Asset Allocation In These Times

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
Munir
Posts: 3200
Joined: Mon Feb 26, 2007 3:39 pm
Location: Oregon

Asset Allocation In These Times

Post by Munir »

The quote below from Adam Grossman of Mayport, a wealth management organization, makes much sense to me especially for retirees in the distribution phase:

"How can you make a financial plan in the absence of any ability to know what the future holds? Fortunately, there is a relatively simple answer: When you structure your investments, follow this three-step process: Focus the majority of your effort on asset allocation.When structuring your asset allocation, allocate more to non-stock-market investments, including cash and bonds, than you might feel is necessary. Within your non-stock-market investments, emphasize simplicity and liquidity. While most people perceive bonds to be "safe," the reality is that bonds carry risk too, and some more so than others. So I favor a combination of cash and US Treasury bonds."

Comments?
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: Asset Allocation In These Times

Post by 000 »

Yet another case of TIPS: The Investment Professionals Shun? :mrgreen:
BHawks87
Posts: 399
Joined: Mon May 07, 2012 2:03 am

Re: Asset Allocation In These Times

Post by BHawks87 »

I used to be a 100% stocks guy since I'm relatively young but after reading a couple of books about the Permanent Portfolio and the reasoning behind it I changed my asset allocation to be a little more conservative. I'm still 70% stocks but added some long bonds, cash/short treasuries, and even added some gold.

A more conservative portfolio (even though not all that conservative at the moment) makes me feel "safer" and gives me peace of mind that at least something in my portfolio should be doing okay in different environments. Hopefully it will be there just to rebalance but if really bad circumstances hit like a job loss then it will be there to tide me over.

I still have some ways to go until retirement but something like a Golden Butterfly portfolio looks very appealing.
smectym
Posts: 1530
Joined: Thu May 26, 2011 5:07 pm

Re: Asset Allocation In These T

Post by smectym »

BHawks87 wrote: Sun Nov 28, 2021 9:53 pm I used to be a 100% stocks guy since I'm relatively young but after reading a couple of books about the Permanent Portfolio and the reasoning behind it I changed my asset allocation to be a little more conservative. I'm still 70% stocks but added some long bonds, cash/short treasuries, and even added some gold.

A more conservative portfolio (even though not all that conservative at the moment) makes me feel "safer" and gives me peace of mind that at least something in my portfolio should be doing okay in different environments. Hopefully it will be there just to rebalance but if really bad circumstances hit like a job loss then it will be there to tide me over.

I still have some ways to go until retirement but something like a Golden Butterfly portfolio looks very appealing.
BHawks, I agree that a (relatively) conservative portfolio bent can be appropriate even for younger investors. Every investor should value a balanced portfolio, even if the relative balance between stocks and bonds or other assets may change with age.

At your general age, you can’t go wrong with a 70/30 mix. And gold is certainly appropriate as a 5-10% ballast. Plus, I agree—treat cash as a portfolio component. Even at zero yield it has portfolio value as a crash mitigation factor (and the yield environment can change quickly with the next Fed cycle of hiking interest rates potentially starting in 2022).

Golden Butterfly: Looks intriguing. I’d think long and hard about putting 20% into gold, however. Gold sometimes delivers, sometimes not, and explanations of its unpredictable performance can be counter-intuitive and confusing. That’s not something I’d want as 20% of my portfolio.

I’d be similarly skeptical about a 20% weight to small-cap. How about 10% to small cap and 10% to mid-cap? That seems like a reasonable tweak to the Golden Butterfly.
BHawks87
Posts: 399
Joined: Mon May 07, 2012 2:03 am

Re: Asset Allocation In These Times

Post by BHawks87 »

smectym wrote: Sun Nov 28, 2021 11:07 pm
BHawks87 wrote: Sun Nov 28, 2021 9:53 pm I used to be a 100% stocks guy since I'm relatively young but after reading a couple of books about the Permanent Portfolio and the reasoning behind it I changed my asset allocation to be a little more conservative. I'm still 70% stocks but added some long bonds, cash/short treasuries, and even added some gold.

