Poll

How conservative/aggressive is your AA for your age?

Lower than A
9 (7%)
Closest to A, ultraconservative
3 (2.3%)
Closest to B, conservative
9 (7%)
Closest to C, moderate-conservative
11 (8.6%)
Closest to D, moderate
9 (7%)
Closest to E, moderate-aggressive
13 (10.2%)
Closest to F, aggressive
19 (14.8%)
Closest to G, ultra-aggressive
27 (21.1%)
Higher than G
28 (21.9%)
Other (please post explanation)
0 (0%)

Total Members Voted: 118

Author Topic: How conservative/aggressive is your AA for your age?  (Read 13860 times)

Will

  • Pencil Stache
  • ****
  • Posts: 787
  • Location: Vancouver, WA
  • What the deuce?!?!?
How conservative/aggressive is your AA for your age?
« on: November 03, 2013, 08:58:56 PM »
Saw this posted over on Bogleheads and was wondering how the results here would compare to there. 

Find your age on the X axis, go vertically upward, and find the curve that is closest to your current stock allocation percentage. In calculating your stock allocation, DO NOT include the present value of Social Security, annuities, or pensions. Generally speaking, include assets for which you receive regular statements that state a current market value in dollars--that is to say, brokerage holdings, mutual funds, 401(k) plans. If you have assets that are about as risky as stocks, you can count them as stocks.



(Mod Edit: Image embedded.)
« Last Edit: November 04, 2013, 07:25:35 AM by arebelspy »

Will

  • Pencil Stache
  • ****
  • Posts: 787
  • Location: Vancouver, WA
  • What the deuce?!?!?
Re: How conservative/aggressive is your AA for your age?
« Reply #1 on: November 03, 2013, 09:00:20 PM »
If someone wants to explain to me how to put that graph in as a pic instead of an attachment (or if a mod wants to change it for me), please do!

bigchrisb

  • Handlebar Stache
  • *****
  • Posts: 1178
Re: How conservative/aggressive is your AA for your age?
« Reply #2 on: November 04, 2013, 02:30:46 AM »
I guess 100% stocks, plus more stocks on margin would certainly be higher than G!  I don't own a primary place of residence either.

davisgang90

  • Handlebar Stache
  • *****
  • Posts: 1272
  • Location: Roanoke, VA
    • Photography by Rich Davis
Re: How conservative/aggressive is your AA for your age?
« Reply #3 on: November 04, 2013, 03:54:15 AM »
I am moderately aggressive for my age.  I have a guaranteed military pension though, so I can afford to take more risks with my portfolio.

dmn

  • Stubble
  • **
  • Posts: 101
  • Location: Switzerland
Re: How conservative/aggressive is your AA for your age?
« Reply #4 on: November 04, 2013, 04:17:05 AM »
I invest 100% in equities, but as I started earning money quite recently, the two-months cash buffer in my checking account makes up 5-8% of my assets. According to your graph, that makes my asset allocation merely aggressive (F).

pom

  • Bristles
  • ***
  • Posts: 288
  • Location: Paris, France
Re: How conservative/aggressive is your AA for your age?
« Reply #5 on: November 04, 2013, 04:53:51 AM »
Depending if you include real estate or not, I am either ultra-agressive or ultra-conservative.

No middle ground for me :)

bo_knows

  • Pencil Stache
  • ****
  • Posts: 819
  • Age: 38
  • Location: Fairfax, VA, USA
    • The Crowdsourced FIRE simulator
Re: How conservative/aggressive is your AA for your age?
« Reply #6 on: November 04, 2013, 08:25:02 AM »
I'm actually extremely surprised that "your age in bonds" is considered conservative/ultra-conservative.  I'm 32 years old, and we aim for 80/20... which is apparently conservative.

brewer12345

  • Handlebar Stache
  • *****
  • Posts: 1386
Re: How conservative/aggressive is your AA for your age?
« Reply #7 on: November 04, 2013, 08:29:01 AM »
These allocations are crazy.  Must be in a bull market...

