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Reevaluating your AA?
Old 12-19-2018, 09:43 AM   #1
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Reevaluating your AA?

Has this recent correction have you reconsidering your asset allocation?
I went into 2015 at 80/20 and found the first minor dip made it difficult to get a good night's sleep. I readjusted to 70/30 but the next drop was still to deep. Ive been 60/40 since and have barely paid attention to this ride down so far. Now I'm wondering if 60/40 is too conservative, but I doubt 65/35 would make any major difference so I guess it's time to sit here and do nothing.
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Old 12-19-2018, 09:49 AM   #2
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Has this recent correction have you reconsidering your asset allocation?
I went into 2015 at 80/20 and found the first minor dip made it difficult to get a good night's sleep. I readjusted to 70/30 but the next drop was still to deep. Ive been 60/40 since and have barely paid attention to this ride down so far. Now I'm wondering if 60/40 is too conservative, but I doubt 65/35 would make any major difference so I guess it's time to sit here and do nothing.
So, when market rebounds you'll reconsider again as you see you miss out on the growth? Naw, that's not how it's supposed to work. For me, my AA will adjust as I reach age milestones, not because of actions of a relatively short period of time.
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Old 12-19-2018, 09:49 AM   #3
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Yes. I was considering shifting from 60/35/5 to 65/30/5 before the correction occurred... still on the fence but leaning towards going to 65/30/5.
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Old 12-19-2018, 09:59 AM   #4
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No, I don't go reconsidering my AA in good times or bad times as I consider that like serial AA (similar to the term serial monogamy).

I go with the 100-age for my AA.
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Old 12-19-2018, 09:59 AM   #5
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Nope. I'm keeping with 120-age. The problem you can run into by reacting to dips is that you might wind up selling at a low, and then buying at a high if you readjust back up because you got too conservative.

Find that AA you can sleep with during a drop, and not regret during a run up, and stick with it. Would you have been ok with 65/35 during the drop?

The other thing you could do is a little market timing and swing your AA 5-10% when you feel the market is too high or too low. That's a bit dangerous though, because you have to be able to tell a dip apart from a major drop, and a recovery from a dead cat bounce. If you went up to 65/35 but the market keeps dropping, are you going to panic and go back to 60/40? You don't want to do that, so you'd be much better off with a single AA that doesn't move. But if you could ride out the 65/35 to the bottom, it could work.
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Old 12-19-2018, 10:18 AM   #6
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I punted the allocation decision to a target date fund at Vanguard. I don’t own the fund but use its allocation as a guideline and rebalance annually according to changes either due to market movements or updates to the target fund.
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Old 12-19-2018, 10:35 AM   #7
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No. You're doing it all wrong! That's not how this works. That's not how any of this works!

Rebalance if anything, buy more stocks.



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Old 12-19-2018, 10:40 AM   #8
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I was leaning toward reducing our equity exposure, but hesitating due to taxes. Nothing to do with recent market activity, we just don't need to take additional risk.An unexpected inheritance took care of it for me with no immediate tax consequences, my (former 60%) equity exposure is down considerably. Silver lining I guess...
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Old 12-19-2018, 10:44 AM   #9
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I don't understand changing one's AA because the market is not doing well. Or if it is going through the roof to one new high after another.

The idea of an AA is to get one through the ups and downs of the market. It prevents us from becoming greedy when the market is going up Up and UP, and panicking when the market is going down the drain.

Most important our AA prevents us from becoming market-timers and trying to figure out where the market will go. That is a Fool's Errand for most of us. A descent AA should allow us to weather these storms, make some good profits in the good times, and get a good night's sleep.

If one has to adjust one's AA because of a market correction then in all probability either the AA is vastly wrong for one's situation, or, perhaps, one should not be in the market at all.
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Old 12-19-2018, 10:52 AM   #10
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I do think about my AA often because I feel at times my equity funds are to high. I have posted it before at 75% but it is more like 78% now.

I am fortunate I won't need these funds to live on, so I do take more of a risk, but still I don't like when things go south.

I have asked the question before here on ER if funds aren't needed would going a 100% equity be reasonable thing to do. The answers I got that 100% would be a good idea and if you can wait out a long down turn it is a good strategy.

I hope you can find your answer to your question, by feeling comfortable with what happens in the markets.
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Old 12-19-2018, 10:54 AM   #11
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I can certainly understand how a frightening volatile or dropping equity market would have someone reevaluate their AA if they start to feel panicky or aren’t sleeping well. It’s a good wake up call for someone who has been too aggressive and wrongly for themselves.

