Any conservative young investors?

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sergio
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Any conservative young investors?

Post by sergio » Fri May 10, 2019 11:49 am

The typical investing strategy tends to be "start 90/10 stocks/bonds, slowly graduate up to 60/40 stocks/bonds by retirement time". I'm just wondering if there are any younger investors, who stick with a 60/40 balanced fund or something like Wellington throughout their entire investing career, and what your rationale is?

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SquawkIdent
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Re: Any conservative young investors?

Post by SquawkIdent » Fri May 10, 2019 12:04 pm

IMHO, a 60/40 allocation is appropriate at any age if that’s the allocation you want. It depends on many, many factors.

I’ve heard the 60/40 balanced funds called funds you can “buy and die” with. In other words buy it, contribute to it, withdraw from it and die with it.

Do what you think is right and are comfortable with. Not what some table says. :sharebeer
Last edited by SquawkIdent on Fri May 10, 2019 12:10 pm, edited 1 time in total.

ThrustVectoring
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Re: Any conservative young investors?

Post by ThrustVectoring » Fri May 10, 2019 12:06 pm

When I was younger, I didn't invest in stocks at all. I focused on getting rid of consumer debt and student loans, and saving up enough of a cash buffer that it and private disability insurance would secure my daily life. Only then did I start putting money into stocks, and at that point 100% of my excess savings went that way.

I use an all-or-nothing approach to protecting my savings. Either I need to have access to the money in order for my day-to-day life to work out, or I don't. If I need it, nothing less safe than an FDIC insured bank account will do. If I don't need it, then market corrections don't matter, so I only check the value of my investments annually for planning and tax purposes.
Current portfolio: 60% VTI / 40% VXUS

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zaboomafoozarg
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Re: Any conservative young investors?

Post by zaboomafoozarg » Fri May 10, 2019 12:15 pm

I started at 75/25 right out of college, and I'm still about 75/25 now. I might just stay here forever.

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sergio
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Re: Any conservative young investors?

Post by sergio » Fri May 10, 2019 12:28 pm

SquawkIdent wrote:
Fri May 10, 2019 12:04 pm
IMHO, a 60/40 allocation is appropriate at any age if that’s the allocation you want. It depends on many, many factors.

I’ve heard the 60/40 balanced funds called funds you can “buy and die” with. In other words buy it, contribute to it, withdraw from it and die with it.

Do what you think is right and are comfortable with. Not what some table says. :sharebeer
This is what I've heard as well. My question was partially inspired by a recent thread that compared Wellington/Wellesely funds to the SP500 and showed they performed basically the same over the last 20 years, but the two more conservative funds having substantially less volatility. Obviously bonds (esp long-term) are not expected to be superstars with current interest rates, but stocks are also at all-time highs as well.

darrvao777
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Re: Any conservative young investors?

Post by darrvao777 » Fri May 10, 2019 12:42 pm

<35

66/33 split

Plan to continue indefinitely

rbaldini
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Re: Any conservative young investors?

Post by rbaldini » Fri May 10, 2019 12:49 pm

The young -> risky guideline is just that: a guideline.

Consider a high-income 50 year-old man with no debt, no spouse, and no children to support who has accumulated $10 million net worth.

Now consider a 25 year-old man with a mortgage and education debt with a modest income, a stay-at-home wife, and two kids, with net worth of $100k.

Who should invest more conservatively?

bgf
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Re: Any conservative young investors?

Post by bgf » Fri May 10, 2019 1:10 pm

there are two reasons to own bonds as a young investor (well, 3, but the third doesn't apply here at bogleheads - we aren't actively managing a bond portfolio in an attempt to outperform)

1) you are matching future costs to current bond holdings by amount and duration.
2) you anticipate that the lower volatility of your bond portfolio will prevent you from acting stupid AND that the benefit from this inoculation against stupidity will outweigh the risk/reward of rolling with a larger equity allocation.

i don't like the word "conservative" when it comes to describing investors. bonds, like equities, are a tool. you either have a use for that tool or you don't.

i dont currently need bonds for either of the above, so i dont own any.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

j0e0r7
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Re: Any conservative young investors?

Post by j0e0r7 » Fri May 10, 2019 1:32 pm

bgf wrote:
Fri May 10, 2019 1:10 pm
there are two reasons to own bonds as a young investor (well, 3, but the third doesn't apply here at bogleheads - we aren't actively managing a bond portfolio in an attempt to outperform)

1) you are matching future costs to current bond holdings by amount and duration.
2) you anticipate that the lower volatility of your bond portfolio will prevent you from acting stupid AND that the benefit from this inoculation against stupidity will outweigh the risk/reward of rolling with a larger equity allocation.

i don't like the word "conservative" when it comes to describing investors. bonds, like equities, are a tool. you either have a use for that tool or you don't.

i dont currently need bonds for either of the above, so i dont own any.
Does your reasoning account for the (I think) non-trivial chance that bonds will outperform stocks over the investing period?

Also, if #2 is a potential rationale for one's asset allocation, they would be better served using a good fiduciary to manage their money IMO.

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Re: Any conservative young investors?

Post by HawkeyePierce » Fri May 10, 2019 1:42 pm

28 living in a medium-high COL area.

I'm currently at 80/20 but I have been sorely tempted to just go all-in with one of Vanguard's balanced funds at 60/40.

My reasoning is that I don't necessarily need to take the risk. I have a 60% savings rate on a mid-six-figure income and based on historical returns, the difference between 100/0, 80/20 and 60/40 won't really make a huge impact on when I reach financial independence. My FI plan is based on a 3% withdrawal rate and based on my current savings rate, I'll hit it in about 10 years either way.

If I don't the returns, why suffer the volatility?

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BL
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Re: Any conservative young investors?

