Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Considering reducing equities?
Old 12-20-2014, 02:58 PM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,686
Considering reducing equities?

I've been asking myself for some time if I should move from an AA of 65/35 stocks/bonds to 50/50. Below is a useful table from Vanguard which is figure 2 in this link: https://personal.vanguard.com/pdf/s705.pdf.



The data in the centerline of those bars is the real return history. For a reduction from 65% to 50% equities, it says that real returns might be reduced roughly by 0.6% per year. Since bond and stock returns could be muted over the next 10 years or so, this is perhaps a bigger factor then it appears. That is one possible downside.

Looking at the VPW calculator tool I'm more convinced now that we personally have quite enough to enjoy life. Using a bond strategy like I outlined in one thread recently (variable maturity strategy) gives me some confidence I can get decent fixed income results over a period of several years.

Thoughts?
__________________

__________________
Lsbcal 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 12-20-2014, 04:58 PM   #2
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,050
The economy is strong, and getting stronger. I am still in equities.
__________________

__________________
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 12-20-2014, 05:18 PM   #3
Full time employment: Posting here.
dtbach's Avatar
 
Join Date: Apr 2011
Location: Madison
Posts: 752
Quote:
Originally Posted by Senator View Post
The economy is strong, and getting stronger. I am still in equities.
+1 November to April is generally a good period for stocks. Wait until March and start taking profits then.
__________________
Wild Bill shoulda taken more out of his IRA when he could have. . . .
dtbach is offline   Reply With Quote
Old 12-20-2014, 05:42 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,385
Quote:
Originally Posted by Lsbcal View Post
I've been asking myself for some time if I should move from an AA of 65/35 stocks/bonds to 50/50. Below is a useful table from Vanguard which is figure 2 in this link: https://personal.vanguard.com/pdf/s705.pdf.



The data in the centerline of those bars is the real return history. For a reduction from 65% to 50% equities, it says that real returns might be reduced roughly by 0.6% per year. Since bond and stock returns could be muted over the next 10 years or so, this is perhaps a bigger factor then it appears. That is one possible downside.

Looking at the VPW calculator tool I'm more convinced now that we personally have quite enough to enjoy life. Using a bond strategy like I outlined in one thread recently (variable maturity strategy) gives me some confidence I can get decent fixed income results over a period of several years.

Thoughts?
I think it is prudent idea. No clue as to timing, etc, just the overall plan. I unfortunately do not have my prudence genes working very well, but I admire it in others.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 12-20-2014, 05:55 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,905
When I ER'd back in 2003 I moved to a 50/50 split having determined at that time that the "pile" should be sufficient to continue our normal standard of living with that allocation. 12 years latter no regrets. The return would have been higher with a higher equity allocation but our standard of living would have been no different and the sleep well factor would have been seriously impacted particularly 2008-2009. Not worth it.
__________________
ejman is offline   Reply With Quote
Old 12-20-2014, 06:04 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 9,965
Quote:
Originally Posted by ejman View Post
When I ER'd back in 2003 I moved to a 50/50 split having determined at that time that the "pile" should be sufficient to continue our normal standard of living with that allocation. 12 years latter no regrets. The return would have been higher with a higher equity allocation but our standard of living would have been no different and the sleep well factor would have been seriously impacted particularly 2008-2009. Not worth it.
I've also been running an approximate 50/50 split, in my case since 2006. It's working the same way for me as for you. We kept our spending level constant right through 2008-2009 and it has worked OK.

I realize that going forward, a 50/50 split could be the dumbest thing ever, or not. You pay your money, you take your chances. I lack the conviction to be either equity or bond heavy........
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 12-20-2014, 06:46 PM   #7
Thinks s/he gets paid by the post
Helen's Avatar
 
Join Date: Oct 2004
Location: Portland
Posts: 1,349
I've been pondering this recently too. My asset allocation target is 50/50, but we are now at 65/35 stocks/bonds. My tax deferred space is filled with G fund and bonds and we've already purchased I-bonds for the year. I will have to sell stocks out of the after tax accounts and find somewhere to put the money that will not increase my income. I do not want to create anymore more income for 2015 due to my ACA subsidies.

I know this is a good problem to have and I remind myself of that when I start to get stressed. I might just let this ride until 2016 when I will lose the ACA subsidy due to a pension that will begin.

Lsbcal, if I could move to a 50/50 stock/bond allocation without creating taxable events I would do so. But that is because 50/50 is the allocation I had planned on.
__________________
Helen is offline   Reply With Quote
Old 12-20-2014, 07:29 PM   #8
Thinks s/he gets paid by the post
heeyy_joe's Avatar
 
Join Date: Nov 2012
Location: Madeira Beach Fl
Posts: 1,403
I double-dog dare 'ya.
__________________
_______________________________________________
"A man is a success if he gets up in the morning and goes to bed at night and in between does what he wants to do" --Bob Dylan.
heeyy_joe is offline   Reply With Quote
Considering reducing equities?
Old 12-20-2014, 07:29 PM   #9
Dryer sheet wannabe
 
Join Date: May 2014
Posts: 14
Considering reducing equities?

