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That is a completely reasonable portfolio and asset allocation, congrats!

 

A 50% drop in stocks will result in a roughly 40% loss.

Jeb, just to amplify what Ed and Tony have said: that allocation is great, so long as you stick to it and keep contributing even when that 40% portfolio value drop occurs.

 

One gets a very queasy feeling (or worse) during a big market drop that seems to head nowhere but still further down, and when decades of slowly accumulated wealth has (on paper) disappeared. And it will almost certainly happen during your investing lifetime--it did happen in 2007-9, and many of the folks here have had to navigate it when well down the path to retirement. The key is to stick with the plan at those times--don't sell, keep the same asset allocation and keep making regular contributions when things are at their bleakest. If you are not sure of your ability to stay the course in such an extreme market event, then you should probably raise your proportion of bonds (or use a stable value fund if your plan offers it). 80% equities is great for long term (multiple decade) holdings, but many an investor has bailed out at exactly the wrong time when the market goes mad and all around are declaring doom. That scenario will create a much worse result than sticking with a conservative (i.e., less volatile) portfolio. In a way, knowing your emotional reactions and managing your behavior with regard to your portfolio is the most important factor in long term success.

Thank you! I appreciate the response. This is definitely reassuring as I prepare for the long haul. When I started my 403b it was 2007. I was living at home so I decided to invest aggressively and contribute $6000 a year from my annual salary. We know what happened to the market the following year. I stayed the course and ended up ahead ten years later. It's great to hear that this is the right approach for the future. Thank you

 

 

$6000 multiplied by 10 years = $60,000 if you just stuffed your money under your mattress. But your money was invested aggressively. So your aggressive portfolio should have rewarded you immensely.

 

For example, 10% per year compounded, with an ER of .18%

 

1 $6,589 2 $13,825 3 $21,772 4 $30,500 5 $40,084 6 $50,609 7 $62,168 8 $74,862 9 $88,803 10 $104,113

 

Is that about right?

People want to know that what we are preaching day in and day out about low costs, equity investing, and sticking with your plan results in real growth of MONEY! This is real stuff folks. A $60000 investment is over a $100,000 after a decade, and that is only the beginning. In 20 years when Jeb reach 57 years old, guess how much he might have?

 

Here are the data, continuing on the 10% a year assumption. Remember, there will be years when the market will way below 10% and way above 10% and Jeb will be gradually increasing his bond allocation. Stil, l just for the sake of argument the following is what Jeb could have when he is 57 years old (he is 37 now):

 

1 $6,589

2 $13,825

3 $21,772

4 $30,500

5 $40,084 Jeb already has ten years invested

6 $50,609

7 $62,168

8 $74,862

9 $88,803

10 $104,113

11 $120,926

12 $139,390

13 $159,667

14 $181,936

15 $206,391

16 $233,248

17 $262,742

18 $295,132

19 $330,704

20 $369,768

21 $412,668

22 $459,782

23 $511,521

24 $568,342

25 $630,742

26 $699,270

27 $774,528

28 $857,176

29 $947,940

30 $1,047,617 When Jeb is 57 years old. Does he have enough to retire along with his teacher's pension?

 

It's not that difficult folks to be a millionaire. Jeb will undoubtedly be increasing his contributions as the years go by. And he will probably not be buying a new car every three years.

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Bogle has mentioned you might consider your pension as some of your bond portfolio. If the investments will only be a bonus to you and pension covers retirement, that could work for a few folks.

 

I like some bonds even with pension to withdraw from in bad market years and to potentially buy more equities if the market did crash by using some of the bonds to buy stocks low. I never go over 20 percent bonds, not sure if I will in retirement.

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That is a completely reasonable portfolio and asset allocation, congrats!

 

A 50% drop in stocks will result in a roughly 40% loss.

Jeb, just to amplify what Ed and Tony have said: that allocation is great, so long as you stick to it and keep contributing even when that 40% portfolio value drop occurs.

