Equity allocation for Flagship clients?

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restingonmylaurels
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Equity allocation for Flagship clients?

Post by restingonmylaurels » Sun Sep 16, 2018 1:43 pm

When I read through the various posts and great insights on this forum, one thought frequently arises in my mind.

That is, when discussing their AA, many people claim to have rather high equity exposure (70% or 80% or more). I am around 50% equity and wonder if I am not doing my AA properly.

While I understand higher equity allocation for those in the accumulation phase, it makes a bit less sense to me if one has significant assets.

I was struck in particular by a comment by M. Grabiner where he was discussing treating a mortgage as a reverse bond to be offset with bonds but other than that, he was 100% equity.

So I am wondering, for those who are Flagship clients and no longer in the accumulation phase, what equity allocation do you hold (and why)?

letsgobobby
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Re: Equity allocation for Flagship clients?

Post by letsgobobby » Sun Sep 16, 2018 1:45 pm

What does flagship status have to do with equity allocation? Is David flagship? It seems your need, ability, and desire to take risk are more relevant than your arbitrary status with one company.

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David Jay
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Re: Equity allocation for Flagship clients?

Post by David Jay » Sun Sep 16, 2018 1:47 pm

For those not with Vanguard, the Flagship level is $1M so the OP is asking those with portfolios north of $1M and in the decumulation phase about your AA.
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ThrustVectoring
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Re: Equity allocation for Flagship clients?

Post by ThrustVectoring » Sun Sep 16, 2018 2:13 pm

Absolute asset levels don't matter particularly much, IMO. What matters is the assets-to-expenses ratio, and possibly your ability to cut spending in down markets.

If your assets-to-expenses ratio is at 25 (that is, the 4% rule applies), then you can't afford to take significantly more risk than the 60% equities or so from the trinity study. You also can't afford to miss out on too much market gains with a significantly lower equity allocation, either.

If your assets-to-expenses ratio is really large (like 50+) then pretty much any asset allocation works. 100% TIPS with zero real yield will last like 50 years. 100% stocks will survive a market correction with enough equity to eventually recover. 100% real estate would also work. Basically anything other than stuffing cash in a mattress would work, and even that wouldn't fail catastrophically.

My advice is 60% stocks if you want to maximize personal spending from your portfolio. If you have much more than you need and want to leave an impact on the world (charity, heirs), then up the equity percentage.

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Re: Equity allocation for Flagship clients?

Post by sport » Sun Sep 16, 2018 3:58 pm

As often quoted on Bogleheads, asset allocation is (should be) determined by your willingness, need, and ability to take risk. When an investor has substantial assets, their ability to take risk increases. However, their need to take risk decreases. So, it comes down to willingness, which is a personal decision. Some Flagship investors may say, I have enough to withstand any downturn, so downturns don't bother me, and I can afford to take more risk, and I want an 80/20 allocation. Other investors with the same assets may say, I don't need to take too much risk and there is no reason to take risk that is not needed, so I want a 40/60 allocation. Still others are risk averse, and decide on a 20/80 allocation. In other words, there is no "one size fits all".

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Re: Equity allocation for Flagship clients?

Post by delamer » Sun Sep 16, 2018 4:10 pm

ThrustVectoring wrote:
Sun Sep 16, 2018 2:13 pm
Absolute asset levels don't matter particularly much, IMO. What matters is the assets-to-expenses ratio, and possibly your ability to cut spending in down markets.

If your assets-to-expenses ratio is at 25 (that is, the 4% rule applies), then you can't afford to take significantly more risk than the 60% equities or so from the trinity study. You also can't afford to miss out on too much market gains with a significantly lower equity allocation, either.

If your assets-to-expenses ratio is really large (like 50+) then pretty much any asset allocation works. 100% TIPS with zero real yield will last like 50 years. 100% stocks will survive a market correction with enough equity to eventually recover. 100% real estate would also work. Basically anything other than stuffing cash in a mattress would work, and even that wouldn't fail catastrophically.

My advice is 60% stocks if you want to maximize personal spending from your portfolio. If you have much more than you need and want to leave an impact on the world (charity, heirs), then up the equity percentage.
Agreed.

We will have all our expenses covered by Social Security and pensions when we are fully retired.

Therefore we will maintain a 70% equity position because we are not dependent on our portfolio to cover expenses.

Also, leaving money to heirs is a high priority and their time horizon is really long.

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Re: Equity allocation for Flagship clients?

