Going to 30/70 (Target Retirement Income Fund) at age 33?

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countofmc
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Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by countofmc » Thu Feb 25, 2016 4:08 pm

By nature I've always been quite risk adverse (not just in finances :D ). My AA has never been above 60/40, and that's what it is now. I didn't do any panic selling during 2008, but I didn't have much in my portfolio back then.

I've been assessing my sleep-well point recently during the market swoon. I have not done any selling nor have I had any issues sleeping. But I am worrying more about the portfolio and am questioning whether I might have too much stock for my personal risk tolerance.

As crazy as it is, I am tempted to go all the way down to 30/70, if the market keeps going up and erases my early 2016 losses, I might considering doing this. I never want to own LESS than 25% stock for reasons often cited here. Target Retirement Income Fund is 30/70, and also is the only fund available in my 401k that has a "fixed" allocation so I won't have to worry about rebalancing, which is another bonus.

Outside of the obvious fact that I'm looking at lower returns going forwards, what are some other pitfalls associated with going so low on stock at my age, along with specifically the Vanguard Target RI fund? There might be a tad more international exposure I'd like (especially on the bond side), but otherwise looks fairly solid.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by rmelvey » Thu Feb 25, 2016 4:16 pm

Risk tolerance is a very personal thing. Lots of people will try to convince you to hold more stock, but if you are most comfortable with 30/70 I think it is a great allocation. The fluctuations are so minuscule due to the low correlation and your purchasing power should grow very steadily over time. Just keep in mind that you are somewhat exposed to changes in unexpected inflation. The portfolio would not do well in a repeat of the 1970s, but apart from that it is solid.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by Valdeselad » Thu Feb 25, 2016 4:20 pm

I'd say you are volatility adverse, not risk adverse. The strategy you have proposed will certainly decrease your portfolio volatility, but will introduce significant long-term purchasing power (due to inflation) risk.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by Optimistic » Thu Feb 25, 2016 4:35 pm

Going to 30/70 is fine as long as you are willing to increase your savings rate and you won't be tempted to increase your stock allocation in the next bull market. Regardless, I suggest you determine what your savings rate would need to be with a 30/70 allocation. Then, begin using that new savings rate.

In the meantime, leave your allocation alone while you do more research. Read some books from the suggested reading list in the wiki. Hang around the forums. Oh, and stop paying attention to financial news. I know the stock market hasn't been doing well, and I have seen lots of people ask questions similar to yours. But, I have no idea if the "stock market" or my portfolio is down 5%, 20%, or 50% from it's high. (If I had to guess, I'd say 15% for my 80/20 portfolio.) I'm in my 30s as well and have very little incentive to pay attention on a regular basis to how the stock market is doing.

If a year from now you're comfortable with the increased savings rate, and you're still convinced you need to be at 30/70, then make the change in asset allocation.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by Levett » Thu Feb 25, 2016 5:31 pm

There's a lot of space between 60/40 and 30/70. Give your risk averse self a chance.

Why not throttle down gradually either with future contributions and/or exchanges?

You may find yourself comfortable at a level in between.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by Watty » Thu Feb 25, 2016 5:45 pm

countofmc wrote:By nature I've always been quite risk adverse....
It would be a misconception to think that bonds are risk free, they just have different types of risk. Longer term bonds will get clobbered if interest rates rise a lot and they may not even keep up with inflation expecially in a taxable account.

I forget where I heard it but there is a quote that goes something like this, "In investing you cannot avoid risk, you can only pick out the types of risks you want to take."

If this money is all really for retirment and will not be needed for decades then having a well diversified portfolio is probably safer over the LONG run than betting on bonds.

