Retired Asset Allocation Based on Portfolio Size

[joesxm3]

Some have said "why continue to p!at if you have already won the game."

It occurred today to have some discussion around this topic.

Picture a $1,000,000 portfolio invested at 60%/40% versus a $2,000,000 or larger portfolio invested at 33%/67%. Both have about $600,000 invested in equities.

In my case I spend less than $100,000 including taxes. I don't have any wife or children to want to build up a massive legacy for.

What do you think? Is the higher volatility $600,000 equity position comparable to the $600,000 equity position with a larger fixed income balance?

What if the 33% equity allocation was more aggressive or higher volatilty?

What if the 67% fixed allocation included some amount of alternative assets such as precious metals or miner stocks?

I guess this is enough for an opening topic statement. Feel free to add or adjust topics.

Thanks.

 

[Dash man]

I don’t follow asset allocation too much. I do keep a few years of living expenses in safer investments such as high yield savings accounts, money markets, iBonds, treasuries and CDs. It leaves me close to 80/20, but I don’t really care. The stock market goes up more years than down and we get over $200k/year just enjoying life.

 

[MarieIG]

I don't have a target asset allocation, although loosely I prefer more in equities than fixed income. Before I retired I stock piled cash to cover the necessities so I didn't have to sell low. Managing my portfolio has been a learning experience for me, and I have gradually been trying to improve my choices (reduce risk, etc.)

 

[SnowballCamper]

I think the purpose of an asset allocation is mostly behavioral based. It smoothes out the stock volatility so that it is easier to avoid panic selling. The particular allocation isn't important. But if you do choose one, then you have a wonderful tool to guide you when Mr. Market goes nuts. The only thing to do is rebalance which involves selling stock at elevated prices, or buying stock at depressed prices.

If this is the habit you've developed that enabled you to win the game, there isn't a good reason to stop IMHO.

 

[engineernerd]

I always consult FIRECalc as my first step to determine my basic (stocks/fixed-income) asset allocation, since my only important goal is to maximize my chances of not outliving my money. While spending what keeps me happy, of course.

If I get 100% chance of success across a wide range of asset allocations with a given set of assumptions, then I'll look into increasing my assumed retirement duration (lifespan) and/or my assumed withdrawal rate, to try to see which allocation is likely to do best for me if it turns out that I either live even longer than my current assumption or my expenses turn out to be higher.

I know people who feel antsy about/uncomfortable with a high exposure to stocks, who feel relief when their portfolio grows big enough to give them "permission" to reduce their stock-market exposure, but I'm not one of those people. Once I feel I've done my best to follow the evidence, I'm happy to put it out of my mind again and concentrate on other things.

Oh, and you asked about alternate assets. I would treat volatile assets cautiously in my calculations. If there is a real chance their value could go to zero and never recover, I'd exclude them from my portfolio value entirely.

 

[Koolau]

Some have said "why continue to p!at if you have already won the game."

It occurred today to have some discussion around this topic.

Picture a $1,000,000 portfolio invested at 60%/40% versus a $2,000,000 or larger portfolio invested at 33%/67%. Both have about $600,000 invested in equities.

In my case I spend less than $100,000 including taxes. I don't have any wife or children to want to build up a massive legacy for.

What do you think? Is the higher volatility $600,000 equity position comparable to the $600,000 equity position with a larger fixed income balance?

What if the 33% equity allocation was more aggressive or higher volatilty?

What if the 67% fixed allocation included some amount of alternative assets such as precious metals or miner stocks?

I guess this is enough for an opening topic statement. Feel free to add or adjust topics.

Thanks.

I generally concur with your thinking though I'm guessing "we" (you and I) are in the minority here. As long as you have "enough" then it seems the volatility of stocks can be limited by lower % invested in them.

Take the limiting case. Say someone handed you 100 Million in cash (legally - remember, it's just a thought experiment). Would you really need to invest that money (or any part of it) to insure you never ran out of money. Certainly not unless you changed your spending habits wildly. SO there must be SOME number of dollars where you would feel comfortable cutting back on equities. I just don't know how you would decide that. BUT your thinking seems valid to me - though, full disclosure, I have increased my equities over the past 10 years from around 30% to about 40%. As always, YMMV.

 

[audreyh1]

It depends on

1. How much the annual/daily volatility bothers you, and
2. How big your portfolio is with regard to your spending needs.

