Wiki comments requested: The importance of asset allocation

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
siamond
Posts: 4189
Joined: Mon May 28, 2012 5:50 am

Re: Wiki comments requested: The importance of asset allocat

Post by siamond » Sun Feb 01, 2015 2:54 pm

peppers wrote:Does Asset Allocation Policy Explain 40 90 or 100 Percent Of Performance?

https://corporate.morningstar.com/ib/do ... xplain.pdf
The content of this paper is re-hashed in one of the best sources of all, the Ibbotson SBBI yearbook. If the Wiki editors need a reference, maybe this is where it should come from. The corresponding discussion is included in Chapter 6 (p123) of my 2006 edition, in a sub-section called "The True Impact of Asset Allocation on Returns". Personally, I would suggest to add a reference to this SBBI section. While keeping the (fairly obvious to me) statement that AA is indeed important, and that fund selection is more secondary.

(I don't have access to a more recent copy of the SBBI yearbook; don't know if the chapter numbering stayed the same).

User avatar
Munir
Posts: 2463
Joined: Mon Feb 26, 2007 4:39 pm
Location: Oregon

Re: Wiki comments requested: The importance of asset allocat

Post by Munir » Sun Feb 01, 2015 3:48 pm

YDNAL wrote:
Leeraar wrote:
JamesSFO wrote:
That's surprisingly well written.
Yes, and that's what I tried to say when i quoted Jane Bryant Quinn.

Asset Allocation is part of a long term framework that goes with diversification and rebalancing to manage risk. And, it affects expected return. It's not a thing by itself.
Yes. Thus claims of "most important" are not only inappropriate, but wrong!
YDNAL wrote:Agree. Claims of "most important decisions, etc." is the fuel that lights argument and debate, and it says a whole lot without proper documentation.

IMO, the Wiki should be informative and leave it at that.

My preference would be to remove the statement and replace it with the very first sentence in the Wiki page.
ImageAsset allocation is an investment strategy that aims to balance risk and return by apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment horizon.
"Asset allocation is an investment strategy that aims to balance risk and return by apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment horizon" sounds most encompassing and reasonable.

Let's not get to the level of arguing about how many angels are there at the tip of a needle :happy .

Fallible
Posts: 6501
Joined: Fri Nov 27, 2009 4:44 pm
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by Fallible » Sun Feb 01, 2015 4:40 pm

LadyGeek wrote:You are referring to mentions in: Getting started and Financial planning.

The process is there (develop a plan, implement the plan), but I couldn't find anything that says why you need to save early.

The answer is due to compound interest, but you really need a picture to bring the point home. See that big gap at retirement? Yes, you're stuck. Do you see a gap early on? No? That's why you invest early.

This is really a separate discussion point, but it's an important part of the larger picture.

(I'm open to all suggestions and we don't have to use this article. Or, we can insert it somewhere else in the wiki.)
I was mainly trying to determine where a savings page fit into the original AA "notice" discussion, which has taken many directions. The current and main savings references I'm aware of are under "Bogleheads Investment Philosophy," "Develop a workable plan" and "LBYM":

"Live below your means. Perhaps the most important idea underlying the Bogleheads approach to investing is recognizing you need to save a significant portion of income every month to have enough money for a comfortable retirement. There is no substitute for spending less than you earn. The Bogleheads approach to developing a workable financial plan is to have a sensible household budget - one that provides for needed expenditures, discretionary pleasures, savings for big ticket items, and savings for long term retirement planning. Avoid excess debt, such as credit cards and home equity loans. If you have such debt, pay off those balances first. Reduce expenses and unneeded debt so you can consistently set aside a portion of earnings for decades. If you don't save enough, no amount of financial trickery will provide the returns needed for a comfortable retirement."

Up next is "Invest early and often" and compounding is nicely taken up there.

Still, maybe a separate page focusing on saving early and often and compounding is still needed?
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

User avatar
Mel Lindauer
Moderator
Posts: 28569
Joined: Mon Feb 19, 2007 8:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by Mel Lindauer » Sun Feb 01, 2015 5:06 pm

Fallible wrote:
LadyGeek wrote:You are referring to mentions in: Getting started and Financial planning.

The process is there (develop a plan, implement the plan), but I couldn't find anything that says why you need to save early.

The answer is due to compound interest, but you really need a picture to bring the point home. See that big gap at retirement? Yes, you're stuck. Do you see a gap early on? No? That's why you invest early.

This is really a separate discussion point, but it's an important part of the larger picture.

(I'm open to all suggestions and we don't have to use this article. Or, we can insert it somewhere else in the wiki.)
I was mainly trying to determine where a savings page fit into the original AA "notice" discussion, which has taken many directions. The current and main savings references I'm aware of are under "Bogleheads Investment Philosophy," "Develop a workable plan" and "LBYM":

"Live below your means. Perhaps the most important idea underlying the Bogleheads approach to investing is recognizing you need to save a significant portion of income every month to have enough money for a comfortable retirement. There is no substitute for spending less than you earn. The Bogleheads approach to developing a workable financial plan is to have a sensible household budget - one that provides for needed expenditures, discretionary pleasures, savings for big ticket items, and savings for long term retirement planning. Avoid excess debt, such as credit cards and home equity loans. If you have such debt, pay off those balances first. Reduce expenses and unneeded debt so you can consistently set aside a portion of earnings for decades. If you don't save enough, no amount of financial trickery will provide the returns needed for a comfortable retirement."

Up next is "Invest early and often" and compounding is nicely taken up there.