A more conservative portfolio (even though not all that conservative at the moment) makes me feel "safer" and gives me peace of mind that at least something in my portfolio should be doing okay in different environments. Hopefully it will be there just to rebalance but if really bad circumstances hit like a job loss then it will be there to tide me over.

I still have some ways to go until retirement but something like a Golden Butterfly portfolio looks very appealing.
BHawks, I agree that a (relatively) conservative portfolio bent can be appropriate even for younger investors. Every investor should value a balanced portfolio, even if the relative balance between stocks and bonds or other assets may change with age.

At your general age, you can’t go wrong with a 70/30 mix. And gold is certainly appropriate as a 5-10% ballast. Plus, I agree—treat cash as a portfolio component. Even at zero yield it has portfolio value as a crash mitigation factor (and the yield environment can change quickly with the next Fed cycle of hiking interest rates potentially starting in 2022).

Golden Butterfly: Looks intriguing. I’d think long and hard about putting 20% into gold, however. Gold sometimes delivers, sometimes not, and explanations of its unpredictable performance can be counter-intuitive and confusing. That’s not something I’d want as 20% of my portfolio.

I’d be similarly skeptical about a 20% weight to small-cap. How about 10% to small cap and 10% to mid-cap? That seems like a reasonable tweak to the Golden Butterfly.
I definitely agree that having 20% gold would make me feel uncomfortable. When the time comes I was thinking about modifying the Golden Butterfly a little and dropping gold to 10% and taking the 50% stocks and going 15% total US stock, 15% total international stock, 10% US small cap value, 10% international small cap value. Something of that sort.
NiceUnparticularMan
Posts: 6103
Joined: Sat Mar 11, 2017 6:51 am

Re: Asset Allocation In These Times

Post by NiceUnparticularMan »

I think basing your asset allocation on your "feelings" is a pretty terrible idea.

Which is why I think almost every personal investor should just choose a low-cost Target Date or Lifestyle fund from a reputable company, and focus on the income/consumption/savings side of their personal finances, instead of trying to manage their own investments.

And no, I don't mean just unsophisticated investors should do this. I think even truly sophisticated--meaning actually knowledgeable and wise--personal investors should strongly consider this as well.
User avatar
Topic Author
Munir
Posts: 3200
Joined: Mon Feb 26, 2007 3:39 pm
Location: Oregon

Re: Asset Allocation In These Times

Post by Munir »

Are there any comments specifically about the suggestion by Adam Grossman outlined in my original post?
Bluemnatra
Posts: 492
Joined: Fri Jun 11, 2021 3:37 pm

Re: Asset Allocation In These Times

Post by Bluemnatra »

I'm 100% stocks. I don't need this money for 30 years. I look forward to days like Friday. My contributions smooth out the ride. I leave enough in cash for my ER fund, but don't consider that part of my allocation. I focus on avoiding debt and savings rate. Bond represent a greater risk than stocks for me.
"The greatest enemy of a good plan is the dream of a perfect plan"
User avatar
SmileyFace
Posts: 9184
Joined: Wed Feb 19, 2014 9:11 am

Re: Asset Allocation In These Times

Post by SmileyFace »

Munir wrote: Sun Nov 28, 2021 9:58 am
"When structuring your asset allocation, allocate more to non-stock-market investments, including cash and bonds, than you might feel is necessary"

Comments?
I don't agree with this statement.

