Low Tech Asset Allocation

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tennisplyr
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Low Tech Asset Allocation

Post by tennisplyr »

I’m presuming most BHs use many of the tech calculations, projections, simulations, etc to help develop your AAs. What if there were no tech support/guidance, how would you go about developing your AA? Perhaps you don’t use them.
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aristotelian
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Re: Low Tech Asset Allocation

Post by aristotelian »

A good default is 60% equities (including some portion of international and US) and 40% bonds.

Another option would be to use a target date fund for your age as a baseline.
livesoft
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Re: Low Tech Asset Allocation

Post by livesoft »

I would look at the asset allocation of Vanguard LifeStrategy Moderate Growth fund. Done.
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longinvest
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Re: Low Tech Asset Allocation

Post by longinvest »

Some of us invest into a globally-diversified balanced index One-Fund Portfolio. It can help avoiding behavioral pitfalls. It also simplify things for a less financially-inclined spouse.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
balbrec2
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Re: Low Tech Asset Allocation

Post by balbrec2 »

Need, ability and willingness to take risk.
Look at all three, come up with an average.
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Re: Low Tech Asset Allocation

Post by tennisplyr »

I’m at 50/50. Using some intuition I’d say half risky/half less risky.
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JoMoney
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Re: Low Tech Asset Allocation

Post by JoMoney »

An odd presumption. What sort of "tech calculations" do you imagine are involved with consistently buying a low-cost broad market index fund over time? How often are Boglehead's changing their asset allocations that they need ongoing tools to "develop" their allocations? I thought the idea of your asset allocation was supposed to be on your personal willingness to accept risk / exposure to specific risk(s) or simply broad stock-market risk, which is more a personal preference not really something calculated with precision.
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Re: Low Tech Asset Allocation

Post by tennisplyr »

JoMoney wrote: Wed Aug 17, 2022 7:33 am An odd presumption. What sort of "tech calculations" do you imagine are involved with consistently buying a low-cost broad market index fund over time? How often are Boglehead's changing their asset allocations that they need ongoing tools to "develop" their allocations? I thought the idea of your asset allocation was supposed to be on your personal willingness to accept risk / exposure to specific risk(s) or simply broad stock-market risk, which is more a personal preference not really something calculated with precision.
My question is really about the mindset you would use in “setting” an AA, not in jiggling with it.
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7eight9
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Re: Low Tech Asset Allocation

Post by 7eight9 »

No need for any high tech tools. Simply follow the investing advice in the Talmud --- Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep by him in reserve.

Talmud Portfolio https://portfolioslab.com/portfolio/roger-gibson-talmud
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Random Walker
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Re: Low Tech Asset Allocation

Post by Random Walker »

tennisplyr wrote: Wed Aug 17, 2022 7:28 am I’m at 50/50. Using some intuition I’d say half risky/half less risky.
You’re in pretty good company :-) if I remember, Harry Markowitz, the father of Modern Portfolio Theory, basically intuitively landed at 50/50. And I think Bogle pretty much did as well. One or both of them said something to the effect “half the time I feel I have too little in stocks and half the time I feel I have too much in stocks”

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Re: Low Tech Asset Allocation

Post by nisiprius »

I don't use them. I do tons of calculations and analyses mostly as recreation.

When it comes to seriously investing my own money, I have never used any "tech calculations" and I still don't. I sometimes try backtests and so forth just to see how my simple portfolios might have performed and to confirm that I'm not missing anything important by ignoring sophisticated variations. My opinion is that they just amount to rolling the dice a bit, and might have been better or worse over some particular period of time but nothing life-changing. John C. Bogle wrote that
Successful investing involves doing just a few things right and avoiding serious mistakes.
I use "tech calculations" as reality checks that I am avoiding serious mistakes.

Bogle also wrote
There are an infinite number of strategies worse than this one: Commit, over a period of a few years, half of your assets to a stock index fund and half to a bond index fund. Ignore interim fluctuations in their net asset values. Hold your positions for as long as you live, subject only to infrequent and marginal adjustments as your circumstances change. When there are multiple solutions to a problem, choose the simplest one.
I don't do that, but what I do is not very complicated.

To pause a moment, Vanguard offers four, and only four LifeStrategy funds. By implication, they think "four sizes fit most." They are each simple funds-of-funds: Total Stock + Total International Stock + Total Bond + Total International Bond, and the basic allocation choices are 80/20, 60/40, 40/60, or 20/80. They also offer "Target Retirement" funds, which by implication are "for any specified retirement year, one size fits all." They are virtually the same as LifeStrategy, except that the allocation glides with time... and a small amount of TIPS gets added close to retirement.

I modify John C. Bogle's suggestion in several ways, none involving tech calculation. The point is not that you should take my portfolio as advice or even a suggestion, but only that the reasoning process is very loose and doesn't involve calculations.

1) I use a lower stock allocation than 50/50. That isn't based on calculation, it's based on my self-understanding of my risk tolerance, and my knowledge of past stock market behavior. This was tested in 2008-2009, and fortunately it was about right: my wife and I were both terrified, but were able to stay the course and not sell. If we'd been at (say) 60/40 I don't think we could have done it. That's just us: we're both fraidycats.

