100 minus your age.... When did you start investing safer?

Many/Most target date funds use the concept of a "glide path" where they gradually reduce the percentage of stock and increase the percentage of fixed income/bonds over time. They all, to one extent or another, base this on some work done by Merton quite a while back. To fully take into account an individual's situation, it would need to take into account things like "human capital" (future earnings as a worker), risk tolerance and social security, among other things.

Over on bogleheads, poster Ben Mathew and his brother have taken all of these into account and realized it in a web based tool called "TPAW Planner". TPAW planner, essentially, creates a customized and dynamically updated glidepath for you and calculates withdrawals.

The tool itself is located here: https://tpawplanner.com/
There's a wiki and a long running thread over on bogleheads which discusses it. I'd post links, but their site is currently down for maintenance this evening. It's easy to find, though.

As for me, my fixed income consists of what is effectively 3 TIPS ladders: 1 for each of us which act as bridges to SS and a third one that lasts for the duration of retirement we're planning for. The rest is 100% stock. I do not rebalance between TIPS and stock.

Cheers.
 
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I've been using 100- my age and haven't lost any sleep over it.
 
We’ve kept 15-20% in bonds for a long time. Good ballast and rebalancing.

My financial situation is somewhat complicated, but I expect to be 60/40 by the time I’m 65.
 
JoseSantiago said:
I'm reading some experts suggest that 100 minus your age is how much you should invest in things like bonds/high yield savings....
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This is arguably the worst investment advice that is out there. So a healthy 50 year old with a 30 or possibly 40 year investment time horizon should have 50% of their money in fixed income!?! If you want low risk/low return or simply have truckloads of money fine. But if you want or need your money to grow it's an awful strategy.
 
I always heard age in bonds. But as I gained experience at managing retirement funds I pretty much ignored that simplistic approach and I always had less than age in bonds/fixed income. I think there are many ways to choose an allocation such as volatility/comfort level versus long-term expected returns and how well an allocation keeps up with inflation. Whether you modify that as you age is another choice to make.

From Firecalc we know that inflation-adjusted portfolio survival (for the default withdrawal method) is about the same from 40% equities to 80% equities. So some other considerations would be long-term performance versus year-to-year volatility. Some folks are mostly passing on investments to heirs and prefer to maximize portfolio size after they pass. This generally argues for a higher equity allocation. Other folks are living mostly off their investments and also may prefer to spend down more of the portfolio and not pass on much. Totally comes down to personal goals and priorities.
 
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I believe the deciding factors may be aversion to risk as you age,your financial situation, and market performance on the year(s) prior vs any very general formulae by a so called expert.
 
We were at 80/20 for most of our careers, then started changing 5% / year as we got closer to retirement. 60/40 now and will remain there, unless something changes dramatically.

As far as someone in their 20s being 100% equities - yes... IF you have the risk tolerance and a stable job/large enough emergency fund and 'stay the course' during bear markets.
 
CaptTom said:
I'm confused. I thought the general advice was to invest more in "riskier" stocks when younger, and more in "safer" bonds as you age. Putting 100 (or 120) minus age in bonds would be the opposite.
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Haha. Yeah it’s backwards. %STOCKS= 100-age. But as someone else mentioned I think 120 replaced 100 many yrs ago. I’m sticking with 70/30 (70/20/10 to be exact).
 
CaptTom said:
I'm confused. I thought the general advice was to invest more in "riskier" stocks when younger, and more in "safer" bonds as you age. Putting 100 (or 120) minus age in bonds would be the opposite.
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Just read this thread and was about to make a similar comment. The OP has it backwards.
 
Given the huge price increases in things like insurance, food, taxes, and labor for home maintenance, I need equities to keep up with the cost of living. 2.5% inflation? Not in my neck of the woods.
 
100 minus your age in bonds is a 40 or 50 year old rule of thumb that does not hold up to the last 40 years of retirement planning analysis. Obvious faults are that 20 and 30 year olds should have no bonds and only a little cash, and there is no reason for 80 or 90 year olds to have that much fixed income unless they are almost broke. At that stage they should be investing for their heirs.

I've done a bit of a bond tent. I was down dot 55% equities when I pulled the plug on megacorp at age 55 and have done age in equities since. But that was after being 90%+ in equities for most of my investing career.
 
I used to hold 30% bonds in my 30s according to conventional wisdom I learned at the time. Over the years I sold them all off. But instead I have about 30% rental RE in my 40s. I treat rental RE as a proxy to bonds because they have similar profile (regular cashflow, intrinsic value, etc.) plus rental RE keeps up with inflation like stocks. We would reduce RE holding as a percentage of portfolio over time. I don't see myself holding any "real" bonds ever but never say never. YMMV.
 
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I am not a fan of "one size fits all." I am probably at my lowest percent of equities now (retired about 2 1/2 years now, set up a cash cushion pre-retirement, and bought some CDs and treasuries due to higher rates) - but plan to increase that after SS and additional income streams are triggered.
 
