Charles Ellis' suggested portfolios by age

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stemikger
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Charles Ellis' suggested portfolios by age

Post by stemikger » Mon Feb 01, 2016 3:56 pm

Every now and then I wonder if Bogleheads as a group are a bit too conservative. I didn't start investing until I was 30 and I was very conservative for my age back then. I held the Couch Potato Portfolio for many years which was 50% in the Total Stock Market Index or S&P and 50% in the Total Bond Index. As I learned and understood that I will be investing for the long term, I knew stocks should be a larger percentage of my portfolio.

Now at the ripe old age of 51, I am 65/35 stocks/bonds. I often see young investors visit us and post their asset allocation and some of them (not all) are very conservative. If I could go back to the age of 30 and was starting all over, I would definitely be much more aggressive because most people that age don't have much too lose.

Even John Bogle tells us to look at social security as part of your fixed income and Warren Buffett is telling us to hold 90% in stocks and 10% in cash. Maybe it's time to focus more about the risk of losing purchasing power over time and running out of money and less about the short term volatility of the stock market. Take a look at what Charles Ellis suggests.

Charles Ellis' suggested portfolios by age

Under 40 years old -- 100% in stocks
40 to 50 years old -- 90% in stocks; 10% in bonds
50 to 60 years old -- 80% in stocks; 20% in bonds
60 to 70 years old -- 60% in stocks; 40% in bonds
70 to 80 years old -- 50% in stocks; 50% in bonds

As always would love to hear your opinions.

Thanks!
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: Charles Ellis' suggested portfolios by age

Post by Toons » Mon Feb 01, 2016 3:58 pm

I like those numbers
65 here
around 75/25 stock bond :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: Charles Ellis' suggested portfolios by age

Post by jrbdmb » Mon Feb 01, 2016 4:12 pm

Toons wrote:I like those numbers
65 here
around 75/25 stock bond :happy


Ah, I see you are following the 140 - Age in Bonds rule. :)

In my shoes as a newer Boglehead, I was aggressive as a younger investor by default, since I didn't pay much attention to my portfolio (which as it turns out was a good thing). But it just doesn't feel right to me to be over 50% in stocks when I hit retirement in a bit more than a decade, so i am slowing ramping down my stock holdings to get to that target. I also remember that in previous bear markets there are always stories of those who had to postpone their retirement due to the haircut they took in the crash.

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Investing Gems by Charles Ellis

Post by Taylor Larimore » Mon Feb 01, 2016 4:22 pm

stemiker:

Charles Ellis is one of my investing heroes. These are "Investment Gems" taken from his book, Winning The Loser's Game:
"Successful investing does not depend on "beating the market."

"Advice doesn't have to be complicated to be good."

"Investors all too often delegate--or more accurately abdicate--to their investment managers responsibilities which they can and should keep for themselves."

"The problem with trying to beat the market is that professional investors are so talented, so numerous, and so dedicated to their work that as a group they make it very difficult for any one of their number to do significantly better than the others, particularly in the long run."

"It's not how good you are that counts, but how good you are compared with your competitors."

"Trying to beat the market is so extraordinarily difficult to do, and so easy while trying to 'do better' -- to do worse."

"Over and over again, facts and figures inform us that investment managers are failing to "perform," that is, to beat the market."

"Investment managers are not beating the market; the market is beating them."

"The historical record is that in the 25 years ending with 1997, on a cumulative basis, over three-quarters of professionally managed funds underperformed the S&P 500 Market Stock Average."

"90% of trading is by seasoned professionals."

"Managers that have had superior results in the past are unlikely to have superior results in the future."

"Regression to the mean (the tendency for behavior to move toward "normal" or average) is a persistently powerful phenomenon in physics and sociology--and in investing."

"Very few investors have been able to outsmart and outmaneuver other investors enough to beat the market consistently over the long term."

"The evidence on investment managers' success with market timing is impressive--and overwhelmingly negative."

"Decisions that are driven by either greed or fear are usually wrong, usually late, and very unlikely to be reversed correctly."

"Don't even consider trying to outguess the market or out maneuver the professionals to "sell high" and to "buy low." You'll fail, perhaps disastrously."

"There is no evidence of any large institutions having anything like consistent ability to get in when the market is low and get out when the market is high."

"The stock market is fascinating and very deceptive--in the short run. In the very long run, the market is almost boringly reliable and predictable."

"If you--like Walter Mitty--still fantasize that you can and will beat the pros, you'll need both luck and prayer."

"The largest part of any portfolio's total long-term returns will come from the simplest investment decision that can be made, and by far the easiest to implement: buying the market."

"Hopelessly unpopular with investment managers and with most clients, the uninspiring, dull "market portfolio" is seldom given anything like the respect it deserves." Ploding along in its unimaginative inexpensive, "no brainer" way, this "plain Jane" form of investing will, over time, achieve better results than most professional investment managers."

"Investors would be wise to devote more attention to understanding the real advantages offered by the market fund."

"Because portfolio turnover in an index fund is very low--about 5%--while the turnover of actively managed mutual funds typically average between 75% and 125% and includes significant amounts of short-term gains, investors pay far less in taxes with an index fund."

"The problem is not in the market, but in ourselves."

"During the 15 years from 1982 to 1997, mutual funds averaged approximately 15% in annual returns. However, mutual fund investors averaged only 10%. Why? Because instead of developing an astute long-term investing program and staying with it, investors jumped around from one fund to another."