 

One gets a very queasy feeling (or worse) during a big market drop that seems to head nowhere but still further down, and when decades of slowly accumulated wealth has (on paper) disappeared. And it will almost certainly happen during your investing lifetime--it did happen in 2007-9, and many of the folks here have had to navigate it when well down the path to retirement. The key is to stick with the plan at those times--don't sell, keep the same asset allocation and keep making regular contributions when things are at their bleakest. If you are not sure of your ability to stay the course in such an extreme market event, then you should probably raise your proportion of bonds (or use a stable value fund if your plan offers it). 80% equities is great for long term (multiple decade) holdings, but many an investor has bailed out at exactly the wrong time when the market goes mad and all around are declaring doom. That scenario will create a much worse result than sticking with a conservative (i.e., less volatile) portfolio. In a way, knowing your emotional reactions and managing your behavior with regard to your portfolio is the most important factor in long term success.

Thank you! I appreciate the response. This is definitely reassuring as I prepare for the long haul. When I started my 403b it was 2007. I was living at home so I decided to invest aggressively and contribute $6000 a year from my annual salary. We know what happened to the market the following year. I stayed the course and ended up ahead ten years later. It's great to hear that this is the right approach for the future. Thank you

$6000 multiplied by 10 years = $60,000 if you just stuffed your money under your mattress. But your money was invested aggressively. So your aggressive portfolio should have rewarded you immensely.

 

For example, 10% per year compounded, with an ER of .18%

 

1 $6,589 2 $13,825 3 $21,772 4 $30,500 5 $40,084 6 $50,609 7 $62,168 8 $74,862 9 $88,803 10 $104,113

 

Is that about right?

People want to know that what we are preaching day in and day out about low costs, equity investing, and sticking with your plan results in real growth of MONEY! This is real stuff folks. A $60000 investment is over a $100,000 after a decade, and that is only the beginning. In 20 years when Jeb reach 57 years old, guess how much he might have?

 

Here are the data, continuing on the 10% a year assumption. Remember, there will be years when the market will way below 10% and way above 10% and Jeb will be gradually increasing his bond allocation. Stil, l just for the sake of argument the following is what Jeb could have when he is 57 years old (he is 37 now):

 

1 $6,589

2 $13,825

3 $21,772

4 $30,500

5 $40,084 Jeb already has ten years invested

6 $50,609

7 $62,168

8 $74,862

9 $88,803

10 $104,113

11 $120,926

12 $139,390

13 $159,667

14 $181,936

15 $206,391

16 $233,248

17 $262,742

18 $295,132

19 $330,704

20 $369,768

21 $412,668

22 $459,782

23 $511,521

24 $568,342

25 $630,742

26 $699,270

27 $774,528

28 $857,176

29 $947,940

30 $1,047,617 When Jeb is 57 years old. Does he have enough to retire along with his teacher's pension?

 

It's not that difficult folks to be a millionaire. Jeb will undoubtedly be increasing his contributions as the years go by. And he will probably not be buying a new car every three years.

I wish I had continued the $6000 contribution. I think about 4 years in, my wife and I bought a house and I cut my contribution in half to $3000. By the time I decided to get out of AXA this year my total contributions were a little over $39,000. My portfolio was worth a little over 60,000. My investment made money and this was within the Equivest contract where I was invested in funds with expense ratios above 2%! When I was leaving this contract the rep was happy to point out, "In all fairness, you're investment made money." But it would be interesting to see how much more I could've made if I started off in investments with lower fees.

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I like some bonds even with pension to withdraw from in bad market years and to potentially buy more equities if the market did crash by using some of the bonds to buy stocks low. I never go over 20 percent bonds, not sure if I will in retirement.

For several years I've asked but nobody has been able to show me the math that supports the much talked about "rebalance bonus". Every time I've done the math the "bonus" from buying stock during a crash is outweighed by the drag from holding bonds when stocks aren't crashing.

 

From what I can tell these two assets aren't perfectly miscorrelated (?) in terms of magnitude or timing. If I invented two assets where one went up at the same time and degree as the other went down then I see a "rebalance" bonus that generates profit.

 

I believe this is a story people like to tell themselves as they talk themselves into holding more bonds (which may be exactly what they need).

