Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Amadis_of_Gaul
Posts: 102
Joined: Tue Dec 18, 2018 5:57 pm

Re: Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Post by Amadis_of_Gaul » Sat Jan 12, 2019 8:39 pm

blahblahsunshine wrote:
Sat Jan 12, 2019 7:10 pm
The exogenic tail risk scenerio is one that deserves some thought. There is some non-zero chance that some game changing event happens. Could be 1938 germany, could be an asteroid, plague, and early death, who knows. There are a couple ways you can think about something like this: 1) How do I position myself to avoid or minimize its impact on me, and 2) perhaps one should enjoy the here and now before said incident occurs. Net, net, when I start getting down to minute retirement model survivability differences these long tailed exogenic risks take become a real consideration.
In real life, I think the tail risks are probably the biggest danger for most people on this forum. Bogleheads generally don't live paycheck-to-paycheck or pay some investment advisor 2 percent. We're aware that foresight plus planning plus persistence equals a successful retirement. Barring something Real Bad, we're all going to be fine.

However, if there is something in the next 30-60 years that isn't business as usual, that will trip up some Bogleheads too. It might be the folks who are 50/50; it might be the ones who are 100 percent equities. I don't think it's possible for most of us to completely disaster-proof ourselves (unless you're rolling with $100 million in savings or something), but mayyybee the right asset allocation can help. Historically, 75-25 or 80-20 look like the best bets. Will choosing that course make a difference? Who knows? At some point, you have to stop trying to figure out every little thing and make peace with your decisions.

flyingaway
Posts: 2388
Joined: Fri Jan 17, 2014 10:19 am

Re: Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Post by flyingaway » Tue Jan 15, 2019 7:43 am

I am around 70/30 and FI but not fully retired yet. But the recent market dips make me think that I may want to hold 60/40 or 50/50 in retirement. If you have won the game, why keep playing, that seems to make more and more sense to me.

elainet7
Posts: 275
Joined: Sat Dec 08, 2018 1:52 pm

Re: Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Post by elainet7 » Tue Jan 15, 2019 8:04 am

l. Past performance is meaningless
2. There have been decades of zero returns in equities
3. Sequence of Risk
4. Psychological risk for many with 75% stocks
5. Marginal Utility of Wealth concept
6. Age in Bonds-John Bogle
ETC ETC ETC

elainet7
Posts: 275
Joined: Sat Dec 08, 2018 1:52 pm

Re: Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Post by elainet7 » Tue Jan 15, 2019 8:52 am

One must consider FEES if they use an advisor and pay 1%AUM
4% turns into 5% SWR

ryman554
Posts: 1220
Joined: Sun Jan 12, 2014 9:44 pm

Re: Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Post by ryman554 » Tue Jan 15, 2019 9:23 am

Grt2bOutdoors wrote:
Tue Jan 08, 2019 6:07 pm

3.75% is conservative, nearly 28x expenses and that is with zero growth. If bonds yield 3%, equities will have to yield more to entice risk takers.
I think you have this backwards. Nothing ever "makes" equities yield more, except for larger corporate profits (and profit sharing!)

In fact, I think you see equities have a better return on investment when your bond rates are low. Lots of folks are chasing returns then. When bond rates are high, don't you get less demand for stocks -> therefore lower returns in the short term?

Note also that bond may yield 3% today, nominal, but they are much much closer to 0% real in general. Therefore, your entirety of real growth has to come from the equity side.

hafjell
Posts: 172
Joined: Tue Nov 10, 2015 8:49 am

Re: Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Post by hafjell » Tue Jan 15, 2019 9:53 am

willthrill81 wrote:
Tue Jan 08, 2019 4:38 pm
The person who uses 4% fixed withdrawals but has room to reduce them if the need arises is probably more secure both financially and psychologically than the person with 3.5% fixed withdrawals who cannot tolerate any spending reduction at all.
+1

elainet7
Posts: 275
Joined: Sat Dec 08, 2018 1:52 pm

Re: Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Post by elainet7 » Tue Jan 15, 2019 12:43 pm

age in bonds-Bogle

User avatar
Topic Author
TheTimeLord
Posts: 6294
Joined: Fri Jul 26, 2013 2:05 pm

Re: Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Post by TheTimeLord » Tue Jan 15, 2019 1:34 pm

elainet7 wrote:
Tue Jan 15, 2019 12:43 pm
age in bonds-Bogle
????
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

elainet7
Posts: 275
Joined: Sat Dec 08, 2018 1:52 pm

Re: Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Post by elainet7 » Wed Jan 16, 2019 8:38 am

According to John Bogle you should have your allocation in bonds as your age
So a 70yr old has 70% bonds 30% stocks
LISTEN TO BOGLE-he is smarter than all of us

User avatar
Topic Author
TheTimeLord
Posts: 6294
Joined: Fri Jul 26, 2013 2:05 pm

Re: Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Post by TheTimeLord » Wed Jan 16, 2019 10:37 am

elainet7 wrote:
Wed Jan 16, 2019 8:38 am
According to John Bogle you should have your allocation in bonds as your age
So a 70yr old has 70% bonds 30% stocks
LISTEN TO BOGLE-he is smarter than all of us
From what I have read, Bogle does not seem to be dogmatic about age in bonds.

https://finance.yahoo.com/news/jack-bog ... 27705.html

From 2015
Many people over the years have asked Jack Bogle about his portfolio, hoping to divine the perfect investment mix. It’s an especially pressing question now in a volatile market, in which international events are whipsawing stocks.

The founder of Vanguard Group, the world’s largest mutual fund company, used to have a really basic portfolio that followed an asset allocation known as the 60-40 rule — 60 percent in a U.S. stock index fund and 40 percent in a U.S. bond index fund. He maintained that allocation for himself for years.

