61 with 1.9m. can i still go moderate allocation?

[mikes425]

Hi, I'm 61. Self employed... average work income for last 5-8 yrs has been from 50-80k/yr. Deciding to dial back work (as a freelancer) and maybe transition to more of a draw from dividend income - which Schwab projects at about 5-6k/monthly the way i'm currently allocated.

I've had a conservative (40% equity) PF since 2009. I'll agree i went and stayed too conservative too soon. Regret that now. Nonetheless, over 10 years (2009-2020) I've roughly doubled assets from about 800k to about 1.85m (give or take 100k depending on market volatility). If I'd had a 60/40 equity allocation (or higher) I'd have made far more. Periodic FA I consult with basically didn't believe I had the temperment for that risk level, so i never went above 45% equity. Now I'm pondering how much draw down i can realistically figure on with roughly 2m in assets. No debt, paid-for house in low COLA area. Frugal, cost-conscious non-extravagant lifestyle and not looking to spend excessively going forward. Good health. No pension, and will need to start paying at least 5-700/mo. for health insurance in October as i lose a performer-union PPO insurance program. SS at FRA might be around 1900/mo. 1400 (approx) if I take SS at 62. Haven't decided on that.

So one question.. is it 'too late' to add to equity in my PF, like. step up my exposure to something closer to a Moderate allocation ? Otherwise, other ways/ideas to boost my investment returns? Performance IMO has been average/mediocre over 10-11 yrs...then again - i recognize i should've been way more aggressively allocated in hindsight. Like maybe a few others, after '08-09, i never fully re-entered the equity market - and stayed more bond/FI oriented ever since. I do regret that but what can i do now? Well, actually that is kind of a question - could it still be profitable to up my equity percentage to the 50% range at age 61, for higher growth potential? Or, have i passed some sort of age benchmark that conventional wisdom says i should not add risk and..should follow whatever that adage is about matching one's bond/fixed income percentage to their age? (i.e. 60% bond/FI to 40% equity exposure)

Thanks for any thoughts! Love this forum, and really appreciate the shared knowledge and generosity of all who contribute here.

Best Regards,
Mike in Michigan

 

[Sunset]

We are are about 70% stock overall, some bonds, bunch of interest earning things like CD's.

So yeah, I find 40% equity extremely low, but now that the market is at record highs might be the worst time to buy heavily into stocks. Who knows maybe the market won't crash and it would be ok.

The important thing is, what would you do if it drops 30% or more ?

A question is, are you paying for the FA by the hour ? or how much are you paying this person ?

 

[Telly]

….If I'd had a 60/40 equity allocation (or higher) I'd have made far more. Periodic FA I consult with basically didn't believe I had the temperment for that risk level, so i never went above 45% equity....

Well... would you sweat over a 60/40 if the market takes a dive? All of the "Age Minus X" allocation rules of thumb never made sense to me. But then I haven't sold in a panic when the market drops, so I can hold a 60/40 without worry. I'm heading for 18 years into what began as Early-ER, passed through E-R, now I'm post-FRA.

Now I'm pondering how much draw down i can realistically figure on with roughly 2m in assets.

Have you put all of your specifics into FireCalc, and run it in historical mode? That should help.

 

[triangle]

I would caution about making any major or quick changes since market valuations are getting stretched. The stock market might continue its healthy growth for a few more years or more but the next decade is very likely to grow at a slower pace than the past decade at best case. After being conservative for a decade it would make you extremely sick if you got aggressive now, only to see it go down big next year (I am not making a prediction). Maybe you could make some slight adjustments or put new money to work in more aggressive places.

Otherwise you might want to investigate investments that are geared more for current income. There are Preferred, CEF, Reit, ..., funds where you could invest 5-6% of your nestegg (~100k) and generate enough to cover your health insurance. I am not trying to recommend that you do that, just something for you to consider as you plan you income needs before and after you start taking SS.

 

[njhowie]

Nonsense - you didn't stay too conservative. You can only consider saying that looking in the rear view mirror. There was no guarantee what would happen over the past 10 years. You decided on an allocation which was comfortable for you, taking appropriate risks with which you could sleep at night. That's not being too conservative, that's being prudent. You should congratulate yourself on growing your portfolio by about $1 million in those 10 years! If you don't, I will.

 

[54andchange]

The two best times to invest in the stock market are: 10 years ago, or today.

