Aggressive Asset Allocation?

[KlangFool]

Folks,

It turns out there is no such consistent view on what is an aggressive asset allocation. And, what does aggressive actually mean?

1) Person A is 100% stock with zero emergency fund. But, all retirement expense is funded by pension and social security. So, is person A aggressive in asset allocation? Person A is not taking any risk or impact to his lifestyle even if the portfolio goes to zero.

2) Person B is 100% stock with zero emergency fund. The retirement expense is to be 100% funded by the portfolio. But, the portfolio is 100X aka 100 years of expense. Is person B having an aggressive asset allocation? Not exactly. The person's portfolio is so big that even if the stock market drops 50% and more, it won't impact the lifestyle.

3) Person C is 100% stock with zero emergency fund. But, the person's real estate portfolio is 2X the stock portfolio and his retirement is funded by rental income. Is person C having an aggressive asset allocation?

It seems to me that without the total context/financial picture of the person and how the expenses are funded, it is very hard to say every X% stock portfolio is aggressive or not.

What do you mean by an aggressive portfolio?

KlangFool

[alex_686]

Part of the issue is how you phrase the question.

Technically speaking, according to Behavioral Economics, a Emergency Fund is a cognitive error. It falls into the Mental Accounting error, a sub-class of the Cognitive Load Errors.

The more correct answer would be to have a Emergency Liquidity Goal.

Which takes is to the main error of the question.

We first need to define a person’s goals - both required and desired. “Retirement expenses” is a pretty flabby goal which is highly elastic and is defined differently for different people. Then we need to state oor market expectations.

Only then can we start talking about a person’s ability to take risk - which can - sort of - be mathematically defined.

Edit: This is s excellent example of why Social Security, pensions, directly held real estate, and other non-traditional assets should be included in your asset allocation. These items have a real and meaningful impact. Better to load them all up in a single place in instead of having multiple spreadsheets floating around.

[Gecko10x]

Typically, I would interpret the use of "Asset Allocation" to exclude personal circumstance and non-portfolio assets. So portfolio size and emergency fund would not be considered. Generally this would also mean that pensions and rental income is excluded as well, though I think this gets fuzzier and some people like to include these within the definition of asset allocation.

[majiaknight]

IMO "Aggressive Asset Allocation" signifies high volatility in performance, which can be quantified using metrics such as standard deviation and maximum drawdown. A significant drop in my portfolio, say from 100x to 50x, would have a substantial psychological impact on me, inevitably altering my spending habits due to the wealth effect.

[gavinsiu]

Generally, when people say someone is aggressive or conservative it's usually a judgement on how close that person is to their goal. People with 100% stock in their 20's are rarely label as aggressive, but someone in their 60's with 100% stock are. Conversely, someone with 30% stock in their 60's are rarely label as conservative, but soeone in their 20's are. The person with 100% stock in their 60's could have all of their expense covered by a pension. The person in their 20's with 30% equity could have inherited a lot of money or save 50%. You are right that without the full financial picture, you might end up giving the wrong advice.

That said, a 100% is still an aggressive portfolio. Just because you can afford to lose the money does not mean your brain will emotionally allow you to lose it. There are a number of people with enough cash to take a 50% hit or have the stock market go sideways for a decade, but chose not to.

For me an aggressive portfolio is mostly about loss that may not be recovered for a long period of time, long enough that it may impact my plans. For others, it may just be volatility.

[sf_tech_saver]

Folks,

It turns out there is no such consistent view on what is an aggressive asset allocation. And, what does aggressive actually mean?

1) Person A is 100% stock with zero emergency fund. But, all retirement expense is funded by pension and social security. So, is person A aggressive in asset allocation? Person A is not taking any risk or impact to his lifestyle even if the portfolio goes to zero.

2) Person B is 100% stock with zero emergency fund. The retirement expense is to be 100% funded by the portfolio. But, the portfolio is 100X aka 100 years of expense. Is person B having an aggressive asset allocation? Not exactly. The person's portfolio is so big that even if the stock market drops 50% and more, it won't impact the lifestyle.

3) Person C is 100% stock with zero emergency fund. But, the person's real estate portfolio is 2X the stock portfolio and his retirement is funded by rental income. Is person C having an aggressive asset allocation?

It seems to me that without the total context/financial picture of the person and how the expenses are funded, it is very hard to say every X% stock portfolio is aggressive or not.

What do you mean by an aggressive portfolio?

KlangFool

Klang,

You have wandered into the philosophy of language and Wittgenstin's ruler territory here. There be dragons about

https://www.jaakkoj.com/concepts/wittgensteins-ruler

I spent a year studying Wittgenstein, and I'm just warning you that this is an intense and unsolved problem.

All terms, as your post illustrates well, are highly contextual and relative.

Cheers.

