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Any Suggestions? Am I playing it too safe?
Old 02-09-2018, 06:20 PM   #1
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Any Suggestions? Am I playing it too safe?

Here is estimated current asset allocations. Age 40 am at a point where I am maxing out retirement accounts both 401 and Roth. Also debt free including a cheap house that am happy with. Would like to retire at 55.

10% Cash (CD, I bond, EE bonds,bank saving account)
30% index bond funds ( inside 401 and Roth)
50% index mutual funds ( inside 401 and Roth)
10% index international fund (inside 401 and Roth)
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Old 02-09-2018, 06:24 PM   #2
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I might not change now but if the market drops 20% more Id dump all my bonds into stocks for the ride up! Depends on how long you want to work. (Years till retirement)
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Old 02-10-2018, 07:48 AM   #3
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Originally Posted by rollergrrl View Post
Here is estimated current asset allocations. Age 40 am at a point where I am maxing out retirement accounts both 401 and Roth. Also debt free including a cheap house that am happy with. Would like to retire at 55.

10% Cash (CD, I bond, EE bonds,bank saving account)
30% index bond funds ( inside 401 and Roth)
50% index mutual funds ( inside 401 and Roth)
10% index international fund (inside 401 and Roth)
If your horizon is 15 years, you might be slightly on the conservative side, but only you know your risk tolerance. Keep whatever AA will allow you to meet your needs, sleep at night, and won't cause you to panic sell.
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Old 02-10-2018, 08:33 AM   #4
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I'd definitely be at least 70% equities. Well, me, I'd be 90% for at least the next ten years, but for a less aggressive investor I still think you should be 70% stocks.
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Old 02-10-2018, 08:59 AM   #5
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Congrats on maxing out your Roth IRA and 401K at the age of 40. I see nothing wrong with your stock allocation.
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Old 02-10-2018, 09:19 AM   #6
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Only you can know your risk tolerance and then only after it has been tested. Your reaction to the small excitement in the last week or so should provide a clue to how you would react in a serious downturn.

That said, at your age we were 100% in equities. We had a few exciting rides, but always stayed on the horse; we were well rewarded for it. Now at age 70, our asset allocation looks a lot like yours. So ... if your risk tolerance is like ours, you are playing it far too safe. As the man said: Do you want to eat well or do you want to sleep well?

At the detail level, most would say that your allocation to international stocks is too low. There is a Vanguard study that says that volatility of an equity portfolio is minimized by having 30-40% international stocks. There is also a strong argument IMO that says that since the US is about 50% of the world investable market, the allocation should be 50/50. Finally, I think there are strong reasons to expect the dollar to weaken over your time period, which would translate into increased value of all non-dollar assets like foreign stocks.

Me? If I were your age I'd just put the whole lot into Vanguard Total International Stock Index Fund (VGTSX) and remember the copilot's checklist: Sit down, shut up, and hang on!

Edit: Remember that your time horizon is NOT 15 years unless you plan to die at 55, which raises its own issues. Your horizon is 15 + the number of years you expect to live past 55. I would say a total of 40-50 is your likely number.
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Old 02-10-2018, 09:33 AM   #7
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Only you can know your risk tolerance and then only after it has been tested. Your reaction to the small excitement in the last week or so should provide a clue to how you would react in a serious downturn.

That said, at your age we were 100% in equities. We had a few exciting rides, but always stayed on the horse; we were well rewarded for it. Now at age 70, our asset allocation looks a lot like yours. So ... if your risk tolerance is like ours, you are playing it far too safe. As the man said: Do you want to eat well or do you want to sleep well?

At the detail level, most would say that your allocation to international stocks is too low. There is a Vanguard study that says that volatility of an equity portfolio is minimized by having 30-40% international stocks. There is also a strong argument IMO that says that since the US is about 50% of the world investable market, the allocation should be 50/50. Finally, I think there are strong reasons to expect the dollar to weaken over your time period, which would translate into increased value of all non-dollar assets like foreign stocks.

Me? If I were your age I'd just put the whole lot into Vanguard Total International Stock Index Fund (VGTSX) and remember the copilot's checklist: Sit down, shut up, and hang on!

