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How aggressive should one's Asset allocation be?
Old 03-05-2021, 08:56 AM   #1
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How aggressive should one's Asset allocation be?

I could use some advice on a proper asset allocation for my situation.

What should my Asset Allocations for Stocks/Bonds be my Pension will cover most if, not all of my expenses.

I am fortunate to be receiving a Pension when I retire in about 7-8 years.

My plan once I retire is to live overseas with a lower cost of living. I am hopeful that my Pension alone will be able to cover most, if not all of my normal monthly expenses.
Of course, I know life can throw curveballs, so it would be nice to have savings and/or an income stream to help with the occasional travel and flying to see my kids and having something left to pass on to my 2 kids.
Also, my Pension will be set, but it's supposed to receive a bump every several years. Still, I am not confident that it can consistently keep up with Inflation.

Where would you invest? 100% stocks? I also use Vanguard and I prefer Index Funds and even an Active Mutual Fund if it's worth it. Would VTSAX be a simple set and hold? Would something like VDIGX and VTSAX be advantageous?

And if so, for how long should I keep the aggressive approach?

Thank you for your advice in advance.
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Old 03-05-2021, 09:09 AM   #2
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You have to think about what your long term investment goals are and the time frames.

If you don’t need the funds, and want to pass on to heirs, then invest according to what would be appropriate for their ages.

If you need some of those funds for whatever, then invest more conservatively for the portion you may have need of.
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Old 03-05-2021, 09:16 AM   #3
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If your expenses are truly covered by continuing income (pensions, SS, annuities) then you can do whatever you want with your portfolio without worry - including 100% equities for life. Some observations:
  • VTSAX is good for US equities, in the long run VDIGX doesn't really buy you anything
  • You should consider adding international equities like VTIAX
  • A small dose of fixed income smooths the ride a lot - look at the Worst Year here: https://investor.vanguard.com/invest...lio-allocation
In your situation I would lean toward something like:

55% Total US (VTSAX)
25% Total Int (VTIAX)
20% Total Bond (VBTLX)
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Old 03-05-2021, 10:23 AM   #4
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Quote:
Originally Posted by Stillwater007 View Post
How aggressive should one's Asset allocation be?
How long should a string be? Both questions have the same answer: "Whatever best suits its purpose."

Some view their equity tranche as a necessary evil to protect the stash from inflation. I am not in that camp, but I think numbers like 20% and 30% are popular.

Some need nothing from their stash but want to leave a large estate. Then, probably 100% equities.

Some, like DW and I, need some income from our stash but expect the majority of the stash to end up in our estate. We're 70-75% equities at 73YO.

Another aspect is whether one is in the accumulation phase or in the withdrawal phase. Many here, including us, were 100% equities until very close to retirement.

There is also a school of thought that wants the fixed income tranche to grow as a % as people age. I have never really understood this one, because as we age our time horizon shortens and we will need fewer and fewer dollars before we're pushing up daisies.

The only really stupid strategy is to use one of those age-based formulas. One size fits none.
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Old 03-06-2021, 04:37 PM   #5
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Quote:
Originally Posted by Stillwater007 View Post
I could use some advice on a proper asset allocation for my situation.

What should my Asset Allocations for Stocks/Bonds be my Pension will cover most if, not all of my expenses.

I am fortunate to be receiving a Pension when I retire in about 7-8 years.

My plan once I retire is to live overseas with a lower cost of living. I am hopeful that my Pension alone will be able to cover most, if not all of my normal monthly expenses.
Of course, I know life can throw curveballs, so it would be nice to have savings and/or an income stream to help with the occasional travel and flying to see my kids and having something left to pass on to my 2 kids.
Also, my Pension will be set, but it's supposed to receive a bump every several years. Still, I am not confident that it can consistently keep up with Inflation.

Where would you invest? 100% stocks? I also use Vanguard and I prefer Index Funds and even an Active Mutual Fund if it's worth it. Would VTSAX be a simple set and hold? Would something like VDIGX and VTSAX be advantageous?

And if so, for how long should I keep the aggressive approach?

Thank you for your advice in advance.
It sounds like you have an aggressive risk appetite. I consider myself to have a higher than average risk appetite.

