Allocation stocks bonds

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capen2468
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Allocation stocks bonds

Post by capen2468 »

I’m 64 retired collecting SS with no pension . My allocation is 54% stocks 38% bonds and 8% cash. Reading all books about allocation for my age I’m too aggressive. I know I would be OK if the market went down 50% but it would really bother me losing all that money on paper . Bonds don’t look too attractive at these rates and I don’t like putting more in bonds . I was wondering how others allocation is at about my age .
dbr
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Re: Allocation stocks bonds

Post by dbr »

capen2468 wrote: Mon Jun 21, 2021 8:02 am I’m 64 retired collecting SS with no pension . My allocation is 54% stocks 38% bonds and 8% cash. Reading all books about allocation for my age I’m too aggressive. I know I would be OK if the market went down 50% but it would really bother me losing all that money on paper . Bonds don’t look too attractive at these rates and I don’t like putting more in bonds . I was wondering how others allocation is at about my age .
We pretty well locked in a 50/50 allocation from before retirement to 14 years retired. We do have significant pension and Social Security.

In historical analysis the best chance of a portfolio sustaining a 4% withdrawal model safely is at about 60/40, but there isn't a lot of difference across 30/70 to 100/0. We will probably end up spending rather less than a 4% model. I call it a model because real spending varies a lot but you can still see how the actual average compares to a theoretical constant (4% of initial portfolio plus annual inflation) process.

I don't think there is much of a functional difference between actual cash and all the varieties of bonds.
ivgrivchuck
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Re: Allocation stocks bonds

Post by ivgrivchuck »

capen2468 wrote: Mon Jun 21, 2021 8:02 am I’m 64 retired collecting SS with no pension . My allocation is 54% stocks 38% bonds and 8% cash. Reading all books about allocation for my age I’m too aggressive. I know I would be OK if the market went down 50% but it would really bother me losing all that money on paper . Bonds don’t look too attractive at these rates and I don’t like putting more in bonds . I was wondering how others allocation is at about my age .
Objectively your allocation is just fine. 55/45 is a fine permanent allocation at your situation.

Of course if you are not subjectively comfortable with the allocation then you should reconsider...

Also check out MYGAs and SPIAs, if they would be a good match in your situation now or later...
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anon_investor
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Re: Allocation stocks bonds

Post by anon_investor »

capen2468 wrote: Mon Jun 21, 2021 8:02 am I’m 64 retired collecting SS with no pension . My allocation is 54% stocks 38% bonds and 8% cash. Reading all books about allocation for my age I’m too aggressive. I know I would be OK if the market went down 50% but it would really bother me losing all that money on paper . Bonds don’t look too attractive at these rates and I don’t like putting more in bonds . I was wondering how others allocation is at about my age .
How much of your expenses does SS cover?
Nowizard
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Re: Allocation stocks bonds

Post by Nowizard »

We are in a similar position and also have frequent questions about the challenges in moving from an accumulation to preservation focus with investing. Our answer is to invest heavier than necessary after answering questions about risk tolerance and whether we are the typical person more disturbed about "losses" than gains. That results in a current approximate ratio that is the same as yours, and we are older than you. A key in having a higher tolerance is the combination of SS and a small pension representing about 55% of our expenditures, and another 10-15% of the other expenditures being items we could very easily drop since they are "wants" rather than "needs."

Tim
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ruralavalon
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Re: Allocation stocks bonds

Post by ruralavalon »

capen2468 wrote: Mon Jun 21, 2021 8:02 am I’m 64 retired collecting SS with no pension . My allocation is 54% stocks 38% bonds and 8% cash. Reading all books about allocation for my age I’m too aggressive. I know I would be OK if the market went down 50% but it would really bother me losing all that money on paper . Bonds don’t look too attractive at these rates and I don’t like putting more in bonds . I was wondering how others allocation is at about my age .
I don't think you are "too aggressive" .

