Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
asset allocation
Old 04-20-2016, 08:55 AM   #1
Recycles dryer sheets
 
Join Date: Apr 2016
Posts: 192
asset allocation

I am interested in your thoughts on asset allocation. I am 52 years old and have roughly $12.5mm invested assets (no debt; no pension). About $10 million of that is in taxable accounts. I am still working. I will probably work a 3-5 more years (though if I get really tired of it I may retire sooner). My current allocation is roughly 70%/30% (equity:fixed income). My plan is to "glide-path" that down to 40/60 over 4-5 years. Ideally I would be at 40/60 when I retire. A complication is that I may not have enough new money to invest in order to accomplish the glidepath solely through new contributions -- so there is some capital gains tax to be paid in order to accomplish the glidepath. But I think it still might be worthwhile, since I think at 70/30 or anything like that I am taking more risk than I need to. (It don't aspire to leave a big estate).

Any thoughts on this would be appreciated.
__________________

__________________
medved is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-20-2016, 10:14 AM   #2
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,045
It depends on if that will be your sole source of income, and how much you need to spend.

You can spend the stock money when you retire and stop reinvesting dividends now. With the dividends you can buy fixed income. Only buy fixed income with new money.

40/60 at age 56 is fairly conservative. Some people, myself included, would stick to a 70/30.
__________________

__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 04-20-2016, 10:22 AM   #3
Thinks s/he gets paid by the post
38Chevy454's Avatar
 
Join Date: Sep 2013
Location: Cincinnati, OH
Posts: 1,580
I agree a 40/60 is pretty conservative. Many people use a 60/40 allocation in retirement, enough of the fixed income side to balance the swings on the equity side; but sufficient equities to help offset inflation.

Bigger question: With $12.5M why are you still working? Unless you have very high expenses, you should be able to retire now and have no risk of money issues for rest of your life.
__________________
After Monday & Tuesday even the calendar says, W-T-F...

Semi-Retired 7/1/16: working part-time (60%) for now [4/24/16 changed to 80%]
Retired Aug 2, 2017; age 53
38Chevy454 is offline   Reply With Quote
Old 04-20-2016, 10:24 AM   #4
Full time employment: Posting here.
 
Join Date: Apr 2015
Posts: 903
Quote:
Originally Posted by Senator View Post
40/60 at age 56 is fairly conservative. Some people, myself included, would stick to a 70/30.
That's dependent on withdrawal rate, though. At $12.5m investable assets, 2% is $250K. If spending is around that much, then there's really not much need to take risk to make the portfolio last indefinitely.
__________________
hnzw_rui is offline   Reply With Quote
Old 04-20-2016, 10:55 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,411
I would devote new contributions and income (dividends and capital gains distributions) to fixed income from now until you retire and see where it stands. I think 40/60 is pretty conservative but if you divert all contributions and income/capital gains distributions to fixed income and when you retire withdraw by selling equities I suspect your AA will gradually migrate towards an AA that you can live with.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 04-20-2016, 11:43 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,264
First step would be to take all your tax-deferred accounts to 100% fixed, as there would be no cap gains to pay (maybe you are already there, you didn't say).

Off hand, I don't think I'd want to pay cap gains taxes to get my AA down from 70/30. As others have said, use any/all divs to buy fixed, make any new purchases fixed.

When you start the withdraw phase, draw down the equities first to get towards your balance point.

You didn't mention expenses, pensions, etc. You're clearly a high-worth individual, but you may be looking forward to high spending in retirement as well. You should plug your #'s into FIRECalc, and use the 'investigate' tab to see how various AA's have done historically. After viewing that, you might feel more comfortable closer to 60/40 than 40/60.

-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 04-20-2016, 12:43 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,127
Quote:
Originally Posted by 38Chevy454 View Post

Bigger question: With $12.5M why are you still working? Unless you have very high expenses, you should be able to retire now and have no risk of money issues for rest of your life.
Well maybe because he wants a lifestyle that is a little better funded than the norm. Always surprises me when people assume what a reasonable spending level should be for someone else.

The OP's plan sounds reasonable to me if not perhaps a little conservative. But that is a personal thing. I was in a similar position. Worked till 56 and used a very generous pension as a FI proxy. AA is currently around 60/40 with portfolio 100 % equities.
__________________
Danmar is offline   Reply With Quote
Old 04-20-2016, 12:49 PM   #8
Thinks s/he gets paid by the post
DrRoy's Avatar
 
Join Date: Dec 2015
Location: Michigan
Posts: 1,714
Quote:
Originally Posted by ERD50 View Post
First step would be to take all your tax-deferred accounts to 100% fixed, as there would be no cap gains to pay (maybe you are already there, you didn't say).

