2018 Strategy

[Scuba]

There was a time when I would make a futile effort to convince folks who post something like this that their "gut feeling" investment moves were almost always bad decisions. Thankfully I'm past that now...

[emoji23] I just did that

 

[Scuba]

I’m not planning on significant changes to our 65/35 AA. My financial goal is to learn more about taxes and various other investments topics so that I can consider going DIY again. I was DIY for many years but hired an FA 4 years before we ER’d. I’m enjoying having an FA but the time will likely come when I feel the cost is too high and I take control again. Right now our FA has about 60% of our portfolio.

 

[FIREd]

My AA has been at 50/50 for a few years and I intend to keep it there. I am giving myself a raise for 2018 and will increase the amount that I withdraw from my portfolio by 1.35%.

 

[wmc1000]

1 year into retirement we are at 80/15/5 - with less than 2 years left to FRA the 5% cash will tide us over so it is stay the course for us. If there is a major correction during the next 2 years we can live comfortably with a 0% WR until the projected SS haircut in 2034.

 

[sengsational]

When the CAPE hit the trigger, I added 20 years to my age and used that to change my AA. When the CAPE hits the low trigger, I'll go back to my normal age AA. Some of us can't not do anything.

 

[dixonge]

As one of the 'fortunate few' w/ pensions being our primary retirement income it's rather difficult to determine what our asset allocation is, other than 'heavy on the fixed income' side, very light on everything else. So I'll just continue putting most of our available cash in various dividend equities, primarily yieldcos, REITs and MLPs w/ long-term contracts. Emphasis on renewable energy, telco, data, etc.

 

[Huston55]

Will remain 60/40 for 2018; same AA as the past few years since FIRE.

Have also had to rebalance a few times this year to maintain 60/40 (actually 60/35/5ish). Only significant move is selling equities in Dec 2017 in our taxable account to capture zero tax LTCG, then using the proceeds for 2018 expenses + CD ladder rungs.

PS: Do have to admit though that I’ve considered moving to 50/50 several times this Fall/Winter. But, decided to hang in @ 60/40.

 

[Tallman4123]

DW just retired earlier this month, so 2018 will be the first year of decumulation after 40+ years of accumulation. Can you say "sequence risk jitters"?

Will go to 55/45 January 2018 from 60/40 in 2017 and 65/35 in 2016. I THINK 55% will be my bottom for equity position percentage, but who knows how I'll feel about it this time next year.

 

[Nature Lover]

Merry Xmas! I'll be staying the course with market investments (~60/35/5 risk profile).

NL

 

[camfused]

Replying to all who commented on my post, my FIRE plan starts one year from now. So, I look at it like I need my money only one year from now. By going to 0% stocks, I am trying to lock in on no loses until then. Perhaps my allocation should be 0/0/100, in order to achieve that.

A big part of investing is risk tolerance. My risk tolerance is real low right now, since loses would mess up my plan. I am willing to forgo a potential 15% gain, for a 1.5% highly probable gain. This will allow me to sleep at night.

A year from now, of course, I will have a normal 60/40 or something like that split.

So, I guess y'all think this is a wrong approach?

As for knowing something about the future, I don't. But surely, the probability of a correction grows every year the bull gets older. We listened to a "professional" many years ago after a long bull run, who said to keep in the market despite the obvious signs to us amateurs to get more defensive. We listened, and lost a bunch. I figure I can do as well as them now.

 

[W2R]

I'm sure we all looked like geniuses in 2017 with our 10,15,20,25% ROIs but do you have any plans for 2018 as to changing things ?

I had to rebalance a number of times in 2017 to maintain a 60/40 (equites/fixed) split and finally just went to a 50/50 in December and I'm going to ride that pony till the cows come home in 2018. Yes, I know mixing metaphors is like killing two birds with a dog that don't hunt.

So what's your plan for 18, if you have any ?

Oh and by the way Merry Christmas to all.