Edit: Remember that your time horizon is NOT 15 years unless you plan to die at 55, which raises its own issues. Your horizon is 15 + the number of years you expect to live past 55. I would say a total of 40-50 is your likely number.

At what age did you start moving out of equities and how fast did you make the change? Did you just rebalance and called it good? Or slowly shift future investments to purchase less equities?
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Old 02-10-2018, 09:47 AM   #8
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Me? If I were your age I'd just put the whole lot into Vanguard Total International Stock Index Fund (VGTSX) ...
How about Vanguard Total World (VTWSX)?
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Old 02-10-2018, 10:02 AM   #9
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At what age did you start moving out of equities and how fast did you make the change? Did you just rebalance and called it good? Or slowly shift future investments to purchase less equities?
Well, it wasn't an orderly process based on percentages.

IIRC I got nervous during the tech bubble and moved some money to cash. So that started it. (I am a tech guy by trade, so the bubble was maybe clearer to me than to the average gomer buying tech.)

When we retired about 12-14 years ago, we had already won the game. Our only risk was a future period of very high inflation. So we bought enough TIPS to comprise an insurance policy for our retirement. For quite a few years the TIPS were our major non-equity investment -- maybe 30-40% of the portfolio. The purchase was made based on how much insurance we wanted, not based on some percentage target. Also after 2007/8 when interest rates went to zero, the value of our TIPS went up by 50%. I looked like a genius, but like most market geniuses it was just because I was lucky. The TIPS are still about 35% above what we paid but they will go down as interest rates rise.

Three or four years ago we took our allocation to about 50/50 as while we have successfully ridden out all the downturns since 1987, our time horizon is getting shorter and we didn't want another big ride. That 50/50 allocation gives us a lot of dry powder to use if this current excitement gets to a 20% or more drop. If that happens we may end up with an increased equity percentage. That is money that will end up with the beneficiaries of our estate so that time horizon is 10 years or more (we hope!).

IMO most people are overly focused on percentages and, specifically, on small and irrelevant changes to % AA. When we drive our cars we are constantly reacting and adjusting to the current situation and I don't think investing is any different. Every year or two we make a change to the portfolio to reflect current reality. That's enough for us. AA% is a reference point, not a goal.

Long answer to a short question. Sorry!
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Old 02-10-2018, 10:11 AM   #10
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The answer is subjective, but I don't think you are playing it too safe.

Your breakdown is 60% equities, 40% fixed income. At 40 years old, your percentage in equities is exactly the 100 - age rule of thumb (I know, some say should be 110-age or 120 - age).

As full disclosure, I use 100-age as my allocation. I feel, safe, but not too safe (or risky).
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Old 02-10-2018, 11:10 AM   #11
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How about Vanguard Total World (VTWSX)?
Oops. I grabbed the wrong symbol. Thank you. Total World is indeed the "everythiing" fund. I looked one time and it did not seem that Fidelity had a similar fund. I don't know about ETFs. Something that tracks the ACWI is what I'd be looking for.


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... At 40 years old, your percentage in equities is exactly the 100 - age rule of thumb (I know, some say should be 110-age or 120 - age). ...
I really hate those. I think one size fits none. Example:

Two identical widows, 70 years old, with parents that lived into their 90s. One has $100K in investable assets to support her for the rest of her life. The other one has $10M. The rules of thumb would give them the same AA. Totally crazy.
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Old 02-10-2018, 11:49 AM   #12
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I was more like 80/20 at your age. Now at 63 I'm way more conservative than most. I would say 60/40 is fine, but if you can stand volatility then bump it up a bit.
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Old 02-10-2018, 11:53 AM   #13
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Originally Posted by OldShooter View Post
Oops. I grabbed the wrong symbol. Thank you. Total World is indeed the "everythiing" fund. I looked one time and it did not seem that Fidelity had a similar fund. I don't know about ETFs. Something that tracks the ACWI is what I'd be looking for.


I really hate those. I think one size fits none. Example:

Two identical widows, 70 years old, with parents that lived into their 90s. One has $100K in investable assets to support her for the rest of her life. The other one has $10M. The rules of thumb would give them the same AA. Totally crazy.
That's why I gave some wiggle room and said the answer is subjective .
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