64 YO, advisor recomends 70/30 AA

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
dbr
Posts: 46479
Joined: Sun Mar 04, 2007 8:50 am

Re: 64 YO, advisor recomends 70/30 AA

Post by dbr »

artbuc wrote: Sun May 12, 2024 4:39 pm I have been back testing various AA’s and was surprised to see such a small difference between 40/60 and 60/40.
Yes, we yap a lot about how important asset allocation is and then find out it isn't.

Well, the explanation is that it is important because you can change it over a wide range. There is a difference between 20/80 and 80/20. One might argue that the only practical allocations that make any difference are 75/25, 50/50, and 25/75.
User avatar
Godot
Posts: 1047
Joined: Fri Jun 08, 2018 3:44 pm
Location: That place.

Re: 64 YO, advisor recomends 70/30 AA

Post by Godot »

retireIn2020 wrote: Fri May 10, 2024 12:49 am So, I met with my Fidelity advisor today (Premium Services with no fee).

As usual, we went over expenses, taxes, large upcoming purchases etc. which has always been entered into the analyzation software that spits out how much I'll end up with (my heirs) at the end of the game.

Currently I'm self-managing my portfolio (Bogleheads style). My AA currently is 50/50 with a stock asset mix of total stock US/ex-US and Fixed income of MYGA's/MM/401k Stable Value.

Great talk and he commended my portfolio, Said I'm golden, I agreed, no issues and all is well.
He mentioned, they have a new system (2024) for building a comprehensive portfolio investment strategy. I obliged and agreed to listen.

New system uses all accounts, Fidelity and Non-Fidelity, takes all income (SS, Pension, yada yada), looks at taxable, 401k, IRA, Roth, Taxes, and HSA, then tells you what the most efficient AA would be. Since all income, expenses, accounts, taxes, age, etc. are already entered, It only asks one question, risk tolerance from 1 to 10.

My answer for risk tolerance was a 5, he said it wouldn't really matter since this new system looks at a total view, basically you could say 3 or 7 and it will make it's recommendation on the total view.

Sooo, turns out the new system say's I'm leaving millions on the table over the next 20 years at my current 50/50 AA . New System recommends a 70/30 AA .

Either way, it goes to my heirs, barring the need for LTC with dignity.

What do Bogleheads think about this new system? At 64 years of age, retired and decumulating, is a 70/30 AA reasonable when SWR is below 4%?
Amazing. What's this new-fangled system called?
"The day you die is just like any other, only shorter." | ― Samuel Beckett
abc132
Posts: 2583
Joined: Thu Oct 18, 2018 1:11 am

Re: 64 YO, advisor recomends 70/30 AA

Post by abc132 »

AA actually does matter if you make a fair comparison. That worst sequence for the 70/30 portfolio typically had great growth before the biggest crash. While 30/70 and 70/30 may backtest similarly with the same starting portfolio size, 70/30 is typically going to be 2-3 times less likely to fail because it grows more before the poor sequence. The starting portfolio sizes for 30/70 and 70/30 are not the same. It is only if you are the worst investor in the world and have the worlds worst timing that we can test 30/70 and 70/30 with the same starting portfolio size - and even then we typically see no increase in safety at 30/70.

70/30 could be entirely appropriate, which will be hard for the 30/70 investor (or original poster at 50/50) to understand. For the original poster, I would consider something between 50/50 and 70/30 based on your willingness to see an advisor and get advice. I suspect even 55/45 would be an improvement if the advisor is giving a 70/30 recommendation based on your objectives. You can balance your preferences with your objectives instead of accepting/rejecting the 70/30 recommendation. Try out 55/45 for a bit and see how it feels. If it is not too bad consider 60/40 from there.
User avatar
Godot
Posts: 1047
Joined: Fri Jun 08, 2018 3:44 pm
Location: That place.

Re: 64 YO, advisor recomends 70/30 AA

Post by Godot »

retireIn2020 wrote: Fri May 10, 2024 7:52 pm
aristotelian wrote: Fri May 10, 2024 5:02 pm What was the advisor's reasoning? Anywhere from 30/70 to 70/30 can be reasonable depending on your preferences. Did you fill out a questionnaire to indicate a preference for prioritizing returns over lower volatility?

The only question asked is on the scale of 1-10, what is your risk tolerance (might be paraphrasing there).

But if it doesn't matter what your response to the question of risk tolerance is (as you say in your initial post), then why even ask it?
"The day you die is just like any other, only shorter." | ― Samuel Beckett
Topic Author
retireIn2020
Posts: 808
Joined: Sat Jan 04, 2020 5:13 pm

Re: 64 YO, advisor recomends 70/30 AA

Post by retireIn2020 »

Godot wrote: Sun May 12, 2024 5:01 pm
retireIn2020 wrote: Fri May 10, 2024 12:49 am So, I met with my Fidelity advisor today (Premium Services with no fee).

As usual, we went over expenses, taxes, large upcoming purchases etc. which has always been entered into the analyzation software that spits out how much I'll end up with (my heirs) at the end of the game.