For me, running many scenarios in FIRECALC reinforced my decision to remain 95% equities. This allocation level only slightly lowers the chances of success, but always resulted in double or more the final Portfolio value, for my situation. Your mileage may vary . remember, never EVER sell even a single share during a downturn during athe accumulation phase. I never did. It's just not that hard.

 

[DrRoy]

When I am in doubt about such things, I sometimes split the difference. Consider 50%. That way, if things go well you benefit, and if they don't, you didn't add as much risk as you might have.

 

[donheff]

When I am in doubt about such things, I sometimes split the difference. Consider 50%. That way, if things go well you benefit, and if they don't, you didn't add as much risk as you might have.

+1 We are eventually going to get a good correction and eventually a recession. If you have any tendency to panic you should be cautious. If you drift up to 50/50 and survive the next substantial drop without butterflies, you could then consider drifting to maybe 60/40. Based on your and your FA's assessment of your risk profile go slow.

 

[Midpack]

Periodic FA I consult with basically didn't believe I had the temperment for that risk level, so i never went above 45% equity.

Like maybe a few others, after '08-09, i never fully re-entered the equity market - and stayed more bond/FI oriented ever since.

Well, actually that is kind of a question - could it still be profitable to up my equity percentage to the 50% range at age 61, for higher growth potential? Or, have i passed some sort of age benchmark that conventional wisdom says i should not add risk and..should follow whatever that adage is about matching one's bond/fixed income percentage to their age? (i.e. 60% bond/FI to 40% equity exposure)

These are what stuck out to me.

Why did an FA suggest your risk tolerance wasn’t suited to higher equity exposure? Wanting better returns alone isn’t a reason to increase equity exposure. If you’re not going to be able to sleep at night when the inevitable correction hits (sooner or later), and you panic sell low, the higher equity exposure will do more harm than good. If you can’t hold on during downturns, you’re equity exposure is too high. The investors who had the biggest gains since 2008-2009 are the ones who didn’t panic, didn’t sell, and rode it out - many here.

What was your equity allocation in 2007? And what did you do with your portfolio during 2008-2009? Hold? Sell? Buy?

There’s no magic age-risk threshold. Some here have large equity allocations, some moderate, some low. And some are low only because they’ve already won the game and don’t need to take risk commensurate with their risk tolerance. I’d be conservative at about 80-85, but not likely before then.

 

[COcheesehead]

Nonsense - you didn't stay too conservative. You can only consider saying that looking in the rear view mirror. There was no guarantee what would happen over the past 10 years. You decided on an allocation which was comfortable for you, taking appropriate risks with which you could sleep at night. That's not being too conservative, that's being prudent. You should congratulate yourself on growing your portfolio by about $1 million in those 10 years! If you don't, I will.

+1

 

[golfnut]

Everyone has a different attitude about asset allocation. I'd say leave yours alone and figure out what your total expenditures (budget) will be in retirement. If you will be going on Obamacare and keep your MAGI to less than $48,000 (I forget the exact no.), your healthcare premium could be very low. Look up what constitutes MAGI income- very important.


I'd say you are good to go with $1.9 based on your life style.

 

[Dawg52]

Nonsense - you didn't stay too conservative. You can only consider saying that looking in the rear view mirror. There was no guarantee what would happen over the past 10 years. You decided on an allocation which was comfortable for you, taking appropriate risks with which you could sleep at night. That's not being too conservative, that's being prudent. You should congratulate yourself on growing your portfolio by about $1 million in those 10 years! If you don't, I will.

Agree. Mike has done a great job to this point. I'm guessing the FA didn't encourage a higher allocation to stocks due to a risk assessment analysis he had with Mike early on. With the stock market going almost straight up since 2008, it's easy to forget about what it was like in those days. If he didn't like the feeling of the crash then.... I doubt he will like it any better now especially after going to a more aggressive AA.

 

[Car-Guy]

With the stock market going almost straight up since 2008, it's easy to forget about what it was like in those days. If he didn't like the feeling of the crash then.... I doubt he will like it any better now especially after going to a more aggressive AA.

+1,,,,, enough said....

 

[mystang52]

Nonsense - you didn't stay too conservative. You can only consider saying that looking in the rear view mirror. There was no guarantee what would happen over the past 10 years. You decided on an allocation which was comfortable for you, taking appropriate risks with which you could sleep at night. That's not being too conservative, that's being prudent. You should congratulate yourself on growing your portfolio by about $1 million in those 10 years! If you don't, I will.

