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Old 07-26-2011, 11:47 AM   #21
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So do you think that 80 or 90% stocks is too aggressive for someone my age with 25 years to go?
The answer really is nobody can say for sure.

However there is an often quoted allocation that says you should have your "age in bonds". For instance, a 25 year old would be 75% stocks and 25% bonds. A 40 year old, 60% stock and 40% bonds, etc.... I personally am a bit more aggressive/risky than that.
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Old 07-26-2011, 10:40 PM   #22
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I would stay 100% out of American stocks. Where would you be with a 30% loss?

Here is a plan:
50% SHY (cash)
10% TIP Bonds
10% EFA International equities
10% FRN Emerging Equities
10% VNQ REIT
10% AMJ Energy MLP

This is just an example but I hope you get the idea. I would expect a 10% return over the next year. As bulletproof as you can get.

A 90/10 split won't get you more and is a lot riskier, especially now.

Good luck.
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Old 07-26-2011, 11:03 PM   #23
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If you beleive in the efficient frontier, then the highest return with the lowest risk is a 60/40 mix, equities to fixed income. Many on here may disagree, but AFAIK the efficient frontier has not been disproved yet.........
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Old 07-26-2011, 11:41 PM   #24
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Thanks for the thoughts everyone.

I know that the stock market will do as it pleases but I just can't help myself. I love planning. I think I especially love 7% returns because it works so darn well with the half-life equation:

t1/2 = (0.693)/(7%)=10 years

So the nest egg doubles every 10 years or so. Isn't that a happy little thought?

Anyways, I guess we will think a bit more about 80% vs 90% equities. We are certainly willing and able to take on more risk in the form of equities exposure in exchange for higher returns.

We have some data for 10 Year Treasury rates from multpl.com to play with and run some simulations. We're trying to figure out how to marry S&P500 prices with dividends to get total returns... And then simulate different ratios of stocks and bonds.

Hmm, it may be time to give up for tonight and watch a little Star Trek instead.
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Old 07-27-2011, 01:06 PM   #25
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Both these points have been made before in the thread, but I thought I'd jump in with my personal experience

1. The returns will be what they will be. But 7% is a conservative enough for planning over long periods.

2. I started investing/saving in earnest in my early 30s & use a 80/20 split. I had read in Money magazine at the time that this split had about 80-90% of the return of a 100% stock portfolio with much less volatility. (I cannot point to the article now). I invested the 20% in ST high quality corporate bond fund (VFSTX). It worked for me. Remember to split the equity portion between large, small & international funds.

All the best.
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Old 07-28-2011, 04:35 PM   #26
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Don't know if this question would be better answered by Rambler, but assuming you are about 45 now, I would probably be more comfortable with a 70/30 mix.

But you still have lots of earning power left, so if you are OK with the risk level, by all means, go for it.

At my age, I prefer to err on the side of conservative; was burned badly in 1987 , got further hit in 2002, but avoided serious damage in 2008. So now I choose to be conservative and sleep soundly at night.
How were you burned badly in 1987? The S&P 500 only dropped about 35% and fully recovered within 2 years. Did you sell at the bottom and stay out of the market for years?
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Old 07-28-2011, 05:27 PM   #27
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How were you burned badly in 1987? The S&P 500 only dropped about 35% and fully recovered within 2 years. Did you sell at the bottom and stay out of the market for years?
At that time, my job was causing me to stay outside the country for several weeks at a time ( I was in International Sales ) so I had a Financial Adviser from Smith Barney Shearson managing my portfolio.

He got me heavily into equities and some currencies, and I got my head handed to me in October 1987. He subsequently sold my equities. locking in capital losses that I have yet to completely offset even after so many years. Then I compounded the problem by firing him and keeping my money in ultra safe vehicles for much of the subsequent recovery.

But I feel that my present day "conservatism" is more because of advancing age, the knowledge that I can no longer make up losses through salary, and a general distrust of the market ( blatant manipulation, insider corruption, and ineffectiveness of the SEC )

