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Old 08-14-2008, 01:41 PM   #21
Recycles dryer sheets
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It comes to you documented on a 1099 form. You don't get the credit if your holdings are in a tax deferred acount, nor if your international holdings are a "fund of funds".

DD
DD is correct based on my experience.
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Old 08-14-2008, 05:39 PM   #22
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Ten years ago, when I was slaving away, but bringing home a nice piece of change, I had a mix of 90/10 because I had a long time horizon and two DB plans. After reading all of the relevant books and applying the info to me, I realized that retirement was not all that far away.

I then changes my AA to 70/30. I am now semi-retired and have activated one of my DB plans (the one left still grows), DW draws her small DB plan and we have not touched SS. My AA is now 60/40. I suspect that it will remain there for many years because of the two income streams that I have not tapped yet (DB and SS).

Gotta love that flexibility.
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Old 08-14-2008, 07:08 PM   #23
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After being *alls out with 100% stocks {a fair amount international} except for the TIAA Traditional that DW brought into the marriage, I have finally settled on an allocation that feels right for these last 5+ years before ER {started this in December}. Coming from the world of non-profit endowment due to a recent career change, the smooth ride achieved by endowment-like investing appeals so we are working toward:

30% domestic equity {still a bit heavy}
20% international equity {still a bit heavy}
10% real estate {some int'l} {not quite fullly invested yet}
10% natural resources/commodities/energy {not quite fully invested yet}
15% GIC's
8% TIP's {some int'l} {not quite fully invested yet}
7% absolute return {mostly Hussman SG}

The ride so far has been remarkably smoothed versus what I was used to with all stocks. Most stock is now in total market indexes with some small stock managed both domestic and int'l {2%}. Some ETF's, mostly funds with about 8% in individual stocks in a taxable account that have a lot of gain built in so holding.
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Old 08-14-2008, 08:28 PM   #24
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A few years from ER now, my target AA is 50/50 stocks/bonds. However I add the PV of my SS to my bond position per Bernstein (Four Pillars, p.278-279) and others. Without that adjustment, my target allocation would be about 65/35. I'm holding my nose and rebalancing toward stocks in this market, but generally sleeping OK.
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Old 01-14-2010, 08:22 PM   #25
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What now?

I wrote this in August 2008, just before stocks lost half their value and unemployment doubled. I have not even been here much as ER seemed like a now far off dream. As the economy and our net worth has recovered, the gleam is starting to come back. I did promise myself that if we got back, I would seriously relook at our asset allocation. Fortunately I have not sold, and have ridden the wave back up to the point where net worth is within 10% of 2007. Do I look at this rebound as the chance to take some money off the table, or of the resiliency of stocks and of their long-term strength? At any rate, it is nice to be back!

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We will all ultimately retire, and most on the earlier side. While that is a big decision, I see a bigger one, and ultimately a lifelong one, of how to allocate one's nest egg. I have read here and elsewhere, that there are 2 major choices:

equities - higher returns with more risks
bonds/money market - lower returns with more safety

Up until now, I have always gone with equities (about 90%), and it has rewarded us well. Of course, it is always just paper gains/losses while you have a paycheck and do not rely on it for living expenses.

Even as I get closer to RE, it is not a major concern, but it is a leap of faith to live off a pile of money that will shrink/grow depending on the markets. We will have no pension other than SS which is a ways off. That makes it even more difficult.

Fortunately, we have saved a bit, and can live off an estimated 2.5% withdrawal, which is essentially the dividend yield currently. So even with a prolonged bear market, if dividends were not cut much, we would not have to sell into it to live.

The other option is to move more into fixed income, but that goes against my nature. Call it greed and habit. Although I am starting to come around to the thought of giving up some potential return for portfolio stability. Some market watchers see future returns in the 7-8% range, which is closer to bonds.

More than anything else I do, this can make or break our future. If the markets do give 8% over the next 30 years, we will wind up with millions and I will have happy kids (since we could never spend that much anyway). I see this as the more likely scenario, but the Japanese market is an indication that things can go wrong.

