30/70 asset allocation is the best overall?

[gerntz]

We were at 50-55% equities since before retirement but have started gradually moving to 60-65% now that SS has started & will bump up again in a few years. I.e., we now have an annuity as a backstop against volatility. We also a bit of steady rental income. Net, seems sensible to take more risk now since our timeframe of need grows shorter. It's in line with this article: How Much Stock Should You Own in Retirement? - WSJ

 

[Fermion]

If your thoughts could be stored on a computer, could that still be you without your body and senses (what good are thoughts or ideas without a physical body and its senses)? Or will your senses get virtualized also, à la Matrix the movie? And what prevents a software virus from polluting your stored thoughts, causing it to crash the computer or enter an endless loop?

And will computing power be so cheap that the thought storage can be provided free to everybody? So that their thoughts continue to post threads on the virtualized ER forum, so they can argue about every little thing till eternity?

And as you mention the cost for iBrain storage, will the cost become so low with advanced technology that our WR will become infinitesimal, allowing our portfolio to grow indefinitely, rendering all this AA and WR moot?

But the most important issue is what will keep ReWahoo's asteroid from wiping out all this wonderful computer storage where our thoughts reside?

I don't think anything can ever be certain or guaranteed. Something bad is going to happen one way or another. It's nature.

I know this was a somewhat tongue in cheek response, but actually most of the *issues* you pointed out can be solved. Sensory input is just electrical signals generated by certain cells (touch, hearing, vision). There are already small steps being taken to restore these senses with electronic versions for people who have lost them. I do not think it a great stretch to imagine the electronic brain connected to a similar system of sensory input.

Redundant storage could be provided (for a cost) on a satellite, the moon, or even another planet.

It is all very sci-fi, but so was the star trek tri-corder just a few decades ago. We now call it an I-phone but it is very similar.

 

[Looking4Ward]

I know this was a somewhat tongue in cheek response, but actually most of the *issues* you pointed out can be solved. Sensory input is just electrical signals generated by certain cells (touch, hearing, vision). There are already small steps being taken to restore these senses with electronic versions for people who have lost them. I do not think it a great stretch to imagine the electronic brain connected to a similar system of sensory input.

Redundant storage could be provided (for a cost) on a satellite, the moon, or even another planet.

It is all very sci-fi, but so was the star trek tri-corder just a few decades ago. We now call it an I-phone but it is very similar.

I have many physician friends, some of whom neurologists, who ponder the future results of bio-engineering. Thoughts, senses, emotion and even awareness are at their most fundamental levels purely electrical impulses that in theory can be emulated, stored, reused and combined. Could we someday see what you describe? I wouldn't rule it out. Someday it could be common practice to use 120 years of age or more as an end point when deciding asset allocations.

 

[Koolau]

I think a better approach would be to go 30/70 with the 70 in a "stable value" fund, like T Rowe Price or something similar - it has an effective duration of 0 and the annual RORs have been much higher than cash - that's probably what I'll be doing when I start drawing down

I'm closer to 30/70 than most of the AAs claimed by this thread's contributors. But, in fact, my non-equities contain relatively low levels of bond funds. As suggested by Big_Hitter, I have a significant commitment to a "stable value" fund held in my 401(k). It's true that such funds have produced relatively small gains compared to equities, but with virtually no volatility. Additionally, I have some less-than-traditional bond "equivalents" such as SPDAs (faithfully cranking out 4.5% interest) as well as I-bonds (old enough to have significant actual interest rates in addition to their inflation sweetener.) Less traditionally, I have a small but significant allocation to PMs, stored in a safe deposit box as well as a contract sale.

I find myself taking the other side of the argument "If you have pension or SS or other annuity income (which I do), you can allocate more to equities." That's certainly a valid viewpoint, but I would say "I no longer need the additional potential provided by a large commitment to equities." I prefer a lower "terminal value potential" and a less volatile "ride". Assuming inflation remains reasonable, I see no reason why this AA should not work for me since my WR is well below 4% and my time horizon is unlikely to exceed 30 years (more like 20 or, optimistically, 25.) If inflation begins to rear its ugly rear, I may be forced to rethink my AA. In the 10 years of my ER, my port has never suffered a numerical loss, even considering withdrawals and significant Roth conversions. I haven't tracked inflation closely enough to determine if my purchasing power has ever taken a hit, but I'm sure such a hit has been small if it exists. I consider my primary residence only as a back-up in my portfolio.

