Hey all, kinda wanna hear what folks think about said topic- at what age should your asset allocation start adding bonds and less stocks (mutual funds, ETFs, stock, riskier securities) to kinda lock in less risk and less profit but less variance in the portfolio return overall.
Maybe say based on years to retirement as you have folks retiring at 50-55 while others retire 65-70. I’m just under 40 and trying to avoid bonds for as long as possible maybe 45-50 bc I just don’t like the idea of lowering my potential earning power on portfolio as I still feel I have long to go- goal is to retire 55-58.
Also anyone in retirement. What kinda of allocation are people going stock vs bonds when they are retired. My guess would be like 40/60 bond v stock. Just wondering what people do in the real world and not some hypothetical
Asset allocation changes by age
byu/WiseDan85 inpersonalfinance
Posted by WiseDan85
4 Comments
Everyone has an opinion. You need to run the math yourself and understand risk. Find tools that will do Monte Carlo simulations of different portfolios and look at the 10, 25, 50, 75 90th percentiles over periods of 10, 20, 30, 40 years.
The closer you are to needing cashflows from your savings, the more volatility impacts you. Long term wealth is “easy” to project, but the road gets bumpy. If you were 54 in 2007 preparing to retire Christmas 2008, with 100% equity, would you have retired?
It’s much harder to manage withdrawals than investments. You have the dimensions of risk, asset growth and cashflow.
Real world: people do a lot of stuff, often incredibly stupid. This paper says, fairly convincingly, 100% equity at all ages.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4590406
Never. Never. Never.
This is an opinion based on more than just age though. The amount you have in retirement investment, your needs and how generous or thin your margin for comfortable retirement living is? These are all equally big factors, in addition to age (and therefore remaining earning years) for the types of risk u should take on. The thinner your margins, the more pressure to to reduce risk on the retirement investments…the bigger the margin, accept more risk.
Over any 10 year period, I would find it impossible to earn less in a stock-based portolio than the very best managed fixed income portfolio. Maybe 5 years too.
So can u tell? I think fixed income is pointless. And GICs? The very very very worst. 58 year old self-directed investor for life, worked in financial services in the wealth management sector my entire career.
I shifted mine when I retired at 54, and now probably at a 70/80% bonds and 20% in equities. Conventional wisdom says to start shifting around 5 years before retirement. In the end it’s really about your risk tolerance.