One thing that a risk adverse person can do out side of their asset allocation is to use money to do things that will reduce their income requirements so doing something like paying off a mortgage early would be an alternative to consider.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by countofmc » Thu Feb 25, 2016 5:54 pm

Watty wrote:
countofmc wrote:By nature I've always been quite risk adverse....
It would be a misconception to think that bonds are risk free, they just have different types of risk. Longer term bonds will get clobbered if interest rates rise a lot and they may not even keep up with inflation expecially in a taxable account.

I forget where I heard it but there is a quote that goes something like this, "In investing you cannot avoid risk, you can only pick out the types of risks you want to take."

If this money is all really for retirment and will not be needed for decades then having a well diversified portfolio is probably safer over the LONG run than betting on bonds.

One thing that a risk adverse person can do out side of their asset allocation is to use money to do things that will reduce their income requirements so doing something like paying off a mortgage early would be an alternative to consider.
Thank you, your last sentence is very good advice. I was thinking I could just be even more frugal and increase my savings rate to offset the lower stock allocation, but I guess the flip side to that is if I'm willing to do that I might be able to actually take on more risk since my monthly nut will be reduced.

I think I will follow the advice to slowly taper down and see how I feel, but 50/50 might actually be the sweet spot for me, 30/70 may be a bit too drastic.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by Daryl » Thu Feb 25, 2016 6:04 pm

I'm currently doing the same thing. I sold equities last year and I've been buying fixed income as a way to reduce the volatility of my portfolio. I'm still hoping to marry into money, but if that doesn't work, then I'm ok adjusting my savings rate to achieve my goals.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by retiredjg » Thu Feb 25, 2016 6:19 pm

I too think there is a lot of distance between 60/40 and 30/70. I have found that even a 5% reduction of stocks takes more edge off than you would guess before doing it. Tapering is a good choice.

You may have to work longer or save more money or reduce your expenses in retirement to accommodate for a low stock percentage, but I'd rather do that and be comfortable than constantly be on edge year after year because my stock allocation is too high for my nature.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by Kevin M » Thu Feb 25, 2016 6:21 pm

Do you think you can meet your retirement goals with 30/70?

I like thinking about these things in terms of ability, willingness, and need to take risk.

Willingness is the emotional component, and it sounds like your willingness to take risk is fairly low. If you're going to sell stocks after they've dropped 30%, 40%, 50% or more, and abandon investing in stocks (unless perhaps until after they've recovered most or all of their losses), then you should reduce your stock allocation to a level at which you will not do this. If you're going to be miserable, lose a lot of sleep, and develop ulcers whenever stocks drop 15% or more, then you probably should reduce your allocation to stocks to a point at which these things won't happen.

Your age contributes to high ability to take risk, especially assuming your employment is highly likely to remain stable despite financial turmoil. At age 33, your human capital probably is much larger than your financial capital, so even if you lose 50% of your financial capital, you have plenty of time to recover that and more, especially since you'll be investing more in stocks at lower prices. As mentioned, stability of employment and prospects for future salary growth also factor into ability to take risk (as they increase your human capital).

Your need to take risk depends on your financial goals. If you're pretty sure you can retire at the age you want with a 30/70 portfolio, and have enough to last you through your retirement, assuming a return on the bond portion of 2%-3%, then your need to take risk is low. If that's not the case, then your need to take risk is higher.

One guideline is that the lowest of the three--ability, willingness, and need to take risk--should dominate your top-level asset allocation decision (riskier assets vs. safer assets). Having high ability and need to take risk doesn't help if low willingness to take risk causes you to abandon your plan when things get scary.

People who say bonds are riskier in stocks in the long run are basing this on a limited historical data set, and assuming that the future will resemble the past as represented by that limited historical data set. Although there's a good case that stocks will return more than bonds over the next 20 or 30 years, that is not foreordained. And stocks definitely will not return more than bonds over the next 20 or 30 years if you bail on stocks when they tank, and buy them back after they've recovered.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by stemikger » Thu Feb 25, 2016 6:23 pm

At 33 by going 30/70 you are doing the riskiest thing possible. Your money will never even come close to outpacing inflation and you will lose a lot of money by choosing an asset allocation of a 70 year old. I suggest you read Warren Buffett's definition of risk in his 2014 annual letter to shareholders.

