Author Topic: How do you decide your equities/fixed asset allocations?  (Read 1809 times)

Lia-Aimee

  • Stubble
  • **
  • Posts: 117
How do you decide your equities/fixed asset allocations?
« on: June 20, 2016, 05:56:50 PM »
So with equities I've never had any psychological problems buying when the market is plummeting, and it was easy to determine the best mix of domestic/foreign/small cap/large cap (etc.)

Fixed assets I can never quite make up my mind on. 100-age? 60/40? Cash? Bonds? CDs/Money Market? Can I call prefs fixed income for my purposes?  I feel like bond ETF's are less than ideal (less certainty on recovering the principal, although I suppose income distributions make up for that?) terms vs. interest rate risk, and ideal asset allocation of the bonds (tips, strips, corporate, govt, muni?)

Would appreciate any insight, personal stories, or recommended reading.  Thank you!


To note: all fixed income will be in a taxable account since I don't have a 401k through work and I use my ROTH IRA for high-yield cap gains securities.  I'm 28, no debt, no dependents and very mobile (renter, minimalist, three passports, not a location-dependent career) so I need less security than the average person.

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1890
Re: How do you decide your equities/fixed asset allocations?
« Reply #1 on: June 21, 2016, 12:42:03 AM »
You could always take a peek at Vanguard or Fidelity "target date" funds, and use the same percentage bonds.  But you need to check back every few years, to make the same adjustments they do over time.

For example, Vanguard Target Date 2055 (~40 years from now) holds 10% bonds.
https://personal.vanguard.com/us/funds/snapshot?FundId=1487&FundIntExt=INT#tab=2

2Birds1Stone

  • Walrus Stache
  • *******
  • Posts: 5707
  • Age: 1
  • Location: Earth
  • K Thnx Bye
Re: How do you decide your equities/fixed asset allocations?
« Reply #2 on: June 21, 2016, 06:14:12 AM »
I did it based on my risk tolerance, I am comfortable with 60-75% equities at this point in my life.

Classical_Liberal

  • Handlebar Stache
  • *****
  • Posts: 1151
  • Age: 43
Re: How do you decide your equities/fixed asset allocations?
« Reply #3 on: June 21, 2016, 04:01:27 PM »
This is an awesome tool developed by a contributor to the forum.  You can plug in different asset allocations and see how they performed historically from a standpoint of volatility, max withdrawal rates, annual returns with standard deviations, and much more. 

Use with caution, as it can be addictive and the past does not guarantee the future, but it can offer some guidance.  If your risk tolerance would only make you feel comfortable losing say (example only) 25 percent of total networth, you can use these calculators to see which portfolios would have provided that level of security in the past along with the returns and SWR's they provided

https://portfoliocharts.com/calculators/

AdrianC

  • Handlebar Stache
  • *****
  • Posts: 1024
  • Location: Cincinnati
Re: How do you decide your equities/fixed asset allocations?
« Reply #4 on: June 21, 2016, 06:46:27 PM »
Not sure that you need any fixed-income beyond a generous emergency fund in cash.

Monkey Uncle

  • Handlebar Stache
  • *****
  • Posts: 1525
  • Location: West-by-god-Virginia
Re: How do you decide your equities/fixed asset allocations?
« Reply #5 on: June 22, 2016, 04:40:32 AM »
So with equities I've never had any psychological problems buying when the market is plummeting, and it was easy to determine the best mix of domestic/foreign/small cap/large cap (etc.)

Fixed assets I can never quite make up my mind on. 100-age? 60/40? Cash? Bonds? CDs/Money Market? Can I call prefs fixed income for my purposes?  I feel like bond ETF's are less than ideal (less certainty on recovering the principal, although I suppose income distributions make up for that?) terms vs. interest rate risk, and ideal asset allocation of the bonds (tips, strips, corporate, govt, muni?)

Would appreciate any insight, personal stories, or recommended reading.  Thank you!


To note: all fixed income will be in a taxable account since I don't have a 401k through work and I use my ROTH IRA for high-yield cap gains securities.  I'm 28, no debt, no dependents and very mobile (renter, minimalist, three passports, not a location-dependent career) so I need less security than the average person.

Other folks have already given good answers on the asset allocation question, so I'd like to address your note on taxes.  Why would you put your bond allocation in a taxable account?  I'd swap them for the stocks in the IRA so you don't have to pay tax at regular rates on the coupon interest.

seanmerron

  • 5 O'Clock Shadow
  • *
  • Posts: 52
    • Early Retirement Roadmap
Re: How do you decide your equities/fixed asset allocations?
« Reply #6 on: June 22, 2016, 05:43:38 AM »
For tax efficiency do not placed fixed income in taxable accounts unless using muni bonds.