A question about glide paths.
A question about glide paths.
Hi
I am 52 year old DIY investor who takes an interest, and has chosen a moderately aggressive glide path to follow with my investments as I get older and move toward retirement (maybe 2035).
The question I have is; after a major correction and a subsequent gradual recovery, say a 50 percent fall and a 7 year recovery period, should I keep following the glide path during each rebalance or should I somehow "suspend" the glide path until the market fully recovers and only then glide more aggressively toward my target retirement allocation?
For instance, if over the 7 years of recovery the unlucky investor glides from a 70/30 allocation to a 60/40 allocation then it looks as if they miss out on some of the opportunity through the 7 year period by tilting more and more each year toward bonds.
I see that some Bogleheads model various scenarios and there may be some evidence in doing things differently to the typical set and forget target date fund. Or perhaps there is a different principle out there that one could use to manage sequencing risk.
I am 52 year old DIY investor who takes an interest, and has chosen a moderately aggressive glide path to follow with my investments as I get older and move toward retirement (maybe 2035).
The question I have is; after a major correction and a subsequent gradual recovery, say a 50 percent fall and a 7 year recovery period, should I keep following the glide path during each rebalance or should I somehow "suspend" the glide path until the market fully recovers and only then glide more aggressively toward my target retirement allocation?
For instance, if over the 7 years of recovery the unlucky investor glides from a 70/30 allocation to a 60/40 allocation then it looks as if they miss out on some of the opportunity through the 7 year period by tilting more and more each year toward bonds.
I see that some Bogleheads model various scenarios and there may be some evidence in doing things differently to the typical set and forget target date fund. Or perhaps there is a different principle out there that one could use to manage sequencing risk.

 Posts: 1662
 Joined: Fri Feb 24, 2017 6:41 am
Re: A question about glide paths.
I plan to manage sequence risk by having flexibility. Reducing portfolio withdrawals akin to what's baked into the VPW method, altering my retirement date, and/or finding employment if it really hits the fan. I'm not a fan of the cost of a bond tent insurance to my portfolio.Jaymover wrote: ↑Wed Jun 09, 2021 4:49 am Hi
The question I have is; after a major correction and a subsequent gradual recovery, say a 50 percent fall and a 7 year recovery period, should I keep following the glide path during each rebalance or should I somehow "suspend" the glide path until the market fully recovers and only then glide more aggressively toward my target retirement allocation?
For instance, if over the 7 years of recovery the unlucky investor glides from a 70/30 allocation to a 60/40 allocation then it looks as if they miss out on some of the opportunity through the 7 year period by tilting more and more each year toward bonds.
I see that some Bogleheads model various scenarios and there may be some evidence in doing things differently to the typical set and forget target date fund. Or perhaps there is a different principle out there that one could use to manage sequencing risk.
In the history of the US market, declines of 4050% were near or at the bottom. It may behoove an investor to not further decrease equity exposure at such lows... at least in the past.
The more flexibility you have the less you need to know what happens next.  Morgan Housel

 Posts: 321
 Joined: Wed Feb 14, 2018 8:05 pm
Re: A question about glide paths.
Once you retire you will find that each day is the first day of retirement. That means sequence of return risk is always with you and (unfortunately) there is no perfect answer. At 73 we have seven years living expenses in fixed assets. This makes us comfortable that we can withstand (historically) every bear market event except a Great Depression. In that case it's unlikely all our planning and thinking will matter much anyway. More years in fixed is the more dependable method for handling sequence of return risk.
Catastrophic events in the market are an actuarial certainty. Problem is you won't know what they are or when they come. All the more reason to think in terms of years in living expenses as your fail safe. You'll have to pick the number of years with which you are comfortable.
All the best
Catastrophic events in the market are an actuarial certainty. Problem is you won't know what they are or when they come. All the more reason to think in terms of years in living expenses as your fail safe. You'll have to pick the number of years with which you are comfortable.
All the best
Re: A question about glide paths.
The glide path used by target date funds is a generalized approximation: it works well on average, but you can manage your own glide path simply (IMHO) and easily with two numbers:Jaymover wrote: ↑Wed Jun 09, 2021 4:49 am For instance, if over the 7 years of recovery the unlucky investor glides from a 70/30 allocation to a 60/40 allocation then it looks as if they miss out on some of the opportunity through the 7 year period by tilting more and more each year toward bonds.
I see that some Bogleheads model various scenarios and there may be some evidence in doing things differently to the typical set and forget target date fund. Or perhaps there is a different principle out there that one could use to manage sequencing risk.
1) Your target retirement savings;
2) Your retirement asset allocation.
Let's say you expect to retire in 10 years with $100 and that you've determined that 60/40 is the asset allocation you want for the duration of your retirement.
Take your retirement equity allocation (60%) and multiply it by your target retirement savings ($100) . This tells you how much money to have invested in equities at any given point in time.
In this case it is $60.
Let's say you're 10 years from retirement and your portfolio has only grown (so far to $90). Allocate $60 to stocks and $30 to bonds, for an AA of 66/33.
Let's say the portfolio drops to $80 next week. Rebalance so you have $60 in stocks and $20 in bonds, for an AA of 75/25.
Let's say that two years later the portfolio has rebounded to $105 due to contributions and market growth. Allocate $60 to stocks and $45 to bonds, for an AA of 57/43.
Etc.
I'm glossing over a few nuances, but honestly this simple method works quite well as long as you are at least moderately confident about your estimate for the two numbers.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: A question about glide paths.
If I understand the basic idea here, you’d suggest 100% stocks up until the time you reach a portfolio value exceeding the estimated stock portion of your target amount. Is this right? (Not disputing, just trying to understand.)vineviz wrote: ↑Wed Jun 09, 2021 6:05 amThe glide path used by target date funds is a generalized approximation: it works well on average, but you can manage your own glide path simply (IMHO) and easily with two numbers:Jaymover wrote: ↑Wed Jun 09, 2021 4:49 am For instance, if over the 7 years of recovery the unlucky investor glides from a 70/30 allocation to a 60/40 allocation then it looks as if they miss out on some of the opportunity through the 7 year period by tilting more and more each year toward bonds.
I see that some Bogleheads model various scenarios and there may be some evidence in doing things differently to the typical set and forget target date fund. Or perhaps there is a different principle out there that one could use to manage sequencing risk.
1) Your target retirement savings;
2) Your retirement asset allocation.
Let's say you expect to retire in 10 years with $100 and that you've determined that 60/40 is the asset allocation you want for the duration of your retirement.
Take your retirement equity allocation (60%) and multiply it by your target retirement savings ($100) . This tells you how much money to have invested in equities at any given point in time.
In this case it is $60.
Let's say you're 10 years from retirement and your portfolio has only grown (so far to $90). Allocate $60 to stocks and $30 to bonds, for an AA of 66/33.
Let's say the portfolio drops to $80 next week. Rebalance so you have $60 in stocks and $20 in bonds, for an AA of 75/25.
Let's say that two years later the portfolio has rebounded to $105 due to contributions and market growth. Allocate $60 to stocks and $45 to bonds, for an AA of 57/43.
Etc.
I'm glossing over a few nuances, but honestly this simple method works quite well as long as you are at least moderately confident about your estimate for the two numbers.
Re: A question about glide paths.
I like the look this method. In my investing journey I have heard repeatedly that it is better to set and work toward financial goals rather than "wealth maximisation"I'm glossing over a few nuances, but honestly this simple method works quite well as long as you are at least moderately confident about your estimate for the two numbers.
Doing some back of the envelope calcs, if I set my retirement goals to be $1.5 million (PV) and 60/40 AA on retirement, my current total wealth suggests a 92 percent stock allocation for now (However I am currently only about 76 percent stocks). That also suggests that if there is a big crash in the next year then I might have to have more than 100 percent in stocks. This additionally suggests that my retirement goal is unrealistic unless I save more, work longer or get lucky with returns. The estimated returns I use in my model are about 3 percent real. Hard truths but really good to think about.
Re: A question about glide paths.
This book might be helpful to you.Jaymover wrote: ↑Wed Jun 09, 2021 4:49 am Hi
I am 52 year old DIY investor who takes an interest, and has chosen a moderately aggressive glide path to follow with my investments as I get older and move toward retirement (maybe 2035).
The question I have is; after a major correction and a subsequent gradual recovery, say a 50 percent fall and a 7 year recovery period, should I keep following the glide path during each rebalance or should I somehow "suspend" the glide path until the market fully recovers and only then glide more aggressively toward my target retirement allocation?
For instance, if over the 7 years of recovery the unlucky investor glides from a 70/30 allocation to a 60/40 allocation then it looks as if they miss out on some of the opportunity through the 7 year period by tilting more and more each year toward bonds.
I see that some Bogleheads model various scenarios and there may be some evidence in doing things differently to the typical set and forget target date fund. Or perhaps there is a different principle out there that one could use to manage sequencing risk.
by W. BernsteinThe Ages of the Investor: A Critical Look at Lifecycle Investing (Investing for Adults; [Book 1]) Paperback – August 28, 2012
The print edition is better than the Kindle because of the charts.
Here it is on Amazon.com
https://smile.amazon.com/AgesInvestor ... 218&sr=81
It covers all that you mention including "Sequence of Returns Risk" (also many excellent threads on this so search the archives).
j
Re: A question about glide paths.
I wrote about this method here. The important thing is to set realistic goals, as you said if it says your stock allocation should be higher then it means you have underaccumulated relative to your goals, and you need to save more, reduce your goals, or get lucky with returns. I would look at first two as the practical options, and the last one is builtin to the calculation, because if you get lucky with returns then it will tell you that you can reduce risk.Jaymover wrote: ↑Wed Jun 09, 2021 7:08 amI like the look this method. In my investing journey I have heard repeatedly that it is better to set and work toward financial goals rather than "wealth maximisation"I'm glossing over a few nuances, but honestly this simple method works quite well as long as you are at least moderately confident about your estimate for the two numbers.
Doing some back of the envelope calcs, if I set my retirement goals to be $1.5 million (PV) and 60/40 AA on retirement, my current total wealth suggests a 92 percent stock allocation for now (However I am currently only about 76 percent stocks). That also suggests that if there is a big crash in the next year then I might have to have more than 100 percent in stocks. This additionally suggests that my retirement goal is unrealistic unless I save more, work longer or get lucky with returns. The estimated returns I use in my model are about 3 percent real. Hard truths but really good to think about.
Re: A question about glide paths.
Yes, that's the basic idea. There are some refinements someone could add to the approach, of course, but that's the core premise.
For instance, an investor might change the 100% stocks to something lower if they were unusually riskaverse (e.g. using an 80/20 fund like Vanguard LifeStrategy Growth [VASGX] instead of a stock fund).
Or the investor might keep the equity target defined above as their goal but use savings bonds or a ladder of individual TIPS for the majority of their bond allocation. In that case, they might prefer to use what S&P calls a "lockbox" approach in which the savings bonds or TIPS are not used to rebalance once purchased.
Both of those refinements add a more conservative bent to the approach and therefore probably dictate increasing the savings rate to compensate.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

