• 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5

What is your Asset Allocation: static or dynamic?

I am a year away from retirement. Some financial advisors and researchers have been advocating that asset allocation is dynamic, rather than static and is most effective when customized to the investor's specific goals, time horizon and risk tolerance. The analysis I have read has two takeaways:
"First, 60/40 seems too heavily weighted to bonds for this point in the correlation cycle. Whether the optimal mix is 80/20 or 65/35 is a matter of risk preference. We tend toward the latter out of conservatism but understand it leaves little room for positive real returns if inflation accelerates.
Second, any blend of bonds and stocks will have lower future returns and higher volatility than the recent past. Stock valuations are historically high, and bond yields are still near all-time lows. Neither is the recipe for outsized future returns. That makes getting the weighting to each asset class right all the more important."
In market downturn, they suggest,
"The key is that you have to be willing to move out of bonds and into stocks when everyone is saying that is a really dumb idea. Even with pretty bad timing, it isn't so hard to break even with a stock only buy and hold strategy, but you have eliminated a lot of stress.
The greatest weakness of investors is their behavioral biases. It seems that to some investors, stocks are more attractive after the price has gone up. Yet, somehow, when the stock market has declined people want to sell and people want to buy when the market is roaring. The greatest ally to investors is time."
I have this contrarian view lately since 2008 downturn, and thus adjusted my 60/40 portfolio to 75/35 and now back to 60/40. after 2008. If there comes 30% or more stock market decline, I am planning to move back portfolio 75/35. I would like to hear your opinion?
at your age, one year from retirement could your really take a 10 year span like the first decade of this century when we had negative returns for the 10 year span?  can you take that type of stress and lower income?  If you can, your stronger than me   We all get complacent about this 10 year bull market, but up to you
If I understand you question correctly, I'd say my approach is dynamic. I've dumped some bonds in spite of being 'overinvested' in equities in the past year. According to some pundits I should be at less than 60% equities, but that hasn't made sense to me the past two years. Thus I continue to push 70%. I've concluded that one has to respond to the environment; the environment is not going to conform to any one individual's plan.
75/35 ?? Are you getting good margin rates from your broker?

I believe and always will the right answer is 54-40 ------ OR FIGHT!!
(11-22-2018, 12:01 AM)wtjbatman Wrote: 75/35 ??  Are you  getting good margin rates from your broker?

I believe and always will the right answer is 54-40 ------ OR FIGHT!!

I like that '54-40 or fight' idea. Might be a good plan.
Have you read anything on Should Equity Exposure Decrease In Retirement, Or Is A Rising Equity Glidepath Actually Better?

Take a look.  I'm almost in your time frame and with the current market height and economic volatility (rising rates, trade wars, etc.) I am seriously considering aspects of this theory.

I am basically a Boglehead at heart and have over the past 6 months gone from 80/20 to 60/40 rotating my increased bond allocation into short to intermediate Treasuries (funds/ETFs).  My portfolio is already income tilted.  Our stock allocation is dividend "champion/safety" focused (dom/Intl) with only 5% allocated to pure growth.  Any down turns should not affect the income stream too much.  I have also turned off dividend reinvestment to build a war chest but I am still reinvesting bond interest.
I'm hoping our retirement timing lines up with the Wall Street bipolar manic depressive robo knuckleheads who scream and shout, buy and sell because good news is bad, bad news is good and POTUS/Kudlow/Powell aren't on the same page.  (How's that for a run on sentence?)  Meaning, I'm trapping the career end accumulated savings as best I can without going all cash, still earning something (div/int) and minimizing risk.  We will always have downturns and at this stage want to minimize the hit and be ready to take advantage of the reversal. 
Love your run on sentence. Up until this year, always was 100% equities. Probably too aggressive for a 72 year old. Has worked out pretty well riding the bull market over the last 9 years. Not so much 2001/2007.  I don’t think my IRA would be anywhere near what it is today, if I’d been a 60/40 guy the last 9 years. Has worked so far. But even though I’m currently ahead of the 60/40 game, that’s not to say I couldn’t quickly fall behind if the market again tanks 35%-50% as it has twice over the last 18 years. But even then, the markets eventually rebounded, recouping the losses. So time is on your side if in equities. Eventually always goes up historically. But tough to stay in a market that is spiraling down. So I now have put $ in 2 corporate bonds representing 20% of my IRA. Can subsidize my MRD’s for the next 4 years. Will enable me to ride out any down market during that time. That and I don’t need MRD ‘s to live on. Is play money. My time horizon is long, extends beyond my lifetime, my younger wife’s lifetime and ultimately will be inherited by my two children, to make a difference in their lives and their children lives.
I am a dynamic guy...in many ways, but back to the question.

When I was younger, I was 100% equities. Slowly I migrated to 60/40.

I am now 2 years from retirement and backed my AA down to 30/50/20 with most of my bonds in ladders to absorb the hike in rates and to deal with SOR (sequence of returns) risk.

My plan is to slowly move my AA back up to 40/60, maybe even 50/50 if we get a big enough drop in equities.

But know your numbers. I can go as low as 20/80 and still hit my retirement income numbers. So understand your expenses, know what AA you need to generate the income to cover those and build in some cushion. Once you know that, then just work the plan and have the courage to stick to it. You will always get feedback that you have too much in equities or bonds, but only if you know YOUR numbers, will you know the right answer.

Forum Jump:

Users browsing this thread: 1 Guest(s)