AA Question - How would you handle?

[madatrub]

Have a question for the group with regards to asset allocations...

Background: Me and SO are pretty risk adverse. Ive been micromanaging our 401ks pretty closely since late 2019. Went from about 80/20 AA back then, and by Feb 2020 was all cash (got lucky with covid but read the tea leaves with what I was seeing in italy/china early on). Back in to 50/50 AA from S&P 2600 until about 4600, then back out to all cash, missed the run to 4800, but also missed the drops down to 3600. Got back in at about 33/66 AA around 4000 and most recently pulled everything back out last week. Now at all cash (all cash in 401k is stable fund, fixed assets like 2% YTD performance. )

During this timeframe, my company also has changed 401k providers, so most of my online statements are gone, so its hard to gauge what my true % gain has been since 2019 with all the jockeying in and out. I'm probably up slightly versus had I just stayed 80/20 AA back in 2019 and just never touched it. However, its tiring and stressful. I kept making moves out of fear (Covid then Ukraine then Inflation then Recession woes), it feels like our world is so wrapped up in fear, alarmism, and safetyism, and ive struggled with pulling the trigger.

How would you guys go about getting back into this market in 401ks such that we end up back close to 80/20 AA. Would easing in over time, say making 10% moves over a period of 6-8 months make more sense then just making a single change and walking away? Should I even be targeting 80/20 considering how risk adverse I am?

Our time horizon is FIRE in the next 7-10 years, but I do have some significant fears about a market pullback in the next 6-12 months.

Thoughts?

 

[COcheesehead]

Stop watching/reading the news would be my first step.

I would then use any of the popular planning tools and find an AA that first meets your goals and fits your risk profile. Everything else is just jerking you and your portfolio around. Maybe 80/20 is too aggressive for you, who knows.

Then I would suggest patience. My head spun just reading your post with all the ins and outs.

 

[RetiredAt49]

Well I retired at age 49 with an AA = 100% equities (Excluding some rental properties). Why? We have over 200 years of historical stock market data and the WORST 30 year rolling period produced a 7.8% annual return. Think about it… we’ve had wars, major world events, recessions, financial meltdowns, you name it and the worst annual returns over any rolling 30 year period was 7.8%.

Our all stock portfolio is up 30% YTD. Stop trying to time the market. Trust in the data. Stop looking at your portfolio every hour/day/week and chill. Just my .02

 

[madatrub]

Stop watching/reading the news would be my first step.

I would then use any of the popular planning tools and find an AA that first meets your goals and fits your risk profile. Everything else is just jerking you and your portfolio around. Maybe 80/20 is too aggressive for you, who knows.

Then I would suggest patience. My head spun just reading your post with all the ins and outs.

Our retirement timing based off of essentially what I could make on fixed assets, its super conservative. 3%. (6% - 3% inflation)

The news thing I'm working on. Ive pretty much shut down all social media accounts and we just cut the cord on cable so no more local news.

 

[madatrub]

Well I retired at age 49 with an AA = 100% equities (Excluding some rental properties). Why? We have over 200 years of historical stock market data and the WORST 30 year rolling period produced a 7.8% annual return. Think about it… we’ve had wars, major world events, recessions, financial meltdowns, you name it and the worst annual returns over any rolling 30 year period was 7.8%.

Our all stock portfolio is up 30% YTD. Stop trying to time the market. Trust in the data. Stop looking at your portfolio every hour/day/week and chill. Just my .02

Ya Im talking specifically 401k. Ive pretty much been in specific equities in my after tax accounts. and doing well. Not as good as 30% YTD, but our 3 yr return is over 200%

 

[COcheesehead]

Our retirement timing based off of essentially what I could make on fixed assets, its super conservative. 3%. (6% - 3% inflation)

The news thing I'm working on. Ive pretty much shut down all social media accounts and we just cut the cord on cable so no more local news.

I wouldn’t think of going to that point unless you feel you can overfund retirement. I think you are dialing it back too early.

Google Kitces’ bond tent strategy and start thinking about it about five years out. You might be the perfect candidate for that type of strategy. I used it. It saved my substantial portfolio through two bear markets right after I retired, ‘20 and ‘22. I have more today than the day I retired in ‘20 and that includes pulling almost $400k out.

100% equites works if you have other sources to counter SORR. I wouldn’t wade into retirement counting on a 30 year return. We all may not have that long.

 

[madatrub]

I wouldn’t think of going to that point unless you feel you can overfund retirement. I think you are dialing it back too early.

