Author Topic: How aggressive should my investments be? I am 31.  (Read 1694 times)

MNBEN87

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How aggressive should my investments be? I am 31.
« on: September 12, 2019, 12:13:34 PM »
Hi All,

I am a 31 year old, with about 90K in my 401K.  I am maxing it out currently.  I recently got an update from Fidelity that said my asset mix is right in the middle (conservative to aggressive).  My thinking is that I should be almost all the way to the aggressive side (since I am youngish I can probably handle more risk), but wanted the thoughts of others.   

Thanks in advance!

MDM

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Re: How aggressive should my investments be? I am 31.
« Reply #1 on: September 12, 2019, 12:21:26 PM »
...I can probably handle more risk....
There's the key part.  If you will tolerate a 50% drop in your account value with a yawn and say "oh, well, no need to do anything other than wait" then you can go 100% stocks.

If such a drop would entice you to sell so it doesn't drop further, a higher amount of bonds is appropriate.

Note that more people say they wouldn't sell than actually don't sell when such a drop occurs.

slow hand slow plan

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Re: How aggressive should my investments be? I am 31.
« Reply #2 on: September 12, 2019, 12:30:16 PM »
GO more aggressive.... I am a few years older and i am on the very aggressive side of the dial at fidelity. you are probably holding a large percent of Bonds.

FIRE@50

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Re: How aggressive should my investments be? I am 31.
« Reply #3 on: September 12, 2019, 12:31:11 PM »
I'm 100% in stocks. I recommend that you do the same.

BECABECA

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Re: How aggressive should my investments be? I am 31.
« Reply #4 on: September 12, 2019, 12:37:53 PM »
The standard line from investment firms for a retirement account is to subtract your age from 120 and that should be percentage you hold in stocks with the remaining in bonds. So 120-31= 89% in stock and 11% in bonds. I personally wouldn’t hold more bonds than that. This rule of thumb also basically gets followed by target date retirement funds, slowing reducing the stocks as the target date approaches.

MNBEN87

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Re: How aggressive should my investments be? I am 31.
« Reply #5 on: September 12, 2019, 12:39:04 PM »
...I can probably handle more risk....
There's the key part.  If you will tolerate a 50% drop in your account value with a yawn and say "oh, well, no need to do anything other than wait" then you can go 100% stocks.

In that situation I would likely want to buy more, not wait.  Why not buy them on sale I guess.

MNBEN87

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Re: How aggressive should my investments be? I am 31.
« Reply #6 on: September 12, 2019, 12:41:10 PM »
Sounds like I actually need to change what I am buying going forward.  I think Fidelity is good, but changing things can be hard to figure out.  Might actually have to call someone :( 

vand

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Re: How aggressive should my investments be? I am 31.
« Reply #7 on: September 12, 2019, 12:43:52 PM »
Anyone who is "recommending 100% stocks" needs a slap. Seriously, behave.

The usual advice of increasing your bond allocation with age is also horribly outdated too with respect to FIRE.

The most important thing to consider is what is your current savings rate, and therefore how many years do you think it will take you to accumulate a large enough stash for FI?

The higher your savings rate the more conservative your portfolio should be during accumulation, as the compounding effect will be secondary to you actual level of savings in reaching FI.

For people with a 20% savings rate your accumulation phase is is 25-30yrs and so I would recommend an aggressive portfolio, but for people with a 75% savings rate your accumulation phase is less than a decade, and more defensive mix makes a lot more sense.
« Last Edit: September 12, 2019, 12:45:48 PM by vand »

Duke03

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Re: How aggressive should my investments be? I am 31.
« Reply #8 on: September 12, 2019, 12:44:40 PM »
I'm 37 and I'm 90% stocks and will probably stay that way forever account I don't think I'll ever need my 401k or IRA money.  The only reason I'm 10% bonds is I own a lot of Vanguard Wellington Admiral Shares.  I'm told all the time I should be 80/20, but to each their own. 

PDXTabs

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Re: How aggressive should my investments be? I am 31.
« Reply #9 on: September 12, 2019, 12:46:06 PM »
I'm 100% in stocks. I recommend that you do the same.

Me too. I would also suggest reading The Simple Path to Wealth by J L Collins.

However, unlike some other folks I would not suggest 100% US investments. I personally follow a globally market cap weighted portfolio, which right now means ~55% US / 45% RoW.

bacchi

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Re: How aggressive should my investments be? I am 31.
« Reply #10 on: September 12, 2019, 12:50:28 PM »
Anyone who is "recommending 100% stocks" needs a slap. Seriously, behave.

The usual advice of increasing your bond allocation with age is also horribly outdated too with respect to FIRE.

The most important thing to consider is what is your current savings rate, and therefore how many years do you think it will take you to accumulate a large enough stash for FI?

The higher your savings rate the more conservative your portfolio should be during accumulation, as the compounding effect will be secondary to you actual level of savings in reaching FI.

