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Follower ○○○

What are the Cons of having 80% Stock in your portfolio at retirement age?

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Frequent Contributor

Re: What are the Cons of having 80% Stock in your portfolio at retirement age?

I don't know as I'm not retired yet, still working for another approximately two years.

But I plan on going into retirement with about 75% equity, and I'm now at about 84% equity. we are about to sell a house and are moving into our new house, which we paid for in cash, so when we sell our old home that money will go predominantly into fixed income/ cash. I anticipate we will be about 75-80% equity when we retire, rest in fixed income/ cash. BUT, we have  a pretty large portfolio (>5 million), and plan on living off JUST the income w/o touching principal. We will also have a pension which covers about 35% of needs, and eventually two SS payments that will add some additional income. Most importantly, we will not "panic" and sell when the market periodically falls out of bed and sells off. 

Win
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Frequent Contributor

Re: What are the Cons of having 80% Stock in your portfolio at retirement age?

Hi Frank.

The short answer is none...no cons.

Guru's such as W. Bengen and J. Otar,  have studied and written books on safety in retirement.  This resulted in the approx 4% Safe Withdrawal Rate for retirement portfolios, and lasting 30 years, safely.  M* does not permit my accessing old posts, but one chart from their studies showed that the sweet spot for safety is holding stocks/stock funds that made up at least 15% of portfolio, and no more than 85% of portfolio.  That is, a 100% stock, or 100% bond, portfolio was historically not as safe as the mixture.

Your 80% is thus within the safety band.

Thus, whether to have 80% stock based or not depends on a retirees situation...all things considered.

For example, let's say you have more than enough, and no children as heirs, but rather a college legacy in mind.  Be aware colleges often have portfolios of 80% or more equities/alternatives (non-bonds).  So it is not unusual for such a person to be 80+% equities in retirement.

Good day.

R48

 

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Contributor ○○○

Re: What are the Cons of having 80% Stock in your portfolio at retirement age?

The cons for me would be sequence of return risk. Having to sell in a down market as we had in March for an extended period of time is hard on your portfolio. It has recovered most of the loses but if prices had stayed low it would be hard to sell. A bond and cash portion to protect against sequence of return risk will help.

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Frequent Contributor

Re: What are the Cons of having 80% Stock in your portfolio at retirement age?

What are the Cons of having any asset allocation in your portfolio at retirement age? I have no clue, what are your goals?

What is the best vehicle?  I have no idea what your needs and goal.  It could be a bicycle or SUV.

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Frequent Contributor

Re: What are the Cons of having 80% Stock in your portfolio at retirement age?

It depends (e.g., risk tolerance, time horizon - when you need the money).  

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Participant ○○○

Re: What are the Cons of having 80% Stock in your portfolio at retirement age?

Nothing wrong with 80/20. If you have "strong hands" and can reduce your spending by 25% during a nasty bear market.

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Frequent Contributor

Re: What are the Cons of having 80% Stock in your portfolio at retirement age?


@galeno wrote:

Nothing wrong with 80/20. If you have "strong hands" and can reduce your spending by 25% during a nasty bear market.


If you have enough income from investments, SS, retirement plans, etc to fund your expenses and taxes you will not have to sell assets or reduce your spending during a 25% bear market and you will be able to pass on an inheritance to your heirs. 

 

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Frequent Contributor

Re: What are the Cons of having 80% Stock in your portfolio at retirement age?

I think the "key" for holding a higher equity asset allocation (anyone at 70% or higher) during retirement is making SURE you will hold the equity positions through a market selloff, AND having "enough" cash, income (SS, Pensions, Annuity, etc.), and bonds to support you through a BAD market selloff. If you retire with a high equity position, and then have a REALLY BAD BEAR market, especially early in retirement, and you continue to sell your stocks as they are dropping, you could then have a real bad "hit" to your portfolio. Your portfolio may have trouble recovering, especially if the "bad" bear sell off is early in one's retirement (Sequence of Returns risk). 

The other issue is if one is "scared" by market volatility, and becomes unnerved when the market sells off. That could lead one to make "emotional" decisions and sell stocks at the worst time, when they are very low. 

The only way I can maintain a high equity allocation is if I am able to live off just the income, AND the income is actually more than I need. I could easily live off less than our portfolio throws off, if things got really bad. So in some ways, I see our portfolio as money for our heirs, possible charities down the road. 

Win
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Frequent Contributor

Re: What are the Cons of having 80% Stock in your portfolio at retirement age?

It would depend on the portfolio size. If the 20% is a million, not much risk, it it is $200,000, some risk, if it is $20,000, high risk!

 

What is the best vehicle? 

Ford Fiesta

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Contributor ○

Re: What are the Cons of having 80% Stock in your portfolio at retirement age?