Google Kitces’ bond tent strategy and start thinking about it about five years out. You might be the perfect candidate for that type of strategy. I used it. It saved my substantial portfolio through two bear markets right after I retired, ‘20 and ‘22. I have more today than the day I retired in ‘20 and that includes pulling almost $400k out.

100% equites works if you have other sources to counter SORR. I wouldn’t wade into retirement counting on a 30 year return. We all may not have that long.

If I run scenarios of returns at "normal" 7-10%, it probably shorterns time to FIRE by a few years lol, so I'm not going to complain.

Thanks for the bond tent strat info. I'll look into it.

 

[SecondCor521]

Are you done market timing? Are you sure? How do you know?

 

[DrRoy]

I pick one AA based on my own scale of portfolio value and hold it. Currently about 54%.

 

[RetireBy90]

How would you guys go about getting back into this market in 401ks such that we end up back close to 80/20 AA. Would easing in over time, say making 10% moves over a period of 6-8 months make more sense then just making a single change and walking away? Should I even be targeting 80/20 considering how risk adverse I am?

Our time horizon is FIRE in the next 7-10 years, but I do have some significant fears about a market pullback in the next 6-12 months.

Thoughts?

I would pick a time period to get back to your AA, say 1 year. Then I would buy in with 20% of your portfolio each quarter for the year. You could do a 2 year with moving 10% each quarter. So if your portfolio is $100K, buy $20K of equities each quarter or $10K for 2 year plan.

 

[COcheesehead]

Most of the data I have read shows a lump sum investment usually out performs dollar cost averaging IF you already have the lump sum to invest. Why? The market generally goes up.

 

[Montecfo]

Well I retired at age 49 with an AA = 100% equities (Excluding some rental properties). Why? We have over 200 years of historical stock market data and the WORST 30 year rolling period produced a 7.8% annual return. Think about it… we’ve had wars, major world events, recessions, financial meltdowns, you name it and the worst annual returns over any rolling 30 year period was 7.8%.

Our all stock portfolio is up 30% YTD. Stop trying to time the market. Trust in the data. Stop looking at your portfolio every hour/day/week and chill. Just my .02

And what about the worst 5 or 10 years? Retirees no longer have lots of 30 year horizons.

 

[COcheesehead]

And what about the worst 5 or 10 years? Retirees no longer have lots of 30 year horizons.

Yep, well said.
SORR is real and real hard to recover from.

 

[RetiredAt49]

And what about the worst 5 or 10 years? Retirees no longer have lots of 30 year horizons.

OP says they plan to FIRE in the next 7-10 years (didn’t mention age) so I assumed they are in their late 40’s or early 50’s so I can only assume they have at least a 30 year time horizon - probably more like 40+ more years.

 

[jollystomper]

To the OP, if there is anything I have learned in my almost 40 years of having a 401K, is that there will *always* be something to "scare" the market . Watching the market plunge 23% or so in one day in 1987, and seeing the subsequent impact on my next 401K statement was not a pleasant thing, and many of my colleagues rushed to get out of stocks in their 401Ks. Fortunately I did not do the same. In truth, that experience helped me remain calm down the road.

Do you want to go back to 80/20 AA out of FOMO with the market conditions, or is that your real comfort level? For example, imagine you holdings at 80/20 AA. Then imagine what they would look like of the market fell 50%. Look at the actual estimated dollar value - many think they can stand "just" a 20% plunge, until they see the actual numbers that impacts their investments. Would you still feel comfortable and sleep well at night?

Before you put any back in the market, really think about what AA you would be comfortable with to not temp you back to your past gyrations. Just the fact that you are still worried about a pullback in the next 6-12 months shows that 80/20 might not be good for you. What happens in the next 6-12 months does not matter if you horizon is truly 7-10 years .

 

[frayne]

Stop watching/reading the news would be my first step.

Sounds like the sage advice from Billy Bernstein's latest tome.

 

[target2019]

Have a question for the group with regards to asset allocations...

Background: Me and SO are pretty risk adverse. Ive been micromanaging our 401ks pretty closely since late 2019. Went from about 80/20 AA back then, and by Feb 2020 was all cash (got lucky with covid but read the tea leaves with what I was seeing in italy/china early on). Back in to 50/50 AA from S&P 2600 until about 4600, then back out to all cash, missed the run to 4800, but also missed the drops down to 3600. Got back in at about 33/66 AA around 4000 and most recently pulled everything back out last week. Now at all cash (all cash in 401k is stable fund, fixed assets like 2% YTD performance. )

During this timeframe, my company also has changed 401k providers, so most of my online statements are gone, so its hard to gauge what my true % gain has been since 2019 with all the jockeying in and out. I'm probably up slightly versus had I just stayed 80/20 AA back in 2019 and just never touched it. However, its tiring and stressful. I kept making moves out of fear (Covid then Ukraine then Inflation then Recession woes), it feels like our world is so wrapped up in fear, alarmism, and safetyism, and ive struggled with pulling the trigger.