destron

  • Bristles
  • ***
  • Posts: 377
  • Age: 41
  • Location: Seattle
    • Mustachian Financial Calculators
Re: How conservative/aggressive is your AA for your age?
« Reply #8 on: November 04, 2013, 08:54:06 AM »
I'm showing conservative-moderate, but I think that this graph does not apply well to the mustachian philosophy. It would be better drawn as "years to retirement" IMO.

matchewed

  • Magnum Stache
  • ******
  • Posts: 4340
  • Location: CT
Re: How conservative/aggressive is your AA for your age?
« Reply #9 on: November 04, 2013, 09:07:23 AM »
I generally don't actually agree that it is any different for Mustachians, I'm not saying you're wrong but that isn't the only way to approach AA and FIRE concepts.

You could approach it from the perspective of time invested in total (the 60yr time frame), the recent post on Wade Pfau's work where you go from aggressive to conservative at retirement and then back to aggressive throughout your retirement, the traditional advice that others have already mentioned...etc.

I view it as a YMMV and whatever works for you and your plan is good to the mustachian philosophy.

destron

  • Bristles
  • ***
  • Posts: 377
  • Age: 41
  • Location: Seattle
    • Mustachian Financial Calculators
Re: How conservative/aggressive is your AA for your age?
« Reply #10 on: November 04, 2013, 09:23:17 AM »
You could approach it from the perspective of time invested in total (the 60yr time frame), the recent post on Wade Pfau's work where you go from aggressive to conservative at retirement and then back to aggressive throughout your retirement, the traditional advice that others have already mentioned...etc.

That seems like a fine strategy but the graph show you moving more toward bonds over time based solely on your age. I didn't catch that post so I will have to look it up when I have a chance. I just don't see myself as moderate conservative having 16% in bonds when the standard retirement investment advice would tell me to put in twice as much at my age, and that is with the intention of retiring at 65+!

pachnik

  • Handlebar Stache
  • *****
  • Posts: 1833
  • Age: 55
  • Location: Vancouver, BC
Re: How conservative/aggressive is your AA for your age?
« Reply #11 on: November 04, 2013, 09:37:15 AM »
I came out as conservative-moderate which sounds correct for me. 

My non-registered money is at 40/60 bonds/equities split and I just re-allocated my RRSP into 50/50 bonds/equities.  I had been meaning to sort out my RRSP and finally sent the change paper out last week.  It is now a basic couch potato thing of 50% bonds, 20% Cdn equities, 20% US equities and 10% international equities.  The equity funds are all indexes.   I was going to make it a little more aggressive but I changed my mind. 

matchewed

  • Magnum Stache
  • ******
  • Posts: 4340
  • Location: CT
Re: How conservative/aggressive is your AA for your age?
« Reply #12 on: November 04, 2013, 10:32:25 AM »
You could approach it from the perspective of time invested in total (the 60yr time frame), the recent post on Wade Pfau's work where you go from aggressive to conservative at retirement and then back to aggressive throughout your retirement, the traditional advice that others have already mentioned...etc.

That seems like a fine strategy but the graph show you moving more toward bonds over time based solely on your age. I didn't catch that post so I will have to look it up when I have a chance. I just don't see myself as moderate conservative having 16% in bonds when the standard retirement investment advice would tell me to put in twice as much at my age, and that is with the intention of retiring at 65+!

I'll make it easier on ya :)

http://www.mrmoneymustache.com/forum/ask-a-mustachian/nyt-article-recent-study-by-wade-pfau-%28swr-guy%29-and-michael-kitces
and
http://www.mrmoneymustache.com/forum/welcome-to-the-forum/study-on-allocation-of-investment-at-and-after-retirement

El Gringo

  • Bristles
  • ***
  • Posts: 312
  • Location: Washington, DC
Re: How conservative/aggressive is your AA for your age?
« Reply #13 on: November 04, 2013, 10:38:26 AM »
While I consider myself a Boglehead, I don't agree with the characterization of each of those allocations.

