Planning the Joint Retirement Portfolio: Large Scale Allocation
Posted on February 09, 2007 by Him and tagged investments, retirement
This is part 3 of our planning the joint portfolio series. To see how we got here, read this intro post, then read part 1: The Magic Number and part 2: Currently, It's A Mess.
Lately we've both been pretty busy with our work and social lives, leaving little time to discuss the finer points of our joint retirement portfolio. What has been quite a boon to us are automatic deductions from our paychecks that continue to plow money into our retirement accounts.
When we do have the time to talk about asset allocation, the conversation usually goes like this:
Him: Hey, our investment portfolio is a little off our target allocation.
Her: So what is our target allocation?
Him: I dunno, 80% stocks, 20% bonds?
Her: 20% bonds? What are you, 60-years-old and neutered? 100% socks!
Him: Your face is a bond.
...and we end up not doing anything.
This really boils down to how much risk we're willing to take. Here are the factors that we're taking into consideration when determining our risk: we're fairly young (mid 20's), have 30+ years until we retire, we're buyers and holders, and while not pleasant, we have weathered out the bad times that our (limited) portfolios have been through.
Without further ado, here's our large scale allocation at least for the next few years:
Yes, 90% stocks and 10% bonds. In the next post of this series, we'll slice up the pie into more specific asset classes.
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You are SO loving these graphics! I must admit, my nerd meter is registering on critical levels of jealousy.
Paul | Feb 12, 2007
I'd suggest stopping all retirement investments and pay off all your debts. Then invest with some power.
Edward Oneill | Feb 18, 2007
This 10% bonds stuff is nuts. Do you need to go through a market collapse? That's what happened to me when the internet bubble burst. I had made 50% in two years, then WHAM, the 50% was gone, and I was down another 30% below where I started. Whatever you put in stocks you must assume you could at worst LOSE IT ALL. Remember Enron? More conservatively, imagine you could lose 30% of what you have in stocks. Are you ready for that? It could happen tomorrow. Bonds don't earn much. They are a buffer. I get you to rethink your investment strategy. It not only welcomes risk--it's foolhardy.
Edward -
Good points. I'd have to argue with some of them though.
Yes, during the early 2000's many investors lost a lot of money. I was finishing up my undergrad degree around then, so I wasn't in the middle of everything. From what I know about reading about that time, many of those investors were mainly invested in internet stock heavy growth funds. The fact that you made, then lost 50% during that times makes me believe that you weren't well diversified in your stock holdings, and you underestimated your risk tolerance.
I was actually doing my undergrad studies when the whole Enron thing happened. The reason many got hosed was that they had ALL of their retirement holdings in that one stock.
Admittedly, I do think that maybe the 90/10 allocation maybe too risky. I have just finished reading "All About Asset Allocation" and saw that an 80/20 mix is appropriate for our ages, and will have approximately the same rate of return of 100% stocks, with much lower risk.
I guess my point is that in my next post in this series, I'm going to lay out how I'm going to spread my risk tolerance by investing in a number of different asset classes. Not all stocks react in the same way!
Chris | Feb 12, 2007
20% bonds is too much for someone your age. I would do no more than 10%.
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