My AA has been pretty much the same for a long while. I’ve been through worse already. I might be “seasoned”.

I just rebalance occasionally and I am setup to endure long periods of equity market underperformance.
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Old 12-19-2018, 11:08 AM   #12
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One doesn't know ones AA fits their true risk tolerance until there is a move and those assumptions tested.
I thought I was comfortable at 80/20 but found out I was not once tested. It was not fun either time waiting for things to go back up so that I could readjust without eating the dips loss.
I'm seeing some panic in other threads and wondered if others are now going through what I did.
In truth I'm probably not going to change as the 5% difference creates negligible changes in projected outcomes.
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Old 12-19-2018, 11:18 AM   #13
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One doesn't know ones AA fits their true risk tolerance until there is a move and those assumptions tested. ...
+1

We were tested in 1987 and several times since, so we have a good idea that we are very risk tolerant. And, really, the idea that volatility=risk, beloved of the MPT folks, is very questionable over the long term.

Fred Schwed, in "Where Are The Customers' Yachts?" opined wisely:
“Art cannot convey to an inexperienced girl what it is to truly like to be a wife and mother. There are certain things that cannot be adequately explained to a virgin by words or pictures. Nor can any description that I might offer here even approximate what it feels like to lose a real chunk of money you used to own."
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Old 12-19-2018, 11:33 AM   #14
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I was going to lower my stock portion when I hit a certain $ threshfold. I was withing $14K of getting there. Now I'm like $185K from the threshfold. So that didn't work out too great.



But still OK with 72/22/6 AA especially since a big chunk is in utility stocks that pay a nice dividend and don't follow the market particularly.
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Old 12-19-2018, 11:36 AM   #15
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One doesn't know ones AA fits their true risk tolerance until there is a move and those assumptions tested ...
+1.

For me, all the more reason to go with a non-subjective AA.

Oh and find something as a distraction until things go back to more certain .
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Old 12-19-2018, 12:01 PM   #16
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When we post about asset allocations, some do not mention relevant context or sometimes unique circumstances that they face - as a result we cannot really grasp the range of risk tolerance for their situation at that point in their life. For example, what is their:
- age
- marital status and does spouse still work
- already retired or time to retirement date
- optimal time for social security and amount
- nature of any pension
- availability of health care before 65
- guaranteed income level to satisfy basic needs
- job security
- legacy motive
- savings balance?

With all these variables, there are some good thumb rules to get in the ballpark (120/112/100-age).

All of these factors (and more) have been changing my risk tolerance and retirement planning as time marches on - and undoubtedly others. I stayed in 100% equities until the second quarter of this year and after turning 57 and then went 50% stock and 50% MMF when I thought I had 'about enough'. A ridiculous strategy with 'stay the course' night chanting during dot.com and great recessions but I was lucky and it worked. Now I sleep well and have about 18mo to go before fire, mega health insurance, and max SS at FRA. (Secretly hoping for a mega buyout pension boost)

Not meant as a dig to anyone - for example it can be difficult to get meaningful insights from an internet anonymous 20 something posting about 75% gains with a small bet on one stock without disclosing particulars. I think it is more of a problem on the bogleheads forum where smart but early investors abound.

All in all, the different perspectives, references, and even disagreements on this forum and bogleheads have helped me become more financially realistic about retirement. Fortunately, the more frequent posters have at some point provided a bit of detail about themselves that helps define their perspective in advice.

The right asset allocation - it depends..........
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Old 12-19-2018, 12:03 PM   #17
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The OP was at 80/20 and not sleeping well. I don't think you have to set an AA once and never be able to change it. If you really feel you made a mistake, it's ok to adjust. But no bopping back and forth as the market changes, unless you want to acknowledge that you are market timing.
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Old 12-19-2018, 12:08 PM   #18
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I have been gradually moving from stocks to bonds as I age, so a drop in stock prices sorta does this AA shift for me. A rise in stock prices has caused me to rebalance from stocks to bonds frequently in the last few years.


However, next week I will be taking a large cap gain distribution in cash (instead of automatically reinvesting it) because I have some predetermined purposes for some of the money. With what remains, I will make purchases into my main stock and bond funds based on what I want my AA to be and what I want the income each big fund produces to cover my expenses going forward. I will make these decisions and moves in early January.
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Old 12-19-2018, 12:13 PM   #19
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... The right asset allocation - it depends..........
+1

H.L.Mencken's observation applies:

“For every complex problem, there is a solution that is simple, neat and wrong.”
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Old 12-19-2018, 12:36 PM   #20
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The right asset allocation - it depends..........
... on how well I sleet at night .
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