anybody else super conservative?

[karel]

I'm 54, have had a good career and built up a decent net worth. FireCalc and NewRetirement say I can retire and be in good shape 99%. But....I am a very conservative investor. Portfolio is roughly 45% bonds (pretty short term, with almost half maturing over next year), 15% preferred stocks (including half that have maturities in 3-5 years), 10% common equities, 15% cash/money market, and 15% real estate (rental property). I am educated, MBA in finance, have worked in the investment industry for 25+ years. I know all the statistics and strategies on equities, asset allocation, historical returns, etc.

But.... I just cannot hold a big allocation to equities. I fundamentally don't trust the people running the country (or states or locals, for that matter), don't trust the Fed, etc. Maybe "don't trust" is not the best word, a better description is that I believe they are all incompetent, or the system is so entrenched that its impossible to make any real change. (This is not political, it seems to be the case no matter which party is in power.) [Mod Edit]

Curious as to other people feel like this? How do you hold 60% equities in this kind of world and sleep? Like I said, I know that long term historical returns, etc etc etc. but it seems very likely the next 30 years are going to be very different from the last 30 years. Am i wrong? Do I need a therapist? What am I missing? Or do we just hold our nose and invest in 60/40 because that has worked for the last 30 years?

 

[Sunset]

Weird that you don't trust all the politicians, but invest in bonds or anything at all. If I didn't trust the political system of a Country, I'd be in gold and silver and leave.

I think the same "danger" of politics affects stocks and bonds pretty equally, so no difference there.
For example when a Country nationalized a company, all it's stock holdings and bond holdings would become worthless. So no change in political risk by buying bonds vs stock.

Have you lived in another Country ?
I have and I can say that the Capitalistic system here of free enterprise is much more alive and thriving than elsewhere.

I'm about 80% stock.

 

[ShokWaveRider]

We are, but have zero equities. I believe that if you have won the game, why keep playing, the retirement portfolio game that is.

Personally, I am at a quandary right now, being exclusively in CDs and MM, I am not sure where to go next. Based on my life expectancy I have another 10 years of return needed. I am not really happy going over 5 years in CDs at the moment and 5% is my minimum acceptable return before I jump in. MM is paying 5.4% right now, yes, I know that will not last long but anything over 5% in CDs is acceptable. I am tempted to throw a big chunk in at 5% into monthly paying CDs and let SS and RMDs take care of the rest. Decisions, Decisions.

 

[Lewis Clark]

I'll be happy to tell you if your predictions are right or wrong. Ask me in 30 years. : )

You need an asset allocation that lets you sleep at night. If you are satisified with what you are doing now and it meets your needs there is little need to change. There is no one right answer for everyone.

 

[Spock]

I believe I'm more conservatively invested than you are with 0% equities... stocks just seem like a casino to me. When the Fed kicked the money printers into over drive in 2008 and was basically monetizing the debt I thought "this is it"... inflation has to sky rocket. But the $ were basically kept on Wall Street and didn't reach Main Street, so we had financial asset inflation without much wage/price inflation and the wheels kept turning for awhile.
My investment schizophrenia between "the wheels are going to fall off" and "but what if they don't?" has been personally paralyzing. I've resorted to a bar-bell. I put X% into "beans, bullets, and bullion" and Y% into Treasuries/CDs/GSEs... sort of a twisted version of Ray Dalio's All Weather portfolio minus the commodities.

 

[pb4uski]

I'm 54, have had a good career and built up a decent net worth. FireCalc and NewRetirement say I can retire and be in good shape 99%. But....I am a very conservative investor. Portfolio is roughly 45% bonds (pretty short term, with almost half maturing over next year), 15% preferred stocks (including half that have maturities in 3-5 years), 10% common equities, 15% cash/money market, and 15% real estate (rental property). I am educated, MBA in finance, have worked in the investment industry for 25+ years. I know all the statistics and strategies on equities, asset allocation, historical returns, etc.

But.... I just cannot hold a big allocation to equities. I fundamentally don't trust the people running the country (or states or locals, for that matter), don't trust the Fed, etc. Maybe "don't trust" is not the best word, a better description is that I believe they are all incompetent, or the system is so entrenched that its impossible to make any real change. (This is not political, it seems to be the case no matter which party is in power.) [Mod Edit]

Curious as to other people feel like this? How do you hold 60% equities in this kind of world and sleep? Like I said, I know that long term historical returns, etc etc etc. but it seems very likely the next 30 years are going to be very different from the last 30 years. Am i wrong? Do I need a therapist? What am I missing? Or do we just hold our nose and invest in 60/40 because that has worked for the last 30 years?

We are, but have zero equities. I believe that if you have won the game, why keep playing, the retirement portfolio game that is.

Personally, I am at a quandary right now, being exclusively in CDs and MM, I am not sure where to go next. Based on my life expectancy I have another 10 years of return needed. I am not really happy going over 5 years in CDs at the moment and 5% is my minimum acceptable return before I jump in. MM is paying 5.4% right now, yes, I know that will not last long but anything over 5% in CDs is acceptable. I am tempted to throw a big chunk in at 5% into monthly paying CDs and let SS and RMDs take care of the rest. Decisions, Decisions.