John Bogle believes in a portfolio consisting of stocks and bonds but he believes you should pick an appropriate allocation for your age and 30/70 is not appropriate at all for a 33 year old.
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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by Kevin M » Thu Feb 25, 2016 6:29 pm

Also think about this. If you buy a TR 2020 fund, you will be about where you are now, at about 60/40. Five years from now it will be at about 50/50, 10 years from now at about 35/65, and 15 years from now at about 30/70. Still too risky? Start with the TR 2015 fund now at about 50/50 (or as you say, perhaps after the market has recovered from recent losses, so as to counter the behavioral bias to sell after declines, perhaps putting new contributions into the less risky TR fund in the meantime).

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?such a

Post by Fallible » Thu Feb 25, 2016 6:47 pm

countofmc wrote:By nature I've always been quite risk adverse (not just in finances :D ). My AA has never been above 60/40, and that's what it is now. I didn't do any panic selling during 2008, but I didn't have much in my portfolio back then.

I've been assessing my sleep-well point recently during the market swoon. I have not done any selling nor have I had any issues sleeping. But I am worrying more about the portfolio and am questioning whether I might have too much stock for my personal risk tolerance.

As crazy as it is, I am tempted to go all the way down to 30/70, if the market keeps going up and erases my early 2016 losses, I might considering doing this. I never want to own LESS than 25% stock for reasons often cited here. Target Retirement Income Fund is 30/70, and also is the only fund available in my 401k that has a "fixed" allocation so I won't have to worry about rebalancing, which is another bonus.

Outside of the obvious fact that I'm looking at lower returns going forwards, what are some other pitfalls associated with going so low on stock at my age, along with specifically the Vanguard Target RI fund? There might be a tad more international exposure I'd like (especially on the bond side), but otherwise looks fairly solid.
Why such a big drop to the lower allocation now, rather than a gradual one (as has been suggested here)? Or did you just start sleeping better as soon as you thought of it? If so, that may be the right move for you, at least for now. Then continue considering the effect on meeting your financial goals and how you would adjust for that (altering goals, spending adjustments, saving more, etc.).

Emotional risk tolerance is deeply personal, difficult to determine, and it changes often. Since you are wisely taking it into consideration now, I think you would be interested in Jason Zweig's book, "Your Money and Your Brain," in particular the chapter on risk. Also, have you read the wiki's "Asset Allocation" page, which includes links to Larry Swedroe's blogs on need, willingness, and ability to take risk?

It might be worth mentioning that plenty of people opt out of the stock market altogether because of the uncertainties and risk. At least you are recognizing your risk tolerance and dealing with it honestly and in a way that lets you remain in the market to take advantage of its long-run gains.
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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by sambb » Thu Feb 25, 2016 7:34 pm

agree with your plan, OP

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by dumbbunny » Thu Feb 25, 2016 8:02 pm

If you have goals in mind run the numbers using a couple different calculators.
http://www.cfiresim.com/
https://retirementplans.vanguard.com/VG ... ggCalc.jsf

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by Daryl » Thu Feb 25, 2016 8:11 pm

Out of curiosity (and I'm not looking for any dollar amounts), but how does your target equity allocation compare to your annual income? Annual Expenses? Perhaps the OP is closer to his retirement "number" than most other people in his age group. If you've already won the game, why keep playing?