Post by livesoft » Sun Sep 16, 2018 4:14 pm

I am not a Flagship client of Vanguard, but I am retired. We have only about 29% of assets in fixed income. We have about 62% of assets in equities. The rest is in TIAA Real Estate Account. I like this asset allocation and will likely keep it for the rest of my life.

So why? Mostly because I like the performance of such a portfolio. I don't care about losing money at all. So far in my life, all losses have been made up and then gains piled on after that. I actually enjoy having losses because it means that I can buy equities at lower prices than I bought them previously.
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Hayden
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Re: Equity allocation for Flagship clients?

Post by Hayden » Sun Sep 16, 2018 4:18 pm

My AA is 50/50. This helps me to sleep well at night.

ThrustVectoring
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Re: Equity allocation for Flagship clients?

Post by ThrustVectoring » Sun Sep 16, 2018 5:06 pm

delamer wrote:
Sun Sep 16, 2018 4:10 pm
ThrustVectoring wrote:
Sun Sep 16, 2018 2:13 pm
Absolute asset levels don't matter particularly much, IMO. What matters is the assets-to-expenses ratio, and possibly your ability to cut spending in down markets.

If your assets-to-expenses ratio is at 25 (that is, the 4% rule applies), then you can't afford to take significantly more risk than the 60% equities or so from the trinity study. You also can't afford to miss out on too much market gains with a significantly lower equity allocation, either.

If your assets-to-expenses ratio is really large (like 50+) then pretty much any asset allocation works. 100% TIPS with zero real yield will last like 50 years. 100% stocks will survive a market correction with enough equity to eventually recover. 100% real estate would also work. Basically anything other than stuffing cash in a mattress would work, and even that wouldn't fail catastrophically.

My advice is 60% stocks if you want to maximize personal spending from your portfolio. If you have much more than you need and want to leave an impact on the world (charity, heirs), then up the equity percentage.
Agreed.

We will have all our expenses covered by Social Security and pensions when we are fully retired.

Therefore we will maintain a 70% equity position because we are not dependent on our portfolio to cover expenses.

Also, leaving money to heirs is a high priority and their time horizon is really long.
I'd go 90% or 100% equities in that situation, especially because of the favorable tax treatment in taxable accounts (most equity returns are capital gains, which are untaxed for heirs via the free step-up in basis on death)

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Re: Equity allocation for Flagship clients?

Post by mhalley » Sun Sep 16, 2018 5:18 pm

Ditto with 50/50 and sleeping. I feel I have won the game, and having a higher stock allocation means I could lose.

nodenuff2
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Re: Equity allocation for Flagship clients?

Post by nodenuff2 » Sun Sep 16, 2018 5:23 pm

Currently we have a 54.1% equity position but am extremely close to rebalancing back to 50%.
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delamer
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Re: Equity allocation for Flagship clients?

Post by delamer » Sun Sep 16, 2018 5:32 pm

ThrustVectoring wrote:
Sun Sep 16, 2018 5:06 pm
delamer wrote:
Sun Sep 16, 2018 4:10 pm
ThrustVectoring wrote:
Sun Sep 16, 2018 2:13 pm
Absolute asset levels don't matter particularly much, IMO. What matters is the assets-to-expenses ratio, and possibly your ability to cut spending in down markets.

If your assets-to-expenses ratio is at 25 (that is, the 4% rule applies), then you can't afford to take significantly more risk than the 60% equities or so from the trinity study. You also can't afford to miss out on too much market gains with a significantly lower equity allocation, either.

If your assets-to-expenses ratio is really large (like 50+) then pretty much any asset allocation works. 100% TIPS with zero real yield will last like 50 years. 100% stocks will survive a market correction with enough equity to eventually recover. 100% real estate would also work. Basically anything other than stuffing cash in a mattress would work, and even that wouldn't fail catastrophically.

My advice is 60% stocks if you want to maximize personal spending from your portfolio. If you have much more than you need and want to leave an impact on the world (charity, heirs), then up the equity percentage.
Agreed.

We will have all our expenses covered by Social Security and pensions when we are fully retired.

Therefore we will maintain a 70% equity position because we are not dependent on our portfolio to cover expenses.

Also, leaving money to heirs is a high priority and their time horizon is really long.
I'd go 90% or 100% equities in that situation, especially because of the favorable tax treatment in taxable accounts (most equity returns are capital gains, which are untaxed for heirs via the free step-up in basis on death)
I was talking about the allocation in our tax advantaged accounts. Taxable allocation in stocks is somewhat higher.

Plus we both have family members who died with/of Alzheimer’s, so there is a chance that some of the savings will end up being spent in long-term care. So we have not gone all-in with stocks.

