New year, new AA

[Dd852]

I'm not trying to proselytize - simply reporting. I was feeling fairly dark about the world's prospects and fairly uneasy about how the state of the equity markets didn't reflect this so decided to take some money off the table.

It helps that I'm 57 and my wife is 62 , no kids, and we currently spend <3% of liquid assets plus own our home outright - in other words, I don't feel I have to be in accumulation phase anymore.

I had been 60% equities 6% REIT fund and 34% fixed income (not counting the cash cushion at all - see below) - moving to 55-5-40.

If I count cash, we are 91% invested 9%cash - the cash is equivalent to 2.3 years spending so all in all I feel that I'm in a decently defensive mode.

As I said at the top, I'm not recommending or predicting - just reporting in case you find it interesting.

Further detail - fixed income is in BIV BND and BNDX, reit is VNQ and equities is VIG VTI and VT.

Good luck to all in 17.

 

[donheff]

I vacillate back and forth between choosing to slowly make my AA more conservative and letting it continue to grow more aggressive as the bull market shifts it. The market timer in my says eventually a major correction will come so get a bit more conservative and then go the other way after a 10% or greater correction. But the other voice in my head says leave it be - you are spending at about 2% so you can afford to take a long view and go for growth for the kids. I think a rapid rise may tilt me towards shifting more conservative (i.e. timing). How rapid? I guess I will know when I see it - or not.

 

[gerntz]

The older you get, the less protection you need against running out.

 

[DrRoy]

I have been slowly reducing my equity AA over the last 2 years as I will RE in 3 months. I started at 82, and recently moved from 63 to 61%. Haven't quite settled on the final target, but likely around 55 at some point. I have been taking a little off the table every 100 points of the S&P 500.

 

[scrabbler1]

I have two AAs. One is for my IRA and the other is for my taxable accounts which generate the monthly dividend income needed to pay my bills.


In the IRA, I changed it from 55/45 (stocks/bonds) to 50/50 a few years ago when I turned 50. I frequently rebalance when it deviates too much from the desired AA and will probably make a small move this month. I will probably move it to 45/55 next year.


In my taxable account, I keep it more heavily weighted toward bonds. I don't have a specific AA, though. I rebalance when I see the stock fund price relatively high and the bond fund price relatively low, like it has been recently. Also, the monthly dividend from my bond fund has declined a little over the years, so doing a stock fund->bond fund move will boost my monthly income a little.

 

[W2R]

I belong to the "grit your teeth and hang on for the ride" school of asset allocation. I decided on a 45:55 retirement AA before my 2009 retirement, and plan to keep it there come h*** or high water.

Well, at least for the time being. At least for another decade.

 

[Lsbcal]

The only thing I have done is to rebalance back to 60/40 when the AA goes to 61/39. I think there were 3 rebalance points last year.

 

[HadEnuff]

I'm not trying to proselytize - simply reporting. I was feeling fairly dark about the world's prospects and fairly uneasy about how the state of the equity markets didn't reflect this so decided to take some money off the table.

It helps that I'm 57 and my wife is 62 , no kids, and we currently spend <3% of liquid assets plus own our home outright - in other words, I don't feel I have to be in accumulation phase anymore.

I had been 60% equities 6% REIT fund and 34% fixed income (not counting the cash cushion at all - see below) - moving to 55-5-40.

If I count cash, we are 91% invested 9%cash - the cash is equivalent to 2.3 years spending so all in all I feel that I'm in a decently defensive mode.

As I said at the top, I'm not recommending or predicting - just reporting in case you find it interesting.

Further detail - fixed income is in BIV BND and BNDX, reit is VNQ and equities is VIG VTI and VT.

Good luck to all in 17.

I'm 63, DW is 59..i'm even more defensive....45-55-10..My YTD return for 2016 was not as lofty as many, but I was more protected from a blow-out. Which I like. My WR is around 3%...I feel I can afford to take less risk.
I would not be averse to a higher equities AA, should we have a large market correction at some point, which of course, we will.

 

[Spanky]

The older you get, the less protection you need against running out.

Is it based on the assumption that you are approaching the "D" word?

 

[HadEnuff]

Is it based on the assumption that you are approaching the "D" word?

Aren't we all??

 

[Live And Learn]

The only thing I have done is to rebalance back to 60/40 when the AA goes to 61/39. I think there were 3 rebalance points last year.

Curious as to why you've set your rebalance bands so narrow. I was thinking I would "allow" a +/- 5% swing off my ideal AA in any one category (equities, bonds, short term) before rebalancing. I'm interested in your thinking. Thanks

 

[ziggy29]

I belong to the "grit your teeth and hang on for the ride" school of asset allocation. I decided on a 45:55 retirement AA before my 2009 retirement, and plan to keep it there come h*** or high water.

I was around a 70/30 AA when it hit the fan in 2008. It sometimes made it hard to sleep but I stayed the course. Between remaining (somewhat) patient and rebalancing a few months after the near-meltdown (i.e. buying low), after about three years I was close to recovering my losses from said near-meltdown. At that time I decided I was more comfortable with a 60/40 allocation and I haven't looked back since. I barely even pay any attention to the markets any more.