Assuming 30+ years of retirement this advise might cause some people to run out of money (or not have as much left for their heirs) due to weaker returns.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Asset Allocation In These Times

Post by Marseille07 »

Bluemnatra wrote: Mon Nov 29, 2021 4:43 pm I'm 100% stocks. I don't need this money for 30 years. I look forward to days like Friday. My contributions smooth out the ride. I leave enough in cash for my ER fund, but don't consider that part of my allocation. I focus on avoiding debt and savings rate. Bond represent a greater risk than stocks for me.
ER fund is part of your AA whether you include it or not. I personally recommend at least 5% in cash.
Bluemnatra
Posts: 492
Joined: Fri Jun 11, 2021 3:37 pm

Re: Asset Allocation In These Times

Post by Bluemnatra »

Marseille07 wrote: Mon Nov 29, 2021 6:19 pm
Bluemnatra wrote: Mon Nov 29, 2021 4:43 pm I'm 100% stocks. I don't need this money for 30 years. I look forward to days like Friday. My contributions smooth out the ride. I leave enough in cash for my ER fund, but don't consider that part of my allocation. I focus on avoiding debt and savings rate. Bond represent a greater risk than stocks for me.
ER fund is part of your AA whether you include it or not. I personally recommend at least 5% in cash.
In that case I'm 75/25. All investible assets are 100% stocks. Cash is in Ally HYS. Been thinking about investing the chunk I have in cash in something more conservative.
"The greatest enemy of a good plan is the dream of a perfect plan"
User avatar
Artsdoctor
Posts: 6063
Joined: Thu Jun 28, 2012 3:09 pm
Location: Los Angeles, CA

Re: Asset Allocation In These Times

Post by Artsdoctor »

Munir wrote: Mon Nov 29, 2021 4:35 pm Are there any comments specifically about the suggestion by Adam Grossman outlined in my original post?
The concept is reasonable but I didn't really see details. There are a lot moving parts here.

Retirement is a very long period (hopefully). The asset allocation of a 65-year-old might be very different than that of an 85-year-old. It also depends on how much you really need the money and how well you've insulated yourself against inflation. Is social security a small portion of your income or the majority of your income?

I have managed my in-laws' finances and now I'm managing my mother's finances, and I have no problem whatsoever sticking with cash and safe investments (treasuries and CDs, for example) when it comes to late retirement.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Asset Allocation In These Times

Post by Marseille07 »

Bluemnatra wrote: Mon Nov 29, 2021 6:25 pm In that case I'm 75/25. All investible assets are 100% stocks. Cash is in Ally HYS. Been thinking about investing the chunk I have in cash in something more conservative.
I think the key is to figure out how much cash you need on hand. Some folks here love Warren Buffett's 90/10 portfolio.
User avatar
riverant
Posts: 1073
Joined: Tue May 04, 2021 6:51 am

Re: Asset Allocation In These Times

Post by riverant »

Munir wrote: Sun Nov 28, 2021 9:58 am The quote below from Adam Grossman of Mayport, a wealth management organization, makes much sense to me especially for retirees in the distribution phase:

"How can you make a financial plan in the absence of any ability to know what the future holds? Fortunately, there is a relatively simple answer: When you structure your investments, follow this three-step process: Focus the majority of your effort on asset allocation.When structuring your asset allocation, allocate more to non-stock-market investments, including cash and bonds, than you might feel is necessary. Within your non-stock-market investments, emphasize simplicity and liquidity. While most people perceive bonds to be "safe," the reality is that bonds carry risk too, and some more so than others. So I favor a combination of cash and US Treasury bonds."

Comments?
I’d be interested how this opinion specifically applies to a world with high inflation and low interest rates. If risk is the possibility of loss, Holding cash and bonds with negative real returns seems to guarantee loss. While it can be fine as a ballast or for rebalancing, adopting a negative returning asset as a larger part of your portfolio seems equivalent to giving up and hoping for the best.

