Any conservative young investors?

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longinvest
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Re: Any conservative young investors?

Post by longinvest » Sat May 11, 2019 1:05 pm

abc132 wrote:
Sat May 11, 2019 12:46 pm
longinvest wrote:
Sat May 11, 2019 11:50 am

Unfortunately, it's not that simple. Over long periods of time, a portfolio with a gliding allocation delivers similar returns to a portfolio with a fixed allocation at the average of the glide. An investor using a portfolio with a glide from 100/0 down to 20/80 stocks/bonds during his life is likely to experience similar cumulative returns to another investor using a 60/40 portfolio all lifelong, during both accumulation and retirement.
Similar performance with less volatility when the money is needed, and when the dollar amount changes per day are much bigger? I think you just proved my point. You can get more performance and less risk, or the same performance and less volatility by being more aggressive at a young age (your 100/0 to 20/80 example).

My suggestion is to start off more aggressive and glide to a portfolio the OP would be comfortable with in retirement.

Owning a single target date fund is a really good idea for someone who is risk averse, reducing the decisions down to zero.
Life isn't entirely predictable. A young investor starts investing in retirement accounts. A few year later, meets a nice person and marry. They decide to buy a house. To avoid Private Mortgage Insurance (PMI), they'd like to take a loan from their own retirement accounts, but unfortunately, their 100% stock portfolios are significantly down...

It's easy to imagine scenarios where a balanced portfolio, all lifelong, can be advantageous, not because of fear, but simply for prudence.

Retirees need their portfolios to grow, too. They can limit the volatility of their total retirement income by combining variable portfolio withdrawals (VPW) with stable lifelong income like Social Security, pension (if any), and (if necessary) inflation-indexed Single-Premium Immediate Annuity (inflation-indexed SPIA).

Vanguard's experts seem to agree that there's more than one approach to investing, in life. They've built two distinct sets of all-in-one funds, the LifeStrategy and the Target Retirement funds. They let investors choose.

The OP was asking if it was OK for a young person to invest into a balanced portfolio. I provided the example of a sensible plan that would lead a young investor to make such a choice.
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

pward
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Re: Any conservative young investors?

Post by pward » Sat May 11, 2019 2:11 pm

longinvest wrote:
Sat May 11, 2019 9:38 am
pward wrote:
Sat May 11, 2019 9:25 am
1) find ways to reduce expenditures to save more.
2) find ways to increase income to save more.
Yes, but only up to a point. Some of us are natural savers. We need to remember that it's also important to live the present and enjoy opportunities that money provides. We have to balance accumulation-time spending with retirement-time spending.
Yes, for someone that is already doing a lot of saving, I agree that I have found a need to balance and spend some money from time to time (matter of fact I'm about to spend a bunch upgrading my landscaping as my splurge of the year, haha). But, for a young person that is just starting out and wants to optimize their portfolio, maximizing saving the way to go. Once they get a few years of experience with that under their belt, then they will be like you and me and need to worry about finding balance, haha. Most people have more issues saving money than spending it though. We are a rare breed.

rbaldini
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Re: Any conservative young investors?

Post by rbaldini » Sun May 12, 2019 5:53 pm

JTColton wrote:
Sat May 11, 2019 1:36 am
rbaldini wrote:
Fri May 10, 2019 12:49 pm
The young -> risky guideline is just that: a guideline.

Consider a high-income 50 year-old man with no debt, no spouse, and no children to support who has accumulated $10 million net worth.

Now consider a 25 year-old man with a mortgage and education debt with a modest income, a stay-at-home wife, and two kids, with net worth of $100k.

Who should invest more conservatively?
Definitely not the 25 year old of modest means that has 30-40 years for compound growth.

YMMV
Sometimes you need the money now.

Daryl
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Re: Any conservative young investors?

Post by Daryl » Sun May 12, 2019 6:24 pm

I'm 36. Equities as a percent of my total portfolio is lower than most investors my age; however, equities are several multiples of my gross annual salary. My goal is to seek contentment, and learn what it means to have "enough". I'm closer than most of my peers.

bgf
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Re: Any conservative young investors?