"Don't just do something, stand there."

"While you cannot beat the market, you can certainly avoid the problems other investors are making for themselves by trying to hard."

"Short-term risk should not be a major concern to long-term investors."

"The single most important dimension of investment policy is asset mix, particularly the ratio of fixed-income investments to equity investments."

"Investors devote most of their time and skill trying to increase returns from changes in market prices--by outsmarting each other. They are making a big mistake."

"Treasury bills are usually no more than a match for inflation."

"When asked what he considered man's most powerful discovery, Albert Einstein replied without hesitation: "Compound interest.""

"Riskiness is akin to uncertainty in investing."

"The great advantage of an index fund, a portfolio that replicates the overall market, is this: Such a fund provide a convenient and inexpensive way to invest in equities, with the riskiness of particular market segments and specific issues diversified away."

"Managing market risk is the primary objective of investment management."

"If you do not need to sell and don't sell, you really shouldn't much care about the nominal fluctuations of stock prices."

"An efficient portfolio maximizes expected returns at a deliberately chosen level of market risk."

"The great secret for success in long-term investing is to avoid serious losses."

"The principal reason you should articulate your long-term investment policy explicitly and in writing is to protect your portfolio from ad hoc revisions of long long-term policy."

"The main reason for studying and understanding investments and markets: To protect our portfolios from ourselves."

"Most investors experience great anxiety over large-scale, sudden and frightening losses in portfolio value primarily because they have not been well informed in advance that these events are expected and considered normal by those who have studied and understand the long history of stock markets."

"Don't confuse brains with a bull market."

"Factors that most affect the prices of securities (fear, greed, inflation, politics, economic news, business profits, investors' expectations, and so forth) never cease to change."

"Statisticians debate amongt themselves whether it takes 40, 60, or 80 years to determine definitively where the incremental return obtained by a particular portfolio is attributable to luck or to skill."

"Almost always, the most important factor in the reported performance of an investor or a professional investment manger is not his or her skill but the choice of starting date and ending date."

"Short-term thinking is the enemy of long-term investment success."

"Never risk more than you know you can afford to lose."

"It makes sense to concentrate on one or two fund families whose long-term investment results and business values and practices you respect."

"Like Icarus, trying too hard can lead to serious harm. Switching around among mutual funds is what causes the average mutual fund investor to obtain long-term returns that produce a distressing one-third less than the average mutual fund."

"Short-term losses are an unavoidable cost of long-term investment success."

"The long, sad history of market timing is clear: Virtually nobody gets it right even half the time."

"Never terminate a (mutual) fund manager solely for below-market performance over a several-year period."

"For individual investors, inflation is the major problem most of the time" (4% inflation for 18 years cuts money in half).

"If you find yourself getting caught up in the excitement of a rising market or distressed by a falling market, stop. Break it off. Go for a walk and cool down. Otherwise, you will start making errors, grave errors that you will regret."

"Don't buy on tips. Ever."

"Don't do anything in investing primarily for "tax reasons."

"Never do commodities. Consider the experience of a commodities broker who, over a decade, advised nearly 1,000 customer on commodities. How many made money? Not even one."

"Don't be confused about stockbrokers. They are usually very nice people, but their job is not to make money for you. Their job is to make money from you."

"Don't invest in new or "interesting" investments."

"The secret to long-term investment success is benign neglect. Don't try too hard. Leave compounding alone to do its good work for you."

"How your investments behave is beyond your control. But how you behave in response to their fluctuation is within your control."

"Most people underestimate both the compounding impact of inflation and the onerous cost of end-of-life health care."

"Don't change your investments just because you have come to a different age."

"Inflation is the ruthless, unrelenting destroyer of your capital. To purchase an item costing $100 in 1960 would have cost $500 in 1995."

"The key to getting out of debt is clear: Save! A lifetime based on the habit of thrift--spending less than you might and deferring the spending you do-- is essential to saving."

"Taxes and inflation are rightly called fearsome "fiscal pirates."

"Retirement is expensive--partly because we live longer than did our parents and grandparents, and partly because inflation can be such a powerful and unrelenting opponent."

"Any funds that will be invested for less than two to three years should be in "cash" or money market instruments."

"Providing for your retirement is one of three important challenges. Bequests and gifts to those you love is another. The third--"giving back" to our society--can be exciting and fulfilling."

"A large inheritance is not necessarily wonderful for your children."

"You'll want to get expert legal advice when formulating a sound estate plan."

"Everyone who can qualify for an Individual Retirement Account (IRA) should have one."

"Any guy who dies with more than $10 grand has made a mistake." (Errol Flynn quote)

"Most of the managers and clients who insist on trying to beat the market, either on their own or with professional managers, will be disappointed by the results. It is a loser's game.

"You should set your portfolios' asset mix at the highest ratio of equities that your economic and emotional limitations can afford and sustain over the long term."

"You must understand the turbulent nature of markets in the short term and the basic consistency of market in the long term."

"To win the loser's game of "beating the market" is easy: Don't play it."

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Charles Ellis' suggested portfolios by age

Post by Levett » Mon Feb 01, 2016 4:26 pm

"As always would love to hear your opinions."

