Gravy train ride over ? Time to reevaluate asset allocation

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HomerJ
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by HomerJ »

Jimsad wrote: Fri Jan 21, 2022 4:46 pm But I had already gone back to my comfort level allocation, so am not bothered too much now
Good idea to always stay there... Nice to not be bothered.
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Jimsad
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by Jimsad »

I posted this back in December
Looks like my fears came true
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by Tom_T »

Jimsad wrote: Thu Feb 24, 2022 8:19 am I posted this back in December
Looks like my fears came true
I don't understand this at all. Do people buy stocks and think that the worst possible outcome is that maybe there will be a modest 10 percent decline spread out over months? If that's the case, you shouldn't own stocks. When people here say "be prepared for stocks to fall 30 percent at any time", they're not joking.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by wetgear »

Jimsad wrote: Thu Feb 24, 2022 8:19 am I posted this back in December
Looks like my fears came true
If you wait long enough you'll always be right, then wrong, then right again, then wrong again....
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by Jimsad »

Jimsad wrote: Fri Dec 03, 2021 3:48 pm Hi
I feel that the the huge returns we have been enjoying last 10 years will be ending .
Is it time to reassess one’s asset allocation?
I was 60/40 and let it drift to 75/25 due to greed and to take advantage of the roaring market .
But now am planning to dial down back to my target 60/40

I feel that especially those who have been investing <10 years and are 100% stocks may have a rude awakening and realize they do not have the stomach for 100% stocks ;this happened to me in 2008 when I went through the crash
I am hanging in at 60/40. But looks like It will get a lot worse. Just bad news everywhere
I wish I was wrong
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by Wiggums »

A war, inflation, and potential interest rate hikes is making the markets volatile. It’s kinda like shaking the tree, but we will just stay the course. These conditions won’t last forever.

The Nasdaq is down 21% from the ATH. We are retired and buying more equities with our cash. Thinking about doing a Roth conversion within out tax bracket.
Last edited by Wiggums on Tue Mar 15, 2022 5:00 am, edited 1 time in total.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by MadAsgardian »

Jimsad wrote: Tue Mar 15, 2022 4:12 am I am hanging in at 60/40. But looks like It will get a lot worse. Just bad news everywhere
I wish I was wrong
You seem pretty jittery for someone who claims to have landed on an AA they can live with.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by Jimsad »

MadAsgardian wrote: Tue Mar 15, 2022 4:54 am
Jimsad wrote: Tue Mar 15, 2022 4:12 am I am hanging in at 60/40. But looks like It will get a lot worse. Just bad news everywhere
I wish I was wrong
You seem pretty jittery for someone who claims to have landed on an AA they can live with.
I am still working so I can tolerate further drops >30% just as I did in 2008 .
I am not going to sell but at same time. I am not going to pretend it does not bother me to lose close to 500k from beginning of year .
If I was retired , I probably would have been more conservative like 40:60 or 30:70 in my allocation
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by HMSVictory »

You selected your 60/40 AA for a reason. You allowed it to drift from your AA due to greed. Rebalance.

We don't know when or how long it will rain for but we do know it will rain at some point.

Market corrections are fabulous for those of us in the accumulation phase!
Stay the course!
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by HMSVictory »

Jimsad wrote: Tue Mar 15, 2022 5:27 am
MadAsgardian wrote: Tue Mar 15, 2022 4:54 am
Jimsad wrote: Tue Mar 15, 2022 4:12 am I am hanging in at 60/40. But looks like It will get a lot worse. Just bad news everywhere
I wish I was wrong
You seem pretty jittery for someone who claims to have landed on an AA they can live with.
I am still working so I can tolerate further drops >30% just as I did in 2008 .
I am not going to sell but at same time. I am not going to pretend it does not bother me to lose close to 500k from beginning of year .
If I was retired , I probably would have been more conservative like 40:60 or 30:70 in my allocation
You didn't loose $500k unless you sold at that point. Did you?
Stay the course!
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by KlangFool »

OP,

I maintained my AA at 60/40. I gained about 160K in 2021. YTD, I lost about 160K in 2022. This is just normal business.

Don't worry, it will get a lot worse. I am prepared for it.