Still, maybe a separate page focusing on saving early and often and compounding is still needed?
You could use the old example of a 25-year old who puts the maximum away in an IRA or ROTH every year for 10 years and then stops vs the person who starts at 35 and contributes until age 65. Amazingly, because of the power of compounding, the person who started early has more money, despite contributing less total money for 10 years vs the other investor who contributed much more money over the 30 years.

http://money.cnn.com/retirement/guide/b ... .moneymag/
Best Regards - Mel | | Semper Fi

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: Wiki comments requested: The importance of asset allocat

Post by Leeraar » Sun Feb 01, 2015 6:20 pm

I have seen Mel's example criticized, but I showed it to my kids as teenagers, and they were impressed.

If you save $1,000 yearly at some reasonable return (say, 7%), after 11 years the investment will be earning more than $1,000 per year. Suppose you then stop adding money, and your brother starts saving $1,000 per year. Since your reinvested return is more than his savings, he will NEVER catch up.

There are two things: Compounding, and the number of years you have to save. Obviously, if you save for 40 years (age 25-65) you will have to save (much) less per year than someone starting at 35 (30 years) or 45 (20) years.

The astounding answer is, at 7%, if you save $1,000 per year, after 40 years you will have $213,610. To reach that same number in 30 years you will have to save more than twice as much per year. To reach it in 20 years you have to save nearly five times as much.

Code: Select all

			1000												
			Saved	Earned	Total										
0.07		1	1,000	70	1,070										
		2	1,000	144.9	2,215										
		3	1,000	225.043	3,440										
		4	1,000	310.79601	4,751										
		5	1,000	402.5517307	6,153										
		6	1,000	500.7303518	7,654										
		7	1,000	605.7814765	9,260										
		8	1,000	718.1861798	10,978										
		9	1,000	838.4592124	12,816			2113							
		10	1,000	967.1513573	14,784			Saved	Earned	Total					
		11	1,000	1104.851952	16,888		1	2,113	147.91	2,261					
		12	1,000	1252.191589	19,141		2	2,113	306.1737	4,680					
		13	1,000	1409.845	21,550		3	2,113	475.515859	7,269					
		14	1,000	1578.53415	24,129		4	2,113	656.7119691	10,038					
		15	1,000	1759.031541	26,888		5	2,113	850.591807	13,002					
		16	1,000	1952.163749	29,840		6	2,113	1058.043233	16,173					
		17	1,000	2158.815211	32,999		7	2,113	1280.01626	19,566					
		18	1,000	2379.932276	36,379		8	2,113	1517.527398	23,196					
		19	1,000	2616.527535	39,995		9	2,113	1771.664316	27,081			4870		
		20	1,000	2869.684462	43,865		10	2,113	2043.590818	31,238			Saved	Earned	Total
		21	1,000	3140.562375	48,006		11	2,113	2334.552175	35,685		1	4,870	340.9	5,211
		22	1,000	3430.401741	52,436		12	2,113	2645.880827	40,444		2	4,870	705.663	10,787
		23	1,000	3740.529863	57,177		13	2,113	2979.002485	45,536		3	4,870	1095.95941	16,753
		24	1,000	4072.366953	62,249		14	2,113	3335.442659	50,985		4	4,870	1513.576569	23,136
		25	1,000	4427.43264	67,676		15	2,113	3716.833646	56,814		5	4,870	1960.426929	29,967
		26	1,000	4807.352925	73,484		16	2,113	4124.922001	63,052		6	4,870	2438.556814	37,275
		27	1,000	5213.86763	79,698		17	2,113	4561.576541	69,727		7	4,870	2950.15579	45,095
		28	1,000	5648.838364	86,347		18	2,113	5028.796899	76,869		8	4,870	3497.566696	53,463
		29	1,000	6114.257049	93,461		19	2,113	5528.722682	84,510		9	4,870	4083.296364	62,416
		30	1,000	6612.255043	101,073		20	2,113	6063.643269	92,687		10	4,870	4710.02711	71,996
		31	1,000	7145.112896	109,218		21	2,113	6636.008298	101,436		11	4,870	5380.629008	82,247
		32	1,000	7715.270798	117,933		22	2,113	7248.438879	110,798		12	4,870	6098.173038	93,215
		33	1,000	8325.339754	127,259		23	2,113	7903.7396	120,814		13	4,870	6865.945151	104,951
		34	1,000	8978.113537	137,237		24	2,113	8604.911373	131,532		14	4,870	7687.461311	117,508
		35	1,000	9676.581485	147,913		25	2,113	9355.165169	143,000		15	4,870	8566.483603	130,945
		36	1,000	10423.94219	159,337		26	2,113	10157.93673	155,271		16	4,870	9507.037456	145,322
		37	1,000	11223.61814	171,561		27	2,113	11016.9023	168,401		17	4,870	10513.43008	160,705
		38	1,000	12079.27141	184,640		28	2,113	11935.99546	182,450		18	4,870	11590.27018	177,166
		39	1,000	12994.82041	198,635		29	2,113	12919.42514	197,483		19	4,870	12742.4891	194,778
		40	1,000	13974.45784	213,610		30	2,113	13971.69491	213,567		20	4,870	13975.36333	213,623
															
L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

longinvest
Posts: 2955
Joined: Sat Aug 11, 2012 8:44 am

Re: Wiki comments requested: The importance of asset allocat

Post by longinvest » Sun Feb 01, 2015 6:50 pm

Leeraar wrote:I have seen Mel's example criticized, but I showed it to my kids as teenagers, and they were impressed.