My opinion is that Charles Ellis has his opinion, which is one of many, but it is is not my opinion (or practice). :idea:

Lev

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Re: Charles Ellis' suggested portfolios by age

Post by Jebediah » Mon Feb 01, 2016 4:29 pm

It's not really a good question, because it totally depends on how much money you have. If you're 40 and have 100K, then sure why not go 100% stocks. If you're 40 and have $5 million, then you could reasonably consider 0% stocks.

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Re: Charles Ellis' suggested portfolios by age

Post by joebh » Mon Feb 01, 2016 4:34 pm

It would be foolish to use age as the sole variable when deciding your portfolio.

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Re: Investing Gems by Charles Ellis

Post by joebh » Mon Feb 01, 2016 4:36 pm

Taylor Larimore wrote:stemiker:

Charles Ellis is one of my investing heroes. These are "Investment Gems" taken from his book, Winning The Loser's Game:

"Any guy who dies with more than $10 grand has made a mistake." (Errol Flynn quote)
"


Best wishes
Taylor


Hmm, not much of a gem, IMHO. Perhaps Errol Flynn didn't have a wife or family?

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Re: Charles Ellis' suggested portfolios by age

Post by Van » Mon Feb 01, 2016 4:37 pm

joebh wrote:It would be foolish to use age as the sole variable when deciding your portfolio.


+1

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Re: Charles Ellis' suggested portfolios by age

Post by tomd37 » Mon Feb 01, 2016 4:41 pm

As a retired couple 78 and 80, I think Mr. Ellis' percentages are a bit high for us under our personal circumstances. Mainly because our assets are such that we no longer "need" to take risk" even though we have the "ability" and "willingness" to take risk. Mid-year last year we made that decision and dialed back from a 50-50 to a 40-60 stock/bond ratio using the basic three plus the REIT Index, having held the latter for the past fifteen years at somewhere between seven and ten percent of the portfolio. As they say "if the shoe fits and is comfortable, wear it".
Tom D.

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Re: Charles Ellis' suggested portfolios by age

Post by Peter Foley » Mon Feb 01, 2016 4:43 pm

I think that except for the first few years of investing, one should always have at least 10% in bonds. My approach was not far off from Charlie's - early on it was a back of the envelope approach, not one I arrived at after careful study. Pre Bogleheads I had never thought about risk tolerance or rebalancing.

My numbers in red in contrast to Charie's recommendation:

Charles Ellis' suggested portfolios by age

Under 40 years old -- 100% in stocks - I was about 90/10 - I had access to a very good stable value fund, not a lot of skin in the game at this point
40 to 50 years old -- 90% in stocks; 10% in bonds - same as Charlie
50 to 60 years old -- 80% in stocks; 20% in bonds - I went slowly to 80/20 based on 2000 market correction and then to 70/30 based on 2008 market correction 60 to 61 years old - slowly rebalanced to a more conservative 45/55 as I approached my retirement date
60 to 70 years old -- 60% in stocks; 40% in bonds - at age 63 (1.5 years post retirement) began to let portfolio shift to 50/50 - a couple good market years helped!
70 to 80 years old -- 50% in stocks; 50% in bonds - that is my intention as well

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Re: Charles Ellis' suggested portfolios by age

Post by Van » Mon Feb 01, 2016 5:01 pm

Too stock heavy for my taste. 50% in stocks at age 80!!!!!

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Re: Charles Ellis' suggested portfolios by age

Post by jrbdmb » Mon Feb 01, 2016 5:11 pm

Jebediah wrote:It's not really a good question, because it totally depends on how much money you have. If you're 40 and have 100K, then sure why not go 100% stocks. If you're 40 and have $5 million, then you could reasonably consider 0% stocks.


Then again, if you have $5 million, going aggressive isn't going to hurt that much. After all Buffet expects his wife to go 90% stocks when she inherits his trust fund.

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Re: Charles Ellis' suggested portfolios by age

Post by jhfenton » Mon Feb 01, 2016 5:31 pm

stemikger wrote:Charles Ellis' suggested portfolios by age

Under 40 years old -- 100% in stocks
40 to 50 years old -- 90% in stocks; 10% in bonds
50 to 60 years old -- 80% in stocks; 20% in bonds
60 to 70 years old -- 60% in stocks; 40% in bonds
70 to 80 years old -- 50% in stocks; 50% in bonds

As always would love to hear your opinions.

That's essentially what I'm doing, except that I'm basically drawing a line from 100/0 at age 45 (last year) to 60/40 at age 65 and gliding from point A to point B using new money to shift the allocation. I find that easier to manage mentally than sticking a static allocation that I arbitrarily shift by 5%, 10%, or 20% on a random day.

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Re: Charles Ellis' suggested portfolios by age

Post by grok87 » Mon Feb 01, 2016 5:45 pm

Van wrote:
joebh wrote:It would be foolish to use age as the sole variable when deciding your portfolio.


+1

Agree. I respectfully disagree with Mr. Ellis's advice for most people. The trouble is it is basically hindsight bias. To be blunt, the perspective of an older successful gentleman looking back at his youth and saying "hey i could have been a lot more aggressive investor when i was younger."

But for those fresh out of college and trying to make their way in the world the future is "the undiscovered country" [apologies to shakespeare/hamlet and star-trek] We don't know what will happen. Will the US be plunged into a great depression? Will there be a world war 3? Will the job i learnd in college be replaced by a robot.