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BostonBoy
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Re: Equity allocation for Flagship clients?

Post by BostonBoy » Sun Sep 16, 2018 6:19 pm

My AA is 50/50.

The Casualty
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Re: Equity allocation for Flagship clients?

Post by The Casualty » Sun Sep 16, 2018 6:39 pm

AA 50/50.

HEDGEFUNDIE
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Re: Equity allocation for Flagship clients?

Post by HEDGEFUNDIE » Sun Sep 16, 2018 7:20 pm

In the other thread I was a strong advocate for going aggressive in the accumulation phase (100/0 or 90/10).

But for decumulation 50/50 is a perfectly reasonable AA. If we make conservative assumptions (bonds returning 3% and stocks returning 7%, annual withdrawal of 4%) then a decumulator at 50/50 can withdraw enough to spend and cover inflation without touching the principal.

But the key is to grow your principal to that big enough pile in the first place, which is why I believe one should be so aggressive during accumulation.
Last edited by HEDGEFUNDIE on Mon Sep 17, 2018 8:28 am, edited 1 time in total.

Small Law Survivor
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Re: Equity allocation for Flagship clients?

Post by Small Law Survivor » Sun Sep 16, 2018 7:25 pm

50/50 here also.

"BostonBoy" - that's funny, I've used that name on many other websites (maybe even here, long ago).

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restingonmylaurels
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Re: Equity allocation for Flagship clients?

Post by restingonmylaurels » Mon Sep 17, 2018 7:34 am

sport wrote:
Sun Sep 16, 2018 3:58 pm
As often quoted on Bogleheads, asset allocation is (should be) determined by your willingness, need, and ability to take risk. When an investor has substantial assets, their ability to take risk increases. However, their need to take risk decreases. So, it comes down to willingness, which is a personal decision. Some Flagship investors may say, I have enough to withstand any downturn, so downturns don't bother me, and I can afford to take more risk, and I want an 80/20 allocation. Other investors with the same assets may say, I don't need to take too much risk and there is no reason to take risk that is not needed, so I want a 40/60 allocation. Still others are risk averse, and decide on a 20/80 allocation. In other words, there is no "one size fits all".
Yes, as you say, the willingness factor is a personal decision but one that is not so easily made.

Of course, this is a good problem to have but I struggle to get to a conclusion that I firmly believe in. If you leave your heir or charity x million or y million, I don't see the differences in those bequests making a significant difference to the recipient.

Given that my marginal utility of additional (investing) wealth seems pretty low for my own lifetime, I am curious what factors guided BHers when determining their willingness factor?

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Re: Equity allocation for Flagship clients?

Post by staustin » Mon Sep 17, 2018 7:44 am

How far are you from retirement? If close, as Bernstein notes, a deep market correction could be a devastingly permanent loss of capital. If beyond 10 years you have more flexibility on your allocation with sufficient time to recover.

I follow the good docs advice. I estimate I'm 5 years max away thus my stock allocation is now very low (fluctuates between 20 and 30). The balance is held in various laddered instruments currently on a short duration.

His deep risk text is worth a read.

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Re: Equity allocation for Flagship clients?

Post by Dandy » Mon Sep 17, 2018 7:47 am

my asset allocation is 43/57. I roughly follow Dr. Bernstein's idea of having 20-25 years worth of draw down in "safe" fixed income (for me it is to age 90). After I did that I put all of my equities in my TIRA in Balanced Index and Wellesley Income Funds. I already had an equity heavy taxable account. The result was the above allocation. I see no need to take much additional risk. I am fortunate that now that I am collecting full Social Security at age 70 my income almost matches my current expenses. Taxable distributions and RMDs put me well ahead of them.

So, I surely could take more equity risk. Since you can't take it with you I'm not focused on growth more on asset preservation. Even with "only" 43% in equities when the market does well my portfolio grows. Despite withdrawals it has never been higher.

I feel my heirs will likely be well off but decided to gift some "early inheritance" to them so they don't have to wait, hopefully for decades, for me to pass.

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Re: Equity allocation for Flagship clients?

Post by tibbitts » Mon Sep 17, 2018 7:59 am

restingonmylaurels wrote:
Sun Sep 16, 2018 1:43 pm
When I read through the various posts and great insights on this forum, one thought frequently arises in my mind.

That is, when discussing their AA, many people claim to have rather high equity exposure (70% or 80% or more). I am around 50% equity and wonder if I am not doing my AA properly.

While I understand higher equity allocation for those in the accumulation phase, it makes a bit less sense to me if one has significant assets.