Merry Christmas.

I don't plan to change a thing. I never do. I did the same thing in 2009 as I did in 2017, and it worked out OK for me either way.

I have a 45:55 AA, with a "buy and hold" portfolio of 30% Wellesley and the rest in four very broad index funds (total stock market, total bond market, international, and TSP G Fund).

I rebalance during the first week in January right after withdrawing my year's spending money, and also I usually rebalance if my equity allocation exceeds 47.5% or is less than 42.5%. I admit it's 48% right now, but I haven't rebalanced since I'll be messing with all of that in about a week.

This portfolio is probably too conservative for most people but it is just right for me.

With recent market increases, like most of us my portfolio has grown much larger than anything I ever hoped to see in my lifetime. Also I now have SS and tiny pension, neither of which I was actually counting on getting. So, I would be able to manage pretty well in case of a market crash without any suffering on my part.

 

[joeea]

Replying to all who commented on my post, my FIRE plan starts one year from now. So, I look at it like I need my money only one year from now.

Unless you are not planning to live long, that seems like the wrong way to look at it.

These days, most folks will be in their retirement for 25-30 years or more. You need some money for year one. But you need a lot of money for the duration, not just for the first year.

By going to 0% stocks, I am trying to lock in on no loses until then. Perhaps my allocation should be 0/0/100, in order to achieve that.

A big part of investing is risk tolerance. My risk tolerance is real low right now, since loses would mess up my plan. I am willing to forgo a potential 15% gain, for a 1.5% highly probable gain. This will allow me to sleep at night.

Okay, some have an extremely low risk tolerance and feel that way. Being able to sleep at night makes sense. Its the "until then" part that baffles me. You are okay with losses after the first year of retirement for some reason?

A year from now, of course, I will have a normal 60/40 or something like that split.

I don't understand at all. 0% in equities for one year, then moving to 60% - I don't understand the point here. If the need for 0% exists for a year because you want to "lock in no losses", why would it end immediately after that?

But surely, the probability of a correction grows every year the bull gets older.

No, it doesn't work that way. Each year has an independent probability that has nothing to do with the prior 9 years.

We listened to a "professional" many years ago after a long bull run, who said to keep in the market despite the obvious signs to us amateurs to get more defensive. We listened, and lost a bunch.

My 401k went down a bunch in 2007-8. It recovered quite nicely after that. Fortunately I stayed in the market and reaped the benefits.

You are planning to get out of equities, then get back in after one year for some reason. Perhaps you see obvious signs that others don't. Maybe that's better than the professionals can do, maybe not. Time will tell.

I figure I can do as well as them now.

Okay, good luck. I hope it works out for you.

 

[pb4uski]

Replying to all who commented on my post, my FIRE plan starts one year from now. So, I look at it like I need my money only one year from now. By going to 0% stocks, I am trying to lock in on no loses until then. Perhaps my allocation should be 0/0/100, in order to achieve that.

A big part of investing is risk tolerance. My risk tolerance is real low right now, since loses would mess up my plan. I am willing to forgo a potential 15% gain, for a 1.5% highly probable gain. This will allow me to sleep at night.

A year from now, of course, I will have a normal 60/40 or something like that split.

So, I guess y'all think this is a wrong approach?

As for knowing something about the future, I don't. But surely, the probability of a correction grows every year the bull gets older. We listened to a "professional" many years ago after a long bull run, who said to keep in the market despite the obvious signs to us amateurs to get more defensive. We listened, and lost a bunch. I figure I can do as well as them now.

What I am struggling to understand is if you went out of stocks now because you are afraid of a correction in 2018 will derail your plans wouldn't you be equally or more afraid if we get to the end of 2018 and if the markets go sideways in 2018 or only have a small correction and your paycheck will stop because you retire?

IOW, if you are uncomfortable maintaining a 60/40 AA now perhaps you are not ready to stop working with a 60/40 AA.