Post by BL » Fri May 10, 2019 1:48 pm

Maybe this is just right for you. If You Can is a 16-page booklet written just for young new investors by a recommended author, Dr. William Bernstein, who sometimes posts here. He suggests 1/3 each of US, International, and Total bond funds. Not bad until you have checked your handling of a market crash.

https://www.etf.com/docs/IfYouCan.pdf

lukestuckenhymer
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Re: Any conservative young investors?

Post by lukestuckenhymer » Fri May 10, 2019 1:55 pm

I'm 31. I'm 100% equities aside from a decent emergency fund and it's working for me at this point. I didn't have any investments at the time of the 2008-09 crash, but I've read enough to know that I'm at risk for a 45-50% drawdown at any given moment. It will hurt, but I'm ready for it and I'll take my lumps because I know the long term upside is way stronger than the potential downside at 31 years old.

csan
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Re: Any conservative young investors?

Post by csan » Fri May 10, 2019 1:59 pm

sergio wrote:
Fri May 10, 2019 11:49 am
The typical investing strategy tends to be "start 90/10 stocks/bonds, slowly graduate up to 60/40 stocks/bonds by retirement time". I'm just wondering if there are any younger investors, who stick with a 60/40 balanced fund or something like Wellington throughout their entire investing career, and what your rationale is?
I'm 24 and do ~75/25 (equities/bonds) asset allocation. Most people I know around my age are 100% stocks or some flavor of that. I used to be that way but moved to this ratio after reading some of the Boglehead resources.

I own some individual stocks that I picked up as an undergrad but have for the most part gotten rid of most of my individual stocks.

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sergio
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Re: Any conservative young investors?

Post by sergio » Fri May 10, 2019 2:00 pm

HawkeyePierce wrote:
Fri May 10, 2019 1:42 pm
28 living in a medium-high COL area.

I'm currently at 80/20 but I have been sorely tempted to just go all-in with one of Vanguard's balanced funds at 60/40.

My reasoning is that I don't necessarily need to take the risk. I have a 60% savings rate on a mid-six-figure income and based on historical returns, the difference between 100/0, 80/20 and 60/40 won't really make a huge impact on when I reach financial independence. My FI plan is based on a 3% withdrawal rate and based on my current savings rate, I'll hit it in about 10 years either way.

If I don't the returns, why suffer the volatility?
My reasoning is somewhere along those lines. In all my calculations, the biggest factor always seems to be how much I invest. If stocks return 6% real and bonds 2% real, then a 60/40 fund should return approximately 4.4% real. In a 20-25 year period, 4.4% vs 6% is not astronomical and the total return is much more dependent on how much I contribute (although a higher return obviously helps). So why not greatly reduce volatility, and have the peace of mind and go 100% into balanced funds? That's what I've been pondering lately.

bgf
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Re: Any conservative young investors?

Post by bgf » Fri May 10, 2019 2:29 pm

j0e0r7 wrote:
Fri May 10, 2019 1:32 pm
bgf wrote:
Fri May 10, 2019 1:10 pm
there are two reasons to own bonds as a young investor (well, 3, but the third doesn't apply here at bogleheads - we aren't actively managing a bond portfolio in an attempt to outperform)

1) you are matching future costs to current bond holdings by amount and duration.
2) you anticipate that the lower volatility of your bond portfolio will prevent you from acting stupid AND that the benefit from this inoculation against stupidity will outweigh the risk/reward of rolling with a larger equity allocation.

i don't like the word "conservative" when it comes to describing investors. bonds, like equities, are a tool. you either have a use for that tool or you don't.

i dont currently need bonds for either of the above, so i dont own any.
Does your reasoning account for the (I think) non-trivial chance that bonds will outperform stocks over the investing period?

Also, if #2 is a potential rationale for one's asset allocation, they would be better served using a good fiduciary to manage their money IMO.
I don't see any reason to anticipate that government bonds will outperform global equities during MY investment horizon. i put it in the "zombie apocalypse bucket." there is absolutely no way i could get myself to intellectually commit to a strategy whereby i invest in bonds simply because "they might outperform equities."

if your investment horizon is so short that the volatility inherent in equities makes that a practical risk for you, then i would place that consideration under number 1, meaning that you should own the appropriate bonds to cover your "known/expected" expenses. to put this in context, my retirement expenses are so far into the future its a futile endeavor to try to "liability match" them with bonds I could hold right now. It just doesn't make sense imo.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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Meg77
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Re: Any conservative young investors?

Post by Meg77 » Fri May 10, 2019 2:34 pm

I'm 35 and while my retirement funds are 92% stocks, 8% bonds, in reality my total AA is only 38% stocks. That is after you include a large cash cushion/EF (5% of total) and several real estate investments (52% of total).

I've always wanted a 3 legged stool approach to retirement or financial security in general. 1 leg is traditional investing advice - buy and hold, index funds, mostly stocks. But on the off chance a major market crash happens right before I retire, I didn't want that to be my only approach. So I started real estate investing, figuring that income stream would be diversified somewhat from stock dividends and capital gains. The third prong is still TBD - maybe a mix of other income sources (social security, annuities, royalties, a business or part time work).
"An investment in knowledge pays the best interest." - Benjamin Franklin

longinvest
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Re: Any conservative young investors?

Post by longinvest » Fri May 10, 2019 2:37 pm

sergio wrote:
Fri May 10, 2019 2:00 pm
My reasoning is somewhere along those lines. In all my calculations, the biggest factor always seems to be how much I invest. If stocks return 6% real and bonds 2% real, then a 60/40 fund should return approximately 4.4% real. In a 20-25 year period, 4.4% vs 6% is not astronomical and the total return is much more dependent on how much I contribute (although a higher return obviously helps). So why not greatly reduce volatility, and have the peace of mind and go 100% into balanced funds? That's what I've been pondering lately.
I like to think in spending terms because I save and invest to delay consumption. The funny thing is that the difference in spending, between using a balanced portfolio or an aggressive one over a long period, is much smaller than most people think.