+3 (I think that's the last count). From a money perspective, your portfolio grew considerably at 40% stock allocation. I don't think the numbers would have been a life-changing difference at a higher allocation like 60% And, of course, had the market gone down you may very well have been writing how glad you were with that 40% Investing is so easy in hindsight.
FWIW I recognized 2 things about myself: I'm not good at individual stock investing, and I'm not comfortable at large swings in my portfolio. I've been at 40% for a very long time and sleep well.

 

[USGrant1962]

You might want to read up on the bond tent and rising equity glide path strategies. The bond tent suggests that having low equity allocation right around your retirement date helps to mitigate sequence of return risk - which is kind of where you are right now. The rising glide path may lead to better returns and portfolio longevity, if you are comfortable with the higher equity allocation.

So you could raise your equity allocation by 2% or 3% a year until you take SS, then switch to your final AA (presumably 60/40) when you have that SS base income flowing.

https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/

https://www.kitces.com/blog/should-...is-a-rising-equity-glidepath-actually-better/

https://www.kitces.com/blog/acceler...ath-with-treasury-bills-as-portfolio-ballast/

 

[COcheesehead]

You might want to read up on the bond tent and rising equity glide path strategies. The bond tent suggests that having low equity allocation right around your retirement date helps to mitigate sequence of return risk - which is kind of where you are right now. The rising glide path may lead to better returns and portfolio longevity, if you are comfortable with the higher equity allocation.

So you could raise your equity allocation by 2% or 3% a year until you take SS, then switch to your final AA (presumably 60/40) when you have that SS base income flowing.

https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/

https://www.kitces.com/blog/should-...is-a-rising-equity-glidepath-actually-better/

https://www.kitces.com/blog/acceler...ath-with-treasury-bills-as-portfolio-ballast/

+1

 

[GravitySucks]

I found my risk profile after RE changed dramatically. Not sure why you'd think you'd be more comfy with market fluctuations when the paycheck stops.
How about putting new money into equities and looking at the portfolio as you are starting with 14 years expenses worth of bonds, even longer adding in SS.
Agreeing with the glidepath posts above, I would live off the bonds and let the equities roll instead making a wholesale change. See what your risk factor really is.

 

[gwraigty]

Hi, I'm 61. Self employed... average work income for last 5-8 yrs has been from 50-80k/yr. Deciding to dial back work (as a freelancer) and maybe transition to more of a draw from dividend income - which Schwab projects at about 5-6k/monthly the way i'm currently allocated.

You've got $5K to $6K monthly in dividend income, if I understand that right. I see no issues as long as your expenses are covered.

Nonsense - you didn't stay too conservative. You can only consider saying that looking in the rear view mirror. There was no guarantee what would happen over the past 10 years. You decided on an allocation which was comfortable for you, taking appropriate risks with which you could sleep at night. That's not being too conservative, that's being prudent. You should congratulate yourself on growing your portfolio by about $1 million in those 10 years! If you don't, I will.

Another thumbs up from me on this!

 

[pb4uski]

.... So one question.. is it 'too late' to add to equity in my PF, like. step up my exposure to something closer to a Moderate allocation ? ... I do regret that but what can i do now? ...

It's never too late to re-enter.... you just need to make a decision to do so, change your investment policy statement to reflect that decision and then start on a systematic plan to increase.

What are your 60% of fixed income invested in?

I particularly like value averaging. Let's say that you decide to move $180k from fixed income to equities and you want to do that over 12 months. Move $15k from fixed income to a new equity ticker today. A month from now, add whatever you need to to increase your equities to $30k... if the market went down in the last month then you'll be putting in more than $15 and if it went up you'll be putting in less. After another month, increase your position to $45k. Repeat until the entire $180k is invested. You'll be buying more when equities are relatively low and less when equities are relatively high.

 

[kjpliny]

If you've been comfortable with 40/60, I'd stay the course. Be happy with what you have.

 

[FREE866]

The two best times to invest in the stock market are: 10 years ago, or today.

For me, running many scenarios in FIRECALC reinforced my decision to remain 95% equities. This allocation level only slightly lowers the chances of success, but always resulted in double or more the final Portfolio value, for my situation. Your mileage may vary . remember, never EVER sell even a single share during a downturn during athe accumulation phase. I never did. It's just not that hard.

That's pretty much where I'm at and I retired January 2017. I put in numerous different allocations and sure, the volatility is much higher , but the balance is significantly higher over the long term with a heavy stock allocation.