I no longer wish to commit more than 20% of my assets in equities now. call me conservative, or even stupid - but it's my hard earned money and I will do what I like with it.
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Old 07-28-2011, 06:29 PM   #28
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I was a Registered Rep. (stock broker) back in my past (I'm now retired), and in my experience, an overall 7% return IS achievable in this ecomony, but will be VERY tough to get and even tougher to maintain year-on-year. Overall, if you can average 2-3%/year after taxes and inflation, you're doing VERY well! Then apply the "Rule of 72s" and you'll see that it will take about 36 years (at 2%) to double your money, or 24 years at 3%. My advice: read Joel Greenblatt's "Little Book of...." series, and then re-read them CAREFULLY. And DO NOT do a lot of short term trading. Buy lasting VALUE and only when it's going at a cheap price, then hold on to it until it proves that it's no longer a value. Ideally, it would be possible to set up a portfolio of about 40-50 value company stocks, bought right, and keep them forever, making no sales or trades - but that's not "real world". You will have to review yearly or so, and cut the poor performers and replace them with better value buys. But do as little trading as possible, and expect to hold long-term. Read and re-read, and re-re-read Benjamin Graham! Go equities as much as your risk-tolerance will allow, until you are about 5-7 years away from your target retirement date. Make sure you have as little personal debt as possible, always! I did all the above, and my wife and I retired at 55. Now, 10 years later, we're still doing fine, and haven't had to dip into our investments or life savings yet!
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Old 07-28-2011, 06:31 PM   #29
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...my wife and I retired at 55. Now, 10 years later, we're still doing fine, and haven't had to dip into our investments or life savings yet!
Out of curiosity, what have you been living on for the past 10 years, dividends and interest?
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Old 07-28-2011, 06:41 PM   #30
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We both had pensions from our employers (my wife had pensions from 2 different government jobs as a librarian, and they kicked in at different ages for her) and we planned it so that another income source would kick in every 3-4 years. And next year, she'll be 65 and start getting her Social Security, which will increment our income stream again, then I'll follow in another 1.5 years. Also, our remaining parents (mothers) are in their mid-90's and both are financially well-to-do, so we can expect nice inheritances from both. Add to that, that we retired to be full-time RVers, living in our 36 ft. 5th wheel trailer 365 days/year. We are "work-campers" for KOA Kampgrounds, and we put in 20 hours/week (10 hrs. each), and in return, we stay at the campgrounds for free, so no rent, mortgage, or utilities expense, and we have no debt at all. RVing is a relatively cheap way to live, since you can't buy a lot of stuff - there's no place to put it!
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Old 07-28-2011, 06:48 PM   #31
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Ron, you are living the good life. Now if you can just wean yourself off the workcamping gigs, you'll really have it made! I'd love to spend more time on the road in our 5th wheel but DW has other priorities.

Where do you spend your winters, FL, AZ or TX?
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Old 07-28-2011, 06:56 PM   #32
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As I have had to become my Mom's Legal Guardian (she's 94), we are having to stay in Florida "for the duration". We can take short trips (2-3 weeks), but can't leave the state for more than a month (FL's guardianship laws) without special court approval. That makes it tough to deal with my wife's Mom (95), but we spent a lot of time discussing it before taking the guardianship, so we're prepared and we're together in dealing with it. Stop in and see us at the Tallahassee East KOA, near Exit 225 on I-10.
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Old 07-29-2011, 12:29 AM   #33
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We can take short trips (2-3 weeks), but can't leave the state for more than a month (FL's guardianship laws) without special court approval.
I've been told that I can serve as a conservator (from Hawaii) for my father (in a Mainland state) by signing a waiver of extradition.

Perhaps Florida would let you take advantage of a similar legal waiver.
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Old 07-29-2011, 07:20 AM   #34
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If you beleive in the efficient frontier, then the highest return with the lowest risk is a 60/40 mix, equities to fixed income. Many on here may disagree, but AFAIK the efficient frontier has not been disproved yet.........
Yeah, I worked my way there at high points over the last year or so. I was pretty high on the equity scale and decided I could possibly smooth a little of the volatility out with more fixed income and more years of cash equivalents. I plan to stay at 60/40 for the duration but I am one of the lucky ones with a Fed pension. If I lived solely on my own portfolio I would probably be a lot more conservative.
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Old 07-29-2011, 12:28 PM   #35
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Hold as few bonds as you can. Look at bonds as a first aid kit. Might it be wise to carry them? Perhaps, but just know that the more stuff you put in there, the heavier that kit will be and the more it will hold you back. Some will say that a first aid kit can save you. I won't argue that. However, just know that it comes at a price and you have to balance your desire to have nice returns with the perceived safety that bonds might provide.

You are still accumulating investments. Low prices are your friend. Keep loading up the truck with stocks and buy as many as you can stomach.
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Old 07-29-2011, 12:37 PM   #36
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Originally Posted by donheff
80/20 sounds alright by why plan for any particular return? It will be what it will be.

Exactly. You can 'aim' for an asset allocation, but you can't 'aim' for a return.

-ERD50
Yes. I made a mistake early on by setting my contributions based on my target and an assumed high rate of return. Bad idea.

My recommendation: save like crazy; max out your Roths and then save more. Figure out how much you have to use when you get close to retirement. Then figure out how to live on what you wind up with.

another recommendation: Do not invest in assets that do not pay (like cash). They will only drag down your average return. Just keep buying new stuff with new money. Focus on stocks and funds that pay dividends. Consider going 100% equities in the accumulation phase.
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