For people with a 20% savings rate your accumulation phase is is 25-30yrs and so I would recommend an aggressive portfolio, but for people with a 75% savings rate your accumulation phase is less than a decade, and more defensive mix makes a lot more sense.

Depends on your age, too. Someone looking to ER at 40 has a much higher success rate of riding out a recession than someone at 60 and facing age discrimination.

Malkynn

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Re: How aggressive should my investments be? I am 31.
« Reply #11 on: September 12, 2019, 12:52:20 PM »
First, determine exactly what you understand "risk" and "aggressive" to mean.

The risk associated with stocks is not the risk of losing money, it's the risk of losing money in the event that you sell while the stocks are down. That's a VERY important distinction.

There are three scenarios where you sell while stocks are down
1: while you are still working, but you are shitting yourself in fear and vomiting all over your tie because the markets have dropped so much that you panic sell
2: after you've stopped working and you literally must sell some stocks in order to eat
3: you have convinced yourself that you are smarter than everyone else and believe that you can predict how geo-political events are going to impact the markets, so you try and market time your exit and re-entry into equities

Age is irrelevant, some young people will choose to less "risk" and some older people will choose 100% stocks. It all comes down to your likelihood of selling.

An antsy 31 year old who gets spooked easily by financial news and is convinced that they have unique insights into how politics will influence the market should probably have a lot more of their portfolio in less volatile forms. Meanwhile, a retiree with a rock solid pension or rental income that covers all of their basic needs could easily maintain 100% stocks.

On the flip side, an equally valid argument can be made for the retired guy above that since he has more than enough, then why worry about maximizing returns??

Understanding your own motivations and fears is really the key to setting your AA.

PDXTabs

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Re: How aggressive should my investments be? I am 31.
« Reply #12 on: September 12, 2019, 12:53:50 PM »
Anyone who is "recommending 100% stocks" needs a slap. Seriously, behave.
...

Depends on your age, too. Someone looking to ER at 40 has a much higher success rate of riding out a recession than someone at 60 and facing age discrimination.

And your general tolerance for waiting, as Collins points out. For example, in 10 years I plan to have worked enough to never need to save for retirement again. But if I'm in the middle of a bear market I might not want to realize any losses. But, as long as I can pay rent and buy food I'll be fine. That's a risk that I am willing to take.

MNBEN87

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Re: How aggressive should my investments be? I am 31.
« Reply #13 on: September 12, 2019, 01:56:58 PM »
It was asked above about savings rate.  I count the principal on my house towards investment (not interest, tax or insurance) so my savings rate is 40% (based off of pre-tax income).  I save 24% pre-tax to max out my 401K (you can figure out my income, he he). 

I am trying to up my savings rate currently, and would like to lean FIRE fairly soon (would really like to in 5 years).  I would be okay with part time work if it was something I liked to do.  Would like to have a nest egg of 300K and a paid off house to partly retire and do what I like.

I am thinking doing a 90% stock / 10% bond mix.  I think right now it is closer to 75/25.   

degrom7

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Re: How aggressive should my investments be? I am 31.
« Reply #14 on: September 12, 2019, 05:19:28 PM »
I’m a few years older than you and I’m 100% in stocks and will be for awhile.


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FamilyGuy

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Re: How aggressive should my investments be? I am 31.
« Reply #15 on: September 12, 2019, 09:05:54 PM »
The standard line from investment firms for a retirement account is to subtract your age from 120 and that should be percentage you hold in stocks with the remaining in bonds. So 120-31= 89% in stock and 11% in bonds. I personally wouldn’t hold more bonds than that. This rule of thumb also basically gets followed by target date retirement funds, slowing reducing the stocks as the target date approaches.
great info

YttriumNitrate

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Re: How aggressive should my investments be? I am 31.
« Reply #16 on: September 12, 2019, 09:16:30 PM »
...I can probably handle more risk....
There's the key part.  If you will tolerate a 50% drop in your account value with a yawn and say "oh, well, no need to do anything other than wait" then you can go 100% stocks.
In that situation I would likely want to buy more, not wait.  Why not buy them on sale I guess.
I would caution that it is easy to imagine yourself as having a very high risk tolerance and being able to emotionlessly invest in the most turbulent of markets. Actually doing it is another thing.   

Telecaster

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Re: How aggressive should my investments be? I am 31.
« Reply #17 on: September 12, 2019, 09:27:04 PM »
It was asked above about savings rate.  I count the principal on my house towards investment (not interest, tax or insurance) so my savings rate is 40% (based off of pre-tax income).  I save 24% pre-tax to max out my 401K (you can figure out my income, he he). 

I am trying to up my savings rate currently, and would like to lean FIRE fairly soon (would really like to in 5 years).  I would be okay with part time work if it was something I liked to do.  Would like to have a nest egg of 300K and a paid off house to partly retire and do what I like.