It's actually Morningstar's characterization. That's what the OP over on Bogleheads said. B, D, and F are Morningstar's allocations, and then he added A, C, E, and G by averaging the differences.

impaire

  • Stubble
  • **
  • Posts: 241
Re: How conservative/aggressive is your AA for your age?
« Reply #14 on: November 04, 2013, 10:43:11 AM »
I'm showing conservative-moderate, but I think that this graph does not apply well to the mustachian philosophy. It would be better drawn as "years to retirement" IMO.

Same here. if I hypothesize that this graph is based on 65 as a retirement age, and count from there, I switch from my current "C" rating to "E."

Zaga

  • Handlebar Stache
  • *****
  • Posts: 2230
  • Age: 39
  • Location: North of Pittsburgh, PA
    • A Wall of Hats
Re: How conservative/aggressive is your AA for your age?
« Reply #15 on: November 04, 2013, 10:51:42 AM »
What about if spouses ages are far apart?  Take the older?  Younger?  Average?

iamlindoro

  • Handlebar Stache
  • *****
  • Posts: 1520
    • The Earth Awaits
Re: How conservative/aggressive is your AA for your age?
« Reply #16 on: November 04, 2013, 11:04:14 AM »
What about if spouses ages are far apart?  Take the older?  Younger?  Average?

I guess it would depend on whether you guys plan to retire at the same time.  I guess by asking the question, your answer is yes, and that your finances are combined... so I would say averaging it is one choice, or you could be more aggressive in the hopes of "catching up," at which point you would switch to an identical allocation.   I don't think there's a right answer, just a level of risk that is tolerable to you.

Zaga

  • Handlebar Stache
  • *****
  • Posts: 2230
  • Age: 39
  • Location: North of Pittsburgh, PA
    • A Wall of Hats
Re: How conservative/aggressive is your AA for your age?
« Reply #17 on: November 04, 2013, 11:05:14 AM »
Good point.  We are planning on retiring at the same time, so I will use the age of the older one, thanks!

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8897
  • Registered member
Re: How conservative/aggressive is your AA for your age?
« Reply #18 on: November 04, 2013, 11:11:05 AM »
I'm showing conservative-moderate, but I think that this graph does not apply well to the mustachian philosophy. It would be better drawn as "years to retirement" IMO.

Same here. if I hypothesize that this graph is based on 65 as a retirement age, and count from there, I switch from my current "C" rating to "E."

Right, my strategy is one of an old man about to retire.  Can't afford to lose 60% in a crash.

Will

  • Pencil Stache
  • ****
  • Posts: 787
  • Location: Vancouver, WA
  • What the deuce?!?!?
Re: How conservative/aggressive is your AA for your age?
« Reply #19 on: November 04, 2013, 11:19:22 AM »
While I consider myself a Boglehead, I don't agree with the characterization of each of those allocations.

It's actually Morningstar's characterization. That's what the OP over on Bogleheads said. B, D, and F are Morningstar's allocations, and then he added A, C, E, and G by averaging the differences.

Just want to make it clear that I don't necessarily agree with the characterizations, and I hope I didn't imply that this was an idea of my own.  I just had a feeling that members of this forum would tend to be more aggressive than over at Bogleheads and posted a poll here to find out.

Will

  • Pencil Stache
  • ****
  • Posts: 787
  • Location: Vancouver, WA
  • What the deuce?!?!?
Re: How conservative/aggressive is your AA for your age?
« Reply #20 on: November 11, 2013, 04:56:07 PM »
So far we are much more aggressive in our investing here compared to the Bogleheads.  Pretty much what I expected.