I was struck in particular by a comment by M. Grabiner where he was discussing treating a mortgage as a reverse bond to be offset with bonds but other than that, he was 100% equity.

So I am wondering, for those who are Flagship clients and no longer in the accumulation phase, what equity allocation do you hold (and why)?
You need to come up with an asset-based question not an arbitrary amount of investments held at Vanguard. I assume you mean would someone have the same allocation at some level, say $5M, than they would with $500K. Also Flagship isn't what it used to be - you probably mean Flagship Select or whatever it's called (not me, but you're interested in people at a higher asset level than Flagship.)

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Re: Equity allocation for Flagship clients?

Post by MikeG62 » Mon Sep 17, 2018 8:13 am

sport wrote:
Sun Sep 16, 2018 3:58 pm
As often quoted on Bogleheads, asset allocation is (should be) determined by your willingness, need, and ability to take risk. When an investor has substantial assets, their ability to take risk increases. However, their need to take risk decreases. So, it comes down to willingness, which is a personal decision. Some Flagship investors may say, I have enough to withstand any downturn, so downturns don't bother me, and I can afford to take more risk, and I want an 80/20 allocation. Other investors with the same assets may say, I don't need to take too much risk and there is no reason to take risk that is not needed, so I want a 40/60 allocation. Still others are risk averse, and decide on a 20/80 allocation. In other words, there is no "one size fits all".
This is well said.

DW and I retired early (early 50's) and we are in the second camp - don't see the need to take more risk than is necessary. Our target asset allocation is 48% equities, 52% fixed income (and cash).
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Re: Equity allocation for Flagship clients?

Post by Broken Man 1999 » Mon Sep 17, 2018 8:17 am

Wife and I are both turned 65 this year.

For the last couple of years we have been at 50% equities, and 50% bonds, or close to it. As we progress deeper into retirement, I would not be against allowing our AA to drift upwards to maybe 60% equities. IOW not rebalance by selling equities.

Of course there is a good possibility that Mr Market might reduce our equity portion substantially, so there is that. :(

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Re: Equity allocation for Flagship clients?

Post by bertilak » Mon Sep 17, 2018 9:45 am

restingonmylaurels wrote:
Sun Sep 16, 2018 1:43 pm
So I am wondering, for those who are Flagship clients and no longer in the accumulation phase, what equity allocation do you hold (and why)?
50/50
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Re: Equity allocation for Flagship clients?

Post by bertilak » Mon Sep 17, 2018 9:54 am

Broken Man 1999 wrote:
Mon Sep 17, 2018 8:17 am
For the last couple of years we have been at 50% equities, and 50% bonds, or close to it. As we progress deeper into retirement, I would not be against allowing our AA to drift upwards to maybe 60% equities. IOW not rebalance by selling equities.
From my ISP (about re-balancing):
  • Our 50/50 target allocation, being somewhat arbitrary, means no one can say if a few percentage points one way or the other is better or worse, so there is no justification for high precision.
  • Our 50/50 target allocation, being middle-of-the-road, means we are not pushing any limits so we are unlikely to drift into any dangerous areas.
  • Selling assets is tax-inefficient so there needs to be a very good reason to do so and re-balancing is generally not a good enough reason. There are better ways: selective reinvestment of dividends and RMD, selective sales for spending needs (or wants). Minimizing, even if not eliminating, drift is good enough.
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Re: Equity allocation for Flagship clients?

Post by Cyclesafe » Mon Sep 17, 2018 9:57 am

I am surprised by the responses.....

At 64YO also at 50/50. With inflation concerns between 64 and 100YO, just can't see tapering to 20-25% as Bogelhead convention has implied.

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Re: Equity allocation for Flagship clients?

Post by AlwaysaQ » Mon Sep 17, 2018 10:15 am

77 years old tomorrow and 41/59 AA.

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Re: Equity allocation for Flagship clients?

Post by Jack FFR1846 » Mon Sep 17, 2018 10:24 am

Hayden wrote:
Sun Sep 16, 2018 4:18 pm
My AA is 50/50. This helps me to sleep well at night.
This. For me. Exactly.

I am still accumulating for a short time longer. My expense to portfolio ratio is just about 2%. I am a huge "safety net" guy, thus have saved more than most would for my spending. I'm not flagship as most of my portfolio is outside Vanguard, but am at a bit over double the flagship level.
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Re: Equity allocation for Flagship clients?

Post by Gnirk » Mon Sep 17, 2018 7:01 pm

I would like to take more risk, and have a higher allocation to equities than my current 38%. But I have a history of Alzheimer's in my family, so I am reluctant to increase my risk because i may end up spending a lot on long term care. Great-aunts with AD lived 20+ years each, and mom lived 12. That's a long time to pay for long term care.

