Should i reduce my Equity Allocation?

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Neus
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Should i reduce my Equity Allocation?

Post by Neus »

My current AA of the liquid portion is Age-20 in bonds, which is a modified bogle recommendation of your age in bonds

At my age of 36, means 16% bond, 84% stocks

When the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash and scoop at a lower price (selling cash-covered puts), which backfires as SPY actually goes up

Questions:
1) Is this a sign that I can’t handle this Asset Allocation?
2) Which bogleheads book should I read to determine my ideal asset allocation?
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windaar
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Re: Should i reduce my Equity Allocation?

Post by windaar »

Neus wrote: Fri Aug 05, 2022 6:53 amWhen the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash
My understanding has been that one's risk tolerance is a realistic assessment of "what will it take for you to do nothing if equities fall 40-50%." If you're tempted to "move to cash" after a 20% drop you seem too aggressive. Of course this mindset causes investors to buy high and sell low as a life pattern. You are also considering a timing strategy which won't work. But probably not a great idea to change your AA to fewer stocks now, as a reaction to the market, when the market is down. Can you craft a more realistic Risk Assessment/AA and move in that direction with future contributions?
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burritoLover
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Re: Should i reduce my Equity Allocation?

Post by burritoLover »

Neus wrote: Fri Aug 05, 2022 6:53 am My current AA of the liquid portion is Age-20 in bonds, which is a modified bogle recommendation of your age in bonds

At my age of 36, means 16% bond, 84% stocks

When the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash and scoop at a lower price (selling cash-covered puts), which backfires as SPY actually goes up

Questions:
1) Is this a sign that I can’t handle this Asset Allocation?
2) Which bogleheads book should I read to determine my ideal asset allocation?
Moving to all-cash after a market drop is a sign of being jittery. If you were actually just trying to capitalize on the lower price, you could do it by directing excess cash to buying stocks without selling your current position.

You can look at the historical "worst return" for a given stock/bond allocation here:
https://investor.vanguard.com/investor- ... allocation
livesoft
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Re: Should i reduce my Equity Allocation?

Post by livesoft »

It reads to me like you should use your cash to buy broad market index funds.
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Re: Should i reduce my Equity Allocation?

Post by tennisplyr »

Here’s a Vanguard tool to help you determine your AA.

https://investor.vanguard.com/tools-cal ... stionnaire
“Those who move forward with a happy spirit will find that things always work out.” -Retired 11 years 😀
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Re: Should i reduce my Equity Allocation?

Post by Neus »

windaar wrote: Fri Aug 05, 2022 7:14 am
Neus wrote: Fri Aug 05, 2022 6:53 amWhen the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash
My understanding has been that one's risk tolerance is a realistic assessment of "what will it take for you to do nothing if equities fall 40-50%." If you're tempted to "move to cash" after a 20% drop you seem too aggressive. Of course this mindset causes investors to buy high and sell low as a life pattern. You are also considering a timing strategy which won't work. But probably not a great idea to change your AA to fewer stocks now, as a reaction to the market, when the market is down. Can you craft a more realistic Risk Assessment/AA and move in that direction with future contributions?
Windaar,
where can i find the risk assessment you mention?
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Re: Should i reduce my Equity Allocation?

Post by Neus »

burritoLover wrote: Fri Aug 05, 2022 7:15 am
Neus wrote: Fri Aug 05, 2022 6:53 am My current AA of the liquid portion is Age-20 in bonds, which is a modified bogle recommendation of your age in bonds

At my age of 36, means 16% bond, 84% stocks

When the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash and scoop at a lower price (selling cash-covered puts), which backfires as SPY actually goes up

Questions:
1) Is this a sign that I can’t handle this Asset Allocation?
2) Which bogleheads book should I read to determine my ideal asset allocation?
Moving to all-cash after a market drop is a sign of being jittery. If you were actually just trying to capitalize on the lower price, you could do it by directing excess cash to buying stocks without selling your current position.

You can look at the historical "worst return" for a given stock/bond allocation here:
https://investor.vanguard.com/investor- ... allocation
Burrito,
Thanks for the link
Any idea if the equity in the link is sp500 or total world?
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Re: Should i reduce my Equity Allocation?

Post by Neus »

tennisplyr wrote: Fri Aug 05, 2022 7:33 am Here’s a Vanguard tool to help you determine your AA.

https://investor.vanguard.com/tools-cal ... stionnaire
Tennis
Thanks! checking

Got 60-40
Last edited by Neus on Fri Aug 05, 2022 7:59 am, edited 2 times in total.
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PicassoSparks
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Re: Should i reduce my Equity Allocation?

Post by PicassoSparks »

Neus wrote: Fri Aug 05, 2022 6:53 am 1) Is this a sign that I can’t handle this Asset Allocation?
It sounds like a sign that you haven't yet internalized that timing the market is nearly impossible.
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Re: Should i reduce my Equity Allocation?

Post by Wiggums »

Neus wrote: Fri Aug 05, 2022 6:53 am My current AA of the liquid portion is Age-20 in bonds, which is a modified bogle recommendation of your age in bonds

At my age of 36, means 16% bond, 84% stocks

When the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash and scoop at a lower price (selling cash-covered puts), which backfires as SPY actually goes up

Questions:
1) Is this a sign that I can’t handle this Asset Allocation?
2) Which bogleheads book should I read to determine my ideal asset allocation?
We are retired and buying more equities with any available cash. Investments are a long term holding for us and should do well over 10-20-30 year period. We don’t check our balances often.

No one likes short term losses. If you want to move to all cash, you need to adjust your allocation. We are at 65/35. Approximately 30% equities should beat normal inflation.
Investors need to be better informed about the costs they pay. “High fund fees can be hazardous to your wealth in the same way that high calories can be hazardous for your health.”
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Re: Should i reduce my Equity Allocation?

Post by beyou »

Keep an emergency fund in something safe like VTIP, to cover something like 6-12 months of expenses, and keep a separate portfolio that tracks your AA. I think it would be easier to stay the course if you are separating near term from long term needs in general.

Size of e-fund depends on your career/income stability. If you have highly marketable skills, maybe 6 months could be sufficient, for many a longer potential period of unemployment may be something to prepare for.

Then you may have other intermediate term goals, such as house downpayment or car etc. Maybe SCHP or BND could be a savings bucket for goals a few years out. But your long term retirement should be equity heavy.