[KlangFool]

Folks,

It turns out there is no such consistent view on what is an aggressive asset allocation. And, what does aggressive actually mean?

1) Person A is 100% stock with zero emergency fund. But, all retirement expense is funded by pension and social security. So, is person A aggressive in asset allocation? Person A is not taking any risk or impact to his lifestyle even if the portfolio goes to zero.

2) Person B is 100% stock with zero emergency fund. The retirement expense is to be 100% funded by the portfolio. But, the portfolio is 100X aka 100 years of expense. Is person B having an aggressive asset allocation? Not exactly. The person's portfolio is so big that even if the stock market drops 50% and more, it won't impact the lifestyle.

3) Person C is 100% stock with zero emergency fund. But, the person's real estate portfolio is 2X the stock portfolio and his retirement is funded by rental income. Is person C having an aggressive asset allocation?

It seems to me that without the total context/financial picture of the person and how the expenses are funded, it is very hard to say every X% stock portfolio is aggressive or not.

What do you mean by an aggressive portfolio?

KlangFool

Klang,

You have wandered into the philosophy of language and Wittgenstin's ruler territory here. There be dragons about

https://www.jaakkoj.com/concepts/wittgensteins-ruler

I spent a year studying Wittgenstein, and I'm just warning you that this is an intense and unsolved problem.

All terms, as your post illustrates well, are highly contextual and relative.

Cheers.

sf_tech_saver,

A) Some people disagreed.

B) The more important/interesting question is if it is contextual, what are the relevant parameters?

C) I am more interested in how people derive their point of views.

KlangFool

[Richard1580]

The bottom line is "it depends."

What constitutes "aggressive/conservative" is going to depend on your individual situation. A person who has a billion dollars, 100% in equities can probably ride out any market down turn and have no impact on their lifestyle.

Someone who needs to pull 5% annually out of their portfolio to maintain their lifestyle, and is looking at a 30 year time frame, is going to have a different view.

It is all about needs and risk tolerance. That is going to be different for everyone.

Pick an AA that you are comfortable with and stick to it. It looks like the OP has that locked in.

[tesuzuki2002]

IMO "Aggressive Asset Allocation" signifies high volatility in performance, which can be quantified using metrics such as standard deviation and maximum drawdown. A significant drop in my portfolio, say from 100x to 50x, would have a substantial psychological impact on me, inevitably altering my spending habits due to the wealth effect.

I second this... I would take that to mean "higher risk" thus a likely hood of higher volatility...

If a person has sufficient margin in assets to their spending level... the higher risk isn't likely to impact the standard of living thru the remainder of their life...

[arcticpineapplecorp.]

1) Person A is 100% stock with zero emergency fund. But, all retirement expense is funded by pension and social security. So, is person A aggressive in asset allocation? Person A is not taking any risk or impact to his lifestyle even if the portfolio goes to zero.

you say "all retirement expenses" but you're not talking about long term care, which is a risk and greatly increases the retirement expenses.

at that point a 100% stock portfolio might (or might not) be too aggressive (depends upon if your 100% stocks is 25x expenses or 100x epenses in your other exampl you gave.

Now, they're drawing down at the same time they're taking great risk, but in the end if stocks tank, they'll end up on medicaid that much sooner.

I heard a podcast today on rational reminder about icapm. He might be discussing some of the issues you're addressing because icapm is more about matching liabilities and taking risks based on goals, etc, if I understood him correctly. Peter Mladina's words:

And so the ICAPM does that in identifying your degree to which you want to hedge your portfolio is going to partly be based on risk preference or risk tolerance. But then as you look at your funded status, the implications of funded status, both deterministically and stochastically through Monte Carlo, that gets back to risk capacity. And you may have to modify what you had picked in terms of hedging your various goals. You might have picked them with the concept of risk tolerance in mind, but now you have to go back and modify them based on risk capacity...

Really the first thing here is to educate the investor on the definition of risk that ultimately matters. The definition of risk that matters is not standard deviation or volatility. It is a goal relative definition of risk. And then you have to walk through what the implications are.

It's just, stepping back, asset-only risk or goal relative risk. Standard deviation or tracking error relative to the goals. Why is tracking error important? It's because tracking error is the definition of risk that manifests their time into dispersion of future funding outcomes, which is the risk that really matters. How certain is it that you are going to successfully fund that goal?

When he's talking hedging I think he means bonds, tips, that sort of thing for the horizon/goals which you can't afford to take risk (like funding your long term care needs as I stated above as one example).

You can give a listen here:

https://rationalreminder.ca/podcast/338

[skipper]

In simple terms, 100% stock IS the most aggressive AA one can have "in the market". If the market is only a small portion of your entire portfolio, say 10% for example, then the issue of aggressive or conservative becomes moot in my opinion. The error in the discussion is introduced with "Person X is 100% stock...", which would raise an objection of leading the witness in a courtroom. For the purposes of BH philosophy, we all know the context of 'aggressive'; it's high allocation towards equities relative to a person's risk tolerance. Asking one of the aggressive investors depicted in the scenarios, "Why are you 100% stocks," the answer might be, "Because I can't be 200% stocks."