Off hand, I don't think I'd want to pay cap gains taxes to get my AA down from 70/30. As others have said, use any/all divs to buy fixed, make any new purchases fixed.

When you start the withdraw phase, draw down the equities first to get towards your balance point.

You didn't mention expenses, pensions, etc. You're clearly a high-worth individual, but you may be looking forward to high spending in retirement as well. You should plug your #'s into FIRECalc, and use the 'investigate' tab to see how various AA's have done historically. After viewing that, you might feel more comfortable closer to 60/40 than 40/60.

-ERD50
+1 I think this is pretty close to what I would suggest.
__________________
"The mountains are calling, and I must go." John Muir
DrRoy is offline   Reply With Quote
Old 04-20-2016, 12:54 PM   #9
Full time employment: Posting here.
 
Join Date: Apr 2014
Location: Houston
Posts: 639
Just to provide a different perspective -- I'll suggest it doesn't matter too much what your AA is. You've basically won the game so you can play it any way you want.

Basis -- For example, take the ultra safe route and put 100% of assets in fixed income. Run firecalc with 12.5M assets, assume all are in taxable acct (conservative), you retire this year, you and wife both live to 95 yrs old (good luck!), neither of you have any social security or pensions, you aren't planning on passing anything to your kids (mentioned in a post somewhere) ....

Results -- you can spend $253k in today's dollars every year until you and your wife pass at 95 yrs old and still have 95% chance of outliving your money. That's a great position to be in.

The suggestions provided in others posts do a good job of outlining some ways to save on taxes and get better return than the ultra conservative AA above. I personally would tend toward one of those that felt comfortable rather than the above plan....but everyone is different.
__________________
Whisper66 is offline   Reply With Quote
Old 04-20-2016, 01:29 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
With respect to any asset allocation I'd start by answering the question "what am I trying to accomplish with my portfolio?" Knowing the answer to that question goes a long way to answering your AA question.

Why do you want to own any equities at all, or bonds for that matter?

Most folks here own equities because that's the only hope we have of funding an acceptable income stream that keeps pace with inflation. That may or may not be your situation.

We own bonds because we're scared to death of the downside potential in owning equities. Again, that may or may not be your situation.

The tension between those two generally leads us to an AA we can live with (or one we hope we can).

Without knowing your goals it's impossible to say whether a certain asset allocation is appropriate, let alone "too conservative." Only you can answer that.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Old 04-20-2016, 06:52 PM   #11
Recycles dryer sheets
 
Join Date: Nov 2013
Posts: 357
Quote:
Originally Posted by ERD50 View Post
First step would be to take all your tax-deferred accounts to 100% fixed, as there would be no cap gains to pay (maybe you are already there, you didn't say).



Off hand, I don't think I'd want to pay cap gains taxes to get my AA down from 70/30. As others have said, use any/all divs to buy fixed, make any new purchases fixed.



When you start the withdraw phase, draw down the equities first to get towards your balance point.



You didn't mention expenses, pensions, etc. You're clearly a high-worth individual, but you may be looking forward to high spending in retirement as well. You should plug your #'s into FIRECalc, and use the 'investigate' tab to see how various AA's have done historically. After viewing that, you might feel more comfortable closer to 60/40 than 40/60.



-ERD50

+1
Take your 2.5M tax deferred to 100% fixed income. Should get you to at least to 80:20, but I assume you already have some fixed in your taxable, so this might help with not having to sell equities and still get closer to 40:60.
From a tax perspective and AA, I think you would be better off establishing your desired AA after retirement, since you won't have any earned income and could convert a lot more without paying an excessive amount of taxes.

I would think that you have enough resources to ride out a major recession without having to sell equities to survive.

Invest new money and dividends into fixed income.
__________________
NgineER is offline   Reply With Quote
Old 04-20-2016, 07:05 PM   #12
Recycles dryer sheets
 
Join Date: Apr 2016
Location: warren
Posts: 182
Quote:
Originally Posted by Senator View Post
It depends on if that will be your sole source of income, and how much you need to spend.

You can spend the stock money when you retire and stop reinvesting dividends now. With the dividends you can buy fixed income. Only buy fixed income with new money.

40/60 at age 56 is fairly conservative. Some people, myself included, would stick to a 70/30.
Me too, but I don't have $12 mil! With $12 mil you could basically put it under your mattress and be ok so long as you don't live some crazy lifestyle.
__________________
garyt is offline   Reply With Quote
Old 04-20-2016, 08:21 PM   #13
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,045
Quote:
Originally Posted by garyt View Post
Me too, but I don't have $12 mil! With $12 mil you could basically put it under your mattress and be ok so long as you don't live some crazy lifestyle.
That's probably why I don't have $12.5M. Someone decided that I might live some crazy lifestyle if I had that much and limited my means...
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 04-20-2016, 11:18 PM   #14
Moderator
rodi's Avatar
 
Join Date: Apr 2012
Location: San Diego
Posts: 8,804
Quote:
Originally Posted by Danmar View Post
Well maybe because he wants a lifestyle that is a little better funded than the norm. Always surprises me when people assume what a reasonable spending level should be for someone else.