Here's a post I wrote about the amazing Mathematics of Retirement Investing, illustrating that a 60/40 portfolio is a good enough accumulation portfolio. I also think that it's a good enough retirement portfolio. I'm an accumulator and I have all of my portfolio invested into the equivalent* of Vanguard's LifeStrategy Moderate Growth Fund. I intend to keep this portfolio in retirement too.

* I invest into Vanguard Canada's all-in-one Vanguard Balanced ETF Portfolio (VBAL), a low-cost 60/40 stocks/bonds ETF of index ETFs covering global stocks and bonds with a home bias.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

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Elsebet
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Re: Any conservative young investors?

Post by Elsebet » Fri May 10, 2019 3:12 pm

I'm 42, not sure if you consider that young, but when I tell people I'm 70/30 I often get remarks about being too conservative for my age.
"...the man who adapts himself to his slender means and makes himself wealthy on a little sum, is the truly rich man..." ~Seneca

RamblinDoc
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Re: Any conservative young investors?

Post by RamblinDoc » Fri May 10, 2019 3:24 pm

Rick Ferri has discussed a “Flight Path” Approach - being more conservative at first (to mitigate fear when starting), then quickly becoming more aggressive during allocation years, then gliding more conservative as you near retirement.

A more in depth discussion is here:
viewtopic.php?t=104934

Grt2bOutdoors
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Re: Any conservative young investors?

Post by Grt2bOutdoors » Fri May 10, 2019 3:29 pm

The 60/40 Solution from Peter Bernstein:

http://web.archive.org/web/200612140619 ... in6040.pdf
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

robertmcd
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Re: Any conservative young investors?

Post by robertmcd » Fri May 10, 2019 3:41 pm

I am 25 and have changed my AA quite a bit since learning on this forum.

Currently holding a variable asset allocation of VTI/VXUS and EDV along with some private equity investments.

Taking into account my private equity investments I am roughly 50/50 stocks and EDV right now. But I need to rebalance next week with the drop in yields and drop in stocks.

I think for a young investor who can’t stomach a 50% drop, a 60/40 portfolio is perfect. You just need to make sure to use the right bonds in your portfolio. Backtesting says EDV is the best at 60% stock or higher

longinvest
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Re: Any conservative young investors?

Post by longinvest » Fri May 10, 2019 4:08 pm

robertmcd wrote:
Fri May 10, 2019 3:41 pm
Backtesting says EDV is the best at 60% stock or higher
I'm not so sure about EDV. Here's a backtest of 60/40 US Stocks/Synthetic EDV from 1966 to 1982:

Image

In inflation-adjusted terms, this was a cumulative -87% loss for Synthetic EDV over the period.

Here's how a traditional balanced portfolio did over that the same period (chart taken from a recent post):

Image

Personally, I'd stick with the traditional balanced portfolio.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

robertmcd
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Re: Any conservative young investors?

Post by robertmcd » Fri May 10, 2019 4:18 pm

Inflation isn’t the risk for a young investor. Deflation is

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femur
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Re: Any conservative young investors?

Post by femur » Fri May 10, 2019 4:19 pm

darrvao777 wrote:
Fri May 10, 2019 12:42 pm
<35

66/33 split

Plan to continue indefinitely

I’m 36, have the same allocation and plan to keep it forever.

CommitmentDevice
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Re: Any conservative young investors?

Post by CommitmentDevice » Fri May 10, 2019 4:58 pm

Hi OP,
Somewhere out there is your optimal asset allocation. Maybe 60/40 is it. It also sounds like you've got a lot of wiggle room due to high earnings and high savings rates. Great! I'd encourage you to keep leaning into this question because AA really matters in terms of your portfolio's performance.

For me, I'm in my late thirties and looking to hold my retirement investments for 30+ years. Over that long of a time horizon, I expect equities to dramatically out-perform bonds (my impression is that equities have always or nearly always out-performed bonds over 30+ year time horizons and I believe that investment returns will likely follow this pattern in my lifetime). That is why I'm 90/10 rather than 60/40... the best shot at high returns with reasonable risk. Also, I know myself well enough that I am (fairly) confident that I won't sell during a major market crash.

Weaknesses in my strategy vis-a-vis a 60/40 AA, as I see them, are:
  • I will feel sad when my portfolio tanks at some point in the journey. When this happens, will stay the course and comfort myself that this is just part of the business cycle. But emotionally, a 50% market drop would be a bit of a gut punch.
  • There is always the possibility that future returns will look materially different than the past. I doubt it, but it is possible.
  • There is a small-ish chance I'll need to withdraw the money early due to an unforeseen emergency (I'm still building up a decent emergency fund and don't yet have long term disability insurance.
I would consider a more conservative asset allocation if:
  • My time horizon were shorter
  • My risk tolerance were lower
What is your investment time horizon? What is your risk tolerance?

ThrustVectoring
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Re: Any conservative young investors?

Post by ThrustVectoring » Fri May 10, 2019 6:09 pm

sergio wrote:
Fri May 10, 2019 2:00 pm
HawkeyePierce wrote:
Fri May 10, 2019 1:42 pm
28 living in a medium-high COL area.

I'm currently at 80/20 but I have been sorely tempted to just go all-in with one of Vanguard's balanced funds at 60/40.

My reasoning is that I don't necessarily need to take the risk. I have a 60% savings rate on a mid-six-figure income and based on historical returns, the difference between 100/0, 80/20 and 60/40 won't really make a huge impact on when I reach financial independence. My FI plan is based on a 3% withdrawal rate and based on my current savings rate, I'll hit it in about 10 years either way.