My target allocation is 50/50. The chances of success for that allocation do not seem to be significantly lower than for say 65/35 in FIREcalc. A higher stock allocation does have the potential to generate a higher balance at the end. But I have no heirs, so for me a smoother ride in retirement is more important than being the richest corpse in the cemetery.


Sent from my iPad using Early Retirement Forum
__________________
Readyforachange is offline   Reply With Quote
Old 12-20-2014, 07:39 PM   #10
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,890
I'm not changing my usual 45:55 (equities:fixed) AA, because I was able to stick with it through 2008-2009 so I feel it is battle tested for me.

I do intend to rebalance to that same 45:55 AA on January 2nd. Right now I'm 46:54, so apparently it's not going to be a big deal. No giant sell-off here.

Lsbcal, I'd recommend figuring out what AA you could stick with even though a crash like 2008-2009 and then DCA or value average until you get to it. Then just stay there. As you pointed out, you have enough to live a good life and so maybe the sleep-at-night factor is a bigger deal to you now than it once was (as it is to me).
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is offline   Reply With Quote
Old 12-20-2014, 08:35 PM   #11
Thinks s/he gets paid by the post
nash031's Avatar
 
Join Date: Jun 2013
Location: Coronado
Posts: 1,486
People are bubble-hunting right now. Valuations are high, but not astronomically so. IMO, this bull still has legs. Another 10+% year or so and we might start turning the tide to some irrational exuberance.

In any event, I don't know, thus I'm not changing anything because my time horizon dictates so. (85/15)
__________________
"So we beat to our own drummer in the sun;
We ask for nobody's permission to run.
I just wanna live in a world like that;
Now I'm gonna live in a world like that!" - World Like That, O.A.R.
nash031 is offline   Reply With Quote
Old 12-20-2014, 09:08 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,471
Quote:
Originally Posted by Lsbcal View Post
I've been asking myself for some time if I should move from an AA of 65/35 stocks/bonds to 50/50. Below is a useful table from Vanguard which is figure 2 in this link: https://personal.vanguard.com/pdf/s705.pdf.



The data in the centerline of those bars is the real return history. For a reduction from 65% to 50% equities, it says that real returns might be reduced roughly by 0.6% per year. Since bond and stock returns could be muted over the next 10 years or so, this is perhaps a bigger factor then it appears. That is one possible downside.

Looking at the VPW calculator tool I'm more convinced now that we personally have quite enough to enjoy life. Using a bond strategy like I outlined in one thread recently (variable maturity strategy) gives me some confidence I can get decent fixed income results over a period of several years.

Thoughts?
I always looked at picking the AA based on the annual volatility you were willing to tolerate. Since the Trinity/Bengen study, pretty much showed more or less the same portfolio survival at 4% inflation-adjusted withdrawal, from about 40% stocks to about 70% stocks, you can pick your ratio based on other criteria. Your graph is a very useful look at the annual volatility versus long-term average returns tradeoff.

We're sticking with just under 55% equity allocation. We will probably let it drift higher very, very gradually over time, but are not in a hurry to do so since it's been so long since we've had a bear market.

I've decided I can live with the volatility of around 55% equities, and don't feel a need to increase the allocation to equities to improve the long-term gain. At the same time, I don't feel a need to further lower volatility and thus have a lower equity allocation either. Kind of in the middle of the flat section of that SWR versus allocation graph. I have the graph in my head, but never seem to find a link to it when I want to reference it.

I know some folks have picked 70%/75% as their equity allocation in order to maximize their long-term return without sacrificing portfolio survival. Those folks have to live with quite a bit of volatility. Other folks choose 40% equities (or even a bit less), so as to minimize the volatility of their portfolio without sacrificing survival chances. They don't care so much about improving long-term return if it means they have to live with higher annual volatility.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 12-20-2014, 09:17 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
freebird5825's Avatar
 
Join Date: Feb 2008
Location: East Nowhere, 43N Latitude, NY
Posts: 9,017
50/50 has been my comfort zone AA since I FIRED in 2007. I set it and forget it.

No regrets.
__________________
"All our dreams can come true, if we have the courage to pursue them." - Walt Disney
freebird5825 is offline   Reply With Quote
Old 12-20-2014, 09:18 PM   #14
Thinks s/he gets paid by the post
Sunset's Avatar
 
Join Date: Jul 2014
Location: Chicago
Posts: 4,729
Counting my rentals as bonds I'm estimating my allocation is 80/20. (s/b)

I pretty content as the stocks throw off a lot of dividends, and part of my "bond" allocation is really interest bearing cash accounts ( 1.1%), so we have a few years of cash if things dropped a lot, so we could avoid selling stocks.

