Warning from Fidelity to Boomers

[RobotMom]

I've basically seen the same article three or four times today that Fidelity is sounding the alarm to baby boomers within 10 years of retirement to cut back on stocks. They are recommending that people in this category have their portfolio in 70% or less stocks. I've been in the process over the last few years to increase my bond holdings. My DH and I fired our financial planner a few years back and he had us in all stocks (some market sector mutual funds - like healthcare and real estate). I've been slowing shedding some of that stuff and rebalancing. I logged in today and discovered that I am at 76% stocks.

So I decided to trade $50k of Fidelity Small Cap Discovery to Fidelity Total Bond (which I already hold) and $50k of Fidelity Low Priced Stock to Fidelity Capital and Income. I discovered through my research that the two stock funds historically have done about the same performance as the bond funds. So I **think** I preserved my growth potential while also reducing risk...

Is anyone else contemplating changes based on the Fidelity guidance? Or have opinions on my exchange?

 

[gwraigty]

I don't make investment decisions based on an article. When many people do, it can become a self-fulfilling prophecy.

 

[Dtail]

I am at Fidelity and at 2 years retirement and am already at 55% stocks, but would not consider 70% and above at retirement.
I think a large part of this decision is how dependent one is on their portfolio for living expenses.

 

[RobotMom]

I don't make investment decisions based on an article. When many people do, it can become a self-fulfilling prophecy.

Agree. I didn't actually make the move because of the article only. I' ve known for quite a while that my portfolio needed to have a higher ratio of bonds. This article gave me the nudge I needed. I normally re-balance in December - but did my rebalancing a little early.

 

[OldShooter]

This is a small variation on the one-size-fits-all formulas: "Subtract your age from <some number> and that is the % you should have in equities. Nonsense.

The real number you should have in equities depends on the size of your portfolio relative to your income needs, the goal for your portfolio, and your battle-tested risk tolerance. In our case, at 72YO we have an AA that suits us at 75/25. In your case, should you move more into bonds? I haven't the slightest idea.

Re past performance of funds, I know of no research that supports the intuitively-attractive idea that past performance is predictive of future results. The most easily accessible studies are from S&P: https://www.spglobal.com/en/researc...-performance-matter-the-persistence-scorecard Every single one of their reports answers the question with a clear "no."

In your case, are not asking about performance directly but it is pretty much the same question. You have seen a historical correlation between these two equity funds and the bond funds you are comparing them to. Do you have some economic theory on why such a correlation might persist? Offhand I don't see one, but YMMV.

So to your questions: (1) No (2) only time will tell.

 

[W2R]

I've basically seen the same article three or four times today that Fidelity is sounding the alarm to baby boomers within 10 years of retirement to cut back on stocks. They are recommending that people in this category have their portfolio in 70% or less stocks. I've been in the process over the last few years to increase my bond holdings. My DH and I fired our financial planner a few years back and he had us in all stocks (some market sector mutual funds - like healthcare and real estate). I've been slowing shedding some of that stuff and rebalancing. I logged in today and discovered that I am at 76% stocks.

So I decided to trade $50k of Fidelity Small Cap Discovery to Fidelity Total Bond (which I already hold) and $50k of Fidelity Low Priced Stock to Fidelity Capital and Income. I discovered through my research that the two stock funds historically have done about the same performance as the bond funds. So I **think** I preserved my growth potential while also reducing risk...

Is anyone else contemplating changes based on the Fidelity guidance? Or have opinions on my exchange?

I retired in 2009. I have never read anything by Fidelity. I did read numerous books on investing from the Bogleheads book list, including All About Asset Allocation by Rick Ferri and other books that talked about this topic. I thought about what I was reading, and read several of these books two or more times when I felt that would benefit me.

When devising my own financial plan, it made sense to me to have a different asset allocation after retirement than I did before retirement.

Before retirement, I was 100% equities because started saving for retirement late, and I was willing to take some chances in order to get to where I could retire. I knew I could always delay retirement and recover from it, should my (more volatile) AA not pan out. Essentially I was more of a gambler than an investor during those earlier years.

After retirement, I wanted a buy-and-hold portfolio with lower volatility that wouldn't need any attention from me. So, I went to 45% equities. Right now, at age 71, I am now slowly transitioning to the "110 minus age" amount for equities.

During the last 3 years or so of working life, I gradually moved from my working AA (100:0) to my retirement AA (45:55); I didn't do it suddenly.

 

[Jerry1]

I expect that I’ll be someone whose equity percentage actually goes up in retirement. As time goes by and my portfolio needs to cover less years, I’ll have less concern about taking on risk. Of course this is all subject to change, but hats my plan. According to my plan, with a conservative AA, my portfolio should actually grow and be larger when I die. If that happens, I’ll know it as time passes and withdraw from the non-equity portion of my portfolio thus driving up the equity portion. If things are tracking as planned, no need to rebalance. Just spike the ball and have more of a legacy.

 

[ER2B]

I was planning on a rising equity AA as we got older. But after seeing aunt's long-term care expenses of $3300 per week, I am not sure anymore. What if equities are down for an extended period and we needed LTC.

 

[travelover]

More broadly, I think that the point is that it is a bad idea to be 100% in stocks when retired for the simple reason that if you need to sell a part of your portfolio regularly to live on, you will sell at a loss in a big, long downturn.


A retired relative learned this harsh lesson in the 2009 recession - he was 100% into stocks and had to take out a home equity loan to avoid selling stocks at a big loss. He wrongly thought that dividends would tide him over, but they were inadequate.


Beyond that, the article sounds like market timing.