Clearly, I could have played this all a lot better (especially in hind sight, heh, heh.) I could probably have nearly doubled my stash had I been more into equities starting 20 years back and maintaining a 50/50 AA or higher (equity) allocation. But, I've had the money I needed to do the things I wanted. Those things I've "given up" such as late model cars, world travel, larger more exclusive housing, etc. are things I never particularly aspired to - though if wishes were horses (or Teslas) I suppose I would opt for more consumer "goodies" - or more likely, first class air travel instead of cattle car, er, I mean coach.

If I'm making a point, it would be that "whatever works for me" works. I understand the risks (in my case, the biggest is probably run-away inflation.) Still, I've built in back-ups (to my back-ups). In short, I believe my comfort level is better served by my current AA than it would be with a more traditional ER-level AA. How one feels about one's retirement is often more important than what one owns in retirement. That's my story and I'm sticking to it - for now, but YMMV.

 

[ERhoosier]

FWIW, I think it is probably that the 30/70 ratio is based upon a person whose retirement is mostly dependent on one's personal financial investments with minimal pension/annuity/rental-income, etc. YMMV.

Excellent point!
Many ignore pension/annuity in their AA analysis.
But having owned rental property in the past, I would not lump rental income with P/A's. Net rental income can be very volatile (with large unexpected repair expenses, extended vacancies, etc.).

 

[mathjak107]

the real question isn't the sources of the income but the withdrawal rate they want.

someone can have a 60k pension and still need a 4% withdrawal rate from savings so the rules and backtesting still apply. on the other hand a 2% withdrawal rate and no pension would have back tested fine with 30% equities.

 

[tuixiu]

If you are 'deep' within 100% SWR territory, then looking at pass/fail isn't going to be very sensitive to AA. You won't really get much information from that kind of a comparison.

Yep, better way to see AA impact on a portfolio's success rate is to get it as close to 99.99% success as possible, then start fiddling.

 

[audreyh1]

the real question isn't the sources of the income but the withdrawal rate they want.

someone can have a 60k pension and still need a 4% withdrawal rate from savings so the rules and backtesting still apply. on the other hand a 2% withdrawal rate and no pension would have back tested fine with 30% equities.

Agreed!

Whether or not someone has a pension has nothing to do with how much they might need from their investments.

If someone needs 4% or whatever from their investments beyond what their pension provides, then they need to use the appropriate allocation for meet their time frame.

 

[Animorph]

Yep, better way to see AA impact on a portfolio's success rate is to get it as close to 99.99% success as possible, then start fiddling.

That should work for a Monte Carlo simulation, but for FIRECalc that would be selecting just one failure case to work on. It might be just a high inflation scenario. I wouldn't base AA selection on that.

 

[NW-Bound]

Your post made me realize that we have been talking all these years about the worst case scenarios in the past that a retiree had to contend with. Namely, the high-inflationary period starting in 1966 was the worst, followed by the Great Depression whose effects on the stock market was mitigated by its deflationary nature.

But, as they say, we are spending too much time worrying about the "known unknowns", but we may get hit by an "unknown unknown".

No, I am not bringing up REWahoo's asteroid, but am thinking of some politico-economic collapse that has never been experienced in the US, hence totally unplanned for. What if the drought in California extends to all Western states, resulting in half of the US becoming the bleak landscape in Mad Max movies? Or an epidemic that we no longer can dodge?

No, I am not staying up late at night worrying about this. I am just saying there's only so much we can worry about AA and WR. There's a lot of uncertainties out there, and what I am trying to do is to eat and drink and be merry while I still can.

 

[Running_Man]

So do you think the stock market would take such a rapid increase in stride

No I believe if interest rates were to start rapidly increasing stock losses would be greater than losses in 5 year treasuries

 

[mathjak107]

our comfort zone is 45-50% equities , success rates all look good in firecalc and the fidelity rip calculator so that is the plan.

i am not convinced that 30% equities and 70% bonds are a good thing to have going forward , there is no historical data on low rates and high valuations so going by what was may not mean much at all.

equities and cash may even be the new mix to run with or even equities/annuities as a cash/bond proxy .

 

[rayinpenn]

I believe your asset allocation should be contingent on just how much you have and how much you'll spend. For example if we take a couple with 2.2 million in investable assets and they invest $200k in fixed income and $2mil in low cost dividend focused mutual funds (IDV, DVY) and the yield is 4% it would throw off $80k in tax advantaged dividends (dividends receive favorable tax treatment) - coupled with their social security that couple could live well on the payout.

Bam a market correction happens - I say don't worry about the market value of the portfolio. Worry about the dividend stream. Do all the dividends go away? No they do not! They drop a little hence the $200k Safety net. What happens? Ten years later the portfolio is worth 3 million and the dividend stream is $120k.

