2018 Strategy

[street]

I have no idea what to do. LOL I read all the time from you folks about rebalancing etc. and I do nothing. With my invested portfolio stocks/bonds I'm at 70/30 and have not changed that for 30 years.

I don't need these funds so what would you do? If I lose I lose but my thinking is if I don't need the money why do anything.

 

[jollystomper]

No changes to my AA, which is now 40% stocks and 60% bonds+cash.. I'm hitting singles but that is still generating well above my target SWR for retirement, so this AA gives me peace of mind.

 

[43210]

I'm at 90% stock, and want to retire in less than 3.5 years. Obviously I should dial back, but I can't bring myself to sell any stock. So I am now directing 100% of new contributions to fixed income. This should get me to about 20% fixed income allocation (80% stock) by retirement, but more to the point, it should be maybe 5-8 years of expenses in fixed income (we save more than we spend).

I'm not actually targeting an allocation, but rather, a certain numbers of years of expenses in fixed income at the start of, and throughout retirement (and the rest in stock).

There is a risk obviously (BTW I have no SS or pension, just investment assets) but it gives the best chance of retiring early with sufficient assets. (If the market crashes badly, I have the option to keep working, so I am more gambling with time than money.)

 

[RunningBum]

I have no idea what to do. LOL I read all the time from you folks about rebalancing etc. and I do nothing. With my invested portfolio stocks/bonds I'm at 70/30 and have not changed that for 30 years.

I don't need these funds so what would you do? If I lose I lose but my thinking is if I don't need the money why do anything.

How is it that you've stayed 70/30 while doing nothing? Stocks have greatly outpaced bonds over the last few years, so if you started at 70/30 I'd think you'd be well over 70% equities by now.

 

[audreyh1]

How is it that you've stayed 70/30 while doing nothing? Stocks have greatly outpaced bonds over the last few years, so if you started at 70/30 I'd think you'd be well over 70% equities by now.

I interpreted that to mean street did not start at 70% equities, but his/her equities have grown over time so that he/she is now at 70/30.

 

[cooch96]

I will continue to max my ira and 401k contributions, funding DW’s ira, and splitting leftover monies between paying off the mortgage and my taxable account. If there is a correction, I’ll pay the minimum on my mortgage and start gobbling up as much VTSAX as I can and encourage DW to get aggressive on her 401k contributions.

My AA is roughly 85/15. I’d prefer 100% equities, but megacorps’ retirement plan and offered 401k plans include bonds. I tell myself this is probably for my own good.

My goals for 2018 are to pay off the mortgage, achieve enough FI to fund a noodle retirement, and start accruing a toil/life balance either by negotiating a sabbatical of some sorts with megacorps or finding another gig. So help me, this will be the final year of burning the candle at both ends. I reckon I have another 12 years of FT and PT toiling until true FIRE.

 

[Chuckanut]

My crystal ball is cracked, I can't read minds and my time machine is broken. So....

I will re-balance sometime in January when I get around to it. Same AA as this year.

 

[flintnational]

I have no idea what to do. LOL I read all the time from you folks about rebalancing etc. and I do nothing. With my invested portfolio stocks/bonds I'm at 70/30 and have not changed that for 30 years.

I don't need these funds so what would you do? If I lose I lose but my thinking is if I don't need the money why do anything.

I have also been at 70/30 for most of my investing life. This year I rebalanced to 65/35. I also will likely not need the money invested in stocks. My reasons for the rebalance were to 1) just add an extra margin of safety 2) market time with 3 - 5% of assets if prices drop. So, I do not see a compelling reason to adjust your allocation if you do not need the money.

 

[street]

I have also been at 70/30 for most of my investing life. This year I rebalanced to 65/35. I also will likely not need the money invested in stocks. My reasons for the rebalance were to 1) just add an extra margin of safety 2) market time with 3 - 5% of assets if prices drop. So, I do not see a compelling reason to adjust your allocation if you do not need the money.

Thank you for your advise. I'm at about 70/30 ratio and I understand the question asked about how that can be. Yes that was a dumb statement I made I'm sorry as of now I'm 70/30 and what I meant to say is I haven't done any changing just bought each month for 30 years. Sorry!!!

I would like to keep growing if at all possible for heirs and charities.

 

[Corporateburnout]

Our AA was adjusted to 50/40/10 two years before retirement and has stayed the same for the 4 years of retirement with periodic re balancing. No plans to change this allocation in 2018 and for years beyond. I cannot predict what the market will do in 2018 or anytime thereafter....

Our AA has been averaging over 5% annually and we plan on 6% next year. This will go down slightly when SS comes online. Meanwhile we continue to enjoy our freedom.

 

[Anna J]

What is CAPE?

