As a quantitative matter, how much difference would it really make if I were 70/30 instead of 85/15?
This question refers to the accumulation stage, not the withdrawal stage.
Conceptually 85/15 carries more risk. But how do you calculate the extent of the risk and potential reward, quantitatively, so as to make a truly informed risk assessment?
If the bottom falls out of the market you are going to get clobbered whether you are 70% stocks or 85%.
Here is a simple example of how I put numbers to the concepts:
Let's say on a portfolio of $1 million, you have an asset mix of 85/15. If the market drops 50% overnight you are looking at a diminution in value of stock holdings from $850k down to $425k. With a 70/30 mix your stock holdings drop in value from $700k to $350k. A difference of $75k between the two down side results.
A 25% market drop results in a $37,500 disparity between these two down side results.
On the up side, let's say that over 10 years the 85/15 portfolio earns 6% (growth of $790,847) while the 70/30 earns 5% (growth of 628,894). That up side gain differential of $161,953 is 216% of the down side risk of a 50% market drop, and 432% of the down side of a 25% market drop.
Am I omitting any significant considerations from my way of thinking about this?