Asset Allocation in Retirement: 100% in stocks???

[explanade]

I wonder what people would have thought of high equities allocation in 2009 versus now.

If the market didn't come back since 2008-09, would we even be having this discussion?


I recall one interview with Cramer talking about his background. Made a fortune in hedge funds and then moved into whatever he's doing now. But I would swear he said his fortune is in bonds now, though he also has a trust that invests for him. As a pseudo financial journalist, he's not suppose to trade stocks -- that's what all the other CNBC personalities claim.

[foxfirev5]

I'm noticing more of these posts which are making me think that the retail equity investor is slowly coming back.
However, I'm sticking to my 45/40/15 equity/bond/ cash,cd series I bond allocation. Despite how rosy the outlook I'll rebalance if equities go over 50%. That's my plan and I'm sticking to it.

[Chuckanut]

100% equity, 100% bonds, or anywhere in between is still a heck of a lot better than what most people have, which is no plan at all.

[easysurfer]

Quote:

Originally Posted by Orchidflower ...Just would like some feedback as to how other Retirees set-up their asset allocation. I'm still hanging on to way too many Bonds possibly and am considering what to do.

I use formula: 100 - my age = % in stocks.

Every year when I rebalance, this automatically gradually takes a small percentage of stocks off the table. Plus, the formula forces me to keep my emotions out of the equation.

100% in stocks? Too volitile for my blood. I like sleeping at night.

[W2R]

Asset allocation is such a personal thing, and I think it is important to come up with an AA you can live with.

Remember how people were "freaking out" in the forum in late 2008 through early 2009? Some members said they were going to sell everything, others said they were going back to work. And if you read between the lines, even more were considering these possible actions.

This is why I will not have an asset allocation that is over 50% stocks. Selling low can destroy a person's retirement. I have to have an asset allocation with which I will not freak out should another market crash occur. I was pleased to see that my present 45:55 (equities:fixed) asset allocation worked for me in that respect. Each January I rebalance.

I do have a lot of bond funds and those supposedly in the know have been predicting an imminent, nearly immediate drop in bonds due to rising interest rates for at least four years. During this time, my bond funds have done well and have provided me with some nice dividends. Sure, someday it might happen but if/when it does, I won't freak out and sell low.

[Orchidflower]

Quote:

Originally Posted by easysurfer I use formula: 100 - my age = % in stocks. Every year when I rebalance, this automatically gradually takes a small percentage of stocks off the table. Plus, the formula forces me to keep my emotions out of the equation. 100% in stocks? Too volitile for my blood. I like sleeping at night.

(I'm surprised at the number of retired here with high all-stock percentages...cool!)


Please correct me if I'm wrong, but it seems that the figure is now 120 instead of 100 that is used. The logic is that people are now living longer, and since both parents lived into their 90's guess I better use the new figure of 120. Just FYI if you are interested at all.

A number of you have mentioned the "fear" factor. Boy! I get that one since my mother wouldn't let me do anything to our joint account in 2008 when everything crashed. If she hadn't held me back, I would have gone to cash and re-bought everything at low prices and made a gob of money by now. Oh well...live and learn I guess.

I was REALLY upset at losing all that money and seethed in semi-silence since I knew it was money-making time then. I think (or, more honestly, I HOPE) I can retain my cool in a crash because I keep saying over and over Buffet's mantra: Buy when other people are fearful, buy when other people are fearful, buy when other people are fearful. It helps. However, I do remember one fellow on this Board that did just that and was jumping for joy at all the money he made in 2009....lucky/smart dog!

By the way, my apologies about not including The Street's calculator for asset allocation. I just found it the other day, and this morning tried to find it again to post but no luck. I have no clue how I got it either and didn't bookmarket it...crud!

[inquisitive]

Quote:

Originally Posted by Orchidflower Since I had an Professor (well over a Millionaire and did it all himself) that taught Principles of Investing who believed totally in no bonds but 100% stocks always--and it now seems that's Warren Buffet's philosophy also--I wondered if anyone here was 100% in stocks and retired? Cramer also says go 100% stocks or close to it. He said one of his callers did it "right" when his asset allocation was: 10% cash 20% Gold (I assumed GLD) 70% Individual Stocks OK, now that's 3 well known professionals that have been made wealthy with stocks saying go 100% stocks or close to that, which is why I'm asking here if anyone on this Board has had the...well...guts to do it? On the site TheStreet.com there is a nifty asset allocation test that you can plug your age and all pertinent information in and find out what Cramer (who owns it) thinks. The result here was very interesting--and AGAIN--nothing more than 20% Long-Term Bonds. Here is what was recommended for me: Age: 67 15% Aggressive Growth 10% Individual Stock 25% Growth 30% Index 10% Long Term Bonds Just would like some feedback as to how other Retirees set-up their asset allocation. I'm still hanging on to way too many Bonds possibly and am considering what to do.