My husband's AA is 60/40 at age 79. He's investing for his kids and grandkids benefit.

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Re: Equity allocation for Flagship clients?

Post by restingonmylaurels » Tue Sep 18, 2018 6:02 am

ThrustVectoring wrote:
Sun Sep 16, 2018 2:13 pm
Absolute asset levels don't matter particularly much, IMO. What matters is the assets-to-expenses ratio, and possibly your ability to cut spending in down markets. If your assets-to-expenses ratio is at 25 (that is, the 4% rule applies), then you can't afford to take significantly more risk than the 60% equities or so from the trinity study. You also can't afford to miss out on too much market gains with a significantly lower equity allocation, either.

If your assets-to-expenses ratio is really large (like 50+) then pretty much any asset allocation works. 100% TIPS with zero real yield will last like 50 years. 100% stocks will survive a market correction with enough equity to eventually recover. 100% real estate would also work. Basically anything other than stuffing cash in a mattress would work, and even that wouldn't fail catastrophically.

My advice is 60% stocks if you want to maximize personal spending from your portfolio. If you have much more than you need and want to leave an impact on the world (charity, heirs), then up the equity percentage.
My assets-to-expense ratio in retirement would be pretty high, probably over 100, but not totally sure due to some unknowns in future expenses (health care, etc.). So want to leave enough of a cushion in there just in case.

As I mentioned in my last post, while the need is low and ability is high, I am having trouble measuring the willingness factor.

On top of that, over time in reading all of the discussions here, I am starting to wonder if bond funds are really a good investment. Unfavorable tax treatment (I cannot possibly have all my FI in tax deferred accounts), poor real returns, and losses in a rising rate environment, plus the argument that in the long run equity significantly outperforms fixed income so bonds are really the riskier of the two, all seem to point to a big question mark over bond funds strategically.

Put those two together and I am questioning what my equity allocation should be strategically, when in essence it can be anything I wish it to be.

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Re: Equity allocation for Flagship clients?

Post by azanon » Tue Sep 18, 2018 8:07 am

Cyclesafe wrote:
Mon Sep 17, 2018 9:57 am
I am surprised by the responses.....

At 64YO also at 50/50. With inflation concerns between 64 and 100YO, just can't see tapering to 20-25% as Bogelhead convention has implied.
You're surprised? We're almost 10 years into a US bull market. If a nasty bear comes along, that has losses as high as 07-09 drop or worse (possibly worse cause P/E 10 is considerably higher), let's poll the question afterwards again and see who's still 50/50 :D .

I'm not just guessing here. I've seen graph after graph taken from real survey data, showing percent equity held by the average investor rising every since 09'.

***********

One aspect of Risk Party I do buy into is that proper balancing is done more by risk, not by percent. A 50/50 portfolio is very strongly risk-weighted towards stocks, and is a portfolio favoring economic prosperity, given how much more risky stocks are in comparison to bonds. That's one reason why the portfolio that tends to hit the highest Sharpe ratio is more in the 20-30% equity neighborhood.

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Re: Equity allocation for Flagship clients?

Post by bertilak » Tue Sep 18, 2018 10:11 am

azanon wrote:
Tue Sep 18, 2018 8:07 am
A 50/50 portfolio is very strongly risk-weighted towards stocks, and is a portfolio favoring economic prosperity, given how much more risky stocks are in comparison to bonds. That's one reason why the portfolio that tends to hit the highest Sharpe ratio is more in the 20-30% equity neighborhood.
Well, half my portfolio is 100% stocks. The other half is 100% bonds. One half or the other is bound to do best and I'm thinking the other half will do at least OK.

Another way to look at it is that no matter what the optimal Sharpe ratio is, some chunk of my overall 50/50 portfolio will be at that ratio. The rest of the portfolio can stumble along at some less-than-optimal AA.
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Re: Equity allocation for Flagship clients?

Post by azanon » Tue Sep 18, 2018 10:48 am

bertilak wrote:
Tue Sep 18, 2018 10:11 am
azanon wrote:
Tue Sep 18, 2018 8:07 am
A 50/50 portfolio is very strongly risk-weighted towards stocks, and is a portfolio favoring economic prosperity, given how much more risky stocks are in comparison to bonds. That's one reason why the portfolio that tends to hit the highest Sharpe ratio is more in the 20-30% equity neighborhood.
Well, half my portfolio is 100% stocks. The other half is 100% bonds. One half or the other is bound to do best and I'm thinking the other half will do at least OK.