100% stocks is obviously foolish for retirees except for perhaps, the insanely wealthy who also happen to love risk, but any sort of backtest that supports low equities (say below 50%) seems invalid to todays retiree.
Triple digit golfer
Posts: 10433
Joined: Mon May 18, 2009 5:57 pm

Re: Asset Allocation In These Times

Post by Triple digit golfer »

Marseille07 wrote: Mon Nov 29, 2021 6:30 pm
Bluemnatra wrote: Mon Nov 29, 2021 6:25 pm In that case I'm 75/25. All investible assets are 100% stocks. Cash is in Ally HYS. Been thinking about investing the chunk I have in cash in something more conservative.
I think the key is to figure out how much cash you need on hand. Some folks here love Warren Buffett's 90/10 portfolio.
I think there are a couple methods.

One is an emergency fund fixed amount and the rest in stocks. This essentially means that the AA ratio becomes more aggressive over time.

Another is a standard AA such as 80/20 or 60/40. Many of these people, myself included at 80/20, have no distinct emergency fund. The portfolio is the emergency fund because there is sufficient cash and/or fixed income included. If stocks crash 40%, an 80/20 portfolio becomes about 70/30, so one would be selling bonds/fixed income if an emergency came up anyway. The idea here is to keep the AA steady.

I've considered, now that we're close to 3 years in bonds, to set that as my bond amount and direct all new money to stocks. The logic is that I've got a bond amount I'm comfortable with. However, I'm not sure how I'd eventually go back to a more conservative AA or how that would look.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Asset Allocation In These Times

Post by Marseille07 »

Triple digit golfer wrote: Mon Nov 29, 2021 6:41 pm I think there are a couple methods.

One is an emergency fund fixed amount and the rest in stocks. This essentially means that the AA ratio becomes more aggressive over time.

Another is a standard AA such as 80/20 or 60/40. Many of these people, myself included at 80/20, have no distinct emergency fund. The portfolio is the emergency fund because there is sufficient cash and/or fixed income included. If stocks crash 40%, an 80/20 portfolio becomes about 70/30, so one would be selling bonds/fixed income if an emergency came up anyway. The idea here is to keep the AA steady.

I've considered, now that we're close to 3 years in bonds, to set that as my bond amount and direct all new money to stocks. The logic is that I've got a bond amount I'm comfortable with. However, I'm not sure how I'd eventually go back to a more conservative AA or how that would look.
We agree on something for once!

My approach is actually a hybrid, where I'd do 90/10 up to some fixed income amount then let the AA ratio become more aggressive over time; but I'd keep at least 5% in cash. It is a 90/10 -> 95/5 glider as I think I've mentioned before.
Bluemnatra
Posts: 492
Joined: Fri Jun 11, 2021 3:37 pm

Re: Asset Allocation In These Times

Post by Bluemnatra »

Triple digit golfer wrote: Mon Nov 29, 2021 6:41 pm
Marseille07 wrote: Mon Nov 29, 2021 6:30 pm
Bluemnatra wrote: Mon Nov 29, 2021 6:25 pm In that case I'm 75/25. All investible assets are 100% stocks. Cash is in Ally HYS. Been thinking about investing the chunk I have in cash in something more conservative.
I think the key is to figure out how much cash you need on hand. Some folks here love Warren Buffett's 90/10 portfolio.
I think there are a couple methods.

One is an emergency fund fixed amount and the rest in stocks. This essentially means that the AA ratio becomes more aggressive over time.

Another is a standard AA such as 80/20 or 60/40. Many of these people, myself included at 80/20, have no distinct emergency fund. The portfolio is the emergency fund because there is sufficient cash and/or fixed income included. If stocks crash 40%, an 80/20 portfolio becomes about 70/30, so one would be selling bonds/fixed income if an emergency came up anyway. The idea here is to keep the AA steady.

