Our Current AA? I have no idea.

[OldShooter]

I looked at it a while back after we made some strategic moves with the portfolio but haven't looked since. Nor am I at all concerned by the current market excitement. We'll know in a few years whether it has any significance or not.

In the mean time, we have a bucket of liquid investments sufficient to meet our needs and our RMDs for a few years. No equities are included.

I may start to worry in a few years if equities have not recovered and we need to start replenishing the near-in bucket.

So ... here is a question for those who are focused on AAs and on rebalancing: Will there come a point where you look at your fixed assets and decide to cancel the AA plan and instead say that you don't want the fixed assets portion to go below $XX regardless of what bargains might exist in the market? IOW, is there a point where you will start viewing your fixed assets as a bucket instead of as an allocation %?

 

[Hermit]

My pension and SS will always cover my basic needs.

As a retired engineer, unless I lose my marbles, I will always be interested in the details so I think the answer will always be no. The allocations will not be as important as the process. As Spoc might say, not managing to the process would be illogical. The process may very well be put on automatic...

 

[target2019]

I think of our cash allocation as serving the purpose you speak of. For example, we have 50/45/5 Equity/Fixed/Cash. That 5% is real cash, some being used to pay bills. So we don't want to go lower than 5%.

 

[LOL!]

So ... here is a question for those who are focused on AAs and on rebalancing: Will there come a point where you look at your fixed assets and decide to cancel the AA plan and instead say that you don't want the fixed assets portion to go below $XX regardless of what bargains might exist in the market? IOW, is there a point where you will start viewing your fixed assets as a bucket instead of as an allocation %?

Probably not.

The reason is that if we spend at the 4% rate and have 40% of assets in fixed income, then that is about 20 years of spending. "How that's?", you ask. That's because the portfolio of equities and fixed income has a yield of about 2%, so dividends cover half of the 4%.

Then you may ask, "but 4% of $10,000,000 is not the same as 4% of $5,000,000, so what happens when your portfolio drops by 50%?" In that case, we probably would cut back on spending, but not change our asset allocation.

 

[Bir48die]

I'm good until May 2020. Then I have to think about it.

 

[foxfirev5]

I absolutely have a minimum $ amt allocated to fixed income. It's sitting nicely in a brokered CD ladder, kicking out enough annual interest to pay all my tax and insurance bills. Monthly income pays the rest.

While I have an equity allocation (40-45 %) it is mostly a cap on equities. The most I'll do is reinvest dividends if it falls too low. ( And the way it looks we're there today at 35%).

 

[Huston55]

So ... here is a question for those who are focused on AAs and on rebalancing: Will there come a point where you look at your fixed assets and decide to cancel the AA plan and instead say that you don't want the fixed assets portion to go below $XX regardless of what bargains might exist in the market? IOW, is there a point where you will start viewing your fixed assets as a bucket instead of as an allocation %?

Well, sort of but.....No.

We currently have several years in a CD/bond ladder (60/35/5-ish). So, we have begun to think of the ladder as a guaranteed income stream until I am ~68 yo and nearing SS. That ladder really is somewhat of a bucket.

After that, we’d have 20+ yrs of bond funds available for use, w/o touching equities, if necessary; putting us at ~90 yo.

But, ‘buckets’ is really not the primary way we view our portfolio; it’s a secondary way, mostly for psychological reassurance, after setting & adhering to an AA.

 

[audreyh1]

I looked at it a while back after we made some strategic moves with the portfolio but haven't looked since. Nor am I at all concerned by the current market excitement. We'll know in a few years whether it has any significance or not.

In the mean time, we have a bucket of liquid investments sufficient to meet our needs and our RMDs for a few years. No equities are included.

I may start to worry in a few years if equities have not recovered and we need to start replenishing the near-in bucket.

So ... here is a question for those who are focused on AAs and on rebalancing: Will there come a point where you look at your fixed assets and decide to cancel the AA plan and instead say that you don't want the fixed assets portion to go below $XX regardless of what bargains might exist in the market? IOW, is there a point where you will start viewing your fixed assets as a bucket instead of as an allocation %?

I already had this built in to my original plan, as I had a minimum threshold for fixed income of X years of after tax expenses. At the end of 2008 I would have gone below that threshold by selling bonds to buy stocks, but avoided it by shaving a couple of % off of my equity allocation when I rebalanced. And I stuck with that slightly lowered allocation for years afterwards.

I’m nowhere near that threshold now, even after this extreme selloff.

 

[gcgang]

I won't sell stocks to replenish bonds if stocks are down. Just keep liquidating cash and bonds to meet living needs. If cash and bonds get exhausted, I guess I'd be 100%stock, but that 100% would probably be a very small amount and I'd be in line at the soup kitchen.

 

[Red Badger]

Not exactly. We have a lumpy CD ladder to get us to Q4, 2019. At that time, we'll both pull the trigger on SS.