Bucketing helps some people psychologically to get comfortable with AA. There is no ideal AA for everyone, and bucketing helps customize to your specific needs.
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Re: Should i reduce my Equity Allocation?

Post by Neus »

PicassoSparks wrote: Fri Aug 05, 2022 7:40 am
Neus wrote: Fri Aug 05, 2022 6:53 am 1) Is this a sign that I can’t handle this Asset Allocation?
It sounds like a sign that you haven't yet internalized that timing the market is nearly impossible.
Picasso,
lol fair point
I'm actually passive until the beginning of this year
Then, I thought I found a guru who belongs to 0.1% of market participants who can constantly beat the market, and he predicts a deeper drop
Turns out, even Him, with super extensive finance knowledge, can't constantly do so
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Re: Should i reduce my Equity Allocation?

Post by retired@50 »

Neus wrote: Fri Aug 05, 2022 7:54 am
PicassoSparks wrote: Fri Aug 05, 2022 7:40 am
Neus wrote: Fri Aug 05, 2022 6:53 am 1) Is this a sign that I can’t handle this Asset Allocation?
It sounds like a sign that you haven't yet internalized that timing the market is nearly impossible.
Picasso,
lol fair point
I'm actually passive until the beginning of this year
Then, I thought I found a guru who belongs to 0.1% of market participants who can constantly beat the market, and he predicts a deeper drop
Turns out, even Him, with super extensive finance knowledge, can't constantly do so
Who is this supposed guru?

Many (or most) Bogleheads don't believe that such gurus exist.

Regards,
This is one person's opinion. Nothing more.
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Re: Should i reduce my Equity Allocation?

Post by Neus »

retired@50 wrote: Fri Aug 05, 2022 7:58 am
Neus wrote: Fri Aug 05, 2022 7:54 am
PicassoSparks wrote: Fri Aug 05, 2022 7:40 am
Neus wrote: Fri Aug 05, 2022 6:53 am 1) Is this a sign that I can’t handle this Asset Allocation?
It sounds like a sign that you haven't yet internalized that timing the market is nearly impossible.
Picasso,
lol fair point
I'm actually passive until the beginning of this year
Then, I thought I found a guru who belongs to 0.1% of market participants who can constantly beat the market, and he predicts a deeper drop
Turns out, even Him, with super extensive finance knowledge, can't constantly do so
Who is this supposed guru?

Many (or most) Bogleheads don't believe that such gurus exist.

Regards,
Hmm, am I allowed to post a name? I'm not sure about this
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Re: Should i reduce my Equity Allocation?

Post by oldcomputerguy »

Neus wrote: Fri Aug 05, 2022 6:53 am When the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash
By this do you mean sell equities? If that is your intent, it's a very, very bad move. That's selling equities after they have dropped, that is, buying high and selling low.

The correct course, assuming that you decide that your AA is indeed appropriate for you, is to do whatever is needed to maintain that AA. If equities drop and bring your equity exposure significantly lower than your target AA calls for, sell bonds and buy equities to bring your AA back to "age-20 in bonds"; likewise, if equities go on a tear and raise your equity exposure too high, sell some equities and move that money to bonds. Anything else is performance chasing and market timing.
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Re: Should i reduce my Equity Allocation?

Post by Neus »

oldcomputerguy wrote: Fri Aug 05, 2022 8:02 am
Neus wrote: Fri Aug 05, 2022 6:53 am When the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash
By this do you mean sell equities? If that is your intent, it's a very, very bad move. That's selling equities after they have dropped, that is, buying high and selling low.

The correct course, assuming that you decide that your AA is indeed appropriate for you, is to do whatever is needed to maintain that AA. If equities drop and bring your equity exposure significantly lower than your target AA calls for, sell bonds and buy equities to bring your AA back to "age-20 in bonds"; likewise, if equities go on a tear and raise your equity exposure too high, sell some equities and move that money to bonds. Anything else is performance chasing and market timing.
I know now, that it's a bad move

I thought I found a guru who belongs to 0.1% of market participants who can constantly beat the market
Like: MOST people can't, which I agree. BUT hey I thought I found someone who can, and he predicts a deeper drop (reducing delta)

Turns out, even Him, with super extensive finance knowledge, can't constantly do so

So.. yeah, bad judgement in my part
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Re: Should i reduce my Equity Allocation?

Post by burritoLover »

Neus wrote: Fri Aug 05, 2022 7:37 am
burritoLover wrote: Fri Aug 05, 2022 7:15 am
Neus wrote: Fri Aug 05, 2022 6:53 am My current AA of the liquid portion is Age-20 in bonds, which is a modified bogle recommendation of your age in bonds

At my age of 36, means 16% bond, 84% stocks

When the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash and scoop at a lower price (selling cash-covered puts), which backfires as SPY actually goes up

Questions:
1) Is this a sign that I can’t handle this Asset Allocation?
2) Which bogleheads book should I read to determine my ideal asset allocation?
Moving to all-cash after a market drop is a sign of being jittery. If you were actually just trying to capitalize on the lower price, you could do it by directing excess cash to buying stocks without selling your current position.

You can look at the historical "worst return" for a given stock/bond allocation here:
https://investor.vanguard.com/investor- ... allocation
Burrito,
Thanks for the link
Any idea if the equity in the link is sp500 or total world?
Any of these types of worst drawdowns are always S&P 500 (or equivalent) if not specified.

EDIT: Vanguard lists their methodology at the end:
For U.S. stock market returns, we use the Standard & Poor’s 90 Index from 1926 to March 3, 1957, and the Standard & Poor’s 500 Index thereafter.
For U.S. bond market returns, we use the Standard & Poor’s High Grade Corporate Index from 1926 to 1968, the Salomon High Grade Index from 1969 to 1972, and the Barclays U.S. Long Credit Aa Index thereafter.
For U.S. short-term reserves, we use the Ibbotson U.S. 30-Day Treasury Bill Index from 1926 to 1977 and the FTSE 3-Month U.S. Treasury Bill Index thereafter.
Last edited by burritoLover on Fri Aug 05, 2022 8:12 am, edited 2 times in total.
dbr
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Re: Should i reduce my Equity Allocation?