If you save $1,000 yearly at some reasonable return (say, 7%), after 11 years the investment will be earning more than $1,000 per year. Suppose you then stop adding money, and your brother starts saving $1,000 per year. Since your reinvested return is more than his savings, he will NEVER catch up.
I say that a Bogleheads wiki example should use a realistic inflation-adjusted $1,000 per year, and a 5% return after inflation. After 15 years, the investment will be earning more than an inflation-adjusted $1,000 per year.

It's a little less dramatic, but we're the Bogleheads after all. :)
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VLB/ZRR

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: Wiki comments requested: The importance of asset allocat

Post by Leeraar » Sun Feb 01, 2015 8:06 pm

longinvest wrote:
Leeraar wrote:I have seen Mel's example criticized, but I showed it to my kids as teenagers, and they were impressed.

If you save $1,000 yearly at some reasonable return (say, 7%), after 11 years the investment will be earning more than $1,000 per year. Suppose you then stop adding money, and your brother starts saving $1,000 per year. Since your reinvested return is more than his savings, he will NEVER catch up.
I say that a Bogleheads wiki example should use a realistic inflation-adjusted $1,000 per year, and a 5% return after inflation. After 15 years, the investment will be earning more than an inflation-adjusted $1,000 per year.

It's a little less dramatic, but we're the Bogleheads after all. :)
Whichever realistic way you look at it, those 10 years are a dramatic head start.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

Fallible
Posts: 6501
Joined: Fri Nov 27, 2009 4:44 pm
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by Fallible » Sun Feb 01, 2015 10:42 pm

Mel Lindauer wrote:
Fallible wrote:
LadyGeek wrote:You are referring to mentions in: Getting started and Financial planning.

The process is there (develop a plan, implement the plan), but I couldn't find anything that says why you need to save early.

The answer is due to compound interest, but you really need a picture to bring the point home. See that big gap at retirement? Yes, you're stuck. Do you see a gap early on? No? That's why you invest early.

This is really a separate discussion point, but it's an important part of the larger picture.

(I'm open to all suggestions and we don't have to use this article. Or, we can insert it somewhere else in the wiki.)
I was mainly trying to determine where a savings page fit into the original AA "notice" discussion, which has taken many directions. The current and main savings references I'm aware of are under "Bogleheads Investment Philosophy," "Develop a workable plan" and "LBYM":

"Live below your means. Perhaps the most important idea underlying the Bogleheads approach to investing is recognizing you need to save a significant portion of income every month to have enough money for a comfortable retirement. There is no substitute for spending less than you earn. The Bogleheads approach to developing a workable financial plan is to have a sensible household budget - one that provides for needed expenditures, discretionary pleasures, savings for big ticket items, and savings for long term retirement planning. Avoid excess debt, such as credit cards and home equity loans. If you have such debt, pay off those balances first. Reduce expenses and unneeded debt so you can consistently set aside a portion of earnings for decades. If you don't save enough, no amount of financial trickery will provide the returns needed for a comfortable retirement."

Up next is "Invest early and often" and compounding is nicely taken up there.

Still, maybe a separate page focusing on saving early and often and compounding is still needed?
You could use the old example of a 25-year old who puts the maximum away in an IRA or ROTH every year for 10 years and then stops vs the person who starts at 35 and contributes until age 65. Amazingly, because of the power of compounding, the person who started early has more money, despite contributing less total money for 10 years vs the other investor who contributed much more money over the 30 years.
http://money.cnn.com/retirement/guide/b ... .moneymag/
Yes, it is amazing. And seeing those numbers is also punishing for those, like myself, who failed to start saving early enough.
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

kksmom
Posts: 128
Joined: Sun Oct 09, 2011 11:07 am

Re: Wiki comments requested: The importance of asset allocat

Post by kksmom » Mon Feb 02, 2015 7:18 am

Mel Lindauer wrote:
And you can't have a savings rate if your don't handle the first step, and that's living below your means. So the order is:

1. Learn to live below your means.
2. Develop a plan (the rest of the following steps would be included in the plan).
3. Maximize your savings rate.
4. Establish an emergency fund.
5. Determine your asset allocation.
6. Flesh it out with low-cost index funds whenever possible.
7. Rebalance as needed.
8. Stay the course.
A bit off tangent..
I wonder re #2, why BH site doesnt mention/clarify re the goal number(and how to calculate that) - a plan is for a goal- ?goal being having enough for retirement?

Is it because when one is starting off, the retirement number seems so huge- that it might scare off a lot of new people, or that the number doesnt reflect a large number of Americans who get by retirement without having near enough of the number?

User avatar
bengal22
Posts: 1427
Joined: Sat Dec 03, 2011 6:20 pm
Location: Ohio

Re: Wiki comments requested: The importance of asset allocat

Post by bengal22 » Mon Feb 02, 2015 12:49 pm

I do not know how to word the importance of "asset allocation" but I think it really is the cornerstone of successful investing for the common man/woman. without a well thought out plan(asset allocation) then one is really like a sailboat that is drifting aimlessly without a real anchor or starting point. Yes, it is important to save a lot regularly, and it is important to minimize taxes and fund costs, for me the light bulb went off when I understood asset allocation. It forced me to think through risk/reward and actually land on a plan - % of stocks, bonds, interest bearing investments. When I had this, it gave my investment a ballast so to speak, whereby I least had a direction. Before then, I was chasing funds without a direction or an expectation(not a reality) on return. I think the importance of asset allocation is that it does reduce volatility in your investments by reducing the amount you play and change your investments. I think the newbie needs to understand that they really need to think through this decision and it will be like building a strong foundation(yes I am mixing metaphors) for growing their portfolio.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley

User avatar
LadyGeek
Site Admin
Posts: 48107
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by LadyGeek » Mon Feb 02, 2015 4:47 pm