[Bama12]

I was all over the map for 30 years.

This site has help me the most, Taylor helped me understand I didn't need 800 funds, Klangfool help me find the correct path for me.

S.S will pay my bills at 62.
I want to be in a position to retire at 59.5, if I want to.

I found peace last year and now sleep great.

1) Enough cash to get me from 59.5 to 62.
2) Enough cash to pay for insurance and co-pays from 59.5 to 65.
3) I have never liked bonds and don't care for keeping up with my AA.
4) I have five funds, two of them Is where the interest from my cash goes, Wellington and Wellesley, why because I like them.
5) All new money goes into Vanguard Strategy Growth-VASGX and Vanguard Small Cap Value-VSIAX, why because I don't want a lot of funds and I love these two. This is money I will not need so I don't care how high or low they go, 80% VASGX and 20% VSIAX, never rebalance.
6) 6-Months in taxable cash - the rest 100% VTI.

I'm 52 and all new money goes into VTI,VASGX and VSIAX some find this very aggressive but I have the cash I will need.
.

[babystep]

What do you mean by an aggressive portfolio?

KlangFool

It is relative. Aggressiveness in a portfolio is relative to the investor's goals, risk tolerance, and the context of comparison. For example, a portfolio with 80% stocks may be aggressive compared to a 50% stock portfolio but conservative compared to one that is 100% in highly speculative assets.

[GAAP]

What do you mean by an aggressive portfolio?

Generally, I put that term in quotes ("aggressive" allocation) -- and often include other disclaimers like "as that term is typically used here".

I agree that aggressive/moderate/conservative is contextual and thus highly dependent upon the situation and the desired goals. I would view a portfolio as aggressive if the expected risk significantly outweighed the desired results -- I know, that's another non-answer.

[dogagility]

Anything that uses subjective language like "aggressive" will be hard to define uniformly among a group of people.

[markjk]

I view the use of the word "aggressive" in this context to mean a high allocation to volatile assets which usually means stock. I think what we are talking about here is more about why someone might be aggressive. As already described in the post, it's a lot easier to be aggressive in a portfolio when you have a fall back (large savings, pension, property assets, etc.). The why behind someone's aggressive posture will be much more nuanced and I think that is where we'll have lot's of variation.

[tennisplyr]

Lots of variables involved here, no universal exact definition.

[dcabler]

Impossible without context.

For example:
I'm currently 70% stock 30% bonds (though I don't rebalance)
However, the 30% bonds are a TIPS ladder. Money from that, from SS, and dividends from the 70% stock pay for all of our nondiscretionary spending, including taxes, and with some reasonable margin.

So while 70/30 starts to look like the upper end of moderate or lower end of aggressive, from a cash flow point of view for nondiscretionary retirement spending, it's anything but high moderate/low aggressive.

Trying to oversimplify the real world of investing with words like aggressive or moderate is not helpful.

Cheers.

[TexNewMex]

You asked;
"It seems to me that without the total context/financial picture of the person and how the expenses are funded, it is very hard to say every X% stock portfolio is aggressive or not."

It depends on your definition of those terms. My income streams, expenses, physical assets and, in my case, livestock, help me answer the need, ability and willingness equation, which then informs my AA, but whether my stock portfolio is aggressive or conservative is mostly independent of those other factors and is left to my definition of the general terms "aggresive or conservative ". Using my definitions, and by understanding a person's goals, I don't need to know their age, gender, occupation, retirement status, income, expenses, net worth or real assets to make reasoned and respectable comments on that person's stock portfolio. If Warren Buffett's stock portfolio is 100% equities, I would say his portfolio is aggressive. If his stock portfolio is 0% equities, I would say his portfolio is conservative.

[Target2019]

C) I am more interested in how people derive their point of views.

My parents and in-laws were very conservative in finances. Since they fully-experienced the Great Depression, I understand their approach.

I grew up in the 50's and 60's, and I gravitate more to the 60/40 moderate point on the graph.

When I see that my children and their peers are more aggressive towards equity, I know their context.

So we have an equity ruler before us, if you will. You can see the two extremes. But the space between is a continuum that people experience over a lifetime. Rigid belief in one point on that continuum is one way to invest.

But many are living through life experiences which affect, maybe test, the person's level of comfort with aggressive, moderate, conservative, and so on.

I could relate in more detail why I was just 60/40, but it is just another story about me, and may have no relevance to the choices of others. Our knowledge of, and experience with, risk can change us.

