# Conservative Asset Allocation



## sensfan15 (Jul 13, 2011)

So I am just getting started in my accumulation phase as I am in my early 20's. I know for someone my age, people tend to recommed a very aggressive asset allocation. However, I work hard for my money and would rather not have to stomach volatility even if I do have a 30+ year time horizon. Is there anything wrong with someone in my situation to opt for a 30/70 equity/bond allocation? I plan on saving $20,000/year so I will have a significant nest egg regardless. What are your thoughts on an ultra-conservative asset allocation for someone my age?


----------



## humble_pie (Jun 7, 2009)

i think it's sensational that your thoughts are so well developed and so mature, when you are such a young person. Congratulations to you.

please tell us that you already have a TFSA that's loaded to the max. And that you plan to keep it up. And please tell us that your rrsp planning & buildout are in really good shape. If you can save 20k per annum there should be a hefty salary behind that, one that might benefit taxwise from rrsp contributions.

as for your stock/bond allocation, i'm inclined to say Go for It but Please Keep an Open Mind. As you tend to your portfolio over time, circumstances will inevitably suggest to you that a little risk-taking now & then can be a good thing.

in the meantime the twin facts that you've worked so hard & you respect your savings are marvellous.


----------



## MoneyGal (Apr 24, 2009)

Not a problem for me! 

I've said as much many times on this board: cash creates options. I love cash. I saved a lot of money in my 20's and it created a TON of freedom for me in my 30's (when I had kids, stayed home, and changed careers). 

You have to do what feels right for you!


----------



## Four Pillars (Apr 5, 2009)

The only problem I can see is that you're cheering for the wrong team. 

You have to pick an allocation that you are comfortable with and let's you sleep at night. If 30/70 is that allocation, then that's the right choice.


----------



## humble_pie (Jun 7, 2009)

nobody's cheering for the wrong team. The OP is clear as a bell. Other 2 messages support him.

did U get out of wrong side of bed this am FP. Your messages are distinctly grumpy. Paranoiawilldestroia.


----------



## MoneyGal (Apr 24, 2009)

It's just a hockey reference, Humble!


----------



## Four Pillars (Apr 5, 2009)

humble_pie said:


> nobody's cheering for the wrong team. The OP is clear as a bell. Other 2 messages support him.
> 
> did U get out of wrong side of bed this am FP. Your messages are distinctly grumpy. Paranoiawilldestroia.


I was referring to the OPs handle.

Remember - Just because you are paranoid, doesn't mean they aren't after you.  (I think Square Root posted that one a while ago).


----------



## Toronto.gal (Jan 8, 2010)

*Sensfan:* As you're in your early 20's, it means that you have lots of time, not only for investing, but also for learning. 

If you can save that much, it not only means that you're making a good salary, but also that you know how to budget your money, which is something that many people in their early 20's know little about, so you're already one giant step ahead!

My only worry is that if you're 'ultra-conservative' now in your 20's, what will your profile be in your 30's and 40's? 

Anyway, I'm assuming that you'll reassess your risk tolerance as you learn & age.

I'm not sure what books you have read up to now, but I would emphasize reading a lot. Here are a couple of books I recommend [if you haven't already read them].

1. One Up On Wall Street - Peter Lynch
2. The Little Book That Builds Wealth - Pat Dorsey

Good luck and welcome to this great forum!


----------



## Oldroe (Sep 18, 2009)

You are on a great road.

Create a solid foundation #1 then look at risk later if it doesn't fit don't fall for that could a should a.


----------



## slacker (Mar 8, 2010)

You should only take as much as risk as you can tolerate. Some people over estimate their ability to tolerate risk, and sell after a 30% equity drop in value. That's the worst case.

The only downside is that your expected return over time will be lower, and you may not be able to achieve your financial goals. (e.g. say retire by age XYZ). But sounds like you're making/saving loads of money already. So you're probably in good shape. Re-assess in a few years.


----------



## kcowan (Jul 1, 2010)

I would add that you should be spending your time on your primary vocation because that should produce better long term returns for the time spent. In about ten years, you will have a big enough portfolio and some spare time to spend it learning how to invest.


----------



## cannon_fodder (Apr 3, 2009)

I'm glad I was able to find this article online because I had read it in the Moneysense magazine.

It details a couple which, lived relatively frugally, but invested only in GICs and amassed a very tidy sum.