Currently I'm self-managing my portfolio (Bogleheads style). My AA currently is 50/50 with a stock asset mix of total stock US/ex-US and Fixed income of MYGA's/MM/401k Stable Value.

Great talk and he commended my portfolio, Said I'm golden, I agreed, no issues and all is well.
He mentioned, they have a new system (2024) for building a comprehensive portfolio investment strategy. I obliged and agreed to listen.

New system uses all accounts, Fidelity and Non-Fidelity, takes all income (SS, Pension, yada yada), looks at taxable, 401k, IRA, Roth, Taxes, and HSA, then tells you what the most efficient AA would be. Since all income, expenses, accounts, taxes, age, etc. are already entered, It only asks one question, risk tolerance from 1 to 10.

My answer for risk tolerance was a 5, he said it wouldn't really matter since this new system looks at a total view, basically you could say 3 or 7 and it will make it's recommendation on the total view.

Sooo, turns out the new system say's I'm leaving millions on the table over the next 20 years at my current 50/50 AA . New System recommends a 70/30 AA .

Either way, it goes to my heirs, barring the need for LTC with dignity.

What do Bogleheads think about this new system? At 64 years of age, retired and decumulating, is a 70/30 AA reasonable when SWR is below 4%?
Amazing. What's this new-fangled system called?
I believe thats what he called it, a "new-fangled system" LOL.

Honestly, I do not know. He said it was a "New Comprehensive System".

I've always used the word Comprehensive as in meaning "detailed" or "complete" or "all inclusive".

Here's what I found for "Comprehensive" meaning on a google search.
"of large scope; covering or involving much; inclusive: a comprehensive study of world affairs. Synonyms: full, extensive, wide, broad. comprehending or thoroughly understanding with one's mind; having an extensive mental range or grasp, as of a particular subject or many"
https://www.merriam-webster.com/dictionary/abide
BirdFood
Posts: 254
Joined: Sat Mar 23, 2024 12:15 pm

Re: 64 YO, advisor recomends 70/30 AA

Post by BirdFood »

dbr wrote: Sun May 12, 2024 4:53 pm
artbuc wrote: Sun May 12, 2024 4:39 pm I have been back testing various AA’s and was surprised to see such a small difference between 40/60 and 60/40.
Yes, we yap a lot about how important asset allocation is and then find out it isn't.

Well, the explanation is that it is important because you can change it over a wide range. There is a difference between 20/80 and 80/20. One might argue that the only practical allocations that make any difference are 75/25, 50/50, and 25/75.
I tend to assume that a huge part of the value of the asset allocation concept is that it provides an actionable framework for the otherwise pretty nebulous guideline to "buy low/sell/high".
dbr
Posts: 46479
Joined: Sun Mar 04, 2007 8:50 am

Re: 64 YO, advisor recomends 70/30 AA

Post by dbr »

BirdFood wrote: Mon May 13, 2024 1:15 am
dbr wrote: Sun May 12, 2024 4:53 pm
artbuc wrote: Sun May 12, 2024 4:39 pm I have been back testing various AA’s and was surprised to see such a small difference between 40/60 and 60/40.
Yes, we yap a lot about how important asset allocation is and then find out it isn't.

Well, the explanation is that it is important because you can change it over a wide range. There is a difference between 20/80 and 80/20. One might argue that the only practical allocations that make any difference are 75/25, 50/50, and 25/75.
I tend to assume that a huge part of the value of the asset allocation concept is that it provides an actionable framework for the otherwise pretty nebulous guideline to "buy low/sell/high".
Generally the overall concept is to pick a set point for the risk and return of the portfolio and not to be some mechanism for timing buying and selling. The operational idea is that of progressing along the efficient frontier of a stock/bond portfolio according to the proportion of each.

The first and important purpose of rebalancing is to prevent the stock/bond portfolio from eventually drifting to excessively high risk as stock returns over time outrun bond returns and tilt the asset allocation more and more to stocks.
avalpert1
Posts: 595
Joined: Sat Mar 02, 2024 6:15 pm

Re: 64 YO, advisor recomends 70/30 AA

Post by avalpert1 »

BirdFood wrote: Mon May 13, 2024 1:15 am
dbr wrote: Sun May 12, 2024 4:53 pm
artbuc wrote: Sun May 12, 2024 4:39 pm I have been back testing various AA’s and was surprised to see such a small difference between 40/60 and 60/40.
Yes, we yap a lot about how important asset allocation is and then find out it isn't.

Well, the explanation is that it is important because you can change it over a wide range. There is a difference between 20/80 and 80/20. One might argue that the only practical allocations that make any difference are 75/25, 50/50, and 25/75.
I tend to assume that a huge part of the value of the asset allocation concept is that it provides an actionable framework for the otherwise pretty nebulous guideline to "buy low/sell/high".
Not really, the allocation is retained without reference to valuations so rebalancing between assets that are uncorrelated means there are still plenty of times you are buying and selling low or selling and buying high.
InvestBiz99
Posts: 30
Joined: Thu Dec 07, 2023 1:23 pm

Re: 64 YO, advisor recomends 70/30 AA

Post by InvestBiz99 »

A close friend retired 8 years ago and had systematically worked on simplifying his portfolio and invested in index funds with a 70/30 AA. He retired at 62. He had a $2M portfolio. The funds he choose were - VTI, VUG and BND. Had 2 years cash (which at that time MM was paying just above 0). His investment in BND after 7 years was still -ve so he finally got out and moved to VUSXX. He was able to meet his 4% SWR because of his VTI and VUG portfolio. BND since it's inception has yielded only 2.75% annualized...well below the SWR.