I know a lot of people put little stock (no pun intended) in Monte Carlo simulations, but they without prejudice show the likelihood of how asset allocations would have fared historically. With a 4.5% withdraw rate a 90/10 PF is only 1% less likely to succeed than a 40/60. Anything between 40/60 and 90/10 falls between 83 and 85% likelihood to succeed. What does differ more drastically is the potential upside with holding more equities. Unless sequence of returns bites us, after a few years even after a substantial dip (bear market) PF values are often greater with an aggressive PF. It seems to me to be more a matter of how well you can weather the storms emotionally. All the above is of little comfort when ones PF is spiralling  down in a hand basket.

It makes sense though to me anyway, to have some amount of risk management for a prolonged bear or sideways market.

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Frequent Contributor

Re: What are the Cons of having 80% Stock in your portfolio at retirement age?


@archer wrote:

I know a lot of people put little stock (no pun intended) in Monte Carlo simulations, but they without prejudice show the likelihood of how asset allocations would have fared historically. With a 4.5% withdraw rate a 90/10 PF is only 1% less likely to succeed than a 40/60. Anything between 40/60 and 90/10 falls between 83 and 85% likelihood to succeed. What does differ more drastically is the potential upside with holding more equities. Unless sequence of returns bites us, after a few years even after a substantial dip (bear market) PF values are often greater with an aggressive PF. It seems to me to be more a matter of how well you can weather the storms emotionally. All the above is of little comfort when ones PF is spiralling  down in a hand basket.

It makes sense though to me anyway, to have some amount of risk management for a prolonged bear or sideways market.


Why not: ...+1

Would also add:  Your position archer is strengthened by the fact that interest rates on bonds are at historical lows...real rates after inflation are negative.  We know very closely the total returns of bonds going forward...and it is not good, regardless of direction interest rates take.  This supports the need for a higher stock/stock fund allocation percentage, not less, in all portfolios, including retirees.

R48

 

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Frequent Contributor

Re: What are the Cons of having 80% Stock in your portfolio at retirement age?

The biggest negative is that having  80% stock In a portfolio at retirement is 10% less in equity than 90%.

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Frequent Contributor

Re: What are the Cons of having 80% Stock in your portfolio at retirement age?


@archer wrote:

I know a lot of people put little stock (no pun intended) in Monte Carlo simulations, but they without prejudice show the likelihood of how asset allocations would have fared historically. With a 4.5% withdraw rate a 90/10 PF is only 1% less likely to succeed than a 40/60. Anything between 40/60 and 90/10 falls between 83 and 85% likelihood to succeed. What does differ more drastically is the potential upside with holding more equities. Unless sequence of returns bites us, after a few years even after a substantial dip (bear market) PF values are often greater with an aggressive PF. It seems to me to be more a matter of how well you can weather the storms emotionally. All the above is of little comfort when ones PF is spiralling  down in a hand basket.

It makes sense though to me anyway, to have some amount of risk management for a prolonged bear or sideways market.


I know several people that thought stocks are great prior to retirement in 2000 and had to go back to work.

So, if I think my success rate is at least at 95% (probably 98-99%) why do I care about "the potential upside"? and especially at age 63?

The devil is always in the details and goals can be different.

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Explorer ○○

Re: What are the Cons of having 80% Stock in your portfolio at retirement age?

Having a 80% stock portfolio is very good for some and "deadly" for others. It is a matter on how you view your analysis skills and how good your past stock selections have been. Stock markets are considered casinos by amateurs where you could lose your money in one day. [all or nothing mentality]..

 You might want to review what I initially used [taught many many years by a professor at a college that I attended] as one example:

1... 16 securities "minimum" in a portfolio [equally divided by $ value]

2... 0-2% for initial buying of total portfolio if/when buying [based on one's analysis]

3... Sector variation and not all in on one sector

4... Review insider actions. We do not want to be buying shares when insiders are continuing to sell shares

5... Buy/Hold mentality left a long time ago. We must have a "sell" program in place that we can live by. If we were not [basically] all cash on 3/23, then we do not have a sell program in place [when to sell] and a signal to develop one. Some investors use a 5% or 10% decline in MktPrc as a signal. If you have been in the market for a while, then most investors have a more sophisticated computer program in place....

 We must remember that most of us buy securities that have "very good [educated] managers or CEO's" and we are basically buying their expertise over ours [going forward]. Message boards are nice for single "opinions" [pro/con] and should be reviewed against our current analysis....

 

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Participant ○○○

Re: What are the Cons of having 80% Stock in your portfolio at retirement age?

The decision to sell a stock is far more difficult than the decision to buy.

I found it very helpful to make both decisions as mechanical and as unemotional as possible.

 

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