Asset Allocation Plan

[Helen]

Ugh ! I don't know how someone who spends as much time as I do studying retirement planning can be as stupid as I am.

I have tried to time the market and failed. I promise myself I will never attempt to do that again. I have come up with an asset allocation plan and I am going to stick to it.

Here it is.

401k/403b:

30% Bonds
15% US small cap
20% international
35% US large cap

Roths:

50% Wellington
50% Star

will add REIT and Emerging market as contributions allow

Taxable accounts:

I-Bonds for first 4 years of retirement

various stocks

I came up with this AA over a period of two years and I have finally implemented it. Now I am going to ignore the market and not check my investments as I am sure the market will tank.

-helen

 

[jazz4cash]

Ugh ! I don't know how someone who spends as much time as I do studying retirement planning can be as stupid as I am.

I have tried to time the market and failed. I promise myself I will never attempt to do that again. I have come up with an asset allocation plan and I am going to stick to it.

Here it is.

401k/403b:

30% Bonds
15% US small cap
20% international
35% US large cap

Roths:

50% Wellington
50% Star

will add REIT and Emerging market as contributions allow

Taxable accounts:

I-Bonds for first 4 years of retirement

various stocks

I came up with this AA over a period of two years and I have finally implemented it. Now I am going to ignore the market and not check my investments as I am sure the market will tank.

-helen

Hmm..........When you say "asset allocation" I am curious why you then list indivudual mutual funds, bond investments, and various stocks I usually have ONE AA across all types of accounts and then slice and dice which fit better in taxable accounts or whatever. Do you consider the AA of each fund and spread it over your overall AA or do they get special treatment?

 

[JustCurious]

I agree with Jazz. You do not have an asset allocation plan. You need to figure out a SINGLE asset allocation and implement it across ALL of your accounts. "various stocks" does not qualify as an asset class.

 

[Helen]

Hmm..........When you say "asset allocation" I am curious why you then list indivudual mutual funds, bond investments, and various stocks I usually have ONE AA across all types of accounts and then slice and dice which fit better in taxable accounts or whatever. Do you consider the AA of each fund and spread it over your overall AA or do they get special treatment?

Good point. I am ignoring the I-bonds as they are a short term specific use thing. The stock portion of the after tax account is not that large and I am not sure what it is ear marked for.

So, my asset allocation plan really relates to the 401k/403b and the two Roth accounts (my partner's and mine).

-helen

 

[mickeyd]

Hey Helen,

It's difficult to assess what you are doing since the AAs that you have here are not combined. That said, It appears that you have overlap in your funds for example Wellington has about 60% value stocks and 40% bonds but you also kinda have that in your 401(k). Same with STAR~possible duplication with 401(k). Also hard to evaluate what various stocks are and what % I bonds represent.

Your plan may well be perfect for you, it's just that the way that you have described it here makes it appear unusual.

 

[Helen]

Hey Helen,

It's difficult to assess what you are doing since the AAs that you have here are not combined. That said, It appears that you have overlap in your funds for example Wellington has about 60% value stocks and 40% bonds but you also kinda have that in your 401(k). Same with STAR~possible duplication with 401(k). Also hard to evaluate what various stocks are and what % I bonds represent.

Your plan may well be perfect for you, it's just that the way that you have described it here makes it appear unusual.

You're right. I posted this right after reallocating the Roth/401k/403b money. I was going to use an index approach to the Roths which mimicked my 401k/403bs but found I didn't have enough cash to implement it. I suppose I could have gone with a Target fund which would have been pretty close to a 70/30 mix.

I've been in analysis paralysis for quite a while now. I hope what I've implemented is something I can stick with, at least until I build up a bit more in the Roth accounts.

I admire all of you who worked out a plan a long time ago and stuck with it.

-helen

 

[WilliamG]

Helen - Have been retired since 2000 and have spent a lot of time on asset allocation and how to handle withdrawals during retirement. I always included all accounts in the allocation computation. A couple of years ago I decided that keeping cash for ongoing expenses and our Roths separate made a lot of sense (to Me). The Roths are less than 10% of our total portfolio and currently looked upon as long term savings for over a 10 year horizon. They are in Lifestrategy Growth and I do not include them in our annual "raising spending cash" and rebalancing process. This core portfolio (total finances minus cash and Roths) I DO look at in totality regardless of where an investment is located. Incidentally, part of my core portfolio bond allocation I label as "reserve" and include a few stable value investments for poor markets etc. (Ibonds like you and a few CDs in IRA).

