Too conservative too early...how to boost equity sensibly

[mikes425]

Hi, I recently described my overall assets and goals in another thread so this is an offshoot of that. I am 60, self employed freelancer. My asset allocation on a PF of approx. 1.92M as of this date - has been at about 40% equity, 60% fixed income since about 2009.. I regret that I shifted to this conservative ratio as early as i did. Another case of impulsiveness and lack of discipline after the 2008 correction where like some, i had been allocated higher in stocks but never got back up to over 50% equities and, in collaboration with an hourly FA i have worked with off and on 'as-needed' in this time period,

We are now, as i say, closer to the 40% equities range. I believe I have the risk tolerance to increase equity exposure to 50%.... I have admittedly rather foolishly jumped in to some individual stocks in recent years, only to sell them too soon rather than leave them alone. For example, even since the December dip, I ventured in to a small lot of AMZN...and before that, FB... only to wind up getting out of them on the notion that I should consolidate to fewer holdings overall, because these positions were so small relative to the overall mostly fund-based portfolio that the $ might be better invested elsewhere within the portfolio.

I guess my bottom line here is, if i wanted to gradually increase equity exposure - to generate more growth vs just sort of 'plateau-ing' and deriving more income from dividends going forward - what might be a good way to gradually make that happen.

I could post a holdings list here to offer specifics of what currently comprises my taxable and tax-deferred accounts. Just feeling a bit frustrated with the "FOMO" factor kicking in during the market upswing YTD.

Rather than kick myself over hindsight, want to look at this positively and add to what would be the most 'appropriate' equity sector(s) at this point... or otherwise, would it be wiser to simply wait for another opportunity like December i.e. get in when the market is not so "expensive" or highly valued?

Thanks for any thoughts. Hopefully i can log back in to respond - i am having problems getting my password reset - i keep requesting it but the email is not being sent to me. Kind Regards, Mike in Mich

 

[Sunset]

Congratulations on having a good sized amount of savings.

Some people would be fine with your allocation, sure you missed out on the super rising stock market, but with this allocation, you will miss out on the super drop the market might make, or at least do fine should it flatten out for the next 20 years.

I have been the opposite, super aggressive 90% stock, these days I am doing the opposite of what you are desiring, I am selling some stock, and buying fixed income in preparation for the next market plunge.

Now for the critique:
You seem to do the classic wrong moves:
2009 - reduce equity and go conservative , meaning sell low buy high.
Now that the market is topping out, you want to buy equity, meaning buy high.
When the market falls again (history suggests it will within a few years by a big amount) you will again be tempted (panicked) to sell equities and go fixed income, meaning sell low again.

I suggest you stop. wait 3 years, whenever the market drops 10% sell 2% of your fixed income, and buy equities. If it drops 20% - sell 4%.
Historically, the market will dip 10% very often, so it's nice but not a once in a lifetime sale.

For equities, I generally stick with VTI (broad etf, super low fees) as I cannot predict which company will do well in the next few years.

 

[mystang52]

I don't know what level is "too conservative" but maybe I fall into that category. I'm at 40% equities and am very happy there. I love to see my portfolio values go up when the market goes up, but for some odd reason don't like it when the values go down if the market goes the other way. By every measure I have more than enough so I see no reason to increase my equities allocation. If you are happy otherwise, maybe you too should just hold your current position.

 

[pb4uski]

1. Forget individual stocks... even the pros can't beat the market in the long run.... get your head around to the idea that market returns are fine... sell your individual holdings and reinvest in a total stock market index fund like VTSAX or VTI.

2. To get from 40/60 to 50/50 you have a couple options. First would be to just go all in in one day.... studies suggest that is the smart play but for many people it woudl be hard to do with domestic equities near all-time highs. If all in is not comfortable to you, commit to 1/2 of a percent a month for 20 months... and in 20 months you'll be at 50/50... then just stay there and do not succumb to selling when you get nervous.

DO NOT try to wait for a dip... just make a plan and work the plan.