Another way to look at it is that no matter what the optimal Sharpe ratio is, some chunk of my overall 50/50 portfolio will be at that ratio. The rest of the portfolio can stumble along at some less-than-optimal AA.
You lost me with that last paragraph. It did remind me, though, of a hypothetical that William B. once discussed in one of his books (I forget which), where he described how scary, using real numbers, it would have been to hold a 60/40 from 1929 to 1932, and rebalance it annually using real numbers. He hypothesized or had a quip where he asked the reader, "How many could have made that last trade in 1932", not answering the question, but I think indirectly implying with the rhetorical question that the answer for the reader was "not that many.....". A 50/50 run through the same scenario probably wouldn't be a whole lot less scary.

My other observation is that you reflect on your portfolio in terms of returns. Anyone return focused, or mostly return focused where it concerns their portfolio, would admittedly never consider a portfolio with 20-30% equities. The only way that sells is to someone who values risk being taken just as much, or more, as the return. In the hypothetical where they're valued equally though, it is illogical to construct a portfolio outside of the risk/reward sweet spot. And don't get me wrong, I'm not saying it's wrong to value return more, rather just saying that's certainly a good reason for having higher than 20-30% equities.

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Re: Equity allocation for Flagship clients?

Post by bertilak » Tue Sep 18, 2018 11:16 am

azanon wrote:
Tue Sep 18, 2018 10:48 am
bertilak wrote:
Tue Sep 18, 2018 10:11 am
azanon wrote:
Tue Sep 18, 2018 8:07 am
A 50/50 portfolio is very strongly risk-weighted towards stocks, and is a portfolio favoring economic prosperity, given how much more risky stocks are in comparison to bonds. That's one reason why the portfolio that tends to hit the highest Sharpe ratio is more in the 20-30% equity neighborhood.
Well, half my portfolio is 100% stocks. The other half is 100% bonds. One half or the other is bound to do best and I'm thinking the other half will do at least OK.

Another way to look at it is that no matter what the optimal Sharpe ratio is, some chunk of my overall 50/50 portfolio will be at that ratio. The rest of the portfolio can stumble along at some less-than-optimal AA.
You lost me with that last paragraph.
What I am saying is that there is some subset of my portfolio that is allocated in whatever ratio is predicted to be (or turns out to be) best, no matter how "best" is defined or measured. The rest of the portfolio is sub-optimal. Pretend:
  • I have a 50/50 portfolio
  • I open up another account for my wife and transfer to it from my portfolio whatever assets are presumed to make up the "best" portfolio, in whatever way best is used.
  • Assuming the determination of best was correct, in the future her portfolio will have done better (as defined) than mine.
  • BUT! it doesn't make any difference to our overall outcome when it is all put back together again.
...

My other observation is that you reflect on your portfolio in terms of returns.
I did not define the terms of how "best" was determined. Take your pick!
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

azanon
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Re: Equity allocation for Flagship clients?

Post by azanon » Tue Sep 18, 2018 11:24 am

Maybe you're just smarter than I am, which might explain why you're able to post in this particular thread in the first place. :mrgreen: OK, I think I understand some of that, haha. Anyway, I have nothing further to add to the thread.

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IlikeJackB
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Re: Equity allocation for Flagship clients?

Post by IlikeJackB » Tue Sep 18, 2018 7:10 pm

AA is 50/50. 69 & 67 years old and both retired. Live well and sleep well.
"Do what you will, the capital is at hazard." Justice Samuel Putnam, Harvard College vs Amory, 1830. The "Prudent Man Rule."

ThrustVectoring
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Re: Equity allocation for Flagship clients?

Post by ThrustVectoring » Tue Sep 18, 2018 9:27 pm

restingonmylaurels wrote:
Tue Sep 18, 2018 6:02 am
ThrustVectoring wrote:
Sun Sep 16, 2018 2:13 pm
Absolute asset levels don't matter particularly much, IMO. What matters is the assets-to-expenses ratio, and possibly your ability to cut spending in down markets. If your assets-to-expenses ratio is at 25 (that is, the 4% rule applies), then you can't afford to take significantly more risk than the 60% equities or so from the trinity study. You also can't afford to miss out on too much market gains with a significantly lower equity allocation, either.

If your assets-to-expenses ratio is really large (like 50+) then pretty much any asset allocation works. 100% TIPS with zero real yield will last like 50 years. 100% stocks will survive a market correction with enough equity to eventually recover. 100% real estate would also work. Basically anything other than stuffing cash in a mattress would work, and even that wouldn't fail catastrophically.