Post by bgf » Sun May 12, 2019 6:52 pm

anoop wrote:
Fri May 10, 2019 11:55 pm
I bet nobody is more conservative than me. :)

I'm 48, so maybe not that young. My 401k is 100% money market, and taxable is 90% t-bills, checking & savings accounts. I have had a similar allocation since I was 37.
i wouldn't call you a conservative investor because you aren't an investor at all.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

anoop
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Re: Any conservative young investors?

Post by anoop » Mon May 13, 2019 12:38 am

bgf wrote:
Sun May 12, 2019 6:52 pm
anoop wrote:
Fri May 10, 2019 11:55 pm
I bet nobody is more conservative than me. :)

I'm 48, so maybe not that young. My 401k is 100% money market, and taxable is 90% t-bills, checking & savings accounts. I have had a similar allocation since I was 37.
i wouldn't call you a conservative investor because you aren't an investor at all.
why you gotta hurt my feelings, bgf?

(just kidding)

dalbright
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Re: Any conservative young investors?

Post by dalbright » Mon May 13, 2019 6:12 am

Yes, I'm definitely in the conservative and young category (30). I try and optimize my risk adjusted return and if I take risks I either have to believe strongly in them or they have to be in uncorrelated assets. At this point I personally do well with a lower standard deviation fund even if it means giving up a small amount of return possibly. It helps me stay the course. I was 60/40 stock/bond but shrunk that down a lot with the rapid rebound we just had. Probably closer to 25/75 stock/bond now and another 1/2 in MM while its still paying a decent rate. Up about 6% since Sept 2018. Vanguard low vol (vmvfx), vwinx, and Pimix are my favorite non-index funds at this point.

HawkeyePierce
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Re: Any conservative young investors?

Post by HawkeyePierce » Mon May 13, 2019 9:32 am

abc132 wrote:
Sat May 11, 2019 11:09 am
Let me state this simply. If someone can't handle a $1,000 swing in their portfolio at a young age, what are they going to do when the swings are in the $10,000's or 100,000 due to portfolio growth?

The answer is that if you can't learn to accept volatility at a young age, when your portfolio is small and you can afford to make mistakes, you are likely to make poor decisions when you see larger swings. This includes things like going 100% cash at the market bottom.

Reducing volatility should not be a goal of a young investor, specifically because the unit that a risk averse person understands ($'s up or down) will increase over time with portfolio growth. Maximizing retirement chances and quality of life (current and future) should be the goal of a young investor.

Reduction in volatility should be a goal 10+ years before retirement, or whenever those assets have a grown to a level to allow you to have a very high chance of success. Someone that doesn't need any portfolio growth to succeed is a good example of when AA is less important, and when the choice of volatility reduction or growth is a personal decision, without one being better than the other.
Investors in my generation entered the workforce during the recovery after 2008. We haven't been through a major bear market yet, so we simply don't know how we'll react.

In my view, a less-aggressive AA is more prudent for an investor without that sort of experience. All of my investing has been done during a roaring bull market. Until we hit another recession, I won't know how I'll actually react to seeing half my portfolio wiped out. I can theorize and tell myself that I'll do nothing but rebalance and continue investing, but that may or may not be reality once things hit the fan.

This is why I'm exceptionally skeptical of young investors at 100% equities. None of us have experience with those sorts of market conditions.

In my personal case, my portfolio is about 12% of the way towards my financial independence goal, so I'm more susceptible to sequence of returns risk than most investors my age. Hence the more conservative AA.

JuniorRob
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Re: Any conservative young investors?

Post by JuniorRob » Mon May 13, 2019 9:56 am

It seems like the majority of bogleheads don't understand that you actually face more financial risk when you first start investing.
It also seems that most don't consider that you may need to withdrawal from your portfolio before retirement.
I personally think reducing risk while giving up some return is wise.
60/40 while young makes sense to me

conservativeinvestor
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Re: Any conservative young investors?