I am thinking doing a 90% stock / 10% bond mix.  I think right now it is closer to 75/25.   

90/10 is good.  Malkynn's comments are definitely worth considering. 

I  wouldn't (and personally don't) consider the principal portion of your mortgage as savings. 

vand

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Re: How aggressive should my investments be? I am 31.
« Reply #18 on: September 12, 2019, 11:36:04 PM »
You would be surprised at how little overall performance you give up with a much smaller allocation in stocks (<50%) than most people here hold, especially over a shorter time where the higher compounding does not have time to work its magic. Your risk/reward profile is immeasurably better.

There is an old saying that Diversification is the only free lunch you can get in investing.

If Buffett's advice to the layman is "buy index funds", Ray Dalio's advice to the layman is "Diversify", which he says so in no uncertain terms:

https://www.linkedin.com/pulse/diversifying-well-most-important-thing-you-need-do-order-ray-dalio?trk=related_artice_Diversifying%20Well%20Is%20the%20Most%20Important%20Thing%20You%20Need%20to%20Do%20%0Ain%20Order%20to%20Invest%20Well_article-card_title

(to the OP, the mortgage principle is a form of diversification.. good job)
« Last Edit: September 12, 2019, 11:40:25 PM by vand »

EscapeVelocity2020

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Re: How aggressive should my investments be? I am 31.
« Reply #19 on: September 13, 2019, 12:13:49 AM »
Well, obviously from this hailstorm of great advice, that other people really don't have your answer for you.  As I learned (around your age), you need to determine your own "willingness, need, and ability" to take risk.  This is only something you can determine for yourself after a good grounding in asset allocation, and still it is good to revisit regularly.  Maybe start here and then ask better questions. 

It's a good thing to understand sooner rather than later in life.

talltexan

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Re: How aggressive should my investments be? I am 31.
« Reply #20 on: September 13, 2019, 07:25:31 AM »
One other consideration is how aggressive your stock allocation is. Does it include REIT's or small cap value?

You could diversify into other asset classes besides bonds.

DeniseNJ

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Re: How aggressive should my investments be? I am 31.
« Reply #21 on: September 13, 2019, 08:41:08 AM »
It has nothing to do with your age and everything to do with when you need to cash out.  At 31, if you plan to retire in 5 years, then that's different than if you plan to work for 30 yrs.  And "stocks" could mean individual stocks or a mutual fund or an index fund, etc.  And what are your other assets?

I'm 48.  I plan to retire in 9 years.  DH and I will have great pensions and take SS at 62.  I have all of our investments in VTSAX, 100% stocks.  Not so risky as it's as diversified as stocks can get.  And our pensions are significant, so I won't have to sell tons of stock to live off of if the market tanks.

Just from what you've said, I'd go 100% stock index and get more conservative as you get closer to needing the dough.

EliteZags

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Re: How aggressive should my investments be? I am 31.
« Reply #22 on: September 13, 2019, 11:12:42 AM »
I'm 37 and I'm 90% stocks and will probably stay that way forever account I don't think I'll ever need my 401k or IRA money.  The only reason I'm 10% bonds is I own a lot of Vanguard Wellington Admiral Shares.  I'm told all the time I should be 80/20, but to each their own.

I have a good amount of Wellington too but been kind of second guessing why, what's you're reasoning on owning it hasn't performance been really poor the past couple years?

MNBEN87

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Re: How aggressive should my investments be? I am 31.
« Reply #23 on: September 13, 2019, 11:47:26 AM »
REITS are probably something to look into.  I have read about them a bit, but that is it.

I would like to retire early, and mostly stock could end up going down more, if that was the case, I would probably just wait it out a couple years. 

I am not a possession driven person.  I get heckled a bit for my car selection (05 focus) that I bought for $1500.  I also had a $600 focus years back that I drove for years and put 70K miles on.  The point is, that I think I am the type of person that could potentially spend almost no money if I needed to, so the thought of a market downturn does not scare me much.  I would probably try to work more just so I could invest more.

vand

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Re: How aggressive should my investments be? I am 31.
« Reply #24 on: September 17, 2019, 02:57:23 AM »
REITS are probably something to look into.  I have read about them a bit, but that is it.

I would like to retire early, and mostly stock could end up going down more, if that was the case, I would probably just wait it out a couple years. 

I am not a possession driven person.  I get heckled a bit for my car selection (05 focus) that I bought for $1500.  I also had a $600 focus years back that I drove for years and put 70K miles on.  The point is, that I think I am the type of person that could potentially spend almost no money if I needed to, so the thought of a market downturn does not scare me much.  I would probably try to work more just so I could invest more.

I think its worth holding some REITs and do so myself, but they are sort of like a stock/real-estate hybrid moreso than true direct real-estate investing, and because of the way they are structured and their usage of leverage they tend to move up and down with the wider market, so they may not provide the level of diversification that some may think.