Logic behind Stock/Bond allocation

[Which Roger]

The "100-age in stocks" rule is simplistic and flawed, and most of us on this forum know enough to come up with something much better that is tailored to our specific circumstances. However it seems we often forget how sophisticated we are as investors relative to the average Joe, and for the average Joe, this rule is better than most common investment "strategies", which include not saving at all, panicking during every market downturn and selling low, taking advice from a salesman disguised as an advisor, etc.

 

[OldShooter]

I was ~100% in equities during the tech bubble burst and during the housing crash. I didn't flinch either time, because I've always been a long-term investor and didn't see retirement on the near horizon. I saw the drop in value as just a glitch, which didn't affect my investing strategy much at all. In fact, I was sitting on a lot of cash in 2009 and saw it as a great buying opportunity.

Oh, OK. Then you know what you're doing and won't flinch.

But it's different now; I'm retired and drawing down accounts, and a bad sequence of returns early on could put a serious damper on my plans.

Well, solving that seems easy. Equities are nice and high right now; Just dump enough equities tomorrow to fund a 3-5 year bucket of near-cash assets. Or a 10 year bucket if you like.

IMO the only time a bad sequence of returns can really hurt is if a person decided to fill a 3-5 year bucket after a big market correction before equities have recovered. But it's hard to see that someone sophisticated enough to think in terms of buckets would do that anyway.

The "100-age in stocks" rule is simplistic and flawed, and most of us on this forum know enough to come up with something much better that is tailored to our specific circumstances. However it seems we often forget how sophisticated we are as investors relative to the average Joe, and for the average Joe, this rule is better than most common investment "strategies", which include not saving at all, panicking during every market downturn and selling low, taking advice from a salesman disguised as an advisor, etc.

Excellent points. +1

 

[mathjak107]

the problem with the 100 less your age can be the reverse though . being on the 401k committee at work , we saw the youngins bailing in mass in 2008 because they were told to have very high equity allocations because of their age and had neither the pucker factor nor experience in down markets yet for that high of an allocation .