Author Topic: Asset Allocation  (Read 318 times)

HBFIRE

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Asset Allocation
« on: March 12, 2020, 10:39:36 AM »
Wondering if anyone is rethinking their long term asset allocation as they get jitters during a down turn.  It's good to be honest with yourself so that you aren't overly stressed.  Of course now is not the time to make that change, but it's worth noting it and perhaps adjusting it once things have calmed down in the markets.

I think a lot of us in this community are either 1) are too young to have experienced the great recession pains, or 2) near ~40ish and maybe didn't have much at stake back then.  I fall into the latter camp.  I experienced the job loss and massive job pains, but I didn't have any exposure in the markets.

Unfortunately, figuring out what you're comfortable with in terms of asset allocation might require feeling the pain of a downturn.  Sure, we can think about what we're comfortable with on an intellectual level, but I think real world experience is what really solidifies an understanding.  Now is probably the best time to truly evaluate what asset allocation you think is good for you in the long term.  My own allocation is ~ 70/30, and fortunately I think it's about in line with what I'm comfortable with given my current net worth -- maybe some minor calibration.  That said, as my portfolio increases, I will very likely tweak that down to something like 50/50 and will absolutely want to diversify into rental properties.  This particular downturn has me really thinking about how much it would be nice to have additional income streams like rental properties.  When stocks are hammered and income or job is at risk, these are the times you're happy to have that third income stream.  Additionally, I'm really thankful that I've set aside a large emergency fund that is not exposed to equities.  So basically what I've learned is 1) I need to develop additional passive income streams, and 2)long term plan as my portfolio gets more robust will be to slowly lower equity exposure.
« Last Edit: March 12, 2020, 10:41:56 AM by HBFIRE »

tooqk4u22

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Re: Asset Allocation
« Reply #1 on: March 12, 2020, 10:55:30 AM »
Not really changing but will go more aggressive but that's by plan.   I am a more conservative person by nature so I have always left money on the table but in 2018 I was 70/30, when to 65/30 into early 2019 and as market recovered I went to 55/45 when I FIRE'd.  Had FOMO as 2019 and start of 2020 rocketed upward but didn't feel it was real (fed rate and QE induced with no earnings growth in 2019) so I maintained my AA.   No the washout has happened and a rebalanced a bit but will go more aggressive (but still not "Aggressive") as market tumbles - if it hits 50% down then I will most likely go to all equities or 90/10.


vand

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Re: Asset Allocation
« Reply #2 on: March 12, 2020, 11:19:36 AM »
Oh.. so now you want to talk asset allocation..

HBFIRE

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Re: Asset Allocation
« Reply #3 on: March 12, 2020, 11:20:43 AM »
Oh.. so now you want to talk asset allocation..

Oh, I always do but I think it's important to do so when emotions are high.

tooqk4u22

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Re: Asset Allocation
« Reply #4 on: March 12, 2020, 12:03:49 PM »
Oh.. so now you want to talk asset allocation..

Oh, I always do but I think it's important to do so when emotions are high.

No, its more important to do it when they are not, so that your emotions don't change your stated plans.   

HBFIRE

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Re: Asset Allocation
« Reply #5 on: March 12, 2020, 12:07:42 PM »

No, its more important to do it when they are not, so that your emotions don't change your stated plans.

I agree in theory, and this is absolutely optimal.  Emotions shouldn't necessarily change your plans, but an asset allocation should be based in part on what you can handle psychologically in any market condition -- many are not aware of the emotions and jitters they will experience unfortunately until a downturn -- its a time where we can learn a lot about ourselves and our own psychology.  My point I made in my original post I think has value:

"Unfortunately, figuring out what you're comfortable with in terms of asset allocation might require feeling the pain of a downturn.  Sure, we can think about what we're comfortable with on an intellectual level, but I think real world experience is what really solidifies an understanding."

It's difficult to pinpoint personal psychological threshold in a vacuum.

This is also an excellent thread to reference on this subject:

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939
« Last Edit: March 12, 2020, 12:13:38 PM by HBFIRE »