So, yes, you can have a very conservative investment mix and still come out on top.

http://www.moneysense.ca/2010/04/05/how-to-retire-at-45/


----------



## larry81 (Nov 22, 2010)

+1 for citing moneysense, as an happy subscriber i cannot recommend it highly enough.

Cost me 1$/month with my rogers cellphone subscription !


----------



## AltaRed (Jun 8, 2009)

Another +1 for moneysense, and a +1 for kcowan's response. 

With so much focus on your career in your 20s and other distractions of youth, I would suggest a simply couch potato portfolio of TD efunds directly with an online account at TDW, and then in a few years, migrate to iShares ETFs (lower MER costs eventually) with a discount broker when the account hits, for example, a $100k threshold.

Asset allocation is very much a personal matter but would encourage the OP to consider something more like a 50/50 approach initially and then re-visit in 2-5 years when risk tolerance is better understood and appreciated.


----------



## GOB (Feb 15, 2011)

cannon_fodder said:


> I'm glad I was able to find this article online because I had read it in the Moneysense magazine.
> 
> It details a couple which, lived relatively frugally, but invested only in GICs and amassed a very tidy sum.
> 
> ...



Good article but that would be much, much harder to do in today's environment. With rock bottom interest rates that essentially punish savers and record house prices, I don't see very much wealth being built from GICs, even with a relatively high savings rate.


----------



## sensfan15 (Jul 13, 2011)

Great! Thanks for the responses! Very helpful and gives me lots to contemplate


----------



## Ihatetaxes (May 5, 2010)

GOB said:


> Good article but that would be much, much harder to do in today's environment. With rock bottom interest rates that essentially punish savers and record house prices, I don't see very much wealth being built from GICs, even with a relatively high savings rate.


Agreed. They have also seen a sweet 600% increase in the value of their house which I doubt many of us will ever see.


----------



## MoneyGal (Apr 24, 2009)

Great comments from GOB and Ihatetaxes. 

I dislike the suggestion that these kinds of situations are repeatable - they MIGHT be, but probably not. 

What people need is flexibility, resources and knowledge...not a prescribed path that worked in one specific set of circumstances.


----------



## Eric (Oct 20, 2009)

*Often beginners are ultra conservative*

I have been advising some young people. Until they put aside a couple of years of salaries, they are very conservative. Myself I was only buying Canada savings bonds for a long time - that was the time when the interest rate was 8% and up!

In my thirties, I was victim of an investment adviser from a big firm who was actually a crook. I lost some money but it woke me up.

Secondary schools should have some investment teaching. For many young, investing is a dark sea full of sharks and they are not that wrong.


----------



## financialnoob (Feb 26, 2011)

I have no problem with it. It doesn't mean you have to stick with it forever, though maybe you will. You're young, still learning about investing, why throw around a lot of money in things you aren't entirely comfortable with yet?

It may not be the "optimum" but the important things are that you're saving, and you're starting to get a return on that. I think it would be better for you to do something that you're comfortable with than overextending into something you aren't totally comfortable with.


----------



## Square Root (Jan 30, 2010)

Congrats. You will succeed no matter what your AA is if you keep saving $20k per year. Personally, I would be much more aggressive but that's what I would do. You should do what you feel comfortable with. 
Another approach might be to buy dividend payors and DRIP. This makes price volatility less of a concern and almost guarantees good results over extended periods.


----------



## kcowan (Jul 1, 2010)

Eric said:


> In my thirties, I was victim of an investment adviser from a big firm who was actually a crook. I lost some money but it woke me up.


Don't beat yourself up. I think that anyone that provides a service but hides the fee qualifies as a crook. If the MERs were billed each year, the investors would be much smarter. MAPF does it quarterly so I know what the help is costing me.


> Secondary schools should have some investment teaching. For many young, investing is a dark sea full of sharks and they are not that wrong.


Finding teachers and agreeing on a curriculum are the problems. They would likely get free lectures from IG!


----------



## cannon_fodder (Apr 3, 2009)

GOB said:


> Good article but that would be much, much harder to do in today's environment. With rock bottom interest rates that essentially punish savers and record house prices, I don't see very much wealth being built from GICs, even with a relatively high savings rate.


It would be much, much harder to live frugally? And invest your savings? THAT was the key to their success, not the GICs.

They made a very good income yet saved an incredibly large amount of their take home pay. They didn't succumb to temptation to spend their way in search of happiness.