If I don't the returns, why suffer the volatility?
My reasoning is somewhere along those lines. In all my calculations, the biggest factor always seems to be how much I invest. If stocks return 6% real and bonds 2% real, then a 60/40 fund should return approximately 4.4% real. In a 20-25 year period, 4.4% vs 6% is not astronomical and the total return is much more dependent on how much I contribute (although a higher return obviously helps). So why not greatly reduce volatility, and have the peace of mind and go 100% into balanced funds? That's what I've been pondering lately.
The volatility feels bad, but if you're not investing money that you might need in the next 10 years, stock volatility is completely irrelevant. If you invested $1000 in an S&P 500 index fund in 2005, and you're going to spend it after retiring in 2035, did it matter how much money you "lost" in the 2008 financial crisis?
Current portfolio: 60% VTI / 40% VXUS

bgf
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Re: Any conservative young investors?

Post by bgf » Fri May 10, 2019 6:32 pm

sergio wrote:
Fri May 10, 2019 2:00 pm
HawkeyePierce wrote:
Fri May 10, 2019 1:42 pm
28 living in a medium-high COL area.

I'm currently at 80/20 but I have been sorely tempted to just go all-in with one of Vanguard's balanced funds at 60/40.

My reasoning is that I don't necessarily need to take the risk. I have a 60% savings rate on a mid-six-figure income and based on historical returns, the difference between 100/0, 80/20 and 60/40 won't really make a huge impact on when I reach financial independence. My FI plan is based on a 3% withdrawal rate and based on my current savings rate, I'll hit it in about 10 years either way.

If I don't the returns, why suffer the volatility?
My reasoning is somewhere along those lines. In all my calculations, the biggest factor always seems to be how much I invest. If stocks return 6% real and bonds 2% real, then a 60/40 fund should return approximately 4.4% real. In a 20-25 year period, 4.4% vs 6% is not astronomical and the total return is much more dependent on how much I contribute (although a higher return obviously helps). So why not greatly reduce volatility, and have the peace of mind and go 100% into balanced funds? That's what I've been pondering lately.
what if bonds return 2% real and stocks return 9% real? same conclusion?
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

Dottie57
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Re: Any conservative young investors?

Post by Dottie57 » Fri May 10, 2019 6:51 pm

lukestuckenhymer wrote:
Fri May 10, 2019 1:55 pm
I'm 31. I'm 100% equities aside from a decent emergency fund and it's working for me at this point. I didn't have any investments at the time of the 2008-09 crash, but I've read enough to know that I'm at risk for a 45-50% drawdown at any given moment. It will hurt, but I'm ready for it and I'll take my lumps because I know the long term upside is way stronger than the potential downside at 31 years old.
I hope you realize that 2008-2009 had an extremely fast recovery. Recovery can be long and grueling. No bonds = no existing funds for rebalancing. You may be laid off in a bear market and not able to add new money fo contributions.

pward
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Re: Any conservative young investors?

Post by pward » Fri May 10, 2019 8:00 pm

Yes. I'm in something very similar to a Golden Butterfly at 37 years old. I've done the math and realized that savings rate is the most important variable by far. 100% stock allocation on average would only get me to my goal a few short months earlier... and my portfolio is more consistent in the range of returns than 100% stocks, so stocks could actually take longer if luck is not on my side (which at this high of a CAPE 10 it probably would not be).

Of note is that I'm also in hyper accumulations mode with a goal of FI within the next 10 years max. Since I'm saving over 50% of my income it also makes no sense to take undue risks. I prioritize consistent returns, low drawdowns, and low time to recover above absolute return. And even still, 100% stocks average a real CAGR of around 7.5% and my portfolio averages a real CAGR a bit over 6% with much less volatility and a much tighter spread between the best start years and worst start years. Seems like a worthwhile trade off to me.

Lastly I will say that the early years when most people are "young", they usually have so little money invested that it really doesn't matter what they do. It's not until the later years when a person has enough saved for AA to really matter, which is why I think that a good argument could be made to pick an AA and stick with it for life as opposed to doing a glide path. Or if anything, do a reverse glide path once you're beyond FI. I plan to do something like a reverse glide path, where I will keep my FI funds I need to live the rest of my life safe in my modified golden butterfly portfolio and any funds I earn and invest beyond that will go into a separate portfolio with a more aggressive allocation (potentially 100% stocks) because this will simply be fun money that I can afford to lose.

FRT15
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Re: Any conservative young investors?

Post by FRT15 » Fri May 10, 2019 8:16 pm

I'm mid 30s and roughly 25/75. The main reason is because I had some bad experiences as a young guy investing in the late 90's ,2000's, 08. I look at anything I get in return as gravy because a simple life style and high savings rate will give me the freedom I'm looking for.

Mr.BB
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Re: Any conservative young investors?

Post by Mr.BB » Fri May 10, 2019 9:24 pm

sergio wrote:
Fri May 10, 2019 2:00 pm
HawkeyePierce wrote:
Fri May 10, 2019 1:42 pm
28 living in a medium-high COL area.

I'm currently at 80/20 but I have been sorely tempted to just go all-in with one of Vanguard's balanced funds at 60/40.

My reasoning is that I don't necessarily need to take the risk. I have a 60% savings rate on a mid-six-figure income and based on historical returns, the difference between 100/0, 80/20 and 60/40 won't really make a huge impact on when I reach financial independence. My FI plan is based on a 3% withdrawal rate and based on my current savings rate, I'll hit it in about 10 years either way.

If I don't the returns, why suffer the volatility?
My reasoning is somewhere along those lines. In all my calculations, the biggest factor always seems to be how much I invest. If stocks return 6% real and bonds 2% real, then a 60/40 fund should return approximately 4.4% real. In a 20-25 year period, 4.4% vs 6% is not astronomical and the total return is much more dependent on how much I contribute (although a higher return obviously helps). So why not greatly reduce volatility, and have the peace of mind and go 100% into balanced funds? That's what I've been pondering lately.
You also have to look at the long term picture. If we are talking 30-40 years, then missing out on higher stock allocation returns early on in your career can have a big impact (reduced income/total return) on your long term results.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

TomCat96
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Re: Any conservative young investors?