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by Toons » Thu Feb 25, 2016 8:20 pm

If 30/70 is your sleep well point then do it.
It is not as thought it is set in stone.
Plans change as time goes by. :happy
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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by jheez » Fri Feb 26, 2016 6:48 am

At 30/70 I might figure about a 1% real return. At that rate you conservatively probably need to save almost a year of expenses every year unless you have an unusually large chunk saved already. A 45% savings rate or so might do.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by Sheepdog » Fri Feb 26, 2016 7:59 am

Toons wrote:If 30/70 is your sleep well point then do it.
It is not as thought it is set in stone.
Plans change as time goes by. :happy
Agree.
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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by alpenglow » Fri Feb 26, 2016 9:48 am

I agree that you need to pick an AA that works for you. However, moving for 60/40 to 30/70 seems like a big move. Why not go half way (45/55 or just 50/50) and then reassess?

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by bloom2708 » Fri Feb 26, 2016 9:59 am

You picked 60/40 for a reason. You can "almost" change to 30/70. Think about it. Plan it out. Rationalize it. Then don't do it.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by dbr » Fri Feb 26, 2016 10:11 am

The risk in investing too conservatively is that you will not reach your objectives. You will have to save more and get by on less than if you invest in a portfolio that offers more return. The trade-off is that a more conservative investment will be more certain in outcome. You will have to estimate for yourself if that certainty is more certainty that you will meet objectives or more certainty that you will fail.

I have thought from time to time whether the dictum of psychological willingness to take risk is about reducing risk until one can sleep at night, or about learning and understanding risk in investing, at least volatility, well enough to change one's psychological reactions to a more constructive attitude. Willingness does convey not just a choice about risk but also a bargain to stick with the plan when things go downhill. That said, I have no personal advice that you should or shouldn't invest at 30/70 rather than 70/30 or whatever

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by dbCooperAir » Fri Feb 26, 2016 10:17 am

countofmc wrote:
Watty wrote:
countofmc wrote:By nature I've always been quite risk adverse....
It would be a misconception to think that bonds are risk free, they just have different types of risk. Longer term bonds will get clobbered if interest rates rise a lot and they may not even keep up with inflation expecially in a taxable account.

I forget where I heard it but there is a quote that goes something like this, "In investing you cannot avoid risk, you can only pick out the types of risks you want to take."

If this money is all really for retirment and will not be needed for decades then having a well diversified portfolio is probably safer over the LONG run than betting on bonds.

One thing that a risk adverse person can do out side of their asset allocation is to use money to do things that will reduce their income requirements so doing something like paying off a mortgage early would be an alternative to consider.
Thank you, your last sentence is very good advice. I was thinking I could just be even more frugal and increase my savings rate to offset the lower stock allocation, but I guess the flip side to that is if I'm willing to do that I might be able to actually take on more risk since my monthly nut will be reduced.

I think I will follow the advice to slowly taper down and see how I feel, but 50/50 might actually be the sweet spot for me, 30/70 may be a bit too drastic.
I think your plan to hit 50/50 slowly is sane. I have a few years on you and sitting at 35/65 (B/E). I have thought about moving to 50/50 at some point, I like the idea that it feels like you can't be wrong one way or another as its 50/50. I prefer more of a static AA that one can hold until the need arises to change it, to each their own. 50/50 to me feels a AA one can hold for many year pre and post retirement, you could do much worse as the saying goes.
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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by goingup » Fri Feb 26, 2016 10:45 am

I think it's a mistake. Of course, you have to soul search and find an AA you can live with, but that's too conservative for someone age 33.

The scenario will play out like this. You'll throttle back because the Market currently scares you. You'll hunker down and pare your contributions to equity. Then, a few years from now, the sun will come out again and you'll decide you need to be 75/25 and start buying equity at higher prices. This is classic poor investor behavior.

Make sure your emergency reserves are robust. If you need to make changes do so incrementally. But don't miss the opportunity to acquire equity now, and even when it's lower priced (if that's where we're headed).

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by sreynard » Fri Feb 26, 2016 10:47 am

I guess I have a hard time relating to the idea of investing based on emotions. Maybe its the engineer in me. I see it as a statistical problem not an emotional one. It seems to me that an irrational fear is the problem. Maybe that should be what is worked on, instead of the asset allocation?