I believe If you can live on the earnings the rules change...

Sent from my iPad using Tapatalk

 

[brewer12345]

But, as they say, we are spending too much time worrying about the "known unknowns", but we may get hit by an "unknown unknown".

No, I am not bringing up REWahoo's asteroid, but am thinking of some politico-economic collapse that has never been experienced in the US, hence totally unplanned for. What if the drought in California extends to all Western states, resulting in half of the US becoming the bleak landscape in Mad Max movies? Or an epidemic that we no longer can dodge?

No, I am not staying up late at night worrying about this. I am just saying there's only so much we can worry about AA and WR. There's a lot of uncertainties out there, and what I am trying to do is to eat and drink and be merry while I still can.

I attempt to hedge some of this, but of course one can only do so much. 6 months of food in the basement, plenty of ammo and a mortgage on the house (if where I live turns into Detroit, good luck to the mortgage holder) all help me with a bit of comfort to cut off the tail of the distribution. Happily, my hobbies and interests translate loosely to "prepper" (hunt, fish, camp, hike, have fun making all sorts of things people take for granted at the store, forage, etc.). Mostly it just helps to recognize that life is fleeting, so go live it.

 

[marko]

No, I am not bringing up REWahoo's asteroid, but am thinking of some politico-economic collapse that has never been experienced in the US, hence totally unplanned for. What if the drought in California extends to all Western states, resulting in half of the US becoming the bleak landscape in Mad Max movies? Or an epidemic that we no longer can dodge?

No, I am not staying up late at night worrying about this. I am just saying there's only so much we can worry about AA and WR. There's a lot of uncertainties out there, and what I am trying to do is to eat and drink and be merry while I still can.

I've posted the following a few times before:

"The sixties had us digging bomb shelters in our backyards, stocking up on food and readying for nuclear attack.
If that didn’t happen, we were going to be all starving from massive overpopulation within 20 years.

The seventies brought us warnings about running out of oil. By 2010, all the oil was supposed to be gone and we were going to be living by candlelight and riding bicycles.
The ‘albedo effect’ was going to bring about global cooling not seen since the ice age, which, coupled to the demise of oil, one would assume we’d all freeze to death.

In the eighties the AIDS virus was “a mere mutation or two” away from being able to be contracted as easily as the common cold or flu.

The nineties saw us worrying about global warming, which then became climate change.

More recently, we had the BP Gulf oil spill which many billed as “the greatest environmental disaster in the history of mankind”.

I'm not saying that many of these issues did not impact certain people, but the severity and “end of life as we know it” never seems to materialize. "

I just can't too worked up about a lot of 'worrisome' things of late. Respectfully, maybe I just don't watch enough TV

 

[rayinpenn]

Allocation based on percentage isn't for everyone.
Joe (63) and Jen (62) have a cool million of investible assets - they have $100k in cash equivalents and $900k in equities that are yielding 4% or $36k. They feel pretty lucky the state jobs they retired from included health care (rare these days indeed) they have no debt - they traded in their 3000 square foot colonial for a 1700 square ft new ranch. They expect their housing expenses to be very low in there rural community. Joe has a green thumb, loves to grow veggies and an acre and a half to work with. With their modest pensions, social security and their dividends they run a very healthy surplus each month.

Jane has a business degree and is an astute ETF and mutual fund dividend investor. "I don't care how much my portfolio is worth I just care about the those dividends. She noted that during the credit crisis her dividends dropped slightly but not enough to panic. Janes Mother and Aunt are still living so she hopes to be around for a long time. If I left it in fixed income inflation will chew me up...

It's all about the income stream not how a fickle market values my portfolio.

 

[haha]

It's all about the income stream not how a fickle market values my portfolio

Not according to 90% of the posters here, and a similar % of popular gurus. Can you show us how you would defeat their arguments?

Ha

 

[gcgang]

http://ycharts.com/indicators/sp_500_dividends_per_share

This only goes back about 10 years, but shows that dividends on the S&P 500 tend to grow, having more than doubled in the last 10 years.

Even during the 2008 "crisis", dividend income didn't fall much.

So I think the guy who ignores market value and focuses on his (historically growing) income stream, will do better than most.


Sent from my iPhone using Early Retirement Forum

 

[mathjak107]

age old discussion and wrong thinking as well. it is all about total return -period.

lots of high yielding reits are paying out money that was ear marked for more properties or worse borrowing money to sustaiin the dividends and increase them.

if income and or share price are not growing and offsetting each other you are are down ,end of story.