Post by TomCat96 » Fri May 10, 2019 11:27 pm

sergio wrote:
Fri May 10, 2019 11:49 am
The typical investing strategy tends to be "start 90/10 stocks/bonds, slowly graduate up to 60/40 stocks/bonds by retirement time". I'm just wondering if there are any younger investors, who stick with a 60/40 balanced fund or something like Wellington throughout their entire investing career, and what your rationale is?
If you aren't comfortable with a 90/10 allocation, don't do it. As someone who is 100/0, there are many merits to being 60/40 that I simply miss out on. First, you're getting a better risk-reward ratio than I am. I take on considerably more risk just to eke out an extra percentage of growth each year.

Second, if you ever want to rebalance into stocks and increase your stock ratio, you have that option, which may be quite valuable during a major stock crash. If you are young enough, you will experience this. I will simply have to wait it out.

Third, one of my personal gripes with being 100/0 is not being well reconciled in my emergency fund. It would be nice to have a fall back of bonds to sell during emergencies that I may not necessarily get with stocks (potentially by triggering huge capital gains) Right now I rely on a small amount of cash and credit cards to handle the emergencies. I admit it may not be enough.

To be fair to myself I will say that the idea that one should have lots of money in case of disaster is thrown around too easily here. It's not that that such suggestions are bad advice, it's that purchasing safety comes at the expense of lower growth. Or conversely taking greater risks yields greater rewards. Safety comes at a price, a price(in potential growth) I am unwilling to pay for now.

I have my personal reasons for being 100/0. I can handle the risk, have a solid pension that I am not counting in my asset allocation, and went broke in my early 30s. I'm pushing a little more risk to "catch up". But if i had more money, sufficient enough that the marginal utility of each additional dollar I acquired is lower, then I would take on a more conservative allocation. I would, so to speak, "purchase" more safety.

There is no right or wrong risk allocation in terms of willingness.

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slow n steady
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Re: Any conservative young investors?

Post by slow n steady » Fri May 10, 2019 11:43 pm

femur wrote:
Fri May 10, 2019 4:19 pm
darrvao777 wrote:
Fri May 10, 2019 12:42 pm
<35

66/33 split

Plan to continue indefinitely

I’m 36, have the same allocation and plan to keep it forever.
<35 with 33/33/33 Us/int/bond

Although I have written in my IPS I can time the market under certain conditions.

anoop
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Re: Any conservative young investors?

Post by anoop » Fri May 10, 2019 11:55 pm

I bet nobody is more conservative than me. :)

I'm 48, so maybe not that young. My 401k is 100% money market, and taxable is 90% t-bills, checking & savings accounts. I have had a similar allocation since I was 37.

abc132
Posts: 317
Joined: Thu Oct 18, 2018 1:11 am

Re: Any conservative young investors?

Post by abc132 » Sat May 11, 2019 1:23 am

sergio wrote:
Fri May 10, 2019 2:00 pm
HawkeyePierce wrote:
Fri May 10, 2019 1:42 pm
28 living in a medium-high COL area.

I'm currently at 80/20 but I have been sorely tempted to just go all-in with one of Vanguard's balanced funds at 60/40.

My reasoning is that I don't necessarily need to take the risk. I have a 60% savings rate on a mid-six-figure income and based on historical returns, the difference between 100/0, 80/20 and 60/40 won't really make a huge impact on when I reach financial independence. My FI plan is based on a 3% withdrawal rate and based on my current savings rate, I'll hit it in about 10 years either way.

If I don't the returns, why suffer the volatility?
My reasoning is somewhere along those lines. In all my calculations, the biggest factor always seems to be how much I invest. If stocks return 6% real and bonds 2% real, then a 60/40 fund should return approximately 4.4% real. In a 20-25 year period, 4.4% vs 6% is not astronomical and the total return is much more dependent on how much I contribute (although a higher return obviously helps). So why not greatly reduce volatility, and have the peace of mind and go 100% into balanced funds? That's what I've been pondering lately.
Let's look at 6% vs 4.4% real returns.

After 25 years of investing 0.5 years expenses annually, a 100% stock portfolio is expected to have 27% more money. That 100% stock portfolio could survive a 40% market drop at the worst possible time (right at retirement), and still do just as well as the 60/40 portfolio. You should also expect to have to work 4 years longer to reach the same amount of money.

Let's assume a 50% market drop after 3 years of investing, with bonds returning 0% the year of the drop. The 100% stock portfolio still comes out ahead by 20%, and you still have to work 3 years longer with the 60/40 portfolio.

Let's assume a 50% market drop after 7 years of investing, with bonds returning 0% the year of the drop. The 100% stock portfolio still comes out ahead by 13%, and you still have to work 2 years longer with the 60/40 portfolio.

What's the advantage of having 40% bonds at a young age? The answer is that it is unlikely to help unless the volatility of stocks will force you into making irrational decisions.


The best of both worlds is likely to be to take on risk when the losses will be smaller, and reduce risk as your portfolio grows to preserve those gains. This is likely to be superior to any other choice.

JTColton
Posts: 93
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Re: Any conservative young investors?

Post by JTColton » Sat May 11, 2019 1:36 am

rbaldini wrote:
Fri May 10, 2019 12:49 pm
The young -> risky guideline is just that: a guideline.

Consider a high-income 50 year-old man with no debt, no spouse, and no children to support who has accumulated $10 million net worth.

Now consider a 25 year-old man with a mortgage and education debt with a modest income, a stay-at-home wife, and two kids, with net worth of $100k.

Who should invest more conservatively?
Definitely not the 25 year old of modest means that has 30-40 years for compound growth.

YMMV

longinvest
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Re: Any conservative young investors?

Post by longinvest » Sat May 11, 2019 7:22 am

abc132 wrote:
Sat May 11, 2019 1:23 am
Let's look at 6% vs 4.4% real returns.