Via PM, Tamales suggestion a revision to the introduction. From:
Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The process of determining which mix of assets to hold in your portfolio is a very personal one. The asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk.
To:
Asset allocation is the process of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. This process of determining which mix of assets to hold in your portfolio is a very personal one. The asset allocation that works best for you at any given stage in your life will depend largely on your time horizon and your ability to tolerate risk.[1]

While this may sound like a daunting task, there are straightforward guidelines to help you in selecting an asset allocation appropriate for you.
The use of "stage" in place of "point" in your life seems more appropriate. I incorporated the change: User:LadyGeek/Asset allocation
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
Mel Lindauer
Moderator
Posts: 28569
Joined: Mon Feb 19, 2007 8:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by Mel Lindauer » Mon Feb 02, 2015 4:56 pm

LadyGeek wrote:Via PM, Tamales suggestion a revision to the introduction. From:
Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The process of determining which mix of assets to hold in your portfolio is a very personal one. The asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk.
To:
Asset allocation is the process of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. This process of determining which mix of assets to hold in your portfolio is a very personal one. The asset allocation that works best for you at any given stage in your life will depend largely on your time horizon and your ability to tolerate risk.[1]

While this may sound like a daunting task, there are straightforward guidelines to help you in selecting an asset allocation appropriate for you.
The use of "stage" in place of "point" in your life seems more appropriate. I incorporated the change: User:LadyGeek/Asset allocation
The revisions look good to me.
Best Regards - Mel | | Semper Fi

User avatar
LadyGeek
Site Admin
Posts: 48107
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by LadyGeek » Mon Feb 02, 2015 5:01 pm

Mel Lindauer wrote:...You could use the old example of a 25-year old who puts the maximum away in an IRA or ROTH every year for 10 years and then stops vs the person who starts at 35 and contributes until age 65. Amazingly, because of the power of compounding, the person who started early has more money, despite contributing less total money for 10 years vs the other investor who contributed much more money over the 30 years.

http://money.cnn.com/retirement/guide/b ... .moneymag/
(With additional comments by Fallible, Leeraar, and longinvest.)

The only reason I used the AllianceBernstein figure in User:LadyGeek/Importance of saving early was because it was easily available. I like this new approach better. Leeraar has a good head start, we just need to create a chart.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Fallible
Posts: 6501
Joined: Fri Nov 27, 2009 4:44 pm
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by Fallible » Mon Feb 02, 2015 6:05 pm

LadyGeek wrote:Via PM, Tamales suggestion a revision to the introduction. From:
Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The process of determining which mix of assets to hold in your portfolio is a very personal one. The asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk.
To:
Asset allocation is the process of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. This process of determining which mix of assets to hold in your portfolio is a very personal one. The asset allocation that works best for you at any given stage in your life will depend largely on your time horizon and your ability to tolerate risk.[1]

While this may sound like a daunting task, there are straightforward guidelines to help you in selecting an asset allocation appropriate for you.
The use of "stage" in place of "point" in your life seems more appropriate. I incorporated the change: User:LadyGeek/Asset allocation
I like the second, but would work in that AA is also based on one's financial capacity. In other words, the basic process is determining the amount of money available to reach predetermined life goals, and the emotional risk tolerance for whatever allocation might be needed to reach those goals. Also, since we are describing what makes AA so personal, we would not need to say it's personal.

The last sentence could read: "The asset allocation that works best for you at any given stage in your life will depend largely on your time horizon and on both your financial capacity and on your emotional capacity to tolerate risk."
Last edited by Fallible on Mon Feb 02, 2015 6:08 pm, edited 1 time in total.
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

Tamales
Posts: 1276
Joined: Sat Jul 05, 2014 10:47 am

Re: Wiki comments requested: The importance of asset allocat

Post by Tamales » Mon Feb 02, 2015 6:06 pm

Mel Lindauer wrote:...You could use the old example of a 25-year old who puts the maximum away in an IRA or ROTH every year for 10 years and then stops vs the person who starts at 35 and contributes until age 65. Amazingly, because of the power of compounding, the person who started early has more money, despite contributing less total money for 10 years vs the other investor who contributed much more money over the 30 years.

http://money.cnn.com/retirement/guide/b ... .moneymag/
That sounded odd to me, so I built a quick spreadsheet to test it. If you earn 7% or more every year that is true. 6% or less and the late starter comes out ahead. The more the avg return is below 6%, the wider the advantage of the late starter.

The reality is there are MANY late starters, so the example shouldn't be too fixated on 20-somethings. Late starters can still get there, especially given they generally have higher income and can contribute more.

longinvest
Posts: 2955
Joined: Sat Aug 11, 2012 8:44 am

Re: Wiki comments requested: The importance of asset allocat

Post by longinvest » Mon Feb 02, 2015 6:21 pm

One of my reasons for using a realistic 5% rate is that it helps not completely discourage people in their thirties (or forties) that decide to finally start investing and discover this site. We shouldn't tell people that if they start late, they're toast. It wouldn't be true. Of course, it is so much simpler if you start earlier, but we shouldn't discourage people from risking a later start due to going into longer education (college, masters, Ph.D.) if they wish to do so.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VLB/ZRR

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: Wiki comments requested: The importance of asset allocat

Post by Leeraar » Mon Feb 02, 2015 6:26 pm

You're not ever screwed. It's never too late to start.

But, I think it is important to note that early savings can make a disproportionate contribution to your final nest egg.