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I like some bonds even with pension to withdraw from in bad market years and to potentially buy more equities if the market did crash by using some of the bonds to buy stocks low. I never go over 20 percent bonds, not sure if I will in retirement.

For several years I've asked but nobody has been able to show me the math that supports the much talked about "rebalance bonus". Every time I've done the math the "bonus" from buying stock during a crash is outweighed by the drag from holding bonds when stocks aren't crashing.

 

From what I can tell these two assets aren't perfectly miscorrelated (?) in terms of magnitude or timing. If I invented two assets where one went up at the same time and degree as the other went down then I see a "rebalance" bonus that generates profit.

 

I believe this is a story people like to tell themselves as they talk themselves into holding more bonds (which may be exactly what they need).

 

 

Never heard of a rebalance bonus. What I do know is that equities grow portfolios. Bonds stabilize the volatility, not there for growth. Rebalancing is the opportunity to purchase cheap equities, when everybody else is selling. It takes a lot of nerve to rebalance, and sometimes I have not done it. I have had a 30/70 equity bond allocation since about 2005, over 12 years, back when I was a younster at 57 or 58. I plan on keeping my plan for the rest of my life, perhaps even increasing my bonds in about ten years when I am 80.

 

Allocating 10% bonds (to a 100% equity) actually increases returns while lowering risks. I believe it was Bernstein who figured that out.

 

When I lost 70% of my portfolio in the tech wreck, I vowed never to take on that much risk again, and my 70% bond allocation worked perfectly during 2008, only lost 11.8%. Losing real money during crashes will be the ultimate lesson in how much equity risk you want to take. No sitting on a comfortable chair filling out a risk questionnaire while your portfolio is growing will never get anybody to their accurate risk tolerance. Losing 70% of my portfolio got my attention REAL FAST!. And it's where I needed to be after a huge punch in the gut! It has rattled for 17 years now, and it was the best lesson I ever got! :- )

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My thoughts on assessing risk without having been through a crash with skin in the game:

 

Really try to imagine what it is like. Imagine half of your life savings disappears over a short period of time. Maybe that represents 10-15 years worth of contributions? How will you feel when you look back at all of the years of blood, sweat, and tears only to realize that you have nothing to show for it? How will you feel when you project into the future and realize your retirement just got pushed back a decade, perhaps with a lower standard of living? How will you feel every pay period when you dump money into the stock market only to watch it plummet in value almost immediately?

 

Now imagine all of the articles and tv shows you'll see with "experts" yelling about financial armageddon and how the very fabric of our economy has been destroyed. How much will that add to your fear? Then think about the worst "experts" of all who will present all of these fancy plans that "prove" you can avoid the financial crises if you just follow their advice. Then think about your friends, family, and coworkers some of which will inevitably sell out of the market and save themselves from the most recent drop...and they'll tell you about it. How much fear will this stoke? Will you abandon your plan? Will you be able to sleep at night?

 

Then imagine you lose your job because of the economic downturn. Now you're burning through your emergency fund and may wind up living with the bitter taste that comes with selling stocks at a low point just to pay the bills. Every recruiter tells you there are no jobs. Every company ignores your application. How will you feel then? Will you still stick to your plan?

 

Go through that exercise and honestly reflect on who you are. Remember it isn't just about coming out ahead financially...what is the emotional toll worth? Super aggressive portfolios are great if you've got ice in your veins and cold logic in your mind (I like to think I do) but they're disastrous if you're wrong.

 

Never heard of a rebalance bonus.

 

Allocating 10% bonds (to a 100% equity) actually increases returns while lowering risks. I believe it was Bernstein who figured that out.

 

A subset of people claim the "bonus" you get from selling bonds to buy stocks at a low point outweigh the drag associated with owning bonds (a lower performing asset). They claim a stock/bond split isn't just about risk mitigation but it is about "buying low and selling high", a myth we should generally dispel and reject because it leads to behavioral errors.

 

I may be 100% wrong but I think adding 10% increases risk adjusted returns, not absolute returns. I also think you can find relatively short periods in history where holding some portion of bonds increased absolute returns...but I think those period are in the minority and disappear entirely with sufficiently long time horizons (15-20 years?).

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