Post by conservativeinvestor » Mon May 13, 2019 10:26 am

I started out really conservative in my 20's and bought a lot of government savings bonds (I and EE) and 50/50 allocation in my TSP(401K). I didn't make much money and felt like I didn't want to take any risk of losing any money. In hindsight I wish I had been 100% stocks and putting any extra money into the 401k instead of buying those savings bonds. I also didn't read any financial advice (so boring!) or have any provided (outside of my grandparents who were solid believers in savings bonds) and I thought I was doing great.

I've become less conservative over time. I'm almost 40 now and have stopped all investing outside of the 401K and went to a 75/25 allocation. I do have a larger emergency fund than I probably really need though.

abc132
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Re: Any conservative young investors?

Post by abc132 » Mon May 13, 2019 2:55 pm

HawkeyePierce wrote:
Mon May 13, 2019 9:32 am
abc132 wrote:
Sat May 11, 2019 11:09 am
Let me state this simply. If someone can't handle a $1,000 swing in their portfolio at a young age, what are they going to do when the swings are in the $10,000's or 100,000 due to portfolio growth?

The answer is that if you can't learn to accept volatility at a young age, when your portfolio is small and you can afford to make mistakes, you are likely to make poor decisions when you see larger swings. This includes things like going 100% cash at the market bottom.

Reducing volatility should not be a goal of a young investor, specifically because the unit that a risk averse person understands ($'s up or down) will increase over time with portfolio growth. Maximizing retirement chances and quality of life (current and future) should be the goal of a young investor.

Reduction in volatility should be a goal 10+ years before retirement, or whenever those assets have a grown to a level to allow you to have a very high chance of success. Someone that doesn't need any portfolio growth to succeed is a good example of when AA is less important, and when the choice of volatility reduction or growth is a personal decision, without one being better than the other.
Investors in my generation entered the workforce during the recovery after 2008. We haven't been through a major bear market yet, so we simply don't know how we'll react.

In my view, a less-aggressive AA is more prudent for an investor without that sort of experience. All of my investing has been done during a roaring bull market. Until we hit another recession, I won't know how I'll actually react to seeing half my portfolio wiped out. I can theorize and tell myself that I'll do nothing but rebalance and continue investing, but that may or may not be reality once things hit the fan.

This is why I'm exceptionally skeptical of young investors at 100% equities. None of us have experience with those sorts of market conditions.

In my personal case, my portfolio is about 12% of the way towards my financial independence goal, so I'm more susceptible to sequence of returns risk than most investors my age. Hence the more conservative AA.
That's certainly a reasonable position. My advice to someone young is to take themselves out of the equation, as they are likely their own worst enemy. Retirement date fund with automatic investment is the single best way to do this. Juggling their AA around is more likely to cause regret and poor decision making, in my opinion, and likely at the worst possible time. The inertia and the simplicity of a single fund are likely to keep the status quo when things are bad, and ignoring decisions is far easier than making them. I had no problem buying and holding 100% stocks at a young age, so it can certainly be an appropriate decision for some people.

I'm sure you've seen even middle aged people here zig-zagging back and forth between whatever they believe is trendy, investing in real estate, buying gold, trend following, leverage, etc. It's the people that are always looking for the next best thing that concern me - believing you have a great chance of beating the market if you can just find the right thing. That's very different than being skeptical of the next best thing, and eventually deciding to implement one of these strategies. In my opinion, someone juggling strategies is a good indication of future under performance and poor decision making. I would not advise new investors to join this crowd.

eer_no_evil
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Re: Any conservative young investors?

Post by eer_no_evil » Mon May 13, 2019 3:15 pm

31
80/20

I sleep well at night.

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Clever_Username
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Re: Any conservative young investors?

Post by Clever_Username » Mon May 13, 2019 4:56 pm

By the standards of this forum, I'm probably young. I'll be 36 next month.

I'm at age in bonds. I will be until at least I get through a serious downturn (last December didn't quite do it for me) and I know how I'll react. If I react well, or even get into the "hmm, I wish I had a higher percent in stocks right now," I can reevaluate later.