If the portfolio volatility especially daily bothers you enough to make you want to sell things, then you might want to go lower equities plus stay very short term in fixed income. Theoretically the larger a portfolio the less volatility should matter, but some folks aren’t built that way.

If you are already living with a low withdrawal rate, then volatility should not have nearly as much practical impact. Theoretically you are already underspending and portfolio survival is very unlikely to be an issue.

This year I decided to let our equity allocation float because our portfolio has grown significantly. The tax and IRMAA consequences of trimming equities would be quite painful. We also need to spend/gift more. We’ll see how it goes!

 

[pb4uski]

To me it is a sleep-at-night factor, because once you have won the game, either 100% stocks or 100% bonds or anything in between are a-ok.

I sort of split the difference in that I shifted what would otherwise be in common stocks to preferred stocks. I get an attractive yield (6.86% weighted average) and some minor price volatility but much less than common stocks. As of this writing, the fair value of my preferreds is 101% of cost, so not much price movement. The way I look at it, if a diversified common stock portfolio returns 10% and I can get most of that with less price volatility, I'm satisfied. And there is a case to be made that if valuations revert to normal levels that 10% is unlikely over the next decade and meanwhile the 6.86% is pretty locked in and could get better on a total return basis if interest rates decline.

 

[OldShooter]

It depends on

1. How much the annual/daily volatility bothers you, and
2. How big your portfolio is with regard to your spending needs.

I would add #3: What the long-term purpose of the portfolio is.

For some of us, simply having enough money to ensure that we don't run out is the long-term purpose. In this case protecting what we have won may be the purpose. IOW stop playing the game.

For other of us (self included) it is to have enough money to fund an estate that includes trusts for our grands and our son, plus some favored charities. Absent a completely crazy investment strategy this also ensures that we don't run out.

For some (self included a little bit), the game is so much fun that we don't want to stop and we have enough money that we aren't risking our long term financial health or the health of our estate relative to our plans.

 

[Focus]

I get your point. Yes, the size of the portfolio could affect asset allocation.

As I mentioned in another asset allocation thread, my target allocation used to be 60/40, but it had appreciated to about 70/30. I rebalanced to 50/50 a couple of months ago and am glad I did. I expect I'll stay there, because that perfect balance appeals to me at this stage of life.

 

[audreyh1]

I would add #3: What the long-term purpose of the portfolio is.

For some of us, simply having enough money to ensure that we don't run out is the long-term purpose. In this case protecting what we have won may be the purpose. IOW stop playing the game.

For other of us (self included) it is to have enough money to fund an estate that includes trusts for our grands and our son, plus some favored charities. Absent a completely crazy investment strategy this also ensures that we don't run out.

For some (self included a little bit), the game is so much fun that we don't want to stop and we have enough money that we aren't risking our long term financial health or the health of our estate relative to our plans.

Right, OP specifically stated he had no children or significant other.

 

[joesxm3]

I think in my case last year was so great a return that my 1987, 2001, 2008 and 2022 PTSD got triggered. At the end of 2024 I took profit equal to about 15% of the gain. Most of it at the 0% and 15% LTCG rate.

So far this year I have already taken another 5% which is close to using up the 0% bracket.

The market does seem highly priced, but I am not saying it won't go up more. I have sold or donated 50% of my PLTR position, most of that much too early. I am stupidly overweight TSLA but, being a fan boy, it breaks my heart to sell any.

I had told myself that I should increase my equity allocation from the 30% I started retirement with in 2016 and, even with the profit taking, it has grown to 37%. Part of the percentage growth was simply due to living off my cash hoard for eight years. Of course a lot of that time was wasting at 1% yield.

So much to worry about and I see advice saying both that things will go up and also that things will go down. Those of you with a simple plan have life so much easier.

But, if it wasn't this I would find something else to worry about.

 

[flyingaway]

Currently I have about 10 years of living expenses in fixed income (CD, bonds, bond funds, money markets, etc.), l don't care about the stock funds percentages very much any more. I know I have enough, my concern now is how to spend my money to make me happy when I am still alive.

 

[pjigar]

This is more of a physiological exercise than anything else. You will see responses from both extremes:
* Why take risk if you have won the game?
* Why leave money on the table?