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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by KlangFool »

I don't understand. Bear market is how someone get to make a lot of money anyhow. Why folks hate to buy low?

OP would had harvested the gain if he maintained his AA and rebalanced. I did that.

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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by GaryA505 »

I'm anticipating and planning for a "lost decade". If it happens, I'm ready. If not, that's OK too.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by willthrill81 »

Jimsad wrote: Thu Feb 24, 2022 8:19 am I posted this back in December
Looks like my fears came true
Your move turned out to be fortuitous. But it remains to be seen if you will beat buy-and-hold.

Selling is the easy part. Buying back in is the hard part.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by z3r0c00l »

Image

Zoom in on the tiny red pixel representing the first half of a V. No not that one, the smaller one after March 2020. No never mind, that was 2009. Imagine looking at this and concluding the gravy train is over.
Last edited by z3r0c00l on Tue Mar 15, 2022 11:09 am, edited 1 time in total.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by dogagility »

Didn't someone say on investing to be greedy when others are fearful?
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by burritoLover »

The mental energy expended to almost certainly lose money over buy and hold is just depressing. This is one of those few times in life where the easy path is the best one.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by willthrill81 »

burritoLover wrote: Tue Mar 15, 2022 11:16 amThis is one of those few times in life where the easy path is the best one.
'Best' is a highly subjective term. For some, the strategy that allows for the least minimal exertion is viewed by them as 'best'. Others have different criteria. And for most, I suspect that 'best' is determined by some kind of optimization function involving several variables.

However, if you mean to say that buy-and-hold is the strategy that is most likely to result in the greatest long-term wealth for most investors, I agree.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by burritoLover »

willthrill81 wrote: Tue Mar 15, 2022 11:23 am
burritoLover wrote: Tue Mar 15, 2022 11:16 amThis is one of those few times in life where the easy path is the best one.
'Best' is a highly subjective term. For some, the strategy that allows for the least minimal exertion is viewed by them as 'best'. Others have different criteria. And for most, I suspect that 'best' is determined by some kind of optimization function involving several variables.

However, if you mean to say that buy-and-hold is the strategy that is most likely to result in the greatest long-term wealth for most investors, I agree.
In a choice between OP market timing based on their feelings about what is going to happen vs. buy and hold, I think "best" does fit the situation between these two choices.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by willthrill81 »

burritoLover wrote: Tue Mar 15, 2022 11:30 am
willthrill81 wrote: Tue Mar 15, 2022 11:23 am
burritoLover wrote: Tue Mar 15, 2022 11:16 amThis is one of those few times in life where the easy path is the best one.
'Best' is a highly subjective term. For some, the strategy that allows for the least minimal exertion is viewed by them as 'best'. Others have different criteria. And for most, I suspect that 'best' is determined by some kind of optimization function involving several variables.

However, if you mean to say that buy-and-hold is the strategy that is most likely to result in the greatest long-term wealth for most investors, I agree.
In a choice between OP market timing based on their feelings about what is going to happen vs. buy and hold, I think "best" does fit the situation between these two choices.
Agreed.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by HomerJ »

willthrill81 wrote: Tue Mar 15, 2022 11:23 am
burritoLover wrote: Tue Mar 15, 2022 11:16 amThis is one of those few times in life where the easy path is the best one.
'Best' is a highly subjective term. For some, the strategy that allows for the least minimal exertion is viewed by them as 'best'. Others have different criteria. And for most, I suspect that 'best' is determined by some kind of optimization function involving several variables.

However, if you mean to say that buy-and-hold is the strategy that is most likely to result in the greatest long-term wealth for most investors, I agree.
I agree that "best" is the wrong word to describe the buy and hold strategy, but I do like your summary of it willthrill.
buy-and-hold is the strategy that is most likely to result in the greatest long-term wealth for most investors
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by HomerJ »

Jimsad wrote: Thu Feb 24, 2022 8:19 am I posted this back in December
Looks like my fears came true
Total Stock Market Index Fund is currently only 2.2% down from December 3rd, 2021 when you started this thread.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by willthrill81 »

HomerJ wrote: Mon Mar 21, 2022 3:46 pm
willthrill81 wrote: Tue Mar 15, 2022 11:23 am
burritoLover wrote: Tue Mar 15, 2022 11:16 amThis is one of those few times in life where the easy path is the best one.
'Best' is a highly subjective term. For some, the strategy that allows for the least minimal exertion is viewed by them as 'best'. Others have different criteria. And for most, I suspect that 'best' is determined by some kind of optimization function involving several variables.