 Posts: 198
 Joined: Wed Mar 14, 2007 12:02 pm
 Location: Grand Rapids, MI
Re: A question about glide paths.
Here's a similar method that I am using which may be helpful to consider. If your target balance is 1.5M and your target retirement allocation is 60/40, you intend to have $900,000 in equity at retirement (1.5M * 0.6) and conversely, $600,000 in fixed income. So buy your stocks first. Maintain 100% equity until you reach $900,000, then begin to acquire fixed income with new contributions and rebalancing until you arrive at retirement with $1.5M in your nest egg and a 60/40 allocation.theorist wrote: ↑Wed Jun 09, 2021 6:22 amIf I understand the basic idea here, you’d suggest 100% stocks up until the time you reach a portfolio value exceeding the estimated stock portion of your target amount. Is this right? (Not disputing, just trying to understand.)vineviz wrote: ↑Wed Jun 09, 2021 6:05 amThe glide path used by target date funds is a generalized approximation: it works well on average, but you can manage your own glide path simply (IMHO) and easily with two numbers:Jaymover wrote: ↑Wed Jun 09, 2021 4:49 am For instance, if over the 7 years of recovery the unlucky investor glides from a 70/30 allocation to a 60/40 allocation then it looks as if they miss out on some of the opportunity through the 7 year period by tilting more and more each year toward bonds.
I see that some Bogleheads model various scenarios and there may be some evidence in doing things differently to the typical set and forget target date fund. Or perhaps there is a different principle out there that one could use to manage sequencing risk.
1) Your target retirement savings;
2) Your retirement asset allocation.
Let's say you expect to retire in 10 years with $100 and that you've determined that 60/40 is the asset allocation you want for the duration of your retirement.
Take your retirement equity allocation (60%) and multiply it by your target retirement savings ($100) . This tells you how much money to have invested in equities at any given point in time.
In this case it is $60.
Let's say you're 10 years from retirement and your portfolio has only grown (so far to $90). Allocate $60 to stocks and $30 to bonds, for an AA of 66/33.
Let's say the portfolio drops to $80 next week. Rebalance so you have $60 in stocks and $20 in bonds, for an AA of 75/25.
Let's say that two years later the portfolio has rebounded to $105 due to contributions and market growth. Allocate $60 to stocks and $45 to bonds, for an AA of 57/43.
Etc.
I'm glossing over a few nuances, but honestly this simple method works quite well as long as you are at least moderately confident about your estimate for the two numbers.
Livin' the dream

 Posts: 946
 Joined: Thu Dec 29, 2016 4:59 pm
Re: A question about glide paths.
I don’t think that’s just a similar method  it sounds like what you are using is precisely what vineviz suggested.Morse Code wrote: ↑Wed Jun 09, 2021 7:55 amHere's a similar method that I am using which may be helpful to consider. If your target balance is 1.5M and your target retirement allocation is 60/40, you intend to have $900,000 in equity at retirement (1.5M * 0.6) and conversely, $600,000 in fixed income. So buy your stocks first. Maintain 100% equity until you reach $900,000, then begin to acquire fixed income with new contributions and rebalancing until you arrive at retirement with $1.5M in your nest egg and a 60/40 allocation.theorist wrote: ↑Wed Jun 09, 2021 6:22 amIf I understand the basic idea here, you’d suggest 100% stocks up until the time you reach a portfolio value exceeding the estimated stock portion of your target amount. Is this right? (Not disputing, just trying to understand.)vineviz wrote: ↑Wed Jun 09, 2021 6:05 amThe glide path used by target date funds is a generalized approximation: it works well on average, but you can manage your own glide path simply (IMHO) and easily with two numbers:Jaymover wrote: ↑Wed Jun 09, 2021 4:49 am For instance, if over the 7 years of recovery the unlucky investor glides from a 70/30 allocation to a 60/40 allocation then it looks as if they miss out on some of the opportunity through the 7 year period by tilting more and more each year toward bonds.
I see that some Bogleheads model various scenarios and there may be some evidence in doing things differently to the typical set and forget target date fund. Or perhaps there is a different principle out there that one could use to manage sequencing risk.
1) Your target retirement savings;
2) Your retirement asset allocation.
Let's say you expect to retire in 10 years with $100 and that you've determined that 60/40 is the asset allocation you want for the duration of your retirement.
Take your retirement equity allocation (60%) and multiply it by your target retirement savings ($100) . This tells you how much money to have invested in equities at any given point in time.
In this case it is $60.
Let's say you're 10 years from retirement and your portfolio has only grown (so far to $90). Allocate $60 to stocks and $30 to bonds, for an AA of 66/33.
Let's say the portfolio drops to $80 next week. Rebalance so you have $60 in stocks and $20 in bonds, for an AA of 75/25.
Let's say that two years later the portfolio has rebounded to $105 due to contributions and market growth. Allocate $60 to stocks and $45 to bonds, for an AA of 57/43.
Etc.
I'm glossing over a few nuances, but honestly this simple method works quite well as long as you are at least moderately confident about your estimate for the two numbers.
Personally I find it appealing since the concept is very intuitive to me.

 Posts: 946
 Joined: Thu Dec 29, 2016 4:59 pm
Re: A question about glide paths.
If I recall, you (and others including Ben Mathew and Steve Reading) have talked about this approach, but have typically incorporated a process whereby the target stock allocation is recalculated each year using a discount rate and a couple other variables like future savings.vineviz wrote: ↑Wed Jun 09, 2021 6:05 amThe glide path used by target date funds is a generalized approximation: it works well on average, but you can manage your own glide path simply (IMHO) and easily with two numbers:Jaymover wrote: ↑Wed Jun 09, 2021 4:49 am For instance, if over the 7 years of recovery the unlucky investor glides from a 70/30 allocation to a 60/40 allocation then it looks as if they miss out on some of the opportunity through the 7 year period by tilting more and more each year toward bonds.
I see that some Bogleheads model various scenarios and there may be some evidence in doing things differently to the typical set and forget target date fund. Or perhaps there is a different principle out there that one could use to manage sequencing risk.
1) Your target retirement savings;
2) Your retirement asset allocation.
Let's say you expect to retire in 10 years with $100 and that you've determined that 60/40 is the asset allocation you want for the duration of your retirement.
Take your retirement equity allocation (60%) and multiply it by your target retirement savings ($100) . This tells you how much money to have invested in equities at any given point in time.
In this case it is $60.
Let's say you're 10 years from retirement and your portfolio has only grown (so far to $90). Allocate $60 to stocks and $30 to bonds, for an AA of 66/33.
Let's say the portfolio drops to $80 next week. Rebalance so you have $60 in stocks and $20 in bonds, for an AA of 75/25.
Let's say that two years later the portfolio has rebounded to $105 due to contributions and market growth. Allocate $60 to stocks and $45 to bonds, for an AA of 57/43.
Etc.
I'm glossing over a few nuances, but honestly this simple method works quite well as long as you are at least moderately confident about your estimate for the two numbers.
I find the simpler method that you’ve described in this current thread to be way more appealing and easy to understand. Any thoughts on the potential downfalls of this method vs the more “sophisticated” approach? The simple method just produces a slightly more aggressive allocation during the glide years, correct?
Re: A question about glide paths.
Another important decision is how do you choose the target allocation on retirement? Me choosing 60/40 was arbitrary. However when I work it out, 40 percent of my retirement target is about 10 years of expenses in bonds which seems about right. If I found out during accumulation years that my expenses are more than I predicted (eg due to higher than expected forecast medical costs)then I might change my retirement allocation to 50/50 which would result in me tapering my AA more aggressively. Lower returns but reduces the sequencing risk of possibly running out of money way to early.2) Your retirement asset allocation.

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 Joined: Fri Feb 23, 2007 8:21 pm
Re: A question about glide paths.
“This book might be helpful to you” is a major league big time understatement! It’s mandatory reading to address the exact question you are asking! The part you will be most interested in is near the end of the book.Sandtrap wrote: ↑Wed Jun 09, 2021 7:14 amThis book might be helpful to you.Jaymover wrote: ↑Wed Jun 09, 2021 4:49 am Hi
I am 52 year old DIY investor who takes an interest, and has chosen a moderately aggressive glide path to follow with my investments as I get older and move toward retirement (maybe 2035).
The question I have is; after a major correction and a subsequent gradual recovery, say a 50 percent fall and a 7 year recovery period, should I keep following the glide path during each rebalance or should I somehow "suspend" the glide path until the market fully recovers and only then glide more aggressively toward my target retirement allocation?
For instance, if over the 7 years of recovery the unlucky investor glides from a 70/30 allocation to a 60/40 allocation then it looks as if they miss out on some of the opportunity through the 7 year period by tilting more and more each year toward bonds.
I see that some Bogleheads model various scenarios and there may be some evidence in doing things differently to the typical set and forget target date fund. Or perhaps there is a different principle out there that one could use to manage sequencing risk.by W. BernsteinThe Ages of the Investor: A Critical Look at Lifecycle Investing (Investing for Adults; [Book 1]) Paperback – August 28, 2012
The print edition is better than the Kindle because of the charts.
Here it is on Amazon.com
https://smile.amazon.com/AgesInvestor ... 218&sr=81
It covers all that you mention including "Sequence of Returns Risk" (also many excellent threads on this so search the archives).
j
Dave
Re: A question about glide paths.
WIll definitely get a copy!“This book might be helpful to you” is a major league big time understatement! It’s mandatory reading to address the exact question you are asking! The part you will be most interested in is near the end of the book.