My advice is 60% stocks if you want to maximize personal spending from your portfolio. If you have much more than you need and want to leave an impact on the world (charity, heirs), then up the equity percentage.
My assets-to-expense ratio in retirement would be pretty high, probably over 100, but not totally sure due to some unknowns in future expenses (health care, etc.). So want to leave enough of a cushion in there just in case.

As I mentioned in my last post, while the need is low and ability is high, I am having trouble measuring the willingness factor.

On top of that, over time in reading all of the discussions here, I am starting to wonder if bond funds are really a good investment. Unfavorable tax treatment (I cannot possibly have all my FI in tax deferred accounts), poor real returns, and losses in a rising rate environment, plus the argument that in the long run equity significantly outperforms fixed income so bonds are really the riskier of the two, all seem to point to a big question mark over bond funds strategically.

Put those two together and I am questioning what my equity allocation should be strategically, when in essence it can be anything I wish it to be.
Oh if your assets-to-expense ratio is at 100 and you're worried about unknown far-future expenses and leaving behind a legacy, the best way to deal with that is heavy equity exposure. Even if a crash like 2008 happens again the dividend yield of VTSAX would still likely cover your expenses.

In your shoes, I'd talk with a fee-only financial planner to make sure taxes are taken care of efficiently. Afterwards, have something like 2-5 years of expenses in readily available fixed income products (likely "cash" - treasury bills, money market, high yield savings, etc), dump the rest into stock index funds, and spend the dividend yield guilt-free. This is very roughly what Warren Buffet does with the gigantic pile of money he's left his wife, iirc - 90% in the S&P 500, 10% in cash, cash out the dividend yield and spend it down.

restingonmylaurels
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Re: Equity allocation for Flagship clients?

Post by restingonmylaurels » Wed Sep 19, 2018 7:03 am

I think about 20 BHers put in their AA in reply to my original posting.

With a few exceptions, they have an equity allocations are 40-60%, with by far the most common answer being 50%

Assuming they mostly met the requested filters of Flagship and being in the decumulation phase, this provides me some comfort that I am not alone in having a 50% equity allocation.

I have seen on other posts that Taylor is at 60% equities and M Grabiner is net 100% (maybe because he is only 50 or just has a larger willingness).:confused

Anything over 60% equity after age 60 may indicate having an increasing marginal utility of wealth, which for a Flagship client at that stage of life seems a bit puzzling but to each his own.

Thanks for all of the replies so far.

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Cyclesafe
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Re: Equity allocation for Flagship clients?

Post by Cyclesafe » Wed Sep 19, 2018 9:13 am

restingonmylaurels wrote:
Wed Sep 19, 2018 7:03 am
Anything over 60% equity after age 60 may indicate having an increasing marginal utility of wealth, which for a Flagship client at that stage of life seems a bit puzzling but to each his own.
Perhaps reflects a legacy or charitable intent.

delamer
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Re: Equity allocation for Flagship clients?

Post by delamer » Wed Sep 19, 2018 2:06 pm

Cyclesafe wrote:
Wed Sep 19, 2018 9:13 am
restingonmylaurels wrote:
Wed Sep 19, 2018 7:03 am
Anything over 60% equity after age 60 may indicate having an increasing marginal utility of wealth, which for a Flagship client at that stage of life seems a bit puzzling but to each his own.
Perhaps reflects a legacy or charitable intent.
Or the ability to cover expenses through pensions, Social Security, annuities and/or other income not tied to their portfolio.

JimmyJammy
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Re: Equity allocation for Flagship clients?

Post by JimmyJammy » Wed Sep 19, 2018 3:38 pm

I'm 80 stocks/20 bonds.

This article suggests 100% stocks:

https://www.nytimes.com/2016/02/13/your ... of-it.html

HEDGEFUNDIE
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Re: Equity allocation for Flagship clients?

Post by HEDGEFUNDIE » Wed Sep 19, 2018 4:01 pm

JimmyJammy wrote:
Wed Sep 19, 2018 3:38 pm
I'm 80 stocks/20 bonds.

This article suggests 100% stocks:

https://www.nytimes.com/2016/02/13/your ... of-it.html
Love the article, thanks for posting

longleaf
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Re: Equity allocation for Flagship clients?

Post by longleaf » Wed Sep 19, 2018 4:16 pm

What if my goal is $100MM?

I suppose there is a desire to not lose 500k if the market drops, but how is that different from a 250k loss? In long term investing it doesn’t matter. AA should be adjusted to your risk capability, not your assets.