Post by dbr »

Neus wrote: Fri Aug 05, 2022 6:53 am My current AA of the liquid portion is Age-20 in bonds, which is a modified bogle recommendation of your age in bonds

At my age of 36, means 16% bond, 84% stocks

When the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash and scoop at a lower price (selling cash-covered puts), which backfires as SPY actually goes up

Questions:
1) Is this a sign that I can’t handle this Asset Allocation?
2) Which bogleheads book should I read to determine my ideal asset allocation?
It might be an opportunity to experience and deal with the impact of market changes by doing nothing. It is exercise for strengthening the psyche.

Sometimes one might observe willingness to take risk is not just estimating what you can stand but also making a commitment to stand what you choose. The issue here is that you need to navigate the problem that selling out at market bottoms really does do damage and needs to be avoided, certainly by not assuming it will go down more.

If the experience proves that age-120 is not a good formula than that can be fixed later when the damage has passed.

While also a formula there are risk questionnaires and there is even the crude but effective question to ask what you would do if your stocks plunged 50%. It is a decision how much to back off and how much to tolerate that can be gotten from considering your need, ability, and willingness to take risk. Age in bonds formulas are pernicious.

Another thing to do is look at a history of stock downturns and see that current losses are not unusual at all and need to be expected. A nominal estimate for the standard deviation of annual returns of the stock market is maybe +/-20% in a year.
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Re: Should i reduce my Equity Allocation?

Post by Neus »

burritoLover wrote: Fri Aug 05, 2022 8:11 am
Neus wrote: Fri Aug 05, 2022 7:37 am
burritoLover wrote: Fri Aug 05, 2022 7:15 am
Neus wrote: Fri Aug 05, 2022 6:53 am My current AA of the liquid portion is Age-20 in bonds, which is a modified bogle recommendation of your age in bonds

At my age of 36, means 16% bond, 84% stocks

When the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash and scoop at a lower price (selling cash-covered puts), which backfires as SPY actually goes up

Questions:
1) Is this a sign that I can’t handle this Asset Allocation?
2) Which bogleheads book should I read to determine my ideal asset allocation?
Moving to all-cash after a market drop is a sign of being jittery. If you were actually just trying to capitalize on the lower price, you could do it by directing excess cash to buying stocks without selling your current position.

You can look at the historical "worst return" for a given stock/bond allocation here:
https://investor.vanguard.com/investor- ... allocation
Burrito,
Thanks for the link
Any idea if the equity in the link is sp500 or total world?
Any of these types of worst drawdowns are always S&P 500 (or equivalent) if not specified.

EDIT: Vanguard lists their methodology at the end:
For U.S. stock market returns, we use the Standard & Poor’s 90 Index from 1926 to March 3, 1957, and the Standard & Poor’s 500 Index thereafter.
For U.S. bond market returns, we use the Standard & Poor’s High Grade Corporate Index from 1926 to 1968, the Salomon High Grade Index from 1969 to 1972, and the Barclays U.S. Long Credit Aa Index thereafter.
For U.S. short-term reserves, we use the Ibbotson U.S. 30-Day Treasury Bill Index from 1926 to 1977 and the FTSE 3-Month U.S. Treasury Bill Index thereafter.
Ah okay
So.. Actually 60% stocks / 40% bonds is not bad at all
My target is 10% annual return, which is achievable by 60/40

Average annual return: 9.9%
Best year (1933): 36.7%
Worst year (1931): –26.6%
Years with a loss: 22 of 96

But I suppose using the total world will yield lower?
So in absence of other data using total world, the adjustment is either:
60/40 with SP500 as equity
or more aggressive AA with the total world as the equity portion
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Re: Should i reduce my Equity Allocation?

Post by Neus »

dbr wrote: Fri Aug 05, 2022 8:11 am
Neus wrote: Fri Aug 05, 2022 6:53 am My current AA of the liquid portion is Age-20 in bonds, which is a modified bogle recommendation of your age in bonds

At my age of 36, means 16% bond, 84% stocks

When the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash and scoop at a lower price (selling cash-covered puts), which backfires as SPY actually goes up

Questions:
1) Is this a sign that I can’t handle this Asset Allocation?
2) Which bogleheads book should I read to determine my ideal asset allocation?
It might be an opportunity to experience and deal with the impact of market changes by doing nothing. It is exercise for strengthening the psyche.

Sometimes one might observe willingness to take risk is not just estimating what you can stand but also making a commitment to stand what you choose. The issue here is that you need to navigate the problem that selling out at market bottoms really does do damage and needs to be avoided, certainly by not assuming it will go down more.

If the experience proves that age-120 is not a good formula than that can be fixed later when the damage has passed.

While also a formula there are risk questionnaires and there is even the crude but effective question to ask what you would do if your stocks plunged 50%. It is a decision how much to back off and how much to tolerate that can be gotten from considering your need, ability, and willingness to take risk. Age in bonds formulas are pernicious.

Another thing to do is look at a history of stock downturns and see that current losses are not unusual at all and need to be expected. A nominal estimate for the standard deviation of annual returns of the stock market is maybe +/-20% in a year.
Sometimes one might observe willingness to take risk is not just estimating what you can stand but also making a commitment to stand what you choose.
--> yeah, This time I'm actually not sure do I can't commit because I thought I found a guru, or because the AA is too aggressive. Hard to pinpoint.

Age in bonds formulas are pernicious.
--> can you tell me more about this, why so?

but effective question to ask what you would do if your stocks plunged 50%.
--> well a single stock of mine has dropped 70%, I'm still holding, but the amount is not big (about 10k when i buy), partly because the dividend is quite high (paid to wait)
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Re: Should i reduce my Equity Allocation?

Post by JoeRetire »

Neus wrote: Fri Aug 05, 2022 6:53 am
When the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash and scoop at a lower price (selling cash-covered puts), which backfires as SPY actually goes up

Questions:
1) Is this a sign that I can’t handle this Asset Allocation?
Yes.
2) Which bogleheads book should I read to determine my ideal asset allocation?
You don't need a book. You just need to try a lower equity amount and see if it helps you avoid temptation.
This is gonna be my time. Time to taste the fruits and let the juices drip down my chin. I proclaim this: The Summer of George!
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Re: Should i reduce my Equity Allocation?

Post by Da5id »

Maybe your allocation is fine but you are just antsy. You want to "do something" because of market volatility. One useful thing could be to have manual rebalancing in your plan. When things are bad, you could well have hit a rebalancing point. Rebalancing to your target allocation may scratch your itch to "do something" in a way that isn't harmful. As opposed to, say, changing your allocation on the fly in response to the emotions of the day or the latest guru pronouncement.
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Re: Should i reduce my Equity Allocation?