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 Joined: Fri Nov 06, 2020 1:41 pm
Re: A question about glide paths.
Imo, if you do a glidepath then you should stick with it. Obviously in this case the glidepath looks bad, but what if there was another crash instead of a 7 years of recovery? That's why you were gliding to begin with.
Re: A question about glide paths.
This simpler method results in a glide path that is more sensitive to your assumption about future market returns (since that goes directly into the estimate for "target retirement savings"). If you use an inaccurate estimate for expected returns (either much higher or lower than what you actually experience) you'll get bigger swings in the asset allocation. I also seem to recall that the simpler method typically generates a slightly steeper glide path, but overall the outcomes will be very similar.absolute zero wrote: ↑Wed Jun 09, 2021 8:13 am I find the simpler method that you’ve described in this current thread to be way more appealing and easy to understand. Any thoughts on the potential downfalls of this method vs the more “sophisticated” approach? The simple method just produces a slightly more aggressive allocation during the glide years, correct?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

 Posts: 198
 Joined: Wed Mar 14, 2007 12:02 pm
 Location: Grand Rapids, MI
Re: A question about glide paths.
Okay, maybe I didn't read vineviz' careful enough. At any rate, I rephrased it for clarity. I agree. I struggled with a glide path that made sense to me until I stumbled upon this method and I knew it was for me. The idea of targeting a balance rather than an age is key for me.absolute zero wrote: ↑Wed Jun 09, 2021 8:03 amI don’t think that’s just a similar method  it sounds like what you are using is precisely what vineviz suggested.Morse Code wrote: ↑Wed Jun 09, 2021 7:55 amHere's a similar method that I am using which may be helpful to consider. If your target balance is 1.5M and your target retirement allocation is 60/40, you intend to have $900,000 in equity at retirement (1.5M * 0.6) and conversely, $600,000 in fixed income. So buy your stocks first. Maintain 100% equity until you reach $900,000, then begin to acquire fixed income with new contributions and rebalancing until you arrive at retirement with $1.5M in your nest egg and a 60/40 allocation.theorist wrote: ↑Wed Jun 09, 2021 6:22 amIf I understand the basic idea here, you’d suggest 100% stocks up until the time you reach a portfolio value exceeding the estimated stock portion of your target amount. Is this right? (Not disputing, just trying to understand.)vineviz wrote: ↑Wed Jun 09, 2021 6:05 amThe glide path used by target date funds is a generalized approximation: it works well on average, but you can manage your own glide path simply (IMHO) and easily with two numbers:Jaymover wrote: ↑Wed Jun 09, 2021 4:49 am For instance, if over the 7 years of recovery the unlucky investor glides from a 70/30 allocation to a 60/40 allocation then it looks as if they miss out on some of the opportunity through the 7 year period by tilting more and more each year toward bonds.
I see that some Bogleheads model various scenarios and there may be some evidence in doing things differently to the typical set and forget target date fund. Or perhaps there is a different principle out there that one could use to manage sequencing risk.
1) Your target retirement savings;
2) Your retirement asset allocation.
Let's say you expect to retire in 10 years with $100 and that you've determined that 60/40 is the asset allocation you want for the duration of your retirement.
Take your retirement equity allocation (60%) and multiply it by your target retirement savings ($100) . This tells you how much money to have invested in equities at any given point in time.
In this case it is $60.
Let's say you're 10 years from retirement and your portfolio has only grown (so far to $90). Allocate $60 to stocks and $30 to bonds, for an AA of 66/33.
Let's say the portfolio drops to $80 next week. Rebalance so you have $60 in stocks and $20 in bonds, for an AA of 75/25.
Let's say that two years later the portfolio has rebounded to $105 due to contributions and market growth. Allocate $60 to stocks and $45 to bonds, for an AA of 57/43.
Etc.
I'm glossing over a few nuances, but honestly this simple method works quite well as long as you are at least moderately confident about your estimate for the two numbers.
Personally I find it appealing since the concept is very intuitive to me.
Livin' the dream
 Ben Mathew
 Posts: 1641
 Joined: Tue Mar 13, 2018 11:41 am
 Location: Seattle
Re: A question about glide paths.
This method makes sense. But figuring out the balance at the start of retirement can get complicated if the investor does not intend to keep working till the balance is reached. So for example if they plan to retire at age 65 with whatever they have accumulated, then figuring out how much they will have accumulated by the start of retirement may require some modeling.Morse Code wrote: ↑Wed Jun 09, 2021 10:28 amOkay, maybe I didn't read vineviz' careful enough. At any rate, I rephrased it for clarity. I agree. I struggled with a glide path that made sense to me until I stumbled upon this method and I knew it was for me. The idea of targeting a balance rather than an age is key for me.absolute zero wrote: ↑Wed Jun 09, 2021 8:03 amI don’t think that’s just a similar method  it sounds like what you are using is precisely what vineviz suggested.Morse Code wrote: ↑Wed Jun 09, 2021 7:55 amHere's a similar method that I am using which may be helpful to consider. If your target balance is 1.5M and your target retirement allocation is 60/40, you intend to have $900,000 in equity at retirement (1.5M * 0.6) and conversely, $600,000 in fixed income. So buy your stocks first. Maintain 100% equity until you reach $900,000, then begin to acquire fixed income with new contributions and rebalancing until you arrive at retirement with $1.5M in your nest egg and a 60/40 allocation.theorist wrote: ↑Wed Jun 09, 2021 6:22 amIf I understand the basic idea here, you’d suggest 100% stocks up until the time you reach a portfolio value exceeding the estimated stock portion of your target amount. Is this right? (Not disputing, just trying to understand.)vineviz wrote: ↑Wed Jun 09, 2021 6:05 am
The glide path used by target date funds is a generalized approximation: it works well on average, but you can manage your own glide path simply (IMHO) and easily with two numbers:
1) Your target retirement savings;
2) Your retirement asset allocation.
Let's say you expect to retire in 10 years with $100 and that you've determined that 60/40 is the asset allocation you want for the duration of your retirement.
Take your retirement equity allocation (60%) and multiply it by your target retirement savings ($100) . This tells you how much money to have invested in equities at any given point in time.
In this case it is $60.
Let's say you're 10 years from retirement and your portfolio has only grown (so far to $90). Allocate $60 to stocks and $30 to bonds, for an AA of 66/33.
Let's say the portfolio drops to $80 next week. Rebalance so you have $60 in stocks and $20 in bonds, for an AA of 75/25.
Let's say that two years later the portfolio has rebounded to $105 due to contributions and market growth. Allocate $60 to stocks and $45 to bonds, for an AA of 57/43.
Etc.
I'm glossing over a few nuances, but honestly this simple method works quite well as long as you are at least moderately confident about your estimate for the two numbers.
Personally I find it appealing since the concept is very intuitive to me.
Also, you would need to discount the $900,000 (present value, not inflation adjust) to calculate current year's stock target.
Last edited by Ben Mathew on Wed Jun 09, 2021 12:47 pm, edited 1 time in total.
 Ben Mathew
 Posts: 1641
 Joined: Tue Mar 13, 2018 11:41 am
 Location: Seattle
Re: A question about glide paths.
The starting retirement balance that is an input into the simple formula would be a function of future savings and expected return. Trying to estimate that carefully would get you back to the more complicated approach.absolute zero wrote: ↑Wed Jun 09, 2021 8:13 amIf I recall, you (and others including Ben Mathew and Steve Reading) have talked about this approach, but have typically incorporated a process whereby the target stock allocation is recalculated each year using a discount rate and a couple other variables like future savings.vineviz wrote: ↑Wed Jun 09, 2021 6:05 amThe glide path used by target date funds is a generalized approximation: it works well on average, but you can manage your own glide path simply (IMHO) and easily with two numbers:Jaymover wrote: ↑Wed Jun 09, 2021 4:49 am For instance, if over the 7 years of recovery the unlucky investor glides from a 70/30 allocation to a 60/40 allocation then it looks as if they miss out on some of the opportunity through the 7 year period by tilting more and more each year toward bonds.
I see that some Bogleheads model various scenarios and there may be some evidence in doing things differently to the typical set and forget target date fund. Or perhaps there is a different principle out there that one could use to manage sequencing risk.
1) Your target retirement savings;
2) Your retirement asset allocation.
Let's say you expect to retire in 10 years with $100 and that you've determined that 60/40 is the asset allocation you want for the duration of your retirement.
Take your retirement equity allocation (60%) and multiply it by your target retirement savings ($100) . This tells you how much money to have invested in equities at any given point in time.
In this case it is $60.
Let's say you're 10 years from retirement and your portfolio has only grown (so far to $90). Allocate $60 to stocks and $30 to bonds, for an AA of 66/33.
Let's say the portfolio drops to $80 next week. Rebalance so you have $60 in stocks and $20 in bonds, for an AA of 75/25.
Let's say that two years later the portfolio has rebounded to $105 due to contributions and market growth. Allocate $60 to stocks and $45 to bonds, for an AA of 57/43.
Etc.
I'm glossing over a few nuances, but honestly this simple method works quite well as long as you are at least moderately confident about your estimate for the two numbers.
I find the simpler method that you’ve described in this current thread to be way more appealing and easy to understand. Any thoughts on the potential downfalls of this method vs the more “sophisticated” approach? The simple method just produces a slightly more aggressive allocation during the glide years, correct?
Also, the simple formula above is not discounting the dollar allocation to stocksi.e $60 in stocks at retirement is equivalent to less than $60 in stocks today. So the correct allocation to stocks would be less than $60 todaya lot less if there are many years left to retirement.