I've considered, now that we're close to 3 years in bonds, to set that as my bond amount and direct all new money to stocks. The logic is that I've got a bond amount I'm comfortable with. However, I'm not sure how I'd eventually go back to a more conservative AA or how that would look.
I was pondering something similar the other day. At what point do you no longer need your ER in all cash? This bond portion you're using as a sort of ER is it in taxable?
"The greatest enemy of a good plan is the dream of a perfect plan"
Triple digit golfer
Posts: 10433
Joined: Mon May 18, 2009 5:57 pm

Re: Asset Allocation In These Times

Post by Triple digit golfer »

Marseille07 wrote: Mon Nov 29, 2021 6:53 pm
Triple digit golfer wrote: Mon Nov 29, 2021 6:41 pm I think there are a couple methods.

One is an emergency fund fixed amount and the rest in stocks. This essentially means that the AA ratio becomes more aggressive over time.

Another is a standard AA such as 80/20 or 60/40. Many of these people, myself included at 80/20, have no distinct emergency fund. The portfolio is the emergency fund because there is sufficient cash and/or fixed income included. If stocks crash 40%, an 80/20 portfolio becomes about 70/30, so one would be selling bonds/fixed income if an emergency came up anyway. The idea here is to keep the AA steady.

I've considered, now that we're close to 3 years in bonds, to set that as my bond amount and direct all new money to stocks. The logic is that I've got a bond amount I'm comfortable with. However, I'm not sure how I'd eventually go back to a more conservative AA or how that would look.
We agree on something for once!

My approach is actually a hybrid, where I'd do 90/10 up to some fixed income amount then let the AA ratio become more aggressive over time; but I'd keep at least 5% in cash. It is a 90/10 -> 95/5 glider as I think I've mentioned before.
:sharebeer

So maybe I start at 80/20, keep my fixed income dollar amount as is, add to equities only until 90/10, then maintain 90/10 going forward. Same exact method as you outlined, just different percentages that suit me.

I am trying to conceptualize what this really accomplishes vs. simply being at 90/10 all along. It gives me more fixed income now, but do I really need it? Not likely. But who really knows.

I chose 80/20 initially just because I thought it was a good idea to hold some fixed income and good to add to that and add to equities. I figured once it got large enough, I'd reassess. Here we are.
Triple digit golfer
Posts: 10433
Joined: Mon May 18, 2009 5:57 pm

Re: Asset Allocation In These Times

Post by Triple digit golfer »

Bluemnatra wrote: Mon Nov 29, 2021 6:56 pm
Triple digit golfer wrote: Mon Nov 29, 2021 6:41 pm
Marseille07 wrote: Mon Nov 29, 2021 6:30 pm
Bluemnatra wrote: Mon Nov 29, 2021 6:25 pm In that case I'm 75/25. All investible assets are 100% stocks. Cash is in Ally HYS. Been thinking about investing the chunk I have in cash in something more conservative.
I think the key is to figure out how much cash you need on hand. Some folks here love Warren Buffett's 90/10 portfolio.
I think there are a couple methods.

One is an emergency fund fixed amount and the rest in stocks. This essentially means that the AA ratio becomes more aggressive over time.

Another is a standard AA such as 80/20 or 60/40. Many of these people, myself included at 80/20, have no distinct emergency fund. The portfolio is the emergency fund because there is sufficient cash and/or fixed income included. If stocks crash 40%, an 80/20 portfolio becomes about 70/30, so one would be selling bonds/fixed income if an emergency came up anyway. The idea here is to keep the AA steady.

I've considered, now that we're close to 3 years in bonds, to set that as my bond amount and direct all new money to stocks. The logic is that I've got a bond amount I'm comfortable with. However, I'm not sure how I'd eventually go back to a more conservative AA or how that would look.
I was pondering something similar the other day. At what point do you no longer need your ER in all cash? This bond portion you're using as a sort of ER is it in taxable?
We've got more than $400k in taxable accounts, all equities, so it's large enough that even if stocks go down 50%, I'm comfortable with it. Bonds are all in tax deferred accounts. If I need to draw from bonds, I would sell equities in taxable and then transfer a corresponding amount from bonds to equity in a tax deferred account. Thus, I'd effectively be selling bonds overall.