[Morse Code]

You asked;
"It seems to me that without the total context/financial picture of the person and how the expenses are funded, it is very hard to say every X% stock portfolio is aggressive or not."

It depends on your definition of those terms. My income streams, expenses, physical assets and, in my case, livestock, help me answer the need, ability and willingness equation, which then informs my AA, but whether my stock portfolio is aggressive or conservative is mostly independent of those other factors and is left to my definition of the general terms "aggresive or conservative ". Using my definitions, and by understanding a person's goals, I don't need to know their age, gender, occupation, retirement status, income, expenses, net worth or real assets to make reasoned and respectable comments on that person's stock portfolio. If Warren Buffett's stock portfolio is 100% equities, I would say his portfolio is aggressive. If his stock portfolio is 0% equities, I would say his portfolio is conservative.

+1 Well said

[nedsaid]

Lots of great answers here in this thread. In general, I would say that a portfolio invested in 80% or more in stocks would be aggressive. A portfolio invested in between 60% and 80% in stocks would be a growth portfolio, a moderate portfolio would have between 40% and 60% stocks, a conservative portfolio would be less than 40%. Just a rule of thumb here.

[secondopinion]

A 100% stock portfolio is still aggressive even if in the worst case you can meet your goals; this is because you are taking a risk by sacrificing a more guaranteed increased spending to potentially have more.

And not all stocks are created equal in terms of risk…

[exodusing]

A recent example of "aggressive" is Anyone else staying very aggressive in retirement

In that case it appeared that OP had all expenses covered outside of their portfolio and therefore their portfolio was irrelevant for meeting expenses. Their goal was to leave a large estate to their heirs.

This is a different case from a high equity allocation because a high return is needed to meet expenses even if that means higher risk.

So, as others have written, the question is rather ambiguous; there are too many possible answers and context is needed.

[dkturner]

Klang,

You have wandered into the philosophy of language and Wittgenstin's ruler territory here. There be dragons about

https://www.jaakkoj.com/concepts/wittgensteins-ruler

I spent a year studying Wittgenstein, and I'm just warning you that this is an intense and unsolved problem.

All terms, as your post illustrates well, are highly contextual and relative.

Cheers.

sf_tech_saver,

A) Some people disagreed.

B) The more important/interesting question is if it is contextual, what are the relevant parameters?

C) I am more interested in how people derive their point of views.

KlangFool

When this thread runs its course you will discover that an aggressive equity allocation is in the eyes of the beholder. Someone who would wager $500 on which bird will be the first to take flight from an electric line has a different outlook on risk than someone who habitually wears both a belt and suspenders. It’s mostly contextual and there is unlikely to be any agreement on the relevant parameters (though there might be in North Korea).

[KlangFool]

sf_tech_saver,

A) Some people disagreed.

B) The more important/interesting question is if it is contextual, what are the relevant parameters?

C) I am more interested in how people derive their point of views.

KlangFool

When this thread runs its course you will discover that an aggressive equity allocation is in the eyes of the beholder. Someone who would wager $500 on which bird will be the first to take flight from an electric line has a different outlook on risk than someone who habitually wears both a belt and suspenders. It’s mostly contextual and there is unlikely to be any agreement on the relevant parameters (though there might be in North Korea).

I am not interested in an agreement. I am interested in your point of view of what is an aggressive asset allocation. And, if it is contextual as per your point of view, what is the relevant contextual consideration?

KlangFool

[dkturner]

When this thread runs its course you will discover that an aggressive equity allocation is in the eyes of the beholder. Someone who would wager $500 on which bird will be the first to take flight from an electric line has a different outlook on risk than someone who habitually wears both a belt and suspenders. It’s mostly contextual and there is unlikely to be any agreement on the relevant parameters (though there might be in North Korea).

I am not interested in an agreement. I am interested in your point of view of what is an aggressive asset allocation. And, if it is contextual as per your point of view, what is the relevant contextual consideration?

KlangFool

I use mental accounting. We live on our SS benefits, RMDs and cash in a sizeable money market a fund we don’t consider to be a part of our investment portfolio (we rarely touch the MM fund). For our retirement portfolio (we have been taking RMDs for 13 years) I consider an equity allocation exceeding 40% as aggressive. Ours is currently 33%. For our non-retirement portfolio (assets that we will probably never touch) I consider anything exceeding 75% as aggressive. Ours is currently 80%. Our non-retirement portfolio is currently 30% larger than our retirement portfolio.

[KlangFool]

I am not interested in an agreement. I am interested in your point of view of what is an aggressive asset allocation. And, if it is contextual as per your point of view, what is the relevant contextual consideration?