My takeaway from this and how it relates to AA is the bond funds are absolutely not dependable. If there are other FI alternatives like treasuries or MM funds (like now) or CDs that can give you at least 3% (hopefully) then the percentage you put into the FI portion of your portfolio can provide some ballast but in his words cannot be depended on. The only game in town is the stock market and I feel you have to look at AA whether it is 70/30, 60/40 or any other combination as a stock market component and a "cash safe" component with at least 2 yrs in the bank.
avalpert1
Posts: 595
Joined: Sat Mar 02, 2024 6:15 pm

Re: 64 YO, advisor recomends 70/30 AA

Post by avalpert1 »

InvestBiz99 wrote: Mon May 13, 2024 12:51 pm A close friend retired 8 years ago and had systematically worked on simplifying his portfolio and invested in index funds with a 70/30 AA. He retired at 62. He had a $2M portfolio. The funds he choose were - VTI, VUG and BND. Had 2 years cash (which at that time MM was paying just above 0). His investment in BND after 7 years was still -ve so he finally got out and moved to VUSXX. He was able to meet his 4% SWR because of his VTI and VUG portfolio. BND since it's inception has yielded only 2.75% annualized...well below the SWR.

My takeaway from this and how it relates to AA is the bond funds are absolutely not dependable. If there are other FI alternatives like treasuries or MM funds (like now) or CDs that can give you at least 3% (hopefully) then the percentage you put into the FI portion of your portfolio can provide some ballast but in his words cannot be depended on. The only game in town is the stock market and I feel you have to look at AA whether it is 70/30, 60/40 or any other combination as a stock market component and a "cash safe" component with at least 2 yrs in the bank.
This is just recency bias no different than the 'death of equities' headlines in the late 70s.
InvestBiz99
Posts: 30
Joined: Thu Dec 07, 2023 1:23 pm

Re: 64 YO, advisor recomends 70/30 AA

Post by InvestBiz99 »

@avalpert1
"This is just recency bias no different than the 'death of equities' headlines in the late 70s."

...but our discussions have to take into account our "earning lifetime" which for most 60 yr olds is the last 35 yrs. Even when we start working, most of us (I speak only based on my discussions with my circle of friends) dont start seriously thinking in focussed way on retirement till about 20 to 25 years before we reach 60. So I feel that returns in that period of time are more relevant. I don't think my friends AA is any different from what '000 of posts recommend here on BH. All I am saying is look at even the last 10 yrs or even 15 yrs and that holds true.
avalpert1
Posts: 595
Joined: Sat Mar 02, 2024 6:15 pm

Re: 64 YO, advisor recomends 70/30 AA

Post by avalpert1 »

InvestBiz99 wrote: Mon May 13, 2024 2:16 pm @avalpert1
"This is just recency bias no different than the 'death of equities' headlines in the late 70s."

...but our discussions have to take into account our "earning lifetime" which for most 60 yr olds is the last 35 yrs. Even when we start working, most of us (I speak only based on my discussions with my circle of friends) dont start seriously thinking in focussed way on retirement till about 20 to 25 years before we reach 60. So I feel that returns in that period of time are more relevant. I don't think my friends AA is any different from what '000 of posts recommend here on BH. All I am saying is look at even the last 10 yrs or even 15 yrs and that holds true.
I strongly disagree - in fact looking back on our earning lifetime to decide what our portfolio should be going forward is the very definition of recency bias. Don't look at the last 10 years to decide what you should do for the next 10 - again, that would be the same mistake as people who bought the death of equities in the late 70s and missed out on the growth of the 80s.
john0608
Posts: 180
Joined: Sat Dec 09, 2017 8:22 am

Re: 64 YO, advisor recomends 70/30 AA

Post by john0608 »

winterfan wrote: Sun May 12, 2024 7:22 am We are early 60/early 50s and stay around 85/15 give or take. I feel pretty comfortable with that. Everyone has a different risk tolerance. We also still have an income, plus SS coming up soon which will cover a good chunk of our expenses.
wow thats super aggressive given your ages, i hope you have been invested during significant downturns and were ok watching your investments melt away (I know they come back but psychologically its extremely difficult to just sit there).
My feeling is that equities can drop 50% overnight and then there will be weeks of aftershocks so why put yourself thru that stress.Unless you have 7 figures in that 15% i would move it up to 30% for peace of mind and safety and that would be the majority opinion.
john0608
Posts: 180
Joined: Sat Dec 09, 2017 8:22 am

Re: 64 YO, advisor recomends 70/30 AA

Post by john0608 »

InvestBiz99 wrote: Mon May 13, 2024 12:51 pm A close friend retired 8 years ago and had systematically worked on simplifying his portfolio and invested in index funds with a 70/30 AA. He retired at 62. He had a $2M portfolio. The funds he choose were - VTI, VUG and BND. Had 2 years cash (which at that time MM was paying just above 0). His investment in BND after 7 years was still -ve so he finally got out and moved to VUSXX. He was able to meet his 4% SWR because of his VTI and VUG portfolio. BND since it's inception has yielded only 2.75% annualized...well below the SWR.

