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  • Stocks and bonds ratio in portfolio

    My husband (non-physician) - age 56 and myself -age 49 have been maxing our retirement contributions for a while and have accumulated around 2.2 M. I am not sure if our portfolio is too aggressive for our age: 20-25% bonds and the rest in stocks? We are not sure is cash / emergency fund [total of 180k) should be counted into this equation? We probably won't use then until age 65 or greater.

    Most of the investments is in Vanguard and Fidelity  mutual funds, index funds.

    We also have good life insurance [70K cash value as of now], disability, long term care insurance and 529 [110k] for our 9 year old child.

    Any suggestions/critique is appreciated.

     

     

  • #2
    It really depends. When are you retiring, your annual expenses and expected expenses in retirement.

    If you model say a bad downturn like 2000/2008, the sequence of withdrawals and how that affects your spending and level of anxiety over your stores and you feel like you'll be in trouble, etc...it may be too aggressive. If your average spending/expenses are very well covered and a monte carlo simulation shows you always end up with more than you started with you could be fine.

    So make sure to define these and then you'll have a fuller picture to start addressing the asset allocation and it will be easier to see what makes the most sense for your situation.

    And, does the cash value mean you have some form of whole/universal life policy?

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    • #3
      Seems like a lot of cash/emergency. What do your monthly expenses look like? Ditto cash value life insurance - what's going on there?

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      • #4
        Your life insurance is not good.

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        • #5
          You have to figure out your own risk tolerance and go from there. That's not an easy thing to give advice about on a forum.

          This might help--

          https://personal.vanguard.com/us/FundsInvQuestionnaire

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          • #6




            My husband (non-physician) – age 56 and myself -age 49 have been maxing our retirement contributions for a while and have accumulated around 2.2 M. I am not sure if our portfolio is too aggressive for our age: 20-25% bonds and the rest in stocks? We are not sure is cash / emergency fund [total of 180k) should be counted into this equation? We probably won’t use then until age 65 or greater.

            Most of the investments is in Vanguard and Fidelity  mutual funds, index funds.

            We also have good life insurance [70K cash value as of now], disability, long term care insurance and 529 [110k] for our 9 year old child.

            Any suggestions/critique is appreciated.

             

             
            Click to expand...


            I have recently started a blog to answer these types of questions.  http://doctoroffinancemd.com/2018/02/10/    What is your projected retirement age?  Who is the primary breadwinner?  I am 60 and I have 63% in stocks.  I am trying to stay 60-65% now.  Your asset allocation is too aggressive if you are retiring in the next 2-3 years.  The cash ER fund depends on your monthly expenses and again your likely retirement date.  You need several years of expenses in an EF if you are retiring soon and have no passive income sources.

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            • #7




              You have to figure out your own risk tolerance and go from there. That’s not an easy thing to give advice about on a forum.

              This might help–

              https://personal.vanguard.com/us/FundsInvQuestionnaire
              Click to expand...


              I took the quiz. It pegged me at 60:40. I am currently at 60:40. All is well.

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              • #8




                My husband (non-physician) – age 56 and myself -age 49 have been maxing our retirement contributions for a while and have accumulated around 2.2 M. I am not sure if our portfolio is too aggressive for our age: 20-25% bonds and the rest in stocks? We are not sure is cash / emergency fund [total of 180k) should be counted into this equation? We probably won’t use then until age 65 or greater.

                Most of the investments is in Vanguard and Fidelity  mutual funds, index funds.

                We also have good life insurance [70K cash value as of now], disability, long term care insurance and 529 [110k] for our 9 year old child.

                Any suggestions/critique is appreciated.

                 

                 
                Click to expand...


                75-80% stocks is a reasonable asset allocation, for, well, just about anyone, if your risk tolerance is reasonably high.

                I include my cash in the fixed income of my asset allocation. There is no right or wrong way, especially if you have as much as you do, to count it.

                Our guru (the @WCI) and this forum are generally not fans of whole life insurance, or its variants, for which you have a "cash value". How to manage this depends on a lot of factors, and the @WCI has written numerous articles on the topic (see below). That would be the only major criticism.

                https://www.whitecoatinvestor.com/how-to-dump-your-whole-life-policy/

                 

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                • #9
                  I'm in my early fifties, still working full time (though hoping to decrease my hours this year), and my wife works about 0.5.

                  We are at 63:37 equity:fixed income.

                  Knowing what I know now about my risk tolerance and my behavior through 2000-2002 and 2008, if I could start all over again, I would probably set my asset allocation at 75:25.

                  I also just took the online Vanguard quiz, and it recommended 80:20 for me (which is pretty similar to the 75:25 that I would have pegged myself at).

                  However, with current market valuations being so high, I am in no rush to change my asset allocation at this time. I've reached FI, I've "won the game", so I'll stick with 60-65% equities for now.

                  Comment


                  • #10
                    I took the quiz.  60/40.  Pretty close to what I have.

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                    • #11
                      Those quizzes are notoriously terrible at predicting your actual risk tolerance level. You're taking it outside of the dire scenarios presented, and as anyone can tell you thats seen a significant drop in their portfolio value, it is not at all like choosing the obvious rational answer on a quiz of "buy more duh!". It feels like death and you just want to make sure you dont fully die.

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                      • #12
                        Most of this decision has to do with psychology.  If you have money that you won't need for 15-20 years (which may be true in your case? if you work to 65?).  Then it can be mostly or entirely in stocks.  Equities outperform bonds over the long run.  Most 10 year periods.  Virtually all 20 year periods.  But that won't work if you are inclined to panic and sell after a market downturn.  Online questionnaires may not predict this well either.  If you had money invested in stocks in 2008, look back at your own records.  Did you maintain or buy stocks in 2009?  If so you are fine with a 75% stock allocation.  Did you sell stocks then?  Did you freak out and have sleepless nights?  Maybe you should decrease to 60% or 50%.  I'm currently 40:40:20 stocks:bondsther.  It works great for me, but isn't right for everyone.

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                        • #13
                          Assuming they keep the whole life policy of 70K, would you count that towards their bond allocation? Aren't most life insurance products invested in bonds?

                           

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                          • #14




                            Those quizzes are notoriously terrible at predicting your actual risk tolerance level. You’re taking it outside of the dire scenarios presented, and as anyone can tell you thats seen a significant drop in their portfolio value, it is not at all like choosing the obvious rational answer on a quiz of “buy more duh!”. It feels like death and you just want to make sure you dont fully die.
                            Click to expand...


                            Nothings perfect, but the Vanguard one's not a bad place to start. Anecdotally, it gives reasonable results... Even if you ignore the allocation at the end, at least, it gives an idea about the sorts of things that are important. And of course you won't estimate your risk tolerance as well if you think in terms of what you should do-- you're supposed to guess about what you would do .

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                            • #15
                              Thank you all.

                              I don't plan to retire for at least 10-12 years. We have not sold much stocks in 2008 so I guess our risk tolerance is not so bad.

                              I see lots of criticism about the whole life insurance. Part of my life insurance is whole life with dividends payed to us.  As some point we plan to use dividends to part (at least in part) for the life insurance premiums.  It is not a perfect investment but I see it more as a diversification more than ideal investment.  The options for it are as follow:

                              1. Leave it to your children when you die (dividends pay for premiums in later years)

                              2. Borrow against it or take out part of it without paying taxes

                              3. Take annuity

                              We are not sure what we will do with it but I suspect we will have enough other savings to support our lifestyle in retirement.

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