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Seeking Advice: Investing Strategy for the Middle Years (35-50)
Old 04-05-2016, 09:45 AM   #1
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Seeking Advice: Investing Strategy for the Middle Years (35-50)

Looking for others advice and experience (wisdom) in selecting a smart allocation moving forward. What is the best way to invest with a 20+ horizon until I'll need to start pulling down. I've found I have a fairly high(er than average) risk tolerance, and I am at least 20 years out from my plan to FIRE, but I also would like to start transitioning my allocation in a way that I am not over exposed to a downturn or crash, should it happen within a decade of my goal (2035-2040 kind of time frame).

I've read a couple dozen investing books, and gathered a fairly high understanding of the long term history of equity markets. I've been saving 25% of everything I make towards retirement since I started working in my early 20s but until now money going in far outweighed the growth potential of the account. So I've been invested rather aggressively. To be fair, the overall return of the account is important from start to finish, but the risk of making mistakes later in the process rises, and I'm crossing into that territory soon where what I expect the account to make in a year will start to exceed what I'm putting in.

So I've reached about the quarter million mark, and I'm in my mid 30s... on pace with my desired plan, but taking things much more seriously now in terms of my allocation.

What are peoples thoughts about how to manage the account in this period of time. I hope to reach the 1 million mark in a decade... at least that is my ambition. Understanding, a lot of that will depend on the growth, which is not something you can chase, but is rather produced by an overall tide in the market. Looking to avoid the risk on both ends (giving up gain by playing it too safe vs. getting hit at the wrong time in a downturn while overexposed to risk)

I'm currently sitting at:
30% international index
30% S&P 500 index
30% small cap growth index
10% vanguard health care fund
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Old 04-05-2016, 10:30 AM   #2
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Sounds like you are already in a good spot in savings.

Everyone has different risk tolerance and goals, so its up to you and your spouse to find your right path.

At 55, here was/is my approach - still in the accumulation phase.
- Saved like crazy in my 20's and then kids came along and saving dropped to minimum 401k contributions to keep the company match. My original goal was FIRE at 55, but we elected to send the kids to private school - it was an extravagance but was worth it for us.
- Started maxing out again after 50 and contributing to the 'catch up' limits.
- DW is not financially oriented, and when I do ask her about investing preferences once in awhile she wants to put everything under the mattress - but is content to leave it to me. (This is both a good and bad thing for us.)
- Fortunate enough to have a cash balance pension. I treat this as my 'bond' portion of the retirement portfolio.
- Everything else has been kept in stocks for 30 years. Borrowed some for a house just before the dot com bubble (lucky) and borrowed some for serious medical just after the housing bubble (karma). Did not sell on any of the downturns. Pretty happy at the moment - but miserable a few times along the ride.
- Most of the 401k is in S&P 500 for all 30 years. Put $30k each into Ex USA and small cap mutual a few years ago - these are my laggers. Sold a similar amount for Fidelity Value Fund that went nowhere and I dumped back into the S&P 500. Being a contrarian, have let all of my company matching stock ride (experts say this is risky - they are right). Its a utility that has to beaten the S&P500 over the past 1, 5, 10, 30 years. The capital appreciation is ridiculous, and I am keeping my fingers crossed for 4-5 more years to pick up the tax break.

At your age, you can weather a few market downturns - and may want to consider staying high in stocks for the next 10 or more years. Check your risk tolerance, and that of your wife.

Some would say I am over weighted in stocks for my age - but I am not yet retired (wish I were) and can stay on the j*b a few more years if another recession hits hard.
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Old 04-05-2016, 03:48 PM   #3
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My equity allocation in those years was generally in the 80's%. I am now a year from RE and at 70%, looking to reduce it further if the market goes much higher.
"The mountains are calling, and I must go." John Muir
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Old 04-05-2016, 05:01 PM   #4
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In my 30's and 40's, my stock allocation was pretty much 90% or more, although I did buy junk/corporate bonds a couple times when I thought they were better bargains during recession/downturns.
At 47-48 (in 2006-7), I gradually dialed back to a 65% stock allocation, both since I saw early retirement in my late 50's as possible and because I feared a housing crash. As a result of dialing back risk, I was able to partial retire on "modified employment" last July (I work about 15 hours/week from home). Equity % depends on risk capacity, portfolio size, budget and others factors and every individual is different, but 2-3 years out from when you think you might pull the trigger, rescaling gradually into less of a risk allocation can be appropriate.
I was lucky, because 2006-7 were good years for taking profits and the intermediate treasury fund where I placed most of the stock sales was one of the few things that went up in the Great Recession/Bank crisis, and then using those Treasury fund gains to rebalance back into stock funds in 2009/2010 also paid off.
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Old 04-05-2016, 09:59 PM   #5
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My portfolio during the same time you are asking was nearly 100/0 stocks/bonds. Rode the ups and downs, and long term results are good. Just within the last year did I reduce down to about 80/20. I think your general mix is OK, I would probably be a bit less on international, maybe 15% there and the now extra 15% maybe a NASDAQ type index or a value type stock fund.

Just keep putting in the max you can and don't make changes when markets go up and down. Train yourself to have the opposite reaction most have by buying more when you can and price is down, rather than panic and sell like the masses.
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Old 04-06-2016, 07:08 AM   #6
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I was 100% equities until my mid-40s. Then I started making contributions to bond funds and saw my relative share of equities decline to a sensible AA when I retired. Easy.

You're doing well... stay the course and start allocating contributions to bonds in your last 10 years or so.
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Old 04-06-2016, 07:25 AM   #7
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Originally Posted by EvrClrx311 View Post
I'm currently sitting at:
30% international index
30% S&P 500 index
30% small cap growth index
10% vanguard health care fund
I'd replace the 10% of health care w/ 10% total bond, for a couple reasons:
  • not a fan of sector investing
  • you should have something in bonds, even if it's only 10%

Otherwise, I think it looks good. If your horizon is really 20 years out, I don't think 90/10 is outrageous.
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