The same goes for decumulation phase.
Frugality, indexing, time.

statman
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Re: Equity allocation for Flagship clients?

Post by statman » Wed Sep 19, 2018 4:44 pm

Two buckets: (a) Roth IRA that will pass to children in trust 55/10/35 equity/real estate/fixed. (b) Ours: 25/10/65. Won the game long ago.

fourwheelcycle
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Re: Equity allocation for Flagship clients?

Post by fourwheelcycle » Wed Sep 19, 2018 8:07 pm

restingonmylaurels wrote:
Sun Sep 16, 2018 1:43 pm
So I am wondering, for those who are Flagship clients and no longer in the accumulation phase, what equity allocation do you hold (and why)?
I am a Flagship client, and at age 70, retired for ten years, I am definitely no longer in the accumulation phase. During our thirties I aimed for 25% bonds and 5% cash, with the balance in equities. Now I aim for just under 20% bonds, just under 3% cash, and the balance in equities. The difference is that at this point our overall portfolio is larger and most of our annual expenses are covered by pension, RMD, SS, and dividend income.

Both when I was younger and today, my AA has been based on risk aversion. During a down market I would strongly prefer to sell bonds rather than equities if we ever needed to raise money for necessary expenses. How long could a down market last? The down market after I retired in 2008 only lasted six years, but if I had retired in 1970 it would have lasted for sixteen years. I like to tell my wife that if the market went down and stayed down for the rest of our lives we could survive on our cash and bond reserves, with the hope that our other retirement income sources would continue, but recognizing they might be reduced to some degree. I have a spreadsheet that takes us out to age 100 and actually does those calculations, with plug-in values for the CPI and annual bond and equity returns (or losses).

If I was not averse to selling equities at fire-sale prices we would not need any bonds at all, but if push came to shove I would rather sell bonds, so that is why I still maintain a bond allocation. Also, I presume our children and our charities appreciate our effort to preserve our equities.

restingonmylaurels
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Re: Equity allocation for Flagship clients?

Post by restingonmylaurels » Thu Sep 20, 2018 6:36 am

JimmyJammy wrote:
Wed Sep 19, 2018 3:38 pm
I'm 80 stocks/20 bonds.

This article suggests 100% stocks:

https://www.nytimes.com/2016/02/13/your ... of-it.html
I liked the part where he discusses the logical superiority of stocks over bonds. It gets beyond the usual historical references, which may not hold in the future.
fourwheelcycle wrote:
Wed Sep 19, 2018 8:07 pm
I am a Flagship client, and at age 70, retired for ten years, I am definitely no longer in the accumulation phase. During our thirties I aimed for 25% bonds and 5% cash, with the balance in equities. Now I aim for just under 20% bonds, just under 3% cash, and the balance in equities.
The more I read about the real definition of risk in the long run, evaluate the estate tax implications (gains on stocks held for a lifetime get a basis step up and so avoid CG tax), and experience income tax implications (stock dividends are mostly QDI while bond interest is ordinary income), I am beginning to wonder why I am not more heavily equity (around 55% now).

Unfortunately, ten years into a bull market and will the relevant metrics making the market seem at least fully valued, now may not be the right time to act upon that feeling. Wish I would have seen that NYT article when it was first published.

ge1
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Re: Equity allocation for Flagship clients?

Post by ge1 » Thu Sep 20, 2018 7:19 am

We are in our 40s, but our need to take risk is very low, so our allocation to equities is very low (currently 25%). Our target allocation to stocks is 40% but I reduced exposure due to the high valuation of the US stock market (I know, market timing...).

I could imagine increasing the allocation to equities should we get to a level where even a severe market shock wouldn't impact our life style - at the moment it would.

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SpringMan
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Re: Equity allocation for Flagship clients?

Post by SpringMan » Thu Sep 20, 2018 8:21 am

50/50 here, coming from 40/60. It gives me comfort that Paul Merriman, whom is close in age and of whom I am a fan, is also 50/50.
Best Wishes, SpringMan

ThrustVectoring
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Re: Equity allocation for Flagship clients?

Post by ThrustVectoring » Thu Sep 20, 2018 2:59 pm

JimmyJammy wrote:
Wed Sep 19, 2018 3:38 pm
I'm 80 stocks/20 bonds.

This article suggests 100% stocks:

https://www.nytimes.com/2016/02/13/your ... of-it.html
That's a great article, I particularly liked the "percentage chance of outperformance" which goes up over time (to roughly 95% at 20 years and roughly 100% at 30 years). CAGR is basically the only important thing over that kind of timeframe.

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