planning, and multiple studies and articles have addressed this over the last year. I manage my mother's retirement accounts as of this year and plan to increase her equity exposure over the next 10 years. She's currently at 50/50 and I'm going to have her draw down bonds until she's back to appx 70/30. That may never even happen depending on her withdrawal rate and equity performance over the next decade, but effectively I'm going to have her live off the bonds for the first 5 years of retirement and re-evaluate continually.
Yes, the study was Reducing Retirement Risk with a Rising Equity Glide Path.. But it is not a hugely convincing study and it suffers from a problem that many SWR studies have, which is a hidden risk tolerance assumption that is smuggled in, in the form of the choices made, in this case, for a withdrawal rate.

If you think about it, you can easily see that there is a regular pattern that results from the fact that stocks have had a higher average return but a wider spread of returns. If you choose a conservative withdrawal rate, the findings for almost any strategy are a) a low failure rate, and b) almost no dependence on allocation except at the extremes. As you choose a more and more aggressive withdrawal rate, two things happen. The failure rates increase at all allocations, but increase more at low stock allocations. That's because a high withdrawal rate is at least possible with a high stock allocation, but you are counting on luck to achieve it.

With more aggressive withdrawal rates, the failure rate is relatively lower at higher stock allocations, but it is absolutely higher than with conservative withdrawal rates--at any allocation.

One of their charts, for example, explores a "90% success rate." A 90% success rate sounds high, but in real life a 10% failure rate is not acceptable as a planning assumption. Few would ever board a plane if they thought it had a 10% chance of crashing.

Pfau and Kitces never discuss why they chose to examine the 4% withdrawal rate assumption in some charts, or the 10% failure rate in others. They do not ask the question of whether these numbers are in line with the actual risk tolerances of actual retirees.

Your mother, for example.
Thank you for the link and this explanation. One of the biggest drawbacks for this area of research in my opinion is the assumption (which of course is required) that an investor is going to establish a strict withdrawal strategy and stick to it for decades no matter what happens. This usually includes the assumption of constantly increasing spending each year according to the inflation rate. In reality, people tend to be willing and able to reduce spending when the markets are down or times are otherwise tough. And they tend to reduce spending dramatically over the age of 70 or 75. The moral of the story being that most retirees have much more wiggle room than SWR studies seem to indicate.

Over 50% of my mother's budget is made up of discretionary spending (primarily giving and travel) that could easily be reduced or eliminated. Between social security and her small pension, she will never be homeless or hungry. So the discussion is more of an academic one for her, and for many others I am sure as well. For the record though, she has been at 80/20 for many years before receiving a large gift of muni bonds earlier this year. So her AA is very recently 50/50, and based on her age of 60, higher than typical risk tolerance and lack of total reliance on the portfolio for income, she can easily digest the volatility of a 70/30 portfolio.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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munemaker
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Re: Retirees: Who's increasing their equities as they age?

Post by munemaker » Wed Apr 11, 2018 5:39 pm

Will do good wrote:
Wed Apr 11, 2018 1:34 pm
munemaker wrote:
Wed Apr 11, 2018 7:11 am
MrPotatoHead wrote:
Tue Apr 10, 2018 11:29 pm
Will do good wrote:
Tue Apr 10, 2018 6:07 pm
We will increase our equities as we age, current AA 55/45

1. When we gets Medicare
2. When we collect SS at 70

Our goal is to grow the portfolio for future generations.
+1
MrPotatoHead and Will do good: I understand changing asset allocation when you collect SS at 70 because you will have a lower withdrawal rate from your portfolio. What is your reasoning for increasing equities when drawing Medicare, presumably at 65? I am approaching 65 and was thinking I should have a relatively low equity allocation for a few years due to the sequence of withdrawal risk.

Thanks!
I retired early and paying private insurance out of pocket, by 65 our health insurance will drop (hopefully by much), than need to spend less out of the portfolio. Aiming AA 75/25 @70 yo.
OK, I see your logic now. I am recently retired and am at 50-50. Considering increasing that over time, but no plan at this point. 75/25 @ 70 seems a little aggressive to me. Here again, depends on whether you have other income sources (besides your investments).

MrPotatoHead
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Re: Retirees: Who's increasing their equities as they age?