 Posts: 946
 Joined: Thu Dec 29, 2016 4:59 pm
Re: A question about glide paths.
This makes sense to me now. If targeting a number (and not an age) for retirement then can just use the number itself in the calculation and keep it easy. Thanks.Ben Mathew wrote: ↑Wed Jun 09, 2021 12:39 pmThe starting retirement balance that is an input into the simple formula would be a function of future savings and expected return. Trying to estimate that carefully would get you back to the more complicated approach.absolute zero wrote: ↑Wed Jun 09, 2021 8:13 amIf I recall, you (and others including Ben Mathew and Steve Reading) have talked about this approach, but have typically incorporated a process whereby the target stock allocation is recalculated each year using a discount rate and a couple other variables like future savings.vineviz wrote: ↑Wed Jun 09, 2021 6:05 amThe glide path used by target date funds is a generalized approximation: it works well on average, but you can manage your own glide path simply (IMHO) and easily with two numbers:Jaymover wrote: ↑Wed Jun 09, 2021 4:49 am For instance, if over the 7 years of recovery the unlucky investor glides from a 70/30 allocation to a 60/40 allocation then it looks as if they miss out on some of the opportunity through the 7 year period by tilting more and more each year toward bonds.
I see that some Bogleheads model various scenarios and there may be some evidence in doing things differently to the typical set and forget target date fund. Or perhaps there is a different principle out there that one could use to manage sequencing risk.
1) Your target retirement savings;
2) Your retirement asset allocation.
Let's say you expect to retire in 10 years with $100 and that you've determined that 60/40 is the asset allocation you want for the duration of your retirement.
Take your retirement equity allocation (60%) and multiply it by your target retirement savings ($100) . This tells you how much money to have invested in equities at any given point in time.
In this case it is $60.
Let's say you're 10 years from retirement and your portfolio has only grown (so far to $90). Allocate $60 to stocks and $30 to bonds, for an AA of 66/33.
Let's say the portfolio drops to $80 next week. Rebalance so you have $60 in stocks and $20 in bonds, for an AA of 75/25.
Let's say that two years later the portfolio has rebounded to $105 due to contributions and market growth. Allocate $60 to stocks and $45 to bonds, for an AA of 57/43.
Etc.
I'm glossing over a few nuances, but honestly this simple method works quite well as long as you are at least moderately confident about your estimate for the two numbers.
I find the simpler method that you’ve described in this current thread to be way more appealing and easy to understand. Any thoughts on the potential downfalls of this method vs the more “sophisticated” approach? The simple method just produces a slightly more aggressive allocation during the glide years, correct?
Also, the simple formula above is not discounting the dollar allocation to stocksi.e $60 in stocks at retirement is equivalent to less than $60 in stocks today. So the correct allocation to stocks would be less than $60 todaya lot less if there are many years left to retirement.
Re: A question about glide paths.
Do I understand the bolded section above to mean that in your suggested method, the "target retirement savings" number is a future value? I typically think of my retirement "target" in today's dollars. How would this change your method?vineviz wrote: ↑Wed Jun 09, 2021 10:13 amThis simpler method results in a glide path that is more sensitive to your assumption about future market returns (since that goes directly into the estimate for "target retirement savings"). If you use an inaccurate estimate for expected returns (either much higher or lower than what you actually experience) you'll get bigger swings in the asset allocation. I also seem to recall that the simpler method typically generates a slightly steeper glide path, but overall the outcomes will be very similar.absolute zero wrote: ↑Wed Jun 09, 2021 8:13 am I find the simpler method that you’ve described in this current thread to be way more appealing and easy to understand. Any thoughts on the potential downfalls of this method vs the more “sophisticated” approach? The simple method just produces a slightly more aggressive allocation during the glide years, correct?
Thanks!
Re: A question about glide paths.
It's true that the more years until retirement the more differences you might see between the formal approach and the simpler approach I outlined above.Ben Mathew wrote: ↑Wed Jun 09, 2021 12:39 pm Also, the simple formula above is not discounting the dollar allocation to stocksi.e $60 in stocks at retirement is equivalent to less than $60 in stocks today. So the correct allocation to stocks would be less than $60 todaya lot less if there are many years left to retirement.
It's also true that with many years until retirement there's so much uncertainty about all the parameters that it's going to be hard to ascertain which approach is more "correct". And with many years to retirement, the impact of being a little more conservative or a little more aggressive isn't going to matter much since there's typically enough human capital left to smooth over the errors as retirement gets closer.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: A question about glide paths.
There are ways to estimate the glide path that use a bit more care with dealing with proper discount rates and growth rates. The simple method I outlined above is effectively expressing the future value in current dollars which, as Ben alluded to, generates a slightly higher equity allocation for longer .esteen wrote: ↑Wed Jun 09, 2021 1:33 pmDo I understand the bolded section above to mean that in your suggested method, the "target retirement savings" number is a future value? I typically think of my retirement "target" in today's dollars. How would this change your method?vineviz wrote: ↑Wed Jun 09, 2021 10:13 amThis simpler method results in a glide path that is more sensitive to your assumption about future market returns (since that goes directly into the estimate for "target retirement savings"). If you use an inaccurate estimate for expected returns (either much higher or lower than what you actually experience) you'll get bigger swings in the asset allocation. I also seem to recall that the simpler method typically generates a slightly steeper glide path, but overall the outcomes will be very similar.absolute zero wrote: ↑Wed Jun 09, 2021 8:13 am I find the simpler method that you’ve described in this current thread to be way more appealing and easy to understand. Any thoughts on the potential downfalls of this method vs the more “sophisticated” approach? The simple method just produces a slightly more aggressive allocation during the glide years, correct?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: A question about glide paths.
I haven’t crunched any numbers, but intuition tells me this might be a challenging (or inefficient) approach if you are risk averse and want a low equity allocation in retirement (eg, 30%). You could fill up the equity allocation early if you are a saver and then spend a long time (decades?) just buying bonds. What do you think?vineviz wrote: ↑Wed Jun 09, 2021 6:05 am
The glide path used by target date funds is a generalized approximation: it works well on average, but you can manage your own glide path simply (IMHO) and easily with two numbers:
1) Your target retirement savings;
2) Your retirement asset allocation.
Let's say you expect to retire in 10 years with $100 and that you've determined that 60/40 is the asset allocation you want for the duration of your retirement.
Take your retirement equity allocation (60%) and multiply it by your target retirement savings ($100) . This tells you how much money to have invested in equities at any given point in time.
Re: A question about glide paths.
A highly risk averse investor will definitely pivot to bonds earlier than an investor who is less risk averse, but that’s exactly what a riskaverse investor SHOULD do.Horton wrote: ↑Wed Jun 09, 2021 5:02 pmI haven’t crunched any numbers, but intuition tells me this might be a challenging (or inefficient) approach if you are risk averse and want a low equity allocation in retirement (eg, 30%). You could fill up the equity allocation early if you are a saver and then spend a long time (decades?) just buying bonds. What do you think?vineviz wrote: ↑Wed Jun 09, 2021 6:05 am
The glide path used by target date funds is a generalized approximation: it works well on average, but you can manage your own glide path simply (IMHO) and easily with two numbers:
1) Your target retirement savings;
2) Your retirement asset allocation.
Let's say you expect to retire in 10 years with $100 and that you've determined that 60/40 is the asset allocation you want for the duration of your retirement.
Take your retirement equity allocation (60%) and multiply it by your target retirement savings ($100) . This tells you how much money to have invested in equities at any given point in time.