After 25 years of investing 0.5 years expenses annually, a 100% stock portfolio is expected to have 27% more money. That 100% stock portfolio could survive a 40% market drop at the worst possible time (right at retirement), and still do just as well as the 60/40 portfolio. You should also expect to have to work 4 years longer to reach the same amount of money.
Instead of targeting same amount of money and retiring later, a conservative investor could aim to balance accumulation-time and retirement-time spending while retiring at the same age. As a result, he might only need to spend a little less than an aggressive investor. For a detailed mathematical explanation of this surprising result, see the post: The Mathematics of Retirement Investing.
abc132 wrote:
Sat May 11, 2019 1:23 am
Let's assume a 50% market drop after 3 years of investing, with bonds returning 0% the year of the drop. The 100% stock portfolio still comes out ahead by 20%, and you still have to work 3 years longer with the 60/40 portfolio.
Or, the market could keep going up all along, only to lose 50% just before retirement. We just don't know. What we know is that the dispersion of possible outcomes is much larger for a 100% stocks portfolio than for a balanced portfolio.
abc132 wrote:
Sat May 11, 2019 1:23 am
What's the advantage of having 40% bonds at a young age?
An advantage could be a smoother ride all along the accumulation phase with a more efficient portfolio. See The Variable Savings Rate (VSR) thread for an approach to adapting one's saving and spending plan, every year, to one's evolving situation (salary, portfolio size, and retirement horizon) which provides a smoother ride with a balanced portfolio than with a stocks-only portfolio.
Last edited by longinvest on Sat May 11, 2019 7:29 am, edited 1 time in total.
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Horton
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Re: Any conservative young investors?

Post by Horton » Sat May 11, 2019 7:23 am

Define your goals. Set a safe strategy to meet them. Don't worry what others think. This applies at all ages.
🏃 since 2005

trav867
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Re: Any conservative young investors?

Post by trav867 » Sat May 11, 2019 8:46 am

pward wrote:
Fri May 10, 2019 8:00 pm
I've done the math and realized that savings rate is the most important variable by far.
This. For a young person, AA matters so much less than savings rate.

As indexers and bogleheads we all, by definition have a "conservative" investment strategy. Not a lot of bitcoin and options trading around here.

pward
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Re: Any conservative young investors?

Post by pward » Sat May 11, 2019 9:25 am

trav867 wrote:
Sat May 11, 2019 8:46 am
pward wrote:
Fri May 10, 2019 8:00 pm
I've done the math and realized that savings rate is the most important variable by far.
This. For a young person, AA matters so much less than savings rate.

As indexers and bogleheads we all, by definition have a "conservative" investment strategy. Not a lot of bitcoin and options trading around here.
Yeah, so many people put so much energy into mental gymnastics in trying to find the holy grail AA, when the solution to the problem is generally to find a way to save more. I've been very guilty of this as well, especially early on in my investing journey. Generally, the two best strategies I've found are:

1) find ways to reduce expenditures to save more.
2) find ways to increase income to save more.

AA is a very distant 3rd to those 2 pieces of the strategy.

longinvest
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Re: Any conservative young investors?

Post by longinvest » Sat May 11, 2019 9:38 am

pward wrote:
Sat May 11, 2019 9:25 am
1) find ways to reduce expenditures to save more.
2) find ways to increase income to save more.
Yes, but only up to a point. Some of us are natural savers. We need to remember that it's also important to live the present and enjoy opportunities that money provides. We have to balance accumulation-time spending with retirement-time spending.
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northtexan
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Re: Any conservative young investors?

Post by northtexan » Sat May 11, 2019 10:06 am

I have a friend who is a very conservative investor, but it is because he does not want risk. He also does not want to understand investing the boglehead way as well, he uses a broker with high fees/expense ratio funds. I believe that over the past 10 years (yearly contributions) the gains have been minimal, similar to a savings account, maybe 10% total gains according to the numbers hes told me and how much he has contributed. If he would have been more aggressive he could have at least 50% more right now. He doesn't understand the whole you can afford risk if your young. His broker is also an idiot in my opinion, he does not recommend appropriate accounts. According to my friend he has never recommended a IRA, and has my friend in a taxable account. I feel that the main reason he is conservative is because he does not have a good understanding of truly what is at play and that influences his perception of investing and the risk involved.

HawkeyePierce
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Location: Colorado

Re: Any conservative young investors?

Post by HawkeyePierce » Sat May 11, 2019 10:48 am

northtexan wrote:
Sat May 11, 2019 10:06 am
I have a friend who is a very conservative investor, but it is because he does not want risk. He also does not want to understand investing the boglehead way as well, he uses a broker with high fees/expense ratio funds. I believe that over the past 10 years (yearly contributions) the gains have been minimal, similar to a savings account, maybe 10% total gains according to the numbers hes told me and how much he has contributed. If he would have been more aggressive he could have at least 50% more right now. He doesn't understand the whole you can afford risk if your young. His broker is also an idiot in my opinion, he does not recommend appropriate accounts. According to my friend he has never recommended a IRA, and has my friend in a taxable account. I feel that the main reason he is conservative is because he does not have a good understanding of truly what is at play and that influences his perception of investing and the risk involved.
I would frame this friend as a "fearful investor" rather than a "conservative investor". Perhaps I'm entering into no-true-Scotsman territory, but I think there's a big difference between an uninformed investor afraid of what they don't know and a Bogleheads investor making an informed choice to use a more conservative asset allocation.

As for savings rate vs. asset allocation, I firmly believe you can't out-invest an insufficient savings rate.

Goal33
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Re: Any conservative young investors?

Post by Goal33 » Sat May 11, 2019 10:53 am

My plan is to stick around 70/30 forever.
A man with one watch always knows what time it is; a man with two watches is never sure.

abc132
Posts: 317
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Re: Any conservative young investors?