But he recently shifted his strategy by a hair: He’s now at 50/50, which makes his portfolio slightly more conservative.

“I just like the idea of having an anchor to the windward,” said Bogle, who is 86. “I’m not so much worried about having my estate grow.”
https://www.youngresearch.com/researcha ... ack-bogle/
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

User avatar
Clever_Username
Posts: 1328
Joined: Sun Jul 15, 2012 12:24 am
Location: Southern California

Re: Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Post by Clever_Username » Wed Jan 16, 2019 11:17 am

elainet7 wrote:
Wed Jan 16, 2019 8:38 am
According to John Bogle you should have your allocation in bonds as your age
So a 70yr old has 70% bonds 30% stocks
LISTEN TO BOGLE-he is smarter than all of us
My understanding is that Bogle suggests this as a starting point, not a commandment.

I use age in bonds because I haven't really been through a downturn (unless the last month or so counts?) while really invested so I don't know my true risk tolerance. Others who know their own risk tolerance better can make different decisions, including higher-than-age in bonds or lower-than-age in bonds.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

Grt2bOutdoors
Posts: 21107
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Post by Grt2bOutdoors » Wed Jan 16, 2019 11:16 pm

ryman554 wrote:
Tue Jan 15, 2019 9:23 am
Grt2bOutdoors wrote:
Tue Jan 08, 2019 6:07 pm

3.75% is conservative, nearly 28x expenses and that is with zero growth. If bonds yield 3%, equities will have to yield more to entice risk takers.
I think you have this backwards. Nothing ever "makes" equities yield more, except for larger corporate profits (and profit sharing!)

In fact, I think you see equities have a better return on investment when your bond rates are low. Lots of folks are chasing returns then. When bond rates are high, don't you get less demand for stocks -> therefore lower returns in the short term?

Note also that bond may yield 3% today, nominal, but they are much much closer to 0% real in general. Therefore, your entirety of real growth has to come from the equity side.
My response was less theoretical and more of what a common man might view it as. Why should I invest my money in equities and risk it all when I have enough and 3% will suit me just fine? The common man is thinking equities need to yield more, alot more than just 3%, they aren't thinking about how low rates benefit companies, income statements or balance sheets. The common man is only thinking about one thing, safety of principal and what is the risk to them in keeping that money.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
willthrill81
Posts: 12792
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Post by willthrill81 » Thu Jan 17, 2019 12:51 am

ryman554 wrote:
Tue Jan 15, 2019 9:23 am
Note also that bond may yield 3% today, nominal, but they are much much closer to 0% real in general.
I don't know what you mean by the phrase "in general" here. According to Vanguard, a 100% bond portfolio over the last ~90 years has averaged 5.4% nominal, which worked out to a little better than 2% real. Based on today's inflation, it's currently about 1% real, which isn't too far off the historic average.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
Hyperborea
Posts: 819
Joined: Sat Apr 15, 2017 10:31 am
Location: Japan

Re: Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Post by Hyperborea » Wed Jan 30, 2019 8:10 am

Amadis_of_Gaul wrote:
Sat Jan 12, 2019 8:39 pm
In real life, I think the tail risks are probably the biggest danger for most people on this forum. Bogleheads generally don't live paycheck-to-paycheck or pay some investment advisor 2 percent. We're aware that foresight plus planning plus persistence equals a successful retirement. Barring something Real Bad, we're all going to be fine.

However, if there is something in the next 30-60 years that isn't business as usual, that will trip up some Bogleheads too. It might be the folks who are 50/50; it might be the ones who are 100 percent equities. I don't think it's possible for most of us to completely disaster-proof ourselves (unless you're rolling with $100 million in savings or something), but mayyybee the right asset allocation can help. Historically, 75-25 or 80-20 look like the best bets. Will choosing that course make a difference? Who knows? At some point, you have to stop trying to figure out every little thing and make peace with your decisions.
Exactly my thinking on this too. In all the studies of SWR there's a plateau of "safe" equity allocation percentages. How broad it is depends on your retirement horizon and withdrawal rate. If there's going to be failures because things in the future are worse than historical then it is the edges of that allocation plateau that will have problems first. Better to be in the middle of that plateau. It doesn't have to be precise but somewhere in the middle third.
It’s hard to win an argument with a smart person, it's damn near impossible to win an argument with a stupid person. - Bill Murray

User avatar
travelogue
Posts: 224
Joined: Sat Aug 12, 2017 4:29 pm

Re: Why isn't an AA of 75/25 with a SWR 3.75% the standard??

Post by travelogue » Wed Jan 30, 2019 2:35 pm

Amadis_of_Gaul wrote:
Wed Jan 09, 2019 2:41 pm

2. If disaster is on the horizon, a high-stock portfolio may be the best defense. Estrada found that on average, across those 21 countries, the best portfolio was an 85/15 split. I don't know why the number is so high, but I suspect that it's due to a) sovereign defaults on bonds, and b) higher returns that give you enough of a cushion to survive edge cases of disaster.
Great post. In thinking about the stocks as a defense, I'd guess it also relates to hyperinflation protection. Here's an article by Prof. Siegel on the subject of inflation and stocks generally (though not extreme conditions specifically). https://www.kiplinger.com/article/inves ... hedge.html
To best insulate your stock portfolio from inflation, you must diversify internationally. If inflation kicks into overdrive, the dollar will fall and foreign stocks will act as an automatic hedge as money invested in foreign currencies is translated into more dollars back home. But don't run to speculative assets that will deflate in price when inflation slows. For long-term investors, stocks will be an excellent hedge against rising prices.

Post Reply