Then, the question becomes, "How much in the fun bucket?" We can get by in reasonable comfort on pensions and SS. But a fair portion of the living large (intl travel, bigger discretionary buys, etc) will come from nest egg. It will be hard to pull $$ from a smaller egg just to do fun stuff. But that was the plan all along (smaller WR during down years).

FWIW, I keep us ~65%-70% equities. Without pensions, that would be a much lower equity ratio.

 

[scrabbler1]

I have two different attitudes about my AA. In my rollover IRA (2 funds, a stock fund and a bond fund) and I monitor the AA and adjust it when it strays too far away from my desired AA. But I my taxable account, I don't stick to any specific AA. Instead, I adjust it when I need to tweak the dividend income it produces. Most of its income comes from a bond fund, but some of it comes from a stock fund. At the start of 2017, I sold some shares of the stock fund so I could buy some bond fund shares after its monthly dividends per share had eroded a little more.

 

[Sunset]

I think we have 5 years of spending in cash, so we will spend that instead of stocks.

Should the cash run out, then I might turn on the SS spigot, while I ponder which stocks to sell. . .

Over the past 3 months, I was reading about TIPs and such from OP, and considering selling some stock in IRA to buy some, even went to the treasury site. But procrastination and the not super obvious way to buy them (it's not like Amazon) made me delay.

So my New Year's Resolution is: If Stocks ever (or When Stocks) get to a record high again, sell 20% of them and stick them in bonds/TIPs/CD's.

 

[DEC-1982]

So ... here is a question for those who are focused on AAs and on rebalancing: Will there come a point where you look at your fixed assets and decide to cancel the AA plan and instead say that you don't want the fixed assets portion to go below $XX regardless of what bargains might exist in the market? IOW, is there a point where you will start viewing your fixed assets as a bucket instead of as an allocation %?

Unlikely. But I didn't live through the Great Depression.

 

[rayinpenn]

IMO there isn’t an magic AA formula that makes sense for everyone. A person who can comfortably live on less than a 3% WR might be inclined to stay heavily in an equity pool that can generate 3%. Keep a couple years spending in cash equivalents to ride out any dividend reductions. The portfolios absolute value doesnt really matter since dividends are paying the bills. And there is more flexibly if things get bad cut trips, second car gifts to kids. Someone on a tight 4% withdrawal rate needs to protect that principle and might be inclined to take a more conservative AA approach and never deviate from it - deals or not.

So in answer to your question that 3% person might never really be out of equities.

 

[VanWinkle]

I have a 2 years of cash in money market that pays me a paycheck monthly. I have not started SS and could do so at any time if needed. I also have 15 years in bonds that I will use to re-balance to 50/50 if needed. Small pension and SS would take care of my expenses so the current draw on the cash is just for bumping my SS amount before I start drawing at FRA. To answer the question- maybe if this downturn is severe and long lasting.

 

[OldShooter]

Merry Christmas everyone. (Relatives coming in an hour so I'll sneak in a post)

... Over the past 3 months, I was reading about TIPs and such from OP, and considering selling some stock in IRA to buy some, even went to the treasury site. But procrastination and the not super obvious way to buy them (it's not like Amazon) made me delay. ...

Actually it's as easy or even easier than Amazon, and you don't have to worry about your TIPS getting stolen off your porch.

Easy: Buy them like you buy any other bond on your brokerage house web site.

Easier: Did you ever try to buy from an actual person at Amazon? Forget it. For TIPS you can just call the bond desk at Schwab, Fido or, probably, any other major brokerage. (My guess is that given the competitive nature of the business, everyone will be offering similar services at similar prices.)

At Schwab I prefer to avoid the web site and talk to an actual person. When I call the bond desk I get a licensed fixed income specialist who is not paid on commission. I brokerchecked one of the guys (I've never talked to a "she") there and he had 14 years' experience in the business. Quite acceptable.

So I talk over my bond need with the specialist and he tells me what's available and answers any questions I might have. Then we do the deal. Elapsed time maybe five minutes.

There are not a lot of TIPS auctions, so I usually end up buying a used bond, but I can also place an order to buy on the next auction at whatever rate is established then.

(I have no idea how Treasury Direct works and have no interest in learning. I am happy with the bond desk and the fact that I don't have to screw around creating yet another account and then transferring funds to and fro.)

 

[pb4uski]

... So ... here is a question for those who are focused on AAs and on rebalancing: Will there come a point where you look at your fixed assets and decide to cancel the AA plan and instead say that you don't want the fixed assets portion to go below $XX regardless of what bargains might exist in the market? IOW, is there a point where you will start viewing your fixed assets as a bucket instead of as an allocation %?

I'll preface this with never say never, but I don't think so...I'll probably be at least 60/40 for life.... perhaps higher since in reality a portion of our residual assets will be invested for the next generation.