Rather than listen to Mr. Ellis's advice, i would advise listening to an even more ancient source of wisdom, the Talmud: 1/3 in stocks ("business"), 1/3 in real estate ("land"), and 1/3 in cash/bonds ("reserve")

Cheers,
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

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Re: Investing Gems by Charles Ellis

Post by Taylor Larimore » Mon Feb 01, 2016 7:03 pm

joebh wrote:
Taylor Larimore wrote:stemiker:

Charles Ellis is one of my investing heroes. These are "Investment Gems" taken from his book, Winning The Loser's Game:

"Any guy who dies with more than $10 grand has made a mistake." (Errol Flynn quote)
"


Best wishes
Taylor


Hmm, not much of a gem, IMHO. Perhaps Errol Flynn didn't have a wife or family?

Joe:

Errol Flynn's quote is not as far-fetched as it sounds. For example, I have reached age 92. My wife is gone. I have good health insurance and pension income. Accordingly, I am giving my heirs their inheritance now.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Charles Ellis' suggested portfolios by age

Post by surfstar » Mon Feb 01, 2016 7:07 pm

jrbdmb wrote:
Toons wrote:I like those numbers
65 here
around 75/25 stock bond :happy


Ah, I see you are following the 140 - Age in Bonds rule. :)


Or the Bonds in what age you feel?

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Re: Charles Ellis' suggested portfolios by age

Post by Nowizard » Mon Feb 01, 2016 7:13 pm

One factor for those well into retirement years is whether they are investing with an eye toward making their money last or whether they are "investing for their heirs" due to either having significant assets or assured payouts from pensions, annuities or social security. The latter group may be more aggressive than recommended. We are fortunate enough to be in this group, primarily due to being 100% in stocks/funds until about age 55, a move that was totally ignorant, as we now know, but that worked to our advantage. Now are at 60/40 rather than the recommended 50/50.

Tim

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Re: Charles Ellis' suggested portfolios by age

Post by David Jay » Mon Feb 01, 2016 7:31 pm

I think some of the recent studies of re-balancing would imply that an 80:20 portfolio with trigger based re-balancing may well outperform 100% stocks, as well as providing a bit of a volatility cushion.

I was 100% in stocks into my mid-50s (I am immune to volatility: 1987, 2000, 2008), but I can no longer recommend 100% stocks to young investors if they are willing to check their portfolio once-a-month (minimum, once-a-quarter) and re-balance if the trigger has been reached.
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Re: Charles Ellis' suggested portfolios by age

Post by joe8d » Mon Feb 01, 2016 8:18 pm

I agree with Charles Ellis suggestions. 73.5 and 50/50.
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Re: Charles Ellis' suggested portfolios by age

Post by Artsdoctor » Mon Feb 01, 2016 8:32 pm

If someone tried to tell me that I should have an 80/20 portfolio, I'd walk away.

Everyone's situation is so different, it's inconceivable to me how someone could make any blanket statement such as asset allocation based on age alone.

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Re: Charles Ellis' suggested portfolios by age

Post by TMCD75 » Mon Feb 01, 2016 8:42 pm

Taylor, I think more people need to look into doing it your way. Giving and helping your heirs while you are alive and can witness its tremendous influence in their lives is awesome.

I applaud you for this, most people simply won't do this.

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Re: Charles Ellis' suggested portfolios by age

Post by sergeant » Tue Feb 02, 2016 1:22 am

Maybe 10k was a good sum when Mr. Flynn made this comment.

I think giving allocation advice based simply on age isn't the best way to help people. A lot more goes into it than just age.
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Re: Charles Ellis' suggested portfolios by age

Post by stemikger » Tue Feb 02, 2016 1:29 am

Thanks for the responses! I am currently 65/35 and think I will stay the course!

Taylor, thank you for the gems by Charlie Ellis! I always learn something from them!
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Re: Charles Ellis' suggested portfolios by age

Post by mlebuf » Tue Feb 02, 2016 1:52 am

I see nothing wrong with Charles Ellis's advice for asset allocation. I'm almost 74 and have a 50-50 asset allocation. A late friend and mentor who wrote a number of personal finance books kept a 60 percent stocks, 40 percent bonds portfolio for life and left a sizable estate at age 91.

When all is said and done, the best asset allocation plan is one that doesn't keep us awake at night or worry us no matter what Mr. Market does.
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Re: Charles Ellis' suggested portfolios by age

Post by IPer » Tue Feb 02, 2016 2:03 am

stemikger wrote:Charles Ellis' suggested portfolios by age

Under 40 years old -- 100% in stocks
40 to 50 years old -- 90% in stocks; 10% in bonds
50 to 60 years old -- 80% in stocks; 20% in bonds
60 to 70 years old -- 60% in stocks; 40% in bonds
70 to 80 years old -- 50% in stocks; 50% in bonds

As always would love to hear your opinions.

Thanks!


It turns out mine will look more like this, but conceptually close:

Under 40 years old -- 90% in stocks
40 to 50 years old -- 85% in stocks; 15% in bonds
50 to 60 years old -- 80% in stocks; 20% in bonds
60 to 70 years old -- 65% in stocks; 35% in bonds
70 to 80 years old -- 50% in stocks; 50% in bonds

But I believe as some have commented that age should be part of the equation. I also believe that if one has enough
that it doesn't matter as much and when it does matter it doesn't because one is subject to the market winds
and other winds to such an extent. It seems mostly psychological. Mr Jack Bogle doesn't really need 50% in stock
or 50% in bonds, specifically, he can be 100% stock / 100% bonds or any combination and it really wouldn't matter.
I, on the other hand, should not be below 60% stocks today. I am taking a glide path from 50 to 70 buying into bonds
primarily to reach my final 50/50 allocation, as another posted stated, much less to worry about that way. Thank you
Taylor for the great quotes and for putting the 10K quote in good perspective!