KlangFool

I use mental accounting. We live on our SS benefits, RMDs and cash in a sizeable money market a fund we don’t consider to be a part of our investment portfolio (we rarely touch the MM fund). For our retirement portfolio (we have been taking RMDs for 13 years) I consider an equity allocation exceeding 40% as aggressive. Ours is currently 33%. For our non-retirement portfolio (assets that we will probably never touch) I consider anything exceeding 75% as aggressive. Ours is currently 80%. Our non-retirement portfolio is currently 30% larger than our retirement portfolio.

Am I correct to interpret that in your case,

A) Exceed X% in retirement portfolio is aggressive

B) Exceed Y% in non-retirement portfolio is aggressive.

But, you do not use (A) or (B) to sustain/support your retirement expense at all. So, aggressive or not has no relevance in terms of supporting your retirement life style.

Is my understanding correct?

KlangFool

[KEotSK66]

I think anything above 65/35 is aggressive, portfolio efficiency drops off quickly afterwards.

[Rocinante Rider]

It seems to me that without the total context/financial picture of the person and how the expenses are funded, it is very hard to say every X% stock portfolio is aggressive or not.

KlangFool

Exactly.
And even with the total context/financial picture, the person's psychological makeup also determines what they view as aggressive or not.

[jebmke]

sf_tech_saver,

A) Some people disagreed.

B) The more important/interesting question is if it is contextual, what are the relevant parameters?

C) I am more interested in how people derive their point of views.

KlangFool

When this thread runs its course you will discover that an aggressive equity allocation is in the eyes of the beholder. Someone who would wager $500 on which bird will be the first to take flight from an electric line has a different outlook on risk than someone who habitually wears both a belt and suspenders. It’s mostly contextual and there is unlikely to be any agreement on the relevant parameters (though there might be in North Korea).

right; terms like this really serve no real purpose other than to make it easy for the users to avoid numbers.

[dkturner]

I use mental accounting. We live on our SS benefits, RMDs and cash in a sizeable money market a fund we don’t consider to be a part of our investment portfolio (we rarely touch the MM fund). For our retirement portfolio (we have been taking RMDs for 13 years) I consider an equity allocation exceeding 40% as aggressive. Ours is currently 33%. For our non-retirement portfolio (assets that we will probably never touch) I consider anything exceeding 75% as aggressive. Ours is currently 80%. Our non-retirement portfolio is currently 30% larger than our retirement portfolio.

Am I correct to interpret that in your case,

A) Exceed X% in retirement portfolio is aggressive

B) Exceed Y% in non-retirement portfolio is aggressive.

But, you do not use (A) or (B) to sustain/support your retirement expense at all. So, aggressive or not has no relevance in terms of supporting your retirement life style.

Is my understanding correct?

KlangFool

We use the cash flow (RMDs) from our retirement portfolio, and SS benefits, for living expenses (they currently represent about 115% of our living expenses). To the best of my recollection we have never spent any of the cash flow (dividends and interest) from our non-retirement portfolio for living expenses. “Living expenses” means everything we spend. When we buy a car, or have an any other large expense, we use cash from our money market fund to supplement our RMDs and SS benefits. Our RMDs now constitute more than 5% of the total market value of our retirement portfolio, so “aggressive” is very relevant for us with respect to our retirement portfolio investments. Pretty much irrelevant with respect to our non-retirement portfolio, which is why the current 80% equity allocation doesn’t bother us.

[KlangFool]

Am I correct to interpret that in your case,

A) Exceed X% in retirement portfolio is aggressive

B) Exceed Y% in non-retirement portfolio is aggressive.

But, you do not use (A) or (B) to sustain/support your retirement expense at all. So, aggressive or not has no relevance in terms of supporting your retirement life style.

Is my understanding correct?

KlangFool

We use the cash flow (RMDs) from our retirement portfolio, and SS benefits, for living expenses (they currently represent about 115% of our living expenses). To the best of my recollection we have never spent any of the cash flow (dividends and interest) from our non-retirement portfolio for living expenses. “Living expenses” means everything we spend. When we buy a car, or have an any other large expense, we use cash from our money market fund to supplement our RMDs and SS benefits. Our RMDs now constitute more than 5% of the total market value of our retirement portfolio, so “aggressive” is very relevant for us with respect to our retirement portfolio investments. Pretty much irrelevant with respect to our non-retirement portfolio, which is why the current 80% equity allocation doesn’t bother us.

Thanks for the clarification!

KlangFool

[J295]

I am not interested in an agreement. I am interested in your point of view of what is an aggressive asset allocation. And, if it is contextual as per your point of view, what is the relevant contextual consideration?

KlangFool

I understand you are just looking for each responders point of view.

My point of view is the determination of “aggressive allocation” is not contextual.

I haven’t thought about it to determine the minimum percentage that is an “aggressive allocation,” but I do believe 100% equities is a “aggressive allocation.”

By way of comparison, as an avid golfer, certain tee shots may offer an “aggressive line”; and I conclude such line is “aggressive” irrespective of the quality of the person hitting the shot.