My takeaway from this and how it relates to AA is the bond funds are absolutely not dependable. If there are other FI alternatives like treasuries or MM funds (like now) or CDs that can give you at least 3% (hopefully) then the percentage you put into the FI portion of your portfolio can provide some ballast but in his words cannot be depended on. The only game in town is the stock market and I feel you have to look at AA whether it is 70/30, 60/40 or any other combination as a stock market component and a "cash safe" component with at least 2 yrs in the bank.
i agree that bond funds can be frustrating and often decline the same time as equities decline, however a portfolio must contain fixed income assets separate from equities for safety and peace of mind.
Due to my own frustration with bond funds i divested out of all bond funds in fall of '21 and have been in CDs, and Treasures and HYSA for the past 2.5 years and admit it was partly luck and partly based on reading the tea leaves on interest rate trends in 2021. (lots of bogleheads disagreed with that strategy but nevertheless it has worked out)
i will probably stay in treasuries till rates decline (who knows when that will be with inflation hanging around it could be a couple years), when that happens i will move $100k chunks into bond funds until I am 50% treasuries and 50% bond funds and see where that takes me.
User avatar
winterfan
Posts: 845
Joined: Mon Jan 05, 2015 10:06 am

Re: 64 YO, advisor recomends 70/30 AA

Post by winterfan »

john0608 wrote: Tue May 14, 2024 6:40 am
winterfan wrote: Sun May 12, 2024 7:22 am We are early 60/early 50s and stay around 85/15 give or take. I feel pretty comfortable with that. Everyone has a different risk tolerance. We also still have an income, plus SS coming up soon which will cover a good chunk of our expenses.
wow thats super aggressive given your ages, i hope you have been invested during significant downturns and were ok watching your investments melt away (I know they come back but psychologically its extremely difficult to just sit there).
My feeling is that equities can drop 50% overnight and then there will be weeks of aftershocks so why put yourself thru that stress.Unless you have 7 figures in that 15% i would move it up to 30% for peace of mind and safety and that would be the majority opinion.
We held tight during the GFC (we were 100% equities then!), so I guess that was a good test. Once our nest empties in a few years, our expenses will go down considerably.
delamer
Posts: 17692
Joined: Tue Feb 08, 2011 5:13 pm

Re: 64 YO, advisor recomends 70/30 AA

Post by delamer »

winterfan wrote: Wed May 15, 2024 3:28 pm
john0608 wrote: Tue May 14, 2024 6:40 am
winterfan wrote: Sun May 12, 2024 7:22 am We are early 60/early 50s and stay around 85/15 give or take. I feel pretty comfortable with that. Everyone has a different risk tolerance. We also still have an income, plus SS coming up soon which will cover a good chunk of our expenses.
wow thats super aggressive given your ages, i hope you have been invested during significant downturns and were ok watching your investments melt away (I know they come back but psychologically its extremely difficult to just sit there).
My feeling is that equities can drop 50% overnight and then there will be weeks of aftershocks so why put yourself thru that stress.Unless you have 7 figures in that 15% i would move it up to 30% for peace of mind and safety and that would be the majority opinion.
We held tight during the GFC (we were 100% equities then!), so I guess that was a good test. Once our nest empties in a few years, our expenses will go down considerably.
It was a good test, but an imperfect one. A large portfolio drop could feel very different during de-cumulation (when you are withdrawing from your portfolio to cover expenses) than during accumulation (when you are not withdrawing from your portfolio to cover expenses).
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
User avatar
winterfan
Posts: 845
Joined: Mon Jan 05, 2015 10:06 am

Re: 64 YO, advisor recomends 70/30 AA

Post by winterfan »

