How aggressive is your AA? Can you help me with mine?

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kmwilson343
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How aggressive is your AA? Can you help me with mine?

Post by kmwilson343 » Wed Jun 05, 2019 5:42 pm

How aggressive would you make your AA if you were me?
Should I be more aggressive and decrease both VTIAX and VBTLX to increase the VTSAX?
What percentages would you put next to the 3 fund portfolio (below) for a long term aggressive growth?
How long would you keep those percentages in the 3 fund portfolio before you start to "slow down"?

A little about me to help the decision making:
-Married with 3 kids, but by the time I retire they will be living on their own.
-I can stomach the ups and downs of the market and feel very comfortable being aggressive, even as retirement gets closer.
-I currently make $9,000 a month with approximately a 2% pay increase per year before taxes.
-I'm currently placing $19,000 year in my deferred comp 457 plan through IMCA-RC. As of June 2019 the balance is $48,000 with a 9% annual return rate with the following 3 fund portfolio AA:
VTSAX 65%
VTIAX 15%
VBTLX 20%
-My retirement will be approximately $5,500 month when I retire (per the Washington State DRS calculations).
-I plan to retire in 2030 making me 58 years old and having 28 years in the fire service.

If forgot anything feel free to message me back and I can fill in the gaps. :sharebeer

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David Jay
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Re: How aggressive is your AA? Can you help me with mine?

Post by David Jay » Wed Jun 05, 2019 5:53 pm

At age 47, an 80/20 portfolio is aggressive but not “wrong”. Your pension helps buffer the more aggressive AA.

AA is extremely personal, it needs to reflect your personal response to market fluctuations. How will you respond to another 2008-2009 when the stock market drops 60%?

I am essentially immune to volatility - I can pull a “Spock” (Star Trek) and force myself to do the logical thing. My sister sold out of all of her stock holdings at the very bottom of the 2008 market, losing half of her assets. Ouch!
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

retire2022
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Re: How aggressive is your AA? Can you help me with mine?

Post by retire2022 » Wed Jun 05, 2019 6:10 pm

Op

I concur that having a gov't job is a ballast against the market, what is your cash flow like otherwise?

I recently brought 6.7% of my entire portfolio 190 @ 487 shares (92k) Vanguard Information Technology Fund ETF ( VGT) https://www.morningstar.com/etfs/ARCX/VGT/quote.html

I would reduce the Vanguard International Fund, or not contribute to it, I got rid of my Vanguard two international funds, they were good dividend player approx 3% but the four year track record holding got me inpatient, esp with the change of international fund currently, in the long run this may change, but chinese trade war and other tariffs envision not worth the trouble.

This would top off my large cap exposure, since I am invested in large position in Mid Cap funds.

https://www.morningstar.com/funds/XNAS/VFWAX/quote.html
https://www.morningstar.com/funds/XNAS/VFSVX/quote.html

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willthrill81
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Re: How aggressive is your AA? Can you help me with mine?

Post by willthrill81 » Wed Jun 05, 2019 6:14 pm

Given that you're about 10 years away from retirement, you should probably consider what AA you want during retirement. I would then recommend that you consider taking incremental steps to move your current AA to that AA, if needed, over the course of the next decade or so.
“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

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grabiner
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Re: How aggressive is your AA? Can you help me with mine?

Post by grabiner » Wed Jun 05, 2019 6:19 pm

Given that you have a pension, you can afford to be more aggressive than most investors; a 20% decline in your portfolio won't reduce your retirement standard of living by 20%.

But this only makes sense if you can handle the risk; how do you react to a bear market? What was your portfolio in 2008, and what did you do then?

My own analogous answer: My first bear market was 2000-2002. I was 80% stock in 2000, lost a quarter of my portfolio, kept that allocation, and changed to a more aggressive allocation near the 2002 market bottom. By 2004, I was 90% stock with the risk of 100% stock because I overweight riskier stock (small-cap, value, and emerging markets). I changed to be even more aggressive in 2013 when I bought a home (which, like a pension, increases your tolerance for portfolio risk), but have then gone back down as retirement approaches. My current portfolio is about the same as it was in 2004, so I will lose 60% of the portfolio if the market crashes as badly as it did in 2007-2009.
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Re: How aggressive is your AA? Can you help me with mine?

Post by MotoTrojan » Wed Jun 05, 2019 6:20 pm

Seems like a perfectly fine AA if you can handle the ups and downs, but you'll want a plan to get this to something more conservative potentially as noted above.

