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What's your retirement asset allocation percentages?

Discussion in 'Medium/Long Term Investing' started by Zaxon, Oct 26, 2019.

  1. Zaxon

    Zaxon The voice of reason

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    That is such a big lesson. In a sense, we're privileged to not be retired and see how these low interest rates play out. So now we all know that unless you're super rich, you'll always need a percentage of your funds invested and at risk.
     
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  2. Zaxon

    Zaxon The voice of reason

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    Yes, all very true.

    There's really 3 ways to smooth out volatility. You have a safe withdrawal rate and pretend the volatility doesn't exist - that's the 4% rule. You typically would have bonds as a part of the mix, but the exact percentage is very much a flexible question.

    Alternatively, as you suggest, you heavily invest in income assets to balance out your shares. That works as well.

    Finally, if you're the "Shares FTW" type, then you can have a "slush fund" to smooth out your returns.
     
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  3. aus_trader

    aus_trader

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    It's definitely something that takes time to reflect and make wise changes to your portfolio mix. I haven't rushed to do it because I want to feel comfortable to leave the portfolio alone once the right mix is decided. The last thing I want to do is to panic sell in market downturns etc.

    Having more time to continue to trade at the edges of the portfolio with a small amount of capital is also an advantage before I retire. As you said, once I feel confident enough I will keep aside a portion of my cash in a trading account for stock picking strategies that I am doing at the moment. This will be separate from an investment account which will be more or less a buy and hold portfolio of different asset classes. Depending on my skill level that I develop and the confidence I have in myself sticking to discipline such as 'sell when I should', I think I'll be happy to set aside 10 to 20% for stock trading. As you said it'll be a challenge to keep me occupied to monitor the share market and stock selection if I feel a bit bored once I retire.
     
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  4. sptrawler

    sptrawler

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    I just had a bit of a thought aus trader, one has to a bit careful making mental notes, I have been caught doing it at times.
    What I mean by that is, often when a share is on the nose, it is actually the perfect time to be buying into them. For example 4 years ago when the Samarco dam failed, BHP went to $12-13 range, with the Brexit issues a couple of months back CYBG went below $3, IOOF went below $5 two months ago.
    It kind of backs up the old saying about when everyone is heading for the exits.
    The big 4 in Australia are kind of pseudo government agencies, they are regulated by the Government and as such they IMO will be around for a long time, I will add to them if the opportunity presents. With the current outgoing remeadiation, they are being hammered, but it wont go on for ever and as Zaxon said they will find other ways to make money. They have to, for the economy to function.
    But as you say, there is no point in going overweight in something, I am already overweight in.:xyxthumbs
     
  5. Sir Burr

    Sir Burr

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    There is another way of thinking :geek:

    To reduce sequence of return risk, have a high initial bond allocation and withdraw the first 5 years (at least) from the bonds only.
     
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  6. aus_trader

    aus_trader

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    Yes, I understand where you are coming from. However I found it's not always profitable buying just because the share got hammered. It could get beaten down further and sometimes for a long period of time. A recent example might be the fresh fruit and veg producer Costa Group Holdings Ltd (CGC).

    In terms of the banks, yes I agree that they won't go out of business because the Government will ensure that. They showed us how protective of the banks they are during the GFC.

    I just made the comment about how you can be overweight to the banks in your portfolio if you already hold a portion of your wealth in ASX index funds and decide to buy the individual banks on top of that. The reason for my concern was the ASX index ETF will have the banks at the top of the list with some of the highest weightings. Let's say you bought an ASX200 ETF to give your portfolio exposure to the largest 200 blue chips on the Australian market, those 4 banks will be right near the top with some of the highest weightings of that fund. See the culprits with their weightings all within the top 10 holdings of the ASX200 fund below:

    upload_2019-11-6_21-5-22.png
     
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  7. sptrawler

    sptrawler

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    The LIC's and Australian ETF's all have heavy weighting to the Banks, but as has been shown recently, if the Banks don't lend money everything goes pear shaped.
    You are spot on with your observation.:xyxthumbs
    When the GFC happened CBA went to $26 and ANZ,NAB and WBC from memory, went to around $15. I will be loading up again if that happens.
    Just my opinion.
    Below is an LIC and ETF holding example.
    Milton's top 20 holdings.
    https://www.asx.com.au/asxpdf/20191105/pdf/44b8v01tfvzwhm.pdf

    Even VAS top 10 holdings include the big 4 Banks and financials make up 31% of their holdings.
    https://www.vanguardinvestments.com...t.html#/fundDetail/etf/portId=8205/?portfolio

    Great discussion thread this.:xyxthumbs
     
    Last edited: Nov 6, 2019
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  8. Zaxon

    Zaxon The voice of reason

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    I like the idea of going into retirement with a good margin of safety, so this idea has a lot of merit. I'm thinking there's a "Goldilocks amount" between having too much out of the stock market, and therefore stacking the odds of a good return against you, and having sufficient in bonds that the chance of a crash happening on the day you retire, is mitigated.

    Thinking in 'x' number of years sounds right. We know you're only going to withdraw 4% (insert figure here) per year, and a lot of that could come from dividends anyway. So most of your portfolio can crash "safely", since you won't be drawing on it for years or decades anyway.

    Typically a crash is severe, and then within 12 months (or so), a lot (but not all) of the original market value has recovered. The last 10% (or so) seems to take the longest.

    So I'm thinking having 2 years in cash/bonds gets you through the worst of a crashed market, and well into the recovery phase. On the other extreme, having 10 years out of shares would put you at such a huge disadvantage if you're wanting to grow your capital. That Goldilocks amount probably comes down to the level of comfort each individual investor feels they need.
     