I believe I'm more conservatively invested than you are with 0% equities... stocks just seem like a casino to me. When the Fed kicked the money printers into over drive in 2008 and was basically monetizing the debt I thought "this is it"... inflation has to sky rocket. But the $ were basically kept on Wall Street and didn't reach Main Street, so we had financial asset inflation without much wage/price inflation and the wheels kept turning for awhile.
My investment schizophrenia between "the wheels are going to fall off" and "but what if they don't?" has been personally paralyzing. I've resorted to a bar-bell. I put X% into "beans, bullets, and bullion" and Y% into Treasuries/CDs/GSEs... sort of a twisted version of Ray Dalio's All Weather portfolio minus the commodities.

I'm of similar ilk. Currently 0% equities. Not that I don't believe in stocks but me that I thought that they were overvalued and got out since our retirement is overfunded so we don't "need" stocks.

Currently mostly (88%) brokered CDs/UST/Agency issues along with some I-Bonds (7%) and some investment grade bank preferred shares (4%) and money market (1%) with a weighted average yield of 5.2%. Over the next 6-12 months I will probably expand the preferreds to 20% or so with proceeds from maturities. If/when equity valuations seem more sensible then I may tip-toe back in some.

Not a trust issue for me. I think the Fed has handled things pretty well after a dubious start. I have no confidence in Congress.

 

[Car-Guy]

We are, but have zero equities. I believe that if you have won the game, why keep playing, the retirement portfolio game that is.

Personally, I am at a quandary right now, being exclusively in CDs and MM, I am not sure where to go next. Based on my life expectancy I have another 10 years of return needed. I am not really happy going over 5 years in CDs at the moment and 5% is my minimum acceptable return before I jump in. MM is paying 5.4% right now, yes, I know that will not last long but anything over 5% in CDs is acceptable. I am tempted to throw a big chunk in at 5% into monthly paying CDs and let SS and RMDs take care of the rest. Decisions, Decisions.

Dang, I could have written that in almost the exact same words.

 

[pjigar]

You need an asset allocation that lets you sleep at night. If you are satisified with what you are doing now and it meets your needs there is little need to change. There is no one right answer for everyone.

This! I am 50% equity and 50% rentals. If you don't trust the system then you should not be investing in anything other than land, gold and ahmo; and move somewhere very far away from the people.

 

[razztazz]

Maybe "don't trust" is not the best word, a better description is that I believe they are all incompetent, or the system is so entrenched that its impossible to make any real change.

Even if they were acting in earnest, life is too full of vagaries to "trust" anything long term. Just look at the system. You don't have to "figure it out" or "understand it". Just see what it does and game that.

Curious as to other people feel like this? How do you hold 60% equities in this kind of world and sleep? Like I said, I know that long term historical returns, etc etc etc. but it seems very likely the next 30 years are going to be very different from the last 30 years. Am i wrong? Do I need a therapist? What am I missing? Or do we just hold our nose and invest in 60/40 because that has worked for the last 30 years?

I don't trust equities either but....?
The data is there. Look at it. Don't want to believe your lyin' eyes? It one of those things. Ever since the money became important to me I've never been more than about 50% equities, and I have had no qualms about taking my winnings and sitting it out for a while. Like Mafia underlings. Use them to get what I want then promptly discard them. Everything else seemed too complicated or too much work.

 

[Midpack]

There was a member here years ago who was 0% equities, I think his handle was obgyn65...left us in 2015.

 

[Car-Guy]

I remember him. obgyn65 last here in June 2015. He was a prolific poster... Wonder what happen?

 

[Midpack]

I remember him. He was a prolific poster... Wonder what happen?

He didn't like math...couldn't understand (or believe) why the rest of us didn't want to plan for a 1-2% SWR. The more conservative you are, the lower WR you have to plan on.

OTOH, it doesn't take a huge equity allocation to greatly improve your probability of success - though the chart below is probably more indicative of trend than actual WR's (left axis?). And if you've "won the game" you don't need to take as much risk.

 

[frayne]

How do you hold 60% equities in this kind of world and sleep? Like I said, I know that long term historical returns, etc etc etc. but it seems very likely the next 30 years are going to be very different from the last 30 years. Am i wrong? Do I need a therapist? What am I missing? Or do we just hold our nose and invest in 60/40 because that has worked for the last 30 years?

I'm 72 with a 60/40 portfolio and sleep like a baby. The 60/40 is the most conservative portfolio I've ever had. I'm not really all that concerned about the next thirty years for the obvious reasons.

My advice would be, set an asset allocation you are comfortable with and can still sleep at night and don't worry about it.

 

[COcheesehead]

FireCalc says I can go without any equities. I still have some, 27%. We live mostly without any financial restraints and have more income than we can spend.

Do what the tools say you can do and what makes you happy. The 60/40, 70/30 etc AA and doesn’t need to be for everyone.