How would you guys go about getting back into this market in 401ks such that we end up back close to 80/20 AA. Would easing in over time, say making 10% moves over a period of 6-8 months make more sense then just making a single change and walking away? Should I even be targeting 80/20 considering how risk adverse I am?

Our time horizon is FIRE in the next 7-10 years, but I do have some significant fears about a market pullback in the next 6-12 months.

Thoughts?

Either way, lump or gradual, you're taking a chance. And no one knows how it will turn out for you.

If you have continuing fear, than an 80/20 AA is all wrong. Being all-cash is not a plan either, IMO.

When you take mis-steps with your investments I feel it is wrong to take another large step all at once. This is due to the fact that you've left the market for personal feelings, and it is likely that in the future you will encounter something additional in a news feed.

Everything in your internet life is directed at causing certain behavior - just click here. Another large problem is that many give advice based on quotations that ring true, but shouldn't matter to you.

Your first choice is what future you want. I can't promise you that equities will be great for the reaminder of your life. But I do know that having some equity in a portfolio makes sense, and that is not my research or opinion. I just look to the investing greats (Bogle, Bernstein, etc.) to provide some sanity to what the crowds have to say today.

Unless you can say to yourself that you'll stick to 35% or 50% or whatever equity allocation, you are just getting whipped by social media by the minute.

 

[VanWinkle]

You seem to be a good candidate for help. Find a low cost fiduciary advisor and you will likely make more money with less risk(without the market timing). I am not a big fan of advisors, but you seem to be a good fit to get your emotions out of the asset allocation.

Best of luck,

VW

 

[frayne]

Here is another suggestion, go buy or download William Bernstein's 2nd edition of the Four Pillars of Investing and read it. Chock full of great advice and an entertaining and easy read. One of the biggest take aways is the enemy to sound and disciplined investing is looking back at you every morning when you're shaving in front of the mirror. Another take away is to ignore most of if not all of the noise on cable and social media when comes to investing and market predictions.

 

[RetireBy90]

Most of the data I have read shows a lump sum investment usually out performs dollar cost averaging IF you already have the lump sum to invest. Why? The market generally goes up.

Going in piece by piece allows you to dollar cost average and avoid fear of buying just before a down turn. With a 7-10:year outlook before retirement I wouldn’t worry about a pull back too much. However, if you make a plan that is more gradual with specific tasks to complete on specific dates you are more likely to follow through. Call it a crutch but it allows for the fear do all in one shot.

 

[FREE866]

If you could definitely keep your emotions out of it the best thing to do would be a heavy stock allocation in an ETF like VTI.

 

[pacergal]

If you are risk averse, 80/20 is too high for you.

#1--stop micro managing
#2--do nothing until you come to a solid "sleep at night" AA. could be 50-50, 60-40, 40/60 etc. The main thing, land on something you leave alone, learn to rebalance yearly or invest in funds that rebalance for you.
#3--stop basing investments on "current news".
#4--Learn and read here on this forum, read bogleheads forum, read good, solid investment books--John Bogle The Little Book of Common Sense Investing; William Bernstein If You Can; anything by Taylor Larimore

I think if you let your emotions rule, you will lose money. Don't ask how I know.
I learned after I got burned. Luckily I was younger and recovered, but it took a while.

 

[madatrub]

If you could definitely keep your emotions out of it the best thing to do would be a heavy stock allocation in an ETF like VTI.

Not an option unfortunately. My 401k has limited options, and even less with low(er) fees.

Thanks for the feedback all, I will definitely be looking into what allocation makes the most sense for me.

 

[RetiredAt49]

Not an option unfortunately. My 401k has limited options, and even less with low(er) fees.

Keep your current employers 401k but move most/all of the existing assets to another brokerage and setup an IRA so you can purchase any ETF you want (e.g. VTI)

 

[madatrub]

Keep your current employers 401k but move most/all of the existing assets to another brokerage and setup an IRA so you can purchase any ETF you want (e.g. VTI)

Already done, like i said before, I'm talking specifically about my 401k. We have IRAs that I backdoor/ROTHs, HSAs, and after tax accounts that i have had pretty much left alone and at pretty good AA. My after tax account is essentially all stocks as we have been accumulating ESPPs over the last 5 years.