So I don’t think it’s inefficient so much as it is appropriate for their risk profile.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
 Ben Mathew
 Posts: 1641
 Joined: Tue Mar 13, 2018 11:41 am
 Location: Seattle
Re: A question about glide paths.
The model on which that vineviz is basing this ruleofthumb is a lifecycle model where risk is being evenly spread across time. From that perspective, it's appropriate that the risk averse person you describe who wants a low 30% equity allocation in retirement should stick to a correspondingly low equity during working years. One way of looking at it is, do you care whether you lose 30% of your retirement funds to a stock market crash at age 45 or at age 65? If you don't care, then take equal risk at age 45 and at age 65. You should be as likely to lose 30% of your retirement income at age 45 as you are at age 65. Equalizing stock exposure at different ages does just that.Horton wrote: ↑Wed Jun 09, 2021 5:02 pmI haven’t crunched any numbers, but intuition tells me this might be a challenging (or inefficient) approach if you are risk averse and want a low equity allocation in retirement (eg, 30%). You could fill up the equity allocation early if you are a saver and then spend a long time (decades?) just buying bonds. What do you think?vineviz wrote: ↑Wed Jun 09, 2021 6:05 am
The glide path used by target date funds is a generalized approximation: it works well on average, but you can manage your own glide path simply (IMHO) and easily with two numbers:
1) Your target retirement savings;
2) Your retirement asset allocation.
Let's say you expect to retire in 10 years with $100 and that you've determined that 60/40 is the asset allocation you want for the duration of your retirement.
Take your retirement equity allocation (60%) and multiply it by your target retirement savings ($100) . This tells you how much money to have invested in equities at any given point in time.
If on the other hand you feel that you would rather lose 30% of your retirement income at age 45 than at age 65maybe you feel you can adjust better by working longer or saving morethat's an argument for maintaining a higher stock allocation at younger ages than at older ages. Vanguard's glidepath for target date funds broadly follows the shape suggested by the lifecycle modelflat at 100% in early career, sharp slope down in late career, turning flat at target AA at retirement. But they modify it in a couple different ways. One is that they cap stock allocation at 90% in a nod to human psychology. But the more interesting modification in the context of this discussion is that they maintain a higher stock allocation in early retirement than the eventual target in mid and late retirement. They justify this by saying that retirees may still have the option to go back to work in early retirement, so are able to take more risk than they can in mid to late retirement. That would be an example of taking on more stock risk earlier because people have more options to adjust in case of poor market performance.
Re: A question about glide paths.
Thanks Ben. Makes me wonder how Fidelity arrived at their glidepath.Ben Mathew wrote: ↑Wed Jun 09, 2021 5:46 pm
If on the other hand you feel that you would rather lose 30% of your retirement income at age 45 than at age 65maybe you feel you can adjust better by working longer or saving morethat's an argument for maintaining a higher stock allocation at younger ages than at older ages. Vanguard's glidepath for target date funds broadly follows the shape suggested by the lifecycle modelflat at 100% in early career, sharp slope down in late career, turning flat at target AA at retirement. But they modify it in a couple different ways. One is that they cap stock allocation at 90% in a nod to human psychology. But the more interesting modification in the context of this discussion is that they maintain a higher stock allocation in early retirement than the eventual target in mid and late retirement. They justify this by saying that retirees may still have the option to go back to work in early retirement, so are able to take more risk than they can in mid to late retirement. That would be an example of taking on more stock risk earlier because people have more options to adjust in case of poor market performance.
Re: A question about glide paths.
Thanks for the insight here. I have modelled my accumulation over the next 13 years and have also calculated present Value of my total wealth to the point where it is (hopefully) enough. If I were to use future values to calculate my stock allocation then I dont think the model works.vineviz wrote: ↑Wed Jun 09, 2021 4:57 pmThere are ways to estimate the glide path that use a bit more care with dealing with proper discount rates and growth rates. The simple method I outlined above is effectively expressing the future value in current dollars which, as Ben alluded to, generates a slightly higher equity allocation for longer .esteen wrote: ↑Wed Jun 09, 2021 1:33 pmDo I understand the bolded section above to mean that in your suggested method, the "target retirement savings" number is a future value? I typically think of my retirement "target" in today's dollars. How would this change your method?vineviz wrote: ↑Wed Jun 09, 2021 10:13 amThis simpler method results in a glide path that is more sensitive to your assumption about future market returns (since that goes directly into the estimate for "target retirement savings"). If you use an inaccurate estimate for expected returns (either much higher or lower than what you actually experience) you'll get bigger swings in the asset allocation. I also seem to recall that the simpler method typically generates a slightly steeper glide path, but overall the outcomes will be very similar.absolute zero wrote: ↑Wed Jun 09, 2021 8:13 am I find the simpler method that you’ve described in this current thread to be way more appealing and easy to understand. Any thoughts on the potential downfalls of this method vs the more “sophisticated” approach? The simple method just produces a slightly more aggressive allocation during the glide years, correct?
Eg
Current value of holdings at 52 years = $1,000,000
Value of holdings in 13 years (with saving) = $2,000,000
PV of holdings in 13 years = $1,500,000
Target allocation on retirement = 60/40
Amount in stocks required now using VINEVIZs method = $1.200,000 (120 percent stock allocation needed today  no way)
Amount in stocks required now using VINEVIZs method based on future PV = $900,000 (90 percent stocks needed today  doable but pretty aggressive)
So it seems as if you need to calculate the PV of retirement amount for the VINEVIZ system to work (unless you are really well off)
I think what I like about the Vineviz system is that it encourages investors to go all in stocks after major corrections. Even in the Japan scenario this will work as if capital values remain terminally low then at least all in stocks will be do slightly better than the alternatives (eg FTSE index has been low for years but yields are currently around 5%). It would be hard to ignore the disappointment however.
It also gives me a goal eg. "By the time I drop out of the workforce I want $900,000 in growth assets (in PV) and 10 years of living expenses in bonds"
Re: A question about glide paths.
I am using* below method that vineviz mentioned in another thread.
It doesn't require estimating retirement savings.
1 Estimate annual retirement expenses: e.g.: $50k
2 Your current savings: e.g.: $1M
3 Then your bond allocation is: $1M/$50k = 20 > 20%
Then you can retire when you have $1.5M @ 70/30 or $2M @ 60/40 or somewhere in between depending on your risk tolerance.
I think this is a good method today due to very low bond yields. That is: In order to "afford" a large bond allocation, you need to save more. Or you need to take more risk with stocks and/or have flexibility.
And i think this is a good method for folks aiming early retirement since it is independent of age.
*I also modify this based on current ERP. Current forward ERP estimation is 4.24%. Fair ERP is 5%. Difference is 0.76%. I multiply this by 10 and add it to bond alloc above. So: 20% + 7.6% = 27.6% is my current bond allocation target. I update this every month as Prof. Damodaran updates and direct new savings accordingly.
It doesn't require estimating retirement savings.
1 Estimate annual retirement expenses: e.g.: $50k
2 Your current savings: e.g.: $1M
3 Then your bond allocation is: $1M/$50k = 20 > 20%
Then you can retire when you have $1.5M @ 70/30 or $2M @ 60/40 or somewhere in between depending on your risk tolerance.
I think this is a good method today due to very low bond yields. That is: In order to "afford" a large bond allocation, you need to save more. Or you need to take more risk with stocks and/or have flexibility.
And i think this is a good method for folks aiming early retirement since it is independent of age.
*I also modify this based on current ERP. Current forward ERP estimation is 4.24%. Fair ERP is 5%. Difference is 0.76%. I multiply this by 10 and add it to bond alloc above. So: 20% + 7.6% = 27.6% is my current bond allocation target. I update this every month as Prof. Damodaran updates and direct new savings accordingly.