delamer wrote: Wed May 15, 2024 3:38 pm
winterfan wrote: Wed May 15, 2024 3:28 pm
john0608 wrote: Tue May 14, 2024 6:40 am
winterfan wrote: Sun May 12, 2024 7:22 am We are early 60/early 50s and stay around 85/15 give or take. I feel pretty comfortable with that. Everyone has a different risk tolerance. We also still have an income, plus SS coming up soon which will cover a good chunk of our expenses.
wow thats super aggressive given your ages, i hope you have been invested during significant downturns and were ok watching your investments melt away (I know they come back but psychologically its extremely difficult to just sit there).
My feeling is that equities can drop 50% overnight and then there will be weeks of aftershocks so why put yourself thru that stress.Unless you have 7 figures in that 15% i would move it up to 30% for peace of mind and safety and that would be the majority opinion.
We held tight during the GFC (we were 100% equities then!), so I guess that was a good test. Once our nest empties in a few years, our expenses will go down considerably.
It was a good test, but an imperfect one. A large portfolio drop could feel very different during de-cumulation (when you are withdrawing from your portfolio to cover expenses) than during accumulation (when you are not withdrawing from your portfolio to cover expenses).
Yes, maybe. I guess my big worry would be whether or not we can cover our expenses. We will have that covered for the most part in a few years and I don't mind big swings as long as we can eat and pay our property taxes. That said, we used to be 80/20, but it's drifted up in the last few years. The closer we get to SS, the less I feel we need to rebalance. I get it though. I could see building up a little bit more cash/ST fixed income. I'll talk to my spouse and see if he agrees.
dcabler
Posts: 4824
Joined: Wed Feb 19, 2014 10:30 am
Location: TX

Re: 64 YO, advisor recomends 70/30 AA

Post by dcabler »

retireIn2020 wrote: Fri May 10, 2024 12:49 am So, I met with my Fidelity advisor today (Premium Services with no fee).

As usual, we went over expenses, taxes, large upcoming purchases etc. which has always been entered into the analyzation software that spits out how much I'll end up with (my heirs) at the end of the game.

Currently I'm self-managing my portfolio (Bogleheads style). My AA currently is 50/50 with a stock asset mix of total stock US/ex-US and Fixed income of MYGA's/MM/401k Stable Value.

Great talk and he commended my portfolio, Said I'm golden, I agreed, no issues and all is well.
He mentioned, they have a new system (2024) for building a comprehensive portfolio investment strategy. I obliged and agreed to listen.

New system uses all accounts, Fidelity and Non-Fidelity, takes all income (SS, Pension, yada yada), looks at taxable, 401k, IRA, Roth, Taxes, and HSA, then tells you what the most efficient AA would be. Since all income, expenses, accounts, taxes, age, etc. are already entered, It only asks one question, risk tolerance from 1 to 10.

My answer for risk tolerance was a 5, he said it wouldn't really matter since this new system looks at a total view, basically you could say 3 or 7 and it will make it's recommendation on the total view.

Sooo, turns out the new system say's I'm leaving millions on the table over the next 20 years at my current 50/50 AA . New System recommends a 70/30 AA .

Either way, it goes to my heirs, barring the need for LTC with dignity.

What do Bogleheads think about this new system? At 64 years of age, retired and decumulating, is a 70/30 AA reasonable when SWR is below 4%?
It's certainly within the range of AA's of what people on this forum have, all the way up to 100% stocks.
And, yeah, there is a probability distribution out there that would say that there would be a higher probability of having more money over the next 20 years, depending of course on how you do your withdrawals. But with the higher probability comes a higher probability of having less than you would with your current 50/50. Such is the nature of going with a portfolio with more risk.

I just ran into this thread, so I'm not surprised that there are some reactions coming from people who assume certain motivations by the advisor you talked to because he's an advisor at Fidelity. But he told you that what you currently have is just fine. Then he showed you another alternative. That's what he's paid to do, give advice & show you alternatives. You don't have to take it if what you're happy doing, but no harm in having a chat, right?

As for me, I was 60/40 but moved to 70/30. I'll be 63 in a month. I'm 70/30 but I'm not rebalancing because my "30" is a TIPS ladder. Otherwise
- I don't do SWR. I don't like anything about it as a method to make withdrawals
- I'm amortizing and targeting a $0 terminal value, but our amortization based withdrawal calculations represent only a "max" of what we can withdraw. So far, we're keeping it below the max because we don't need it. Good to have margin!
- I invested for my DW and I to live during retirement, but I don't invest specifically for an inheritance to my kiddo and favorite charity.
- We have more than enough buffer such that in all likelihood the inheritance will happen anyway with whatever is left over. If things swing the other way, we have plenty of margin to cut back spending.

Cheers.
WhiteMaxima
Posts: 3443
Joined: Thu May 19, 2016 5:04 pm

Re: 64 YO, advisor recomends 70/30 AA

Post by WhiteMaxima »

BND has lost 20% till today since 2022 while SP500 gain 30%. 50:50 70:30, it doesn't matter. No one knows the future. Did Fidelity advisor recommend you to Roth conversion?
Topic Author
retireIn2020
Posts: 808
Joined: Sat Jan 04, 2020 5:13 pm

Re: 64 YO, advisor recomends 70/30 AA

Post by retireIn2020 »

WhiteMaxima wrote: Wed May 15, 2024 6:09 pm BND has lost 20% till today since 2022 while SP500 gain 30%. 50:50 70:30, it doesn't matter. No one knows the future. Did Fidelity advisor recommend you to Roth conversion?
No, Roth conversion was not discussed.