We are both 75, drawing Social Security with no pension or annuity. Our asset allocation is 50% equities/50% fixed income, with no cash allocation. Our fixed income allocation is all in Vanguard Intermediate-term Bond Index Fund (VBILX).
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retiredjg
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Re: Allocation stocks bonds

Post by retiredjg »

I don't think you are too aggressive if you are comfortable where you are.

However, you mention "I know I would be OK if the market went down 50% but it would really bother me losing all that money on paper ".

Don't let your money make you unhappy. If the loss of about 25% of your portfolio would bother you during a downturn, you should consider a lower stock allocation even if it isn't making as much money.

Which do you need more? More money or reduced stress?
dbr
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Re: Allocation stocks bonds

Post by dbr »

retiredjg wrote: Mon Jun 21, 2021 8:45 am I don't think you are too aggressive if you are comfortable where you are.

However, you mention "I know I would be OK if the market went down 50% but it would really bother me losing all that money on paper ".

Don't let your money make you unhappy. If the loss of about 25% of your portfolio would bother you during a downturn, you should consider a lower stock allocation even if it isn't making as much money.

Which do you need more? More money or reduced stress?
Those are wise words if the consequence is doing something you shouldn't do in response.

A different perspective is that being "bothered" is something a person can control because it is about the thoughts one has about something. "Knowing" that you would be ok with a 50% loss is more objective, but I would be sure that is really true. Stock crashes don't have to recover in short times, so what is the worst case? Objectively, do you need that high an allocation? Objectively, what is the hazard in not having enough in stocks?

I am pretty sure 40/60 is just as fine for retirement as 60/40 unless you have specific reasons to take more risk.
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Cyclesafe
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Re: Allocation stocks bonds

Post by Cyclesafe »

Retired and 67 here with no pension or social security, invested 67% in equity. I have experienced dismay when my portfolio drops many times, but have always resisted acting. I will not panic in the future either.

But I have a one year emergency fund and 18X annual expenses of fixed in taxable. This makes a huge difference.

If after reflection, OP still feels uncomfortable with 54% equity, then perhaps a (meaningfully insignificant) nod to the feeling to recast to 50% would be prudent. OTOH, most Bogelheads I think would maintain that 54% or even higher is appropriate for OP's situation, assuming an adequate emergency fund and recognizing that equity, although not nearly perfect, is certainly a better potential hedge against inflation than non-TIPS fixed.
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capen2468
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Re: Allocation stocks bonds

Post by capen2468 »

Thanks all for the input. I feel better about my allocation . I think I’ll just stay about where I am or go to 50/50 . I have enough cash (probably way too much ) to last several years if the market tanked. Just have to get better at not letting it bother me .
aristotelian
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Re: Allocation stocks bonds

Post by aristotelian »

I don't think you are too aggressive at all, especially with pension providing a level of guaranteed income. Over the long term stocks are less risky than bonds when it comes to inflation risk and making your money last.
dbr
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Re: Allocation stocks bonds

Post by dbr »

capen2468 wrote: Mon Jun 21, 2021 11:50 am Thanks all for the input. I feel better about my allocation . I think I’ll just stay about where I am or go to 50/50 . I have enough cash (probably way too much ) to last several years if the market tanked. Just have to get better at not letting it bother me .
Having cash to "last if the market tanks" is not useful. If you are withdrawing from your portfolio the comparison of withdrawals to the series of returns you get is what matters and if stocks tank then the portfolio is down as you take withdrawals. Less return or more return and less risk or more risk comes out in the wash. A possible recommended procedure is to keep your allocation on target by selling fixed income and buying stocks when stocks are down. Whether the fixed income contains a significant allocation to actual cash is not very important. Even in the fixed income more return and more risk or less return and less risk comes out in the wash. The math on the most survivable portfolio under withdrawal, stock crashes, risk, return all taken into account is that it has a small optimum around 60/40 give or take, for practical rates of withdrawal. It is very difficult to show that schemes that involve altering asset allocation in some way is particularly helpful. There is credibility to altering rate of withdrawal according to portfolio return.
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Re: Allocation stocks bonds