[Rocinante Rider]

I am not interested in an agreement. I am interested in your point of view of what is an aggressive asset allocation. And, if it is contextual as per your point of view, what is the relevant contextual consideration?

KlangFool

I understand you are just looking for each responders point of view.

My point of view is the determination of “aggressive allocation” is not contextual.

I haven’t thought about it to determine the minimum percentage that is an “aggressive allocation,” but I do believe 100% equities is a “aggressive allocation.”

By way of comparison, as an avid golfer, certain tee shots may offer an “aggressive line”; and I conclude such line is “aggressive” irrespective of the quality of the person hitting the shot.

But unlike golf, not every investor is teeing up from the same starting point or aiming for the same hole.

[KlangFool]

I am not interested in an agreement. I am interested in your point of view of what is an aggressive asset allocation. And, if it is contextual as per your point of view, what is the relevant contextual consideration?

KlangFool

I understand you are just looking for each responders point of view.

My point of view is the determination of “aggressive allocation” is not contextual.

I haven’t thought about it to determine the minimum percentage that is an “aggressive allocation,” but I do believe 100% equities is a “aggressive allocation.”

By way of comparison, as an avid golfer, certain tee shots may offer an “aggressive line”; and I conclude such line is “aggressive” irrespective of the quality of the person hitting the shot.

J295,

Okay.

KlangFool

[J295]

I understand you are just looking for each responders point of view.

My point of view is the determination of “aggressive allocation” is not contextual.

I haven’t thought about it to determine the minimum percentage that is an “aggressive allocation,” but I do believe 100% equities is a “aggressive allocation.”

By way of comparison, as an avid golfer, certain tee shots may offer an “aggressive line”; and I conclude such line is “aggressive” irrespective of the quality of the person hitting the shot.

But unlike golf, not every investor is teeing up from the same starting point or aiming for the same hole.

Ah, you are adding new facts and context, and as my answer stated, I do not define the term contextually.

[Jacklh]

The following is part of my IPS concerning investment strategy:

"4) Investing Strategy: This is my system for asset allocation based on my age:
Before age 60: Subtract 20 from my age and put that percentage in fixed income with the rest in equities. At age 60 it would be 60/40 equities/fixed income.
After age 60: Continue at a equities/fixed income allocation of 60/40 until financial independence is achieved. That is defined as 25 times the yearly income needed after subtracting income streams such as social security, pensions, etc. For example, if the needed funds annually is $40,000, then 25 times $40,000 equals $1,000,000. At a 60/40 ratio that equals $600,000 in equities and $400,000 in fixed income. Any amount less than 25 times my annual need would remain at a 60/40 allocation. Any amount more than 25 times my annual need can be invested as desired keeping in mind the minimum values for equities and fixed income. The final asset allocation should be consistent with my risk tolerance and the intended use for the excess assets. Never bear too much or too little risk.
In determining where to place assets, keep in mind the purpose and tax efficiency of each account. The Traditional IRA withdrawals are taxable and should have more fixed income because it is used for retirement income and should be more conservative. The Roth IRA should have less fixed income for a chance at maximum tax free growth for beneficiaries. The taxable Investing Account can fluctuate according to the desired fixed income reserves needed in the short term with the rest in equities for tax efficiency.
Maintain adequate fixed income in the banking and investing accounts. In retirement the banking accounts will be replenished by dividends, Social Security, and IRA Required Minimum Distribution’s (RMD’s.) Excess cash will go to the investing account."

In my case I'm retired at 74 and I think I am conservative since my first 25 times my annual need covers 10 years of fixed income. But in my case I am actually at 100 times my needed income and my portfolio is about 83/17. I currently maintain the fixed income at 12.5 my annual need and am not concerned with the percent at all. Some would say that's aggressive, but is it? I would say I'm both conservative and aggressive at the same time. I sleep well.

[LilyFleur]

Folks,

It turns out there is no such consistent view on what is an aggressive asset allocation. And, what does aggressive actually mean?

1) Person A is 100% stock with zero emergency fund. But, all retirement expense is funded by pension and social security. So, is person A aggressive in asset allocation? Person A is not taking any risk or impact to his lifestyle even if the portfolio goes to zero.

2) Person B is 100% stock with zero emergency fund. The retirement expense is to be 100% funded by the portfolio. But, the portfolio is 100X aka 100 years of expense. Is person B having an aggressive asset allocation? Not exactly. The person's portfolio is so big that even if the stock market drops 50% and more, it won't impact the lifestyle.

3) Person C is 100% stock with zero emergency fund. But, the person's real estate portfolio is 2X the stock portfolio and his retirement is funded by rental income. Is person C having an aggressive asset allocation?

It seems to me that without the total context/financial picture of the person and how the expenses are funded, it is very hard to say every X% stock portfolio is aggressive or not.