Post by MrPotatoHead » Wed Apr 11, 2018 5:49 pm

munemaker wrote:
Wed Apr 11, 2018 7:11 am
MrPotatoHead wrote:
Tue Apr 10, 2018 11:29 pm
Will do good wrote:
Tue Apr 10, 2018 6:07 pm
We will increase our equities as we age, current AA 55/45

1. When we gets Medicare
2. When we collect SS at 70

Our goal is to grow the portfolio for future generations.
+1
MrPotatoHead and Will do good: I understand changing asset allocation when you collect SS at 70 because you will have a lower withdrawal rate from your portfolio. What is your reasoning for increasing equities when drawing Medicare, presumably at 65? I am approaching 65 and was thinking I should have a relatively low equity allocation for a few years due to the sequence of withdrawal risk.

Thanks!
If I did not have to pay for health care my annual expenses would be X. However the cost of my current health insurance is roughly 1/2 of X. Which is to say, health care is a significant cost of my annual expenses. I would expect it to decrease dramatically with the onset of medicare. Thus the potential to shift asset allocation.

I should mention my goal is the same as 'Will do good" , to preserve and grow the family wealth for future generations.

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munemaker
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Re: Retirees: Who's increasing their equities as they age?

Post by munemaker » Wed Apr 11, 2018 6:06 pm

MrPotatoHead wrote:
Wed Apr 11, 2018 5:49 pm
munemaker wrote:
Wed Apr 11, 2018 7:11 am
MrPotatoHead wrote:
Tue Apr 10, 2018 11:29 pm
Will do good wrote:
Tue Apr 10, 2018 6:07 pm
We will increase our equities as we age, current AA 55/45

1. When we gets Medicare
2. When we collect SS at 70

Our goal is to grow the portfolio for future generations.
+1
MrPotatoHead and Will do good: I understand changing asset allocation when you collect SS at 70 because you will have a lower withdrawal rate from your portfolio. What is your reasoning for increasing equities when drawing Medicare, presumably at 65? I am approaching 65 and was thinking I should have a relatively low equity allocation for a few years due to the sequence of withdrawal risk.

Thanks!
If I did not have to pay for health care my annual expenses would be X. However the cost of my current health insurance is roughly 1/2 of X. Which is to say, health care is a significant cost of my annual expenses. I would expect it to decrease dramatically with the onset of medicare. Thus the potential to shift asset allocation.

I should mention my goal is the same as 'Will do good" , to preserve and grow the family wealth for future generations.
Do you have other income sources besides your investments?

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Will do good
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Re: Retirees: Who's increasing their equities as they age?

Post by Will do good » Wed Apr 11, 2018 6:18 pm

munemaker wrote:
Wed Apr 11, 2018 5:39 pm
Will do good wrote:
Wed Apr 11, 2018 1:34 pm
munemaker wrote:
Wed Apr 11, 2018 7:11 am
MrPotatoHead wrote:
Tue Apr 10, 2018 11:29 pm
Will do good wrote:
Tue Apr 10, 2018 6:07 pm
We will increase our equities as we age, current AA 55/45

1. When we gets Medicare
2. When we collect SS at 70

Our goal is to grow the portfolio for future generations.
+1
MrPotatoHead and Will do good: I understand changing asset allocation when you collect SS at 70 because you will have a lower withdrawal rate from your portfolio. What is your reasoning for increasing equities when drawing Medicare, presumably at 65? I am approaching 65 and was thinking I should have a relatively low equity allocation for a few years due to the sequence of withdrawal risk.

Thanks!
I retired early and paying private insurance out of pocket, by 65 our health insurance will drop (hopefully by much), than need to spend less out of the portfolio. Aiming AA 75/25 @70 yo.
OK, I see your logic now. I am recently retired and am at 50-50. Considering increasing that over time, but no plan at this point. 75/25 @ 70 seems a little aggressive to me. Here again, depends on whether you have other income sources (besides your investments).
By 70yo the 25% bonds plus SS should cover my expense 15+ years, that should cover most down turns.

At 70, I like to think my portfolio as anyone would at the growth stage of a portfolio, be more aggressive for the future (not my future), but the next generations.

TravelforFun
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Re: Retirees: Who's increasing their equities as they age?

Post by TravelforFun » Wed Apr 11, 2018 6:48 pm

I keep 10 years worth of my expenses in bonds, MM, and cash, and therefore, I let my AA changes freely. The equity portion of my AA has risen gradually the last few years but I don't adjust it back down.

TravelforFun

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Will do good
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Re: Retirees: Who's increasing their equities as they age?