I'll think about possible charts. I like the idea that if you start at age 25 and save one, at 35 you will have to save two, and at 45 you will have to save five. I have no idea how sensitive that is to rate of return but, I suspect not much.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: Wiki comments requested: The importance of asset allocat

Post by Leeraar » Mon Feb 02, 2015 6:31 pm

longinvest wrote:One of my reasons for using a realistic 5% rate is that it helps not completely discourage people in their thirties (or forties) that decide to finally start investing and discover this site. We shouldn't tell people that if they start late, they're toast. It wouldn't be true. Of course, it is so much simpler if you start earlier, but we shouldn't discourage people from risking a later start due to going into longer education (college, masters, Ph.D.) if they wish to do so.
Yes, but there's a web of logic here.

Most people wish to preserve their standard of living into retirement. To do so takes 30 years of saving 15% of income. More years, save less, fewer years, save more.

The point is to encourage early saving, not discourage late starters. I think we can do that.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

longinvest
Posts: 2955
Joined: Sat Aug 11, 2012 8:44 am

Re: Wiki comments requested: The importance of asset allocat

Post by longinvest » Mon Feb 02, 2015 6:46 pm

I think that showing that a 10 to 15-year head start has a significant impact is important.

It is also important to show that one must take inflation into account, the simplest approach being to do calculations in inflation-adjusted dollars. We should, as a consequence, use realistic inflation-adjusted returns on a Bogleheads portfolio, like 80/20 (but not 100/0). One should definitely not use a nominal 12% return. :-)
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VLB/ZRR

Tamales
Posts: 1276
Joined: Sat Jul 05, 2014 10:47 am

Re: Wiki comments requested: The importance of asset allocat

Post by Tamales » Mon Feb 02, 2015 7:00 pm

How about something like this:
Image

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: Wiki comments requested: The importance of asset allocat

Post by Leeraar » Mon Feb 02, 2015 7:01 pm

One should definitely not use a nominal 12% return. :-)
Didn't we tell you to stop watching that show?

L :P :twisted:
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

User avatar
LadyGeek
Site Admin
Posts: 48107
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by LadyGeek » Mon Feb 02, 2015 7:06 pm

Fallible wrote:...The last sentence could read: "The asset allocation that works best for you at any given stage in your life will depend largely on your time horizon and on both your financial capacity and on your emotional capacity to tolerate risk."
I updated the wiki: User:LadyGeek/Asset allocation
Asset allocation is the process of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. This process of determining which mix of assets to hold in your portfolio is a very personal one. The asset allocation that works best for you at any given stage in your life will depend largely on your time horizon and on both your financial capacity and on your emotional capacity to tolerate risk.[1]
I used italics to help with readability. I also modified the citation to point back to Fallible's post (which includes Tamales' suggestion).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
LadyGeek
Site Admin
Posts: 48107
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by LadyGeek » Mon Feb 02, 2015 7:08 pm

Leeraar wrote:
One should definitely not use a nominal 12% return. :-)
Didn't we tell you to stop watching that show?

L :P :twisted:
For those who don't understand this exchange: Dave Ramsey still defending 12% and still angry at "nerds"
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
LadyGeek
Site Admin
Posts: 48107
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by LadyGeek » Mon Feb 02, 2015 7:18 pm

Tamales wrote:How about something like this:...
I think that only 2 cases should be shown. One where it's done "early", one where it's done "late". The reader can then be easily lead to the "right" conclusion. Anything more may be confusing.

I think the stacked chart shown in User:LadyGeek/Importance of saving early is easier to understand. You can see the gap growing as time marches on.

The suggested chart which uses contribution rate is not as visual as a stacked chart. It's also more mentally challenging. The reader needs to instantly answer "How much money do I have?" and "How much money do I need?". A stacked chart will remove any need to convert from rate to total amount.

(This is just my opinion...)
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: Wiki comments requested: The importance of asset allocat

Post by Leeraar » Mon Feb 02, 2015 7:23 pm

Tamales wrote:How about something like this:
Image
Tamales, nice!

Can you extend that back to age 16?

I am not sure the chart adds much. but the X-axis sure does!

$1 saved at age 25 is worth $2 saved at age 35 is worth $4 saved at age 45 is worth $11 saved at age 55.

This is true, no matter when you start.

So, maybe, the chart is:

X axis: Age when you invest a dollar.
Y axis: Value of an invested dollar at age 65.

This might be depressing, since it is a declining exponential.

As a side note, I have matched my kids' earned income in Roth IRAs ever since they started working at the pizza place when they were 16. I have told them I will do this until they are 30. I believe this will give them an incredible head start.

L
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

User avatar
dratkinson
Posts: 4334
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: Wiki comments requested: The importance of asset allocat

Post by dratkinson » Mon Feb 02, 2015 7:28 pm

deleted duplicate
Last edited by dratkinson on Mon Feb 02, 2015 7:45 pm, edited 2 times in total.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

User avatar
dratkinson
Posts: 4334
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: Wiki comments requested: The importance of asset allocat

Post by dratkinson » Mon Feb 02, 2015 7:36 pm

LadyGeek wrote:On several wiki pages, such as Asset allocation and Risk and return: an introduction, we make a very bold statement:
ImageAsset allocation is one of the most important decisions that investors can make. In other words, the importance of an investor's selection of individual securities is insignificant compared to the way the investor allocates their assets to stocks, bonds, and cash equivalents.
An important statement such as this should cite a credible source, but none is to be found. ...
If the note, with a credible source, could carry the AA topic, then the Wiki Asset Allocation topic page would not be unnecessary.

If there is no one definitive source, then suggest we use the preponderance of existing evidence, and link to it.

Suggest something like...
ImageAsset allocation is one of the most important decisions that investors can make. In other words, the importance of an investor's selection of individual securities is insignificant compared to the way the investor allocates their assets to stocks, bonds, and cash equivalents. See Asset allocation.
...on all pages not the Wiki "Asset Allocation" page. (Or use whatever verbiage is deemed best.)