Everyone has to find a spot that works for them somewhere on the spectrum. For us with FatFIRE plan, we would rather invest aggressively with a large asset base than be conservative and leave money on the table. We have proven mental stability to "do nothing" when markets have tanked in 2008, 2013 and 2020. If one can't control impulses then they better have less equity exposure.

 

[OldShooter]

Right, OP specifically stated he had no children or significant other.

So those are out as goals for the portfolio. That still begs the question: "What is it for?"

 

[jimbee]

The bigger my portfolio gets, the more equities I hold. I have plenty of fixed to live on, so why not?

 

[joesxm3]

The bigger my portfolio gets, the more equities I hold. I have plenty of fixed to live on, so why not?

Interesting to look at it from the opposite perspective.

That may be sort of the idea that with enough of a cash cushion you can risk gambling for the moon with stocks like PLTR and TSLA.

In my case I was very conservative from 2016 when I retired to 2020 when I started to worry about not keeping up with inflation and buying volatile stocks that soon dropped sharply. Having a large fixed income portion I did not panic, although I did exit some positions at the bottom but added to what I thought were better beaten down companies.

I will try to analyze how much cash cushion I need for how long and then consider how much of an equity allocation that leaves.

 

[RetiredHappy]

We look at it differently and I will explain the rationale below.

Fixed income - SS, fixed deferred income annuities (bought using 100% of my (wife) IRA), 20% of spouse (husband) IRA is in 5 and 6 years MYGA.
Equities - 100% of taxable brokerage, 80% of spouse IRA.

Taxable brokerage value is about the same as IRA.

Income = SS, fixed deferred income annuities payout, taxable brokerage dividends, spouse's RMD. RMD amount is taken from IRA's dividends and MYGA allowed withdrawal each year. Income that is generated meets about 80% to 90% of our needs. We sell positions in our brokerage accounts for the balance of our spending needs We don't worry about dips in the stock market. In reality, we can live very comfortably without additional withdrawal, i.e. no need to sell positions, but we seem to have alot of ad hoc purchases (toys, new house projects...).

 

[joesxm3]

So those are out as goals for the portfolio. That still begs the question: "What is it for?"

I guess my goals are to have enough to spend whatever I feel like and to have enough left over to finance some sort of high quality end of life care when it comes to that if I can manage to figure out a way to do that without loyal children running the show.

If I kick it early I have friends that have helped me through problems and been loyal set up to split the treasure.

 

[joesxm3]

I am 68 so will start SS in two years and RMD in five. SS will cover roughly half of my spend if it does not get cut.

Once SS kicks in it may look like I have too much fixed income and would flip flop the way I look at things and the equity allocation may be the balancing anchor instead of the fixed income.

 

[Healthy Lifestyle]

I am 68 so will start SS in two years and RMD in five. SS will cover roughly half of my spend if it does not get cut.

Once SS kicks in it may look like I have too much fixed income and would flip flop the way I look at things and the equity allocation may be the balancing anchor instead of the fixed income.

I am in this situation, but sit with too much in tax deferred IRA.

 

[audreyh1]

The bigger my portfolio gets, the more equities I hold. I have plenty of fixed to live on, so why not?

That’s the view I am swinging towards, although I admit it is driven by tax considerations. Definitely the tax tail wagging the dog, but in our case I think it actually makes sense!

 

[marko]

The game (I really don't like that expression) is just too much fun. Once you can loose some without any trauma, winning becomes part of it.

Truth be told, since I retired, it's my hobby.

I don't know what I'd do all day if I was just checking on TBills. Plus, I'd miss all my friends here on this forum and all of you would miss my silly questions.

How much more money do need Mr Rockefeller? "Just a little bit more".

 

[Koolau]

I am in this situation, but sit with too much in tax deferred IRA.

Same here - and I've been w*rking on the problem for a long time. Having such a large tax deferred amount (my case) in a 401(k) takes away some of my flexibility because of RMDs.

 

[Koolau]

The game (I really don't like that expression) is just too much fun. Once you can loose some without any trauma, winning becomes part of it.

Truth be told, since I retired, it's my hobby.

I don't know what I'd do all day if I was just checking on TBills. Plus, I'd miss all my friends here on this forum and all of you would miss my silly questions.

How much more money do need Mr Rockefeller? "Just a little bit more".

I've always liked getting more money, but don't find the game to be "fun." Good results = fun. Game = drudgery. YMMV