Post by dbr »

Neus wrote: Fri Aug 05, 2022 8:24 am
Age in bonds formulas are pernicious.
--> can you tell me more about this, why so?
Because they allow you to proceed without being thoughtful about what you are trying to do, what your situation is, and how you are going to react to outcomes, be they good or bad.

Absent specific consideration of those things any person at any age could easily hold anywhere from no stocks to all stocks and it would not be unreasonable.

Those rules are really just a kind of thoughtless formula that kind of sets a midpoint for the range a whole population of investors might find reasonable but that does not really apply to anyone in particular. Mr. Bogle was an advocate of age in bonds as a way to express that it would be likely that as one ages, one accumulates more wealth, and one's ability to make up for losses diminishes that it could make sense to take less risk. That is probably true. But even he then quickly modified the rule to admit that people with lots of income from Social Security could just as well take more risk in stocks, so now where are you?
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Re: Should i reduce my Equity Allocation?

Post by Neus »

dbr wrote: Fri Aug 05, 2022 8:32 am
Neus wrote: Fri Aug 05, 2022 8:24 am
Age in bonds formulas are pernicious.
--> can you tell me more about this, why so?
Because they allow you to proceed without being thoughtful about what you are trying to do, what your situation is, and how you are going to react to outcomes, be they good or bad.

Absent specific consideration of those things any person at any age could easily hold anywhere from no stocks to all stocks and it would not be unreasonable.

Those rules are really just a kind of thoughtless formula that kind of sets a midpoint for the range a whole population of investors might find reasonable but that does not really apply to anyone in particular. Mr. Bogle was an advocate of age in bonds as a way to express that it would be likely that as one ages, one accumulates more wealth, and one's ability to make up for losses diminishes that it could make sense to take less risk. That is probably true. But even he then quickly modified the rule to admit that people with lots of income from Social Security could just as well take more risk in stocks, so now where are you?
I see..
So the consensus is fixed AA is better?
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Re: Should i reduce my Equity Allocation?

Post by Neus »

Da5id wrote: Fri Aug 05, 2022 8:30 am Maybe your allocation is fine but you are just antsy. You want to "do something" because of market volatility. One useful thing could be to have manual rebalancing in your plan. When things are bad, you could well have hit a rebalancing point. Rebalancing to your target allocation may scratch your itch to "do something" in a way that isn't harmful. As opposed to, say, changing your allocation on the fly in response to the emotions of the day or the latest guru pronouncement.
When things are bad, you could well have hit a rebalancing point. Rebalancing to your target allocation may scratch your itch to "do something" in a way that isn't harmful.
--> interesting method, but is this still consistent with bogleheads playbook? (if the IPS is rebalance once a year)
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Re: Should i reduce my Equity Allocation?

Post by Neus »

JoeRetire wrote: Fri Aug 05, 2022 8:27 am
Neus wrote: Fri Aug 05, 2022 6:53 am
When the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash and scoop at a lower price (selling cash-covered puts), which backfires as SPY actually goes up

Questions:
1) Is this a sign that I can’t handle this Asset Allocation?
Yes.
2) Which bogleheads book should I read to determine my ideal asset allocation?
You don't need a book. You just need to try a lower equity amount and see if it helps you avoid temptation.
You just need to try a lower equity amount and see if it helps you avoid temptation.
--> got it
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Re: Should i reduce my Equity Allocation?

Post by burritoLover »

Neus wrote: Fri Aug 05, 2022 8:19 am
burritoLover wrote: Fri Aug 05, 2022 8:11 am
Neus wrote: Fri Aug 05, 2022 7:37 am
burritoLover wrote: Fri Aug 05, 2022 7:15 am
Neus wrote: Fri Aug 05, 2022 6:53 am My current AA of the liquid portion is Age-20 in bonds, which is a modified bogle recommendation of your age in bonds

At my age of 36, means 16% bond, 84% stocks

When the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash and scoop at a lower price (selling cash-covered puts), which backfires as SPY actually goes up

Questions:
1) Is this a sign that I can’t handle this Asset Allocation?
2) Which bogleheads book should I read to determine my ideal asset allocation?
Moving to all-cash after a market drop is a sign of being jittery. If you were actually just trying to capitalize on the lower price, you could do it by directing excess cash to buying stocks without selling your current position.

You can look at the historical "worst return" for a given stock/bond allocation here:
https://investor.vanguard.com/investor- ... allocation
Burrito,
Thanks for the link
Any idea if the equity in the link is sp500 or total world?
Any of these types of worst drawdowns are always S&P 500 (or equivalent) if not specified.

EDIT: Vanguard lists their methodology at the end:
For U.S. stock market returns, we use the Standard & Poor’s 90 Index from 1926 to March 3, 1957, and the Standard & Poor’s 500 Index thereafter.
For U.S. bond market returns, we use the Standard & Poor’s High Grade Corporate Index from 1926 to 1968, the Salomon High Grade Index from 1969 to 1972, and the Barclays U.S. Long Credit Aa Index thereafter.
For U.S. short-term reserves, we use the Ibbotson U.S. 30-Day Treasury Bill Index from 1926 to 1977 and the FTSE 3-Month U.S. Treasury Bill Index thereafter.
Ah okay
So.. Actually 60% stocks / 40% bonds is not bad at all
My target is 10% annual return, which is achievable by 60/40

Average annual return: 9.9%
Best year (1933): 36.7%
Worst year (1931): –26.6%
Years with a loss: 22 of 96

But I suppose using the total world will yield lower?
So in absence of other data using total world, the adjustment is either:
60/40 with SP500 as equity
or more aggressive AA with the total world as the equity portion
Total world is a more diversified position but in a panic, stocks assets will all become highly correlated so I wouldn't imagine the max drawdowns would be much different with total world if it were tracked over the same period as Vanguard's.

A far as whether total world will have lower or higher returns than US only - that is unknown for the future.
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Re: Should i reduce my Equity Allocation?

Post by dbr »

Neus wrote: Fri Aug 05, 2022 8:52 am
dbr wrote: Fri Aug 05, 2022 8:32 am
Neus wrote: Fri Aug 05, 2022 8:24 am
Age in bonds formulas are pernicious.
--> can you tell me more about this, why so?
Because they allow you to proceed without being thoughtful about what you are trying to do, what your situation is, and how you are going to react to outcomes, be they good or bad.