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 Joined: Wed Jan 11, 2017 8:05 pm
Re: A question about glide paths.
I see glide path and rebalancing policy as separate issues. Glide path determines your target allocation at any given time. Rebalancing policy determined how closely you stick to it. I don't see any one size fits all for all investors. If you wait until the market recovers you will miss buying opportunities at the bottom. If you rebalance on the way down you are taking risk the market goes down further.
You could split the difference and rebalance during the crash up to a certain amount, putting an absolute limit on the amount you will rebalance. E.g. if you are starting with 12 years expenses in bonds you might say that you will rebalance during a crash as long as bond allocation is > 10 years expenses.
You could split the difference and rebalance during the crash up to a certain amount, putting an absolute limit on the amount you will rebalance. E.g. if you are starting with 12 years expenses in bonds you might say that you will rebalance during a crash as long as bond allocation is > 10 years expenses.

 Posts: 4917
 Joined: Fri Feb 23, 2007 8:21 pm
Re: A question about glide paths.
I started this thread a while back, based on William Bernstein’s book. Customizing the Glidepath. Curious what people think.
viewtopic.php?t=236967
Dave
viewtopic.php?t=236967
Dave
Re: A question about glide paths.
** Corrected **Jaymover wrote: ↑Wed Jun 09, 2021 7:55 pm
Thanks for the insight here. I have modelled my accumulation over the next 13 years and have also calculated present Value of my total wealth to the point where it is (hopefully) enough. If I were to use future values to calculate my stock allocation then I dont think the model works.
Eg
Current value of holdings at 52 years = $1,000,000
Value of holdings in 13 years (with saving) = $2,000,000
PV of holdings in 13 years = $1,500,000
Target allocation on retirement = 60/40
Amount in stocks required now using VINEVIZs method = $1.200,000 (120 percent stock allocation needed today  no way)
Amount in stocks required now using VINEVIZs method based on future PV = $900,000 (90 percent stocks needed today  doable but pretty aggressive)
So it seems as if you need to calculate the PV of retirement amount for the VINEVIZ system to work (unless you are really well off)
I think what I like about the Vineviz system is that it encourages investors to go all in stocks after major corrections. Even in the Japan scenario this will work as if capital values remain terminally low then at least all in stocks will be do slightly better than the alternatives (eg FTSE index has been low for years but yields are currently around 5%). It would be hard to ignore the disappointment however.
It also gives me a goal eg. "By the time I drop out of the workforce I want $900,000 in growth assets (in PV) and 10 years of living expenses in bonds"
Or, you can use my system linked upthread.
Target AA = (Current Balance / Target Balance) * Target Fixed Income in retirement.
using your numbers:
Target AA = (1,000,000 / 2,000,000) * 40%
Results in 20% in fixed income, 80% in equities.
For me, this works out to about 70% equities and 30% fixed income at the moment. As you noted, it will dynamically shift whenever there is a major correction, as it did for me in March 2020, and then again other way at present.
Re: A question about glide paths.
Elysium wrote: ↑Thu Jun 10, 2021 8:59 am** Corrected **Jaymover wrote: ↑Wed Jun 09, 2021 7:55 pm
Thanks for the insight here. I have modelled my accumulation over the next 13 years and have also calculated present Value of my total wealth to the point where it is (hopefully) enough. If I were to use future values to calculate my stock allocation then I dont think the model works.
Eg
Current value of holdings at 52 years = $1,000,000
Value of holdings in 13 years (with saving) = $2,000,000
PV of holdings in 13 years = $1,500,000
Target allocation on retirement = 60/40
Amount in stocks required now using VINEVIZs method = $1.200,000 (120 percent stock allocation needed today  no way)
Amount in stocks required now using VINEVIZs method based on future PV = $900,000 (90 percent stocks needed today  doable but pretty aggressive)
So it seems as if you need to calculate the PV of retirement amount for the VINEVIZ system to work (unless you are really well off)
I think what I like about the Vineviz system is that it encourages investors to go all in stocks after major corrections. Even in the Japan scenario this will work as if capital values remain terminally low then at least all in stocks will be do slightly better than the alternatives (eg FTSE index has been low for years but yields are currently around 5%). It would be hard to ignore the disappointment however.
It also gives me a goal eg. "By the time I drop out of the workforce I want $900,000 in growth assets (in PV) and 10 years of living expenses in bonds"
Or, you can use my system linked upthread.
Target AA = (Current Balance / Target Balance) * Target Fixed Income in retirement.
using your numbers:
Target AA = (1,000,000 / 2,000,000) * 40%
Results in 20% in fixed income, 80% in equities.
For me, this works out to about 70% equities and 30% fixed income at the moment. As you noted, it will dynamically shift whenever there is a major correction, as it did for me in March 2020, and then again other way at present.
I like this approach actually. If there is a major correction then it tilts toward a higher allocation but not as aggressively as the VINEVIZ method. Kind of a compromise.
It also encourages contrarianism, ie if you have to rebalance during a bear market then you will be encouraged to do it a bit more aggressively. The next question is when should one rebalance? Yearly seems to be the suggestion, or when your AA varies by 5 percent or more (eg during or after a selloff or boom. Of course the above method means that we will be needing to rebalance more often after a bull or bear market as the target will be moving in the opposite direction to the market so maybe the variance needs to be 10 percent.
This has been a very helpful post. Thanks!
Re: A question about glide paths.
Rebalance based on percentage variation from target, minimum 5% and no more than 10%, giving a band like that allows for flexibility because sometimes you do not want to trigger a rebalance at 5% and may allow it to go to 7% instead, but keeping an upper band will allow keeping risk in check. That's what I do, last March I let it go 7% off target before buying equities and that helped. As of now I am perhaps again 7% off target, but haven't sold equities yet but it gets closer to that 10% band then I will.Jaymover wrote: ↑Fri Jun 11, 2021 2:06 amElysium wrote: ↑Thu Jun 10, 2021 8:59 am** Corrected **Jaymover wrote: ↑Wed Jun 09, 2021 7:55 pm
Thanks for the insight here. I have modelled my accumulation over the next 13 years and have also calculated present Value of my total wealth to the point where it is (hopefully) enough. If I were to use future values to calculate my stock allocation then I dont think the model works.
Eg
Current value of holdings at 52 years = $1,000,000
Value of holdings in 13 years (with saving) = $2,000,000
PV of holdings in 13 years = $1,500,000
Target allocation on retirement = 60/40
Amount in stocks required now using VINEVIZs method = $1.200,000 (120 percent stock allocation needed today  no way)
Amount in stocks required now using VINEVIZs method based on future PV = $900,000 (90 percent stocks needed today  doable but pretty aggressive)
So it seems as if you need to calculate the PV of retirement amount for the VINEVIZ system to work (unless you are really well off)
I think what I like about the Vineviz system is that it encourages investors to go all in stocks after major corrections. Even in the Japan scenario this will work as if capital values remain terminally low then at least all in stocks will be do slightly better than the alternatives (eg FTSE index has been low for years but yields are currently around 5%). It would be hard to ignore the disappointment however.
It also gives me a goal eg. "By the time I drop out of the workforce I want $900,000 in growth assets (in PV) and 10 years of living expenses in bonds"
Or, you can use my system linked upthread.
Target AA = (Current Balance / Target Balance) * Target Fixed Income in retirement.
using your numbers:
Target AA = (1,000,000 / 2,000,000) * 40%
Results in 20% in fixed income, 80% in equities.
For me, this works out to about 70% equities and 30% fixed income at the moment. As you noted, it will dynamically shift whenever there is a major correction, as it did for me in March 2020, and then again other way at present.
I like this approach actually. If there is a major correction then it tilts toward a higher allocation but not as aggressively as the VINEVIZ method. Kind of a compromise.
It also encourages contrarianism, ie if you have to rebalance during a bear market then you will be encouraged to do it a bit more aggressively. The next question is when should one rebalance? Yearly seems to be the suggestion, or when your AA varies by 5 percent or more (eg during or after a selloff or boom. Of course the above method means that we will be needing to rebalance more often after a bull or bear market as the target will be moving in the opposite direction to the market so maybe the variance needs to be 10 percent.
This has been a very helpful post. Thanks!

 Posts: 405
 Joined: Mon Jan 28, 2019 3:38 pm
Re: A question about glide paths.
Sorry if I missed this, but what discount rate is appropriate for the slightlymorecomplicatedthansimple approach? I have effectively done something with results quite close to having a slowlygrowing emergency fund plus this method using a 3% real discount rate, but never dove much into the lifecycle approach to understand it well.Ben Mathew wrote: ↑Wed Jun 09, 2021 12:39 pmThe starting retirement balance that is an input into the simple formula would be a function of future savings and expected return. Trying to estimate that carefully would get you back to the more complicated approach.absolute zero wrote: ↑Wed Jun 09, 2021 8:13 amIf I recall, you (and others including Ben Mathew and Steve Reading) have talked about this approach, but have typically incorporated a process whereby the target stock allocation is recalculated each year using a discount rate and a couple other variables like future savings.vineviz wrote: ↑Wed Jun 09, 2021 6:05 amThe glide path used by target date funds is a generalized approximation: it works well on average, but you can manage your own glide path simply (IMHO) and easily with two numbers:Jaymover wrote: ↑Wed Jun 09, 2021 4:49 am For instance, if over the 7 years of recovery the unlucky investor glides from a 70/30 allocation to a 60/40 allocation then it looks as if they miss out on some of the opportunity through the 7 year period by tilting more and more each year toward bonds.
I see that some Bogleheads model various scenarios and there may be some evidence in doing things differently to the typical set and forget target date fund. Or perhaps there is a different principle out there that one could use to manage sequencing risk.
1) Your target retirement savings;
2) Your retirement asset allocation.
Let's say you expect to retire in 10 years with $100 and that you've determined that 60/40 is the asset allocation you want for the duration of your retirement.
Take your retirement equity allocation (60%) and multiply it by your target retirement savings ($100) . This tells you how much money to have invested in equities at any given point in time.
In this case it is $60.
Let's say you're 10 years from retirement and your portfolio has only grown (so far to $90). Allocate $60 to stocks and $30 to bonds, for an AA of 66/33.
Let's say the portfolio drops to $80 next week. Rebalance so you have $60 in stocks and $20 in bonds, for an AA of 75/25.
Let's say that two years later the portfolio has rebounded to $105 due to contributions and market growth. Allocate $60 to stocks and $45 to bonds, for an AA of 57/43.
Etc.
I'm glossing over a few nuances, but honestly this simple method works quite well as long as you are at least moderately confident about your estimate for the two numbers.
I find the simpler method that you’ve described in this current thread to be way more appealing and easy to understand. Any thoughts on the potential downfalls of this method vs the more “sophisticated” approach? The simple method just produces a slightly more aggressive allocation during the glide years, correct?
Also, the simple formula above is not discounting the dollar allocation to stocksi.e $60 in stocks at retirement is equivalent to less than $60 in stocks today. So the correct allocation to stocks would be less than $60 todaya lot less if there are many years left to retirement.
Global Market Portfolio + modest tilt towards volatility (80/20>60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currencyhedge bonds) + tax optimization
 Ben Mathew
 Posts: 1641
 Joined: Tue Mar 13, 2018 11:41 am
 Location: Seattle
Re: A question about glide paths.
The goal is to maintain a fixed allocation on the total portfolio, which includes future savings and pensions counted as bonds. The discount rate needed to calculate the total portfolio is the appropriate bond rate to calculate the present value of future savings and pensions. If you use a conservative real estimate of future savings and pensions, you could use TIPS yields of matching duration as the discount rate (available here). Once you have this value, add it to current savings to get the value of the total portfolio. Apply the desired asset allocation to the total portfolio to get current stock allocation.HootingSloth wrote: ↑Fri Jun 11, 2021 6:45 pmSorry if I missed this, but what discount rate is appropriate for the slightlymorecomplicatedthansimple approach? I have effectively done something with results quite close to having a slowlygrowing emergency fund plus this method using a 3% real discount rate, but never dove much into the lifecycle approach to understand it well.Ben Mathew wrote: ↑Wed Jun 09, 2021 12:39 pmThe starting retirement balance that is an input into the simple formula would be a function of future savings and expected return. Trying to estimate that carefully would get you back to the more complicated approach.absolute zero wrote: ↑Wed Jun 09, 2021 8:13 amIf I recall, you (and others including Ben Mathew and Steve Reading) have talked about this approach, but have typically incorporated a process whereby the target stock allocation is recalculated each year using a discount rate and a couple other variables like future savings.vineviz wrote: ↑Wed Jun 09, 2021 6:05 amThe glide path used by target date funds is a generalized approximation: it works well on average, but you can manage your own glide path simply (IMHO) and easily with two numbers:Jaymover wrote: ↑Wed Jun 09, 2021 4:49 am For instance, if over the 7 years of recovery the unlucky investor glides from a 70/30 allocation to a 60/40 allocation then it looks as if they miss out on some of the opportunity through the 7 year period by tilting more and more each year toward bonds.
I see that some Bogleheads model various scenarios and there may be some evidence in doing things differently to the typical set and forget target date fund. Or perhaps there is a different principle out there that one could use to manage sequencing risk.
1) Your target retirement savings;
2) Your retirement asset allocation.
Let's say you expect to retire in 10 years with $100 and that you've determined that 60/40 is the asset allocation you want for the duration of your retirement.
Take your retirement equity allocation (60%) and multiply it by your target retirement savings ($100) . This tells you how much money to have invested in equities at any given point in time.
In this case it is $60.
Let's say you're 10 years from retirement and your portfolio has only grown (so far to $90). Allocate $60 to stocks and $30 to bonds, for an AA of 66/33.
Let's say the portfolio drops to $80 next week. Rebalance so you have $60 in stocks and $20 in bonds, for an AA of 75/25.
Let's say that two years later the portfolio has rebounded to $105 due to contributions and market growth. Allocate $60 to stocks and $45 to bonds, for an AA of 57/43.
Etc.
I'm glossing over a few nuances, but honestly this simple method works quite well as long as you are at least moderately confident about your estimate for the two numbers.
I find the simpler method that you’ve described in this current thread to be way more appealing and easy to understand. Any thoughts on the potential downfalls of this method vs the more “sophisticated” approach? The simple method just produces a slightly more aggressive allocation during the glide years, correct?
Also, the simple formula above is not discounting the dollar allocation to stocksi.e $60 in stocks at retirement is equivalent to less than $60 in stocks today. So the correct allocation to stocks would be less than $60 todaya lot less if there are many years left to retirement.
Example:
Current savings = $400,000
PV of future savings and pensions (discounted using bond rates) = $500,000
Total portfolio = $400,000 + $500,000 = $900,000
Asset allocation on total portfolio = 30/70 fixed
Stock exposure = 30% of $900,000 = $270,000
So asset allocation on current savings portfolio = $270,000/$130,000 which works out to 68/32. We are maintaining 30/70 on the total portfolio by holding 68/32 on the savings portfolio.
This approach is implemented in Total portfolio allocation and withdrawal (TPAW).