However, if you mean to say that buy-and-hold is the strategy that is most likely to result in the greatest long-term wealth for most investors, I agree.
I agree that "best" is the wrong word to describe the buy and hold strategy, but I do like your summary of it willthrill.
buy-and-hold is the strategy that is most likely to result in the greatest long-term wealth for most investors
Thank you. I really tried to be even handed.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by G12 »

I am still working so I can tolerate further drops >30% just as I did in 2008 .
I am not going to sell but at same time. I am not going to pretend it does not bother me to lose close to 500k from beginning of year .
If I was retired , I probably would have been more conservative like 40:60 or 30:70 in my allocation
OP, I doubt you would be satisfied with 30:70 long term. Retired at 47, coming up on 12 years in a few months, still riding 60:40 and my lowest will probably be 50:50 after claiming SSI. 4th quarter 2008 was a great time to buy heavily discounted long term TIPS though, still have those in my portfolio.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by Jimsad »

G12 wrote: Mon Mar 21, 2022 4:26 pm
I am still working so I can tolerate further drops >30% just as I did in 2008 .
I am not going to sell but at same time. I am not going to pretend it does not bother me to lose close to 500k from beginning of year .
If I was retired , I probably would have been more conservative like 40:60 or 30:70 in my allocation
OP, I doubt you would be satisfied with 30:70 long term. Retired at 47, coming up on 12 years in a few months, still riding 60:40 and my lowest will probably be 50:50 after claiming SSI. 4th quarter 2008 was a great time to buy heavily discounted long term TIPS though, still have those in my portfolio.
At 48 y , you have a long retirement and you cannot afford not to be at least 60:40
As far as me, my asset allocation at retirement will depend on what age I retire - the younger the age , more will be my equity allocation
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by HomerJ »

Jimsad wrote: Mon Mar 21, 2022 7:08 pm
G12 wrote: Mon Mar 21, 2022 4:26 pm
I am still working so I can tolerate further drops >30% just as I did in 2008 .
I am not going to sell but at same time. I am not going to pretend it does not bother me to lose close to 500k from beginning of year .
If I was retired , I probably would have been more conservative like 40:60 or 30:70 in my allocation
OP, I doubt you would be satisfied with 30:70 long term. Retired at 47, coming up on 12 years in a few months, still riding 60:40 and my lowest will probably be 50:50 after claiming SSI. 4th quarter 2008 was a great time to buy heavily discounted long term TIPS though, still have those in my portfolio.
At 48 y , you have a long retirement and you cannot afford not to be at least 60:40
As far as me, my asset allocation at retirement will depend on what age I retire - the younger the age , more will be my equity allocation
That's not a good idea for you since you are prone to make changes based on your gut feelings.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by Picasso »

Nathan Drake wrote: Fri Dec 03, 2021 3:51 pm Nobody knows

I am 100% stocks and am comfortable in that position because it is highly diversified

Short term corrections don’t bother me. What we experienced the last week is literally nothing alarming, but I guess a year and a half of almost non stop returns distorts our perception of risk

10% corrections are normal and happen most years, without them there would be no returns
You should buy some international even though I know you hate it. Consider it may just be the right thing to do.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by NoRegret »

z3r0c00l wrote: Tue Mar 15, 2022 11:07 am Image

Zoom in on the tiny red pixel representing the first half of a V. No not that one, the smaller one after March 2020. No never mind, that was 2009. Imagine looking at this and concluding the gravy train is over.
Now superimpose your investing lifetime on that plot. At the start, one has little money and contribution overwhelms investment returns. So on a money weighted basis, there are perhaps 3, possibly 2 or less decades depending on one’s earning trajectory, that really matter.