Post by abc132 » Sat May 11, 2019 11:09 am

longinvest wrote:
Sat May 11, 2019 7:22 am

Instead of targeting same amount of money and retiring later, a conservative investor could aim to balance accumulation-time and retirement-time spending while retiring at the same age. As a result, he might only need to spend a little less than an aggressive investor. For a detailed mathematical explanation of this surprising result, see the post: The Mathematics of Retirement Investing.
I posted that you need need 20-30% more money going from 100 to 60/40, and you provide a link that says for a similar difference you can simply invest 20-30% more year. I think that result would be fairly obvious, and I'm not sure what it adds to the discussion. If I'm investing 20% per year, going to 26% is not trivial. It is a reduction in quality of life for decades.


longinvest wrote:
Sat May 11, 2019 7:22 am
Or, the market could keep going up all along, only to lose 50% just before retirement. We just don't know. What we know is that the dispersion of possible outcomes is much larger for a 100% stocks portfolio than for a balanced portfolio.
This was included in my examples, and by increasing bond allocation as your assets grow, you expect to end up ahead, even if the market crashes at the worst time.

longinvest wrote:
Sat May 11, 2019 7:22 am

An advantage could be a smoother ride all along the accumulation phase with a more efficient portfolio. See The Variable Savings Rate (VSR) thread for an approach to adapting one's saving and spending plan, every year, to one's evolving situation (salary, portfolio size, and retirement horizon) which provides a smoother ride with a balanced portfolio than with a stocks-only portfolio.
Let me state this simply. If someone can't handle a $1,000 swing in their portfolio at a young age, what are they going to do when the swings are in the $10,000's or 100,000 due to portfolio growth?

The answer is that if you can't learn to accept volatility at a young age, when your portfolio is small and you can afford to make mistakes, you are likely to make poor decisions when you see larger swings. This includes things like going 100% cash at the market bottom.

Reducing volatility should not be a goal of a young investor, specifically because the unit that a risk averse person understands ($'s up or down) will increase over time with portfolio growth. Maximizing retirement chances and quality of life (current and future) should be the goal of a young investor.

Reduction in volatility should be a goal 10+ years before retirement, or whenever those assets have a grown to a level to allow you to have a very high chance of success. Someone that doesn't need any portfolio growth to succeed is a good example of when AA is less important, and when the choice of volatility reduction or growth is a personal decision, without one being better than the other.

longinvest
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Re: Any conservative young investors?

Post by longinvest » Sat May 11, 2019 11:15 am

abc132 wrote:
Sat May 11, 2019 11:09 am
longinvest wrote:
Sat May 11, 2019 7:22 am

Instead of targeting same amount of money and retiring later, a conservative investor could aim to balance accumulation-time and retirement-time spending while retiring at the same age. As a result, he might only need to spend a little less than an aggressive investor. For a detailed mathematical explanation of this surprising result, see the post: The Mathematics of Retirement Investing.
I posted that you need need 20-30% more money going from 100 to 60/40, and you provide a link that says for a similar difference you can simply invest 20-30% more year. I think that result would be fairly obvious, and I'm not sure what it adds to the discussion. If I'm investing 20% per year, going to 26% is not trivial. It is a reduction in quality of life for decades.
Here's the conclusion of the linked post:
Yes, that's it. By reducing total spending by a mere 3.3%, an investor could use a less volatile 60/40 portfolio all lifelong and still retire with dignity.
Personally, I'm willing to reduce my spending by 3.3% and enjoy a significantly smoother ride all lifelong.

#Cruncher found that the difference was actually 3.1% (smaller than 3.3%) in my example because I miscalculated taxes.
Last edited by longinvest on Sat May 11, 2019 11:23 am, edited 1 time in total.
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abc132
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Re: Any conservative young investors?

Post by abc132 » Sat May 11, 2019 11:23 am

longinvest wrote:
Sat May 11, 2019 11:15 am
abc132 wrote:
Sat May 11, 2019 11:09 am
longinvest wrote:
Sat May 11, 2019 7:22 am

Instead of targeting same amount of money and retiring later, a conservative investor could aim to balance accumulation-time and retirement-time spending while retiring at the same age. As a result, he might only need to spend a little less than an aggressive investor. For a detailed mathematical explanation of this surprising result, see the post: The Mathematics of Retirement Investing.
I posted that you need need 20-30% more money going from 100 to 60/40, and you provide a link that says for a similar difference you can simply invest 20-30% more year. I think that result would be fairly obvious, and I'm not sure what it adds to the discussion. If I'm investing 20% per year, going to 26% is not trivial. It is a reduction in quality of life for decades.
Here's the conclusion of the linked post:
Yes, that's it. By reducing total spending by a mere 3.3%, an investor could use a less volatile 60/40 portfolio all lifelong and still retire with dignity.
Personally, I'm willing to reduce my spending by a mere 3.3% and enjoy a significantly smoother ride all lifelong.
Your responses compare 100% stocks all the way to retirement to 60/40. They do not compare what I have suggested, which is taking on more risk at a young age and reducing that risk with portfolio growth.

I have shown this to be expected to be superior to going 60/40 all the way, despite market crashes on the order of 50%, whether early or late.

It is possible to have both more growth and less volatility, when it matters, when the portfolio size is significant. That's a win for the investor.

Would you recommend someone pay 3.3% annual fees to an investment adviser simply to reduce their anxiety? I hope not.
Last edited by abc132 on Sat May 11, 2019 11:28 am, edited 2 times in total.

northtexan
Posts: 185
Joined: Mon Jul 11, 2016 8:11 pm

Re: Any conservative young investors?