What do you mean by an aggressive portfolio?

KlangFool

When I look at my investable portfolio, my asset allocation is:

72% equities/22% fixed income /6% cash

This AA is generally what I think about when I invest, and I think it's fairly aggressive for a 65-year-old. When I say aggressive, I consider that my bond/fixed income allocation is higher than the rule-of-thumb for bonds which recommends having the same percentage of bonds as your age. (I don't necessarily consider this a hard-and-fast rule, though.)

However, at age 65, I rely on my investable portfolio for roughly 50% of my annual living expenses. My longest projected lifespan is 85, so that's what I use for planning purposes. (I won't get into my health here, but this is based on a serious discussion with my doctor.)

When I calculate the net present value of my pension and Social Security (estimated for 20 years), and add those two amounts into my portfolio spreadsheet into the fixed income total, this is the AA:

38% equities/59% fixed income /3% cash.

I think it's an interesting data point that doesn't feel aggressive at all.

I do have legacy concerns, and this approach seems to work, since my pension and Social Security will stop at the time of my death. My heirs are in their late 20s/early 30s.

[CRC_Volunteer]

[ Deleted Post ]

[Doctor Rhythm]

In order to communicate efficiently, we have to have some conventions and assumptions. Thus, I agree with those who say "aggressive" should be based on the allocation in isolation, without considering the investor's individual circumstances. Otherwise, we are constantly qualifying our adjectives and Vanguard would rename their LifeStrategy fund Aggressive Growth for Non-Financially Independent Investors who Intend to Hold the Security as the Majority of the Portfolio.

So...80% or more equity is "aggressive." Not because of my beliefs, but because that's convention in the industry.

[KlangFool]

In order to communicate efficiently, we have to have some conventions and assumptions. Thus, I agree with those who say "aggressive" should be based on the allocation in isolation, without considering the investor's individual circumstances. Otherwise, we are constantly qualifying our adjectives and Vanguard would provide a LifeStrategy fund called Aggressive Growth for Non-Financially Independent Investors who Intend to Hold the Security as the Majority of the Portfolio.

Doctor Rhythm,

This is your point of view which may not be shared by others.

I would rather understand why and how someone come to their point of view than relying on conventions and assumptions. My life experience tells me that most conventions and assumptions only work for a very small subset of people.

KlangFool

[watchnerd]

Aggressive is anything closer to my risk tolerance than my wife's.

[Doctor Rhythm]

In order to communicate efficiently, we have to have some conventions and assumptions. Thus, I agree with those who say "aggressive" should be based on the allocation in isolation, without considering the investor's individual circumstances. Otherwise, we are constantly qualifying our adjectives and Vanguard would provide a LifeStrategy fund called Aggressive Growth for Non-Financially Independent Investors who Intend to Hold the Security as the Majority of the Portfolio.

Doctor Rhythm,

This is your point of view which may not be shared by others.

I would rather understand why and how someone come to their point of view than relying on conventions and assumptions. My life experience tells me that most conventions and assumptions only work for a very small subset of people.

KlangFool

I didn't deliberately choose an "aggressive", "moderate", or "conservative" portfolio. I chose a portfolio that's (hopefully) right for me without attaching an adjective to it.

The adjective is only important when I communicate with others, in which case I use them as a form of shorthand in the way I think most experienced investors understand the terms. If I'm replying to nisiprius, I'm pretty sure we understand each other when we say "moderate" allocation. If I'm replying to newbie, I'll try to spell things out rather than use shorthand.

[Richard1580]

Aggressive is anything closer to my risk tolerance than my wife's.

LOL! That sounds like my parents. My mother was all about bonds, my father was all about playing the options market.

I think their broker did better than they did.

[Wannaretireearly]

Klang,

My view is it could change overnight. I was 80/20 and I am 70/30 now. If I lose my job tomorrow, we’ll squeak by on my wife’s income I think. We’re mid/late 40s.

80/20 was aggressive and risky (let’s associate aggression to risk).

70/30 is less aggressive, and a little less risky. Roughly 20-25X today.

70/30 will be a little more aggressive/risky if I lose my job tomorrow.

My timeframe and career ability to make up losses is much shorter now than a decade or two ago. My healthy life span is also much shorter now to either make money or enjoy money. How does this play into AA?

What really does aggressive mean? To me it is the ability and need to take on risk. As your ability and need to take risk decreases, so should your AA in equities. Now, age is the most common thing we think about. Older we get the less ability and need I have to take risk.

But, there are other factors than age. A massive windfall taking me to 50X could mean my Ability to take risk has gone up! (Legacy investments)

Closer I get to SS, my ability to take risk also increases (I have some fixed income source).

This is a complex discussion. For my life stage right now, I need to be careful. I’m entering a risky 10 year period where I likely will not have a job (my choice or bosses choice) OR any other income source. I need to play safe or safer than I am today I think.