When you zoom in, there is far less “inevitability”. Long term return is little comfort to someone 5 years from target retirement who just suffered a 1/3 loss.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by Marseille07 »

Picasso wrote: Mon Mar 21, 2022 10:00 pm
Nathan Drake wrote: Fri Dec 03, 2021 3:51 pm Nobody knows

I am 100% stocks and am comfortable in that position because it is highly diversified

Short term corrections don’t bother me. What we experienced the last week is literally nothing alarming, but I guess a year and a half of almost non stop returns distorts our perception of risk

10% corrections are normal and happen most years, without them there would be no returns
You should buy some international even though I know you hate it. Consider it may just be the right thing to do.
Are you trying to joke around? Nathan Drake is one of the biggest ex-US & SCV proponents we have here.
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Jimsad
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by Jimsad »

HomerJ wrote: Mon Mar 21, 2022 8:47 pm
Jimsad wrote: Mon Mar 21, 2022 7:08 pm
G12 wrote: Mon Mar 21, 2022 4:26 pm
I am still working so I can tolerate further drops >30% just as I did in 2008 .
I am not going to sell but at same time. I am not going to pretend it does not bother me to lose close to 500k from beginning of year .
If I was retired , I probably would have been more conservative like 40:60 or 30:70 in my allocation
OP, I doubt you would be satisfied with 30:70 long term. Retired at 47, coming up on 12 years in a few months, still riding 60:40 and my lowest will probably be 50:50 after claiming SSI. 4th quarter 2008 was a great time to buy heavily discounted long term TIPS though, still have those in my portfolio.
At 48 y , you have a long retirement and you cannot afford not to be at least 60:40
As far as me, my asset allocation at retirement will depend on what age I retire - the younger the age , more will be my equity allocation
That's not a good idea for you since you are prone to make changes based on your gut feelings.
Just went back to my IPS of 60:40 which I let drift
I watch the market and vent my feelings but do not deviate from my IPS
I have been close to 60:40 since 2009
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by z3r0c00l »

NoRegret wrote: Tue Mar 22, 2022 12:23 am
z3r0c00l wrote: Tue Mar 15, 2022 11:07 am Image

Zoom in on the tiny red pixel representing the first half of a V. No not that one, the smaller one after March 2020. No never mind, that was 2009. Imagine looking at this and concluding the gravy train is over.
Now superimpose your investing lifetime on that plot. At the start, one has little money and contribution overwhelms investment returns. So on a money weighted basis, there are perhaps 3, possibly 2 or less decades depending on one’s earning trajectory, that really matter.

When you zoom in, there is far less “inevitability”. Long term return is little comfort to someone 5 years from target retirement who just suffered a 1/3 loss.
5 years away from retirement I would be somewhere around 60/40, the gravy train doesn't impact you that much any more and neither do you have to spend that money tomorrow. 5 years away from retirement still means a 20+ year investment horizon for most people.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by Silverado »

NoRegret wrote: Tue Mar 22, 2022 12:23 am

When you zoom in, there is far less “inevitability”. Long term return is little comfort to someone 5 years from target retirement who just suffered a 1/3 loss.
Seems to me that long term growth is exactly the type of thing that should be comforting to someone five years from retirement who just suffered a 1/3 loss. The confidence that the level before will be back. And with five working years to build some non-equity buffer, that should provide a comfortable situation.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by Harry Livermore »

Wow. Long thread from December, which I missed.
Here's a classic long Harry Livermore response. TL/DR at the bottom.
I have been hovering around 50/50 since 2018, my logic at the time being: I'm in my 50's, in an industry with uncertain future metrics for the average worker, and somewhere in the range of 30x expenses. I was 100% equities well into my 40s, and probably at 75/25 when I made the decision to work towards 50/50. It feels right to me, even though I realize I might be giving up a bit of long-term performance. Once my kids are launched and my spouse and I downsize, I might even slide back towards 60/40; I find the "rising glidepath" an interesting thesis.
In early 2020, with the COVID shutdown, my income went to zero. When the market went way down, I did not deploy a large part of my dry powder, despite that being my plan, since I was seriously worried that I would need the cash to pay my mortgage. I did end up buying a couple of individual stocks that did quite well, but that only represented about 25% of my dry powder.
In late 2021, right around the all time high, I found myself with cash* from the sale of some business equipment, and unsure about the future of my business, put it all in VTSAX, in two different lots. I also sold the two winner companies from early 2020, harvesting some long term gains.
In early 2022, with the profits of the two stock sales*, I bought VTI, in three different lots, on dips. Results:
I'm still 50/50-ish.
Both lots of VTSAX are down. But, that represents a loss of 0.0591% to my overall portfolio. Whoop-de-doo.
All three lots of VTI are up. But, that represents a gain of 0.0504% to my overall portfolio. Whoop-de-doo.
Still hovering right around 30x expenses.