 

[sengsational]

Here is what investopedia says:

The P/E 10 ratio is a valuation measure, generally applied to broad equity indices, that uses real per-share earnings over a 10-year period. The P/E 10 ratio uses smoothed real earnings to eliminate the fluctuations in net income caused by variations in profit margins over a typical business cycle. The ratio was popularized by Yale University professor Robert Shiller, who won the Nobel Prize in Economic Sciences in 2013. It attracted a great deal of attention after Shiller warned that the frenetic U.S. stock market rally of the late-1990s would turn out to be a bubble. The P/E 10 ratio is also known as the "cyclically adjusted PE (CAPE) ratio" or "Shiller PE ratio."

 

[Youngblood]

I'm around 10-12 years away from being FI, so I planned on staying aggressive with my allocation at 95/5 for 2018. I might start balancing more as get closer to FIRE (3-5 years from 52).


I'm also thinking of making a change in how I invest for retirement. Currently I just have a 401K and a Roth IRA. I contribute almost the max amount to the 401k and I max out the Roth IRA.


Since I plan (or just really, really, want to) on retiring early at around 52, I don't have a buffer to get me to 59 1/2. I know there are options of a 72T and Roth Conversions, but who knows what the rules will be in 10 years. I plan on reducing my contribution to my 401K to get my company match and start investing into a taxable account (vanguard index funds). The plan is to invest the difference (minus taxes of course) I was putting into the 401K. I will continue to max out the Roth IRA.


Does anyone see any risks or pitfalls with this strategy? I tried running some spread sheet forecasts and it didn't seem to be too much of a difference. At least nothing to make me second guess my thought process.

 

[Winemaker]

With the passage of the new tax law, I am now seriously considering making Roth conversions. We receive pensions, rental income, and some 401k withdrawals. Our HC premiums, charitable contributions, mortage interest and property taxes, have been deducted to keep us at the 15% threshold, which is now 12%. With the new bracket at 22%, it is slightly better than than 25%. While I am only 59, I have 10 years to convert to avoid the 28% or 33% bracket, where we will be pushed in case the law is not extended in 2028. In 2028, I would then be taking SS at 70, and large RMDs. A potential 6-11% difference now, but if returns are average the next 10 years, who knows?

 

[Gunny]

I'm FIREd with my pension covering more than living expenses, so...I'm staying 85% in equities inside my TSP and Vanguard accounts. Although the CAPE is near historical levels, with the current low interest rates, strong economy, and recent tax cuts I'm confident in the market for the time being. I may change my mind this time next year, but I doubt it.

 

[Lsbcal]

...

Since I plan (or just really, really, want to) on retiring early at around 52, I don't have a buffer to get me to 59 1/2. I know there are options of a 72T and Roth Conversions, but who knows what the rules will be in 10 years. I plan on reducing my contribution to my 401K to get my company match and start investing into a taxable account (vanguard index funds). The plan is to invest the difference (minus taxes of course) I was putting into the 401K. I will continue to max out the Roth IRA.
...

I assume from the above that you will still be able to max out the company match which is risk free money. Roth's are a smart bet assuming the tax situation does not change to a pure consumption based tax. We are currently using Roth money to avoid the higher tax brackets.

When I retired I rolled the 401k to a tIRA and did some Roth conversions before taking SS. I maxed out the 401k. Why take potential 401k money and invest into taxable? Other then this question it sounds like you are doing sensible things.

 

[Youngblood]

I assume from the above that you will still be able to max out the company match which is risk free money. Roth's are a smart bet assuming the tax situation does not change to a pure consumption based tax. We are currently using Roth money to avoid the higher tax brackets.

When I retired I rolled the 401k to a tIRA and did some Roth conversions before taking SS. I maxed out the 401k. Why take potential 401k money and invest into taxable? Other then this question it sounds like you are doing sensible things.

Yes, I would contribute to get the company match. The reasoning for the taxable is for leveraging the gap between 52 and access to the retirement funds. I know I have access to the Roth IRA contributions, but that won't be enough to get me to 59 1/2.

 

[HI Bill]

It Depends

As many have said, it depends on your age, your sources of income, your assets, etc. I plan to FIRE in 2 years, at age 53. I have an asset allocation that's approximately 71/0/5, plus 24 in an ESOP. Having an anticipated withdrawal strategy where 50% of my expenses will be discretionary (travel), I plan to hold the course, as I can always cut discretionary spending in the event of something like 2008. In the long term, 100/0/0 has outperformed every other allocation, with added volatility. Since I'll have 1-2 years of cash/cash equivalents, I will take money out of the market in up times, and out of the cash bucket in down times.

 

[38Chevy454]

With the great equities returns this year, I have done some rebalancing. I am shooting for 70/30. However, some of my rebalancing was to increase my international equities, as I was a bit heavy in US and wanted the international diversity. Current international is about 10%. I don't really keep a big cash bucket, just sell as needed for any extra money.

 

[Huston55]

I plan to FIRE in 2 years, at age 53. I have an asset allocation that's approximately 71/0/5, plus 24 in an ESOP......In the long term, 100/0/0 has outperformed every other allocation, with added volatility. Since I'll have 1-2 years of cash/cash equivalents, I will take money out of the market in up times, and out of the cash bucket in down times.