The OP's plan sounds reasonable to me if not perhaps a little conservative. But that is a personal thing. I was in a similar position. Worked till 56 and used a very generous pension as a FI proxy. AA is currently around 60/40 with portfolio 100 % equities.
I'm confused by how you're both 100% equities and 60/40 AA. Are you considering your pension? Or real estate?
__________________
Retired June 2014. No longer an enginerd - now I'm just a nerd.
micro pensions 7%, rental income 18%
rodi is offline   Reply With Quote
Old 04-21-2016, 06:16 AM   #15
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,127
Quote:
Originally Posted by rodi View Post
I'm confused by how you're both 100% equities and 60/40 AA. Are you considering your pension? Or real estate?
I notionally capitalize the pension and treat it as a fixed income proxy. Have no investment real estate.
__________________
Danmar is offline   Reply With Quote
Old 04-21-2016, 06:41 AM   #16
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 1,668
While we have a bit less at about $6.5 M, we chose to stay out of bonds. Our safe "fixed" income is in CDs and 1% savings accounts with a few years of expenses to allow us to ride out any market volatility. The rest is in equities and real estate. Our IRAs are where we keep some REITs and BDCs since they're taxable at normal rates and perform much better than bonds. Our taxable funds are mostly dividend paying stocks/funds/ETFs and some growth stocks. We also have a rental property and three other homes, one of which we are under contract to sell. Our equities are not the high risk variety, but have done very well over time and the dividends provide a nice income.
With $12M I believe you should be able to easily keep at least 50% in equities as long as you don't use an advisor that bleeds you dry.


Sent from my iPhone using Early Retirement Forum
__________________
Dash man is offline   Reply With Quote
Old 04-22-2016, 06:47 AM   #17
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,046
I thought the OP has a FA (financial adviser).
__________________
May we live in peace and harmony and be free from all human sufferings.
Spanky is offline   Reply With Quote
Old 04-22-2016, 03:53 PM   #18
Recycles dryer sheets
 
Join Date: Apr 2016
Posts: 192
Quote:
Originally Posted by Spanky View Post
I thought the OP has a FA (financial adviser).
I do. But I am still interested in the views of other thoughtful people. At a minimum, it can give me ideas to discuss with the financial advisor.
__________________
medved is offline   Reply With Quote
Old 04-22-2016, 09:47 PM   #19
Thinks s/he gets paid by the post
target2019's Avatar
 
Join Date: Dec 2008
Posts: 3,705
Quote:
Originally Posted by medved View Post
I do. But I am still interested in the views of other thoughtful people. At a minimum, it can give me ideas to discuss with the financial advisor.
Help me understand your reasoning. You have an FA, and he makes a significant amount of money from your investments. But you want to hear the views of anonymous persons.

This suggests you doubt the advice of your FA.

I don't know what your needs are, but that is the beginning point of discussion. If your portfolio can support your needs with 2% safe withdrawal, then S&P500 dividends alone would support the need. Also diversify into tax-free bonds, etc. That will provide more income, and also some ballast against the inevitable stock market correction.

Based on what I see here:

https://personal.vanguard.com/us/ins...io-allocations

I'd stick with a 50/50 allocation or similar.
__________________
target2019 is offline   Reply With Quote
Old 04-23-2016, 06:42 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,173
If you're seeing a doctor about some medical condition, don't you also google the condition, and ask around about it? You're paying the doctor good money, but doesn't it also make sense to be more informed? Most everyone else you ask may not have the expertise, but may have useful practical experience, plus even the expert can overlook something. Same thing here, don't you think?

Plus, in the OP's other thread, people were critical of him having an FA, that he could follow simple advice here and be just as successful without the fees. But now you're saying he can't even dip his toes into the water of trying to get advice here, while keeping the safety net of having an FA? Does it have to be one or the other? Does he have to drop the FA before he can make any attempt to educate himself?

No wonder there are people reluctant to admit they are using an FA.
__________________

__________________
RunningBum is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Asset Allocation Critique WilliamG FIRE and Money 38 12-01-2003 04:46 PM
Pension as part of Asset Allocation Beststash FIRE and Money 3 11-23-2003 08:26 AM
Asset Allocation Merron FIRE and Money 9 10-17-2003 02:17 PM
How to make Asset Allocation Easy RYD FIRE and Money 7 08-03-2003 11:35 AM

 

 
All times are GMT -6. The time now is 01:46 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.