I'm totally surprised by the responses here. The question is for retirement. To do 100% equity is crazy and stupid. It is not about having "guts." Whereas now the market is approaching the area where it was before the crash, if you look at historical crashes just in the U.S., it has taken as many as 15 years, maybe more, for some of the market levels to reach where it was before the crash. Do you really want that risk when you are in retirement? I can't see any scenario when you would make enough during bull markets to compensate for what will be lost in bear markets. 100% equity is great for a long time horizon, but I wouldn't consider it for retirement.

I wouldn't trust anything that Cramer says. He was yelling for people to buy Bear Sterns before it collapsed, that he was sure it was the right buy, and as we know it collapsed and lost 90% of its value. Plus he has been in trouble in the past for buying shares of companies and then advertising them on his show to drive up the prices, and has been wrong many times in the past.

[Ed_The_Gypsy]

I just bought and read (OK--I skimmed a lot of it, but he says it is OK to jump over the math if you want) Jim Otar's book. It is only $6 for an instantly downloadable pdf file. See this thread: http://www.early-retirement.org/foru...ook-60318.html Buy it!

He supports the point that a 60/40 equities/financial instruments is better than 100-age=%bonds (or 120-age; he also addresses that). He also make s a case that you should rebalance every four years at the end of a US presidential election year. Fascinating!

I am not against bonds, per se, just against buying them right now, today. Interest rates are about as low as they can go. There is nowhere to go but up. When they do go up, the price of bonds will go down. I don't like buying an asset that does not pay anything in the first place, and I don't like the idea of losing money on it later. But, when the world is more normal again, I will think about short- or medium-term bond funds.

[Ed_The_Gypsy]

I should mention that I am not a trader and am deaf to Cramer's touts (as everyone here should be). Cramer is a gambler, not an investor.

It also helps that I don't like growth companies right now. I think that is also gambling. I like steady dividends and I want them in my hand. With dividends, I don't care what happens to the price of the stock after I buy it. Yes, my equities went way down in 2008 and 1987, but the dividends were still there and prices eventually came back. You can't lose unless they go under (we ought to be able to avoid this with individual stocks, but an index fund would minimize that possibility by strength of numbers) or you have to sell when they are still down.

With equities, I am buying an income stream and getting it every year as distributed dividends, and I don't have to sell the stock to get them. You can't buy much of an income stream in bonds these days.

Inquisitive, clearly you are not a gambler. That is good. It seems you are not much of an investor either. That isn't bad, but you might be missing out on some good stuff. Remember, even if you buy annuities, you are taking some risk. They might even be supported by stocks, so you would be inadvertently taking the same risk you sought to avoid.

Most of a 3% or 3.5% withdrawal rate should be reasonably supportable by dividends. Very little need to sell the underlying stocks. And, of course, most people will have Social Security, and will never be "100%" in equities. As I recall, the Kaderlis had the attitude that their SS would be their annuity/substitute for bonds in retirement. I have that same opinion.

[Nords]

Quote:

Originally Posted by Onward From all the data I've seen, if you care anything about portfolio stability, you need at least 20% bonds. And historically that 20% chunk of bonds doesn't hurt your SWR at all (versus 100% equities), so it's a rare free lunch.

To be excruciatingly correct, you don't need "only" at least 20% bonds. You need at least 20% of something whose performance is not correlated to stocks. One of those things has, in the past, usually been bonds.

You could probably also do it with employment income, annuities, commodities, or even cash. Anything that reduces or sidesteps the volatility will work.

Quote:

Originally Posted by inquisitive I'm totally surprised by the responses here. The question is for retirement. To do 100% equity is crazy and stupid. It is not about having "guts."

Thanks for your insightful and constructive criticism!

The longer you post here, the less you'll be totally surprised by the diversity of responses.

Most of us high-equity investors have some annuitized income (even if it's "just" Social Security) as well as one or more years of spending cash in CDs or money markets. I'm not sure how that asset allocation merits your descriptors, but AA has a significant emotional investor psychology aspect as well as mathematical analysis.