Absent specific consideration of those things any person at any age could easily hold anywhere from no stocks to all stocks and it would not be unreasonable.

Those rules are really just a kind of thoughtless formula that kind of sets a midpoint for the range a whole population of investors might find reasonable but that does not really apply to anyone in particular. Mr. Bogle was an advocate of age in bonds as a way to express that it would be likely that as one ages, one accumulates more wealth, and one's ability to make up for losses diminishes that it could make sense to take less risk. That is probably true. But even he then quickly modified the rule to admit that people with lots of income from Social Security could just as well take more risk in stocks, so now where are you?
I see..
So the consensus is fixed AA is better?
No, it is not that simple. It can be completely reasonable for an investor to find that as time goes by the asset allocation would adjust to the appropriate need, ability, and willingness to take risk.

Your particular problem is that a formula might have led you into a too risky asset allocation because you didn't think about the consequences. It is entirely possible that a less risky allocation would be a better choice for you now, and it is also possible that you might hold that allocation for some time before deciding that you should reduce the risk even more. It can also happen as circumstances develop you would find taking more risk to be appropriate. There should be a periodic assessment of what is right and changes made when circumstances supply good and thoughtful reasons to do so for the longer run.

A tool that can give you a good idea of how asset allocation held over time can affect outcome is this one: https://engaging-data.com/visualizing-4-rule/ You can enter negative spending for saving and play with the asset allocation. A primary lesson is that where you are going to end up is driven more than anything else by when you are born, when you invest, when you retire, and when you die. Outcomes are so variable that asset allocation only matters because it can be varied over such a wide range. If a person can't live with the uncertainty then investing is probably not possible. The good news is that at least in the US over the last century the outcomes have been almost entirely good to a greater or lesser degree, so you can't go wrong, more or less. There are places where that did not happen.
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Re: Should i reduce my Equity Allocation?

Post by Da5id »

Neus wrote: Fri Aug 05, 2022 8:53 am
Da5id wrote: Fri Aug 05, 2022 8:30 am Maybe your allocation is fine but you are just antsy. You want to "do something" because of market volatility. One useful thing could be to have manual rebalancing in your plan. When things are bad, you could well have hit a rebalancing point. Rebalancing to your target allocation may scratch your itch to "do something" in a way that isn't harmful. As opposed to, say, changing your allocation on the fly in response to the emotions of the day or the latest guru pronouncement.
When things are bad, you could well have hit a rebalancing point. Rebalancing to your target allocation may scratch your itch to "do something" in a way that isn't harmful.
--> interesting method, but is this still consistent with bogleheads playbook? (if the IPS is rebalance once a year)
My IPS is rebalance in 5% bands. But if you are still accumulating nudging towards target with new contributions is fine. Or if you are decumulating selling to move towards target is fine.
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Re: Should i reduce my Equity Allocation?

Post by retired@50 »

Neus wrote: Fri Aug 05, 2022 8:01 am
retired@50 wrote: Fri Aug 05, 2022 7:58 am
Neus wrote: Fri Aug 05, 2022 7:54 am
PicassoSparks wrote: Fri Aug 05, 2022 7:40 am
Neus wrote: Fri Aug 05, 2022 6:53 am 1) Is this a sign that I can’t handle this Asset Allocation?
It sounds like a sign that you haven't yet internalized that timing the market is nearly impossible.
Picasso,
lol fair point
I'm actually passive until the beginning of this year
Then, I thought I found a guru who belongs to 0.1% of market participants who can constantly beat the market, and he predicts a deeper drop
Turns out, even Him, with super extensive finance knowledge, can't constantly do so
Who is this supposed guru?

Many (or most) Bogleheads don't believe that such gurus exist.

Regards,
Hmm, am I allowed to post a name? I'm not sure about this
I figured it was some sort of public figure... Perhaps a guest on CNBC or some other financial media outlet. If it's your private financial adviser, then I agree, that's a different story. I'm not looking to humiliate anyone. However, if the guru has a poor track record of making public predictions, then sharing that information could help to inform other readers of this forum.

Regards,
This is one person's opinion. Nothing more.
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Re: Should i reduce my Equity Allocation?

Post by Marseille07 »

Neus wrote: Fri Aug 05, 2022 6:53 am My current AA of the liquid portion is Age-20 in bonds, which is a modified bogle recommendation of your age in bonds

At my age of 36, means 16% bond, 84% stocks

When the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash and scoop at a lower price (selling cash-covered puts), which backfires as SPY actually goes up

Questions:
1) Is this a sign that I can’t handle this Asset Allocation?
2) Which bogleheads book should I read to determine my ideal asset allocation?
I don't understand the temptation to move to cash. If anything, just reduce bonds and buy equities on the cheap. You do not have to move to cash to achieve that.
Last edited by Marseille07 on Fri Aug 05, 2022 9:56 am, edited 1 time in total.
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Re: Should i reduce my Equity Allocation?

Post by dbr »

I should add the concept of need, ability, and willingness to take risk originates with Larry Swedroe and can be found in a couple of his books if not online somewhere.
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Re: Should i reduce my Equity Allocation?

Post by windaar »

Neus wrote: Fri Aug 05, 2022 7:36 am
windaar wrote: Fri Aug 05, 2022 7:14 am
Neus wrote: Fri Aug 05, 2022 6:53 amWhen the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash
My understanding has been that one's risk tolerance is a realistic assessment of "what will it take for you to do nothing if equities fall 40-50%." If you're tempted to "move to cash" after a 20% drop you seem too aggressive. Of course this mindset causes investors to buy high and sell low as a life pattern. You are also considering a timing strategy which won't work. But probably not a great idea to change your AA to fewer stocks now, as a reaction to the market, when the market is down. Can you craft a more realistic Risk Assessment/AA and move in that direction with future contributions?
Windaar,
where can i find the risk assessment you mention?
I don't think there's any tool to use better than the bathroom mirror. Ask yourself honestly how much loss in your portfolio you could absorb before wanting to sell equities. It sounds like your threshold is pretty low. Though laughed at by many here as being too conservative, "age in bonds/fixed" has worked for me over the years. Once I committed to it I stopped looking at my account balances and stopped paying attention to daily stock market movement. I do rebalance around my birthday. For me a more conservative allocation is a psychological thing and has kept me from tinkering and making bozo moves in reaction to econmic and world events.
Nobody knows nothing.
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Re: Should i reduce my Equity Allocation?

