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Why adjust your AA when you have won the game?
Old 12-15-2016, 05:54 AM   #1
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Why adjust your AA when you have won the game?

So as I get ready to do my once a year rebalance, I like to take the time to reevaluate my AA strategy and investigate any better "mouse traps". As usual, the 2 sides of my brain have a little debate. The logical side looks at historical returns and does a boring conservative analysis that generally says stay the course or perhaps even consider get more conservative because the data will support the more conservative returns with less risk. OTOH, my "I can do better than that" nature and "bond returns look like sh!t" mind set says get more aggressive. I suspect I will compromise with myself by following my logical side with atleast 90% of my assets, but perhaps keeping a little gambling money on the side to feed my greed glands.

So the numbers say you won the game... are you staying the course with a sleepy boring AA or do you justify rolling the dice more?
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Old 12-15-2016, 05:59 AM   #2
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I have a sleepy boring AA, but I roll the dice by market timing with it. No gambling though.
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Old 12-15-2016, 05:59 AM   #3
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I'm inclined to stay the course. In fact, that is pretty much how I'd define "winning the game",i.e. being able to support my lifestyle with a conservative investment approach.

It's a mindset I've had to develop. For me, "winning" means I don't have to agonize over how to maximize returns. I need to earn enough money off the nut to support myself, with an absolute minimum of risk required to do that.
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Old 12-15-2016, 06:00 AM   #4
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Quote:
Originally Posted by DawgMan View Post
So the numbers say you won the game... are you staying the course with a sleepy boring AA...
This ^ because attempts to run up the score don't always end well.
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Old 12-15-2016, 06:20 AM   #5
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This ^ because attempts to run up the score don't always end well.
Well said!
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Old 12-15-2016, 06:22 AM   #6
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Well said!
Yah... but that's no fun!
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Old 12-15-2016, 06:39 AM   #7
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Yah... but that's no fun!
Yeah, but it is safe. You can have fun at Disneyworld. Once you lose enough of the portfolio you can't have fun anywhere.

Don't be greedy.
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Old 12-15-2016, 06:54 AM   #8
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This is a perennial debate. The concept of "stop playing once you have won the game" assumes a static spending desire with no legacy objective. Would be true for many people but not all. The big differentiating factor is risk tolerance. By most criteria I would be viewed as winning the game but still have a relatively high allocation to equities. Why? I enjoy it. I think this will be a successful strategy. I am really investing for the next generation. Hopefully someday she will appreciate it.
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Old 12-15-2016, 07:07 AM   #9
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This is a perennial debate. The concept of "stop playing once you have won the game" assumes a static spending desire with no legacy objective. Would be true for many people but not all. The big differentiating factor is risk tolerance. By most criteria I would be viewed as winning the game but still have a relatively high allocation to equities. Why? I enjoy it. I think this will be a successful strategy. I am really investing for the next generation. Hopefully someday she will appreciate it.
Except that's not the way the question was framed. It is not "stop playing" vs "continue", it's "increase risk" vs "stay the course". Agree there is no single "right" way to approach this.
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Old 12-15-2016, 07:17 AM   #10
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Now that we have won, I see no reason not to consider the long term for our kids. I know everyone's idea of "won" is different. Ours is "We have enough in our bucket to live better than we have for the last 40 years, in even the worse planning scenario" . We have not promised anything specific to our kids and their families, so if we have to use a bit more of it than planned, so be it. So we upped our equities in our AA a bit considering another generation of time.
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Old 12-15-2016, 07:21 AM   #11
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Except that's not the way the question was framed. It is not "stop playing" vs "continue", it's "increase risk" vs "stay the course". Agree there is no single "right" way to approach this.
Valid point, but the concepts are usually debated around a potential to reduce your risk profile. I guess, a better way to say it would be "play less (or more) when you have won the game". I suspect very few people would think about increasing risk once "winning" (as pointed out in the discussion so far). Far more common to go the other way. Really a continuum.
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Old 12-15-2016, 07:38 AM   #12
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I'm 47, FIRE, and have three kids. Here's how I see it, roughly speaking.