Since January 2022 BND has a CAGR of -4.88% and a net loss of 11%. and total loss of around 13% since January 2021. Where did you get a 20% loss for BND?
https://www.merriam-webster.com/dictionary/abide
Topic Author
retireIn2020
Posts: 808
Joined: Sat Jan 04, 2020 5:13 pm

Re: 64 YO, advisor recomends 70/30 AA

Post by retireIn2020 »

dcabler wrote: Wed May 15, 2024 5:17 pm I just ran into this thread, so I'm not surprised that there are some reactions coming from people who assume certain motivations by the advisor you talked to because he's an advisor at Fidelity. But he told you that what you currently have is just fine. Then he showed you another alternative. That's what he's paid to do, give advice & show you alternatives. You don't have to take it if what you're happy doing, but no harm in having a chat, right?

Cheers.
Correct, we meet once a year, it's nice to have a chat. We basically update the Fidelity planning software with new data and look at my overall spending, return, outlook and how my final balance looks. This was the 1st year he mentioned this new system. I believe he had access to the system they use for advisors that have clients with assets under management (not sure).

Overall, it was good call as usual, he didn't try to sell anything, said everything looks great. It was just interesting that the new system recommended a 70/30 AA for me even though I believe 50/50 is the correct allocation.

One thing I can say is that this system does not understand my overall strategy of pulling profits to fund my income, which may be on the conservative side? Basically, when the market reaches new highs, I move money into investments that are guaranteed, and my target interest rate for (guaranteed) fixed income is 3-5%. I do not have any Bond funds and maintain 50/50 AA.

When I retired in mid 2020 fixed income was 100% stable value (401k), SV was returning just over 2% (I was not happy). While my traditional IRA was 100% stocks.
Now? I hit my 5% target easily with my MYGA's and MM fixed investments replacing my Stable Value funds (happy).

I started my retirement right after the covid drop and started withdrawals late 2020 withdrawing from stocks when they were going up fast. Then in 2022 (stocks going down) I switched to withdrawing from stocks and started withdrawing from MYGA's that I just purchased using stable value funds and at some point my AA came back to 50/50.

By Jan 2024, my AA became heavy on the stock side so, I withdrew from stocks (new market highs) and placed the funds in my IRA MM to fund the next two years income while at the same time, wait for MYGA's and MM balance to rebuild.

Income is now set until 2026, and we shall see what the stock market gives us. So, after the next two years we will see where I start to pull income from.

I said all that to say this, advisor made a comment, wow, you are exactly at a 50/50 AA.
https://www.merriam-webster.com/dictionary/abide
dcabler
Posts: 4824
Joined: Wed Feb 19, 2014 10:30 am
Location: TX

Re: 64 YO, advisor recomends 70/30 AA

Post by dcabler »

retireIn2020 wrote: Wed May 15, 2024 11:12 pm
dcabler wrote: Wed May 15, 2024 5:17 pm I just ran into this thread, so I'm not surprised that there are some reactions coming from people who assume certain motivations by the advisor you talked to because he's an advisor at Fidelity. But he told you that what you currently have is just fine. Then he showed you another alternative. That's what he's paid to do, give advice & show you alternatives. You don't have to take it if what you're happy doing, but no harm in having a chat, right?

Cheers.
Correct, we meet once a year, it's nice to have a chat. We basically update the Fidelity planning software with new data and look at my overall spending, return, outlook and how my final balance looks. This was the 1st year he mentioned this new system. I believe he had access to the system they use for advisors that have clients with assets under management (not sure).

Overall, it was good call as usual, he didn't try to sell anything, said everything looks great. It was just interesting that the new system recommended a 70/30 AA for me even though I believe 50/50 is the correct allocation.

One thing I can say is that this system does not understand my overall strategy of pulling profits to fund my income, which may be on the conservative side? Basically, when the market reaches new highs, I move money into investments that are guaranteed, and my target interest rate for (guaranteed) fixed income is 3-5%. I do not have any Bond funds and maintain 50/50 AA.

When I retired in mid 2020 fixed income was 100% stable value (401k), SV was returning just over 2% (I was not happy). While my traditional IRA was 100% stocks.
Now? I hit my 5% target easily with my MYGA's and MM fixed investments replacing my Stable Value funds (happy).

I started my retirement right after the covid drop and started withdrawals late 2020 withdrawing from stocks when they were going up fast. Then in 2022 (stocks going down) I switched to withdrawing from stocks and started withdrawing from MYGA's that I just purchased using stable value funds and at some point my AA came back to 50/50.

By Jan 2024, my AA became heavy on the stock side so, I withdrew from stocks (new market highs) and placed the funds in my IRA MM to fund the next two years income while at the same time, wait for MYGA's and MM balance to rebuild.

Income is now set until 2026, and we shall see what the stock market gives us. So, after the next two years we will see where I start to pull income from.

I said all that to say this, advisor made a comment, wow, you are exactly at a 50/50 AA.
Thanks!
I do run Fidelity's retirement income planner software a couple of times a year, but it's mainly for entertainment purposes because there simply are too many differences between my actual holdings and their assumptions as well as how I actually calculate withdrawals vs. what they do:

- My bonds are purely from a TIPS ladder, so there's no rebalancing anymore. Their tool doesn't comprehend that and assumes a constant AA throughout retirement.
- My stock holdings aren't total market nor are my bonds any sort of nominal bond. But their tool only has a limited data set for calculating what spending income would look like and it maps what I have to the closest AA for which they have a full data set.
- Their tool attempts to create constant post-tax spending so it withdraws differently from each account than I do.

