Asset Allocation Approaching Age 40s

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
justsomeguy2018
Posts: 308
Joined: Wed Oct 03, 2018 8:11 pm

Asset Allocation Approaching Age 40s

Post by justsomeguy2018 » Thu Sep 26, 2019 9:31 pm

I know this is a personal decision but curious on inputs on asset allocation.

Rule of thumb used to be your age should be your bond allocation, though in recent times due to human longevity I've heard your equity portion should be your age minus 110, or even 120.

I am 38; used to have an AA of roughly 90/10 but just switched it to be closer to 80/20. I am wondering if I should switch this to 70/30 or even 60/40 since I am almost in my 40s.

Over 25 years the S&P500 has basically increased 5x; to get a similar return the S&P will need to be at 15,000 in 25 years. Not sure how reasonable this is or isn't, with baby boomers entering retirement/withdrawal phase.

If it matters, my household is probably behind the typical Boglehead in terms of savings ($200k in retirement/taxable accounts, $160k in cash), but working on catching up (maxing out accounts). Also not sure how reliable SS payments will be when I retire.

On a similar note, my wife is 5 years younger, should our AA be similar or should hers be more aggressive since she is 5 years younger?

Day9
Posts: 820
Joined: Mon Jun 11, 2012 6:22 pm

Re: Asset Allocation Approaching Age 40s

Post by Day9 » Thu Sep 26, 2019 9:50 pm

You might get more responses if you post this in the "Help with personal investments" forum, rather than this "Theory, News & General" forum. A moderator might be able to help move this thread to that forum. And it might also help if you edit your post to fit the format of this guide: viewtopic.php?f=1&t=6212

My first question is why do you have $160k in cash? That seems a little high for an emergency fund. 6-months of expenses in cash is a good starting point, and adjust this higher or lower depending in your circumstances.

If you have not read it yet, here is the Bogleheds wiki page on Asset Allocation: https://www.bogleheads.org/wiki/Asset_allocation
I'm just a fan of the person I got my user name from

BogleMelon
Posts: 2171
Joined: Mon Feb 01, 2016 11:49 am

Re: Asset Allocation Approaching Age 40s

Post by BogleMelon » Thu Sep 26, 2019 9:54 pm

I am 40 as well. My AA is not linked to my age, it is linked to how closer I am to my financial goal in terms of money, not years. The more money I safe, the more I move from stocks to bonds. I am currently close to 80-20 with only $120K in retirement accounts (came to the US at age of 34. Currency exchange rate ate my savings in my home country, so started from scratch)
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

User avatar
abuss368
Posts: 16102
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: Asset Allocation Approaching Age 40s

Post by abuss368 » Thu Sep 26, 2019 10:02 pm

A lot of cash. Is there a reason?

Asset allocation is the most important decision an investor will make. That said I would expect in the next downturn that equities could drop 50% (or more). If you are ok with that and can sleep well at night, then your asset allocation is fine.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

User avatar
jh
Posts: 1819
Joined: Mon May 14, 2007 11:36 am
Location: USA

Re: Asset Allocation Approaching Age 40s

Post by jh » Fri Sep 27, 2019 12:00 am

Age 43 here. My taxable account is 50/50 and my retirement accounts are in 60/40 balanced funds.

Dandy
Posts: 6001
Joined: Sun Apr 25, 2010 7:42 pm

Re: Asset Allocation Approaching Age 40s

Post by Dandy » Fri Sep 27, 2019 6:55 am

I am 38; used to have an AA of roughly 90/10 but just switched it to be closer to 80/20. I am wondering if I should switch this to 70/30 or even 60/40 since I am almost in my 40s.
I would say a bit more conservative that 80/20 would be better. If you feel you are behind that retirement asset level you want try to increase your contributions a bit rather than be overly aggressive. As far as your younger spouse her allocation should be mostly based on her risk tolerance. I don't think a 5 year age difference is that significant in your 30's.

livesoft
Posts: 68669
Joined: Thu Mar 01, 2007 8:00 pm

Re: Asset Allocation Approaching Age 40s

Post by livesoft » Fri Sep 27, 2019 6:58 am

We stayed at about 90/10 until around age 50. Maybe the new 150/-50 is the real way to go? The minus sign hadn't been invented yet when software like FIRECalc was first coded and when folks were looking at AA for articles.
Wiki This signature message sponsored by sscritic: Learn to fish.