 

[Golden sunsets]

We are 68(me) and 70(DH). 2017 will be the first year of decumulation for us as residuals from my former self employment will end in March. DH retired in 2008 about the same time Lehman Bros went under. Our SWR will hover around 1% for the foreseeable future. We recently decided to ratchet our equity exposure down 1% per year from 55 down to 50, so this year we are at 54/41/5. The 5 is cash which represents roughly 5 years of living expenses after accounting for cola'd pensions/SS. Our REIT exposure is part of equities. Given our conservative SWR we could probably be a bit more aggressive in our AA, but for now feel comfortable with the above. We too rebalance fairly frequently. I call it a form of market timing, given how frothy the equity market is presently.


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[ziggy29]

Given our conservative SWR we could probably be a bit more aggressive in our AA, but for now feel comfortable with the above.

When you are only taking 1% of your portfolio per year, you don't have to do what is considered "optimal" -- you have the luxury to do what helps you sleep at night. You can be almost as aggressive or as "safe" as you want to be. Frankly if I needed only 1% of my portfolio each year, I'd probably be closer to 35/65 or 40/60. Heck, I'd probably just put it all in Wellesley...

 

[travelover]

Aren't we all??

I'm pretty sure I opted out when I clicked the "agree with terms and conditions" box.

 

[MichaelB]

I'm pretty sure I opted out when I clicked the "agree with terms and conditions" box.

Be sure to let us know how that works out for you ..

 

[easysurfer]

I'm at about 45% equities/55% fixed income. Comfortable with that allocation.

My gut feeling thinks 2017 is gonna be one wild ride. Regardless, I'm not going to zig and zag with my allocation.

 

[Osprey]

We're at 45%S/55%bonds which is conservative for us.



There’s never enough time to do all the nothing you want.
Bill Watterson, Calvin and Hobbes

 

[Golden sunsets]

When you are only taking 1% of your portfolio per year, you don't have to do what is considered "optimal" -- you have the luxury to do what helps you sleep at night. You can be almost as aggressive or as "safe" as you want to be. Frankly if I needed only 1% of my portfolio each year, I'd probably be closer to 35/65 or 40/60. Heck, I'd probably just put it all in Wellesley...

Yep. We have considered being even more conservative but want to grow the legacy and are comfortable with the risk. Once we get to 50 we may well continue the gradual decrease in equities further.


Sent from my iPad using Early Retirement Forum

 

[audreyh1]

I seem to end up at about the same AA every year, 53/42/5, even though I have different outlooks each year.

I have concerns. CAPE10 is almost 28 - back to nosebleed levels, and in face of a rising interest rate environment too. But I pretty much stick to the asset allocation even if I think the portfolio might take a hit in the near future.

I did rebalance this Jan - trimming from some "high fliers" - mainly small cap and balanced funds with high equity exposure. I have given myself permission not to even bother rebalancing in Jan unless I am "out of bounds" on AA, but seeing the portfolio run up so much this year I went ahead. I do intend to be more hands off in the future - well, maybe.

For a while last year I considered reducing my withdrawal percentage a bit because with the portfolio up so much over the past few years we've been underspending our withdrawal quite a bit and unspent funds have been accumulating in savings. But after reviewing historical performance for the % remaining portfolio method, I decided dropping under 3.5% didn't make sense, and actually I should be even more aggressive before too long. So the philosophy is - take the amount indicated out when the portfolio is high, even if you don't "need" it all, because who knows when the portfolio will be whacked again. Could be this year or next!

 

[audreyh1]

The only thing I have done is to rebalance back to 60/40 when the AA goes to 61/39. I think there were 3 rebalance points last year.

Wow, that is pretty narrow. Divergence is good - benefits from rebalancing happen when asset classes have time to gain a lose a bit before rebalancing. And optimal periods are at least a year, 18 months for taxable accounts.

 

[NW-Bound]

... I had been 60% equities 6% REIT fund and 34% fixed income (not counting the cash cushion at all - see below) - moving to 55-5-40...

I used to be 75 to 80% in equities. I am now at 59%. Although I think the market is tipsy enough that a market correction may happen any time if triggered by some events, I already have a lot of cash on hand.

It is also difficult for me to find something to sell, as I own individual stocks and think that the ones I own now have been beaten down fairly badly relative to the S&P, hence are not as overvalued. Wrong opinion perhaps, but that's how I feel.

 

[plex]

Way back I looked at and ball-parked about how long an average bull market lasts historically. So, 2017 was set at the first major point, where it got near 50% for an average run time, then after that set some more time marks every 2 years after that when the probability would keep going up significantly from there. Also, I factored in that my necessary allocation with a few years before and after retirement needs to have 20% in something safe, which is enough to ride through any of the historical downturns. If a downturn happened in that period, it isn't realistic I will be able to fix it if I'm too aggressive within that period.

So, I was one of those who did change it this year. I'm about 4.5 years away from retirement, and it's 2017. Previously I was 100/0, and now I'm about 70/0/30. I will go down to 60/0/40 if the bull is still running, both due to the extra long run, and entering the 3-year safety period, and will again go down another 10% in 2021 for the same reasons.

Of course, 1-1.5 years after a downturn inevitably occurs, I definitely will be shifting it back up, either to 80/0/20, or higher, depending on how sharp the low goes.