 

[rayinpenn]

Not according to 90% of the posters here, and a similar % of popular gurus. Can you show us how you would defeat their arguments?

Ha

I beg to respectfully disagree most of your so called gurus are concerned with portfolio valuation. I am not since my focus is on the dividend stream. Most people will use the 4% withdrawal rule - but what if your portfolio throws off a steady 4.5 % guess what? You never run out of money. Dividends rise with inflation and over time do does your portfolio. (But again I don't care since it is the dividends I am interested in).

No doubt I takes a cool head to ride out the storms but if those dividends are reminders that no matter what the market says there are company's out there providing you electric, water, communications services, entertainment and they are still paying dividends. Still This equity heavy strategy isn't for everyone.

Guru:? Exactly what makes a guru? Experience? I've been investing for a lifetime (I am sixty) and 35 years in banking. education? (BS, MBA, MS) success investing? Absolutely.. When I got my first dividend check an eternity ago I was hooked. Gurus. Hmmmm did you ever hear of a firm called long term capital management? They had a Nobel prize winning Harvard phd and some very smart people - guess what not only did they go bankrupt they nearly brought the country down. Gurus scare me.

Fred(Freddie 60) and Alice (57) are salt of the earth thrifty people. Fred always made a respectable living working 30 years for the same firm. They always lived below their means and saved first. Fred inherited his Dad's do it your self mantra. - swing a hammer, hang a door, fix the toilet, hang a light, etc., This coupled with Alice's coupon clipping and never buy unless it is on sale attitude and with their habit of hanging on to windfalls (bonus, tax returns etc.,) helped the couple amass a size able portfolio of 3.2 million with no debt.

Fred is a whiz with spreadsheets and tracks his portfolio with an eye towards the dividend/interest stream currently at $120k. Those dividends coupled with social security. should make for a secure retirement. Jack is cautious as he keeps $300k in cash like instruments.

I've tracked down turns before - dividends were impacted but no where like market valuations. "My $300k and social security should see us through any 5 to 7 year tuff patch"

Conventional wisdom would have the couple with 1.5 million at least in fixed income. Fred says "if I listened to conventional wisdom we wouldn't have 3 million! You know there are 50 million 401ks in the country and less than 1% have a million dollars in them. Most advice out there isn't for people like us."

 

[eta2020]

I beg to respectfully disagree most of your so called gurus are concerned with portfolio valuation. I am not since my focus is on the dividend stream. Most people will use the 4% withdrawal rule - but what if your portfolio throws off a steady 4.5 % guess what? You never run out of money. Dividends rise with inflation and over time do does your portfolio. (But again I don't care since it is the dividends I am interested in).

I also focus on dividend stream and agree with all you wrote except 4.5% dividend yield. What kind of diversified portfolio throws that kind of dividend yield?

I am getting more like 2.1%-2.3%

 

[rayinpenn]

I also focus on dividend stream and agree with all you wrote except 4.5% dividend yield. What kind of diversified portfolio throws that kind of dividend yield?

I am getting more like 2.1%-2.3%

Mix Idv, dvy, vz, so and a few others others ...if you portfolio is not in a taxable account look at dogs of the dow maybe dome shifting is in order...

 

[rayinpenn]

age old discussion and wrong thinking as well. it is all about total return -period.

lots of high yielding reits are paying out money that was ear marked for more properties or worse borrowing money to sustaiin the dividends and increase them.

if income and or share price are not growing and offsetting each other you are are down ,end of story.

Who said anything about investing in high yielding equities? It's true I do have some O the monthly dividend company but it's just for fun.. I like those dividends on the off months... Naah I avoid high yield stuff.

If income stays relatively constant through a downturn why would I care if "I am going down" won't it come back? It always has- hasn't it? I'm living on that income if the portfolio is a dollar or a million dollars if the income stays constant why should I care!

 

[eta2020]

Mix Idv, dvy, vz, so and a few others others ...

That is not diversified.

And you either get high dividend growth or high dividend yield. You do not get BOTH high yield and high growth at very same time.

Personally I like high quality companies with dividend growth like: SCHD or VIG ETFs and they are far far from 4.5% yield. They are more like 2.3%.

Though DVY that you mentioned at 3% yield did pretty good growing it's yield over a last 5 years......

 

[rayinpenn]

That is not diversified.

Hmmm how so.? I said others... And Jeeze how many stocks are in IDV?

And you either get high dividend growth or high dividend yield. You do not get BOTH high yield and high growth at very same time.

Who said anything or implied about high growth? My dividend stocks, ETFs are steady eddies ... Again I'm interested in income stream and dividends do go up!
I'm off to work ....post more details later.