 

[ejman]

I basically subscribe to Benjamin Graham's philosophy "First and foremost, to preserve capital, and then to try to make it grow. He suggested having 25% to 75% of your investments in bonds and varying this based on market conditions. This strategy had the added advantage of keeping investors from boredom, which leads to the temptation to participate in unprofitable trading (i.e. speculating). I try to implement this philosophy by having wide rebalance bands from a nominal 50/50 which means I basically do nothing unless there are really major market shifts taking place ( 2008 type events)

 

[LOL!]

Did you buy Fidelity Total Bond -- the high expense ratio actively-managed bond fund? Why that one and not a total bond market low-expense ratio index bond fund?

 

[davebarnes]

We have all our money at Fido.
We are ages 71/62.
We are 74% stocks and expect to be 74.5% later this afternoon.

I have a whole different approach.
My question is: Do we have enough in cash/bonds to survive a 7-year market meltdown at our current (and expected) withdrawal rate?
If yes, then we don't need a greater % in cash/bonds.

 

[GenXguy]

I'm not quite a boomer, and I am planning to retire much sooner than 10 years, but I've gone from 80% stocks to about 42% stocks in the last year and a half, but not because any article told me to do so. My stash exceeded my target, so I wanted to become more conservative in the final stretch. I may use a rising equity glide path in retirement, where equities increase.

 

[audreyh1]

Did you buy Fidelity Total Bond -- the high expense ratio actively-managed bond fund? Why that one and not a total bond market low-expense ratio index bond fund?

Fidelity US Bond Index Fund is the equivalent to Vanguard Total Bond Market Index Fund. They both track the AGG.

Folks often think Fidelity Total Bond Fund is an index fund and low cost, but it is neither.

 

[OldShooter]

... Do we have enough in cash/bonds to survive a 7-year market meltdown at our current (and expected) withdrawal rate? If yes, then we don't need a greater % in cash/bonds.

Yes. That is basically our approach as well, and why we are at 75/25.

@RobotMom, I think the point to take away from all these posters is that their AA is driven by individual circumstance not some general statement related to age. Age is a consideration of course, but rarely should it be the major driving factor.

 

[dtbach]

At this point in my retirement, a military pension and SS cover my daily expenses so I'm a bit higher in stocks at 67/26/7. That will be my AA for the foreseeable future.

 

[RetireBy90]

As I go through retirement, I have a portion of my assets that will go to the kids. Therefore, I see the timeframe for those assets I think will pass to kids as a much longer horizon and a higher equity portion. Just one way to look at it.

 

[Ready-4-ER-at-14]

I agree with old shooter in that your other income streams and expenses have a lot to do with how much I would want to have in the stock market.

I too read the fidelity blurb and acted on it.
We recently sold some stock that had doubled or tripled and moved most of that into fixed income. However I used some of that gain to buy longer term in the money calls on what I sold in case trees really do grow to the moon and this time is different and should more interest rate decreases happen.

Annuities, fixed income, and SS should more than pay our expenses and maintain the lifestyle so stock market risk is about half of net worth.

 

[ziggy29]

In general, for many people who are heavily invested it *is* a prudent move to gradually reduce market exposure as you age. But there are far too many variations in personal situations and risk tolerances to suggest an oversimplified idea like "100% (or 120%) minus your age in equities" for everyone.

Also, the people who plan to need 3-4% a year out of their portfolios have less margin for error (either way) than someone who needs 1-2%. The latter should be "safe" with a wide range of asset allocations that mirror their risk tolerances, whether 20/80, 80/20 or anything in between. The former risk a lot more in terms of "too aggressive" busting their retirement in a crash -- *and* in terms of "too conservative" by outliving their portfolio because of lack of growth and inflation.

 

[audreyh1]

Link to Fidelity blurb?

 

[GrayHare]

Being 100% stocks during retirement surely feels risky, but drastically altering that allocation within a short period might be even riskier. For example, compared to historic norms, currently bonds are vastly overpriced, stocks less so. Quickly switching from a 100/0 AA to a 75/25 AA is more risk than I would want to take under such market conditions. Instead I would spread the risk by shifting the AA maybe 5 percentage points per year, starting 5 years prior to my retirement year.

 

[garyt]

Funny, I was just in to Fidelity a couple weeks ago and my agent didn't mention this to me. I'm 62 and just retired and my wife is 59 and working one more year. He did say that they see US economy slowing down next year and being down for a year and then coming out of it.
He was trying to sell me on letting Fidelity handle my money for a fee (not a hard sell,though). I told him I try to beat the S&P 500 and he looked at the return ytd of the "fund" for lack of a better term he was suggesting. It was underperforming the SP by 2%. He then looked at longer terms and it was underperforming the 3-5 year averages, too. My portfolio is beating the SP by quite a bit in these times so I said no thanks.
But I'm 70% stocks and he didn't suggest I cut back.

 

[travelover]

.............He did say that they see US economy slowing down next year and being down for a year and then coming out of it.
.........

....but then again he has no idea if that is actually true. People that can "see" the future quickly become so rich that they don't have to work at Fidelity or anywhere else.

 

[steelyman]

I’ve been punting for a while by following the broad asset allocation of a Vanguard target date fund (that is, I let them make the stock/bond decision but implement with other funds).

I’m thinking that once the AA gets to 60/40 I’ll move from the “other funds” to VBIAX or similar and go totally hands-off (except the fun part: withdrawals!).

 

[Ready-4-ER-at-14]

I don't have the specific link but g**gle search using fidelity boomers stock found many references to it.
Main thing it was directed to those with less that 10yrs till retirement age who were > 70% invested in stock market, per my memory.