I also want to say that it seems many folk look at bonds as a pill that must be swallowed. I can now say from experience
one cannot really appreciate bonds for their own sake until they have owned them for a while. And yes, I owned equities
since 1994 and through until today, just in case someone was wondering. But I have really only owned bonds, separate from
general mutual funds (bad mutual funds, not Vanguard) for the last 15 or so years. And only recently am I starting to really
appreciate them (or so I think).
Last edited by IPer on Tue Feb 02, 2016 2:22 am, edited 1 time in total.
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Re: Charles Ellis' suggested portfolios by age

Post by saltycaper » Tue Feb 02, 2016 2:10 am

"Never risk more than you know you can afford to lose."


Context is missing, of course, but I cringe every time I see this quote. It seldom meshes with the rest of the advice given.

I'm also in favor of ending the practice of recommending asset allocation by age.
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Re: Charles Ellis' suggested portfolios by age

Post by hnzw rui » Tue Feb 02, 2016 2:39 am

stemikger wrote:Even John Bogle tells us to look at social security as part of your fixed income and Warren Buffett is telling us to hold 90% in stocks and 10% in cash. Maybe it's time to focus more about the risk of losing purchasing power over time and running out of money and less about the short term volatility of the stock market.

That 90/10 is for Buffett's wife who, I'm presuming, will have sufficient assets in the 10% treasuries portion that even if the 90% stock allocation halves in value, it would not make a meaningful difference in her standard of living. Losing purchasing power due to inflation is a genuine concern but you also have to balance that with the possibility of your portfolio not being able to recover in the short term due to a prolonged bear market during the early years of decumulation.

Buffett's more generic advice is keep enough in cash/cash equivalents so you can sleep at night and the rest in a low cost S&P 500 index fund.

stemikger wrote:Take a look at what Charles Ellis suggests.

Charles Ellis' suggested portfolios by age

Under 40 years old -- 100% in stocks
40 to 50 years old -- 90% in stocks; 10% in bonds
50 to 60 years old -- 80% in stocks; 20% in bonds
60 to 70 years old -- 60% in stocks; 40% in bonds
70 to 80 years old -- 50% in stocks; 50% in bonds

My plan (retirement at 55):

Under 45 years old -- 90/10
45 to 55 years old -- gradual transition from 90/10 to 30/70
55 to 65 years old -- gradual transition from 30/70 to 60/40 or 70/30 or 80/20
60+ years old -- 60/40 or 70/30 or 80/20

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Re: Charles Ellis' suggested portfolios by age

Post by stemikger » Tue Feb 02, 2016 4:11 am

hnzw rui wrote:
stemikger wrote:Even John Bogle tells us to look at social security as part of your fixed income and Warren Buffett is telling us to hold 90% in stocks and 10% in cash. Maybe it's time to focus more about the risk of losing purchasing power over time and running out of money and less about the short term volatility of the stock market.

That 90/10 is for Buffett's wife who, I'm presuming, will have sufficient assets in the 10% treasuries portion that even if the 90% stock allocation halves in value, it would not make a meaningful difference in her standard of living. Losing purchasing power due to inflation is a genuine concern but you also have to balance that with the possibility of your portfolio not being able to recover in the short term due to a prolonged bear market during the early years of decumulation.

Buffett's more generic advice is keep enough in cash/cash equivalents so you can sleep at night and the rest in a low cost S&P 500 index fund.

stemikger wrote:Take a look at what Charles Ellis suggests.

Charles Ellis' suggested portfolios by age

Under 40 years old -- 100% in stocks
40 to 50 years old -- 90% in stocks; 10% in bonds
50 to 60 years old -- 80% in stocks; 20% in bonds
60 to 70 years old -- 60% in stocks; 40% in bonds
70 to 80 years old -- 50% in stocks; 50% in bonds

My plan (retirement at 55):

Under 45 years old -- 90/10
45 to 55 years old -- gradual transition from 90/10 to 30/70
55 to 65 years old -- gradual transition from 30/70 to 60/40 or 70/30 or 80/20
60+ years old -- 60/40 or 70/30 or 80/20


Interesting. I believe this is what Wade Pfau recommends. Early in retirement go very conservative with your stock allocation and as you get older get more aggressive. Not sure if I feel comfortable with this. So far my plan is to stay where I am and eventually land at a permanent allocation of 50/50. I believe that will be enough diversification for the rest of my natural life.
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Re: Charles Ellis' suggested portfolios by age

Post by zaboomafoozarg » Tue Feb 02, 2016 6:12 am

Net worth is another variable that can be used.

I'm 80/20 until $1 million, then reassessing at that point.

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Re: Charles Ellis' suggested portfolios by age

Post by Call_Me_Op » Tue Feb 02, 2016 6:16 am

I like Charlie, but I don't believe that age is the only determining factor for asset allocation - far from it. His recommendations are far too aggressive for me.