 

[copyright1997reloaded]

1. I have a lot of individual equities. My advice to you? Stop trying to 'pick' stocks.
2. Your investment history suggests you are prone to fear and greed. You are now in a FOMO stage. Ask yourself this question: What were your thoughts in terms of buying securities around December 25, 2018? If you didn't buy some equities then (or at the beginning of the year 2019 as part of a re-balance), why not? Your HONEST appraisal of yourself and your risk tolerance in terms of a self-assessment is important. (Note that it isn't important at all that you answer me.)

If you want to up your % of equities invested, my advice is to do so very slowly. Maybe a 1% per quarter shift. That way, when the market turns down (AND IT WILL AT SOME POINT), you might not be as inclined to panic and sell.

 

[foxfirev5]

By stashing most of our equities in Roth accounts and never rebalancing I am hoping for a rising glidepath for our 40% equity stake. Our tIRA's provide income and dividends with RMD's later. This will also give our equity exposure a boost as those fixed income accounts will probably decline slightly if we live long enough.

If the equity markets were to go too far too fast, ie more than a 5% rise in equity allocation in a year, we'd peel some off. Anyway we'd probably never go over 55% or so equity.

 

[jollystomper]

To the OP, I am also around 40% equities at this point. I moved to this the beginning of 2018 as I knew I would be retiring that year. If I were to increase my equity position - a consideration if my retirement expenses stay lower than what I forecast, I would *NOT* go into individual stocks, but stick to broad index funds or ETFs.

Okay, I *might* play with a few individual stocks, but that would only be with a very small percentage (currently about 1% of my assets are in individual stocks, I would consider at most doubling that) whose losses I could tolerate.

 

[kjpliny]

Do nothing..when the market corrects, you'll find your portfolio at about 50/50. lol

 

[Al18]

Congrats on your 1.92 M nestegg. I see nothing wrong with 40% stock allocation. If you want to buy more stocks, I would stick with index funds or low cost mutual funds and wait for a drop of at least 15% to buy.

 

[pjigar]

If 40% equity allowed you to sail out of 2008 then I would not change it radically. You risk tolerance doesn't change much but your perception about your risk tolerance changes based on the market cycles! If you decide to change the allocation then I would just do it in one cold sweep, boom.

 

[audreyh1]

Congrats on your 1.92 M nestegg. I see nothing wrong with 40% stock allocation. If you want to buy more stocks, I would stick with index funds or low cost mutual funds and wait for a drop of at least 15% to buy.

Wait for a drop of 15% when? After it’s already run up 15% or more? Better to pick a new AA and average in - gradually shift. This can be done by rebalancing to increase equity exposure say 2% each year over 10 years. This will naturally adjust to market fluctuations.

 

[audreyh1]

If 40% equity allowed you to sail out of 2008 then I would not change it radically. You risk tolerance doesn't change much but your perception about your risk tolerance changes based on the market cycles! If you decide to change the allocation then I would just do it in one cold sweep, boom.

Sounded like 40% was adopted after the 2008 hard times.

 

[mrfeh]

Rather than kick myself over hindsight, want to look at this positively and add to what would be the most 'appropriate' equity sector(s) at this point... or otherwise, would it be wiser to simply wait for another opportunity like December i.e. get in when the market is not so "expensive" or highly valued?

https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

Given your post, I am concerned you won't be able to stick to a plan. The FOMO and market timing comments indicate you let emotions affect your actions.

 

[VanWinkle]

I agree with pb4 on this, gradual adjustment on a time table would be the best method for your emotions. Also, invest in a total market index instead of Individual stocks. Also, look at financial news a little less, it will help you stay the course. Investing should be boring if done correctly.

 

[target2019]

Hi, I recently described my overall assets and goals in another thread so this is an offshoot of that. I am 60, self employed freelancer. My asset allocation on a PF of approx. 1.92M as of this date - has been at about 40% equity, 60% fixed income since about 2009.. I regret that I shifted to this conservative ratio as early as i did. Another case of impulsiveness and lack of discipline after the 2008 correction where like some, i had been allocated higher in stocks but never got back up to over 50% equities and, in collaboration with an hourly FA i have worked with off and on 'as-needed' in this time period,

We are now, as i say, closer to the 40% equities range. I believe I have the risk tolerance to increase equity exposure to 50%.... I have admittedly rather foolishly jumped in to some individual stocks in recent years, only to sell them too soon rather than leave them alone. For example, even since the December dip, I ventured in to a small lot of AMZN...and before that, FB... only to wind up getting out of them on the notion that I should consolidate to fewer holdings overall, because these positions were so small relative to the overall mostly fund-based portfolio that the $ might be better invested elsewhere within the portfolio.