Still it's interesting to see what it comes up with.

Cheers.
User avatar
Meg77
Posts: 2872
Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX

Re: 64 YO, advisor recomends 70/30 AA

Post by Meg77 »

Wanderingwheelz wrote: Sun May 12, 2024 12:41 pm
Meg77 wrote: Fri May 10, 2024 7:15 am Yes, I agree a 70/30 AA is reasonable for a 64 year old with a withdrawal rate below 4%. I'm a financial advisor and manage my mother's portfolio. She turns 66 this year and I've got her at 75/25.

There are two ways to look at it. You have oversized so can afford not to take the risk. But yes - you'd be likely leaving millions on the table that your heirs would otherwise receive (or that you could, ahem, find ways spend or give away during your lifetime!). On the other hand, you're very likely to meet your goals anyway, so why NOT take more risk and watch that money pile grow?

Either way, you're fine. But I agree with their system's recommendation. Congrats!
Also, advisors know that their clients are going to pay a pretty hefty fee to them. There’s a STRONG propensity to try to reach for additional returns to help justify the money that’s going to be removed from be assets to get paid.

I think you’d find most advisors would suggest that a prospective client increase their risk so that the fees would be more justified due to the (hopefully) larger returns they’d achieve going forward by owning more risky assets than they other side would have if they were left to chart their own course.

Put another way, I definitely think finacial advisors would agree with the statement “I think my clients can shoulder more risk than they would on their own, since I’m here to talk them off the ledge when risky assets get taken to pieces.” Besides, advisors/portfolio managers just like stocks- it’s where the action is and that’s what they want to talk about, generally. Not bonds and cash- boring..
This seems intuitive, but it has not been my experience. For starters, many advisors (including myself) are employees paid by firms who give us a steady salary and then annual bonuses based partially on portfolio revenue (of the whole team not just me) but also primarily on # of new clients onboarded and total new assets onboarded that year. My clients's asset allocations have very little to do with my annual compensation.

Even if you own your own practice and are directly paid in accordance with the AUM fees you charge, a counter argument could be made for preferring more conservative AAs in order to smooth out volatility of your own income as well as your clients' returns. If you have all your clients in mostly equities, sure over 30 years you may come out ahead - if you even plan to work that long in that one role - but you have to endure those bad market cycles where equities - and your own business income as a result - drops by half or more (clients tend to fire advisors at higher rates during recessions as well).
"An investment in knowledge pays the best interest." - Benjamin Franklin
Topic Author
retireIn2020
Posts: 808
Joined: Sat Jan 04, 2020 5:13 pm

Re: 64 YO, advisor recomends 70/30 AA

Post by retireIn2020 »

Meg77 wrote: Thu May 16, 2024 3:13 pm
Wanderingwheelz wrote: Sun May 12, 2024 12:41 pm
Meg77 wrote: Fri May 10, 2024 7:15 am Yes, I agree a 70/30 AA is reasonable for a 64 year old with a withdrawal rate below 4%. I'm a financial advisor and manage my mother's portfolio. She turns 66 this year and I've got her at 75/25.

There are two ways to look at it. You have oversized so can afford not to take the risk. But yes - you'd be likely leaving millions on the table that your heirs would otherwise receive (or that you could, ahem, find ways spend or give away during your lifetime!). On the other hand, you're very likely to meet your goals anyway, so why NOT take more risk and watch that money pile grow?

Either way, you're fine. But I agree with their system's recommendation. Congrats!
Also, advisors know that their clients are going to pay a pretty hefty fee to them. There’s a STRONG propensity to try to reach for additional returns to help justify the money that’s going to be removed from be assets to get paid.

I think you’d find most advisors would suggest that a prospective client increase their risk so that the fees would be more justified due to the (hopefully) larger returns they’d achieve going forward by owning more risky assets than they other side would have if they were left to chart their own course.

Put another way, I definitely think finacial advisors would agree with the statement “I think my clients can shoulder more risk than they would on their own, since I’m here to talk them off the ledge when risky assets get taken to pieces.” Besides, advisors/portfolio managers just like stocks- it’s where the action is and that’s what they want to talk about, generally. Not bonds and cash- boring..
This seems intuitive, but it has not been my experience. For starters, many advisors (including myself) are employees paid by firms who give us a steady salary and then annual bonuses based partially on portfolio revenue (of the whole team not just me) but also primarily on # of new clients onboarded and total new assets onboarded that year. My clients's asset allocations have very little to do with my annual compensation.