From my experience, fears are often a result of insufficient information. Some people are afraid of flying on airplanes because they don't understand how they stay in the air. They feel the sensations of flying and not being able to interpret them, they feel fear. When that fear is sufficient to effect their livelihood or lifestyle its a problem that it would be better to address. Mine has always been heights. I have to really work myself up to clime an extension ladder 20 feet to change my smoke alarm batteries. Climb up on the roof? Forget about it! Funny that I fear heights, but enjoy flying small airplanes, especially in turbulence. Talk about irrational. . . . :D

What is it about the balance of your account going down causes fear? Is it because it may not come back up? It may continue to sink through the floor and you loose all your money? Maybe you should try writing your fears down on paper and examining them. As many here will tell you, stocks going down while you are young is a good thing. It means you get to accumulate more shares as you dollar cost average.

Decreasing your allocation is one solution to the problem, but as others have mentioned doing so has other side effects. Those side effects may be a lot worse than the original problem. Not having enough to retire when you want, or need, or are forced to, is a big one. Running out of money when you are old and can no longer work is a lot worse.

If you were 63 years old, this would by no means be an irrational fear because if the market did go down substantially, it may not come back up by the time you needed it. An answer to this could be to hold sufficient cash and bonds to weather the storm. Then you wouldn't have to draw down until the market did recover.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by sreynard » Fri Feb 26, 2016 10:51 am

goingup wrote:This is classic poor investor behavior.
Otherwise known as buying high and selling low.

[Or in this case, selling low and buying high.]

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by TomatoTomahto » Fri Feb 26, 2016 10:57 am

Valdeselad wrote:I'd say you are volatility adverse, not risk adverse. The strategy you have proposed will certainly decrease your portfolio volatility, but will introduce significant long-term purchasing power (due to inflation) risk.
Winner winner chicken dinner.

OP, you're considering going to 30/70 after the market restores your losses (nice that you think that's imminent). You're kind of young for it, but why not shoot for an overall 50/50 AA? I'm old and pretty well off, but 30/70 seems a bit extreme even for me, and for a 33 yo, well . . .

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by hnzw rui » Fri Feb 26, 2016 11:42 am

sreynard wrote:Decreasing your allocation is one solution to the problem, but as others have mentioned doing so has other side effects. Those side effects may be a lot worse than the original problem. Not having enough to retire when you want, or need, or are forced to, is a big one. Running out of money when you are old and can no longer work is a lot worse.
While these are all valid concerns, they can be mitigated by a combination of very, very, very high savings rate and very low withdrawal rate (2% or less). If the OP is able to accomplish this, then that's fine. Otherwise, he needs more equities in his portfolio.

I actually do know a couple of retirees who have never invested in the stock market and just saved in all cash. However, they were pretty high earners (own business) and were able to save several millions. For someone on W-2 making $100,000 and spends around $50,000 after tax, that might not leave you a whole lot to save after taking into account FICA, federal, state and local income taxes to offset lower returns due to a more conservative portfolio.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by NateH » Fri Feb 26, 2016 2:00 pm

countofmc wrote:

I think I will follow the advice to slowly taper down and see how I feel, but 50/50 might actually be the sweet spot for me, 30/70 may be a bit too drastic.
50/50 is as low as I could recommend for someone 33yo, who has taken the 2016 losses this far without selling.
I'd say you are taking a thoughtful approach and avoiding impulsive, emotional decisions (all favor ability to hold higher %equity).