Long winded, but how are others handling their allocations?
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Old 01-14-2010, 09:23 PM   #26
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I have a 40/50/10 mix with a target withdrawal of 3%. But I have plenty of fat in the budget and could easily manage on 2% withdrawal rate.
18 months on from when I wrote this reply. I continued to re-balance towards my RE target date of 35/50/15 and continued to save as much as I could and NW as of Jan 2010 was 23% higher than Jan 2008. I RE this month and am at my target AA. YMMV

Maybe you should decide what AA you have at various stages before ER and re-balance towards those goals.
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Old 01-14-2010, 09:27 PM   #27
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My retirement account was 90% in equities as I approached retirement and my taxable account was 20% in equities. I stumbled across articles about how unlikely it was to recover from a big bear market during the first few years of retirement. That was the main factor scaring me into 40% bonds for the retirement account. By sheer luck I did this before the last bull market ended. If I still had the links to the articles I'd include them.
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Old 01-14-2010, 10:03 PM   #28
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I did promise myself that if we got back, I would seriously relook at our asset allocation. Fortunately I have not sold, and have ridden the wave back up to the point where net worth is within 10% of 2007. Do I look at this rebound as the chance to take some money off the table, or of the resiliency of stocks and of their long-term strength? At any rate, it is nice to be back!
Welome back! Just because you were 90% equity doesn't mean you have to stay there. All of us are very fortunate the market has rebounded so quickly. None of us knows where the market will go from here but we should all be able to describe how we enjoyed the ride or not. We all should have an IPS and an AA plan.

Looks like a lot of folks here are 60/40 or 50/50 of course individual circumstances vary. AA should be based on willingness, need and ability to take risk. If you've already attained your number you don't have the need. Bogle would say age in bonds.
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Old 01-15-2010, 08:10 PM   #29
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I've been near 50/50 for much of the past decade. It's provided nice returns and reasonable stability. Since I can't see the future and don't know which will outperform, 50/50 seems like a good, safe position.
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Old 01-18-2010, 06:17 PM   #30
Recycles dryer sheets
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It's interesting that we seem to always hear from the people that decreased their stock allocation just before the crash.
I was 50 equity/50% bonds before the crash. I thought that 50% equity was my tolerable risk level. It wasn't. Now my allocation is 30% equity and the rest short term/int term bonds/TIPS and cash. I did this mostly by adding new monies with little selling. And I suspect there are a lot of peeps like me out there.
I do not plan to let the AA creep back up, even if the bulls are running.
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Old 01-19-2010, 12:38 PM   #31
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The magic of a portfolio composed of uncorrelated asset classes is that you can have a higher overall return than the average of the separate asset classes. That is, adding an uncorrelated asset that has a lower return, could raise your portfolio return.
I know this is the theory, and the party line, but I have lost faith in this truism.

I suspect it is true during long periods of "normal" markets. But from what I've seen, when the fertilizer hits the air-conditioning, EVERYTHING is correlated, and it all goes down. Except inverse funds, and it makes no sense to hold them and go long at the same time unless you like paying fees.

At least this certainly seems to be the case with all equity classes, whether domestic, foreign, small, large, resource etc. Bonds maybe don't behave quite so radically.

I know it is total heresy, but I'm going to come right out and say it. I put my faith in market timing.

Before everybody howls and tells me how I have to be right twice, I will say that it is not my intent to beat the market. I can not underperform the market over the long term, and NOT suffer nearly the drawdowns.

I can still hold "uncorrelated" investments, but I don't have to sit like a duck on a pond while I'm sluiced and gutted.

I started out as a DMT in the 1980s, and it served me well. Everytime I've abandoned it, it's usually been a mistake. The propaganda against it is generally produced by the fund companies (fancy that), flawed at that. "If you miss the thirty best days" etc. They never point out that you will likely miss the 30 worst days as well since bear markets have the highest volatility.

Personally, I consider timing a form of asset allocation. One of the few advantages a small investor has over the big boys is nimbleness--the ability to totally cash out a position without creating a burp in the market. I've been more sucessfull when I've used this ability than when I didn't. The trick is to use a mechanical system and not second-guess yourself.