As far as Buffets 90/10 suggestion, I think this is great for his wife, who will inherit $1 billion, and therefore have $100 million in cash. In other words, it doesn't matter to her if the stock market goes to zero. For the rest of us - it matters a lot.
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Re: Charles Ellis' suggested portfolios by age

Post by IowaFarmBoy » Tue Feb 02, 2016 7:11 am

joebh wrote:It would be foolish to use age as the sole variable when deciding your portfolio.


+1

It seems like when you plan to retire/need the money is another huge factor. I don't think I would be comfortable with 80/20 at 60 if I was retired already or nearly there. I'm 57 planning on retiring at 65, currently 70/30. Probably going to move toward 60/40 by 65. Also, I am building a separate pool of cash/bond to cover the gap between retiring at 65 and starting SS at 70 so my bond portion is higher but I think this is a good way to think about it. I'm probably not touching the investment portfolio till RMDs kick in 14 years from now.

I think I have seen studies that show that there isn't much difference in performance between 100% stock and 75/25. The 75/25 has a lot less volatility. I'm sure those studies are greatly dependent on the time period(s) chosen.

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Re: Investing Gems by Charles Ellis

Post by joebh » Tue Feb 02, 2016 7:51 am

Taylor Larimore wrote:
joebh wrote:
Taylor Larimore wrote:stemiker:

Charles Ellis is one of my investing heroes. These are "Investment Gems" taken from his book, Winning The Loser's Game:

"Any guy who dies with more than $10 grand has made a mistake." (Errol Flynn quote)
"


Best wishes
Taylor


Hmm, not much of a gem, IMHO. Perhaps Errol Flynn didn't have a wife or family?

Joe:

Errol Flynn's quote is not as far-fetched as it sounds. For example, I have reached age 92. My wife is gone. I have good health insurance and pension income. Accordingly, I am giving my heirs their inheritance now.

Best wishes.
Taylor


The word "any" makes the quote simply wrong.

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Re: Charles Ellis' suggested portfolios by age

Post by AviN » Tue Feb 02, 2016 8:58 am

stemikger wrote:Now at the ripe old age of 51, I am 65/35 stocks/bonds. I often see young investors visit us and post their asset allocation and some of them (not all) are very conservative. If I could go back to the age of 30 and was starting all over, I would definitely be much more aggressive because most people that age don't have much too lose.


It's easy to say that when you can look back in time and see how the stock market performed over the past 20 years and observe that everything turned out very well in the end for the 100% stock investor. Unfortunately, us young people can't look at stock market performance 20 years into the future. :confused

Avi

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Re: Charles Ellis' suggested portfolios by age

Post by stemikger » Tue Feb 02, 2016 9:12 am

Deleted. Sorry duplicate post.
Last edited by stemikger on Tue Feb 02, 2016 9:19 am, edited 1 time in total.
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Re: Charles Ellis' suggested portfolios by age

Post by stemikger » Tue Feb 02, 2016 9:14 am

AviN wrote:
stemikger wrote:Now at the ripe old age of 51, I am 65/35 stocks/bonds. I often see young investors visit us and post their asset allocation and some of them (not all) are very conservative. If I could go back to the age of 30 and was starting all over, I would definitely be much more aggressive because most people that age don't have much too lose.


It's easy to say that when you can look back in time and see how the stock market performed over the past 20 years and observe that everything turned out very well in the end for the 100% stock investor. Unfortunately, us young people can't look at stock market performance 20 years into the future. :confused

Avi


I agree. However, the point I wanted to make is that many (including myself) may be looking at risk wrong.

The below is from Warren Buffett's annual letter to the shareholders and it may make people look at risk in a different way. As John Bogle has once said, there are no lead pipe cinch's in this world.

If the investor, instead, fears price volatility, erroneously viewing it as a measure of risk, he may,
ironically, end up doing some very risky things. Recall, if you will, the pundits who six years ago bemoaned falling
stock prices and advised investing in “safe” Treasury bills or bank certificates of deposit. People who heeded this
sermon are now earning a pittance on sums they had previously expected would finance a pleasant retirement. (The
S&P 500 was then below 700; now it is about 2,100.) If not for their fear of meaningless price volatility, these
investors could have assured themselves of a good income for life by simply buying a very low-cost index fund
whose dividends would trend upward over the years and whose principal would grow as well (with many ups and
downs, to be sure).

Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do. Active
trading, attempts to “time” market movements, inadequate diversification, the payment of high and unnecessary fees
to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of
equities would otherwise enjoy. Indeed, borrowed money has no place in the investor’s tool kit: Anything can
happen anytime in markets. And no advisor, economist, or TV commentator – and definitely not Charlie nor I – can
tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.
The commission of the investment sins listed above is not limited to “the little guy.” Huge institutional
investors, viewed as a group, have long underperformed the unsophisticated index-fund investor who simply sits
tight for decades. A major reason has been fees: Many institutions pay substantial sums to consultants who, in turn,
recommend high-fee managers. And that is a fool’s game.

There are a few investment managers, of course, who are very good – though in the short run, it’s difficult
to determine whether a great record is due to luck or talent. Most advisors, however, are far better at generating high
fees than they are at generating high returns. In truth, their core competence is salesmanship. Rather than listen to
their siren songs, investors – large and small – should instead read Jack Bogle’s The Little Book of Common Sense
Investing.
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Re: Charles Ellis' suggested portfolios by age

Post by flyingaway » Tue Feb 02, 2016 9:17 am

I think there is no shoe that fits all people. The key word is risk tolerance.