Post by Neus »

retired@50 wrote: Fri Aug 05, 2022 9:30 am
Neus wrote: Fri Aug 05, 2022 8:01 am
retired@50 wrote: Fri Aug 05, 2022 7:58 am
Neus wrote: Fri Aug 05, 2022 7:54 am
PicassoSparks wrote: Fri Aug 05, 2022 7:40 am

It sounds like a sign that you haven't yet internalized that timing the market is nearly impossible.
Picasso,
lol fair point
I'm actually passive until the beginning of this year
Then, I thought I found a guru who belongs to 0.1% of market participants who can constantly beat the market, and he predicts a deeper drop
Turns out, even Him, with super extensive finance knowledge, can't constantly do so
Who is this supposed guru?

Many (or most) Bogleheads don't believe that such gurus exist.

Regards,
Hmm, am I allowed to post a name? I'm not sure about this
I figured it was some sort of public figure... Perhaps a guest on CNBC or some other financial media outlet. If it's your private financial adviser, then I agree, that's a different story. I'm not looking to humiliate anyone. However, if the guru has a poor track record of making public predictions, then sharing that information could help to inform other readers of this forum.

Regards,
if the guru has a poor track record of making public predictions, then sharing that information could help to inform other readers of this forum.
--> Well.... ok then
https://www.youtube.com/watch?v=jY6Ugdc ... arkMeldrum
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Re: Should i reduce my Equity Allocation?

Post by Jazztonight »

Maybe...just reallocate to 60/40. You'll be among good company, and perhaps, just perhaps, you'll find some calm.

It worked for me when I reallocated about 20 years ago.
"What does not destroy me, makes me stronger." Nietzsche
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Re: Should i reduce my Equity Allocation?

Post by dbr »

Just to summarize:

1. Need is how much risk you need to get the return that meets your objectives. How much return that is needs modelling relative to long run plans. Example of ourcome model is something like https://engaging-data.com/visualizing-4-rule/ Financial advisors, even Vanguard use such models to help plan. Most attempts to find a financial planner to help with this result in dealing with salesment whose only agenda is to rip you off. Vanguard might help though, and Fidelity has a planning model. Fidelity also likes to sell people services and higher cost funds, to which the answer is no.

2. Ability is your resources to deal with bad outcomes. This involves future earning power for young people, Social Security, pensions, owning your home, not carrying debt, etc.

4. Willingness is your psychological ability to accept downturns without doing something stupid and/or how well you can harden up and make a commitment to staying the course.
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Re: Should i reduce my Equity Allocation?

Post by dbr »

Jazztonight wrote: Fri Aug 05, 2022 10:04 am Maybe...just reallocate to 60/40. You'll be among good company, and perhaps, just perhaps, you'll find some calm.

It worked for me when I reallocated about 20 years ago.
This is far from stupid. Contemplate the odds in Engaging Data and see what you think.

Some people array the possible asset allocations as 100/0, 80/20, 60/40, 40/60, 20/80, and 0/100 and others as 100/0, 75/25, 50/50, 25/75, and 0/100. On follows the 1/n rule with n=5 and the other with n=4.
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Re: Should i reduce my Equity Allocation?

Post by Neus »

dbr wrote: Fri Aug 05, 2022 10:09 am Just to summarize:

1. Need is how much risk you need to get the return that meets your objectives. How much return that is needs modelling relative to long run plans. Example of ourcome model is something like https://engaging-data.com/visualizing-4-rule/ Financial advisors, even Vanguard use such models to help plan. Most attempts to find a financial planner to help with this result in dealing with salesment whose only agenda is to rip you off. Vanguard might help though, and Fidelity has a planning model. Fidelity also likes to sell people services and higher cost funds, to which the answer is no.

2. Ability is your resources to deal with bad outcomes. This involves future earning power for young people, Social Security, pensions, owning your home, not carrying debt, etc.

4. Willingness is your psychological ability to accept downturns without doing something stupid and/or how well you can harden up and make a commitment to staying the course.
https://engaging-data.com/visualizing-4-rule/
--> thanks!

So if I use 3% withdrawal rate and 60 years retirement:
60-40 results in 96.6% success rate
70-30 result in 98.8% success rate

Does this 2.2% difference in success rate is significant to justify moving to 70-30?
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Re: Should i reduce my Equity Allocation?

Post by David Jay »

Da5id wrote: Fri Aug 05, 2022 8:30 am Maybe your allocation is fine but you are just antsy. You want to "do something" because of market volatility. One useful thing could be to have manual rebalancing in your plan. When things are bad, you could well have hit a rebalancing point. Rebalancing to your target allocation may scratch your itch to "do something" in a way that isn't harmful.
I agree completely, most of investing is behavioral, not math (see the first quote in my signature).

When this happened to me in a downturn, I remember being so relieved to hit my rebalancing band and was able to “do something”.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: Should i reduce my Equity Allocation?

Post by Neus »

Jazztonight wrote: Fri Aug 05, 2022 10:04 am Maybe...just reallocate to 60/40. You'll be among good company, and perhaps, just perhaps, you'll find some calm.

It worked for me when I reallocated about 20 years ago.
Jazz,
Yes, still researching about 60/40
Does your 60 is in US stock or global stock?
Are you currently retired?
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Re: Should i reduce my Equity Allocation?

Post by Neus »

windaar wrote: Fri Aug 05, 2022 9:55 am
Neus wrote: Fri Aug 05, 2022 7:36 am
windaar wrote: Fri Aug 05, 2022 7:14 am
Neus wrote: Fri Aug 05, 2022 6:53 amWhen the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash
My understanding has been that one's risk tolerance is a realistic assessment of "what will it take for you to do nothing if equities fall 40-50%." If you're tempted to "move to cash" after a 20% drop you seem too aggressive. Of course this mindset causes investors to buy high and sell low as a life pattern. You are also considering a timing strategy which won't work. But probably not a great idea to change your AA to fewer stocks now, as a reaction to the market, when the market is down. Can you craft a more realistic Risk Assessment/AA and move in that direction with future contributions?
Windaar,
where can i find the risk assessment you mention?
I don't think there's any tool to use better than the bathroom mirror. Ask yourself honestly how much loss in your portfolio you could absorb before wanting to sell equities. It sounds like your threshold is pretty low. Though laughed at by many here as being too conservative, "age in bonds/fixed" has worked for me over the years. Once I committed to it I stopped looking at my account balances and stopped paying attention to daily stock market movement. I do rebalance around my birthday. For me a more conservative allocation is a psychological thing and has kept me from tinkering and making bozo moves in reaction to econmic and world events.
Windaar,
I don't think there's any tool to use better than the bathroom mirror.
--> I see, interesting concept
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Re: Should i reduce my Equity Allocation?