I have zero fear, or greed, at the moment. I have some regrets from not following my plan in March 2020, but I certainly did not sell, which I think tells me my AA is correct for me.
I was a stock market enthusiast, though not yet an investor, in 1987. I lived through all the corrections and bull markets since, and have found the average person's reactions fascinating. During the dot-com boom, I was in an investment club, and ostensibly we were supposed to analyze companies and bring ideas to the group... we had one member who literally would stick his head into the conference room and yell "c-cube microsystems!" and leave. In 2008, I watched colleagues so completely distracted and in a panic that they could not function at work. I have always been incredibly Spock-like though all of these events... minus 2020, since it affected my income in an unexpected way.
I think two related, but distinct, philosophies are helpful: one is the Boglehead way; simplicity in your portfolio, and controlling costs. The other is the Millionaire Next Door way; living below your means. You profit more as markets rise, and have a lifestyle that you can still sustain as markets fall. Healthy perspective also helps prevent a person from taking these two to the extreme and becoming an old miser, devoid of joy but with 75x expenses, squirreled away, never to be used. I'm not saying anyone on this thread is that person, just saying that it's possible (certainly me, if I didn't work at it) to become that person...
TL/DR:
OP, maybe just stick with your plan to rebalance via new money in bonds... and really decide if 60/40 is right.

Cheers

* I try not to divulge too much personal info on the web, so I won't give dollar amounts. But let's just suppose each of these investments would buy a very nice, low mileage Japanese SUV of some recent year and model.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by HomerJ »

NoRegret wrote: Tue Mar 22, 2022 12:23 am When you zoom in, there is far less “inevitability”. Long term return is little comfort to someone 5 years from target retirement who just suffered a 1/3 loss.
Long-term return is still absolutely a comfort to someone in that position. Because they still have 20-40 years to live.

They should have a good chunk in fixed-income when that close to retirement, and can live on that while waiting for the long-term return of stocks.

And, if they don't lose their jobs, they are still working for 5 more years anyway.

But even if they do lose their jobs, that's why they ALREADY have a good chunk in fixed-income, even 5 years out, because sometimes a planned 5 years becomes a forced 1 year.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by NoRegret »

z3r0c00l wrote: Tue Mar 22, 2022 7:01 am 5 years away from retirement I would be somewhere around 60/40, the gravy train doesn't impact you that much any more and neither do you have to spend that money tomorrow. 5 years away from retirement still means a 20+ year investment horizon for most people.
HomerJ wrote: Tue Mar 22, 2022 1:27 pm Long-term return is still absolutely a comfort to someone in that position. Because they still have 20-40 years to live.

They should have a good chunk in fixed-income when that close to retirement, and can live on that while waiting for the long-term return of stocks.

And, if they don't lose their jobs, they are still working for 5 more years anyway.

But even if they do lose their jobs, that's why they ALREADY have a good chunk in fixed-income, even 5 years out, because sometimes a planned 5 years becomes a forced 1 year.
Let's use some actual numbers as an example. Say an investor has a portfolio valued at 15X, and counting on contributions and portfolio growth to reach 25X at target retirement in 5 years. However, a bear market hits and in 12 months the portfolio is cut to 10X (BTW, it is quite possible that the next bear market will cut a 60/40 portfolio by 1/3). It is very unlikely that this investor can get to 25X in 4 additional years as was planned (just over old high water mark if assuming same growth rate).

So this investor is now facing the unsavory choice between working longer and forgoing some of the best of his/her remaining years, or to make a large permanent downgrade to the retirement lifestyle. At this point, long run expectation only provides some assurance of no further deterioration. I wouldn't take the likelihood of being in this predicament lightly.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by z3r0c00l »

NoRegret wrote: Tue Mar 22, 2022 7:48 pm
z3r0c00l wrote: Tue Mar 22, 2022 7:01 am 5 years away from retirement I would be somewhere around 60/40, the gravy train doesn't impact you that much any more and neither do you have to spend that money tomorrow. 5 years away from retirement still means a 20+ year investment horizon for most people.
HomerJ wrote: Tue Mar 22, 2022 1:27 pm Long-term return is still absolutely a comfort to someone in that position. Because they still have 20-40 years to live.