A few things that I noticed which concerned me:
You seem to think that VTIAX (International) is less aggressive than VTSAX (Total US). Why is that? These are both equity funds and arguably equally aggressive; past returns doesn't mean anything.

You mention a 9% return rate. How did you come to that? Sure it may have returned that over some recent time-period but you should plan to see far less. Many people feel bonds will return closer to 1% real (1% beyond inflation) and equities somewhere in the 4% real range, but there are no guarantees above how you get there longterm. 9% nominal (ignoring inflation) would be pretty great and 9% real would be amazing, but you should not be planning for either.

SoonerD
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Re: How aggressive is your AA? Can you help me with mine?

Post by SoonerD » Wed Jun 05, 2019 11:31 pm

kmwilson343 wrote:
Wed Jun 05, 2019 5:42 pm
How aggressive would you make your AA if you were me?
Should I be more aggressive and decrease both VTIAX and VBTLX to increase the VTSAX?
What percentages would you put next to the 3 fund portfolio (below) for a long term aggressive growth?
How long would you keep those percentages in the 3 fund portfolio before you start to "slow down"?

A little about me to help the decision making:
-Married with 3 kids, but by the time I retire they will be living on their own.
-I can stomach the ups and downs of the market and feel very comfortable being aggressive, even as retirement gets closer.
-I currently make $9,000 a month with approximately a 2% pay increase per year before taxes.
-I'm currently placing $19,000 year in my deferred comp 457 plan through IMCA-RC. As of June 2019 the balance is $48,000 with a 9% annual return rate with the following 3 fund portfolio AA:
VTSAX 65%
VTIAX 15%
VBTLX 20%
-My retirement will be approximately $5,500 month when I retire (per the Washington State DRS calculations).
-I plan to retire in 2030 making me 58 years old and having 28 years in the fire service.

If forgot anything feel free to message me back and I can fill in the gaps. :sharebeer
Since your portfolio seems to be less than 1-years gross wages having up to 100% stocks is ok for many people. However at that asset level I would expect to find you aged early twenties not close to 50. You may be overly reliant on a pension not yet earned or more likely earned but at far less than the age 58 expected payout level.

Consider you’re more likely to become disabled or riffed than pass away before age 58. You may not earn that high dollar pension but your portfolio (asset size) seems to suggest the full pension is 100% to happen.

I think your bigger concern is to supersize your savings rate, rather than worry about small tweaks to an acceptable AA.

SoonerD
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Re: How aggressive is your AA? Can you help me with mine?

Post by SoonerD » Wed Jun 05, 2019 11:42 pm

grabiner wrote:
Wed Jun 05, 2019 6:19 pm
I changed to be even more aggressive in 2013 when I bought a home (which, like a pension, increases your tolerance for portfolio risk)...
Do you mean a mortgage free home increases ones ability to take more stock market risk? That seems reasonable to me. I would expect increased debt (buying home via mortgage payments) to decrease ability to take stock market risk. Debtors don’t fare as well as debt free folks in times of stock market upheaval.

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grabiner
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Re: How aggressive is your AA? Can you help me with mine?

Post by grabiner » Thu Jun 06, 2019 7:40 pm

SoonerD wrote:
Wed Jun 05, 2019 11:42 pm
grabiner wrote:
Wed Jun 05, 2019 6:19 pm
I changed to be even more aggressive in 2013 when I bought a home (which, like a pension, increases your tolerance for portfolio risk)...
Do you mean a mortgage free home increases ones ability to take more stock market risk? That seems reasonable to me. I would expect increased debt (buying home via mortgage payments) to decrease ability to take stock market risk. Debtors don’t fare as well as debt free folks in times of stock market upheaval.
Exactly. I went from 90% stock to 100% net stock. I treat my mortgage as a negative bond; my bond holding represents an obligation by someone else (the Treasury, for example) to pay me money at some future fixed times, while my mortgage represents an obligation by me to pay someone else money at some future fixed times. Therefore, i had a bond allocation exactly equal to my mortgage balance.

And I continue to view the allocation as net stock. If I pay off my mortgage early, I have to do it by selling stock, because that is what I hold in my taxable account; I will then move an equal amount from bonds to stock in my retirement accounts in order to keep the same risk level. (I don't pay it off now because my rate is so low that it is still only break-even to pay off at current bond yields, and it would cost me in capital gains to sell enough stock.)
Wiki David Grabiner

bck63
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Re: How aggressive is your AA? Can you help me with mine?