The Wiki Asset Allocation page should contain sufficient justification to stand on its own, and satisfy the reference needs of the referring pages.

The note on the Wiki Asset Allocation page is just the "short answer" for the discussion that follows.

If the Wiki "Asset Allocation" page needs more work to make the case, then do so there. Could add references to Taylor's AA Gems, or anything else discussed in this topic to make the case.

The note/link on the referring pages reminds the reader, and quickly gets them to supporting evidence/discussion.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

Tamales
Posts: 1276
Joined: Sat Jul 05, 2014 10:47 am

Re: Wiki comments requested: The importance of asset allocat

Post by Tamales » Mon Feb 02, 2015 7:38 pm

Leeraar, I think it's a good idea to do it relative to $1 (easier for the reader to scale to an amount they are comfortable with), and I tend to agree that the chart itself won't add much for most people.

Based on that, here are some figures for different annual return assumptions:

To end up with the same amount at age 65: (amounts shown are annual contributions)

@ 4% return:
$1 at age 25 takes $1.69 at age 35 takes $3.13 at age 45 takes $7.41 at age 55

@ 6% return:
$1 at age 25 takes $1.95 at age 35 takes $4.13 at age 45 takes $11.03 at age 55

@ 8% return:
$1 at age 25 takes $2.27 at age 35 takes $5.56 at age 45 takes $16.85 at age 55

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: Wiki comments requested: The importance of asset allocat

Post by Leeraar » Mon Feb 02, 2015 8:04 pm

Tamales wrote:Leeraar, I think it's a good idea to do it relative to $1 (easier for the reader to scale to an amount they are comfortable with), and I tend to agree that the chart itself won't add much for most people.

Based on that, here are some figures for different annual return assumptions:

To end up with the same amount at age 65: (amounts shown are annual contributions)

@ 4% return:
$1 at age 25 takes $1.69 at age 35 takes $3.13 at age 45 takes $7.41 at age 55

@ 6% return:
$1 at age 25 takes $1.95 at age 35 takes $4.13 at age 45 takes $11.03 at age 55

@ 8% return:
$1 at age 25 takes $2.27 at age 35 takes $5.56 at age 45 takes $16.85 at age 55
Tamales, if you don't mind, can you do the age 16 thing?

I think the message is not, you are doomed if you do not start early, but rather, look at the value of any dollar saved early!

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

Tamales
Posts: 1276
Joined: Sat Jul 05, 2014 10:47 am

Re: Wiki comments requested: The importance of asset allocat

Post by Tamales » Mon Feb 02, 2015 8:22 pm

Leeraar wrote: Tamales, if you don't mind, can you do the age 16 thing?
I think the message is not, you are doomed if you do not start early, but rather, look at the value of any dollar saved early!
L.
Sure:

@ 6% return:
$1.00/yr beginning at age 16=
$1.76/yr beginning at age 25=
$3.43/yr beginning at age 35=
$7.27/yr beginning at age 45=
$19.41/yr beginning at age 55=
Same end result at age 65

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: Wiki comments requested: The importance of asset allocat

Post by Leeraar » Mon Feb 02, 2015 8:33 pm

Tamales wrote:
Leeraar wrote: Tamales, if you don't mind, can you do the age 16 thing?
I think the message is not, you are doomed if you do not start early, but rather, look at the value of any dollar saved early!
L.
Sure:

@ 6% return:
$1.00/yr beginning at age 16=
$1.76/yr beginning at age 25=
$3.43/yr beginning at age 35=
$7.27/yr beginning at age 45=
$19.41/yr beginning at age 55=
Same end result at age 65
So, let's discount it backwards:

To have a dollar at age 65, you need to save

$1.00 at age 65
$?? at age 55,
...
$?? at age 16.

Tamales,

Thank you!

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

User avatar
LadyGeek
Site Admin
Posts: 48107
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by LadyGeek » Mon Feb 02, 2015 9:26 pm

See: Comparing investments Setup the financial variables, sign convention. Money going out of your hand is negative. For the earlier question:

N = number of periods (years)
I = 6%
PV = 0
PMT = -1
Find FV:

$1 invested at age 25 is $154.76 =FV(6%,65-25,-1)

Now that we have FV, the end point, solve for PMT. To reach the same $154.76 starting at age 35 is:

$1.96 =PMT(6%,65-35,0,-154.76)

If the spreadsheet isn't posted to Google Drive, then please show a few examples. It's not magic, it's an introduction to the Time Value of Money - a concept very worthwhile learning.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

trueblueky
Posts: 1347
Joined: Tue May 27, 2014 3:50 pm

Re: Wiki comments requested: The importance of asset allocat

Post by trueblueky » Mon Feb 02, 2015 11:03 pm

I like what Maria Bruno said today in Vanguard's Questions about retirement? We've got answers. "Asset allocation is one of the primary drivers of returns...." To me, that explains its importance without trying to rank it against other factors.

She was speaking in the context of using a "total return" approach in the withdrawal phase, rather than investing for income.

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: Wiki comments requested: The importance of asset allocat

Post by Leeraar » Tue Feb 03, 2015 3:31 am

This is pretty cool!

I like the idea of couching it as: To have a dollar at age 65, you need to save $xx at age yy.

As LG points out, there is an Excel function for that!

Any amount saved earlier is worth more. If you can start earlier, and do it systematically, that is the best strategy.

I have been involved in three of these discussions in the last month or two: Lump Sum or Pension, Asset Allocation, and Start Saving Early. It is very interesting to me to kick the can around the yard to reach a consensus on how we would explain it.