 

[Happyras]

We won the game and I believe on average have about 20 years to first enjoy, then need our assets. I took our investments down from 80% equities to essentially <20%, mostly selling covered calls and rolling them. The rest in good old T-bills, T Bonds, and some preferred perpetual shares and CD's. We have as much more again in real estate holdings which cash flow our needs. I invest/support my close friends in a similar method for their retirement. Most of the wealthy friends I know are not taking any more risk in stock equities, with fixed income having a greatly lower risk and adequate reward. I keep looking back to my more ignorant times in the lost decade where my investments were flat, but my advisors got yachts.

 

[Major Tom]

I remember him. obgyn65 last here in June 2015. He was a prolific poster... Wonder what happen?

I remember obgyn too. I was frustrated with him because, at first, he seemed to think (or at least, it appeared to me that way) that he thought the spending power of his investments was going to keep up with inflation over the long term. I'm not sure if his understanding of that changed in the time he was with us, or whether he was reluctant to admit it. He finally admitted that he was fully comfortable with the extreme likelihood that his investments would lose value in real terms over the long term, and I was happy. I just wanted him to acknowledge, and be comfortable with that fact.

 

[Happyras]

Actually, I said we have on average 20 years, I should have said at best 20, the average is more like 10 more years and of those, maybe 5 or more we will still be able to travel like we now do. With that in mind, I really get very conservative on holding on to some marginal growth and not loosing our ability to blow the dough like we do. If I were 54, with maybe a few more likely years to enjoy, it would be a tough call to not keep a higher % in equities......but then I still relate this cycle to the lost decade in many ways.

 

[ERD50]

I've said this before, but I don't consider a very low equity allocation to be 'conservative'. Or more accurately, it's not "what I consider", but what history and studies show. I just follow along.

If a very low equity % means your portfolio has been more likely to fail, how is that being "conservative"?

This is a good chart that Midpack posted, and is pretty typical of what I've seen:

....

OTOH, it doesn't take a huge equity allocation to greatly improve your probability of success - though the chart below is probably more indicative of trend than actual WR's (left axis?). And if you've "won the game" you don't need to take as much risk.

-ERD50

 

[Happyras]

I've said this before, but I don't consider a very low equity allocation to be 'conservative'. Or more accurately, it's not "what I consider", but what history and studies show. I just follow along.

If a very low equity % means your portfolio has been more likely to fail, how is that being "conservative"?

This is a good chart that Midpack posted, and is pretty typical of what I've seen:


-ERD50

While I do enjoy that chart and have seen it as true over long periods of time, I believe it creates a false indication of risk for shorter durations, like those of us which may simply pass in the next 10 years (statistically 50% do).

I will try and find some real data on shorter windows of data or even simply 2000 to 2010 as an example.

 

[Gumby]

I like this graph showing the efficient frontier for equities/bonds for the period 1970-2019. The lowest risk portfolio is actually 33% equities.

https://www.tdameritrade.com/retail-en_us/resources/pdf/TDA6350.pdf

 

[Happyras]

The Lost Decade, Revisited - AMG Funds
The term “Lost Decade for Stocks” refers to the ten-year period from 12/31/1999 through 12/31/2009, when the S&P 500® generated an annualized total return of -0.9% over the period. This was only the second time that the market actually had a negative total return over a decade period. Let see if a third time is coming?

 

[ERD50]

I like this graph showing the efficient frontier for equities/bonds for the period 1970-2019. The lowest risk portfolio is actually 33% equities.

https://www.tdameritrade.com/retail-en_us/resources/pdf/TDA6350.pdf

It's important to note that in this case, they define "risk" as volatility. Look back at the chart Midpack posted, and we see that using "success" as a definition, 100% stocks are far less 'risky' than 100% bonds.

But it is still very interesting and useful from that angle - a 33% stock allocation results in lower volatility than a 100% bond allocation. Often, the proponents of 0% equities do seem to be concerned about volatility. So 33% equities should be of interest to them, not 0% equities.

-ERD50

 

[ERD50]

While I do enjoy that chart and have seen it as true over long periods of time, I believe it creates a false indication of risk for shorter durations, like those of us which may simply pass in the next 10 years (statistically 50% do).

I will try and find some real data on shorter windows of data or even simply 2000 to 2010 as an example.

That doesn't sound right, unless you are talking about someone already well into their 70's?

And if we are talking about someone with a conservative WR, if they unfortunately pass in 10 years, how would they benefit from a different AA? They would not have come close to depleting their portfolio in any case.

At any rate, to get some failures, I plugged in 12% WR and 10 years into FIRECalc, and used "Investigate AA" tab. And that still shows success increasing with equity AA, and 100/0 being the safest, 0/100 the worst.

I'd be interested in what you can find on this.

-ERD50

 

[Spock]

A point that is never included in the discussion is "60/40 % splits OF WHAT".
A fat FIRE can have only 10% in bonds and it would still be larger than the entire portfolio of a lean FIRE.

 

[Midpack]

While I do enjoy that chart and have seen it as true over long periods of time, I believe it creates a false indication of risk for shorter durations, like those of us which may simply pass in the next 10 years (statistically 50% do).

I will try and find some real data on shorter windows of data or even simply 2000 to 2010 as an example.

The chart was from Bengen and it was for a 30 year window. It wasn’t intended for other durations, so it’s not “false.”