I have had different AAs over the years, for different subsets of my portfolio, for various reasons. After I ERed back in 2008, I decided on age-in-bonds in my rollover IRA. My taxable account is designed to generate a reasonably steady income stream because it is supplying me all the money to pay the bills. When I was working, my 401k and taxable accounts did not have to fulfill those goals, so the AAs were different.
 
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USGrant1962 said:
100 minus your age in bonds is a 40 or 50 year old rule of thumb that does not hold up to the last 40 years of retirement planning analysis. Obvious faults are that 20 and 30 year olds should have no bonds and only a little cash ....
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It may have been shown to be sub-optimal for long-term retirement planning using the last 40-50 years as an example, but some financial advisors--or more likely, the software they use--may still suggest that even the average (moderate risk tolerance, no prospect of a pension, etc.) person in their 20s should not be 100 percent in stocks. Maybe the rationale is for a psychological cushion in a crash? Maybe the average person is not able to resist flinching in a crash. As others have mentioned, this rule of thumb is clearly aimed at some theoretical average person, and is not intended to take into account individual circumstances. And ask anyone, and they will tell you, they are above average ;)
 
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marko said:
I've posted this here before. A bit dated but still relevant IMO. Note that 100% bonds are only slightly less risk than 60/40 but with much less gain. ... Personally, 2008 and the subsequent impressive recovery has made me quite sanguine about market risk.
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Be very careful with those Efficient Frontier charts. Among the underlying assumptions are:
  1. Asset prices are random
  2. Asset prices follow a normal/Gaussian distribution, which is clearly not the case.
  3. Standard deviation has meaning for non-Gaussian distributions, even unknown ones, such as stock price distributions.*
  4. Standard deviation aka variance is a useful measurement of asset risk which, IMO, is just silly.
Modern Portfolio Theory begat the Efficient Frontier and eventually got Markowitz a Nobel, but you will not find it written on stone tablets anywhere.

*Nassim Taleb points out that if a distribution is unknown it is impossible to know how many samples are required to characterize it.
 
OldShooter said:
Be very careful with those Efficient Frontier charts. Among the underlying assumptions are:
  1. Asset prices are random
  2. Asset prices follow a normal/Gaussian distribution, which is clearly not the case.
  3. Standard deviation has meaning for non-Gaussian distributions, even unknown ones, such as stock price distributions.*
  4. Standard deviation aka variance is a useful measurement of asset risk which, IMO, is just silly.
Modern Portfolio Theory begat the Efficient Frontier and eventually got Markowitz a Nobel, but you will not find it written on stone tablets anywhere.

*Nassim Taleb points out that if a distribution is unknown it is impossible to know how many samples are required to characterize it.
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Correct, statistics work really likes "normal" distributions, which is not the real world!
 
OldShooter said:
Be very careful with those Efficient Frontier charts. Among the underlying assumptions are:
  1. Asset prices are random
  2. Asset prices follow a normal/Gaussian distribution, which is clearly not the case.
  3. Standard deviation has meaning for non-Gaussian distributions, even unknown ones, such as stock price distributions.*
  4. Standard deviation aka variance is a useful measurement of asset risk which, IMO, is just silly.
Modern Portfolio Theory begat the Efficient Frontier and eventually got Markowitz a Nobel, but you will not find it written on stone tablets anywhere.

*Nassim Taleb points out that if a distribution is unknown it is impossible to know how many samples are required to characterize it.
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Thanks. I'll assume you're right because I have absolutely no idea what you just said lol. :)

But even at age 72 I do remain in my high risk tolerance mode thanks to my experience with 2008/2009.
 
aja8888 said:
Correct, statistics work really likes "normal" distributions, which is not the real world!
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Yeah. I think it's hilarious when people talk about the hurricane rains as "once in a thousand years."
 
I'm 60, and have had about a 70/25/5 allocation since I started paying closer attention to my portfolio at age 45. I doubt that will change much any time soon.
 
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According to the 120-age formula, and my AA, I am only 42!

Just like any general rule, it is only a guideline. Your circumstances need to be evaluated more than a general formula.
 
OldShooter said:
Be very careful with those Efficient Frontier charts. Among the underlying assumptions are:
  1. Asset prices are random
  2. Asset prices follow a normal/Gaussian distribution, which is clearly not the case.
  3. Standard deviation has meaning for non-Gaussian distributions, even unknown ones, such as stock price distributions.*
  4. Standard deviation aka variance is a useful measurement of asset risk which, IMO, is just silly.
Modern Portfolio Theory begat the Efficient Frontier and eventually got Markowitz a Nobel, but you will not find it written on stone tablets anywhere.

*Nassim Taleb points out that if a distribution is unknown it is impossible to know how many samples are required to characterize it.
Click to expand...
I like to hammer on #4. "Risk" to normal person is a likelihood of loosing real money. "Risk" to economist is fluctuation (aka std deviation) of price. Those two meanings are not interchangeable, at least not to me. YMMV.
 
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