Assets Allocation Poll

[Van]

There are advantages/disadvantages regarding investment mixes for a retiree with a fairly long horizon (25+ years). Given this scenario, how do the board members allocate your REAL LIFE investment options?

 

[kat]

67/33

 

[HFWR]

About 80/20...

 

[unclemick]

22.61 yr investment span. 50/50.

Then there's 7% of portfolio set aside in Roth(60/40) in case I'm wrong about the 0.61 part of the investment span.

heh heh heh heh heh heh heh heh heh heh heh heh heh

 

[mathjak107]

even though my average works out to 60/40...by using the 3 bucket approach and 3 different portfolios for the time period they serve my long term bucket is actually about 80/20 ....until recently my entire investment stash was between 80-100% equities but i have toned it down over the last year and went to the bucket system

 

[youbet]

I use the 100 bucket system.  The first bucket is 100% equity/0% fixed, the second bucket 99% equity/1% fixed, and so on and so forth.  It requires a bit of rigor to maintain but it's nice knowing that no matter what the economy does, I have a bucket with the optimum asset allocation!

OK, kidding aside.......

Van, you asked for asset alloctions from the perspective of a retiree (not pre-retiree) with a 25+ year time horizon.  For a retiree, time horizon means time to death as opposed to a pre-retiree where it generally means time to retirement.  That pretty much describes my current situation given my age, health and the life expectancy tables.

Based on that, I'm most comfortable with 60/40 now and a plan to adjust to 40/60 over the next couple of decades.  I do notice the Firecalc shows a higher allocation to equities to be more productive in most time periods.  I prefer a little less volatility, although I've still had plenty of that the past couple of weeks!   

 

[Leonidas]

1.3% in bonds I own, and 1.4% in a fund that own bonds (where I keep my cash while waiting for opportunities to make buys in equities), 8.4% in my DROP account and the rest - 88.8% - in individual equities.

If you go by life expectancy, and per your question that is the way to answer this, then I have exactly 25 years left. For planning purposes I tack on an extra 13 years and have on occasion even looked at the numbers all the way to age 95. As long as my quality of life is good I intend to live forever, but if the quality starts to suck then I'm going skydiving without a parachute.

A pension and health insurance influences where I keep my money and allow me to be more aggressive in the stock market than I otherwise would be.

The bonds are for college expenses and I will buy some more bonds in the next two-three years as the kids get closer to that age. I have those moves planned out, but only a general idea of moving more money into bonds as I get older.

 

[jondoh]

I'm fifty years old, so I have a fifty year time horizon.

My equity allocation is 35% - 40%, but I calculate a present-value for my pension, as part of the fixed-income portion.

Helps also to have a conservative withdrawal rate, with actual spending maybe 60% of that.

You don't have to read Taleb and Mandelbrot to believe that stocks are extremely risky and the future dangerously uncertain, but it helps.

 

[Nords]

At age 45 I'm planning for a 75-year horizon. Making it is another issue, but planning for it should eliminate unpleasant financial surprises.

A federal pension with a COLA. Two years' expenses in cash (MM/CD), the rest in equities.

 

[haha]

You don't have to read Taleb and Mandelbrot to believe that stocks are extremely risky and the future dangerously uncertain, but it helps.

Taleb came to my attention maybe 4 -5 years ago when there was long article about him in New Yorker Magazine.  I bought his book. Now I am reading his revised 2nd ed. He is a very interesting and odd character. I also read Mandelbrot. Another good book in this vein, though less about markets per se is Ubiquity, by Mark Buchanan. This one is more about the state of "criticality" in  physical systems, and the abrupt unpredictable collapses from that state.

It's hard to know what sort of practical response there is to this thinking when applied to markets, even if you accept it as correct. More cash is one thing for sure, as is keeping investments in things with low valuations. We don't get avalanches in Kansas. 

And when implied volatility is low, why not pick up some puts?

Ha

 

[astromeria]

About 60/40 (hmm, might be 55/45 or less now...I'm too chicken to look at the Main Bucket yet, but my rollover IRA at Fidelity (all stock funds) lost almost all of this year's gains

Buckets similar to mathjak, but with different implementation details. My 4 buckets:
----- Social Security Bucket (CD ladder to provide 5 years of SS--we turn 57 this year). As each year passes and DH doesn't retire, the $$ is added to either the Emergency bucket or the Main Bucket, depending on state of the asset allocation (looks like I'll be adding stocks this year!).
----- Main Bucket o' 80% diversified stock funds plus 20% FI to provide 4% WR
----- Buffer Bucket to "launder" the withdrawals and provide 6 years of expenses: 2 yrs in MM account, 4 yrs in 2-yr CDs with half due in 1 year, half in 2
----- Emergency/Freedom Bucket (hybrid funds...thinking about adding govt bonds)

 

[jondoh]

It's hard to know what sort of practical response there is to this thinking when applied to markets, even if you accept it

If, for example, you conclude that equity returns don't follow a Gaussian Distribution (fat tails and so forth) you might adjust for higher perceived risk by owning a wider diversification of stocks or owning a lower percentage of stocks. However imperfectly, allowances can be made for known-unknowns. It's the unknown-unknowns that give me pause.

Consider the Japanese widow, in 1940, living very comfortably on the stock dividends of her late husband's estate. In Nagasaki.

Not a care in the world.