Khan

  • Pencil Stache
  • ****
  • Posts: 616
Re: How conservative/aggressive is your AA for your age?
« Reply #21 on: November 11, 2013, 11:27:50 PM »
26 years old, >95% stocks in every account(roth, 401k, taxable) and almost no money in equity on house and only paying the minimum there(100% financing VA loan that I opened in July). Whenever rates for bonds doesn't suck, I'll rotate money into them some(especially in my 401k), but until then? Stocks mainly. I won't go into an inferior asset class for inferior returns just for "risk management". I was strongly sympathetic to the article at the bottom of my post talking of the risk of owning 30 year treasuries at these rates, and of course those rates are filtering throughout the system.

http://seekingalpha.com/article/1310711-the-30-year-treasury-bond-makes-no-sense-compared-to-dividend-stocks

Rural

  • Magnum Stache
  • ******
  • Posts: 4870
Re: How conservative/aggressive is your AA for your age?
« Reply #22 on: November 13, 2013, 05:18:54 AM »
Well I voted for higher than G, but I'm not sure that that's entirely accurate for us. We both have pretty secure pensions, the old-fashion edit type of pension, and so we're using our investment accounts to balance our allocation. Right now, that means 100% stocks, even though we're already too old for ERE.

WillPen

  • 5 O'Clock Shadow
  • *
  • Posts: 57
Re: How conservative/aggressive is your AA for your age?
« Reply #23 on: November 13, 2013, 07:16:59 AM »
My wife and I are in our early 30's and our IRAs and 401ks have about 25% in bond funds.

Siamond

  • 5 O'Clock Shadow
  • *
  • Posts: 39
Re: How conservative/aggressive is your AA for your age?
« Reply #24 on: November 13, 2013, 10:56:07 AM »
I am in my early 50s, and moderate/aggressive.

Hm, looking at the results, this crowd is definitely rather 'aggressive'.

I have to wonder what would have been the results one year ago, before all this media circus on how 'bonds are bad, bad, bad to the bone' started...

matchewed

  • Magnum Stache
  • ******
  • Posts: 4340
  • Location: CT
Re: How conservative/aggressive is your AA for your age?
« Reply #25 on: November 13, 2013, 01:34:08 PM »
I am in my early 50s, and moderate/aggressive.

Hm, looking at the results, this crowd is definitely rather 'aggressive'.

I have to wonder what would have been the results one year ago, before all this media circus on how 'bonds are bad, bad, bad to the bone' started...

Mine hasn't changed since I started with saving a very large portion of my income, and frankly it hasn't deviated from that very much since I started investing eight years ago (95/5 for the record). I'm just one of many though so perhaps there were people influenced by that. I've always been very big into stocks though as I realize that they're the generator of the returns. As I near FIRE I'll tone it down as I won't be able to suffer those swings as easily, but now while I'm earning I'm willing to take risks.

wtjbatman

  • Handlebar Stache
  • *****
  • Posts: 1313
  • Age: 36
  • Location: Missouri
Re: How conservative/aggressive is your AA for your age?
« Reply #26 on: November 15, 2013, 01:51:18 AM »
G+ (and I'm not talking about google), ultra aggressive. 30 years old. I don't know if it's an optical illusion or what, but anyone else notice how the G line ticks up at age 45 before dropping? It looks like the expected allocation should be more aggressive at 45 than when you're younger.

Anywho, I'm with that jlcollinsnh (the name just rolls off the tongue) guy. 100% (ok like 97.5%) stocks baby. Equities have the best return, and I'm looking at 50+ years of investing ahead of me. VTI/VINIX.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28238
  • Age: -999
  • Location: Seattle, WA
Re: How conservative/aggressive is your AA for your age?
« Reply #27 on: November 15, 2013, 08:03:17 AM »
Anywho, I'm with that jlcollinsnh (the name just rolls off the tongue) guy.

Hah, thanks for the morning laugh.  :D
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

fiveoclockshadow

  • Stubble
  • **
  • Posts: 216
  • Location: Baltimore
Re: How conservative/aggressive is your AA for your age?
« Reply #28 on: November 15, 2013, 09:11:34 AM »
"100 fixed income" would be ultra-conservative.