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  9. Zaxon

    Zaxon The voice of reason

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    As a second question for everyone: what is your withdraw rate when you retire? Are you doing a fixed rate based on your balance on retirement + CPI? Are you doing a variable rate as a percentage of your assets under management each year? And what percentage are you using?
     
  10. aus_trader

    aus_trader

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    I am certainly thinking along the line of % drawdown per annum. That way, in the leaner years when the market returns are poor the amount withdrawn will also be lower based on %'s. If it's a fixed amount, it can end up depleting too much of the fund during a downturn.
     
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  11. aus_trader

    aus_trader

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    Yes very good discussion indeed.

    Given the exposure to the banks of around 30% or more whether you invest in the overall market via an ETF such as VAS or a LIC such as MLT, I wouldn't be keen on gaining further exposure via buying the banks directly.

    But as you said if it is doing a trade to buy the banks from a GFC recovery type scenario I would be interested, if I can get the timing right :cautious:
     
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  12. Bill M

    Bill M Self Funded Retiree

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    Both my wife and I draw the minimum amount of 4%. As we are younger retirees we kind of figure that if the minimum is enough for us to live on now then it is better to keep the rest for when you really need it.

    ie. An aged care facility will cost each person around $1,200 week out of your own savings ATM if you are not entitled to a pension. You need cash flow for such events. You don't want to end up in some government funded facility sharing a room with 4 other people, not a nice way to check out of this world.
     
  13. Bill M

    Bill M Self Funded Retiree

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    I held bank stocks through the GFC, watched the value drop down during the crash. I had spare cash on hand and when they all offered share top up plans I bought as much as I could. The best play was CBA @ $27, they botched the original plan so they had to revise it and sell @ $26 a share. Both my wife and I topped up as much as we could.

    I've had bank shares in my portfolio all my life, they are darn good stocks. They have all paid for themselves now with their dividends over the years. I just wish I had enough guts to pull the trigger on BHP when they hit $13.50. I remember a staff member of BHP coming on here saying something like "I have been offered a share purchase plan from the company to top up my BHP stocks at a discount, should I buy them?" Most us just said we would if we were in your position. Chances come along all the time but people do nothing sometimes, me included.
     
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  14. sptrawler

    sptrawler

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    Great post Bill, we all suffer from the same problem, when the herd is stampeding for the door it is hard not to go with them.:xyxthumbs
    That is the one rule, I think is the most important and the young should learn it. When things are screaming up it is easy to join in, when things are crashing down it is hard to stand firm.
    That is why I think everyone should have a plan on which shares to buy, if there is a crash, they all become cheap, not having a clear head is the problem.:mad:
     
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  15. sptrawler

    sptrawler

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    With regard draw down, as with Bill we draw the minimum amount, which is currently 4%. If I need to draw extra I will draw cash lump out of the wife's super, which is in accumulation.
    The reason I left her's in accumulation is two fold, one while markets are strong the amount is increasing, because nothing is being drawn. Secondly if there is any Government instigated changes, as happened with the $1.6 cap, it gives a degree of flexibility as you can still add to it.
    So while my draw down is increasing with age, any windfalls I add to hers. I could have started more super funds and put extra money into that, but I just find this plan is working for me.
    My super is rising slightly, her super is flying along, when my draw down exceeds my earnings and we need more income, I will put hers into pension phase.
     
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  16. Sir Burr

    Sir Burr

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    Hi Zaxon, there people out there have done work based on history for us. Using historical monthly start dates of retirement and comparing fixed withdrawal rate percentages. This paper is for early retirees but has the numbers for 30 year retirement too. It would be using US data.

    There is a chart on page 4 showing the probability (based on history) of your money lasting the distance. 4% looks pretty good.

    Safe Withdrawal Rates: A Guide for Early Retirees
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=292032
     
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  17. sptrawler

    sptrawler

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    Great paper Sir Burr, terrific read.
    It re enforces the 4% theory, the question it raises, how do you keep your draw down at 4%?
    Super has increasing draw downs.
    Outside super has tax implications.
    Which leads to another discussion, this thread seems to be good at that.:xyxthumbs
     
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  18. tech/a

    tech/a No Ordinary Duck

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    Some great discussion here.

    I've remained silent for most part.

    But it has been my goal ever since I left school to aim toward excess.
    If I have well over what I need then life will and has been a great deal
    easier than struggle street.

    As pulling back loomed the challenge was/is to continue that excess.

    The only way for me to do that was to have more investments than I need
    to live well going forward 30 years. If Im un lucky enough to last that long!

    I have put in place people who can carry on with what I have created to give
    me a continued income similar to that which Ive had for the last 10 yrs.

    I urge you to find something you can invest in which can supply a continued
    income to grow your investments. Hard but it can be done.
     
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  19. barney

    barney

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    Been off the air a bit lately, but just browsing through this thread and thought the same:)

    Lol …. I suspect many of us will be enjoying a good "sleep" by that time:eek::)

    Good advice … and certainly not wishing to appear unduly negative:p, but

    In the final washup, "our" investments are a reflection of our lives, and will likely end up a prelude to our immediate families' future "investments" (over which we will have no control;))


    I often think, if I get lucky and pick a multi-multi bagger …. and get to retire early, I'll most likely be bored as crap lol …..

    Therefore, picking the wrong Stocks most of the time is probably in my best interest:rolleyes::D

    With that in mind … Some of us are doing extremely well:p
     
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  20. sptrawler

    sptrawler

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    The draw down from super is legislated, starting at 4% and increments with age to 14%.
    https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?page=10
    Outside of super, it is treated as income so normal tax rates apply, therefore the draw down + cpi, has to include tax.
    So the choice of super, or holding outside of super, or a combination of both would probably have an effect on the way people draw down the money.
     
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