See the wiki on placing cash needs in a tax advantaged account.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Asset Allocation In These Times

Post by Marseille07 »

Triple digit golfer wrote: Mon Nov 29, 2021 6:59 pm :sharebeer

So maybe I start at 80/20, keep my fixed income dollar amount as is, add to equities only until 90/10, then maintain 90/10 going forward. Same exact method as you outlined, just different percentages that suit me.

I am trying to conceptualize what this really accomplishes vs. simply being at 90/10 all along. It gives me more fixed income now, but do I really need it? Not likely. But who really knows.

I chose 80/20 initially just because I thought it was a good idea to hold some fixed income and good to add to that and add to equities. I figured once it got large enough, I'd reassess. Here we are.
Well, the point of my glider is to have enough fixed income during a downturn. If my portfolio is at 1M, I sure want 100K in cash. But if it were at 5M, do I really need 500K? Unlikely, that's why it glides upward as the portfolio grows larger.

If you can stay at 90/10 then no need to glide it up imo.
Triple digit golfer
Posts: 10433
Joined: Mon May 18, 2009 5:57 pm

Re: Asset Allocation In These Times

Post by Triple digit golfer »

Marseille07 wrote: Mon Nov 29, 2021 7:03 pm
Triple digit golfer wrote: Mon Nov 29, 2021 6:59 pm :sharebeer

So maybe I start at 80/20, keep my fixed income dollar amount as is, add to equities only until 90/10, then maintain 90/10 going forward. Same exact method as you outlined, just different percentages that suit me.

I am trying to conceptualize what this really accomplishes vs. simply being at 90/10 all along. It gives me more fixed income now, but do I really need it? Not likely. But who really knows.

I chose 80/20 initially just because I thought it was a good idea to hold some fixed income and good to add to that and add to equities. I figured once it got large enough, I'd reassess. Here we are.
Well, the point of my glider is to have enough fixed income during a downturn. If my portfolio is at 1M, I sure want 100K in cash. But if it were at 5M, do I really need 500K? Unlikely, that's why it glides upward as the portfolio grows larger.

If you can stay at 90/10 then no need to glide it up imo.
True, but if my portfolio was $5 million I'd probably want more than $100k. More to lose, more protection needed. I suppose I'll let you know when I get there.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Asset Allocation In These Times

Post by Marseille07 »

Triple digit golfer wrote: Mon Nov 29, 2021 7:09 pm
Marseille07 wrote: Mon Nov 29, 2021 7:03 pm
Triple digit golfer wrote: Mon Nov 29, 2021 6:59 pm :sharebeer

So maybe I start at 80/20, keep my fixed income dollar amount as is, add to equities only until 90/10, then maintain 90/10 going forward. Same exact method as you outlined, just different percentages that suit me.

I am trying to conceptualize what this really accomplishes vs. simply being at 90/10 all along. It gives me more fixed income now, but do I really need it? Not likely. But who really knows.

I chose 80/20 initially just because I thought it was a good idea to hold some fixed income and good to add to that and add to equities. I figured once it got large enough, I'd reassess. Here we are.
Well, the point of my glider is to have enough fixed income during a downturn. If my portfolio is at 1M, I sure want 100K in cash. But if it were at 5M, do I really need 500K? Unlikely, that's why it glides upward as the portfolio grows larger.

If you can stay at 90/10 then no need to glide it up imo.
True, but if my portfolio was $5 million I'd probably want more than $100k. More to lose, more protection needed. I suppose I'll let you know when I get there.
The 100K was 90/10 on 1M. If the portfolio were 5M then we're talking about 4.5M/500K, or 4.75M/250K since I recommend at least 5% in cash. 4.9M/100K would be way too aggressive.
Triple digit golfer
Posts: 10433
Joined: Mon May 18, 2009 5:57 pm

Re: Asset Allocation In These Times

Post by Triple digit golfer »

Marseille07 wrote: Mon Nov 29, 2021 7:12 pm
Triple digit golfer wrote: Mon Nov 29, 2021 7:09 pm
Marseille07 wrote: Mon Nov 29, 2021 7:03 pm
Triple digit golfer wrote: Mon Nov 29, 2021 6:59 pm :sharebeer

So maybe I start at 80/20, keep my fixed income dollar amount as is, add to equities only until 90/10, then maintain 90/10 going forward. Same exact method as you outlined, just different percentages that suit me.