Well, technically 100% FI is usually just "stupid beyond words" rather than ultra-conservative.  Lower returns and higher volatility than 80FI/20EQ mix.  Exception for a inflation adjusted liability matched profile for someone who knows exactly when they will die :)

As others said, the main issue here is the curve is based on a retirement age beyond what most Mustachians would do and that also means the accumulation and draw down portions of the curve are wrong and the retirement period is wrong as well...

prestojx

  • 5 O'Clock Shadow
  • *
  • Posts: 67
  • Location: Boulder, CO
Re: How conservative/aggressive is your AA for your age?
« Reply #29 on: December 01, 2013, 03:32:11 PM »
AA is ultimately related to risk tolerance and risk tolerance is defined as the ability, willingness, and need to take risk - no matter what your age.

Will

  • Pencil Stache
  • ****
  • Posts: 787
  • Location: Vancouver, WA
  • What the deuce?!?!?
Re: How conservative/aggressive is your AA for your age?
« Reply #30 on: December 01, 2013, 03:38:16 PM »
AA is ultimately related to risk tolerance and risk tolerance is defined as the ability, willingness, and need to take risk - no matter what your age.

And?

prestojx

  • 5 O'Clock Shadow
  • *
  • Posts: 67
  • Location: Boulder, CO
Re: How conservative/aggressive is your AA for your age?
« Reply #31 on: December 01, 2013, 04:23:20 PM »
- and so typically when someone's need is high, their ability is low and vice versa. However willingness is a psychological trait. People with high willingness tend to take take more risk than they need. So its a highly personal decision based on the three independent factors of ability, need, and willingness.

But it is the single most important decision an investor makes and determines 90+% of potential investment returns.

NinetyFour

  • Walrus Stache
  • *******
  • Posts: 6790
  • Location: Southwestern US
Re: How conservative/aggressive is your AA for your age?
« Reply #32 on: December 01, 2013, 05:49:02 PM »
So how does one go about determining those three factors:  ability, need and willingness?  For me, I know when I want to retire from my full-time gig, I know what my expenses will be (approximately), I know what I want my stash to look like when I retire, but I still struggle with how risky/conservative I should be with my investments.

prestojx

  • 5 O'Clock Shadow
  • *
  • Posts: 67
  • Location: Boulder, CO
Re: How conservative/aggressive is your AA for your age?
« Reply #33 on: December 01, 2013, 07:59:28 PM »
So here it is in a nutshell.

Assuming you understand how to build a low-cost, efficient portfolio and you know the expected return for the various parts of the portfolio, then you know what you NEED to achieve your goals.
And assuming your need for risk is high than most certainly your ABILITY for risk is low. They are inversely proportional.

A person with a high NEED to take risk usually doesn't have a high ABILITY to weather any significant storms. And conversely, a person with a high ability for risk (say a large net worth or expected large inheritance) has very little need to take risk. Once again, there is no free lunch.

What is left is WILLINGNESS and believe me most people vastly overestimate their ability to stomach losses (risk showing up). Here is one table to consider.

Maximum                     Maximum
Tolerable Loss (%)        Equity Exposure (%)                       
10                                20                         
20                                40
30                                60
40                                80
50                                100

Now really try to consider what it might be like to lose that percentage of your hard earned investment portfolio - maybe for several years in a row because risk is very very real, no matter what the time horizon.

Once you figure that out you are done. And if you can't reach your goal with a level of risk you can stomach, then figure out how to earn more or spend less (bigger yearly investments obviously lower the need to take risk).

NinetyFour

  • Walrus Stache
  • *******
  • Posts: 6790
  • Location: Southwestern US
Re: How conservative/aggressive is your AA for your age?
« Reply #34 on: December 01, 2013, 08:11:45 PM »
Thanks very much for that info, prestojx.  That gives me a lot to chew on.  I am pretty new at all this, as you can probably tell, although I do hope to retire in 7 years or so.  Again, thanks.  If I have further questions, would you open to a pm?

prestojx

  • 5 O'Clock Shadow
  • *
  • Posts: 67
  • Location: Boulder, CO
Re: How conservative/aggressive is your AA for your age?
« Reply #35 on: December 01, 2013, 08:19:17 PM »
Anytime, amigo.