Even if you own your own practice and are directly paid in accordance with the AUM fees you charge, a counter argument could be made for preferring more conservative AAs in order to smooth out volatility of your own income as well as your clients' returns. If you have all your clients in mostly equities, sure over 30 years you may come out ahead - if you even plan to work that long in that one role - but you have to endure those bad market cycles where equities - and your own business income as a result - drops by half or more (clients tend to fire advisors at higher rates during recessions as well).
Meg, I agree with you, prior to retirement I met several advisors, Fidelity, Vanguard, local, etc. all were very cordial and seemed to be true Fiduciaries (my words not theirs).

Having said that I did go to a couple of Steak dinners invitations where they claimed to be fiduciaries but were intent on selling worst products ever.

The strange thing is, Fidelity, Vanguard, locals, never claimed to be a fiduciary. Only the Insurance salesmen made that claim?

The Fee is the Fee, I have relatives that want no part in managing their portfolio. In no way will I impose my bogleheads judgement on them. I just try to make sure they don't get swindled.
https://www.merriam-webster.com/dictionary/abide
john0608
Posts: 180
Joined: Sat Dec 09, 2017 8:22 am

Re: 64 YO, advisor recomends 70/30 AA

Post by john0608 »

retireIn2020 wrote: Fri May 17, 2024 12:27 am
Meg77 wrote: Thu May 16, 2024 3:13 pm
Wanderingwheelz wrote: Sun May 12, 2024 12:41 pm
Meg77 wrote: Fri May 10, 2024 7:15 am Yes, I agree a 70/30 AA is reasonable for a 64 year old with a withdrawal rate below 4%. I'm a financial advisor and manage my mother's portfolio. She turns 66 this year and I've got her at 75/25.

There are two ways to look at it. You have oversized so can afford not to take the risk. But yes - you'd be likely leaving millions on the table that your heirs would otherwise receive (or that you could, ahem, find ways spend or give away during your lifetime!). On the other hand, you're very likely to meet your goals anyway, so why NOT take more risk and watch that money pile grow?

Either way, you're fine. But I agree with their system's recommendation. Congrats!
Also, advisors know that their clients are going to pay a pretty hefty fee to them. There’s a STRONG propensity to try to reach for additional returns to help justify the money that’s going to be removed from be assets to get paid.

I think you’d find most advisors would suggest that a prospective client increase their risk so that the fees would be more justified due to the (hopefully) larger returns they’d achieve going forward by owning more risky assets than they other side would have if they were left to chart their own course.

Put another way, I definitely think finacial advisors would agree with the statement “I think my clients can shoulder more risk than they would on their own, since I’m here to talk them off the ledge when risky assets get taken to pieces.” Besides, advisors/portfolio managers just like stocks- it’s where the action is and that’s what they want to talk about, generally. Not bonds and cash- boring..
This seems intuitive, but it has not been my experience. For starters, many advisors (including myself) are employees paid by firms who give us a steady salary and then annual bonuses based partially on portfolio revenue (of the whole team not just me) but also primarily on # of new clients onboarded and total new assets onboarded that year. My clients's asset allocations have very little to do with my annual compensation.

Even if you own your own practice and are directly paid in accordance with the AUM fees you charge, a counter argument could be made for preferring more conservative AAs in order to smooth out volatility of your own income as well as your clients' returns. If you have all your clients in mostly equities, sure over 30 years you may come out ahead - if you even plan to work that long in that one role - but you have to endure those bad market cycles where equities - and your own business income as a result - drops by half or more (clients tend to fire advisors at higher rates during recessions as well).
Meg, I agree with you, prior to retirement I met several advisors, Fidelity, Vanguard, local, etc. all were very cordial and seemed to be true Fiduciaries (my words not theirs).

Having said that I did go to a couple of Steak dinners invitations where they claimed to be fiduciaries but were intent on selling worst products ever.

The strange thing is, Fidelity, Vanguard, locals, never claimed to be a fiduciary. Only the Insurance salesmen made that claim?

The Fee is the Fee, I have relatives that want no part in managing their portfolio. In no way will I impose my bogleheads judgement on them. I just try to make sure they don't get swindled.
OMG, the steak dinners are the worst, full of retirees that will do anything for a free dinner but have no intention of purchasing anything based on body language and lack of attention, (i went to 2 and saw that same faces at each one - maybe they thought that about me lol), then you get a sales pitch like the one from stress free retirement when all they do is put half your money in treasuries and half into an equity fund but take 10% of your initial investment as a 'fee'....wow, that is so hard to do on your own. 2 was more than enough, I don't need a free dinner that badly.

best thing i got from my free vanguard advisor was advise to stay away from the free dinner sales pitches.
Earlier someone said they meet with their free fidelity advisor 2x per year? god bless you....i find those fidelity and vanguard advisors are worth a single initial visit and nothing more....take notes and see if they say the same thing....they also want you to sign up for their advisor service - although its cheaper than most AUMs it is still a waste of mony.

you are better off paying for a couple hours of recommended hourly fee advisor, someone like Alan Roth, and unless you have a super complicated portfolio you won't need much more than 2 or 3 hours every 3 to 5 years, i have had discussions with Alan Roth but never engaged him on an hourly basis. personally I pay planvision less than $10 per month but that gives me access to a highly compentent CPA that i correspond with whenever i need direction.
Post Reply