I'm not going to be cutting it close with retirement savings anyway -- even with very conservative projections for real growth and salary growth, I'm going to have "enough for when I'm over 59.5" very soon and enough not too long after that. So I don't really need the extra growth I'd get in expectation from a higher stock allocation.
"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.

Forester
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Re: Any conservative young investors?

Post by Forester » Wed May 15, 2019 5:55 am

I am 70/25/5, yet the 25% is global investment grade corporate.

5% gold seems reasonable, it would have made a world of difference in the 2000s and is a small enough % not to be a bad error of judgement.

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alpenglow
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Re: Any conservative young investors?

Post by alpenglow » Wed May 15, 2019 11:37 am

HawkeyePierce wrote:
Fri May 10, 2019 1:42 pm
28 living in a medium-high COL area.

I'm currently at 80/20 but I have been sorely tempted to just go all-in with one of Vanguard's balanced funds at 60/40.

My reasoning is that I don't necessarily need to take the risk. I have a 60% savings rate on a mid-six-figure income and based on historical returns, the difference between 100/0, 80/20 and 60/40 won't really make a huge impact on when I reach financial independence. My FI plan is based on a 3% withdrawal rate and based on my current savings rate, I'll hit it in about 10 years either way.

If I don't the returns, why suffer the volatility?
This. Savings rate trumps AA by a long shot when young.

I am overall conservation for my age, but I'm starting to think about working longer and plowing my savings into stocks for the next generation in my family. My pension will cover all expenses anyway.

michaeljc70
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Re: Any conservative young investors?

Post by michaeljc70 » Thu May 16, 2019 9:49 am

I can't imagine how much money is left on the table having 60/40 AA in your 40 (or whatever) working years.

Forester
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Re: Any conservative young investors?

Post by Forester » Thu May 16, 2019 10:40 am

michaeljc70 wrote:
Thu May 16, 2019 9:49 am
I can't imagine how much money is left on the table having 60/40 AA in your 40 (or whatever) working years.
True but imagine being on the FIRE bandwagon in 1999. The finish line is in sight, then your plans are delayed by 15 years.

It's harder to be aggressive when the market feels top heavy. Yet if one were to look at the Global index, we're possibly closer to mid-cycle!

GAAP
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Re: Any conservative young investors?

Post by GAAP » Thu May 16, 2019 10:46 am

I'm not young (retired), but have been 70%+ stocks my whole life. My mother died at 87 with around 95% stocks. That said, I learned by experience that I could handle the volatility -- many of my peers learned the opposite.

When you're just starting out, you don't know what your risk tolerance really is. When you're just starting out, new contributions will have much more effect on total savings than returns. Consistency at the beginning is critical -- and smaller regular returns can be easier to see and offer more immediate reinforcement. Those factors have been leading me to think that new investors should start out at more like 50/50, increasing each year until they either find their true comfort level based upon experience, or something bad happens and they discover that they've gone too far. Either way, they can make adjustments based upon better self-knowledge.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

michaeljc70
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Re: Any conservative young investors?

Post by michaeljc70 » Thu May 16, 2019 10:48 am

Forester wrote:
Thu May 16, 2019 10:40 am
michaeljc70 wrote:
Thu May 16, 2019 9:49 am
I can't imagine how much money is left on the table having 60/40 AA in your 40 (or whatever) working years.
True but imagine being on the FIRE bandwagon in 1999. The finish line is in sight, then your plans are delayed by 15 years.

It's harder to be aggressive when the market feels top heavy. Yet if one were to look at the Global index, we're possibly closer to mid-cycle!
If you are within 10 years of retirement, that is a different story. I am talking about a 20-40 year timeline before retirement.

"It is harder to be aggressive when the market feels top heavy." Bonds (generally) pay little now and there is the risk of rising rates in longer durations. Set your AA and leave it (unless an age based change is warranted). My AA has zero to do with if I think the market is high or low. You are presumably buying in each month or paycheck averaging things out. I never considered bonds until I was in my 40s. I had 100% stocks in 2008 and came out just fine (though I am not going to pretend there was no stress).

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