Author Topic: High stock asset allocations misleading?  (Read 1176 times)


  • Stubble
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High stock asset allocations misleading?
« on: January 05, 2020, 06:12:39 PM »
Have been thinking about the standard asset allocation advice such as 70/30 or "100 minus your age in bonds" etc. But who does this really apply to? Someone with a guaranteed paycheck for the next 30 years? How do you account for unexpected events in asset allocation, for example if you had an illness or went back to school for a few years or are planning to, would you need to change your asset allocation for the expected or unexpected drawdowns required? What sort of allocation would be advised for this scenario, and in the case of unexpected events would you change your allocation after the fact?

Basically what I'm saying is who should really be 50% or more equities? Unless you have a rock solid job/ career and know there will be no breaks/ gaps in employment for the next 20-30 years?
« Last Edit: January 05, 2020, 06:17:32 PM by Alchemisst »


  • Bristles
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Re: High stock asset allocations misleading?
« Reply #1 on: January 05, 2020, 07:18:41 PM »
Generally asset allocation is based on your risk tolerance and future retirement goals, not on what future event might happen in your life.  Some 80 year olds can handle a 90/10 AA, some 30 year olds can't stand more than a 30/70 AA.

"What if" events are why you first fund an emergency fund, the size of that fund is determined by your own worst case scenario.


  • 5 O'Clock Shadow
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Re: High stock asset allocations misleading?
« Reply #2 on: January 05, 2020, 08:23:42 PM »
Adding to the above, I think it is important to understand stocks, as advocated here, are intended as a long term investment. You shouldn’t plan on touching this money for 10+ years. If you are concerned about uncertainty in the future:
-create additional forms of income (side business)
-set aside an emergency fund in a high yield savings account
-keep in mind unemployment is available if you lose a job, and if you are a good candidate you should be able to get another job within a few months

To answer your question, most people that are young should be close to 100% equities in my opinion. You shouldn’t be touching the money for a long time, so you can afford more risk and ride out bad times.

If you are planning on going back to school and taking on debt, you may be better off not investing in stocks and putting it in a high yield savings account. See the pinned investment order thread for where to park your money for short time frames (5 years or less)


  • Stubble
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Re: High stock asset allocations misleading?
« Reply #3 on: January 05, 2020, 09:28:47 PM »
I'm 62 and 100/0. I don't plan on touching the principle for many years, ever if possible, although I will need to withdraw 4% once retired, in 8 years.


  • Walrus Stache
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Re: High stock asset allocations misleading?
« Reply #4 on: January 06, 2020, 03:51:08 AM »
Years ago people didn't have computer modeling, so "age in bonds" gave you roughly good advice for each stage of your life.  People needed a simple idea that worked fairly well.  But with computer modeling, you can get a much more accurate allocation - much more likely to succeed.

You can also peek at what large "target date" funds do for billions of investor assets.  Take a peek at what Vanguard and Fidelity do, and you'll have a much better allocation than age in bonds or similar advice.  For someone 30 years from retirement, they typically have about 10% bonds.

I don't think Bernard's situation of not using retirement money "ever if possible" applies to most people.  Most people depend on their withdrawals for rent and food, and they need that money to be stable.  That's why bonds play a role: so a 4% withdrawal doesn't turn into a 6% withdrawal after stocks drop.  Bonds help avoid a sequence of returns that exhausts your retirement assets.


  • Pencil Stache
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Re: High stock asset allocations misleading?
« Reply #5 on: January 06, 2020, 10:22:58 AM »
Years ago, our workplace Fidelity rep said they were now using "120 minus age = bond percentage" to deal with the fact that people were living longer.

I ignored that advice until I hit 50, as our risk tolerance is high - I have a well-funded pension coming to me, we have underestimated Social Security benefits in case of a cut, and we do not account for any inheritance.

Once I hit 50, preservation became more important. In the last year, we've rebalanced - as well as included another employment account that is essentially an annuity as part of our calcs. It puts us at 68/32, and I find myself unwilling to go higher.

So, at 54 (and six years out from our planned retirement date), we're pretty spot on to the "120 minus age" formula. YMMV.


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