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Help convince me to go more conservative
Old 02-29-2012, 07:48 PM   #1
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Help convince me to go more conservative

I am 56 with a comfortable portfolio of 4.5M and will be retiring soon. I've always been very risk tolerant, with 100% equity early in my saving career, shifting to 70/30 when I was in my mid-40's. I was at 70/30 when the 2008 crisis hit (ouch) but I kept investing and rode that out. Lately I've shifted some into bonds and I am currently at 55/45 Stock/Bonds. I use a lazy portfolio of low cost index funds covering total US stock market (25%), international (15%), small cap (15%) and total bond market (45%).

Being aggressive in my AA worked during accumulation phase, but given my age, my portfolio size and entry into retirement, I know I should be changing my AA to something like 40/60 or maybe even 30/70. But I can't seem to bring myself go that conservative. I don't know if I am being greedy or foolish (or both).
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Old 02-29-2012, 07:50 PM   #2
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Why go conservative? I just don't understand that. See Larry Swedroe's Guide to Right Financial Plan for insights in to going more conservative ... or not.
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Old 02-29-2012, 07:55 PM   #3
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You are already conservitive in my eye. I let it ride...maybe less small cap.
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Old 02-29-2012, 07:57 PM   #4
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Hey Bio, welcome, I'm 60 and have about 60/40 split (equity vs fixed) and see no need to change, also have no problem sleeping at night either. Bottom line, we are all wired differently with various risk tolerances, go with your gut. Just my two cents.
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Old 02-29-2012, 07:58 PM   #5
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You don't mention what your expenses are, but for many of us here a 4.5M portfolio would be large enough to allow you to stay aggressive. Even loss of 30 - 40% would leave you with a comfortable nest egg - once again, depending your spending.
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Old 02-29-2012, 08:01 PM   #6
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I think you are right on. At 56, your portfolio is going to need to last many years. 55/45 equities/bonds does not seem at all too aggressive. I think at your age I'll be more like 65/35 or maybe 70/30; however, I have a pension that can be thought of as a bond investment.

$4.5M rocks; you are in good shape!
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Old 02-29-2012, 08:12 PM   #7
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You should tinker around with FIRECalc. Change the asset mix and see how that changes the success rate. I'll bet that you see better success rates with 70/30 than 30/70.
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Old 02-29-2012, 08:27 PM   #8
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I've played with Firecalc and get 100% success with 55/45. Just tried 30/70 and you are right in that it drops to 96%.

I estimate my spending at 120K/yr (after tax) which translates to 160K before tax. Most of the portfolio is tax deferred savings. I would adjust spending downward for a few years in a bad bear market if needed.

Maybe I'll just stay the course for now. Seems to have worked for me so far!

This forum is great. I've learned a lot here.
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Old 02-29-2012, 08:37 PM   #9
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You don't mention what your expenses are, but for many of us here a 4.5M portfolio would be large enough to allow you to stay aggressive. Even loss of 30 - 40% would leave you with a comfortable nest egg - once again, depending your spending.
Not me. The way I look at it.....with that large of a portfolio, why do you need to be aggressive? You have plenty. But it does depend on your expenses. My expenses are low compared to most here.

Edit: I missed the OP's last post. His expenses are enough to justify his AA.
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Old 02-29-2012, 08:49 PM   #10
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If you feel comfortable with your present 55:45 (equities:fixed), far be it from me to persuade you to shift to a more conservative AA.

You lived through 2008-2009, so I'm sure you have a good idea of what your risk tolerance is. As long as you can go through another crash like that, should it happen, without selling low I think your AA is just fine.
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Old 02-29-2012, 09:32 PM   #11
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I am way older than the OP and 100% in equities today. I wouldn't touch a bond right now. They can only go down from here.

Equities are the only thing that have any potential to keep me out of a paper box under the bridge. I was 100% in 1987 and almost 100% in 2008.

If he wants conservative, look for reliable dividend-paying equities.
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Old 02-29-2012, 09:44 PM   #12
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I was 100% in 1987 and almost 100% in 2008.
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Old 02-29-2012, 10:03 PM   #13
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You lived through 2008-2009, so I'm sure you have a good idea of what your risk tolerance is. As long as you can go through another crash like that, should it happen, without selling low I think your AA is just fine.
Good advice. I can live through another crash without selling low by spending from my bonds. So you've all convinced me to stay with 55/45. In spite of the post heading, staying a bit heavier on stocks is what I wanted you to all say .
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Old 02-29-2012, 10:04 PM   #14
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I am a bit younger, retired, with a smaller portfolio, but also smaller expenses. My AA is 80/10/10. Higher than 75%/25 at the beginning of 2008.

You seem to have a good instinct for investing. I certainly wouldn't be in hurry to buy more bonds especially at these yields. FIRECalc and such are useful but I think it is worth looking at various scenarios since we have an historic financial crisis and we have historically low interest rates. The one that would concern me if I had had more than 40% of my portfolio (even a large one like yours) is what would happen if we have a 5% increase in interest rates and 5-7% increase in inflation.
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Old 02-29-2012, 10:18 PM   #15
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Originally Posted by biocruiser View Post
I am 56 with a comfortable portfolio of 4.5M and will be retiring soon. I've always been very risk tolerant, with 100% equity early in my saving career, shifting to 70/30 when I was in my mid-40's. I was at 70/30 when the 2008 crisis hit (ouch) but I kept investing and rode that out. Lately I've shifted some into bonds and I am currently at 55/45 Stock/Bonds. I use a lazy portfolio of low cost index funds covering total US stock market (25%), international (15%), small cap (15%) and total bond market (45%).

