My Asset Allocation History (past 9 years)

[obgyn65]

0% in equities for me. I have never changed my AA, except a few months ago when I started to buy deferred annuities.

Quote:

Originally Posted by mathjak107 i was 80-100 equities until 5 years ago....

[mathjak107]

well i wont stay at zero equities forever though. if valuations improve we might go 20-25% equity funds or so.

the types of income and bond funds we hold will also change if inflation picks up.

thats the problem with target date funds in my opinion . they look only at age and not at whats happening in the world.

mark my words ,when rates rise and these retirees in target funds that are almost all bonds drop in value they will freak.

most of us have never been in a bear market in bonds since bonds have had a bull run now for over 30 years.

if rates rise a point and they lose 5-8% of their value on their statement, look out.....

we have been really enjoying the income spinning off from this model now and hopefully rates and inflation will let us run it a bit longer but eventually things will reverse and rates will rise and changes will be made in the model..

[obgyn65]

Agree. One of my objectives when I finally FIRE is to learn about equities. I need to start from scratch. Not much time now. I also realize there may be others like me - there is hope :-)

Quote:

Originally Posted by mathjak107 well i wont stay at zero equities forever though. if valuations improve we might go 20-25% equity funds or so. the types of income and bond funds we hold will also change if inflation picks up. thats the problem with target date funds in my opinion . they look only at age and not at whats happening in the world. mark my words ,when rates rise and these retirees in target funds that are almost all bonds drop in value they will freak. most of us have never been in a bear market in bonds since bonds have had a bull run now for over 30 years. if rates rise a point and they lose 5-8% of their value on their statement, look out..... we have been really enjoying the income spinning off from this model now and hopefully rates and inflation will let us run it a bit longer but eventually things will reverse and rates will rise and changes will be made in the model..

[mathjak107]

i have been an investor for 25 years and of course now have become much more goal allocated then getting richer allocated.

my quest is to take the smallest risks that let me meet the income i will need.
going forward that may even mean using some insurance products incorporated into the plan to help meet that goal.

i could be comfortable up to about 35-40% equities but if i dont need that allocation i rather not be that high.

i still have 2 years to go before i retire so i have time to refine the plan.

thanks to dr wade pfau and the likes of moishe milevsky and micahel kitces there is much research going on in finding more refined ways to meet our income needs.

[foxfirev5]

Today I'm running at 44% equities. After letting it creep up to 60% in 2000 it dropped to below 50% by '02. I then put all my new money in equities and got it up over 50%. After recovering from '08 - '09 I've settled into the 45-50% range. If my stake drops to 41% I'll rebalance back up to 44-45% but that's all.
At this point all I'm looking for with the equities is inflation protection so mybe 45% is a tad high. I notice that if I drop the allocation down to about 30% it does not adversely affect by success rate on Firecalc.

[Spanky]

Quote:

Originally Posted by mathjak107 .. overall still up over 9% this year with the bond fund mix so i cant complain. my benchmark really is a cd now. if i beat what a risk free cd would have returned then running a portfolio is worth it.

Comparing a Bond mix to a CD benchmark?

[Spanky]

Quote:

well i wont stay at zero equities forever though. if valuations improve we might go 20-25% equity funds or so.

Valuations of domestic stocks are fairly priced now.

[mathjak107]

well with rates this low you have to see your total return on bonds vs if you did absoluetly nothing ,called it a day and threw it in the bank.

sure you can compare it against the barclays aggregate index but to tell you the truth at this stage i couldnt care less about some bond index.

at this stage because we are so conservatively invested if i cant beat a 5 year cd then it wasnt worth the swings and volatility that year.

if im ahead then im happy i have our model in place , if we didnt beat it then i grumble who needs to bother to layout a stratagy. ha ha ha.

its like when we were down 38% in 2008 and we went "should have just bought a cd"...


as far as valuations, i disagree, they arent over priced but based on earnings outlooks right now they are no bargain either.

if i was invested in equities i would stay the course but i would not committ more money.

this is more a time in my opinion to ask youself what should i sell vs in 2008 when the question shouldnt have been what do i sell but what do i buy?


right now to find value its an individual stock pickers game and not just markets overall.

there are quite a few undervalued companies out there but my accounting knowledge isnt great enough to find the stuff the pro's havent.

in fact im such a great stock picker i once bought gm stock and got a thank you letter from ford.