IME, it is fairly easy to decide when to get out but the difficult trick is deciding when to get back in.... I know some people who bailed in 2008/2009 and never got back in and missed out on the rally entirely.

 

[camfused]

What I am saying is that I am basically betting on a correction in 2018, at which point of course I would get back into the market.

But, ok, I see pb4uski's and joeea's points. I'll think them over and not pollute this thread any more while I work this out, except one more question: Based on my circumstances, what percentages would you recommend for 2018? Thanks guys.

 

[Jerry1]

IME, it is fairly easy to decide when to get out but the difficult trick is deciding when to get back in.... I know some people who bailed in 2008/2009 and never got back in and missed out on the rally entirely.

I'm one of those people. I was so proud that I did not get hit hard in 2008/2009. I didn't go anywhere near as low as zero, but I think I was close to 30%. I lost out on a lot of the gains by not getting back in soon enough. DW never got back in and lost out even more. It feels so right to get out right about now with the market being so high, however, you have to figure out when to get back in. To Camfused, I highly recommend finding your comfortable retirement asset allocation and getting into it now and staying there (or at least sticking with a AA plan). I share other's concern as to why you would get back in at 60% in one year. Not giving advice beyond finding a comfortable AA, but if I was in 2008 again, it would have been good if I would have got back in over time. Basically dollar cost averaging.

Remember, anything can happen. The market could go down 20% and you'll feel good about having 0% in stocks. Then, according to your plan, you're back in the following year. You'll be a hero - until the market goes down another 20%. It will drive you nuts.

Trust me, I'm doing everything I can to avoid the impulse to get out, so I understand the issue. Keep reading and find comfort in a proper allocation that you can stick with. You'll go less crazy.

 

[audreyh1]

When I retired my portfolio allocation was at 65/35. My plan at the time was to drop the equity part of the allocation by 1% a year and also re-balance (both at the beginning of the year). I intend stick to that plan. 62/38 in 2018.

The drop in early 2016 and the rise in 2017 has not caused huge drifts for my allocation, and they have not made me do anything in the middle of the year. There was a post some time ago by Audrey which sticks in my mind, something about changing allocation in the middle of 2008 and a reference to catching a falling knife.

I didn’t change allocation in 2008. I kept rebalancing back to my target allocation but stocks kept dropping farther so a few months later I had to rebalance again. That’s what I meant by catching a falling knife.

After that experience I decided that my 5% rebalancing band triggers were too tight, and I set them to 8-10% so that I would rebalance less often, even in volatile times.

 

[joeea]

Based on my circumstances, what percentages would you recommend for 2018? Thanks guys.

IMHO, you need to come up with an asset allocation that you can live with for a while, yet still sleep at night.

For me, that is 60-40. For you, it sounds like that keeps you awake. So you'll need to come up with your own percentages. What works for some doesn't work for others.

There are some sites that have tools to help you come up with an assent allocation that would meet your personal needs and feelings. Do a search to find some and check them out. Here's one you could use: https://gps.ricedelman.com/ . Here's another: https://personal.vanguard.com/us/FundsInvQuestionnaire . There are many others. You might be better off spending a few hours with a certified financial planner who could help you there.

I've never been a market timer. If you choose that route remember: market timers must guess right twice - they must guess right when to get out of the market and must guess right when to get back in. Maybe you'll be lucky, but most aren't.

 

[audreyh1]

2018 - I am starting my CAPE10 sensitive Asset Allocation scheme which means dropping to 50/50 as long as CAPE10 is above 25. This is a small drop from the 53/47 I started the year with. The highest equity exposure I’ll ever have is 60/40 if CAPE10 ever drops below 18. It will be very interesting to see what happens over the next decade.

I would probably have left the allocation alone, but I decided to sell some legacy stock I had left alone for a long time since even before I retired, and fold it into my regular retirement portfolio. It’s really hard for me to add new funds at these levels. It’s a minor tweak but something I’ve thought about for a long time.