2) About 20% of my stocks are international. Adding international stocks follows the pattern Taylor Larimore's "three-fund portfolio." That isn't based on either tech calculations or strong conviction. I don't think it's a "serious mistake." You can't even call what I did "reasoning," certainly not "calculation." It's just that I am too timid to venture too far from consensus recommendations. So it's a wishy-washy compromise. I'm not comfortable having only US stocks, that sounds like an extreme or an enthusiast's position. But I'm not comfortable going to full cap weight.

3) A biggish departure from Bogle, Taylor Larimore's three-fund portfolio, and Vanguard's LifeStrategy and Target Retirement funds is that instead of using Total Bond as my bond holdings, I have some Total Bond but more than half is in the Vanguard Inflation-Protected Securities Fund. Having lived through the high inflation of the 1970s-1980s I have always been concerned about inflation, and when the Treasury began issuing TIPS and series I savings bonds, I rejoiced and committed heavily.
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Re: Low Tech Asset Allocation

Post by nisiprius »

tennisplyr wrote: Wed Aug 17, 2022 7:49 am...My question is really about the mindset you would use in “setting” an AA, not in jiggling with it.
In my opinion, the most single consideration by far is to know your personal risk tolerance. And in my opinion, calculations not only cannot answer that question, they can get in the way of finding the right answer.

In order to arrive at the right answer for you, it is more useful to read The Great Depression: A Diary, by Benjamin Roth or The Day the Bubble Burst: A Social History of the Wall Street Crash of 1929 by Max Morgan-Witts and Gordon Thomas, than to read Stocks for the Long Run by Jeremy Siegel.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Dave55
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Re: Low Tech Asset Allocation

Post by Dave55 »

I never used any. I had advisors when I was working who had me at 70/30. First stage of retirement I dumped advisor, went to 3 fund and 50/50. Later in retirement transitioned to 40/60.

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Re: Low Tech Asset Allocation

Post by tibbitts »

tennisplyr wrote: Wed Aug 17, 2022 7:12 am I’m presuming most BHs use many of the tech calculations, projections, simulations, etc to help develop your AAs. What if there were no tech support/guidance, how would you go about developing your AA? Perhaps you don’t use them.
I think you have to broaden the question a little. Probably virtually all Bogleheads use tools for things like spend-down in retirement, tax projections, Roth conversions, etc. AA is often one of the inputs that (along with countless others) might be tweaked to see the effect on the output, not so much the direct output.
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Re: Low Tech Asset Allocation

Post by strummer6969 »

People stress too much about allocations. I was one of them. Figure out what you want in bonds/cash vs. equities. On the equities side, it's really just a crapshoot. I think over a long period of time, allocations will regress to the mean. I invest in VTI & VXUS. Will it outperform/underperform a 100% S&P portfolio in the next 20 years? I don't know but I do know the the biggest factors by far will be consistently investing and staying the course.
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Re: Low Tech Asset Allocation

Post by tennisplyr »

Random Walker wrote: Wed Aug 17, 2022 8:03 am
tennisplyr wrote: Wed Aug 17, 2022 7:28 am I’m at 50/50. Using some intuition I’d say half risky/half less risky.
You’re in pretty good company :-) if I remember, Harry Markowitz, the father of Modern Portfolio Theory, basically intuitively landed at 50/50. And I think Bogle pretty much did as well. One or both of them said something to the effect “half the time I feel I have too little in stocks and half the time I feel I have too much in stocks”

Dave
Cool. I decided this some 30 years ago when I was a lot younger….seemed pretty logical at the time 😀
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Re: Low Tech Asset Allocation

Post by David Jay »

tennisplyr wrote: Wed Aug 17, 2022 7:49 amMy question is really about the mindset you would use in “setting” an AA, not in jiggling with it.
It is behavioral, not math. See the first quote in my signature.

I like Rick Ferri's "shock testing" questions from his book "All About Asset Allocation". It helps to establish the maximum stock level at which one will not "freak out" over a 50% drop in the market.
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Re: Low Tech Asset Allocation

Post by dad2000 »

It's mostly about risk tolerance. No calculator can help with this. Unless you really know yourself, it can be hard to gauge.

I started phasing into retirement last year. I did not panic in 2008 nor earlier this year so I feel like I understand my tolerance well.

Over the last 12 years, I adjusted from 70/30 to 57/43 and plan to land at 55/45, mainly by adjusting contributions. No knee-jerk changes.
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Re: Low Tech Asset Allocation

Post by howard71 »

I don't know why anyone wouldn't use a simple tool like https://portfoliocharts.com/

It may have been high tech for the person who developed it (Tyler, a poster here BTW), but it couldn't be easier for a user. You can check out the allocations of popular strategies or key in the data for your own.
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Re: Low Tech Asset Allocation

Post by invest4 »

No.

For myself, I was 100% equities until my later 40s (but also had a good cushion of cash)

I now bump around between 70/30 and 60/40 (age 50).

Looking further ahead into retirement, I expect something like 60/40 or 50/50 depending how things progress before and during retirement.