 Posts: 405
 Joined: Mon Jan 28, 2019 3:38 pm
Re: A question about glide paths.
Thanks. It sounds like I am not too close to doing this after all, if the TIPS yield is the appropriate discount rate, as that would mean I should be overshooting my target to account for the negative real yields. From what you say, it seems to make sense that this might not be the right method for me, because modelling future savings as bondlike is not a great fit for my situation.Ben Mathew wrote: ↑Fri Jun 11, 2021 7:40 pm The goal is to maintain a fixed allocation on the total portfolio, which includes future savings and pensions counted as bonds. The discount rate needed to calculate the total portfolio is the appropriate bond rate to calculate the present value of future savings and pensions. If you use a conservative real estimate of future savings and pensions, you could use TIPS yields of matching duration as the discount rate (available here). Once you have this value, add it to current savings to get the value of the total portfolio. Apply the desired asset allocation to the total portfolio to get current stock allocation.
Example:
Current savings = $400,000
PV of future savings and pensions (discounted using bond rates) = $500,000
Total portfolio = $400,000 + $500,000 = $900,000
Asset allocation on total portfolio = 30/70 fixed
Stock exposure = 30% of $900,000 = $270,000
So asset allocation on current savings portfolio = $270,000/$130,000 which works out to 68/32. We are maintaining 30/70 on the total portfolio by holding 68/32 on the savings portfolio.
This approach is implemented in Total portfolio allocation and withdrawal (TPAW).
Global Market Portfolio + modest tilt towards volatility (80/20>60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currencyhedge bonds) + tax optimization
Re: A question about glide paths.
The discount rate used to compute the PV of future savings should be a nominal rate, not a real rate.HootingSloth wrote: ↑Fri Jun 11, 2021 8:01 pmThanks. It sounds like I am not too close to doing this after all, if the TIPS yield is the appropriate discount rate, as that would mean I should be overshooting my target to account for the negative real yields. From what you say, it seems to make sense that this might not be the right method for me, because modelling future savings as bondlike is not a great fit for my situation.Ben Mathew wrote: ↑Fri Jun 11, 2021 7:40 pm The goal is to maintain a fixed allocation on the total portfolio, which includes future savings and pensions counted as bonds. The discount rate needed to calculate the total portfolio is the appropriate bond rate to calculate the present value of future savings and pensions. If you use a conservative real estimate of future savings and pensions, you could use TIPS yields of matching duration as the discount rate (available here). Once you have this value, add it to current savings to get the value of the total portfolio. Apply the desired asset allocation to the total portfolio to get current stock allocation.
Example:
Current savings = $400,000
PV of future savings and pensions (discounted using bond rates) = $500,000
Total portfolio = $400,000 + $500,000 = $900,000
Asset allocation on total portfolio = 30/70 fixed
Stock exposure = 30% of $900,000 = $270,000
So asset allocation on current savings portfolio = $270,000/$130,000 which works out to 68/32. We are maintaining 30/70 on the total portfolio by holding 68/32 on the savings portfolio.
This approach is implemented in Total portfolio allocation and withdrawal (TPAW).
And the rate should reflect, to some degree at least, thenriskiness of your human capital. That said, for reasons, you should probably use a rate no higher than the yield on investment grade corporate bonds.
If you view your human capital as particularly risky I’d still not use a rate above 3%.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
 Ben Mathew
 Posts: 1641
 Joined: Tue Mar 13, 2018 11:41 am
 Location: Seattle
Re: A question about glide paths.
Nominal estimates of future savings and pensions should be discounted by a nominal rate. Real (inflation adjusted) estimates of future savings and pensions should be discounted by a real rate. Both methods will result in the same present value.vineviz wrote: ↑Sat Jun 12, 2021 5:46 amThe discount rate used to compute the PV of future savings should be a nominal rate, not a real rate.HootingSloth wrote: ↑Fri Jun 11, 2021 8:01 pmThanks. It sounds like I am not too close to doing this after all, if the TIPS yield is the appropriate discount rate, as that would mean I should be overshooting my target to account for the negative real yields. From what you say, it seems to make sense that this might not be the right method for me, because modelling future savings as bondlike is not a great fit for my situation.Ben Mathew wrote: ↑Fri Jun 11, 2021 7:40 pm The goal is to maintain a fixed allocation on the total portfolio, which includes future savings and pensions counted as bonds. The discount rate needed to calculate the total portfolio is the appropriate bond rate to calculate the present value of future savings and pensions. If you use a conservative real estimate of future savings and pensions, you could use TIPS yields of matching duration as the discount rate (available here). Once you have this value, add it to current savings to get the value of the total portfolio. Apply the desired asset allocation to the total portfolio to get current stock allocation.
Example:
Current savings = $400,000
PV of future savings and pensions (discounted using bond rates) = $500,000
Total portfolio = $400,000 + $500,000 = $900,000
Asset allocation on total portfolio = 30/70 fixed
Stock exposure = 30% of $900,000 = $270,000
So asset allocation on current savings portfolio = $270,000/$130,000 which works out to 68/32. We are maintaining 30/70 on the total portfolio by holding 68/32 on the savings portfolio.
This approach is implemented in Total portfolio allocation and withdrawal (TPAW).

 Posts: 405
 Joined: Mon Jan 28, 2019 3:38 pm
Re: A question about glide paths.
After looking at this again, I think what I am doing ends up being quite similar to this method with a discount rate around 0.8% real. (It seems much easier for me to think in real than nominal terms when talking about decades in the future, and pensions and SS will have COLA). The biggest difference is that in early stages I never went above 80% equities (I count my emergency fund as part of my portfolio for AA purposes, so would not have wanted to be at 100%). It may be just a coincidence or may be that my more qualitative thought process ended up getting me to a fairly similar place to this approach. Anyway, thanks to both of you for explaining more about the method. Always good to have different ways of looking at and evaluating my plan.vineviz wrote: ↑Sat Jun 12, 2021 5:46 amThe discount rate used to compute the PV of future savings should be a nominal rate, not a real rate.HootingSloth wrote: ↑Fri Jun 11, 2021 8:01 pmThanks. It sounds like I am not too close to doing this after all, if the TIPS yield is the appropriate discount rate, as that would mean I should be overshooting my target to account for the negative real yields. From what you say, it seems to make sense that this might not be the right method for me, because modelling future savings as bondlike is not a great fit for my situation.Ben Mathew wrote: ↑Fri Jun 11, 2021 7:40 pm The goal is to maintain a fixed allocation on the total portfolio, which includes future savings and pensions counted as bonds. The discount rate needed to calculate the total portfolio is the appropriate bond rate to calculate the present value of future savings and pensions. If you use a conservative real estimate of future savings and pensions, you could use TIPS yields of matching duration as the discount rate (available here). Once you have this value, add it to current savings to get the value of the total portfolio. Apply the desired asset allocation to the total portfolio to get current stock allocation.
Example:
Current savings = $400,000
PV of future savings and pensions (discounted using bond rates) = $500,000
Total portfolio = $400,000 + $500,000 = $900,000
Asset allocation on total portfolio = 30/70 fixed
Stock exposure = 30% of $900,000 = $270,000
So asset allocation on current savings portfolio = $270,000/$130,000 which works out to 68/32. We are maintaining 30/70 on the total portfolio by holding 68/32 on the savings portfolio.
This approach is implemented in Total portfolio allocation and withdrawal (TPAW).
And the rate should reflect, to some degree at least, thenriskiness of your human capital. That said, for reasons, you should probably use a rate no higher than the yield on investment grade corporate bonds.
If you view your human capital as particularly risky I’d still not use a rate above 3%.
Global Market Portfolio + modest tilt towards volatility (80/20>60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currencyhedge bonds) + tax optimization
 Ben Mathew
 Posts: 1641
 Joined: Tue Mar 13, 2018 11:41 am
 Location: Seattle
Re: A question about glide paths.
There are two ways to be conservative about the future savings assumption so as not to go overboard on stocks today:HootingSloth wrote: ↑Sat Jun 12, 2021 3:11 pmAfter looking at this again, I think what I am doing ends up being quite similar to this method with a discount rate around 0.8% real. (It seems much easier for me to think in real than nominal terms when talking about decades in the future, and pensions and SS will have COLA). The biggest difference is that in early stages I never went above 80% equities (I count my emergency fund as part of my portfolio for AA purposes, so would not have wanted to be at 100%). It may be just a coincidence or may be that my more qualitative thought process ended up getting me to a fairly similar place to this approach. Anyway, thanks to both of you for explaining more about the method. Always good to have different ways of looking at and evaluating my plan.vineviz wrote: ↑Sat Jun 12, 2021 5:46 amThe discount rate used to compute the PV of future savings should be a nominal rate, not a real rate.HootingSloth wrote: ↑Fri Jun 11, 2021 8:01 pmThanks. It sounds like I am not too close to doing this after all, if the TIPS yield is the appropriate discount rate, as that would mean I should be overshooting my target to account for the negative real yields. From what you say, it seems to make sense that this might not be the right method for me, because modelling future savings as bondlike is not a great fit for my situation.Ben Mathew wrote: ↑Fri Jun 11, 2021 7:40 pm The goal is to maintain a fixed allocation on the total portfolio, which includes future savings and pensions counted as bonds. The discount rate needed to calculate the total portfolio is the appropriate bond rate to calculate the present value of future savings and pensions. If you use a conservative real estimate of future savings and pensions, you could use TIPS yields of matching duration as the discount rate (available here). Once you have this value, add it to current savings to get the value of the total portfolio. Apply the desired asset allocation to the total portfolio to get current stock allocation.
Example:
Current savings = $400,000
PV of future savings and pensions (discounted using bond rates) = $500,000
Total portfolio = $400,000 + $500,000 = $900,000
Asset allocation on total portfolio = 30/70 fixed
Stock exposure = 30% of $900,000 = $270,000
So asset allocation on current savings portfolio = $270,000/$130,000 which works out to 68/32. We are maintaining 30/70 on the total portfolio by holding 68/32 on the savings portfolio.
This approach is implemented in Total portfolio allocation and withdrawal (TPAW).
And the rate should reflect, to some degree at least, thenriskiness of your human capital. That said, for reasons, you should probably use a rate no higher than the yield on investment grade corporate bonds.
If you view your human capital as particularly risky I’d still not use a rate above 3%.
1. Assume normal future savings, but go conservative with a high discount rate to discount it with.
2. Assume conservatively low future savings, but use the TIPS yield to discount it with.
I find the latter to be easier to wrap my head around. e.g. If I expect savings to be about $30,000 per year, then maybe $20,000 feels quite safe. Or maybe $15,000 does. I can understand and evaluate this dollar figure. The discount rate on the other hand is harder to get a feel for. Is 0.5% above TIPS conservative enough? Does it need to be 1% above TIPS? Does it depend on how old I am and how many years of savings I have left? Etc.