Chadnudj
Posts: 813
Joined: Tue Oct 29, 2013 11:22 am

Re: Asset Allocation Approaching Age 40s

Post by Chadnudj » Fri Sep 27, 2019 7:56 am

Just turned 40, spouse will be turning 40 in a couple months. We're at about 80/20 or 75/25 across all our accounts. I plan to never go less than 60/40, period, and would prefer to just stay 80/20 permanently.

I'm probably a bit more risk tolerant than most, though, and I'm definitely over 10 years from retirement (absent some huge windfalls/bonuses)....so going 80% in stocks seems right for a very long time (I wouldn't change until I forecast being within a couple years of retirement, frankly).

User avatar
goingup
Posts: 3683
Joined: Tue Jan 26, 2010 1:02 pm

Re: Asset Allocation Approaching Age 40s

Post by goingup » Fri Sep 27, 2019 7:57 am

justsomeguy2018 wrote:
Thu Sep 26, 2019 9:31 pm
If it matters, my household is probably behind the typical Boglehead in terms of savings ($200k in retirement/taxable accounts, $160k in cash), but working on catching up (maxing out accounts).
When I look at your investable assets I see (at least) 44% in cash. That can be a pretty big drag on portfolio returns. Holding cash is a comfort but it can be costly.

rascott
Posts: 1114
Joined: Wed Apr 15, 2015 10:53 am

Re: Asset Allocation Approaching Age 40s

Post by rascott » Fri Sep 27, 2019 8:09 am

Bonds at these rates are basically for nothing but preservation of capital.... offering 0% real yields.

Unless you believe equities will offer sub 0% real returns over the next 25 years, simple math will tell you a larger bond allocation will leave you with less money.

RobLyons
Posts: 499
Joined: Tue Oct 31, 2017 12:55 pm

Re: Asset Allocation Approaching Age 40s

Post by RobLyons » Fri Sep 27, 2019 8:38 am

BogleMelon wrote:
Thu Sep 26, 2019 9:54 pm
I am 40 as well. My AA is not linked to my age, it is linked to how closer I am to my financial goal in terms of money, not years.


-Same here.
Age 38 and I'm far off from my financial goals, holding about 15% in bonds.
"Great parenting sets the foundation for a better world"

User avatar
ReformedSpender
Posts: 388
Joined: Fri Mar 16, 2018 1:24 pm
Location: Stone's Throw from Vanguard

Re: Asset Allocation Approaching Age 40s

Post by ReformedSpender » Fri Sep 27, 2019 8:44 am

justsomeguy2018 wrote:
Thu Sep 26, 2019 9:31 pm

Over 25 years the S&P500 has basically increased 5x; to get a similar return the S&P will need to be at 15,000 in 25 years. Not sure how reasonable this is or isn't, with baby boomers entering retirement/withdrawal phase.
Nonevent in my opinion. Millennial group is demographically larger than baby boomers and will continue to be contributing to their retirement accounts.

:beer
Market history shows that when there's economic blue sky, future returns are low, and when the economy is on the skids, future returns are high. The best fishing is done in the most stormy waters.

lazydavid
Posts: 2592
Joined: Wed Apr 06, 2016 1:37 pm

Re: Asset Allocation Approaching Age 40s

Post by lazydavid » Fri Sep 27, 2019 9:26 am

We have been at 70/30 since our late 30s. Now in our early/mid-40s, we might consider a move to 65/35 in a few years.

I would prefer to be 80/20, wife is more conservative and would prefer 60/40, so that's how we wound up at 70/30.

jason1
Posts: 42
Joined: Fri Sep 21, 2018 2:51 pm

Re: Asset Allocation Approaching Age 40s

Post by jason1 » Fri Sep 27, 2019 9:42 am

Also 38, also at 80/20 but recently 90/10. It should be noted that your actual allocation is more like 45/10/45 (roughly) due to all the cash you hold, there is some serious drag there. Unless you are planning a large expense like a house you should probably cut that to 3-9 months of living expences depending on your risk appitite. I count my EF savings in my bond allocation.

BW1985
Posts: 1790
Joined: Tue Mar 23, 2010 6:12 pm

Re: Asset Allocation Approaching Age 40s

Post by BW1985 » Fri Sep 27, 2019 11:39 am

90/10 equities & cash here. I feel like it should be closer to 70/30 but I don't want to market time either.