I think that is the purpose of asset allocation to protect the principle.
I do realize inflation is hurting a bit when one only gets 1.1% interest and pays taxes on it, but that's the price of the insurance of having cash.

I'm open to better suggestions of course.
__________________
Sunset is offline   Reply With Quote
Old 12-20-2014, 09:22 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,471
Quote:
Originally Posted by Readyforachange View Post
My target allocation is 50/50. The chances of success for that allocation do not seem to be significantly lower than for say 65/35 in FIREcalc. A higher stock allocation does have the potential to generate a higher balance at the end. But I have no heirs, so for me a smoother ride in retirement is more important than being the richest corpse in the cemetery.


Sent from my iPad using Early Retirement Forum
Correct.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 12-20-2014, 09:32 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,471
BTW - for us stress over the volatility of the portfolio seems to go down as the portfolio grows. Maybe because we instinctively compare it to where we started. So if it has doubled, a 30% drop doesn't seem as scary as it would have during the first year, even though the $$ amount drop is twice as large.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 12-21-2014, 06:18 AM   #17
Dryer sheet aficionado
 
Join Date: Jan 2011
Posts: 26
My target is 50/50. I've got enough so that I do not need to take risks, but something in me does not want to miss out on equity growth whether I need it or not. Some of my smaller retirement accounts remain in target funds and it gets a little more difficult to determine just what the split is at any given time in those. I probably need to rebalance this January.
__________________
Don46 is offline   Reply With Quote
Old 12-21-2014, 10:55 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,686
Quote:
Originally Posted by Readyforachange View Post
My target allocation is 50/50. The chances of success for that allocation do not seem to be significantly lower than for say 65/35 in FIREcalc. A higher stock allocation does have the potential to generate a higher balance at the end. But I have no heirs, so for me a smoother ride in retirement is more important than being the richest corpse in the cemetery.
The VPW retirement calculator shows a 0.3% lower spending plan for a 50/50 versus a 65/35 portfolio. For example, with a 50/50 split VPW allows me 5.0% spending next year at my age and 5.3% for a 65/35 portfolio.

This is in line with my conclusions from running FIRECalc i.e. one should spend a bit less if reducing equities in the AA. Reduced spending also makes sense with the lower historical real returns for a higher bond allocation.

I probably won't spend 5.0% next year, maybe closer to 4% with lots of splurging. Still I won't be the poorest corpse in the cemetary.
__________________
Lsbcal is offline   Reply With Quote
Old 12-21-2014, 11:11 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,686
Quote:
Originally Posted by W2R View Post
...
Lsbcal, I'd recommend figuring out what AA you could stick with even though a crash like 2008-2009 and then DCA or value average until you get to it. Then just stay there. As you pointed out, you have enough to live a good life and so maybe the sleep-at-night factor is a bigger deal to you now than it once was (as it is to me).
We entered the year 2008 with a 57/43 portfolio and at the low point in 2009 it became 46/54 portfolio. Rebalanced it in July 2009 to 55/45 and then put in some more and set it at 65/35 where it stands now. 2008-2009 was jarring.

Currently we are 9% above the original inflation adjusted 2003 retirement portfolio. Lots of spending over the past 11 years. Inflation was about 28% over that time.

I sleep well but am always going to be a tinkerer and a bit of a worrier. Seems to be in the blood. Going to a lower AA is a combo for me of (1) getting older and so fewer years to spend in, (2) progressively higher valuations in equities since 2009, (3) better knowledge of bonds, and (4) better historically based projection tools i.e. VPW.
__________________
Lsbcal is offline   Reply With Quote
Old 12-21-2014, 11:21 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,686
Quote:
Originally Posted by audreyh1 View Post
BTW - for us stress over the volatility of the portfolio seems to go down as the portfolio grows. Maybe because we instinctively compare it to where we started. So if it has doubled, a 30% drop doesn't seem as scary as it would have during the first year, even though the $$ amount drop is twice as large.
Perhaps some of the relaxed feeling on volatility could be associated with "playing with house money"?

At any rate, I agree with yours and others comments about finding the volatility we can live with. My favorite number there is zero. It seems not to be possible in real life. 55/45 sounds like a good AA to me and is one I had back in 2008. That extra over 50/50 is probably not all that meaningful but is an expression of playing it dangerously ... in a safe sort of way.
__________________

__________________
Lsbcal 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
reducing work hours before retirement ranchoparque Hi, I am... 33 11-20-2009 04:25 PM
Reducing/Estimating Expenses Katsmeow FIRE and Money 71 11-15-2009 10:23 PM
Consumption reducing home modifications? Peaceful_Warrior Other topics 2 08-15-2007 11:50 AM
Reducing AGI kjpliny FIRE and Money 11 01-04-2007 11:36 PM
Vanguard Reducing the Admiral Shares Threshold TromboneAl Other topics 16 05-10-2005 11:41 AM

 

 
All times are GMT -6. The time now is 04:53 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.