I am in the early 50, 85% stocks, 15% CDs, no bonds. I have not felt anything since 2010 when I started paying attention to my investments. I would have 100% stocks if the CDs were not long-term. The reason: I am still getting salary.

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Re: Charles Ellis' suggested portfolios by age

Post by BlackStrat » Tue Feb 02, 2016 9:18 am

55 and 70/30 although I wish I had been more conservative the last 1/2 year!

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Re: Charles Ellis' suggested portfolios by age

Post by stemikger » Tue Feb 02, 2016 9:20 am

BlackStrat wrote:55 and 70/30 although I wish I had been more conservative the last 1/2 year!


Wow! It appears I'm more conservative than I thought. I'm 51 and 65/35.

Mainly because of this video by Jack. It made the most sense to me.

https://www.youtube.com/watch?v=k6ra5POdsYg
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Warren Buffet's advice

Post by Taylor Larimore » Tue Feb 02, 2016 9:35 am

stemikger:

Thank you for posting the important excerpt from Warren Buffet's Letter to Shareholders. It should be read by every investor.

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Warren Buffet's advice

Post by stemikger » Tue Feb 02, 2016 10:26 am

Taylor Larimore wrote:stemikger:

Thank you for posting the important excerpt from Warren Buffet's Letter to Shareholders. It should be read by every investor.

Best wishes
Taylor


My pleasure Taylor! I agree, every investor will benefit from the advice and of course reading Jack's book!

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Re: Charles Ellis' suggested portfolios by age

Post by dkturner » Tue Feb 02, 2016 10:49 am

grok87 wrote:
Van wrote:
joebh wrote:It would be foolish to use age as the sole variable when deciding your portfolio.


+1

Agree. I respectfully disagree with Mr. Ellis's advice for most people. The trouble is it is basically hindsight bias. To be blunt, the perspective of an older successful gentleman looking back at his youth and saying "hey i could have been a lot more aggressive investor when i was younger."

But for those fresh out of college and trying to make their way in the world the future is "the undiscovered country" [apologies to shakespeare/hamlet and star-trek] We don't know what will happen. Will the US be plunged into a great depression? Will there be a world war 3? Will the job i learnd in college be replaced by a robot.

Rather than listen to Mr. Ellis's advice, i would advise listening to an even more ancient source of wisdom, the Talmud: 1/3 in stocks ("business"), 1/3 in real estate ("land"), and 1/3 in cash/bonds ("reserve")

Cheers,


David Swensen, the investment manager of the Yale University endowment, recommends something similar to the TalmudicTrio. His recommendations are 1/2 stocks, 1/5 real estate investment investment trusts and 3/10 bonds. If one were to throw the family castle into the mix it would approach equal shares for many investors.

I haven't seen much discussion of Swensen's portfolio (other than the issue of did he or didn't he reduce REITs and increase emerging market stocks) recently.

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Re: Charles Ellis' suggested portfolios by age

Post by hnzw rui » Tue Feb 02, 2016 10:51 am

stemikger wrote:
hnzw rui wrote:Buffett's more generic advice is keep enough in cash/cash equivalents so you can sleep at night and the rest in a low cost S&P 500 index fund.

My plan (retirement at 55):

Under 45 years old -- 90/10
45 to 55 years old -- gradual transition from 90/10 to 30/70
55 to 65 years old -- gradual transition from 30/70 to 60/40 or 70/30 or 80/20
60+ years old -- 60/40 or 70/30 or 80/20

Interesting. I believe this is what Wade Pfau recommends. Early in retirement go very conservative with your stock allocation and as you get older get more aggressive. Not sure if I feel comfortable with this. So far my plan is to stay where I am and eventually land at a permanent allocation of 50/50. I believe that will be enough diversification for the rest of my natural life.

Yup, I read the Pfau and Kitces article. Even before that though, I was already planning on something similar via a bucket strategy. Indeed, my decumulation plan will probably be implemented through the use of a bucket strategy rather than strategic adjustment of AA.

I guess for me, the "forever" allocation boils down to how large the portfolio grows. It's easier to go more aggressive with a $10M portfolio than it is with just $1M. For decumulation, I pretty much plan to follow Warren Buffett's advice: keep enough in cash (treasuries, US savings bonds, FDIC insured CDs, etc) to sleep well at night and invest the rest. Granted, rest will be 70/30 or 60/40 Total Stock VTSAX and Total International Stock VTIAX instead of just the S&P 500.

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Re: Charles Ellis' suggested portfolios by age

Post by grok87 » Tue Feb 02, 2016 11:45 am

dkturner wrote:
grok87 wrote:
Van wrote:
joebh wrote:It would be foolish to use age as the sole variable when deciding your portfolio.


+1

Agree. I respectfully disagree with Mr. Ellis's advice for most people. The trouble is it is basically hindsight bias. To be blunt, the perspective of an older successful gentleman looking back at his youth and saying "hey i could have been a lot more aggressive investor when i was younger."

But for those fresh out of college and trying to make their way in the world the future is "the undiscovered country" [apologies to shakespeare/hamlet and star-trek] We don't know what will happen. Will the US be plunged into a great depression? Will there be a world war 3? Will the job i learnd in college be replaced by a robot.