Make your best choice based upon your tolerance for risk and go with it. You can always adjust.
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Re: Low Tech Asset Allocation

Post by dcabler »

tennisplyr wrote: Wed Aug 17, 2022 7:12 am I’m presuming most BHs use many of the tech calculations, projections, simulations, etc to help develop your AAs. What if there were no tech support/guidance, how would you go about developing your AA? Perhaps you don’t use them.
Agree with what many of the posters have already mentioned, except that you didn't ask for people to suggest an AA. You asked how to go about choosing an AA in a low-tech way.

I'm afraid that there's no way to do that without at least having some idea what prospective AA's may have done in the past and without some sort of expectation, no matter how fuzzy, things might look like in the future. And that usually comes down to "knowing thyself".
- How badly would you freak out when the inevitable downturn happens and do you think you'd be prone to "doing something" that's anything more than rebalancing?
- Are you saving like crazy or do you intend for your portfolio to carry the day? Plenty of articles around showing how high the impact of savings itself has vs. investing performance.
- How "hands off" or "hands on" do you want to be?
- Do you understand the difference between "volatility" and "risk"?
- What does "simplicity" mean to you?

Note that all of the points above are only good for a single point in time. Many of us got a good picture of ourselves in the 2008 downturn, for example. But we all change and evolve over time as do our situations. Hopefully those changes are slow and take place over longer periods of time. Which is my way of saying that once you choose something "stay the course" unless you have good reason not to. And despite what you might hear, there are often good reasons not to. Deciding one day to start performance chasing is not a good reason in my opinion.

A lot of BH'ers tend to believe that there's an answer that's good enough for everybody. Since we're not all average, I don't buy that. You need to find out what's good enough for you. On the other hand, there are an infinite number of choices that will give you almost the same results in the end but might take very different paths to get there. Problem is, you won't know what the path looked like until you reach the destination.

Check out this link: https://www.whitecoatinvestor.com/150-p ... han-yours/

Also, most of the major brokerage houses have tools that help you assess most of this and to suggest an AA. Are they perfect? Of course not. But it's a good place to start. I would say, though, to be wary of any suggested AA that has investment categories that have low % allocations. A 5% allocation really isn't going to affect the final answer all that much and some argue that even 10% is on the margins. I would suggest thinking in terms of cutting with a chainsaw, not with a scalpel.

As for me, yep, I went the high-tech approach to creating my AA. And yes, it has evolved as I have and as I've learned more both on this forum as well as other places. And it includes having an IPS primarily to explain to my DW what I've done and why but even that contains an "upon death" section of what to do in case I pre-decease since I already know that she has much less interest in this stuff than I do.

Cheers.
Last edited by dcabler on Thu Aug 18, 2022 6:44 am, edited 4 times in total.
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Re: Low Tech Asset Allocation

Post by SmileyFace »

My Tech Calculation is Age-10 in bonds recalibrating every 5 years to keep the numbers a multiple of 5. Although when I hit 50/50 plan to sit there.
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Re: Low Tech Asset Allocation

Post by homebuyer6426 »

I don't go by any rule of thumb. Just know that equities have better long-term returns so I take on as many as I can stomach considering the possibility of a historic-level crash. I also will have a pension so treating that like a bond increases my comfort with the risk. As a 36 year old, I am comfortable with not owning any bonds. Considering buying $6000 bonds a year in my Roth IRA at some point, but not that bothered about it.
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Re: Low Tech Asset Allocation

Post by Portfolio7 »

Not very technical. I was 100% stocks for a long time. After the GFC I reset at 60/40 due to both age and trying to figure out what I was comfortable with. That ended up being more like 70/30. Then I did a lot of reading, and finally came up with portfolio. It's more of the 1/n variety (6 equity asset classes of equal size, the rest in fixed income.) It's still about 70/30 overall. Once I hit another 70% in gains I'll dial back the equity risk somewhat.
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Re: Low Tech Asset Allocation

Post by jh »

tennisplyr wrote: Wed Aug 17, 2022 7:12 am I’m presuming most BHs use many of the tech calculations, projections, simulations, etc to help develop your AAs. What if there were no tech support/guidance, how would you go about developing your AA? Perhaps you don’t use them.
I found out what my preferred asset allocation was after the 2008 crash. Since then its been smooth sailing.

My preference is to go 100% stocks split along market cap weights in regards to US/ex-US (currently using 60/40) and to tilt towards large value if necessary so that I can simply live off of the dividend income as a withdrawal strategy.

I am theoretically retired at 46 this year living off of my taxable account alone. Roughly $1M in taxable split 60/40 between etfs SCHD and VXUS. The etf SCHD is for the US and has a large value tilt so that the dividend yield is 3.24%. The VXUS etf is total international stock market with a 3.70% yield because international stocks are extremely cheap right now. Combined yield is around 3.34% which is enough for me to live off of. I assume a div growth rate of 6% per year which should be very pessimistic. My living expenses are around $35k including ACA healthcare and taxes which should be close to zero on qualified dividends up to $41k per year.
Retired in 2022 at the age of 46. Living off of dividends.
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