Post by northtexan » Sat May 11, 2019 11:27 am

HawkeyePierce wrote:
Sat May 11, 2019 10:48 am
northtexan wrote:
Sat May 11, 2019 10:06 am
I have a friend who is a very conservative investor, but it is because he does not want risk. He also does not want to understand investing the boglehead way as well, he uses a broker with high fees/expense ratio funds. I believe that over the past 10 years (yearly contributions) the gains have been minimal, similar to a savings account, maybe 10% total gains according to the numbers hes told me and how much he has contributed. If he would have been more aggressive he could have at least 50% more right now. He doesn't understand the whole you can afford risk if your young. His broker is also an idiot in my opinion, he does not recommend appropriate accounts. According to my friend he has never recommended a IRA, and has my friend in a taxable account. I feel that the main reason he is conservative is because he does not have a good understanding of truly what is at play and that influences his perception of investing and the risk involved.
I would frame this friend as a "fearful investor" rather than a "conservative investor". Perhaps I'm entering into no-true-Scotsman territory, but I think there's a big difference between an uninformed investor afraid of what they don't know and a Bogleheads investor making an informed choice to use a more conservative asset allocation.

As for savings rate vs. asset allocation, I firmly believe you can't out-invest an insufficient savings rate.
That would be a better way to describe him, he says that he is conservative but from talking to him it is like he is fearful due to the fact that he does not have a good understanding of how time is your benefit in investing along with other things.

longinvest
Posts: 3977
Joined: Sat Aug 11, 2012 8:44 am

Re: Any conservative young investors?

Post by longinvest » Sat May 11, 2019 11:50 am

abc132 wrote:
Sat May 11, 2019 11:23 am
longinvest wrote:
Sat May 11, 2019 11:15 am
abc132 wrote:
Sat May 11, 2019 11:09 am
longinvest wrote:
Sat May 11, 2019 7:22 am

Instead of targeting same amount of money and retiring later, a conservative investor could aim to balance accumulation-time and retirement-time spending while retiring at the same age. As a result, he might only need to spend a little less than an aggressive investor. For a detailed mathematical explanation of this surprising result, see the post: The Mathematics of Retirement Investing.
I posted that you need need 20-30% more money going from 100 to 60/40, and you provide a link that says for a similar difference you can simply invest 20-30% more year. I think that result would be fairly obvious, and I'm not sure what it adds to the discussion. If I'm investing 20% per year, going to 26% is not trivial. It is a reduction in quality of life for decades.
Here's the conclusion of the linked post:
Yes, that's it. By reducing total spending by a mere 3.3%, an investor could use a less volatile 60/40 portfolio all lifelong and still retire with dignity.
Personally, I'm willing to reduce my spending by a mere 3.3% and enjoy a significantly smoother ride all lifelong.
Your responses compare 100% stocks all the way to retirement to 60/40. They do not compare what I have suggested, which is taking on more risk at a young age and reducing that risk with portfolio growth.

I have shown this to be expected to be superior to going 60/40 all the way, despite market crashes on the order of 50%, whether early or late.

It is possible to have both more growth and less volatility, when it matters, when the portfolio size is significant. That's a win for the investor.
Unfortunately, it's not that simple. Over long periods of time, a portfolio with a gliding allocation delivers similar returns to a portfolio with a fixed allocation at the average of the glide. An investor using a portfolio with a glide from 100/0 down to 20/80 stocks/bonds during his life is likely to experience similar cumulative returns to another investor using a 60/40 portfolio all lifelong, during both accumulation and retirement.
abc132 wrote:
Sat May 11, 2019 11:23 am
Would you recommend someone pay 3.3% annual fees to an investment adviser simply to reduce their anxiety? I hope not.
This is an unfair comparison.

The 3.3% annual fee is just wasting money. Adding 40% bonds to a portfolio significantly reduces its risk, even for a long-term investor. A Japanese 100% domestic stock investor, whether accumulator or retiree, has fared much worse, over the last 30 years, than a domestic balanced portfolio investor. Mixing bonds with stocks reduces the dispersion of possible outcomes. A financial advisor taking a 3.3% annual fee doesn't.
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abc132
Posts: 317
Joined: Thu Oct 18, 2018 1:11 am

Re: Any conservative young investors?

Post by abc132 » Sat May 11, 2019 12:46 pm

longinvest wrote:
Sat May 11, 2019 11:50 am

Unfortunately, it's not that simple. Over long periods of time, a portfolio with a gliding allocation delivers similar returns to a portfolio with a fixed allocation at the average of the glide. An investor using a portfolio with a glide from 100/0 down to 20/80 stocks/bonds during his life is likely to experience similar cumulative returns to another investor using a 60/40 portfolio all lifelong, during both accumulation and retirement.
Similar performance with less volatility when the money is needed, and when the dollar amount changes per day are much bigger? I think you just proved my point. You can get more performance and less risk, or the same performance and less volatility by being more aggressive at a young age (your 100/0 to 20/80 example).

My suggestion is to start off more aggressive and glide to a portfolio the OP would be comfortable with in retirement.

Owning a single target date fund is a really good idea for someone who is risk averse, reducing the decisions down to zero.

longinvest wrote:
Sat May 11, 2019 11:50 am
This is an unfair comparison.

The 3.3% annual fee is just wasting money. Adding 40% bonds to a portfolio significantly reduces its risk, even for a long-term investor. A Japanese 100% domestic stock investor, whether accumulator or retiree, has fared much worse, over the last 30 years, than a domestic balanced portfolio investor. Mixing bonds with stocks reduces the dispersion of possible outcomes. A financial advisor taking a 3.3% annual fee doesn't.
Being 60/40 at a young age is just wasting money. It's not the worst decision, as you can still get to a nice retirement with continued investment. The costs are similar to paying fees for actively managed funds (losing about 30% of your portfolio).

There are much better ways to manage fear.

1. Own a single target data fund (take the decisions away)
2. Only look at statements once a year, or only when the market is up
3. Don't watch financial entertainment, which gets ratings based on stirring emotions
4. Write down a plan, so you are more likely to stick to it (take out emotion)
5. Don't make decisions based on fear - make them on maximizing success chances
etc etc etc

That's my best advice to the OP, without needing to change any of your opinions.

I respectfully disagree with your conclusions.

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