[cardude]

I probably have the dumbest AA on the board. I'm 55% equities 25% cash and 20% in my little car lot. I say dumb because my equity allocation includes only one stock. I need and want to sell a good chunk of it, but I don't feel like the valuation is right yet. This is a stock (Berkshire) I've owned for years and feel like I know what's going on pretty well ( or as well as an outsider could I guess), but it still makes me nervous. I'm not really retired any anymore with the car lot income so that shields me somewhat from my crazy one stock plan I suppose.

I've had this strange AA since I ERed back in 2008-2009, with the exception of recently (2011) deploying 20% of my cash in this car lot.

[Lsbcal]

Quote:

Originally Posted by mathjak107 ill tell you i hate the big up days when i get left behind but with yesterdays 2% drop i was flat on the day. overall still up over 9% this year with the bond fund mix so i cant complain. my benchmark really is a cd now. if i beat what a risk free cd would have returned then running a portfolio is worth it.

I hate (negative) tracking error and am getting better at analyzing tracking error.

Nowadays I'm very careful to select the right benchmark and they are (1) index funds that show the same equity/bond mix, (2) Wellington + an equity index fund. Both of these benchmarks include some cash and bond index funds that I have so that I can truly compare my portfolio results to those portfolios. Right now I'm slightly beating the index fund benchmark but slightly trailing the Wellington benchmark.

[mathjak107]

even when i had high equity levels i never compared my funds to their index.

why? because it was never about just a fund. it was always about how the total portfolio worked as one cohesive unit.

as an example one of the funds at the time in my model was the fidelity export and multinational fund. we had a weak dollar and the fund was doing great.

as the dollar shifted we dropped it and went to another fund that worked better in a stronger dollar.


well neither fund beat their indexes but the 2 funds working together through their sweet spots did beat the index.


you have those with 10% of their money in some award winning fund and 90% in cash.

so what? even if that fund tripled it amounts to nothing overall.

to me its all about the total portfolio and not the pieces that make it up.

to much time is spent comparing each fund to its index and not enough on the total portfolio return and construction.
i see folks with poorly constructed index portfolios with an s&p 500 index and a total market fund overlapping for about 90% of it.

they have assets that all fall at the same time or go up together. 2008 saw corporate bonds fall following stocks. on the other hand real diversification was the 30 year treasury which soared almost 38%.

a simple mix of gold,an equity fund ,cash and a long treasury bond fund was up that year surpassing all equity funds,reits and corporate bond funds.

its all well and good if your funds beat their indexes in 2008 but did that ease the pain any more? of course not..

its all about the portfolio and less about the individual issues in my opinion.

[Lsbcal]

Quote:

Originally Posted by mathjak107 even when i had high equity levels i never compared my funds to their index. why? because it was never about just a fund. it was always about how the total portfolio worked as one cohesive unit. ...

That's why I mentioned benchmarking portfolios.

But, of course, the benchmark selection process could be a difficult decision. For instance, the Wellington based benchmark I use (Wellington + index + some cash/ST bonds) will not perform as well as my portfolio should small and midcaps start outperforming but might perform better if large cap value outperforms those small/midcaps. The benchmark is only there as a reference to some potential other portfolio constructions that I might some day consider.

[mathjak107]

now you understand why my benchmark is "if i did nothing but buy a cd is the effort worth it?"

[ERD50]

Quote:

Originally Posted by obgyn65 Agree. One of my objectives when I finally FIRE is to learn about equities. I need to start from scratch. Not much time now. I also realize there may be others like me - there is hope :-)

There's really not much that anyone needs to learn. FIRECALC will show that a 50/50 to 80/20 range of EQ/Fixed will provide the highest success rates over a 30-40 year period.

