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Originally Posted by TiredX2
 Except that isn't even common advice. Yes, you are supposed to transition as you age but the most common rule of thumb is 120-age = % in stock.
So a 60 year old would still have approximately 60% of their portfolio in stocks. For example, look at this article: Stock Allocation Rule: 120- Age http://www.bargaineering.com/article...minus-age.html In the target date funds, Vanguard has 47% stock for a 66 year old, Fidelity has 48% and T. Rowe Price has 54%. While people are transitioning, they have traditionally been told that you need to keep large amounts in equities as a hedge against future inflation. If you followed "expert advice" for a 60year old even you could have easily lost 15% of your total portfolio in 2008 so far. I'm not attacking you, velochic, just pointing out that even people who thought they had the right asset allocation were hit hard by this. I will add, though, that following this asset allocation while close to retirement/retired should only work for those who have, in their portfolio, approximately 25 times what they need to withdraw in a year. |
)That is an allocation for someone who is not risk adverse AT ALL and can stomach and *afford* a huge down turn in the market. For a conservative investor, the number is 100 - age at the *most*. Less, if you are worried about the economy (and we had plenty of warning about this economic downturn). Moreover, within that amount that you have invested in the stock market, it should be diversified both domestically and internationally. Typically for a conservative investor who can't afford to lose their shirts, that's going to be about 25% of their entire portfolio in stocks and 15% in international stocks (and hopefully they're smart enough to use index funds instead of individual stocks).
So, a 60 year old person who has been listening to the news these past few years and wants to retire at 65 would have had only about 40% of the entire portfolio in the stock market to begin with. They would have been watching the housing bubble burst and started moving their money into bonds. As they moved their money into bonds, their earnings would have leveled off and by now, they might be down 10%, but since bonds are strong, they would be gaining again.
I think many people (sorry to say this) were lazy about reallocating their portfolios as they got older. They left it the way they had it 10, 15, 20 years ago because they saw $$$. Who would touch their investments when it's doubling every 7 or 8 years?
If someone is retiring in 5 years, they shouldn't be seeing their entire portfolios down 40%, 50%. They should be seeing them down 10%, 15% tops. And since they are not going to be withdrawing ALL of their money the minute they retire, that portion of their portfolios actually have 10 or 15 years to bounce back before they have to tap into it. They're just going to be actively managing their portfolios within retirement (and people should be doing this anyway... investing doesn't stop the minute you retire, it just changes.)
But my mom is retired. She *had* plenty to live on even if she lived to 100. Her house was paid off, etc..... But she has her money in the wrong sort of investments for her age and she does not handle her spending well. She is a hoarder so she nickel and dime's away hundreds every month. In addition, even though her house was paid off, she decided to take out a HUGE home equity loan worth more than half the value of the house on very bad terms....can we say adjustable....to make "house improvements" that are in poor taste, were not done well, and will be immediately ripped out by whoever lives there next. Like (I am not kidding), "I always wanted a pink bathtub" kind of renovations. I know she is in trouble because she has stopped calling me. We live far away, in an area she hates, in a tiny house, and we do not get along. But we do not have enough extra money to completely support her without giving up our retirement funds. I have one sibling who is living paycheck to paycheck. I have no idea what to do.