Thank you, all.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

User avatar
tadamsmar
Posts: 7786
Joined: Mon May 07, 2007 12:33 pm

Re: Wiki comments requested: The importance of asset allocat

Post by tadamsmar » Tue Feb 03, 2015 8:53 am

trueblueky wrote:I like what Maria Bruno said today in Vanguard's Questions about retirement? We've got answers. "Asset allocation is one of the primary drivers of returns...."
There a a couple of problems with "one of the primary drivers of returns".

1. This can be true with hindsight, but be unpredictable and therefore not drive decision making.

2. AA can drive returns while not driving risk-adjusted returns.

Fees and cost are often completely predictable drivers of returns that can drive decision making more than some difficult to predict aspects of asset allocation.

I think analysis like the Trinity study are important for decision-making about AA. You can see from that study that sufficient savings relative to planned consumption to reduce the withdrawal rate is very important, and that a broad range of AAs give similar estimated results when the savings rate is sufficient.

User avatar
tadamsmar
Posts: 7786
Joined: Mon May 07, 2007 12:33 pm

Re: Wiki comments requested: The importance of asset allocat

Post by tadamsmar » Tue Feb 03, 2015 9:40 am

Can anyone refute the claim that there is nothing important about AA that cannot be detected in the Trinity Study analysis?

I think that is a interesting claim.

trueblueky
Posts: 1347
Joined: Tue May 27, 2014 3:50 pm

Re: Wiki comments requested: The importance of asset allocat

Post by trueblueky » Tue Feb 03, 2015 5:14 pm

tadamsmar wrote:Can anyone refute the claim that there is nothing important about AA that cannot be detected in the Trinity Study analysis?

I think that is a interesting claim.
The kicker is "when the saving rate is sufficient" -- just as even a blind squirrel can find an acorn, someone with a 'sufficient saving rate' will do just fine regardless of their AA (tautology -- if they don't do fine, their saving rate was insufficient).

Tamales
Posts: 1276
Joined: Sat Jul 05, 2014 10:47 am

Re: Wiki comments requested: The importance of asset allocat

Post by Tamales » Tue Feb 03, 2015 7:53 pm

tadamsmar wrote:Can anyone refute the claim that there is nothing important about AA that cannot be detected in the Trinity Study analysis?

I think that is a interesting claim.
Could you translate that into an understandable sentence with some details?

Isn't the Trinity study about the "4% safe withdrawal rate rule?" Do you instead mean the Brinson/Singer/Beebower study that is the root of the claims about asset allocation making up 94% of the difference in portfolio success rates?

User avatar
tadamsmar
Posts: 7786
Joined: Mon May 07, 2007 12:33 pm

Re: Wiki comments requested: The importance of asset allocat

Post by tadamsmar » Tue Feb 03, 2015 8:23 pm

Tamales wrote:
tadamsmar wrote:Can anyone refute the claim that there is nothing important about AA that cannot be detected in the Trinity Study analysis?

I think that is a interesting claim.
Could you translate that into an understandable sentence with some details?

Isn't the Trinity study about the "4% safe withdrawal rate rule?" Do you instead mean the Brinson/Singer/Beebower study that is the root of the claims about asset allocation making up 94% of the difference in portfolio success rates?
Refute the notion that this table tells you basically all you need to know about how AA feeds into decision making:

http://www.bogleheads.org/wiki/File:TrinityTable3.jpg

The fact that AA makes of 94% of success rates does not mean anything about decision making if you can't predict it when you are making the decision. And that claim has the potential to mislead your decision making because it ignores the impact of risk.

User avatar
tadamsmar
Posts: 7786
Joined: Mon May 07, 2007 12:33 pm

Re: Wiki comments requested: The importance of asset allocat

Post by tadamsmar » Tue Feb 03, 2015 8:26 pm

trueblueky wrote:
tadamsmar wrote:Can anyone refute the claim that there is nothing important about AA that cannot be detected in the Trinity Study analysis?

I think that is a interesting claim.
The kicker is "when the saving rate is sufficient" -- just as even a blind squirrel can find an acorn, someone with a 'sufficient saving rate' will do just fine regardless of their AA (tautology -- if they don't do fine, their saving rate was insufficient).
But, you can vary the saving rate and AA still does not mean much. It's importance peaks at about a 4% withdrawal rate and even there AA is easier than horseshoes. Below 4 it hardly matters, above 4 is too risky no matter what.

It boils down to either a 3% withdrawal rate or a 4% withdrawal rate and at least 50% stocks, that says all there is about AA that is important. The rest is just minor debatable stuff.
Last edited by tadamsmar on Tue Feb 03, 2015 8:37 pm, edited 2 times in total.

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: Wiki comments requested: The importance of asset allocat

Post by Leeraar » Tue Feb 03, 2015 8:29 pm

Trinity study??

I thought this discussion of AA was for beginning investors?

In my opinion, the entire discussion of AA in conjunction with safe withdrawal rates is hokum.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

User avatar
tadamsmar
Posts: 7786
Joined: Mon May 07, 2007 12:33 pm

Re: Wiki comments requested: The importance of asset allocat

Post by tadamsmar » Tue Feb 03, 2015 8:36 pm

Leeraar wrote:Trinity study??

I thought this discussion of AA was for beginning investors?

In my opinion, the entire discussion of AA in conjunction with safe withdrawal rates is hokum.