 

[UnrealizedPotential]

I'm just sitting tight. Who knows what the market will do next year? I certainly don't. I would like the possibility of higher returns if the bull run continues but I'm thinking at this point how high can this market go? I don't know, so my AA is staying the same. If an opportunity comes up and I can see it I will act. Right now , it's murky waters IMO.

 

[Looking4Ward]

Several years ago I settled on the following configuration:

Taxable Account (65/35):

Vanguard Wellington
Vanguard Wellesley
Vanguard Health Care Fund

Tax Advantaged Account (75/25):

Vanguard Wellington
Vanguard Health Care Fund
Vanguard Dividend Growth Fund

Overall 68/32 and while I'm a couple of points out of my target AA I'm happy with how they've performed and don't plan on making any changes.

 

[googily]

I'm at 65/35, will stay there, but that's because I'm 80-20 in my 401k (age 51) and closer to 55-45 in my spousal inherited IRA and after tax accounts.

I took some of this year's "winnings" and paid for a bunch of repairs around the house and other things, and also upped my cash holdings. But my intent next year is to not touch any of it (still working). I'm expecting the market to go down in 2018, and will use the cash I built up if I need extra dough and let the reinvestments buy my funds on sale.

 

[scrabbler1]

Back in January, I rebalanced in my IRA the first of 3 times in 2017 to stay near my 46/54 AA. But I also did a rare rebalancing in my taxable account to boost my slightly lagging monthly bond income by more than I reduced my stock fund quarterly dividend income.

In a few days, I will be receiving a huge cap gains distribution from that taxable account's stock fund and it will push me over the ACA subsidy cliff. If I try to reduce my shares in that fund, I will pay more in cap gains taxes than I will cost myself with the ACA subsidy. I hope I don't go over the ACA cliff next year but I don't see a real way to better safeguard against it.

 

[RunningBum]

Back in January, I rebalanced in my IRA the first of 3 times in 2017 to stay near my 46/54 AA. But I also did a rare rebalancing in my taxable account to boost my slightly lagging monthly bond income by more than I reduced my stock fund quarterly dividend income.

In a few days, I will be receiving a huge cap gains distribution from that taxable account's stock fund and it will push me over the ACA subsidy cliff. If I try to reduce my shares in that fund, I will pay more in cap gains taxes than I will cost myself with the ACA subsidy. I hope I don't go over the ACA cliff next year but I don't see a real way to better safeguard against it.

I have a similar situation, and I chose to sell off that kind of fund to give me an almost certainty of a much larger ACA subsidy next year. Yes, I'm paying more in taxes than the subsidy is worth but I figure I'd eventually sell and pay CG taxes anyway (unless I die with it and my heirs get step up basis), and the subsidy is a limited time offer (before it disappears or I hit medicare age). I started a thread recently on this if you care to see details. Of course everyone's situation is different.

 

[racy]

I'm planning to reach age 66 in 2018 and maintain my 45/55 stk/bond allocation.
45% in stocks may seem low but there's some Int'l, Sm Co, Health sector, & REITs along with Total Stk Market in the mix.

 

[Lsbcal]

I didn’t change allocation in 2008. I kept rebalancing back to my target allocation but stocks kept dropping farther so a few months later I had to rebalance again. That’s what I meant by catching a falling knife.

After that experience I decided that my 5% rebalancing band triggers were too tight, and I set them to 8-10% so that I would rebalance less often, even in volatile times.

I kept my equities in 2008 but did not add to them as the market went down. Instead I looked at several severe market declines of the past and determined a trend following formula that would have me rebalance back to my AA. That had me fully back into the market in July 2009 (market low in Feb 2009).

The market did not repeat a 1930's scenario but had it done so I did not want to be rebalancing into it. As we age, I think it is even more important to consider our rebalancing methodology. Multiyear declines as in the 1930's or 1973-74 could be very tough on one's nerves.