I am trying to conceptualize what this really accomplishes vs. simply being at 90/10 all along. It gives me more fixed income now, but do I really need it? Not likely. But who really knows.

I chose 80/20 initially just because I thought it was a good idea to hold some fixed income and good to add to that and add to equities. I figured once it got large enough, I'd reassess. Here we are.
Well, the point of my glider is to have enough fixed income during a downturn. If my portfolio is at 1M, I sure want 100K in cash. But if it were at 5M, do I really need 500K? Unlikely, that's why it glides upward as the portfolio grows larger.

If you can stay at 90/10 then no need to glide it up imo.
True, but if my portfolio was $5 million I'd probably want more than $100k. More to lose, more protection needed. I suppose I'll let you know when I get there.
The 100K was 90/10 on 1M. If the portfolio were 5M then we're talking about 4.5M/500K, or 4.75M/250K since I recommend at least 5% in cash. 4.9M/100K would be way too aggressive.
It also depends on how many years of expenses those amount represent. If I had 50 years I suppose it doesn't matter much. If I had 25 years and was recently retired, I wouldn't be comfortable at 90/10, since it would only represent 2.5 years.

I'll likely just stick with my 80/20. I just really don't have a compelling reason to change.
User avatar
Topic Author
Munir
Posts: 3200
Joined: Mon Feb 26, 2007 3:39 pm
Location: Oregon

Re: Asset Allocation In These Times

Post by Munir »

Thank you for all the replies. I need to clarify that I am mainly concerned by what the fixed income portion of the portfolio should be in. I am 84 years old in the distribution phase and my only concern is capital preservation. I am 40% Total Stock Market Index fund (VTSAX), 30% in VSBSX (Short Term Treasury Index Fund) and 30% in Treasury Money Market Fund (VUSSX). No intermediate bond funds any more- which is new for me. My heirs can change the asset allocation and choose their own funds. My timeline is around 5 years. I do not want to plan my asset allocation for longer unknown periods. Does this make sense? This is why I liked what Grossman was saying in the quote in my original post above.
PS: I have a few SPIAs in addition to my Soc. Sec. income.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Asset Allocation In These Times

Post by Marseille07 »

Triple digit golfer wrote: Mon Nov 29, 2021 7:22 pm It also depends on how many years of expenses those amount represent. If I had 50 years I suppose it doesn't matter much. If I had 25 years and was recently retired, I wouldn't be comfortable at 90/10, since it would only represent 2.5 years.

I'll likely just stick with my 80/20. I just really don't have a compelling reason to change.
Yes, it's important to consider your AA with respect to your withdrawal strategy. It is 2.5 years notionally on 4% SWR, but it's not like you stop slashing equities even during a downturn; so technically 10% goes a lot longer than 2.5 years.
Triple digit golfer
Posts: 10433
Joined: Mon May 18, 2009 5:57 pm

Re: Asset Allocation In These Times

Post by Triple digit golfer »

Marseille07 wrote: Mon Nov 29, 2021 7:25 pm
Triple digit golfer wrote: Mon Nov 29, 2021 7:22 pm It also depends on how many years of expenses those amount represent. If I had 50 years I suppose it doesn't matter much. If I had 25 years and was recently retired, I wouldn't be comfortable at 90/10, since it would only represent 2.5 years.