I guess my bottom line here is, if i wanted to gradually increase equity exposure - to generate more growth vs just sort of 'plateau-ing' and deriving more income from dividends going forward - what might be a good way to gradually make that happen.

I could post a holdings list here to offer specifics of what currently comprises my taxable and tax-deferred accounts. Just feeling a bit frustrated with the "FOMO" factor kicking in during the market upswing YTD.

Rather than kick myself over hindsight, want to look at this positively and add to what would be the most 'appropriate' equity sector(s) at this point... or otherwise, would it be wiser to simply wait for another opportunity like December i.e. get in when the market is not so "expensive" or highly valued?

Thanks for any thoughts. Hopefully i can log back in to respond - i am having problems getting my password reset - i keep requesting it but the email is not being sent to me. Kind Regards, Mike in Mich

Mikes425,
I recall your posts on M* over the years, concerning your portfolio.

The enemy of your plan is the search for a new plan. That is something that sticks in my own head when looking at FA advice posted here and elsewhere. I'm not sure where I first heard it, maybe at B*heads.

I don't have any advice for you about increasing equities, but want to point out that I have read that going into ER, some are more comfortable with less equity, until they settle in after a few years.

Another thing I recall is that you have many funds. If that is still the case, then consolidation is your friend. You can simplify, and at same time increase equity position gradually.

 

[audreyh1]

Do nothing..when the market corrects, you'll find your portfolio at about 50/50. lol

Which market? The equity market? Kind of [-]hard[/-] impossible to go from 40/60 to 50/50 after a major equity market correction.

 

[target2019]

Wouldn't an equity correction take AA in opposite direction?

 

[kjpliny]

Brain fart. Yep equity percentage would decrease with a broad market correction. I'd still stay put...makes sense to me to become more conservative as you get older. I don't have FOMO syndrome though.

 

[ncbill]

Mike, what are your goals for that money?

If you don't care about leaving a legacy for heirs there's no real difference in survivability (i.e. risk of outliving your money) between a 40/60 & 60/40 portfolio, so there would be no need for a change.

If you want to leave money to heirs, then yes, a higher equity allocation will statistically result in a higher portfolio ending value.

 

[target2019]

I've negated any FOMO by acknowledging I am OYNTPUD (One year nearer to permanently under dirt).

 

[Spanky]

In retrospect, I shared OP's sentiment about not having a higher equity allocation since 2008. Had we shifted our AA to 100% in S&P500, our portfolio would have been about 4x as opposed to 2x from our AA of 55/45. However, I am quite satisfied with our return, keeping in mind that the dark days of 2000 & 2008 could return at any time. A higher equity allocation is more appropriate for those that are still in the accumulation stage to ride out a prolonged market decline, if any. My philosophy is to stop looking back on anything in life, to enjoy the present, plan with realistic goals for the future and be adaptable to changes.

 

[Out of Steam]

I have read the theory that one should lower their stock allocation near retirement age, but could raise it higher when they were somewhat older.

The idea seemed to be that one had the highest balance and more years to need the money when retirement begins, therefore the highest risk. The retiree may also be too young to have access to Social Security if the stock market went wrong.

Unfortunately, I did not save the source at the time.

I found a discussion here, calling it a "rising equity glide path". This may have been where I saw it first.

https://www.kitces.com/blog/should-...is-a-rising-equity-glidepath-actually-better/

 

[audreyh1]

I think a Kitces maps out an elegant way to gradually increase equity exposure during retirement as you get past the initial sequence of events risk period. So it’s definitely worth read if you feel you entered retirement with too low of an equity exposure.

The simplest thing to do is to spend more from your fixed income in the early years, which is what he suggests. He gives guidelines.