 Posts: 405
 Joined: Mon Jan 28, 2019 3:38 pm
Re: A question about glide paths.
That sounds totally fair. I did not get to this glidepath by thinking in terms of a discount rate.Ben Mathew wrote: ↑Sat Jun 12, 2021 4:34 pmThere are two ways to be conservative about the future savings assumption so as not to go overboard on stocks today:HootingSloth wrote: ↑Sat Jun 12, 2021 3:11 pmAfter looking at this again, I think what I am doing ends up being quite similar to this method with a discount rate around 0.8% real. (It seems much easier for me to think in real than nominal terms when talking about decades in the future, and pensions and SS will have COLA). The biggest difference is that in early stages I never went above 80% equities (I count my emergency fund as part of my portfolio for AA purposes, so would not have wanted to be at 100%). It may be just a coincidence or may be that my more qualitative thought process ended up getting me to a fairly similar place to this approach. Anyway, thanks to both of you for explaining more about the method. Always good to have different ways of looking at and evaluating my plan.vineviz wrote: ↑Sat Jun 12, 2021 5:46 amThe discount rate used to compute the PV of future savings should be a nominal rate, not a real rate.HootingSloth wrote: ↑Fri Jun 11, 2021 8:01 pmThanks. It sounds like I am not too close to doing this after all, if the TIPS yield is the appropriate discount rate, as that would mean I should be overshooting my target to account for the negative real yields. From what you say, it seems to make sense that this might not be the right method for me, because modelling future savings as bondlike is not a great fit for my situation.Ben Mathew wrote: ↑Fri Jun 11, 2021 7:40 pm The goal is to maintain a fixed allocation on the total portfolio, which includes future savings and pensions counted as bonds. The discount rate needed to calculate the total portfolio is the appropriate bond rate to calculate the present value of future savings and pensions. If you use a conservative real estimate of future savings and pensions, you could use TIPS yields of matching duration as the discount rate (available here). Once you have this value, add it to current savings to get the value of the total portfolio. Apply the desired asset allocation to the total portfolio to get current stock allocation.
Example:
Current savings = $400,000
PV of future savings and pensions (discounted using bond rates) = $500,000
Total portfolio = $400,000 + $500,000 = $900,000
Asset allocation on total portfolio = 30/70 fixed
Stock exposure = 30% of $900,000 = $270,000
So asset allocation on current savings portfolio = $270,000/$130,000 which works out to 68/32. We are maintaining 30/70 on the total portfolio by holding 68/32 on the savings portfolio.
This approach is implemented in Total portfolio allocation and withdrawal (TPAW).
And the rate should reflect, to some degree at least, thenriskiness of your human capital. That said, for reasons, you should probably use a rate no higher than the yield on investment grade corporate bonds.
If you view your human capital as particularly risky I’d still not use a rate above 3%.
1. Assume normal future savings, but go conservative with a high discount rate to discount it with.
2. Assume conservatively low future savings, but use the TIPS yield to discount it with.
I find the latter to be easier to wrap my head around. e.g. If I expect savings to be about $30,000 per year, then maybe $20,000 feels quite safe. Or maybe $15,000 does. I can understand and evaluate this dollar figure. The discount rate on the other hand is harder to get a feel for. Is 0.5% above TIPS conservative enough? Does it need to be 1% above TIPS? Does it depend on how old I am and how many years of savings I have left? Etc.
I chose my glidepath by first thinking more generally about what types of problems were most important to solve, at the margin, with different dollars at different life stages, then thinking about what assets were best suited to solving those problems, and finally figuring out a way to smoothly and automatically steer around those goals at different points of time so that I had an objective formula for my spreadsheet and was not trying to make decisions on short timescales.
I thought it was interesting that this qualitative method produced an answer that seemed quite close to an entirely different and highly quantitative method, so was trying to see how close it came and with what kinds of parameters.
Global Market Portfolio + modest tilt towards volatility (80/20>60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currencyhedge bonds) + tax optimization
Re: A question about glide paths.
Thanks everyone for your input as this has been a breakthrough post for me. This one post has helped me focus on my retirement financial goals (some 1015 years off) rather than some notional idea of stocks versus bonds should be x at age y. I could only do this by modelling 15 years into the future using a simple Excel spreadsheet with conservative assumptions on returns, taxes, income, expenses, rent etc.HootingSloth wrote: ↑Sat Jun 12, 2021 4:46 pmThat sounds totally fair. I did not get to this glidepath by thinking in terms of a discount rate.Ben Mathew wrote: ↑Sat Jun 12, 2021 4:34 pmThere are two ways to be conservative about the future savings assumption so as not to go overboard on stocks today:HootingSloth wrote: ↑Sat Jun 12, 2021 3:11 pmAfter looking at this again, I think what I am doing ends up being quite similar to this method with a discount rate around 0.8% real. (It seems much easier for me to think in real than nominal terms when talking about decades in the future, and pensions and SS will have COLA). The biggest difference is that in early stages I never went above 80% equities (I count my emergency fund as part of my portfolio for AA purposes, so would not have wanted to be at 100%). It may be just a coincidence or may be that my more qualitative thought process ended up getting me to a fairly similar place to this approach. Anyway, thanks to both of you for explaining more about the method. Always good to have different ways of looking at and evaluating my plan.vineviz wrote: ↑Sat Jun 12, 2021 5:46 amThe discount rate used to compute the PV of future savings should be a nominal rate, not a real rate.HootingSloth wrote: ↑Fri Jun 11, 2021 8:01 pm
Thanks. It sounds like I am not too close to doing this after all, if the TIPS yield is the appropriate discount rate, as that would mean I should be overshooting my target to account for the negative real yields. From what you say, it seems to make sense that this might not be the right method for me, because modelling future savings as bondlike is not a great fit for my situation.
And the rate should reflect, to some degree at least, thenriskiness of your human capital. That said, for reasons, you should probably use a rate no higher than the yield on investment grade corporate bonds.
If you view your human capital as particularly risky I’d still not use a rate above 3%.
1. Assume normal future savings, but go conservative with a high discount rate to discount it with.
2. Assume conservatively low future savings, but use the TIPS yield to discount it with.
I find the latter to be easier to wrap my head around. e.g. If I expect savings to be about $30,000 per year, then maybe $20,000 feels quite safe. Or maybe $15,000 does. I can understand and evaluate this dollar figure. The discount rate on the other hand is harder to get a feel for. Is 0.5% above TIPS conservative enough? Does it need to be 1% above TIPS? Does it depend on how old I am and how many years of savings I have left? Etc.
I chose my glidepath by first thinking more generally about what types of problems were most important to solve, at the margin, with different dollars at different life stages, then thinking about what assets were best suited to solving those problems, and finally figuring out a way to smoothly and automatically steer around those goals at different points of time so that I had an objective formula for my spreadsheet and was not trying to make decisions on short timescales.
I thought it was interesting that this qualitative method produced an answer that seemed quite close to an entirely different and highly quantitative method, so was trying to see how close it came and with what kinds of parameters.
I might get there (25x future expenses in todays dollars). However I am going to work on getting just a little bit more income through a side hustle or doing OT etc to improve my chances. I realise that I also have to remain engaged with risk. However my assets doing better than expected will allow me to back off a little with the risk hopefully. I am aiming for a 60/40 balanced portfolio which I expect will be required by me and many others in 2035 and no less.
Some people are talking about discount rates, bonds = pension etc. However you are really better off working out what income you need over and above future estimated pensions to work out what you want to retire with. Then use that
So for me right now it is approx 1,000,000*0.4/2,000,000 = 20 percent bonds. This does not include my 1 year of expenses in a CD.
I think the important thing is checking in once a year or after a significant event (eg windfall, terminal diagnosis, retrenchment, huge promotion) and looking at not only my portfolio but my model and consider making some changes (probably with an hour or two with an independent financial advisor to assist before making the changes). The old model may need to be thrown out the window as all the assumptions that I based my future asset position on are probably toast.
Thanks once again and best of luck whatever financial situation you are in!