They should have a good chunk in fixed-income when that close to retirement, and can live on that while waiting for the long-term return of stocks.

And, if they don't lose their jobs, they are still working for 5 more years anyway.

But even if they do lose their jobs, that's why they ALREADY have a good chunk in fixed-income, even 5 years out, because sometimes a planned 5 years becomes a forced 1 year.
Let's use some actual numbers as an example. Say an investor has a portfolio valued at 15X, and counting on contributions and portfolio growth to reach 25X at target retirement in 5 years. However, a bear market hits and in 12 months the portfolio is cut to 10X (BTW, it is quite possible that the next bear market will cut a 60/40 portfolio by 1/3). It is very unlikely that this investor can get to 25X in 4 additional years as was planned (just over old high water mark if assuming same growth rate).

So this investor is now facing the unsavory choice between working longer and forgoing some of the best of his/her remaining years, or to make a large permanent downgrade to the retirement lifestyle. At this point, long run expectation only provides some assurance of no further deterioration. I wouldn't take the likelihood of being in this predicament lightly.
They have options. I gather your advice is to go all bonds 5 years out from retirement. My advice would be if they need to work an extra year or two, that's fine. My goals are so conservative that it really doesn't matter if the market crashes on the day I retire, I will have enough income and safe money to live a happy, if a bit modest retirement.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by HomerJ »

NoRegret wrote: Tue Mar 22, 2022 7:48 pm Let's use some actual numbers as an example. Say an investor has a portfolio valued at 15X, and counting on contributions and portfolio growth to reach 25X at target retirement in 5 years.

One can get from 15x to 25x in 5 years, if the portfolio grows 10.5% a year. A bit tough, but possible with a 60/40 portfolio, if the next 5 years are a 14% a year bull market to off-set the drag from the bond side. Or with large annual contributions, it could work.

However, that's not a plan anyone should count on. One should not make plans assuming that the next 5 years will be a strong bull market.
However, a bear market hits and in 12 months the portfolio is cut to 10X (BTW, it is quite possible that the next bear market will cut a 60/40 portfolio by 1/3). It is very unlikely that this investor can get to 25X in 4 additional years as was planned (just over old high water mark if assuming same growth rate).

So this investor is now facing the unsavory choice between working longer and forgoing some of the best of his/her remaining years, or to make a large permanent downgrade to the retirement lifestyle.
Yes, welcome to the universe. Life is not fair, and you have to adapt. With luck, he could have retired in 5 years... but the more likely scenario was 7-10 years. He should have planned around 7-10 years, and if he got 5, count his lucky stars.... Not plan around 5 years, and then be upset if the next 5 years wasn't all cherries.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by NoRegret »

z3r0c00l wrote: Tue Mar 22, 2022 8:14 pm I gather your advice is to go all bonds 5 years out from retirement.
Going all bonds is about the last thing I would recommend. If sticking with a static portfolio then I would recommend BROAD diversification which includes asset classes that BHs love to despise.
My advice would be if they need to work an extra year or two, that's fine. My goals are so conservative that it really doesn't matter if the market crashes on the day I retire, I will have enough income and safe money to live a happy, if a bit modest retirement.
Have more money or conversely don't need much then you won't have to depend on market returns -- yes there's always that.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by NoRegret »

HomerJ wrote: Tue Mar 22, 2022 10:48 pm
NoRegret wrote: Tue Mar 22, 2022 7:48 pm Let's use some actual numbers as an example. Say an investor has a portfolio valued at 15X, and counting on contributions and portfolio growth to reach 25X at target retirement in 5 years.

One can get from 15x to 25x in 5 years, if the portfolio grows 10.5% a year. A bit tough, but possible with a 60/40 portfolio, if the next 5 years are a 14% a year bull market to off-set the drag from the bond side. Or with large annual contributions, it could work.