So, really 95/0/5; with concentration of 24% of your portfolio in a single stock. At 2 yrs from FIRE & today’s market valuations, that’s pretty [-]ballsey[/-] confident in my book.

 

[Scuba]

I'm around 10-12 years away from being FI, so I planned on staying aggressive with my allocation at 95/5 for 2018. I might start balancing more as get closer to FIRE (3-5 years from 52).


I'm also thinking of making a change in how I invest for retirement. Currently I just have a 401K and a Roth IRA. I contribute almost the max amount to the 401k and I max out the Roth IRA.


Since I plan (or just really, really, want to) on retiring early at around 52, I don't have a buffer to get me to 59 1/2. I know there are options of a 72T and Roth Conversions, but who knows what the rules will be in 10 years. I plan on reducing my contribution to my 401K to get my company match and start investing into a taxable account (vanguard index funds). The plan is to invest the difference (minus taxes of course) I was putting into the 401K. I will continue to max out the Roth IRA.


Does anyone see any risks or pitfalls with this strategy? I tried running some spread sheet forecasts and it didn't seem to be too much of a difference. At least nothing to make me second guess my thought process.

I did this for several years and ended up at ER with about 60% of assets in a taxable portfolio and 40% in a tIRA. Would have liked to have some Roth was never eligible to contribute. I’m a fan of tax diversity in retirement.

 

[DEC-1982]

I didn’t change allocation in 2008. I kept rebalancing back to my target allocation but stocks kept dropping farther so a few months later I had to rebalance again. That’s what I meant by catching a falling knife.

After that experience I decided that my 5% rebalancing band triggers were too tight, and I set them to 8-10% so that I would rebalance less often, even in volatile times.

You are right Audrey, re-balancing not changing allocation. There is a HUGE difference between the two, and I quoted you incorrectly.

 

[scrabbler1]

I'm around 10-12 years away from being FI, so I planned on staying aggressive with my allocation at 95/5 for 2018. I might start balancing more as get closer to FIRE (3-5 years from 52).


I'm also thinking of making a change in how I invest for retirement. Currently I just have a 401K and a Roth IRA. I contribute almost the max amount to the 401k and I max out the Roth IRA.


Since I plan (or just really, really, want to) on retiring early at around 52, I don't have a buffer to get me to 59 1/2. I know there are options of a 72T and Roth Conversions, but who knows what the rules will be in 10 years. I plan on reducing my contribution to my 401K to get my company match and start investing into a taxable account (vanguard index funds). The plan is to invest the difference (minus taxes of course) I was putting into the 401K. I will continue to max out the Roth IRA.


Does anyone see any risks or pitfalls with this strategy? I tried running some spread sheet forecasts and it didn't seem to be too much of a difference. At least nothing to make me second guess my thought process.

When I was doing my ER plan in 2006-2007, I had to decide between contributing to my 401k with the company match and boosting my taxable account by fewer dollars. I chose the former until mid-2007 when I reduced my weekly hours worked and made myself ineligible for company match. At that time, I eliminated my 401k contributions to boost my take-home pay a little bit. My taxable account had to last me about 15 years (age 45 to ~60, starting in late 2008).

At the time, I had 1/3 of my portfolio in taxable, 1/3 in 401k, and 1/3 in tax-deferred company stock (ESOP). When I ERed in late 20090, I cashed out the stock at favorable tax rates so 2/3 of my portfolio was in taxable and 1/3 in tax-deferred (rollover IRA). This has supported me well for the last 9 years.

 

[Done at 49]

I'm at 45% stocks and 55% bonds and cash and will stay with that for now. If the market decides to correct I will move some cash back into my mutual funds.

 

[Chuckanut]

In the long term, 100/0/0 has outperformed every other allocation, with added volatility. Since I'll have 1-2 years of cash/cash equivalents, I will take money out of the market in up times, and out of the cash bucket in down times.

One thought that I would like to throw out especially for newbies to investing who might not realize there is something called Sequence of Return Risk.

While 100% in stocks may be the best long term, one must be aware that we don't earn the average every year. In fact there are down years, even several down years in a row are possible. And those downs can be very steep, such as the 40% haircut people took in the mid 70's.

The problem is that if one's investments are hit very early with a BIG Bear market that drives stocks down, Down and DOWN, and on top of that one has to sell some stocks at very low prices in order to pay the rent and put food on the table, well..... There may not enough left to earn it back even with a vigorous recovery.

Getting hit early by a huge down market is what sequence of return risk is all about, and it is something to be avoided if at all possible. Having several years (4 years, IMHO) spending cash in a safe investment is one way to do that.

Another safeguard is have simply have some quality bonds (IOW, 60/40, 70/30 etc.) that can be sold while one waits for the market to recover. Keep in mind, it could be a long wait. Markets don't always go up after a fall, sometimes they tread water at the same level for years.

Every coin has two sides and sometimes somebody gets lucky and retires just as the market booms for year after year after year. Then, that person - who planned on a pleasant but limited retirement - suddenly finds that he/she can jet to Paris for a Sunday meal at Le RitzyGourmand every few months.