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Old 08-01-2014, 05:40 AM   #41
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Originally Posted by 38Chevy454 View Post
I guess I have a much different perspective, to me 80/20 is too conservative for a young person. Should be higher equities IMHO.
The thing is, anything beyond 80/20 doesn't do much to increase returns, while adding significantly more risk.

A quick Google search pulled up this Vanguard study:
Portfolio allocation models

They used historical data for the time period 1926-2013, for various different indices. You can see it explained at the bottom of the page in fine print, if you are interested in the details. Moving from 80/20 to 100% stocks adds just 0.6% to your annual return (9.6% -> 10.2%), while increasing the biggest annual loss by -8.2% (-34.9% -> -43.1%).

OTOH, it probably doesn't make much difference for very young investors either way. They will likely not have saved much, so there's little to be lost, and little to be gained.

Chevy, is this your general perception, or is it maybe influenced by the currently bleak outlook on bonds? Personally, I don't hold any bonds at the moment; all my fixed income investment are in CDs.
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Old 08-01-2014, 05:44 AM   #42
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Plus, I don't know if the study considered this in any way (probably not), but going 100% stocks deprives you of the possibility to rebalance. Rebalancing should have some small positive effect on your returns as well.
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Old 08-01-2014, 09:13 AM   #43
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I guess I have a much different perspective, to me 80/20 is too conservative for a young person. Should be higher equities IMHO. Use some lower cost mutual funds, have diversity between large cap, small cap and international. Maybe throw in some value type funds, or specific sector funds even. But almost no bonds, unless the person is too risk sensitive. YMMV
What I suggested to my daughter, just now in her first professional job is exactly that. My warning on risk sensitivity was more blunt: Don't do it if you're going to get spooked out WHEN it goes down (not IF it goes down).

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The thing is, anything beyond 80/20 doesn't do much to increase returns, while adding significantly more risk.
I'll admit to not reading the link, but "not much" adds up over the long haul...we all agree on zeroing in on low cost funds for tiny fractions of a percent, yes?

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Plus, I don't know if the study considered this in any way (probably not), but going 100% stocks deprives you of the possibility to rebalance. Rebalancing should have some small positive effect on your returns as well.
Your weekly or bi-weekly paycheck dollar cost averaging is your time to turn cash into equities. You're always "rebalancing" into equities with each paycheck.

Not saying this is 100% correct for everyone, just MHO. I even told my daughter, if you think the financial system might completely fall down before you retire, then saving anything more than enough to smooth the spending bumps is a fool's game. Nobody really knows. We all hope the house of cards continues to stand, and we spend many hours noodling on how to optimize on that.
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Old 08-01-2014, 10:01 AM   #44
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Chevy, is this your general perception, or is it maybe influenced by the currently bleak outlook on bonds? Personally, I don't hold any bonds at the moment; all my fixed income investment are in CDs.
It is kind of both my general perception and my observation of bond results. I do agree there are other non-bond fixed income type investments; but given the low interest rate environment we are in, it is hard to get returns that will even keep up with inflation. As interest rates (eventually) rise, it is only bad for bonds in general.

I guess I am just not risk averse and so have confidence in the long-term results of the equity markets. Been investing in equities since I started real job out of college and have stayed that course even now, at 50 and nearly 100% equities for me. Still working unfortunately for now, but will probably become a bit more conservative once not in the saving/accumulation mode. However my thought is to have sufficient cash that a small correction does not cause any concerns. So I guess the cash portion would be considered the fixed income portion.
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Old 08-15-2014, 01:54 PM   #45
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Another word of advice I can provide from experience. I got caught up in my portfolio value increasing constantly. Most of the increase in value was from my contributions early on. Don't fret when the value of your portfolio doesn't grow as fast as you like. Keep reminding yourself that you are in the accumulation stage. You want stocks/funds to stay cheap while you are buying them. Look at the share quantity column of the portfolio. The total portfolio value will take care of itself with time!
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