Post by Will do good » Wed Apr 11, 2018 7:00 pm

TravelforFun wrote:
Wed Apr 11, 2018 6:48 pm
I keep 10 years worth of my expenses in bonds, MM, and cash, and therefore, I let my AA changes freely. The equity portion of my AA has risen gradually the last few years but I don't adjust it back down.

TravelforFun
Good idea.

MrPotatoHead
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Re: Retirees: Who's increasing their equities as they age?

Post by MrPotatoHead » Wed Apr 11, 2018 7:47 pm

munemaker wrote:
Wed Apr 11, 2018 6:06 pm
MrPotatoHead wrote:
Wed Apr 11, 2018 5:49 pm
munemaker wrote:
Wed Apr 11, 2018 7:11 am
MrPotatoHead wrote:
Tue Apr 10, 2018 11:29 pm
Will do good wrote:
Tue Apr 10, 2018 6:07 pm
We will increase our equities as we age, current AA 55/45

1. When we gets Medicare
2. When we collect SS at 70

Our goal is to grow the portfolio for future generations.
+1
MrPotatoHead and Will do good: I understand changing asset allocation when you collect SS at 70 because you will have a lower withdrawal rate from your portfolio. What is your reasoning for increasing equities when drawing Medicare, presumably at 65? I am approaching 65 and was thinking I should have a relatively low equity allocation for a few years due to the sequence of withdrawal risk.

Thanks!
If I did not have to pay for health care my annual expenses would be X. However the cost of my current health insurance is roughly 1/2 of X. Which is to say, health care is a significant cost of my annual expenses. I would expect it to decrease dramatically with the onset of medicare. Thus the potential to shift asset allocation.

I should mention my goal is the same as 'Will do good" , to preserve and grow the family wealth for future generations.
Do you have other income sources besides your investments?
Potentially yes, but I am not counting on it and do not count it.

drzzzzz
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Re: Retirees: Who's increasing their equities as they age?

Post by drzzzzz » Wed Apr 11, 2018 8:21 pm

So much of this is recency bias because we have had an uptrending market for 8 years - when the stock market drops 50% and portfolios are smaller, people will think differently about stocks and I am sure investors in the Japanese stock market over the last 20 years have a different perspective as well, watching their market do basically nothing. I am a firm believer of Bernstein's quote that if you have won the game, stop playing, especially if you need those funds for retirement. IF you don't need the money, then do whatever you want with your stock allocation since it has no impact on how you live, only on your emotional state of losing money you didn't need or making a lot more money that you won't need or use.

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Re: Retirees: Who's increasing their equities as they age?

Post by Hyperborea » Wed Apr 11, 2018 9:37 pm

drzzzzz wrote:
Wed Apr 11, 2018 8:21 pm
So much of this is recency bias because we have had an uptrending market for 8 years - when the stock market drops 50% and portfolios are smaller, people will think differently about stocks and I am sure investors in the Japanese stock market over the last 20 years have a different perspective as well, watching their market do basically nothing. I am a firm believer of Bernstein's quote that if you have won the game, stop playing, especially if you need those funds for retirement. IF you don't need the money, then do whatever you want with your stock allocation since it has no impact on how you live, only on your emotional state of losing money you didn't need or making a lot more money that you won't need or use.
This reads to me as:
So many people hold a different opinion than me because we have had an uptrending market for 8 years - when the stock market drops 50% and portfolios are smaller, people will realize how wrong they are and how smart I was about stocks and I am sure investors in the Japanese stock market over the last 20 years who have followed the standard Boglehead portfolio of 100 home market have a different perspective as well, watching their market do basically nothing.

Yet again the Japanese boogey man raises it's head. Have you actually looked at the market data? The issue is the assumption that somebody would or should hold a 100% home market bias portfolio. It's become the standard "Boglehead portfolio" amongst a sizable percentage. How about the Japanese investor holding a world portfolio for the last 20 years? They would have done as well as anybody else holding a world portfolio. How about a Japanese investor perhaps overweighting their home country with an extra 20%? They would have done ok too and only somewhat below the world portfolio - ~5% over those 20 years. How about somebody with a 100% home market Japan only portfolio? They wouldn't have done as well but not as bad as you are making it out to be. When you add in the pretty much 0% inflation in Japan over the 20 years then those returns look even better still.

https://www.portfoliovisualizer.com/bac ... ion3_3=100

Perhaps the lesson is to not be completely home market biased? Nah, let's just be anti-equities.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

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