If it helps you sleep, remember that your LARGEST, (by far!) asset is your future earning potential. The paper losses you see in 2016 - in dollar terms - will look like peanuts when you are 40 or 50 years old. The most important skill is discipline, whatever path you take.
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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by siamond » Fri Feb 26, 2016 2:13 pm

Valdeselad wrote:I'd say you are volatility adverse, not risk adverse. The strategy you have proposed will certainly decrease your portfolio volatility, but will introduce significant long-term purchasing power (due to inflation) risk.
Totally agreed with that. And this is putting it mildly. Moving to 30/70 at the OP's age is DOWNRIGHT dangerous. Not only because of inflation risk, but also because of low-return risk which is pretty much a given (further amplified by very low bond yields nowadays). Try a simulator like cFIREsim, and you'll see what happened to people who made such a choice, in pretty much EVERY time period you can think of.

OP, please extract from your mind that risk is equal to volatility. Volatility stirs strong emotions for sure, but this is actually one of the SOURCES for returns. And what matters is your purchasing power over the coming 5 or 6 decades, NOT a number that dangles up and down on a daily basis. Let me suggest you read the "Deep Risk" booklet from the good Dr Bernstein. He does a good job of distinguishing between short-term risk and longer (deeper) risks. Really something crucial to understand.

Now if you really can't stand it and keep thinking about AA adjustments, then yes, you're a good candidate for a Life Strategy fund or something like that. Just put all your money in it (tax-sheltered or not), don't cheat on your retirement age, and try to stop anguishing about it. Just focus on saving on a regular basis and STAY THE COURSE.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by sreynard » Fri Feb 26, 2016 2:55 pm

hnzw rui wrote:
sreynard wrote:Decreasing your allocation is one solution to the problem, but as others have mentioned doing so has other side effects. Those side effects may be a lot worse than the original problem. Not having enough to retire when you want, or need, or are forced to, is a big one. Running out of money when you are old and can no longer work is a lot worse.
While these are all valid concerns, they can be mitigated by a combination of very, very, very high savings rate and very low withdrawal rate (2% or less). If the OP is able to accomplish this, then that's fine. Otherwise, he needs more equities in his portfolio.

I actually do know a couple of retirees who have never invested in the stock market and just saved in all cash. However, they were pretty high earners (own business) and were able to save several millions. For someone on W-2 making $100,000 and spends around $50,000 after tax, that might not leave you a whole lot to save after taking into account FICA, federal, state and local income taxes to offset lower returns due to a more conservative portfolio.
Very true hnzw rui. I have a colleague that only invests in our 401K stable value and money market funds. Of course he went there immediate after his account had dropped during the recession. :oops: Normally this would be a recipe for disaster, except he probably saves over 75% of his income. If you live frugally enough, or as you say, have a high enough income, it can be done. Unfortunately, you can't necessarily tell if you will be able to do it until after the fact. Life tends to throw a few curve balls now and then that make it difficult to keep up a really high savings rate.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by jarhead_jr » Fri Feb 26, 2016 11:28 pm

I can see going as low as 50/50, but whatever you do if you believe the market is down continue to buy stocks/equities...they would be at a discount. Also, you need to look at it this way....at 33, you easily could work another 30 years. I don't know if there has ever been a 30 year span when the stock market did not return a profit. Additionally, do not assume bonds are risk free.....particularly if your bond allocation is a mutual fund. Interest rates are very low right now and most people would likely guess rates will be going up again eventually and when they do, don't be suprised to see those bond funds underperform.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by Call_Me_Op » Sat Feb 27, 2016 7:29 am

I'm confused. Why would Target Retirement be allocated 30/70 for a 33 year-old?
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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by carolinaman » Sat Feb 27, 2016 9:07 am

The people telling you this is a mistake are not in your shoes. AA and risk tolerance are a personal thing that only you can decide.

Some speak with high conviction on things that may or may not occur. I thought KevinM provided an excellent response and advice to you.