Being aggressive in my AA worked during accumulation phase, but given my age, my portfolio size and entry into retirement, I know I should be changing my AA to something like 40/60 or maybe even 30/70. But I can't seem to bring myself go that conservative. I don't know if I am being greedy or foolish (or both).
I'm 56 too and just retired. Similar to you was 100% equities early. While the 2008 crisis was nervewracking, I stayed the course am ahead today. I also use a lazy portfolio of 45% domestic equities, 15% international equities, 35% bonds and 5% cash. I sleep well at night in that I have seen the '87 crash, the early 2000s and 2008 declines and then recoveries each time.

I think 60/40 is fine, but if I were in your shoes I would not go any more conservative than 40/60.
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Old 02-29-2012, 10:32 PM   #16
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Originally Posted by biocruiser View Post
I am 56 with a comfortable portfolio of 4.5M and will be retiring soon. I've always been very risk tolerant, with 100% equity early in my saving career, shifting to 70/30 when I was in my mid-40's. I was at 70/30 when the 2008 crisis hit (ouch) but I kept investing and rode that out. Lately I've shifted some into bonds and I am currently at 55/45 Stock/Bonds. I use a lazy portfolio of low cost index funds covering total US stock market (25%), international (15%), small cap (15%) and total bond market (45%).

Being aggressive in my AA worked during accumulation phase, but given my age, my portfolio size and entry into retirement, I know I should be changing my AA to something like 40/60 or maybe even 30/70. But I can't seem to bring myself go that conservative. I don't know if I am being greedy or foolish (or both).
I'm 52, retired for a while, living off my portfolio. I'm currently at 53% stocks. I plan to lower that 1% a year, so I don't plan on getting down to 40% stocks until I reach 65 years old. And maybe 30/70 when I reach 75. And even then I may re-evaluate going so low.

I also see no hurry to switch to a high % bond portfolio especially as bonds are likely to underperform over the next decade .

And, as far as I know long term portfolio survival starts dropping off when you
get below 40% stocks, so that level of "conservative" is best when you don't expect to have as many decades left to live.

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Old 03-01-2012, 12:05 AM   #17
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I'm 50, heading to ESR or at least a slowdown at 52, probably completely done by 55 (but we'll see. My port is a bit larger, expected expenses at retirement a bit higher (but could easily lower them for a few years in a bad market), and I really can't see going to anything less than 55% equities until sometime past 65. I figure I need the growth that the equities provide. Right now we are at about 60/40, and no plan to deviate anytime soon.

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Old 03-01-2012, 09:20 AM   #18
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Originally Posted by biocruiser View Post
I am 56 with a comfortable portfolio of 4.5M and will be retiring soon. I've always been very risk tolerant, with 100% equity early in my saving career, shifting to 70/30 when I was in my mid-40's. I was at 70/30 when the 2008 crisis hit (ouch) but I kept investing and rode that out. Lately I've shifted some into bonds and I am currently at 55/45 Stock/Bonds. I use a lazy portfolio of low cost index funds covering total US stock market (25%), international (15%), small cap (15%) and total bond market (45%).

Being aggressive in my AA worked during accumulation phase, but given my age, my portfolio size and entry into retirement, I know I should be changing my AA to something like 40/60 or maybe even 30/70. But I can't seem to bring myself go that conservative. I don't know if I am being greedy or foolish (or both).
Is your primary goal avoiding failure, or building wealth and the chance of a larger residual $ end of plan?

The former does not require a large equity position (fig 2.3 attached), the latter does (fig 2.4 attached, and .2.2 indirectly). This shows that distinction, recently discussed in another thread here. Pensions, Retirement Planning, and Economics Blog: William Bengen's SAFEMAX.

Also, sequence of returns all comes out in the wash during accumulation. That's not the case during drawdown (distribution), where poor returns early in retirement can do damage you can't recover from without income. Asset allocation during distribution should be more conservative than during accumulation if history is any guide.
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Old 03-01-2012, 11:17 AM   #19
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Is your primary goal avoiding failure, or building wealth and the chance of a larger residual $ end of plan?

The former does not require a large equity position (fig 2.3 attached), the latter does (fig 2.4 attached, and .2.2 indirectly). This shows that distinction, recently discussed in another thread here. Pensions, Retirement Planning, and Economics Blog: William Bengen's SAFEMAX.
Thanks for the blog link! I had seen some of the charts before, but not all put together the way Mr. Pfau did.

I hope he does a study for us fixed percenters! I'll continue to follow his blog - he looks like he has written several other useful articles recently.

For folks who want to look at how their portfolio is keeping up versus (official) inflation from when they started, I have been using this handy Cumulative Inflation Calculator: InflationData.com's Cumulative Inflation Calculator

Audrey
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Old 03-01-2012, 12:59 PM   #20
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