What is your goal for your estate? Do you want to pass a sizeable estate to heirs? Do you have heirs? I would seek to increase the estate size, to pass the largest estate possible.

This means a high percentage of equities, for a long time. Maybe forever. You don't "need" the money, because your pension is covering your living expenses. You will therefore have quite some time of exposure to the equity markets. Time in the market is always a good thing.
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Old 03-07-2021, 03:59 PM   #6
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Answer depends fully on YOU!

There are risk tolerance quizzes on the internet....here is one you can try...

https://pfp.missouri.edu/research/in...ce-assessment/

One thing you might consider is the bucket approach. Put enough in cash to cover 3-4 years of spending, and the rest you can be more risky with...knowing that any downturn has a few years to recover.

I have become VERY risk averse since FIREing. I don't remember the exact saying by Bengen, but someone here will list it I'm sure. I follow my brother's quote "You only have to get rich once"...and since I feel like I've done that already, I don't "reach for return" anymore....my cash position is quite high and I'll keep it that way. I've had advisors tell me to put more in equities, but I simply asked them how much more I'd need in cash so that inflation would not cause me to go broke...then saved that much more before FIRE.

YMMV
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Old 03-09-2021, 02:33 PM   #7
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Quote:
Originally Posted by Finance Dave View Post
Answer depends fully on YOU!

There are risk tolerance quizzes on the internet....here is one you can try...

https://pfp.missouri.edu/research/in...ce-assessment/

One thing you might consider is the bucket approach. Put enough in cash to cover 3-4 years of spending, and the rest you can be more risky with...knowing that any downturn has a few years to recover.

I have become VERY risk averse since FIREing. I don't remember the exact saying by Bengen, but someone here will list it I'm sure. I follow my brother's quote "You only have to get rich once"...and since I feel like I've done that already, I don't "reach for return" anymore....my cash position is quite high and I'll keep it that way. I've had advisors tell me to put more in equities, but I simply asked them how much more I'd need in cash so that inflation would not cause me to go broke...then saved that much more before FIRE.

YMMV
Wow, thanks for putting into words the better part of my financial philosophy. I've always said "I've already won the game. Why would I keep playing?" I'm between 30 to 35% equities and that's enough excitement for me. The remainder is mostly non-bond "weird" stuff ("old" I-bonds, old SPDAs, old insurance contracts, Guaranteed Income funds, etc.) None of these will make me rich(er) but will not likely lose against inflation unless inflation takes off. If it does, I'll rethink. SS and modest pension would sustain me though I spend a lot more from the stash - since I can. YMMV
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Old 03-10-2021, 10:15 AM   #8
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Quote:
Originally Posted by Stillwater007 View Post
I could use some advice on a proper asset allocation for my situation.

What should my Asset Allocations for Stocks/Bonds be my Pension will cover most if, not all of my expenses.

I am fortunate to be receiving a Pension when I retire in about 7-8 years.

My plan once I retire is to live overseas with a lower cost of living. I am hopeful that my Pension alone will be able to cover most, if not all of my normal monthly expenses.
Of course, I know life can throw curveballs, so it would be nice to have savings and/or an income stream to help with the occasional travel and flying to see my kids and having something left to pass on to my 2 kids.
Also, my Pension will be set, but it's supposed to receive a bump every several years. Still, I am not confident that it can consistently keep up with Inflation.

Where would you invest? 100% stocks? I also use Vanguard and I prefer Index Funds and even an Active Mutual Fund if it's worth it. Would VTSAX be a simple set and hold? Would something like VDIGX and VTSAX be advantageous?

And if so, for how long should I keep the aggressive approach?

Thank you for your advice in advance.
Without knowing if this account is taxable, tax-deferred, or tax-free, recommendations may be optimum or not.

A WAG is that VTSAX is ok. Bonds are not recommended in a taxable account. Ref: https://www.bogleheads.org/wiki/Tax-...fund_placement
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Old 03-10-2021, 10:32 AM   #9
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I was pretty much 100% equities while working, and also blessed with a pension that closely covers monthly budget while retired.
At retirement, we were about 75/25. But discovered I did not sleep well when things went south. I have moved to 60/40, +/- 5%, and sleep much better.

But it really depends on what YOU are comfortable with, what allows you to sleep at night.
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