If you have not done this, I suggest you compare historical returns of various allocations: 60/40, 50/50, 40/60 and 30/70. You may find an allocation with slightly higher equities that you are comfortable with. IMO, a higher equity allocation, perhaps as much as 50/50 would be better for you, but only if you feel comfortable with the risk. Do your homework and make your own decision. Best wishes.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by dbr » Sat Feb 27, 2016 9:34 am

Call_Me_Op wrote:I'm confused. Why would Target Retirement be allocated 30/70 for a 33 year-old?
It's Target Retirement Income, which is the endpoint of all the TR glidepaths and does not itself evolve over time. It would just be a way to buy a 30/70 allocation.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by Kevin M » Sat Feb 27, 2016 1:46 pm

dbr wrote:
Call_Me_Op wrote:I'm confused. Why would Target Retirement be allocated 30/70 for a 33 year-old?
It's Target Retirement Income, which is the endpoint of all the TR glidepaths and does not itself evolve over time. It would just be a way to buy a 30/70 allocation.
Exactly. OP is looking at a TR fund that is appropriate for risk capacity and risk tolerance, not one that has one's expected retirement year in the name, or one that Vanguard's website says is appropriate based on age or years to retirement.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by Kevin M » Sat Feb 27, 2016 2:01 pm

dbr wrote:The risk in investing too conservatively is that you will not reach your objectives.
There also is risk that you won't reach your objectives by investing too aggressively, unless we can be guaranteed that stocks are not risky if held for a sufficiently long but reasonable period (say 20-30 years). Some do indeed believe this, but believing it is different than having it be guaranteed.
dbr wrote:You will might have to save more and get by on less than if you invest in a portfolio that offers more expected return.
Fixed this for you ;-)
dbr wrote:The trade-off is that a more conservative investment will be more certain in outcome. You will have to estimate for yourself if that certainty is more certainty that you will meet objectives or more certainty that you will fail.
Ah, you fixed it yourself.
dbr wrote:I have thought from time to time whether the dictum of psychological willingness to take risk is about reducing risk until one can sleep at night, or about learning and understanding risk in investing, at least volatility, well enough to change one's psychological reactions to a more constructive attitude. Willingness does convey not just a choice about risk but also a bargain to stick with the plan when things go downhill.
Well said!

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by msi » Sun Feb 28, 2016 4:25 am

You might want to check out Zvi Bodie's books, which are meant for risk-averse investors. He'll recommend TIPS, series I bonds, and the like.

And also have a look at Wellesley. You might feel psychologically more comfortable with a conservative, well-run, and almost entirely domestic fund with a long track record.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by beardsworth » Sun Feb 28, 2016 9:44 am

carolinaman wrote:The people telling you this is a mistake are not in your shoes. AA and risk tolerance are a personal thing that only you can decide.
. . .

If you [OP] have not done this, I suggest you compare historical returns of various allocations: 60/40, 50/50, 40/60 and 30/70. You may find an allocation with slightly higher equities that you are comfortable with. IMO, a higher equity allocation, perhaps as much as 50/50 would be better for you, but only if you feel comfortable with the risk. Do your homework and make your own decision. Best wishes.
On that point, here is Vanguard's latest update of the performance of various portfolios from 1926 through 2015.

https://personal.vanguard.com/us/insigh ... llocations

One caveat about these charts, however, is that although they refer generically to "stocks," the fine print at the bottom of the page, identifying the indices used to compiles these figures, makes clear that this really means "U.S. stocks." Fund companies have arrived at the point in portfolio design where almost all balanced funds now include some dose of foreign stocks. At Vanguard, this includes Target Retirement funds, Life Strategy, Wellington, Wellesley, STAR. The only exception known to me is the Balanced Index Fund (VBINX), whose stock segment limits itself to U.S. stocks, but the fund also doesn't resolve the OP's decision, since VBINX only comes in the 60/40 "flavor."

As a general matter, I do agree with those here who have urged the OP to focus less on his age and mainly on the allocation which is no riskier than his "sleeping point," combined with a healthy savings rate. The OP is the only one here who will have to live with the outcome.

