Tomcat98 said:
I am thinking about what our asset allocation might look like when we get ready to retire. So I thought I would ask the folks here the following questions for some ideas.
1. What was or is your projected asset allocation at the start of retirement?
We looked at my military pension & spouse's anticipated Reserves pension and decided that our retirement portfolio needed to be 100% stocks. Later we tweaked that to keep a year's expenses in cash and another year's expenses in CDs.
Spouse declared that if she didn't make it to a pension or if our numbers turned out to be too low that she'd go find a job. But her sacrifice meant that she expected me to do the reading, analysis, & asset allocation.
Part of that portfolio started out in small-cap growth. As we read more Bernstein (and as 2002 progressed to destroy the reputation of the S&P500 & the NASDAQ) we decided to go international, value, & small-cap. We also wanted to achieve lower expense ratios, which until that point had not been a big deal because we were blissfully ignorant.
We decided that fully funding the kid's college expenses was not such a high priority anymore. It's aggressively invested and it'll fund a public or maybe a mediocre private school but I'd be extremely surprised if it funded Amherst.
Tomcat98 said:
2. At what point did you start moving towards this allocation?
We started moving that direction in the mid-90s. Cap losses in 2001-2 greatly accelerated the process of converting mutual-fund cap gains into ETFs.
We're still trying to get there. Spouse slowed down our initial SWR with some drill pay. We don't contribute to Tweedy, Browne and we're withdrawing our living expenses from that fund first. They've done a fine job since we started with them, but if they piss us off (management changes or a higher ER) then we'd be ready to go to an international value ETF or even an international dividend ETF. We hung on to the small-cap growth ETF but it's less than a percent of our portfolio. We don't add to our kid's college fund anymore but when she starts earning income we'll make sure that her Roth is fully funded.
Tomcat98 said:
3. How did you age and other variables (ie other income sources, debt, etc) play into your decision?
We decided to invest for a lifespan of 120 years, although the genetic odds seem to be against me getting into triple digits. Spouse's grandparents all lived hale & hearty well into their 90s, though, so she might make it to the finals. That means we need a retirement portfolio that'll handle nearly eight decades.
We also decided to keep the mortgage and to invest that money into a small-cap value ETF.
We have a rental property that we assess as a wash for income/expenses, and we expect to have spouse's parents or our kid occupying it for quite a few decades. It's a good deal for them but we don't count it as an asset that could be liquidated to pay for our living expenses. Oh, it could, but we place a higher value on family harmony-- and, if it comes to that, on our kid's selection of our long-term care facility.
If our portfolio return exceeds our wildest expectations then during Hawaii's next real estate downturn we could be interested in a rehab condo. But as good as she is, I don't see my spouse doing drywall tape into her 80s.