However, that's not a plan anyone should count on. One should not make plans assuming that the next 5 years will be a strong bull market.
However, a bear market hits and in 12 months the portfolio is cut to 10X (BTW, it is quite possible that the next bear market will cut a 60/40 portfolio by 1/3). It is very unlikely that this investor can get to 25X in 4 additional years as was planned (just over old high water mark if assuming same growth rate).

So this investor is now facing the unsavory choice between working longer and forgoing some of the best of his/her remaining years, or to make a large permanent downgrade to the retirement lifestyle.
Yes, welcome to the universe. Life is not fair, and you have to adapt. With luck, he could have retired in 5 years... but the more likely scenario was 7-10 years. He should have planned around 7-10 years, and if he got 5, count his lucky stars.... Not plan around 5 years, and then be upset if the next 5 years wasn't all cherries.
The numbers in the example can certainly be tweaked. E.g. using 18X as the starting point, but the math is still the same: after a 1/3 loss it takes 4 (or more in the 2nd case) years to get back to the high-water mark.

The point of the exercise is to show the thought process and the importance of the transition between accumulation and distribution. A pre-retiree can indeed have decades of life and therefore investing life ahead, but to use that life expectancy for risk assessment for their retirement portfolio is what I take exception to.

If one is going to decide whether to retire and set a spending level based on portfolio value then every dollar in that portfolio is "needed" irrespective of when it will be actually spent.

So a pre-retiree placing greater value on "retirement date certainty" will care more about the probability of achieving said minimum goal than on maximizing expected portfolio value if the latter also implies a greater dispersion of outcomes and higher chance of not reaching the minimum goal. These are two different types of optimization problems.

The great majority of discussion on BH assumes everyone is operating under expected value maximization. That's the implied message behind all the long-term return curves -- since equity is way on top everyone should just be in equities all the time.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by goodenyou »

NoRegret wrote: Tue Mar 22, 2022 7:48 pm
z3r0c00l wrote: Tue Mar 22, 2022 7:01 am 5 years away from retirement I would be somewhere around 60/40, the gravy train doesn't impact you that much any more and neither do you have to spend that money tomorrow. 5 years away from retirement still means a 20+ year investment horizon for most people.
HomerJ wrote: Tue Mar 22, 2022 1:27 pm Long-term return is still absolutely a comfort to someone in that position. Because they still have 20-40 years to live.

They should have a good chunk in fixed-income when that close to retirement, and can live on that while waiting for the long-term return of stocks.

And, if they don't lose their jobs, they are still working for 5 more years anyway.

But even if they do lose their jobs, that's why they ALREADY have a good chunk in fixed-income, even 5 years out, because sometimes a planned 5 years becomes a forced 1 year.
Let's use some actual numbers as an example. Say an investor has a portfolio valued at 15X, and counting on contributions and portfolio growth to reach 25X at target retirement in 5 years. However, a bear market hits and in 12 months the portfolio is cut to 10X (BTW, it is quite possible that the next bear market will cut a 60/40 portfolio by 1/3). It is very unlikely that this investor can get to 25X in 4 additional years as was planned (just over old high water mark if assuming same growth rate).

So this investor is now facing the unsavory choice between working longer and forgoing some of the best of his/her remaining years, or to make a large permanent downgrade to the retirement lifestyle. At this point, long run expectation only provides some assurance of no further deterioration. I wouldn't take the likelihood of being in this predicament lightly.
Recency bias has convinced investors that returns can, in the short term, deliver one to the Promised Land. If the desire to retire is date-certain (5 years), you would be well-advised to control that possibility with robust saving ad expense cutting. Relying on market returns to deliver the winning strategy is very risky. Poor sequence of returns can and have derailed the best-laid plans.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by 1stHome »

You guys do realize sometimes bonds and equities move in the same direction right? 60/40 has worked really well over the last 50 years because coupon income was high enough to offset some measure of stock market losses and bonds functioned as a risk off instrument.

Particularly in the last 15 years, post GFC, you’ve had a period of coordinated global monetary policy easing. A situation that favors returns in both fixed income and equities. Such policies boost asset returns. We may now be in a period of coordinated global monetary policy tightening. Such a period should in theory significantly impinge on both equity and fixed income returns. It’s not a prediction or a market call. This period of monpol tightening may end tomorrow. Or it may go on for a decade. If I could predict it, I’d be posting from my yacht.