 

[mikes425]

We are are about 70% stock overall, some bonds, bunch of interest earning things like CD's.

So yeah, I find 40% equity extremely low, but now that the market is at record highs might be the worst time to buy heavily into stocks. Who knows maybe the market won't crash and it would be ok.

The important thing is, what would you do if it drops 30% or more ?

A question is, are you paying for the FA by the hour ? or how much are you paying this person ?

Hi, and thanks. Oddly, I didn't come around to having a more tolerant temperament towards volatility until the last year or two, vs. 10-15 years ago. You'd think it'd be the other way around but so it goes. The FA has been working with me 'as-needed' for an hourly fee. ranging from 200-250/hour over about ten years time. I've stuck with him vs going to some 1%-of-Assets type of arrangement (the traditional 'model') -- and i am maybe his only client who he works with this way... So in some respects i guess you could say I've saved $$ that way - but who knows, a different FA even after-expenses might've helped me achieve higher returns -- this fellow basically judged me to be too risk-averse to go more aggressive - and he had no incentive to push me in that direction really. I was pretty freaked out by the 2008-09 experience and only major regret was not re-entering the equity market at a higher level after that - like back to a 60% or higher equity position. I bet at least someone else besides me had the same experience.
'

 

[mikes425]

Well... would you sweat over a 60/40 if the market takes a dive? All of the "Age Minus X" allocation rules of thumb never made sense to me. But then I haven't sold in a panic when the market drops, so I can hold a 60/40 without worry. I'm heading for 18 years into what began as Early-ER, passed through E-R, now I'm post-FRA.

Have you put all of your specifics into FireCalc, and run it in historical mode? That should help.

Hi, yes, have run the FireCalc numbers. I 'think' i've used historical mode...maybe i need to double-check that. What i mainly have a problem with in that program is, deciding exactly how to set what my portfolio allocation actually is. Like, I'm not sure if it precisely mirrors the types of bond and equity exposure I have, but i think it's close enough. Anyway, running the calculations with many different variables, i've not encountered any scenario where it doesn't calculate a 100% success outcome based on a 25 to 30 year period of withdrawals...and accumulation with existing allocation seems like it'll be at least better than average.

 

[mikes425]

Nonsense - you didn't stay too conservative. You can only consider saying that looking in the rear view mirror. There was no guarantee what would happen over the past 10 years. You decided on an allocation which was comfortable for you, taking appropriate risks with which you could sleep at night. That's not being too conservative, that's being prudent. You should congratulate yourself on growing your portfolio by about $1 million in those 10 years! If you don't, I will.

Thanks NJH! I appreciate your perspective and sentiments. Agreed it's sometimes too easy to be too hard on oneself and i am glad to have accumulated what is probably by many standards, a reasonable figure at which to feel comfortable with ER. Perhaps it's a product of being self-employed,
that i've been a bit more guarded or questionable about deciding when enough is enough..since it's kinda always been all on me to make such judgements. I appreciate resources like this for perspective.

 

[mikes425]

These are what stuck out to me.

Why did an FA suggest your risk tolerance wasn’t suited to higher equity exposure? Wanting better returns alone isn’t a reason to increase equity exposure. If you’re not going to be able to sleep at night when the inevitable correction hits (sooner or later), and you panic sell low, the higher equity exposure will do more harm than good. If you can’t hold on during downturns, you’re equity exposure is too high. The investors who had the biggest gains since 2008-2009 are the ones who didn’t panic, didn’t sell, and rode it out - many here.

What was your equity allocation in 2007? And what did you do with your portfolio during 2008-2009? Hold? Sell? Buy?

There’s no magic age-risk threshold. Some here have large equity allocations, some moderate, some low. And some are low only because they’ve already won the game and don’t need to take risk commensurate with their risk tolerance. I’d be conservative at about 80-85, but not likely before then.

Offhand I think I was at least 55% equity in 2007. In '08-09, After the 2nd or 3rd bank collapse I asked my broker to move at least a third of my portfolio into treasury funds. Frankly it's a bit of a blur and I don't relish looking back at the exact numbers at this point, but I didn't "buy" equity during the crash. So no i didn't full-scale panic, i scaled back a significant share of equity and moved it into bond/FI. The major error, if you wanna call it that, is not having rushed back into equity and reinvested post 2008-09...never fully returning to more than 50% equity. A banking system collapse and the whole derivatives fallout wasn't without future uncertainty. Yeah, i wish i wasn't conservative til i hit my 80s but it didn't happen and here I am.