If the market keeps rising in 6 months will you want to jump back up to 90/10?
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

guyinlaw
Posts: 137
Joined: Wed Jul 03, 2019 9:54 am

Re: Asset Allocation Approaching Age 40s

Post by guyinlaw » Fri Sep 27, 2019 12:53 pm

80-20 portfolio here. With NTSX it will effectively be a 60-40 portfolio.

Transitioning TSM to NTSX.

Image

Sconie
Posts: 762
Joined: Sun Feb 07, 2010 10:23 am
Location: Arizona

Re: Asset Allocation Approaching Age 40s

Post by Sconie » Fri Sep 27, 2019 1:11 pm

60/40 here----and I'm age 70. More precisely, 60% equities, 32% bonds and 8% cash. I've always liked the advice of legendary investor Benjamin Graham, to never be more than 75% equities and never less than 25%.
I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant. - Alan Greenspan

User avatar
NYCPete
Posts: 744
Joined: Thu Apr 12, 2007 1:24 pm
Location: New York, NY

Re: Asset Allocation Approaching Age 40s

Post by NYCPete » Fri Sep 27, 2019 2:24 pm

I'd second others' suggestions that you reformat your question and ask a moderator to put it in the Personal Investments section. You're getting other people's feedback in a vacuum. In other threads you've posted, you've explained why you have such a large cash reserve. You've also indicated your income, job changes, that you've got a child on the way, and that you're vacillating on whether to fund a 529. You asked in your OP that you're curious about inputs on asset allocation. These are all very relevant to asset allocation. The growth rate of the S&P 500 and what Baby Boomers do is not very relevant for your personal asset allocation.

So that others may give you more informed feedback, here's what you wrote in another thread:
justsomeguy2018 wrote:
Wed Sep 18, 2019 6:57 pm
Thinking way ahead here...

Are there any particular strategies for planning for college 19-years away?

Specifically, is there anything to be aware of in terms of where to allocate excess cash flow (e.g. 529, brokerage account, home principal payoff, etc.)?


Current situation (obviously may be drastically different over the course of the next 19 years):

Current HH Income: $250k
Current Retirement Accounts/HSAs: Maxing Out each year
Current Assets: $470k (~62% in retirement accounts/home equity)
Retirement Timeline: Minimum 22 more years, maximum 32 more years

My thinking is to start out with putting ~$400/mo into a 529 plan, but just wanted to see if there were any other advisable suggestions, particularly anything that may impact FAFSA if needed later down the road (no idea if we would even qualify), like e.g. having the 529 in grandparent's name
And here's OP's context on their large cash reserve, from back in July 2019:
justsomeguy2018 wrote:
Sat Jul 13, 2019 4:25 pm
38 y.o. with 1st child coming soon.

Sitting on ~$150k cash (most of it earning around 2.15% blended interest) and ~$192k in investment/retirement accounts.

I am maxing out workplace retirement accounts, so assuming no major market decline, probably looking to end the year at around $160k cash and $210k in investment accounts.

I never intended to get to this large of a cash position, but with child coming, became more conservative recently.

My current "comfortable number" for cash is between $140k and $160k...(used to be ~$108k was my comfortable number).

I have a few rationales here:

Cash to contribute to college fund
Ample cash in case 1 parent decides to stay-at-home a few years or loses job (i.e. become 1 income household)
Ample cash in case family grows larger and larger house needed in future
Cash to reduce interest expense on car purchase or other big-ticket item (don't plan on this anytime soon, but never know what may come up)
Cash to account for increase baby expenses or unexpected "surprises"
Cash for unexpected home repairs
Cash for any potential investment opportunities outside of the market
The overall freedom of movement and decision making that liquidity provides

I guess if I lower my cash position my options would be:

pay down mortgage (4.375% current rate, but considering refinancing to a 15-yr if rates drop to 3%)
put in taxable account

Am I crazy to think I need $160k in cash? I feel like I would be good with that number, and anything excess to that I would invest or pay down mortgage, but on the other hand whenever I hit a cash milestone I keep increasing the number higher....if child wasn't in the picture I think I would feel differently, but feel like I need more backup cash with child on the way.
I think you'll get much better feedback if you give the full context.