The OP is also the world's leading authority on countofmc. :)

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by basisrisk » Sun Feb 28, 2016 9:50 am

A few years ago, I was 36 when I found this forum and started educating myself and getting my finances in order (Thanks everyone). I have a very high savings rate and a large portfolio for my age, so I have a high ability and low need to take risk. I also have a low willingness to take risk like the OP and so chose a 30/70 allocation for my portfolio.

I setup a spreadsheet to track my portfolio and have a section devoted to showing the daily fluctuations, which I check periodically especially on big up or down days. I have also sold investments at a loss for the purpose of TLH.

I have found that doing the above has made me a lot more comfortable with the risks/volatility involved with investing and so have been reconsidering moving to a higher stock allocation.

OP, if you do move to 30/70, you could find that over time it is too conservative as you get used to the ups and downs of the markets. To avoid falling into the trap of selling low and buying high, you should setup some rules ahead of time around changing your allocation. Something like, only after sticking with the current allocation for X years and only after experiencing stocks drop Y%. Never because stocks are going up and you feel you are missing out.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by countofmc » Mon Mar 14, 2016 12:57 pm

Just as an update, I used the recent market run up as an opportunity. My portfolio went back in the black for the year, so I decided to drop down all the way to 30/70. Basically moved everything into Vanguard Target Retirement Income. I know this is ridiculously conservative for my age. But I spent some time using tools like FIRECalc and portfolio visualizer and some other online calculators and decided this AA is probably enough combined with my savings rate to get to where I want to be at the age I want.

Thanks again to all of you who contributed your advice.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by Toons » Mon Mar 14, 2016 1:05 pm

30/70
You have to do what is right for you .
Good Choice :happy
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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by sco » Mon Mar 14, 2016 11:37 pm

A lot of people are comfortable with 50/50 (With the appropriate balance) all through retirement...

Just something to consider, it isn't either/or when it comes to stocks/bonds...

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by sfchris » Tue Mar 15, 2016 12:04 am

OP did not say what his assets are. It is possible he has millions due to a windfall and therefore doesn't need the risk.

It's not really possible to answer this question without knowing your assets and your target $ and target age.

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Re: Going to 30/70 (Target Retirement Income Fund) at age 33?

Post by azanon » Tue Mar 15, 2016 8:03 am

countofmc wrote:Just as an update, I used the recent market run up as an opportunity. My portfolio went back in the black for the year, so I decided to drop down all the way to 30/70. Basically moved everything into Vanguard Target Retirement Income. I know this is ridiculously conservative for my age. But I spent some time using tools like FIRECalc and portfolio visualizer and some other online calculators and decided this AA is probably enough combined with my savings rate to get to where I want to be at the age I want.

Thanks again to all of you who contributed your advice.
I don't think it's a ridiculously conservative portfolio. And I'm in the camp that doesn't see what your age has to do with it. The global market portfolio (the portfolio comprised of all assets added up) only carries in the neighborhood of 45% stock, give or take, not 60%. Just because the 60/40 became popularized, probably as a result of generally good stock performance since 1980, doesn't mean that 33%+ tilt towards stocks (or more) is the right thing to do.

Re age, my view of proper portfolio management is that you decide on your asset classes with associated percentages, then rebalance annually or what-have-you. You rebalance only based upon deviations from the percentages. In other words, your age has nothing to do with it. A properly managed portfolio looks the same year-after-year. Stay the course, don't change it every year just because you had a birthday.

Stocks are so popular because they have the highest return, but everyone seems to glaze over the fact that they have a comparable volatility associated with that return. Most studies I have seen have shown that the risk-adjusted return of most asset classes are not very different. Bottom line, as long as you save enough to compensated for the drop in "expected return", you'll still hit your mark, and will probably sleep better along the way.

One's saving's rate is, by a long shot, the most important determinant in when you will reach financial independence. I'd put 2nd, your ability to stick to whatever chosen portfolio you're using (provided it has at least 25% equities). A distant 3rd is the percent equity of that portfolio.

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