Author Topic: My Asset Allocation - Risk Tolerant or Nuts?  (Read 3312 times)

RetireAbroadAt35

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My Asset Allocation - Risk Tolerant or Nuts?
« on: May 05, 2014, 03:26:28 PM »
Howdy folks,

I am estimating 4 years to FIRE.  I currently have ~13x my projected post-FIRE expenses saved.
  • I am assuming my income (5% annual raises), savings rates (over 50%) and market returns (5% after inflation) continue on their current trajectory
  • I also figure I can afford to be extra risky since if the market gets funky, I can keep working.
  • My goal is fastest path to FIRE.
  • I'm not in a position where I can get into business or real estate investments as I'm currently travelling far too much for work.
  • For the same reason, I have no mortgage or lease, car payments or debt.  Fixed expenses are very low.  I rely on friends who store my things and host me when I'm occasionally in town.  This will continue through September when I will probably take a position with less travel and settle down a bit.
.   

Thus, I have come up with the following asset allocation, which is all invested in Vanguard funds.

Desired Allocation:
  • 85% US Stock
  • 5% Intl Stock
  • 9% US Bond   
  • 1% Cash

Current Snapshot:
  • 93% US Stock
  • 1% Intl Stock
  • 5% US Bond
  • 1% Cash

I'm currently tweaking investments so that over time the current & desired allocations match up.

So mustachians ... I'm interested in critiques of my reasoning, persuasive arguments for or against my allocation, creative ideas for divestment, etc.

Gin1984

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Re: My Asset Allocation - Risk Tolerant or Nuts?
« Reply #1 on: May 05, 2014, 03:31:34 PM »
Is there a reason you are so low in international stock?

brewer12345

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Re: My Asset Allocation - Risk Tolerant or Nuts?
« Reply #2 on: May 05, 2014, 03:31:57 PM »
Um, so you have bet it all on red so to speak.  Not a great choice for someone so close to the finish line.  You should be transitioning to the kind of portfolio you wish to have in retirement.  Do this gradually, starting to make changes now.

RetireAbroadAt35

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Re: My Asset Allocation - Risk Tolerant or Nuts?
« Reply #3 on: May 05, 2014, 03:44:25 PM »
Is there a reason you are so low in international stock?

No, not really.  I only recently added it in and since I didn't have a good reason for or against, I started small.

Quote
Um, so you have bet it all on red so to speak. 
yes, but to be fair, all on red is still pretty diverse when based on VTSAX and VIIIX. 
Quote
Not a great choice for someone so close to the finish line.
I'm bucking the trend a bit here, for sure.  I justify it by considering that I've only been aiming for FIRE for about 4 years, so the other way to look at it is that I'm halfway there and trying to make up time. 

Since the impact of the risk is just having to work longer at a point where my career will likely still have potential upward trajectory, I've accepted the risk.  I'm posting here to validate my reasoning and really determine if I'm truly ok with that risk.  I think I am.

Quote
You should be transitioning to the kind of portfolio you wish to have in retirement.  Do this gradually, starting to make changes now.
I assume that post fire I'll be looking at a more traditional 20% bonds, 80% stock plus some other income streams such as real estate, business investments or some contract work.  This is all TBD as I'm only starting to think about what that would be.

C40

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Re: My Asset Allocation - Risk Tolerant or Nuts?
« Reply #4 on: May 05, 2014, 04:21:09 PM »
Compare the PEs of the US stock market to various other countries or continents. The US PE is quite high now.

Read this book:
Global Value: How to spot bubbles, avoid market crashes, and earn big returns in the stock market - Mabene Faber

Eric

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Re: My Asset Allocation - Risk Tolerant or Nuts?
« Reply #5 on: May 05, 2014, 05:33:28 PM »
Since the impact of the risk is just having to work longer at a point where my career will likely still have potential upward trajectory, I've accepted the risk.  I'm posting here to validate my reasoning and really determine if I'm truly ok with that risk.  I think I am.

Based on what you've stated, I think you're thinking about this correctly and understand the risks.  In the interest of full disclosure, I'm also about 93% US stock, so of course I think you're good to go! (EDIT -- with a timeframe of about 1.5 - 2 times longer)

Arguments made in this thread that you may want to consider that owning large cap US stocks already exposes you internationally based on where they do business, so extra international exposure may not be needed (or desired)

« Last Edit: May 05, 2014, 05:35:36 PM by Eric »

brewer12345

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Re: My Asset Allocation - Risk Tolerant or Nuts?
« Reply #6 on: May 05, 2014, 06:24:06 PM »
Is there a reason you are so low in international stock?

No, not really.  I only recently added it in and since I didn't have a good reason for or against, I started small.

Quote
Um, so you have bet it all on red so to speak. 
yes, but to be fair, all on red is still pretty diverse when based on VTSAX and VIIIX. 
Quote
Not a great choice for someone so close to the finish line.
I'm bucking the trend a bit here, for sure.  I justify it by considering that I've only been aiming for FIRE for about 4 years, so the other way to look at it is that I'm halfway there and trying to make up time. 

Since the impact of the risk is just having to work longer at a point where my career will likely still have potential upward trajectory, I've accepted the risk.  I'm posting here to validate my reasoning and really determine if I'm truly ok with that risk.  I think I am.

Quote
You should be transitioning to the kind of portfolio you wish to have in retirement.  Do this gradually, starting to make changes now.
I assume that post fire I'll be looking at a more traditional 20% bonds, 80% stock plus some other income streams such as real estate, business investments or some contract work.  This is all TBD as I'm only starting to think about what that would be.

I was thinking the same thing in 2007-2008 and ran right into the teeth of the crash.  Up to you what risks you are willing to run, but keep in mind that you will likely get to your destination and more certainly with a more modest equity allocation.

IMO, 80/20 is quite aggressive for an ER port.  I run between 60 and 65% equity.  The balance is 10% merger arbitrage funds, USd bonds, non-USD bonds, and cash.

ysette9

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Re: My Asset Allocation - Risk Tolerant or Nuts?
« Reply #7 on: May 06, 2014, 07:51:35 PM »
This is a little off-topic, but I wouldn't necessarily rule out the idea of a real estate income stream to diversify your assets. Just because you travel and can't manage the property yourself doesn't mean you couldn't still make a sound investment while paying a property management service. The details of whether it would work out of not in your situation would depend tremendously on what your local real estate market is like (if you even chose to buy an investment property locally). In some places in the country that can make great sense; in others, not so much. Just don't discount it entirely.

RetireAbroadAt35

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Re: My Asset Allocation - Risk Tolerant or Nuts?
« Reply #8 on: May 06, 2014, 09:00:48 PM »
It's not discounted entirely, just on hold until I decide if I'm going to move my home base in the fall.