I'll likely just stick with my 80/20. I just really don't have a compelling reason to change.
Yes, it's important to consider your AA with respect to your withdrawal strategy. It is 2.5 years notionally on 4% SWR, but it's not like you stop slashing equities even during a downturn; so technically 10% goes a lot longer than 2.5 years.
I'm not sure I understand. What do you mean by the bold part?
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Asset Allocation In These Times

Post by Marseille07 »

Triple digit golfer wrote: Mon Nov 29, 2021 7:31 pm I'm not sure I understand. What do you mean by the bold part?
Consider a 1M portfolio 900K/100K, 40K withdrawal per year. The fixed income is "2.5 years" if you withdraw only from fixed income (100K / 40K = 2.5 years).

But realistically you continue rebalancing to maintain the same AA, which means you sell some equities, not just fixed income. This means your fixed income lasts much longer than 2.5 years.
Triple digit golfer
Posts: 10433
Joined: Mon May 18, 2009 5:57 pm

Re: Asset Allocation In These Times

Post by Triple digit golfer »

Marseille07 wrote: Mon Nov 29, 2021 9:45 pm
Triple digit golfer wrote: Mon Nov 29, 2021 7:31 pm I'm not sure I understand. What do you mean by the bold part?
Consider a 1M portfolio 900K/100K, 40K withdrawal per year. The fixed income is "2.5 years" if you withdraw only from fixed income (100K / 40K = 2.5 years).

But realistically you continue rebalancing to maintain the same AA, which means you sell some equities, not just fixed income. This means your fixed income lasts much longer than 2.5 years.
This doesn't work if there is a market decline, though.
User avatar
Topic Author
Munir
Posts: 3200
Joined: Mon Feb 26, 2007 3:39 pm
Location: Oregon

Re: Asset Allocation In These Times

Post by Munir »

May I respectfully suggest that a couple of responders have changed the direction of this conversation to issues unrelated to the original post. Can we please stay on the topic? Thank you.
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Asset Allocation In These Times

Post by willthrill81 »

000 wrote: Sun Nov 28, 2021 9:17 pm Yet another case of TIPS: The Investment Professionals Shun? :mrgreen:
Probably. Don't forget I bonds too.
The Sensible Steward
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Asset Allocation In These Times

Post by Marseille07 »

Sure, so personally I agree with Adam Grossman; I like cash & STGB in low-yields environment (this is debatable, just my opinion) because it's hard to predict where the yields go and if you get it wrong, LTTs suffer duration risk.
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Asset Allocation In These Times

Post by willthrill81 »

Munir wrote: Sun Nov 28, 2021 9:58 am"...While most people perceive bonds to be "safe," the reality is that bonds carry risk too, and some more so than others. So I favor a combination of cash and US Treasury bonds."
There's a big logic jump there. There is no direct connection between the first sentence and cash.

I've seen little empirical evidence showing that cash has done much of anything good for retirees that other assets haven't done better. About the only exception was during the high inflation period of the late 1970s and early 1980s, when T-bills didn't lag inflation nearly as badly as nominal bonds did. But we now have TIPS and I bonds, which are doing a much better job of tracking inflation than T-bills, which are currently lagging inflation by around 5%, something that didn't come close to happening during the high inflation the U.S. experienced before.
The Sensible Steward
User avatar
Beensabu
Posts: 5657
Joined: Sun Aug 14, 2016 3:22 pm

Re: Asset Allocation In These Times

Post by Beensabu »

Munir wrote: Mon Nov 29, 2021 7:23 pm I am 40% Total Stock Market Index fund (VTSAX), 30% in VSBSX (Short Term Treasury Index Fund) and 30% in Treasury Money Market Fund (VUSSX).
...
My timeline is around 5 years. I do not want to plan my asset allocation for longer unknown periods.
Just based on the stated AA, that's a 10-year timeline. A 5-year timeline would mean an equity allocation of 20%.
"When structuring your asset allocation, allocate more to non-stock-market investments, including cash and bonds, than you might feel is necessary."
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Post Reply