Asking Portfolio Questions:viewtopic.php?f=1&t=6212
To the extent that a fool knows his foolishness, | He may be deemed wise | A fool who considers himself wise | Is indeed a fool. | | Buddha

Quirkz
Posts: 227
Joined: Mon Jan 14, 2019 5:32 pm

Re: Asset Allocation Approaching Age 40s

Post by Quirkz » Fri Sep 27, 2019 4:31 pm

I'm in my mid-40's. I was 100% equities until this past year, when I finally shifted to 80/20. Up until recently I simply didn't feel like I had enough invested that I'd need to protect anything, and I'm comfortable enough riding the ups and downs. I've still got a lot of investing ahead of me. Also, my wife is 7 years younger, so I'm sort of splitting the difference between what each of us might do individually.

I'm still more worried about growth than protection, really, but I think I convinced myself if I didn't have some bonds I didn't have the ability to rebalance effectively during big swings, and I think there could be value in that.

I'll probably drop to 70/30 in my 50's and aim for 60/40 at retirement.

majiaknight
Posts: 114
Joined: Tue Jan 26, 2016 2:55 pm

Re: Asset Allocation Approaching Age 40s

Post by majiaknight » Mon Sep 30, 2019 3:41 pm

Late 30s here and currently AA is 85/15 but plan to shift to 80/20 next year.

IIUC the age rule is meant to be used as a very rough indicator for risk tolerance level for average investors. For most Bogleheads, you may probably just use the following portfoliovisualizer to backtest the AA to find your most comfortable ratio. In my case I plan to stick to 80/20 for maybe the next decade and then re-evaluate if financial conditions drastically change.

https://www.portfoliovisualizer.com/examples

User avatar
Portfolio7
Posts: 667
Joined: Tue Aug 02, 2016 3:53 am

Re: Asset Allocation Approaching Age 40s

Post by Portfolio7 » Tue Oct 01, 2019 1:43 am

Early 50's and 72/28. I am comfortable anywhere between about 60/40 and 80/20.

When I was 40 I was 100% stocks in my retirement funds, and had $80K or so in cash. I scaled my equity percentage back starting late 2007, which in retrospect was a really good time to have decided to reduce my volatility risk. You may not have a market crash looming, but it's good to think about your risk tolerance. How much can you tolerate losing? Take your equity % and divide by half. Can you live with that, for at least a few years, before it recovers (or maybe doesn't for ten years)?

Everything that follows is just my thoughts, and it depends on things like how secure your income is, what resources do you have for an emergency? It sounds like you are a high earning household, with little need to take on high risk (unless you are trying to maintain a substantial lifestyle), and hope to retire in 20 years or so. Given such a situation, you can probably succeed with a wide variety of potential AA's. Since you are still holding onto all that cash, then maybe you put the rest 100% in equities. That would put you at 55% equities, 45% Cash, I believe.

Speaking from the perspective of a household that blew through $80K of reserve cash and then opened a Heloc to cover another $90K (this is over a period of 15 years) due to several events both anticipated and unforeseen, including both educational and business opportunities, plus our child's medical issues and a separate family situation - having a large cash reserve is probably a wise move, even if you never need it. At the same time, I hate to see all that cash just sitting there earning virtually nothing. I'd maybe keep $20K in Cash and put the rest in something short term, accessible, and safe - but earning a little more than most savings accounts might give you. Someone else can offer advice here. I no longer keep much cash due to FAFSA among other reasons (we just threw a big chunk of cash into paying off the last of our business loans; two birds one stone), so I don't feel competent to discuss best options.

At the same time, you need continued growth, which is why I think you should have 50-65% equities.

In summary, if it were me, I'd be leaning towards putting the retirement funds 100% in equities. Once it grows by 50% or so, I'd throw perhaps 25% of new contributions into a ST bond fund or Intermediate Treasury fund (I prefer the latter just because I like how those interests align better.) I hope that helps with your thought process. I'm sure there will be other perspectives as well, and you can weigh them all relative to your own ways of thinking. Good Luck!
"An investment in knowledge pays the best interest" - Benjamin Franklin

Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

Re: Asset Allocation Approaching Age 40s

Post by Bacchus01 » Tue Oct 01, 2019 6:44 am

At 46, we are 98/2 equities and I would not recommend differently for others given bond returns and long-term (20+ year) outlook.

RJC
Posts: 392
Joined: Fri Dec 14, 2018 1:40 pm

Re: Asset Allocation Approaching Age 40s

Post by RJC » Tue Oct 01, 2019 7:19 am

I'm in my early 40s/spouse is late 30s. We are 100% stock because a) our jobs are relatively stable, b) we have a large emergency fund and c) it feels worse to have a constant drag than a slightly bigger drop in down markets. As we get closer to potential retirement (~10 years out) we will get on a glide path.

Post Reply