The perpetual question is: If you don't need a portion of your portfolio, then should you take outsized risks with it? Or put it in CDs to be totally safe? Or just give it to charity?

I think the answers are personal as much as analytical.

[inquisitive]

Quote:

Originally Posted by Ed_The_Gypsy Inquisitive, clearly you are not a gambler. That is good. It seems you are not much of an investor either. That isn't bad, but you might be missing out on some good stuff. Remember, even if you buy annuities, you are taking some risk. They might even be supported by stocks, so you would be inadvertently taking the same risk you sought to avoid.

I am actually 100% in equities. But since the question was for retirement, I gave my opinion on that situation.

[inquisitive]

Quote:

Originally Posted by Nords The perpetual question is: If you don't need a portion of your portfolio, then should you take outsized risks with it? Or put it in CDs to be totally safe? Or just give it to charity? I think the answers are personal as much as analytical.

This is a great point. If one is not relying on the income, then it could be a very different situation than if one wants to have stability.

[Leon44]

This is an interesting discussion. The bottom line to me is that one size doesn't fit all. If you have enough retirement income to support your life style, then why take on extra risk? The response to this question may have been different last August with all of the volatilty. After one of those days when the market fell 400 points it would be hard to suggest 100% equities. Personally I would not assume any more risk then I need too. You might not get a second chance to make it right now that your retired....but I'm conservative.
Two other points:
1. I wouldn't be comfortable moving large chucks of my nest egg into the stock market after the huge run up we just had....I would dollar cost average over a period of time.
2. Although bond rates are historically low and the theory is and has been for years that rates have no where to go but up and that will eat away principle.....I'm conflicted since the Fed is planning on keeping rates a zero until 2014......so bonds may not be as bad as gurus think just yet....but look out when the Fed stops easing.

[easysurfer]

Quote:

Originally Posted by Orchidflower (I'm surprised at the number of retired here with high all-stock percentages...cool!) Please correct me if I'm wrong, but it seems that the figure is now 120 instead of 100 that is used. The logic is that people are now living longer, and since both parents lived into their 90's guess I better use the new figure of 120. Just FYI if you are interested at all...

Yes. I am familiar with the more recent rule of thumb of using 120 instead of 100. Thanks. The 100 number just helps me sleep better at night . Plus, the math is easier too!

[Nords]

Quote:

Originally Posted by easysurfer Yes. I am familiar with the more recent rule of thumb of using 120 instead of 100. Thanks. The 100 number just helps me sleep better at night . Plus, the math is easier too!

Maybe the actual number is 105.63...

[Orchidflower]

I took the most recent list of Buffet's stocks I could get my hands on and was surprised at how his bucket was loaded with mostly large cap growth stocks (I was just disecting it for fun), much fewer large cap value and then a mix of a few mid caps. Well, that kept me entertained one evening anyway.

[samclem]

Quote:

Originally Posted by Leon44 2. Although bond rates are historically low and the theory is and has been for years that rates have no where to go but up and that will eat away principle.....I'm conflicted since the Fed is planning on keeping rates a zero until 2014......so bonds may not be as bad as gurus think just yet....but look out when the Fed stops easing.

Assuming the Fed keeps to its timetable, and the bond train will head off the cliff at that time, will other bond investors wait until the Fed moves to start moving out of bonds? Once people start selling these crummy low-rate bonds, how fast will things develop? As the majority of folks seem to be expecting it (not "if" but "when"), and everyone is counting on beating everyone else, it sure seems like we've built a significant positive feedback machine. There's a lot of risk in bonds right now--this is the part of the portfolio we're supposed to count on for stable values and income, right? While no one knows, it seems possible a lot of folks could get burned by going for the "safety" of these 2-4% bonds when they get bid down.

[Midpack]

Quote:

Originally Posted by inquisitive I'm totally surprised by the responses here. The question is for retirement. To do 100% equity is crazy and stupid. It is not about having "guts."

While I don't advocate 100% equities by any means, that's quite a blanket statement! Depends on your WR (might be very low), what portion of your income is coming from your portfolio vs. Soc Sec, pensions and/or annuities, and what your hopes are for residual/bequest $ (as much as possible or die broke). Not definitely "crazy and stupid" at all...

[easysurfer]

Quote:

Originally Posted by Nords Maybe the actual number is 105.63...

Almost right...104.64 on leap years

[Orchidflower]

Anyone else 100% in stocks and retired?

If the market starts falling what will you do? Go to cash then? That's the big question to me.