L.
If your opinion is not hokum, then back it up with something...anything.

User avatar
LadyGeek
Site Admin
Posts: 48107
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by LadyGeek » Tue Feb 03, 2015 8:37 pm

Before we stray into some deep-dive theory, do we have a consensus on the latest version of: User:LadyGeek/Asset allocation

dratkinson - The notice is also in Risk and return: an introduction (Asset allocation). In this context, the reader is referred to the main article. Unless you (or anyone else) disagrees, I don't think the notice needs to be modified, i.e. we can use the same notice in both places.

The notice part:
ImageAsset allocation is one of the more important decisions investors make. Selection of individual securities is less significant than the overall allocation to stocks, bonds, and cash.[2][note 1]

1. The most important decision is to start saving early. Delaying will require more funds to reach your investing goal than if you had saved early-on. See: Importance of saving early
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
LadyGeek
Site Admin
Posts: 48107
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by LadyGeek » Tue Feb 03, 2015 8:48 pm

As for the contention on the Trinity study, consider that others have a different perspective. For example, the paper by Wade Pfau: Safe Savings Rates: A New Approach to Retirement Planning over the Life Cycle (May, 2011) is discussed often in this forum, as it relates to SAFEMIN concept:

Image
(Image is embedded link from the Financial Planning Association website)

For this reason, I think we can agree that asset allocation is important during retirement (decumulation phase) as well as saving for retirement (accumulation phase). From that perspective, I think the proposed notice is OK.

Update: Clarified comments.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
Barry Barnitz
Wiki Admin
Posts: 3016
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by Barry Barnitz » Tue Feb 03, 2015 9:03 pm

Hi:

Our site's transferred blog entry on the principle of "Saving early and often"--->The advantages of investing early and often.

regards,
Image | blb | December Birthday Celebration: Ludwig van Beethoven

Fallible
Posts: 6501
Joined: Fri Nov 27, 2009 4:44 pm
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by Fallible » Tue Feb 03, 2015 9:16 pm

LadyGeek wrote:Before we stray into some deep-dive theory, do we have a consensus on the latest version of: User:LadyGeek/Asset allocation

dratkinson - The notice is also in Risk and return: an introduction (Asset allocation). In this context, the reader is referred to the main article. Unless you (or anyone else) disagrees, I don't think the notice needs to be modified, i.e. we can use the same notice in both places.

The notice part:
ImageAsset allocation is one of the more important decisions investors make. Selection of individual securities is less significant than the overall allocation to stocks, bonds, and cash.[2][note 1]

1. The most important decision is to start saving early. Delaying will require more funds to reach your investing goal than if you had saved early-on. See: Importance of saving early
The only thing I'd add to the second notice is to mention compounding because it is why saving early is so important. Thus, it would read: "The most important decision is to start saving early and take advantage of compounding." (Rest is the same.)

I know compounding tops the linked page, but not every reader will go to the link, at least perhaps not right away. And it's just a few additional words that can further link saving and compounding in a new investor's mind. IMO, they can't hear those words enough.
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: Wiki comments requested: The importance of asset allocat

Post by Leeraar » Tue Feb 03, 2015 9:20 pm

tadamsmar wrote:
Leeraar wrote:Trinity study??

I thought this discussion of AA was for beginning investors?

In my opinion, the entire discussion of AA in conjunction with safe withdrawal rates is hokum.

L.
If your opinion is not hokum, then back it up with something...anything.
First, of all, this discussion is for beginning investors. I don't think many retirees making withdrawals are beginning investors.

Second, the idea of making "safe" withdrawals in the face of some risky AA is just bad advice. Retirees should ensure their needed "floor" level of income, period. They need not be dependent on Asset Allocation.

All this data mining to find AA strategies in retirement is just hokum. I am deferring SS until age 70, and have an annuity (SPIA / pension) that will provide the rest of our needed income. AA is irrelevant, if you have a proper plan for retirement income.

L.
(edited for typo.)
Last edited by Leeraar on Tue Feb 03, 2015 9:34 pm, edited 1 time in total.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: Wiki comments requested: The importance of asset allocat

Post by Leeraar » Tue Feb 03, 2015 9:22 pm

Perhaps, for once, the Bogleheads can display a sense of humor and refer to the Chicago joke of "vote early, vote often"?

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

User avatar
LadyGeek
Site Admin
Posts: 48107
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by LadyGeek » Tue Feb 03, 2015 10:38 pm

Fallible wrote:...The only thing I'd add to the second notice is to mention compounding because it is why saving early is so important. Thus, it would read: "The most important decision is to start saving early and take advantage of compounding." (Rest is the same.)

I know compounding tops the linked page, but not every reader will go to the link, at least perhaps not right away. And it's just a few additional words that can further link saving and compounding in a new investor's mind. IMO, they can't hear those words enough.
I agree and have incorporated your suggestion with one change: "compounding" to "compounded interest" - New investors will ask "What are you compounding?"

The notice part:
ImageAsset allocation is one of the more important decisions investors make. Selection of individual securities is less significant than the overall allocation to stocks, bonds, and cash.[2][note 1]

Notes
1. The most important decision is to start saving early and take advantage of compounded interest. Delaying will require more funds to reach your investing goal than if you had saved early-on. See: Importance of saving early
I clarified that "1." is a footnote which appears in the Notes section.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
LadyGeek
Site Admin
Posts: 48107
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Wiki comments requested: The importance of asset allocat

Post by LadyGeek » Tue Feb 03, 2015 10:42 pm

Barry Barnitz wrote:Hi:

Our site's transferred blog entry on the principle of "Saving early and often"--->The advantages of investing early and often.

regards,
Here's the graph from the blog:

Image
(Image is embedded link from Vanguard Blog)

Is this approach (stacked bar chart) easier to understand than the proposed Excel charts? Or, use both?
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Post Reply