Post by Fallible »

capen2468 wrote: Mon Jun 21, 2021 8:02 am I’m 64 retired collecting SS with no pension . My allocation is 54% stocks 38% bonds and 8% cash. Reading all books about allocation for my age I’m too aggressive. I know I would be OK if the market went down 50% but it would really bother me losing all that money on paper . Bonds don’t look too attractive at these rates and I don’t like putting more in bonds . I was wondering how others allocation is at about my age .
Have you also read a book by Jane Bryant Quinn, How to Make Your Money Last: The Indispensable Retirement Guide? If not, it could be helpful as it addresses investment risk in Chapter 9, "Investing for Income: Not What You Think," including a section "Risk and the Older Investor."

This chapter and the entire book was and still is helpful for me as I gradually wind down my equities based not necessarily on how much risk I can afford, but on how much risk I want to take.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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Re: Allocation stocks bonds

Post by ruralavalon »

capen2468 wrote: Mon Jun 21, 2021 11:50 am Thanks all for the input. I feel better about my allocation . I think I’ll just stay about where I am or go to 50/50 . I have enough cash (probably way too much ) to last several years if the market tanked. Just have to get better at not letting it bother me .
That's a reasonable approach in my opinion.
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gwe67
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Re: Allocation stocks bonds

Post by gwe67 »

I'm not understanding why you are drawing social security at 64 if you have substantial assets to live on for several years.
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mathwhiz
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Re: Allocation stocks bonds

Post by mathwhiz »

A lot of people take social security first chance they get at 62 because it is their money they put into all their life and there's always the chance they'll die early before the actuarial break even and end up losing out on what they paid in.

Other's see it primarily as "insurance" and are more concerned about eating cat food at age 90. I guess I'm not that concerned about that. I'll probably take it at 62 and use it for vacations while I am still healthy and able to do trips.
gwe67 wrote: Mon Jun 21, 2021 4:00 pm I'm not understanding why you are drawing social security at 64 if you have substantial assets to live on for several years.
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Re: Allocation stocks bonds

Post by ruralavalon »

gwe67 wrote: Mon Jun 21, 2021 4:00 pm I'm not understanding why you are drawing social security at 64 if you have substantial assets to live on for several years.
It's wise to delay starting Social Security if in good health, otherwise not.
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Re: Allocation stocks bonds

Post by arcticpineapplecorp. »

capen2468 wrote: Mon Jun 21, 2021 8:02 am I was wondering how others allocation is at about my age .
it's really a personal decision and shouldn't be made just based on age (even though that's how the cookie cutter target date funds operate).

for instance, just because someone's in their 20s or 30s does that mean they "should" maximize risk in search of maximum returns?

the answer is, it depends.

if that 20-30 year old has no investible assets, they have a "need" to take risk.
but plenty of 20 somethings in 2008 found out they didn't have the "willingness" to take the risk of a 90/10 portfolio (target date).
also, a 30 year old college (tenured) professor has the "ability" to take risk, unlike a 30 year old gig worker.

So you should really assess your need, ability and willingness to take risk and not just follow what someone of a similar age is doing with their allocation. read more here:

https://www.cbsnews.com/news/asset-allo ... -you-take/

https://www.cbsnews.com/news/asset-allo ... tolerance/

https://www.cbsnews.com/news/asset-allo ... -you-need/

https://www.cbsnews.com/news/asset-allo ... ing-goals/
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capen2468
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Re: Allocation stocks bonds

Post by capen2468 »

I decided to take SS at 62 because I know how I am . I would have been too cheap if I waited to take it . I want to spend some money and enjoy life while I’m still young enough . It’s hard to get yourself to spend when you been saving your whole life .
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Re: Allocation stocks bonds

Post by gwe67 »

capen2468 wrote: Tue Jun 22, 2021 6:42 am I decided to take SS at 62 because I know how I am . I would have been too cheap if I waited to take it . I want to spend some money and enjoy life while I’m still young enough . It’s hard to get yourself to spend when you been saving your whole life .
That would make sense if you were broke. According to what you wrote, you could have delayed claiming.