Rather than listen to Mr. Ellis's advice, i would advise listening to an even more ancient source of wisdom, the Talmud: 1/3 in stocks ("business"), 1/3 in real estate ("land"), and 1/3 in cash/bonds ("reserve")

Cheers,


David Swensen, the investment manager of the Yale University endowment, recommends something similar to the TalmudicTrio. His recommendations are 1/2 stocks, 1/5 real estate investment investment trusts and 3/10 bonds. If one were to throw the family castle into the mix it would approach equal shares for many investors.

I haven't seen much discussion of Swensen's portfolio (other than the issue of did he or didn't he reduce REITs and increase emerging market stocks) recently.

Yeah that's where i got it from. IIRC swensen either refers to the talmud quote or references roger gibbons(?) who cites it.
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Re: Investing Gems by Charles Ellis

Post by SpringMan » Tue Feb 02, 2016 12:03 pm

joebh wrote:
Taylor Larimore wrote:
joebh wrote:
Taylor Larimore wrote:stemiker:

Charles Ellis is one of my investing heroes. These are "Investment Gems" taken from his book, Winning The Loser's Game:

"Any guy who dies with more than $10 grand has made a mistake." (Errol Flynn quote)
"


Best wishes
Taylor


Hmm, not much of a gem, IMHO. Perhaps Errol Flynn didn't have a wife or family?

Joe:

Errol Flynn's quote is not as far-fetched as it sounds. For example, I have reached age 92. My wife is gone. I have good health insurance and pension income. Accordingly, I am giving my heirs their inheritance now.

Best wishes.
Taylor


The word "any" makes the quote simply wrong.

I agree that quote is simply wrong even keeping in mind Errol Flynn died in 1959. $10 grand back then is different than it is in 2016. The problem of giving inheritance away while still alive is the recipient losses the stepped up cost basis on appreciated assets.
Best Wishes, SpringMan

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Re: Investing Gems by Charles Ellis

Post by bmelikia » Tue Feb 02, 2016 5:02 pm

SpringMan wrote:
joebh wrote:
Taylor Larimore wrote:
joebh wrote:
Taylor Larimore wrote:stemiker:

Charles Ellis is one of my investing heroes. These are "Investment Gems" taken from his book, Winning The Loser's Game:

Best wishes
Taylor


Hmm, not much of a gem, IMHO. Perhaps Errol Flynn didn't have a wife or family?

Joe:

Errol Flynn's quote is not as far-fetched as it sounds. For example, I have reached age 92. My wife is gone. I have good health insurance and pension income. Accordingly, I am giving my heirs their inheritance now.

Best wishes.
Taylor


The word "any" makes the quote simply wrong.

I agree that quote is simply wrong even keeping in mind Errol Flynn died in 1959. $10 grand back then is different than it is in 2016. The problem of giving inheritance away while still alive is the recipient losses the stepped up cost basis on appreciated assets.


Depends on the "inheritance" - could just be that giving heirs their inheritance now means gifting 14k cash per year per individual and not having that count towards estate
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Re: Charles Ellis' suggested portfolios by age

Post by Raybo » Tue Feb 02, 2016 5:58 pm

I set my AA at the depths of the 2008 market plunge when I stopped selling bonds and buying (plunging) stock as my fear overcame my willingness to buy on the way down. At that time, I had 40% stocks. I've stuck with that percentage accepting that it equates with my risk tolerance.
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Re: Charles Ellis' suggested portfolios by age

Post by fourwedge » Tue Feb 02, 2016 6:05 pm

stemikger wrote:Every now and then I wonder if Bogleheads as a group are a bit too conservative. I didn't start investing until I was 30 and I was very conservative for my age back then. I held the Couch Potato Portfolio for many years which was 50% in the Total Stock Market Index or S&P and 50% in the Total Bond Index. As I learned and understood that I will be investing for the long term, I knew stocks should be a larger percentage of my portfolio.

Now at the ripe old age of 51, I am 65/35 stocks/bonds. I often see young investors visit us and post their asset allocation and some of them (not all) are very conservative. If I could go back to the age of 30 and was starting all over, I would definitely be much more aggressive because most people that age don't have much too lose.

Even John Bogle tells us to look at social security as part of your fixed income and Warren Buffett is telling us to hold 90% in stocks and 10% in cash. Maybe it's time to focus more about the risk of losing purchasing power over time and running out of money and less about the short term volatility of the stock market. Take a look at what Charles Ellis suggests.

Charles Ellis' suggested portfolios by age

Under 40 years old -- 100% in stocks
40 to 50 years old -- 90% in stocks; 10% in bonds
50 to 60 years old -- 80% in stocks; 20% in bonds
60 to 70 years old -- 60% in stocks; 40% in bonds
70 to 80 years old -- 50% in stocks; 50% in bonds

As always would love to hear your opinions.

Thanks!


My wife and I (45,33) are 88/12
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Re: Charles Ellis' suggested portfolios by age

Post by Runner01 » Tue Feb 02, 2016 6:08 pm

Under 40 and 100% stock. I am willing to accept the volatility for that 1 or 2% extra annual return :moneybag .

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Re: Charles Ellis' suggested portfolios by age

Post by LiterallyIronic » Tue Feb 02, 2016 6:31 pm

I'm early 30s and I'm at 90% stock. I would do 100%, but Vanguard doesn't have a Target Retirement Fund that aggressive. I don't have a high enough balance to do anything but the Target Funds.

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