There.....I'm out of the closet. Bring on the flames.
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Old 01-20-2010, 05:36 AM   #32
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mark500...Are you retired? I am 56 and planning to work for another 6 years. Currently, I'm at 55% equity but after the crash am now considering dropping that to 40% (to sleep better).

EDIT: Maybe even down to 30%. :_)
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Old 01-20-2010, 12:02 PM   #33
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I am in my 4th year of ER and have recently changed my asset allocation to 70/30; previously was at 60/40. I changed to more accurately account for non-COLA'd DB pension in the mix.
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Old 01-20-2010, 12:50 PM   #34
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I know this is the theory, and the party line, but I have lost faith in this truism.

I suspect it is true during long periods of "normal" markets. But from what I've seen, when the fertilizer hits the air-conditioning, EVERYTHING is correlated, and it all goes down.
It has ALWAYS been true that correlations approach 1.0 when markets fall drastically. In my mind "normal" markets include the major drops just as much as the long climbs upward.

Also not everything fell, if you had a healthy dose of treasuries as part of your AA they were a safe haven in the worst of the decline.

DD
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Old 01-20-2010, 01:23 PM   #35
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It has ALWAYS been true that correlations approach 1.0 when markets fall drastically. In my mind "normal" markets include the major drops just as much as the long climbs upward.

Also not everything fell, if you had a healthy dose of treasuries as part of your AA they were a safe haven in the worst of the decline.

DD
I did, and still the market drop was pretty sobering even though my treasuries did not drop.

I will never ditch the idea of holding normally uncorrelated asset classes, though. What we experienced in 2008-2009 was the worst meltdown since the Great Depression, from what I read. Asset classes that are normally uncorrelated can still balance one another as expected during lesser market dips.
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Old 01-20-2010, 02:56 PM   #36
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55 eq 45 fixed for me, 48 yrs old, was mostly equities just a couple of years ago, then read the Four Pillars, Smartest Investing Book You'll Ever Read, Boglehead's Guide etc... May be a bit conservative but, willing to live with a point less of return to smooth the volatility, plus it didn't hurt when I did the shift early 08 with respects to riding out last year.
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Old 01-20-2010, 10:24 PM   #37
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Personally, I consider timing a form of asset allocation. One of the few advantages a small investor has over the big boys is nimbleness--the ability to totally cash out a position without creating a burp in the market. I've been more sucessfull when I've used this ability than when I didn't. The trick is to use a mechanical system and not second-guess yourself.
Bosco, would you share your system?
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Old 01-21-2010, 01:28 PM   #38
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Bosco, would you share your system?
I use a variation of

SSRN-A Quantitative Approach to Tactical Asset Allocation by Mebane T. Faber

The paper is well worth downloading and reading even if you don't have any inclination to use the method.

The variation is that I slice the portfolio up into a few more pieces, and tweak the asset allocation a bit.

I refuse to employ anything proprietary--it has to be simple, robust (i.e. same bascic method works across several asset classes), and easily backtestable, although most modern ETFs don't have enough data to do a meaningful historical backtest.

Once again I would like to say that my purpose is not to beat the underlying index or ETF. The purpose is to attain roughly the same gain at significantly lower volatility. Volatility kills returns--it costs money. Otar details the whys and wherefores.

I have also followed this site over the years with interest.

Mojena Market Timing

it's done pretty well over the years, but I won't commit $ to it since I can't see how it works.
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Old 01-21-2010, 01:34 PM   #39
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As an addendum, I will add that any method that I would consider should not trade frequently, nor have a lot of whipsaws. This method has built into it a 30 day wait between trades which can help or hurt on any given switch but probably is a wash over the long haul.

One of the problems with any system is getting discouraged due to whipsaws or underperformance. These methods will underperform a surging bull market, save you from big downdrafts, and do reasonably well in choppy sideways markets if they don't whipsaw too frequently. This method seems to meet these criteria.
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Old 01-22-2010, 01:17 AM   #40
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