A target fund will do this for you, starting fairly aggressive, then making some increasing adjustments towards fixed as you near the target date. Or you can just blend a couple stock/bond index funds.

Lesson over


I'd guess that 90% or more of the retirees here do something along those lines. Doesn't require much learning, once it has been pointed out. Some of us may 'play' with 10% of our portfolio, or do some other active trading just to be more involved, but it certainly isn't necessary, and probably doesn't help in many cases.

-ERD50

[Lsbcal]

I agree with ERD50. Best not to put off getting your AA set. Some runs of FIRECalc over a few weeks with time to contemplate the results is a great way to get started.

Then just with your AA ideas ask a Vanguard rep to give you a reasonably diversified index mix. They may suggest a brief process to look at your risk tolerances. Later one can get more sophisticated ... or not.

[Packman]

Quote:

Originally Posted by mathjak107 mark my words ,when rates rise and these retirees in target funds that are almost all bonds drop in value they will freak. most of us have never been in a bear market in bonds since bonds have had a bull run now for over 30 years. if rates rise a point and they lose 5-8% of their value on their statement, look out.....

+1 When bonds begin to decrease in value - and they will - there will be a mass exodus. I just don't know where the money will go. If even a good portion goes back to equities, that will be called the next secular bull marker for stocks.

So our AA is 60/32/8 - not risk averse, but positioned for long term growth since I need my portfolio to hang around for 30 years or so.

[mathjak107]

this is one of the only times in my life i have a portfolio thats not really on autopilot.

my hole life it was set and forget, rebalance once a year and except for an occasional fund swap it just went on and on.

no it has to be more dynamic responding as conditions change for the big picture

[Lsbcal]

Quote:

Originally Posted by Packman +1 When bonds begin to decrease in value - and they will - there will be a mass exodus. I just don't know where the money will go. If even a good portion goes back to equities, that will be called the next secular bull marker for stocks. So our AA is 60/32/8 - not risk averse, but positioned for long term growth since I need my portfolio to hang around for 30 years or so.

I tend to agree with you and Mathjak. BTW, there was a bear market in 1994 in bonds with intermediate Treasuries returning about -5.6%. I'm not sure that the response will be a mass exodus from bonds if we get a bond bear market but it could goose the stock market a bit.

The most sustained recent rate rise period was Mar 2004 to May 2006 when 5yr Treasuries rose from 2.8% to 5.0% (cash went from 1% to 5.1%). An intermediate Treasury fund like VFITX returned about 0.9% during that rate rise period. But note that now 5yr Treasuries are only yielding about 0.75% so a similar rate rise would be worst now. FWIW, Pimco Total Return returned about 2.7% annualized during that 2+ year rate rise period. Also large value stocks returned an annualized 10.9%.

[haha]

I believe that a rush into bonds is very poorly timed, unless they are very short duration- and in high quality bonds with today's interest rates, short duration means short maturities and very low, almost cash-like yields.

Here is what one manager with an excellent long term record has to say about expected asset class returns going forward from here.

http://www.gmo.com/America/MyHome/default

Click on GMO 7 year asset class forecasts, on upper left.

I have little expectation for my own allocation, but here it is anyway: 65% equity, all individual US and developed market stocks except for my emerging mkt Vanguard fund; 13% s.t. bond fund; and 22% cash. (Almost all cash is bank deposits.) I would have more cash except for cg tax that would be due. If we make it to the new year with similar valuations as today's, I will likely lighten up. I still have income overhang from a large Roth conversion back in 2010, that was tax-deferred into 2011 and 2012 tax years.

My expectation on tax rates in 2013 is that they will be roughly the same as this year, ie. the can will be kicked. However, this is a very insecure forecast. OTOH, there might be no legislative action and we could go over the cliff that is being talked about.

Ha

[RonBoyd]

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