Post by bck63 » Thu Jun 06, 2019 8:04 pm

willthrill81 wrote:
Wed Jun 05, 2019 6:14 pm
Given that you're about 10 years away from retirement, you should probably consider what AA you want during retirement. I would then recommend that you consider taking incremental steps to move your current AA to that AA, if needed, over the course of the next decade or so.
This is exactly what I'm doing now, 11 years from retirement.

Topic Author
kmwilson343
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Re: How aggressive is your AA? Can you help me with mine?

Post by kmwilson343 » Sun Jun 09, 2019 5:21 pm

Thank you for all the input. Below is an understanding what I believe I am hearing people recommend:

-Stay the course.
-My AA is aggressive but the pension help makes the AA a bit more tolerable and I can "stomach" the ups and downs of the market.
-Time to gradually start changing my AA to a more less aggressive portfolio over the next 10 years.
-Don't overly rely on my pension.
-Limit the VTIAX.

With that being said, if your willing to reply back what your AA is and your age that would help me get and understating of what to look for and compare too (I understand it a personal choice and to many variables to count, but for a beginner like me it would be helpful to see what others are doing).

One final question, How do I know how much money to take out of my deferred comp every month/year and still keep earning interest so I will have a constant flow of cash in my retirement years without draining the deferred comp account?

Thanks again :)

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kmwilson343
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Location: Vancouver, WA

Re: How aggressive is your AA? Can you help me with mine?

Post by kmwilson343 » Sun Jun 09, 2019 5:24 pm

David Jay wrote:
Wed Jun 05, 2019 5:53 pm
At age 47, an 80/20 portfolio is aggressive but not “wrong”. Your pension helps buffer the more aggressive AA.

AA is extremely personal, it needs to reflect your personal response to market fluctuations. How will you respond to another 2008-2009 when the stock market drops 60%?

I am essentially immune to volatility - I can pull a “Spock” (Star Trek) and force myself to do the logical thing. My sister sold out of all of her stock holdings at the very bottom of the 2008 market, losing half of her assets. Ouch!
i'm like you and will convince myself if a 2008 crash happened again, that i'm purchasing stock on sale and will stay the course :)

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kmwilson343
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Re: How aggressive is your AA? Can you help me with mine?

Post by kmwilson343 » Sun Jun 09, 2019 5:25 pm

bck63 wrote:
Thu Jun 06, 2019 8:04 pm
willthrill81 wrote:
Wed Jun 05, 2019 6:14 pm
Given that you're about 10 years away from retirement, you should probably consider what AA you want during retirement. I would then recommend that you consider taking incremental steps to move your current AA to that AA, if needed, over the course of the next decade or so.
This is exactly what I'm doing now, 11 years from retirement.
Right on! What does your AA look like?

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kmwilson343
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Re: How aggressive is your AA? Can you help me with mine?

Post by kmwilson343 » Sun Jun 09, 2019 5:29 pm

willthrill81 wrote:
Wed Jun 05, 2019 6:14 pm
Given that you're about 10 years away from retirement, you should probably consider what AA you want during retirement. I would then recommend that you consider taking incremental steps to move your current AA to that AA, if needed, over the course of the next decade or so.
what would a comfortable AA look like in retirement with my pension In your humble opinion?

delamer
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Re: How aggressive is your AA? Can you help me with mine?

Post by delamer » Sun Jun 09, 2019 5:39 pm

kmwilson343 wrote:
Sun Jun 09, 2019 5:21 pm
Thank you for all the input. Below is an understanding what I believe I am hearing people recommend:

-Stay the course.
-My AA is aggressive but the pension help makes the AA a bit more tolerable and I can "stomach" the ups and downs of the market.
-Time to gradually start changing my AA to a more less aggressive portfolio over the next 10 years.
-Don't overly rely on my pension.
-Limit the VTIAX.

With that being said, if your willing to reply back what your AA is and your age that would help me get and understating of what to look for and compare too (I understand it a personal choice and to many variables to count, but for a beginner like me it would be helpful to see what others are doing).

One final question, How do I know how much money to take out of my deferred comp every month/year and still keep earning interest so I will have a constant flow of cash in my retirement years without draining the deferred comp account?

Thanks again :)
The big question is what percentage of your retirement expenses will be covered by your pension?

It isn’t so much that you have a pension, but rather how much you’ll need to withdraw from your portfolio in addition to the pension. The less dependent you are on the portfolio, the more aggressive you can be.