NinetyFour

  • Walrus Stache
  • *******
  • Posts: 6790
  • Location: Southwestern US
Re: How conservative/aggressive is your AA for your age?
« Reply #36 on: December 01, 2013, 08:23:40 PM »
Great.  Thanks in advance!

prestojx

  • 5 O'Clock Shadow
  • *
  • Posts: 67
  • Location: Boulder, CO
Re: How conservative/aggressive is your AA for your age?
« Reply #37 on: December 02, 2013, 11:05:37 AM »
I want to explain the idea of "Ability to take risk" a little bit better. Beyond a high net worth (actual or expected) there are 3 other factors that effect the ability to take risk. They are 1. Stability of income, 2. Time horizon and, 3. Need for liquidity.

The more stable the income stream or the longer the time horizon or the lower the need for liquidity - the more ability one has for investment risk. 

To that end, I used to believe a substantial cash reserve was essential to increase the ability to take on the necessary risk of investing in equities. I now prefer M3's idea of a small reserve combined with an ability to access low cost debt such as a line of credit.

I also believe an M3 type frugal lifestyle would add to the ability to take risk.

Elaine

  • Bristles
  • ***
  • Posts: 467
  • Age: 32
  • Location: NYC
    • Small Things Good
Re: How conservative/aggressive is your AA for your age?
« Reply #38 on: December 03, 2013, 11:12:52 AM »
I have 100% stock allocation and am 26, but that puts me artificially at above G since the only reason my allocation is like that is because I just started doing all of this. In the next year I'll be shooting for a 90/10 split but I think that's still around G.

Elaine

  • Bristles
  • ***
  • Posts: 467
  • Age: 32
  • Location: NYC
    • Small Things Good
Re: How conservative/aggressive is your AA for your age?
« Reply #39 on: December 03, 2013, 11:13:27 AM »
Oh, and I don't own property yet either- so that will probably change in the next five years or so.

FIreDrill

  • Handlebar Stache
  • *****
  • Posts: 1045
Re: How conservative/aggressive is your AA for your age?
« Reply #40 on: December 04, 2013, 12:58:51 PM »
Apparently I'm conservative at 80/20 stock to bond.  Never really considered myself to be conservative.

steveo

  • Handlebar Stache
  • *****
  • Posts: 1944
Re: How conservative/aggressive is your AA for your age?
« Reply #41 on: December 08, 2013, 01:21:13 PM »
60/40 equity/FI, is NOT "ultra-conservative" at any age, IMO.

I agree with this. I'm not investing at the moment as the goal is to pay off the mortgage first however I think AA should be fairly similar throughout your life assuming that you are looking to retire early and therefore won't have a massively over the top investment balance.

If you have a fair amount of time heading towards retirement you still want to ensure that you are taking money out of equities in raging bull markets and putting more money into equities in bear markets. To me the same principles apply post retirement.

steveo

  • Handlebar Stache
  • *****
  • Posts: 1944
Re: How conservative/aggressive is your AA for your age?
« Reply #42 on: December 08, 2013, 01:27:54 PM »
Equities have the best return, and I'm looking at 50+ years of investing ahead of me. VTI/VINIX.

The thing is if you intend to retire early in some ways having an investment portfolio that performs well is the most important thing. I personally disagree with a 100% equities portfolio but I can see your point.

There was a thread recently discussing buy and hold vs buying only when the market is down. Some poster did the figures and showed that buy and hold worked better over the long term however I took the results differently. The difference was negligible and the purchaser who only bought when the market was at a lower price missed out on a whole bunch of downturns. That money could have been invested in commodities when commodities were in a massive bull market. I just question owning 100% equities all the time is the best approach over a long investment time frame.

prestojx

  • 5 O'Clock Shadow
  • *
  • Posts: 67
  • Location: Boulder, CO
Re: How conservative/aggressive is your AA for your age?
« Reply #43 on: December 10, 2013, 12:39:15 PM »
Most people way overestimate their risk tolerance. This is an excellent article by Larry Swedroe about how to think about risk.

http://www.cbsnews.com/news/how-you-frame-the-investing-questions-matters/