Let's say that I decide that for me, 4% is safe and my ideal AA is 80%/20%. But if I end up with more than I need - let's say I get to where 2% supports what I want to spend - then half of my stash is for me and that gets invested at 80/20.

The other half is for my kids. Since (a) they're not living on it and (b) they won't need it for hopefully a long while, it gets invested at 100%.

So I end up at 90%/10%, a SWR of 2%, and in terms of the analogy, I've quit-while-I'm-ahead with my half and continue-to-play-the-game with my kids' half.

In my case I'm not at 2% WR yet, but the idea holds anyway.
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Old 12-15-2016, 07:41 AM   #13
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"Won the game" means that you've reached your final asset size goal and could put all your assets in fixed income and survive the expected decades of your retirement.

Starting in 2012, Bernstein recommended that if you have "won the game" only assets above and beyond what you need to live for the rest of your retirement be invested in risky assets like equities. http://whitecoatinvestor.com/bernste...-win-the-game/

I don't think you mean that, because you are still working. You just feel like you are winning with your current strategy, but want to win faster or bigger.
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Old 12-15-2016, 07:43 AM   #14
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I'm still essentially 60/40, but "having won the game" because I don't need to make withdrawals, I've also thought about upping the equity percentage. I have some cash sitting on the side lines in a stable value fund that I will use to buy on a significant down turn, but my long term strategy is to just reinvest dividends and let my equity allocation drift upwards.
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Why adjust your AA when you have won the game?
Old 12-15-2016, 07:58 AM   #15
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Why adjust your AA when you have won the game?

DH and I have gone through the same exercise this past week. In our case the debate is should we (1) reduce exposure to equities seeing that our cola'd pensions and annuities cover between 80 to 85% of our very padded retirement budget, or (2) stay the course which in our case means keep equities at 55% of the portfolio because our SWR which will hover just below 1% indefinitely, and the higher equity weighting will increase our legacy or gifting ability during our lives.

The fact that we are contemplating this decision at this time is based on a) the current lofty heights of the equity market, b)change in our status starting in February to crossing the threshold into the decumulation phase of our lives (note to self- must add my name to the Class of 2017) and c) we have not changed our AA since 2007. We weighed 3 options 1) drop from 55% to 50% immediately, 2) drop from 55 to 50 in 1% increments annually or 3) stay at 55%. We've decided on door 2, sort of a reverse dollar cost averaging approach.


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Old 12-15-2016, 08:38 AM   #16
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I have two AAs. One is for my IRA, one of my "reinforcements" I won't be tapping into until I near age ~60 which is 6 years from now. It is 50-50 but I have been gradually adjusting the stock portion down as I age and near age ~60. The other is about 60-40 in favor of bonds because I use it to generate the income I need to cover my expenses. But I am more likely to adjust to maintain the monthly income. With the recent run-up in stock fund prices and decline in bond fund prices, I am looking at early next year selling some stock fund shares and buying some bond fund shares (a.k.a. buy low, sell high).
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Old 12-15-2016, 11:41 AM   #17
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I'm staying the course with our 60/35/5 AA and periodically rebalancing. To me, to do this balances our future needs with creating a good legacy for the kids.

I have built in a few tilts to our portfolio... the most notable of which is dialing back on interest rate risk with CDs and target maturity bond funds that mature in 3-5 years. I also avoid government bonds (the old return-free risk thing) and have some high-yield bonds and a couple smallish positions in emerging markets bonds and equities just to make things a little interesting.
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Old 12-15-2016, 11:55 AM   #18
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I generally believe in following the plan I have set out in the past when recent market emotions are not involved. If you are really stuck between two alternatives, you can find a way to split the difference.
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Old 12-15-2016, 12:11 PM   #19
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If I change my AA, it is to adapt to market conditions, and it does not have a lot to do with how much money I have. In other words, I would do the same whether I had $100K or $100M.
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Old 12-15-2016, 12:30 PM   #20
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IMHO boring is good when it comes to investing, stay the course as a wise man once said.
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