This is working very well for us. Over time I would expect to transition Roths (or portions we plan to use nearer term) to this core portfolio. Including everything in your allocation plan generally makes sense, but I think you can bend that rule a little if it works better for your circumstances.

 

[Helen]

Helen - Have been retired since 2000 and have spent a lot of time on asset allocation and how to handle withdrawals during retirement.

Hi,
Thanks for your post.

If you don't mind my asking, how did the market drop impact you emotionally ? You retired at a pretty scary time ! Also, did you pull from your bond/cash reserves in the following years ?

-helen

 

[Alex]

Helen,
IMHO, Here's how you illustrate an asset allocation plan:

FIXED INCOME ALLOCATION = 30%
CASH 5%
Muni Bonds 5%
US Intermediate Treasury Bonds 5%
US GNMA Bonds 5%
Emerging Market Bonds 5%
High Yield Bonds 5%

EQUITY ALLOCATION = 60%
Large US Blend 15%
Large US Value 10%
Mid cap US Blend 5%
Small Us Blend 5%
Small US Value 5%
Int'l Large 15%
Int'l Small 5%

REITS - 10%
US REITS - 5%
Int'l Reits - 5%

BTW, this is my AA plan

 

[Helen]

Thanks, Alan. I am striving to keep the AA as simple as possible. This is what I had laid out until I hit the Roth accounts:

30% Bonds
15% US small cap
20% international
35% US large cap

To stay true to my AA, I should have used a Target fund/International fund combo, but I can live with my Wellington/Star combination.

I don't see any reason to mix the I-Bonds into this as they will be used during a four year period to depletion. After that, the pensions will kick in.

I think I get overwhelmed with the volume of information and the different ways of looking at it. There are a lot of accounts for my partner and I - two 401k type accounts, two Roths, two Treasury Directs, two taxable brokerage accounts and two ING Direct accounts. There is a lot to think about: life insurance phase out, AA plans, budget plans, accumulation plans, withdrawal plans, tax issues ...

I'm thinking I will just stay with what I've implemented and not look at it until I make my next Roth contributions.

One thing that is calming to me is realizing that the 401k & Roth money is just icing on the cake. My partner and I will live on the I-Bonds for the first four years of retirement, then the pensions will kick in which will cover our basic living expenses, then two years after that we will start taking social security.

If all goes as planned, I will have ten years before I ever touch the 401ks.

Given that the 401k/Roth money is icing on the cake, does that mean I can afford to take more risk or that I don't need to take more risk ? These are the kinds of questions that get my mind spinning.

-helen

 

[Nords]

Given that the 401k/Roth money is icing on the cake, does that mean I can afford to take more risk or that I don't need to take more risk ? These are the kinds of questions that get my mind spinning.

You have to decide on a definition of "risk".

10 years is usually enough time to overcome volatility risk, so you can choose equity funds that are farther out on the return curve. Most people can sleep at night knowing that volatility is irrelevant when you're not making withdrawals. You don't have to worry about downward volatility smacking you in the face in year three or six, and at year 10 you can start withdrawing as well as (if desired) moving the higher-volatility allocation into lower-volatility investments.

The risk of losing out to inflation is another reason to invest in equities. They're the only historical asset class that has routinely beaten inflation, although I-bonds & TIPS are at least able to keep up with it.

But if you have money that you'll never "need" then you can afford to take an intelligent risk with it. Invest in small-cap or microcap or emerging market index funds, buy Berkshire Hathaway stock, set aside a portion of it to refine your market-timing system, or practice your blackjack basic strategy & progressive betting.

Or spend it on long-term care insurance...

 

[WilliamG]

"If you don't mind my asking, how did the market drop impact you emotionally ? You retired at a pretty scary time ! Also, did you pull from your bond/cash reserves in the following years ?"

Hi Helen - I retired on March 1 and began a rollover process to Vanguard IRA. In doing so I moderated allocation to include a larger slug of bonds. Had already set up a ladder of 5 year treasuries to get me to 59 1/2 so wouldn't have to do 72T on IRA. Looking back was remarkably calm as felt we had a plan that could weather the downturn. I do remember being very disappointed in 2002. Had hoped downturn wouldn't go 3 years!

The Reserve allocation I mentioned in my post is important for me psychologically. I think it should be part of bond allocation, but set up so you can envision how it can sustain you during such a down period. That's what our CD ladder in IRA and I Bonds in taxable do for us. We use them if we need them but use stock gains if they are there and keep the reserve intact.