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Should I alter my Asset Allocation?
Old 03-05-2021, 09:20 AM   #1
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Should I alter my Asset Allocation?

I am 49 years old, plan to retire in 7-8 years. I currently have a 50/50 Asset Allocation but I think I can and should be more aggressive.

The reason why I think I can be more aggressive than what is suggested, is that I am an educator and will be receiving a Pension.

The Pension alone will cover my expenses as I will be living overseas in a more affordable environment. The only possible issue is that the Pension doesn't adjust to inflation every year, but the State adjusts probably every 5-7 years. Still, I am hopeful this will not become a problem living in a more affordable country.

So what do I want to do with my Investments? I want it to continue growing after I retire. I can see using some of it for travel expenses and the rest to leave to my 2 kids when I kick the bucket.

What do you recommend the Allocation to be?

I invest at Vanguard. What Index/Mutual Funds do you recommend? VTSAX? VGIDX?

Any advice would be welcome. Thank you!
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Old 03-05-2021, 09:35 AM   #2
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If your pension covers all/most of your spending, then:

1. You can afford to take more risk
2. You can afford to not take as much risk
3. You can split the difference

Maybe move to 60/40 and stay there for a couple years. I do not think you will see much difference between 50/50 and 60/40, but you might feel like you are taking more risk.

If you are risk averse and hate seeing your portfolio drop, then stay at 50-50.
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Old 03-05-2021, 09:53 AM   #3
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Can you take more risk? Yes
Should you take more risk? It depends

Are you comfortable with more risk. Can you sit still in a bear market.

Pensions and SS will cover our budget. And our house is mortgage free. So, we are currently 80/20. But, I am very comfortable with stock market volatility.
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Old 03-05-2021, 10:35 AM   #4
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Have you used Portfolio Visualizer?

https://www.portfoliovisualizer.com

The Backtest Portfolio and Monte Carlo tools will give you an idea of how your holdings and allocation did or might do over a given period. I used these calcs a couple of years ago when I was contemplating a major portfolio overhaul.

After running many simulations, I ended up sticking with what I had been doing for years, and am still doing, which is using a single balanced 60/40 fund (the Vanguard equivalent would be VBIAX).

There are so many ways to allocate and so many options. I read a couple of Jack Bogle books and thought about three-fund and five-fund portfolios. I considered mutual funds vs. ETFs. I backtested and Monte Carlo tested several such scenarios with Portfolio Visualizer. Nothing I came up with did any better than what I was already doing for a similar amount of risk. Anything that did do better took on more risk than I was comfortable with and/or required a lot more hands-on rebalancing.

Then I found a video of Bogle taking questions from an audience. Someone asked: Would there be anything wrong with using a single balanced fund like VBIAX and letting your investments grow on autopilot?

Bogle's answer was no, nothing wrong with that. So that's what I stuck with. Below-average risk, above-average gains. Good enough for me.
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Old 03-05-2021, 11:41 AM   #5
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There's no pressing need to change your AA.

The main reason I add bonds to my portfolio is to provide a buffer for regular withdrawals. If stocks are way down I can sell bonds and leave the stock side alone to recover. My preferred AA is 75/25 when stocks ore doing well and up to 100/0 at the bottom of a bear market.

If you are not taking income from the portfolio, then you don't particularly need that buffer. 85/15 might provide a chance to rebalance a little while still promising higher gains. 100/0 is perfectly fine if you never need the money, can just let it grow, and essentially plan to leave it to heirs. Or even if you have enough flexibility to just avoid withdrawals during a bear market.

The other aspect of changing any AA is the timing. I'd be reluctant to buy more stocks until the prices drop quite a bit. I'd be tempted to wait for a bear market before increasing my stock percentage. Yeah, that's market timing. But you definitely need to ponder whether you are buying more stocks because they were hot last year or because your long term plans for the future have changed. In the latter case the approved action is to go ahead and change the AA without worrying about what stocks have done, are doing, or will do. Because you just never know for sure.

Or you can take the middle route and slowly raise the percentage of stocks over a year or several years until it feels about right.
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Old 03-05-2021, 11:54 AM   #6
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Quote:
Originally Posted by Animorph View Post
There's no pressing need to change your AA.

The main reason I add bonds to my portfolio is to provide a buffer for regular withdrawals. If stocks are way down I can sell bonds and leave the stock side alone to recover. My preferred AA is 75/25 when stocks ore doing well and up to 100/0 at the bottom of a bear market.

If you are not taking income from the portfolio, then you don't particularly need that buffer. 85/15 might provide a chance to rebalance a little while still promising higher gains. 100/0 is perfectly fine if you never need the money, can just let it grow, and essentially plan to leave it to heirs. Or even if you have enough flexibility to just avoid withdrawals during a bear market.

The other aspect of changing any AA is the timing. I'd be reluctant to buy more stocks until the prices drop quite a bit. I'd be tempted to wait for a bear market before increasing my stock percentage. Yeah, that's market timing. But you definitely need to ponder whether you are buying more stocks because they were hot last year or because your long term plans for the future have changed. In the latter case the approved action is to go ahead and change the AA without worrying about what stocks have done, are doing, or will do. Because you just never know for sure.

Or you can take the middle route and slowly raise the percentage of stocks over a year or several years until it feels about right.
Interesting. So you allocate 100% stocks at the bottom of a Bear Market? Is that to capitalize on cheaper stocks getting good value?

The 85/15 is something I've been considering.
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Old 03-05-2021, 01:38 PM   #7
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Quote:
Originally Posted by Stillwater007 View Post
I am 49 years old, plan to retire in 7-8 years. I currently have a 50/50 Asset Allocation but I think I can and should be more aggressive.

The reason why I think I can be more aggressive than what is suggested, is that I am an educator and will be receiving a Pension.

The Pension alone will cover my expenses as I will be living overseas in a more affordable environment. The only possible issue is that the Pension doesn't adjust to inflation every year, but the State adjusts probably every 5-7 years. Still, I am hopeful this will not become a problem living in a more affordable country.

So what do I want to do with my Investments? I want it to continue growing after I retire. I can see using some of it for travel expenses and the rest to leave to my 2 kids when I kick the bucket.

What do you recommend the Allocation to be?

I invest at Vanguard. What Index/Mutual Funds do you recommend? VTSAX? VGIDX?

Any advice would be welcome. Thank you!

Barring a tragedy , you have a 30 maybe 40 year investment time horizon. if you want or need growth you will need to a have high stock allocation.
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