Asset allocation question

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LIGuy82
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Joined: Mon Apr 16, 2018 12:51 am

Asset allocation question

Post by LIGuy82 » Sun Nov 10, 2019 5:45 pm

I’m 37, married, no kids, and do not expect to have any. I max out all tax advantages accounts, own rental real estate that’s doing well, and can count on a comfortable government pension at 50. Aside from panic selling, what risk is there in being 100 percent in equities? Would an 80/20 split deliver similar returns 30 years from now with reduced risk? In that case, should I go G fund or F fund?

stan1
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Re: Asset allocation question

Post by stan1 » Sun Nov 10, 2019 5:51 pm

I'd do 45 C, 15 S, 20 I, and 20 G

Maybe forever.

Trader Joe
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Joined: Fri Apr 25, 2014 6:38 pm

Re: Asset allocation question

Post by Trader Joe » Sun Nov 10, 2019 6:19 pm

LIGuy82 wrote:
Sun Nov 10, 2019 5:45 pm
I’m 37, married, no kids, and do not expect to have any. I max out all tax advantages accounts, own rental real estate that’s doing well, and can count on a comfortable government pension at 50. Aside from panic selling, what risk is there in being 100 percent in equities? Would an 80/20 split deliver similar returns 30 years from now with reduced risk? In that case, should I go G fund or F fund?
None. You are young. No need for bonds. I am 100% in VFIAX and I am very happy.

anon_investor
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Joined: Mon Jun 03, 2019 1:43 pm

Re: Asset allocation question

Post by anon_investor » Sun Nov 10, 2019 6:30 pm

100% equities makes sense if you count your future pension as your bond allocation.

dbr
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Re: Asset allocation question

Post by dbr » Sun Nov 10, 2019 6:46 pm

You might want to read this thread which seems to ask the same question: viewtopic.php?f=1&t=293692

80/20 delivers similar returns at less risk if the definition of similar is fairly wide. You can make the estimate that the expected return is the weighted average of the expected returns of the components. The risk may be reduced by more relatively speaking. But personally I don't think of 100/0 and 80/20 as being much different in the big picture.

The effect of higher stocks is a higher expected return and a much wider distribution of the possible end point wealth achieved. Your actual result will be one of all the possibilities. You might look at the output chart in FireCalc to see historical results for investments starting in over 100 different years to see how variable the outcome can be. Run the program for no withdrawals, some plan of contributions, and for different asset allocations to compare. The punch line is that over all choices of asset allocations the possible outcomes overlap considerably while the extreme results for more and more stocks ascend to amazing heights and an amazing range of results. One should simply have a picture of the consequences when selecting asset allocation.

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Taylor Larimore
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Re: Asset allocation question

Post by Taylor Larimore » Sun Nov 10, 2019 7:55 pm

LIGuy82 wrote:
Sun Nov 10, 2019 5:45 pm
I’m 37, married, no kids, and do not expect to have any. I max out all tax advantages accounts, own rental real estate that’s doing well, and can count on a comfortable government pension at 50. Aside from panic selling, what risk is there in being 100 percent in equities? Would an 80/20 split deliver similar returns 30 years from now with reduced risk? In that case, should I go G fund or F fund?
LIGuy82:

A portfolio of 100% equities can go to 10% equities. I've seen it happen (in our household). If you can tolerate that much risk with your savings -- then go for it.

My rule of thumb is to put what you cannot afford to lose in a Total Bond Market Index Fund--then put the rest of your portfolio in a Total Stock Market Index Fund with perhaps 20% of that equity into a Total International Index Fund.

The Three-Fund Portfolio.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Deep down, I remain absolutely confident that the vast majority of American families will be well served by owning their equity holding in an all-U.S. stock -market index portfolio and holding their bonds in an all-U.S. bond-market index portfolio."
"Simplicity is the master key to financial success." -- Jack Bogle

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fortyofforty
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Re: Asset allocation question

Post by fortyofforty » Sun Nov 10, 2019 9:00 pm

I never go below 50% C, as I view it as the engine of the portfolio. I divide my "bonds" equally between F and G. The only question is whether to go 100% equities. If you can stomach the risk (and it's considerable), go for it. Read some of the threads here describing the situation in 2008, or 2000. If you go 80/20, then divide up the 30% between I and S. Rebalance as described in many threads. That forces you to buy low and sell high, mechanically and unemotionally.

For the record, I worked with a guy who thought he had a very high risk tolerance, and remained 100% C right up until he retired. In 2000. As the market tanked. And he lost a big chunk of his retirement savings, which he was counting on to provide that annuity and steady payments for life. That was a lesson for me.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

kelvan80
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Re: Asset allocation question

Post by kelvan80 » Sun Nov 10, 2019 9:05 pm

What is the most amount of money you have seen your portfolio drop in a day? If your portfolio goes down by 40% will you still feel as confident. We are only a few years older than you and probably had less than $60k invested in 2008-9 and it was hard. I had to turn off absolutely all news outlets and even then my friends would call me in a panic because they knew we were ahead of the game and had investments. Our allocation to bonds makes me feel better about a downturn because I can buy some low if I need to to help me rebalance. It also helps my husband SWAN.

Ferdinand2014
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Re: Asset allocation question

Post by Ferdinand2014 » Sun Nov 10, 2019 11:35 pm

LIGuy82 wrote:
Sun Nov 10, 2019 5:45 pm
I’m 37, married, no kids, and do not expect to have any. I max out all tax advantages accounts, own rental real estate that’s doing well, and can count on a comfortable government pension at 50. Aside from panic selling, what risk is there in being 100 percent in equities? Would an 80/20 split deliver similar returns 30 years from now with reduced risk? In that case, should I go G fund or F fund?
If you don’t need the equities for any reason in the next 10-15 years, none. Maybe. G fund.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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