What should my stock allocation be?

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Topic Author
necroman
Posts: 48
Joined: Tue Mar 23, 2021 9:33 pm

What should my stock allocation be?

Post by necroman »

Hey gang,

I would like some feedback on my stock allocation for my portfolio.

I am 39 years old. My wife is 36 years old. I plan on retiring at age 70. We'll see how if my wife can make it to that age.

Here is our current portfolio:
  • I am currently a participant in the Arizona State Retirement System, which upon retirement would give me 60% of my salary a year for the rest of my life. I imagine this would be my major source of retirement income (if the pension system remains solvent), with SS making up the rest.

    I also have a Roth IRA with Vanguard, currently invested in 80% 2050 Target Date Fund (VFIFX) and 20% Small Cap Value Fund (VSIAX). I consider this a supplemental retirement income stream.

    My wife has a traditional 403b through her employer, invested in a 2045 Target Date Fund with JP Morgan.

    And we have a taxable account for intermediate funds, currently in a 3-fund portfolio of Total Stock Market (VTSAX), Total International Market (VTIAX) and Long Term Treasuries (VLGSX). Our current allocation in this taxable account is 90/10, with plans to add bonds at 2-4% each year, starting at my age of 41, until we reach a 50/50 allocation at age 70.
I have two questions:

My first question involves my Roth IRA (and, to a lesser extent, our taxable account). Since I have access to a pretty generous pension, I wanted to take a more aggressive position with my IRA. I am thinking of adopting a 100% allocation in stocks (split between Total Stock Market, Total International Stocks, and Small Cap Value) in my IRA account until I turn 60, and then add bonds at maybe 4-5% a year until I reach either a 50/50 allocation or a 60/40 allocation by the start of retirement. I figure I have about 20 years of hopefully solid growth before I ease into the retirement phase.

What do you guys think? Is this a viable plan? I feel like I'm one of those in-between investors, not 25 years old with no concern for market crashes or recessions because I have 40-50 years of work ahead of me, nor 65 years old at the cusp of retirement. I want to maximize my portfolio's potential while I still can, while also being reasonable and pragmatic.

So, do you guys think adopting a 100% stock allocation in my IRA is a solid strategy, considering I have a pension as a safety net? Or should I stay in a 90/10 allocation, or even adopt a more conservative allocation, considering my age?

And my second question is what kind of stock allocation is considered the norm in retirement. Vanguard's TDF funds seem like they start at about 50/50 upon retirement, and then end at 30/70 seven years later. But based on bond yields, is that still a viable allocation, or should I think of something like 50/50 or even 60/40 in retirement? What are your recommendations?

Any help is always greatly appreciated. Thank you.

Necroman
The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown. --H.P. Lovecraft
edudad
Posts: 42
Joined: Wed Mar 24, 2021 10:47 am

Re: What should my stock allocation be?

Post by edudad »

With ASRS as safety net, you can possibly do 100% equity for at least until you near retirement.

Will the defined benefit cover your expenses in retirement?
Topic Author
necroman
Posts: 48
Joined: Tue Mar 23, 2021 9:33 pm

Re: What should my stock allocation be?

Post by necroman »

Edudad,

ASRS probably won't cover everything, but my wife's 403b and our combined SS should take care of the rest. I'm hoping that Roth IRA would be icing on the cake, so to speak, and I don't mind being more aggressive with it.
The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown. --H.P. Lovecraft
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ruralavalon
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Re: What should my stock allocation be?

Post by ruralavalon »

So, do you guys think adopting a 100% stock allocation in my IRA is a solid strategy, considering I have a pension as a safety net? Or should I stay in a 90/10 allocation, or even adopt a more conservative allocation, considering my age?
In my opinion 100% stocks in your Roth IRA and taxable brokerage account is reasonable.

The taxable brokerage account should be in very tax-efficient index funds, such as Vanguard Total Stock Market Index Fund (VTSAX). Wiki article "Tax-efficient Fund Placement", link.


And my second question is what kind of stock allocation is considered the norm in retirement. Vanguard's TDF funds seem like they start at about 50/50 upon retirement, and then end at 30/70 seven years later. But based on bond yields, is that still a viable allocation, or should I think of something like 50/50 or even 60/40 in retirement? What are your recommendations?
The asset allocation of the overall portfolio at any stage of life depends on your own personal ability, willingness and need to take risk.

With a substantial pension plus Social Security benefits you can be very flexible in the overall asset allocation of your portfolio (you have a high ability to take risk, and a low need to take risk). In my opinion 30/70, 50/50 or 60/40 would all be within the range of what is reasonable.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
necroman
Posts: 48
Joined: Tue Mar 23, 2021 9:33 pm

Re: What should my stock allocation be?

Post by necroman »

Ruralavalon,

Thank you for your perspective.

Necroman
The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown. --H.P. Lovecraft
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Stinky
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Re: What should my stock allocation be?

Post by Stinky »

Given your attractive pension situation, I’d feel comfortable with 100% stocks now. When you get to within a few years of retirement, you might pull back a little bit on the equities.

But assuming that your pension remains available as you retire, I believe that you could continue to be aggressive with your equity allocation. In my view, you could be 70+% in equities in retirement if you chose to do so.

Of course, your picture will change if you leave your job, or if your state modifies/reduces your pension. But I expect that any modification would be prospective only, so you’ll have time to adjust.
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Jablean
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Re: What should my stock allocation be?

Post by Jablean »

Are you vested yet? If you lost your current job what would happen?
Topic Author
necroman
Posts: 48
Joined: Tue Mar 23, 2021 9:33 pm

Re: What should my stock allocation be?

Post by necroman »

Jablean,

I am vested in the pension. If I lose my job or move to another job not associated with the retirement system, I can either cash out or roll over my balance (my contributions combined with the state's contributions) or leave it in there and apply for the pension when I come of age. The pension takes the average of your highest three years of salary over the last ten years of employment, or something like that.
The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown. --H.P. Lovecraft
Topic Author
necroman
Posts: 48
Joined: Tue Mar 23, 2021 9:33 pm

Re: What should my stock allocation be?

Post by necroman »

Stinky,

That's a good point about any changes in the pension. I will admit to some apprehension about the viability of state or city pensions overall, considering the myriad woes cities like Detroit have faced. But the ASRS is enshrined in the state constitution, and it won't be easy to get rid of completely. However, that doesn't mean certain hostile legislators won't try to chip away at it (and indeed they have already tried, and sometimes have been successful). I imagine, though, as you've said, that any changes to the pension must be approached in a timely manner so that participants can adapt.

Overall, though, the ASRS overall is actually a bright spot in a state that doesn't always value education or teachers. It's not a bad pension system, and it's pretty solvent (for now, of course).
The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown. --H.P. Lovecraft
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