Post by dbr »

Neus wrote: Fri Aug 05, 2022 10:32 am
dbr wrote: Fri Aug 05, 2022 10:09 am Just to summarize:

1. Need is how much risk you need to get the return that meets your objectives. How much return that is needs modelling relative to long run plans. Example of ourcome model is something like https://engaging-data.com/visualizing-4-rule/ Financial advisors, even Vanguard use such models to help plan. Most attempts to find a financial planner to help with this result in dealing with salesment whose only agenda is to rip you off. Vanguard might help though, and Fidelity has a planning model. Fidelity also likes to sell people services and higher cost funds, to which the answer is no.

2. Ability is your resources to deal with bad outcomes. This involves future earning power for young people, Social Security, pensions, owning your home, not carrying debt, etc.

4. Willingness is your psychological ability to accept downturns without doing something stupid and/or how well you can harden up and make a commitment to staying the course.
https://engaging-data.com/visualizing-4-rule/
--> thanks!

So if I use 3% withdrawal rate and 60 years retirement:
60-40 results in 96.6% success rate
70-30 result in 98.8% success rate

Does this 2.2% difference in success rate is significant to justify moving to 70-30?
Not even close. And the first comment is that the most important thing about that chart is not the result but the picture of how incredibly variable and unpredictable investing results can be. You have to invest from a point of view that everything is a matter if successive approximations over time.

One should first understand that these are not engineering specifications. Those numbers are just tabulations of extreme conditions that have arisen in a set of historical circumstances.

Perhaps to put it in perspective when people have run out what the safe withdrawal rates are for given starting years then the safe rate for 30 year retirements runs from as low as 4%, such as for those retiring in the late '60s up to 8% such as for early '80s. The actual outcome is that if you plan spending at a safe rate of say 4%, most of the outcomes leave you dying fabulously wealthy. But if you spend too much you really can run out of money before you die. Lots of people attempt ways to adjust spending to deal with that, which is not dumb. Our own Wiki includes an article on Variable Percentage Withdrawal. Other ways that make sense are to understand how Social Security plays a role, to have pensions, to buy an SPIA or to ladder some long term TIPS. All of these have plusses and minusses.

A different perspective that might be more promising is that by and large if you live beneath your means, invest the excess in a diversity of probably rewarding investments, and plan on being happy with the outcome later, then you will be fine. In fact retirement is probably more about being willing to retire with what you get than it is with assuring you get some abstract image of what you want.
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Re: Should i reduce my Equity Allocation?

Post by Jazztonight »

Neus wrote: Fri Aug 05, 2022 10:35 am
Jazztonight wrote: Fri Aug 05, 2022 10:04 am Maybe...just reallocate to 60/40. You'll be among good company, and perhaps, just perhaps, you'll find some calm.

It worked for me when I reallocated about 20 years ago.
Jazz,
Yes, still researching about 60/40.
Does your 60 is in US stock or global stock?
Are you currently retired?
Neus, I used to make things very complicated and drove myself nuts in the process. Then I found the Boglehead's Guide and over a 4 week period converted everything to a 3-Fund Vanguard portfolio as described by Taylor Larimore. I have Total Stock Market, Total Intl. Stock Market, and Total Bond Market (plus another California Bond Fund).

My son is your age and he's 60/40, and very comfortable with that allocation. I'm 75, retired, and my current Allocation is 40/60. This works very well for me.

Is worrying about all of this really what you want to do with your time/life?
"What does not destroy me, makes me stronger." Nietzsche
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Re: Should i reduce my Equity Allocation?

Post by Fallible »

Neus wrote: Fri Aug 05, 2022 6:53 am My current AA of the liquid portion is Age-20 in bonds, which is a modified bogle recommendation of your age in bonds

At my age of 36, means 16% bond, 84% stocks

When the stock drops 20% and enter a bear market, I'm not feeling jittery but I do fall into the temptation to move to cash and scoop at a lower price (selling cash-covered puts), which backfires as SPY actually goes up

Questions:
1) Is this a sign that I can’t handle this Asset Allocation?
2) Which bogleheads book should I read to determine my ideal asset allocation?
Before you make the mistakes you are considering, read up on the following in an effort to find the right allocation for you:

_One of the best books on asset allocation and risk tolerance by pro Boglehead Rick Ferri, All About Asset Allocation, 2nd ed. I think it will help you determine whether "jittery" is just a temptation to do something or a temptation leading to anxiety, sleepless nights, and actually selling.

_Read the wiki on "Asset allocation" and "Risk tolerance," which include a series on risk by pro Larry Swedroe: "Ability, Willingness, and Need to take Risk."

https://www.bogleheads.org/wiki/Asset_allocation
https://www.bogleheads.org/wiki/Risk_tolerance
(both write about and link to the Swedroe series)

_And check the wiki's page for more good books:

https://www.bogleheads.org/wiki/Book_re ... nd_reviews
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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Re: Should i reduce my Equity Allocation?

Post by Beensabu »

Neus wrote: Fri Aug 05, 2022 6:53 am 1) Is this a sign that I can’t handle this Asset Allocation?
It's a sign that you want greater positive returns without taking the risk of getting greater negative returns.

FYI - Everybody wants that. That's why gurus exist. A guru is a person you think can teach you to get what you want. :twisted:

If the potential downside of your current asset allocation is unacceptable to you, then you can't handle your current AA.
2) Which bogleheads book should I read to determine my ideal asset allocation?
This wiki page might help: https://www.bogleheads.org/wiki/Risk_an ... troduction

As you increase risk (i.e. uncertainty of returns), what you're doing is increasing the range of potential returns (and that range includes positive and negative).
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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Re: Should i reduce my Equity Allocation?