Will you also be eligible for Social Security (at 62 or later)?

You should read the section in the wiki on safe withdrawal rates: https://www.bogleheads.org/wiki/Safe_withdrawal_rates

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Sandtrap
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Re: How aggressive is your AA? Can you help me with mine?

Post by Sandtrap » Sun Jun 09, 2019 5:48 pm

Read this thread;
Pan down to "cyclingduo"s excellent post and Larry Swedroe's graphic about portfolio loss in a down market.
viewtopic.php?f=10&t=282938&p=4584213#p4584213
At what allocation would "you" find it hard to sleep at night in a down market?
For "you", that's what would be considered aggressive, "for you".

Besides that behavioral factor, you can run your numbers and find a range of allocations that might work well for you
("delamer" and "grabiner" have already guided you in this direction)
:
VANGUARD PORTFOLIO ALLOCATION MODELS
https://personal.vanguard.com/us/insig ... s?lang=en

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Re: How aggressive is your AA? Can you help me with mine?

Post by willthrill81 » Sun Jun 09, 2019 6:24 pm

kmwilson343 wrote:
Sun Jun 09, 2019 5:29 pm
willthrill81 wrote:
Wed Jun 05, 2019 6:14 pm
Given that you're about 10 years away from retirement, you should probably consider what AA you want during retirement. I would then recommend that you consider taking incremental steps to move your current AA to that AA, if needed, over the course of the next decade or so.
what would a comfortable AA look like in retirement with my pension In your humble opinion?
Since it sounds like your pension and subsequent Social Security benefits, it sounds like you can be as aggressive as you want to. I'd probably say that you could easily have at least a 50/50 AA, and you could probably go as high as 80/20. Whatever fits your risk tolerance within that range is probably fine. I would suggest that you err on the conservative side of what you believe you can withstand, however, as it's typically a lot harder to financially and emotionally endure a deep and/or extended stock drawdown when you're making withdrawals than when you're making contributions.
“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

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Re: How aggressive is your AA? Can you help me with mine?

Post by bck63 » Tue Jun 11, 2019 1:37 am

kmwilson343 wrote:
Sun Jun 09, 2019 5:25 pm
bck63 wrote:
Thu Jun 06, 2019 8:04 pm
willthrill81 wrote:
Wed Jun 05, 2019 6:14 pm
Given that you're about 10 years away from retirement, you should probably consider what AA you want during retirement. I would then recommend that you consider taking incremental steps to move your current AA to that AA, if needed, over the course of the next decade or so.
This is exactly what I'm doing now, 11 years from retirement.
Right on! What does your AA look like?
Age 55. 55/45. Moving toward age in bonds by 60.

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TierArtz
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Re: How aggressive is your AA? Can you help me with mine?

Post by TierArtz » Tue Jun 11, 2019 9:44 am

Since the OP asked:

I'm 57 with no set plans for retirement. My AA is 60/40 S/B (likely fixed) with 40% VTIAX in the stock component. Since I have a military pension I've been pulling from for 10 years and nearly guaranteed health care, I could be more aggressive if I wished to be.

As others have mentioned, savings rate is key! Over the last 33 years, I saved over 25% net income and will hit 50% for the first time this year, which puts me at over 50X annual expenses (beyond pension). If not for my kids being in elementary and middle-school, and having an enjoyable job, I'd probably retire.

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Re: How aggressive is your AA? Can you help me with mine?

Post by CoastalWinds » Tue Jun 11, 2019 10:37 am

retire2022 wrote:
Wed Jun 05, 2019 6:10 pm
Op

I concur that having a gov't job is a ballast against the market, what is your cash flow like otherwise?

I recently brought 6.7% of my entire portfolio 190 @ 487 shares (92k) Vanguard Information Technology Fund ETF ( VGT) https://www.morningstar.com/etfs/ARCX/VGT/quote.html

I would reduce the Vanguard International Fund, or not contribute to it, I got rid of my Vanguard two international funds, they were good dividend player approx 3% but the four year track record holding got me inpatient, esp with the change of international fund currently, in the long run this may change, but chinese trade war and other tariffs envision not worth the trouble.

This would top off my large cap exposure, since I am invested in large position in Mid Cap funds.

https://www.morningstar.com/funds/XNAS/VFWAX/quote.html
https://www.morningstar.com/funds/XNAS/VFSVX/quote.html
I disagree with the “recommendation” to limit VTIAX (Total Intl). This is based on one person’s self-admitted impatience.

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