10 years from now, the risk will be much lower as I’m close to age 60. Perhaps then I could creep back up to 80% equity.

[KlangFool]

Klang,

My view is it could change overnight. I was 80/20 and I am 70/30 now. If I lose my job tomorrow, we’ll squeak by on my wife’s income I think. We’re mid/late 40s.

80/20 was aggressive and risky (let’s associate aggression to risk).

70/30 is less aggressive, and a little less risky. Roughly 20-25X today.

70/30 will be a little more aggressive/risky if I lose my job tomorrow.

My timeframe and career ability to make up losses is much shorter now than a decade or two ago. My healthy life span is also much shorter now to either make money or enjoy money. How does this play into AA?

What really does aggressive mean? To me it is the ability and need to take on risk. As your ability and need to take risk decreases, so should your AA in equities. Now, age is the most common thing we think about. Older we get the less ability and need I have to take risk.

But, there are other factors than age. A massive windfall taking me to 50X could mean my Ability to take risk has gone up! (Legacy investments)

Closer I get to SS, my ability to take risk also increases (I have some fixed income source).

This is a complex discussion. For my life stage right now, I need to be careful. I’m entering a risky 10 year period where I likely will not have a job (my choice or bosses choice) OR any other income source. I need to play safe or safer than I am today I think.

10 years from now, the risk will be much lower as I’m close to age 60. Perhaps then I could creep back up to 80% equity.

Thank you for your contribution! It adds colors to the discussion.

KlangFool

[unwitting_gulag]

If "100% stock" means a BH style portfolio of index funds, then none of the OP's examples is "aggressive". In no case is the portfolio subject to any substantial probability of going to zero, or of scoring some overnight-astronomical growth.

"Aggressive" would be some un-BH mix of options or other derivatives, greater-fool "investments", concentrations in individual companies, or maybe some kind of exotic financial product for which we lack a coherent naming. Aggression means a very real possibility of losing 100%, or perhaps even more; and a small but nonzero possibility of striking storybook riches.

That out of the way, perhaps a more relevant interpretation of the OP's point, is whether or not, some investment strategy might result in such losses, that severely impact the investor's lifestyle. Here again I struggle with meaning. An investor might have independent sources of income, so that even if the portfolio craters, lifestyle doesn't change. But emotionally a person might be devastated. "Aggression" has an emotional meaning, and not a literal financial one. Consider for example our marathon US vs. ex-US equity investment thread. A person might feel self-loathing and revulsion at ever having had an ex-US component, even though by BH standards it might be a prudent and moderate allocation.

We use the term "aggressive" to upbraid somebody for what we deem to be risking too much, for being irresponsible or short-sighted or otherwise immature (subjectively) in chasing too-much, too-soon. Sometimes that's valid. But other times, by leveling such accusation, we reveal more about ourselves, than about the target of our criticism.

[Wannaretireearly]

Klang,

My view is it could change overnight. I was 80/20 and I am 70/30 now. If I lose my job tomorrow, we’ll squeak by on my wife’s income I think. We’re mid/late 40s.

80/20 was aggressive and risky (let’s associate aggression to risk).

70/30 is less aggressive, and a little less risky. Roughly 20-25X today.

70/30 will be a little more aggressive/risky if I lose my job tomorrow.

My timeframe and career ability to make up losses is much shorter now than a decade or two ago. My healthy life span is also much shorter now to either make money or enjoy money. How does this play into AA?

What really does aggressive mean? To me it is the ability and need to take on risk. As your ability and need to take risk decreases, so should your AA in equities. Now, age is the most common thing we think about. Older we get the less ability and need I have to take risk.

But, there are other factors than age. A massive windfall taking me to 50X could mean my Ability to take risk has gone up! (Legacy investments)

Closer I get to SS, my ability to take risk also increases (I have some fixed income source).

This is a complex discussion. For my life stage right now, I need to be careful. I’m entering a risky 10 year period where I likely will not have a job (my choice or bosses choice) OR any other income source. I need to play safe or safer than I am today I think.

10 years from now, the risk will be much lower as I’m close to age 60. Perhaps then I could creep back up to 80% equity.

Thank you for your contribution! It adds colors to the discussion.

KlangFool

Thanks for starting the discussion.
Age and asset size play a role, but the 5 years either side of retirement seem ‘special’ for AA riskiness.

[Vulcan0]

The main fault line is in the definition of asset. To me anything of value that can be converted into money (or thing) to consume is an asset.

So in your examples, you are leaving out these assets from the asset allocation -- pension, social security income, real estate, etc.) They should be included in the portfolio, and thus the asset allocation.

Your one example where the portfolio size is large relative to expense is the only thing that is debatable whether the 100% equities is an aggressive asset allocation.