Post by Neus »

dbr wrote: Fri Aug 05, 2022 11:01 am
Neus wrote: Fri Aug 05, 2022 10:32 am
dbr wrote: Fri Aug 05, 2022 10:09 am Just to summarize:

1. Need is how much risk you need to get the return that meets your objectives. How much return that is needs modelling relative to long run plans. Example of ourcome model is something like https://engaging-data.com/visualizing-4-rule/ Financial advisors, even Vanguard use such models to help plan. Most attempts to find a financial planner to help with this result in dealing with salesment whose only agenda is to rip you off. Vanguard might help though, and Fidelity has a planning model. Fidelity also likes to sell people services and higher cost funds, to which the answer is no.

2. Ability is your resources to deal with bad outcomes. This involves future earning power for young people, Social Security, pensions, owning your home, not carrying debt, etc.

4. Willingness is your psychological ability to accept downturns without doing something stupid and/or how well you can harden up and make a commitment to staying the course.
https://engaging-data.com/visualizing-4-rule/
--> thanks!

So if I use 3% withdrawal rate and 60 years retirement:
60-40 results in 96.6% success rate
70-30 result in 98.8% success rate

Does this 2.2% difference in success rate is significant to justify moving to 70-30?
Not even close. And the first comment is that the most important thing about that chart is not the result but the picture of how incredibly variable and unpredictable investing results can be. You have to invest from a point of view that everything is a matter if successive approximations over time.

One should first understand that these are not engineering specifications. Those numbers are just tabulations of extreme conditions that have arisen in a set of historical circumstances.

Perhaps to put it in perspective when people have run out what the safe withdrawal rates are for given starting years then the safe rate for 30 year retirements runs from as low as 4%, such as for those retiring in the late '60s up to 8% such as for early '80s. The actual outcome is that if you plan spending at a safe rate of say 4%, most of the outcomes leave you dying fabulously wealthy. But if you spend too much you really can run out of money before you die. Lots of people attempt ways to adjust spending to deal with that, which is not dumb. Our own Wiki includes an article on Variable Percentage Withdrawal. Other ways that make sense are to understand how Social Security plays a role, to have pensions, to buy an SPIA or to ladder some long term TIPS. All of these have plusses and minusses.

A different perspective that might be more promising is that by and large if you live beneath your means, invest the excess in a diversity of probably rewarding investments, and plan on being happy with the outcome later, then you will be fine. In fact retirement is probably more about being willing to retire with what you get than it is with assuring you get some abstract image of what you want.
the most important thing about that chart is not the result but the picture of how incredibly variable and unpredictable investing results can be.
--> got it, thanks

Regarding spending level, since we enter fixed amount instead of fixed percentage, so this website is using 1st year fixed amount and adjust for inflation correct?
Since I'm not in US: there's US inflation and my country's inflation. Which one should i use?
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Re: Should i reduce my Equity Allocation?

Post by Neus »

Jazztonight wrote: Fri Aug 05, 2022 11:13 am
Neus wrote: Fri Aug 05, 2022 10:35 am
Jazztonight wrote: Fri Aug 05, 2022 10:04 am Maybe...just reallocate to 60/40. You'll be among good company, and perhaps, just perhaps, you'll find some calm.

It worked for me when I reallocated about 20 years ago.
Jazz,
Yes, still researching about 60/40.
Does your 60 is in US stock or global stock?
Are you currently retired?
Neus, I used to make things very complicated and drove myself nuts in the process. Then I found the Boglehead's Guide and over a 4 week period converted everything to a 3-Fund Vanguard portfolio as described by Taylor Larimore. I have Total Stock Market, Total Intl. Stock Market, and Total Bond Market (plus another California Bond Fund).

My son is your age and he's 60/40, and very comfortable with that allocation. I'm 75, retired, and my current Allocation is 40/60. This works very well for me.

Is worrying about all of this really what you want to do with your time/life?
Jazz,
I see. May I ask your reason to switch to 40/60? (why not 30/70 or 50/50 or 60/40)

Is worrying about all of this really what you want to do with your time/life?
--> Yeah, currently looking for more info about 60/40 to determine once and for all. I'm just worried that too low equity allocation will fail to meet my goal either.
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Re: Should i reduce my Equity Allocation?

Post by vineviz »

Neus wrote: Fri Aug 05, 2022 8:19 am So.. Actually 60% stocks / 40% bonds is not bad at all
My target is 10% annual return, which is achievable by 60/40
An expected return of 10% is unrealistically high, and would be even for 100% stocks.

The very idea of a return “target” is likely counterproductive. It’s not as if there is anything you can do to create returns in excess of what the market provides.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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vineviz
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Re: Should i reduce my Equity Allocation?

Post by vineviz »

dbr wrote: Fri Aug 05, 2022 9:46 am I should add the concept of need, ability, and willingness to take risk originates with Larry Swedroe and can be found in a couple of his books if not online somewhere.
I think that is unfair to all the people who discussed these concepts long before Larry did.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Neus
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Re: Should i reduce my Equity Allocation?

Post by Neus »

Beensabu wrote: Fri Aug 05, 2022 7:37 pm
Neus wrote: Fri Aug 05, 2022 6:53 am 1) Is this a sign that I can’t handle this Asset Allocation?
It's a sign that you want greater positive returns without taking the risk of getting greater negative returns.

FYI - Everybody wants that. That's why gurus exist. A guru is a person you think can teach you to get what you want. :twisted:

If the potential downside of your current asset allocation is unacceptable to you, then you can't handle your current AA.
2) Which bogleheads book should I read to determine my ideal asset allocation?
This wiki page might help: https://www.bogleheads.org/wiki/Risk_an ... troduction

As you increase risk (i.e. uncertainty of returns), what you're doing is increasing the range of potential returns (and that range includes positive and negative).
It's a sign that you want greater positive returns without taking the risk of getting greater negative returns.
--> yes. But what I'm not sure is whether am I just greedy because I thought that I know something that most people in the market don't (which i have expensively learned my lesson) :oops: or is this just the typical jittery can't hold so should reduce AA kind

If the potential downside of your current asset allocation is unacceptable to you, then you can't handle your current AA.
--> At that point i'm actually fine with another 20% drop, i just thought: hey if SP500 is going down another 10-20%, why not sell cash-covered PUT at 10% and 20% mark

FYI - Everybody wants that. That's why gurus exist. A guru is a person you think can teach you to get what you want. :twisted:
--> Well.. this one is complicated
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