"I have enough cash (probably way too much ) to last several years"
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capen2468
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Re: Allocation stocks bonds

Post by capen2468 »

You are right . I know holding off taking SS is a better option if you live long enough . But I could get hit by a bus tomorrow and like I said not withdrawing much from my accounts allowed me to spend more these past few years . I been on a lot of vacations . Not sure I would have done as much if I wasn’t getting that check .(I’m still a little cheap) I truly believe you enjoy doing things more when you are younger .
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Re: Allocation stocks bonds

Post by Carol88888 »

I think it is best to keep changes small. I would maybe sell 4% of the stocks and add it to cash.

I read somewhere that 75% stocks & 25% cash actually outperformed 70% stocks and 30% bonds. (Sorry I don't have link and maybe this needs to be checked)

Also along those lines in one of her books Annette Thau who wrote "The Bond Book" found that a couple whose portfolio had been depleted during the high inflation 60s-70s would have been saved if they had had an allocation to cash along with their stocks and bonds.

The nice thing about cash is that if you decide to reverse this move you can on a dime without taking a loss.
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Re: Allocation stocks bonds

Post by mathwhiz »

Yeah, that money is worth more to me at 62 than at 70. I've known personally a number of people who saved and scrimped and worked jobs they hated for this mystical "retirement" and later dropped dead from heart attack, car accident, cancer in their 60's Lots of things could happen in those 8 years.

I will want to get the big "bucket trip" travel out of my system early and if I end up spending too much and have to cut back so be it. I'd rather do that cutting back when I'm in my 70's and 80's anyway and my health is in a natural decline. I have no problem being an antisocial homebody watching TV shows and movies and reading online and doing my many hobbies around the house and yard. So the utility of that money is worth a lot more to me earlier than later.
capen2468 wrote: Tue Jun 22, 2021 11:32 am You are right . I know holding off taking SS is a better option if you live long enough . But I could get hit by a bus tomorrow and like I said not withdrawing much from my accounts allowed me to spend more these past few years . I been on a lot of vacations . Not sure I would have done as much if I wasn’t getting that check .(I’m still a little cheap) I truly believe you enjoy doing things more when you are younger .
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Re: Allocation stocks bonds

Post by ruralavalon »

capen2468 wrote: Tue Jun 22, 2021 11:32 am You are right . I know holding off taking SS is a better option if you live long enough . But I could get hit by a bus tomorrow and like I said not withdrawing much from my accounts allowed me to spend more these past few years . I been on a lot of vacations . Not sure I would have done as much if I wasn’t getting that check .(I’m still a little cheap) I truly believe you enjoy doing things more when you are younger .
In my opinion that's a reasonable approach. This is a very personal individual decision.
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namajones
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Re: Allocation stocks bonds

Post by namajones »

capen2468 wrote: Mon Jun 21, 2021 8:02 am I’m 64 retired collecting SS with no pension . I was wondering how others allocation is at about my age .
My recommendation for you: "Age in bonds," or thereabouts. Has worked well through generations for a reason. With no pension to supplement social security, you are especially vulnerable to a bear market, especially one that could last for the rest of your days on this earth. Yes, bonds yield very little, but they still provide security in an environment in which risk assets are at multi-generational highs and could decline by 40 percent and still be considered overvalued.

If the "age in bonds" asset allocation doesn't feel right to you, then simply do a bucket approach. How much of your money do you absolutely need to live on for the next ~25 years? Set that aside. Put the rest in stocks.
Last edited by namajones on Tue Jun 22, 2021 12:38 pm, edited 1 time in total.
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Re: Allocation stocks bonds

Post by namajones »

mathwhiz wrote: Tue Jun 22, 2021 11:51 am Yeah, that money is worth more to me at 62 than at 70. I've known personally a number of people who saved and scrimped and worked jobs they hated for this mystical "retirement" and later dropped dead from heart attack, car accident, cancer in their 60's Lots of things could happen in those 8 years.
You've got that right. I'm 62 and quite a few loved ones, contemporaries, are already pushing up daisies.
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