No one is entitled to positive returns even over long periods. The experience of 60/40 investors in other jurisdictions over the last 100yrs has been markedly different than our US experience. Don’t forget you’re looking at returns from a period when the US ascended to become the world’s preeminent economic and military power and it’s currency became the world’s reserve currency.

If anyone has some free reading time although heavy I’d suggest picking up a copy of “Triumph of the Optimists.”
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by Jimsad »

That was quite a drubbing today !
I am holding tight at 65:35, but I am realizing that I would need to move to be more conservative as I approach within 5 years of needing to draw from my portfolio as I will have trouble handling big losses close to retirement .

Presently I am working and have >10 yr horizon but will likely be 35:65 at retirement as that is what my risk tolerance is .
Also I have become more disillusioned with bond funds . I am choosing treasuries over total bond going forward and will stick to that and TIPS for my fixed income
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by tibbitts »

Jimsad wrote: Tue Apr 26, 2022 4:24 pm That was quite a drubbing today !
I am holding tight at 65:35...
By definition if you took a drubbing today you might not be holding at 65:35. I don't know about bond fund prices but at least some bond yields seem to have dropped.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by Jimsad »

tibbitts wrote: Tue Apr 26, 2022 4:39 pm
Jimsad wrote: Tue Apr 26, 2022 4:24 pm That was quite a drubbing today !
I am holding tight at 65:35...
By definition if you took a drubbing today you might not be holding at 65:35. I don't know about bond fund prices but at least some bond yields seem to have dropped.
Our biweekly 401k contributions are still going in at 65:35 but I stopped looking as I know I will not like it
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by tibbitts »

Jimsad wrote: Tue Apr 26, 2022 4:55 pm
tibbitts wrote: Tue Apr 26, 2022 4:39 pm
Jimsad wrote: Tue Apr 26, 2022 4:24 pm That was quite a drubbing today !
I am holding tight at 65:35...
By definition if you took a drubbing today you might not be holding at 65:35. I don't know about bond fund prices but at least some bond yields seem to have dropped.
Our biweekly 401k contributions are still going in at 65:35 but I stopped looking as I know I will not like it
At least today you might have finally gotten some relief due to being diversified between stocks and bonds, which hasn't happened a lot lately.
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by Jimsad »

I am getting the same uneasy feeling now that I had when I did the OP in December 2021 which was followed by the crash in 2022
The stock market at all time high and everyone piling in due to FOMO !
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by marcopolo »

Jimsad wrote: Fri Feb 02, 2024 4:55 pm I am getting the same uneasy feeling now that I had when I did the OP in December 2021 which was followed by the crash in 2022
The stock market at all time high and everyone piling in due to FOMO !
1) The market does not care about your feelings

2) What happened in 2022 was hardly a crash

What are you doing based on your feelings?
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by KlangFool »

Jimsad wrote: Fri Feb 02, 2024 4:55 pm I am getting the same uneasy feeling now that I had when I did the OP in December 2021 which was followed by the crash in 2022
The stock market at all time high and everyone piling in due to FOMO !
60/40 at 29.5X. Steady as she goes.....

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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by hiddenpower »

Jimsad wrote: Fri Feb 02, 2024 4:55 pm I am getting the same uneasy feeling now that I had when I did the OP in December 2021 which was followed by the crash in 2022
The stock market at all time high and everyone piling in due to FOMO !
Let the greed consume us :greedy
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Re: Gravy train ride over ? Time to reevaluate asset allocation

Post by Jimsad »

marcopolo wrote: Fri Feb 02, 2024 5:08 pm
Jimsad wrote: Fri Feb 02, 2024 4:55 pm I am getting the same uneasy feeling now that I had when I did the OP in December 2021 which was followed by the crash in 2022
The stock market at all time high and everyone piling in due to FOMO !
1) The market does not care about your feelings

2) What happened in 2022 was hardly a crash

What are you doing based on your feelings?
In 2022 , the losses did sting !
Trying not to be greedy and sticking to my asset allocation
The good thing is my fixed income is also earning decent returns now unlike in 2021/2022
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