I think the reason why the experts commented they had never seen a couple save their way to wealth only using GICs is because they had never seen a couple save their way to wealth. I like to think I'm good with my money but even I couldn't see myself living that kind of lifestyle for that long. I would treat myself to vacations every year - that would probably be my biggest discretionary expense.

But, if you're built that way then it wouldn't seem so difficult.


----------



## Square Root (Jan 30, 2010)

I think one needs a reasonable balance in their lives. The problem with living so frugally for so long is that when you retire you still hate to spend money. In my view the only reason to LBYM is so you can spend more later, or retire earlier if you don't like your job? I don't understand why people attach such moral values to not spending money?Spending more than you have is a real bad idea but if you have it why not?


----------



## Belguy (May 24, 2010)

Just because some of us are frugal (read cheap!!) doesn't mean that we are not buying anything with our savings. I have been frugal all of my life and it allowed me to retire 17 years ago at age 51 and live off of my savings and government pensions in the style to which I was accustomed. No new cars or annual vacations for me because life is one big vacation and I don't drive much. It's certainly not for everyone but it works for me. I haven't worked a day in my life since Christmas Eve 1994 and the last 17 years have been the best years of my life. To each his own!!


----------



## Square Root (Jan 30, 2010)

Belguy. Agree to each their own and obviously you have a measure of balance in your life. Congrats on your early retirement. My basic question is "why do people attach a moral virtue to not spending money" I agree that spending more than you have is stupid. I'm also not saying that spending money is virtuous either.


----------



## MoneyGal (Apr 24, 2009)

SR, I'm with you. Everyone has their own preferences. For example, I have no particular desire to retire early.  (but everyone keeps telling me I'm going to change my mind "later.")


----------



## Belguy (May 24, 2010)

My job got stressful then I had a heart attack and that did it for me. No job is worth dying for! Life is short enough as it is. If you are just starting your working life, make sure that you are working at something that you truly enjoy doing and at a job that you look forward to going to each and every day. Either that, or get yourself a gold-plated government job where you will end up with some of the best pensions out there!! Learn from us old folks who have been through the school of hard knocks. As to whether or not to invest in the stock market, I honestly don't know how to advise you. Maybe real estate (a home to live in) might be the best way to go but always live within your means.


----------



## Abha (Jun 26, 2011)

Belguy said:


> My job got stressful then I had a heart attack and that did it for me. No job is worth dying for! Life is short enough as it is. If you are just starting your working life, make sure that you are working at something that you truly enjoy doing and at a job that you look forward to going to each and every day. Either that, or get yourself a gold-plated government job where you will end up with some of the best pensions out there!! Learn from us old folks who have been through the school of hard knocks. As to whether or not to invest in the stock market, I honestly don't know how to advise you. Maybe real estate (a home to live in) might be the best way to go but always live within your means.


Sorry to hear that. Hopefully you're in better health now


----------



## Belguy (May 24, 2010)

17 years without further heart issues--touch wood! I do not find retirement all that stressful except when I watch the stock channels.


----------



## Abha (Jun 26, 2011)

Belguy said:


> 17 years without further heart issues--touch wood! I do not find retirement all that stressful except when I watch the stock channels.


My favourite image was when during the Greek crisis a few weeks ago, the CNBC anchorwoman was wearing a gas mask while reporting. I was laughing for hours after seeing that.

http://www.businessinsider.com/michelle-caruso-cabreras-best-outfit-ever-2011-6


----------



## cannon_fodder (Apr 3, 2009)

Square Root said:


> Belguy. Agree to each their own and obviously you have a measure of balance in your life. Congrats on your early retirement. My basic question is "why do people attach a moral virtue to not spending money" I agree that spending more than you have is stupid. I'm also not saying that spending money is virtuous either.


Perhaps because poverty is so prevalent, our society markets the consumption of material goods as a badge and path to success, the cases of the misers are far outweighed by those who spend irresponsibly?

There is a difference between enjoying the fruits of your labour by rewarding yourself with material items, or life experiences, while ensuring you are saving for the future, and spending it as fast, or faster, than it comes in. Just like there is a difference between being miserly, where you deny yourself basic comforts, and spending where needs are always met, but wants are typically unrealized.


----------



## cannon_fodder (Apr 3, 2009)

MoneyGal said:


> Great comments from GOB and Ihatetaxes.
> 
> I dislike the suggestion that these kinds of situations are repeatable - they MIGHT be, but probably not.
> 
> What people need is flexibility, resources and knowledge...not a prescribed path that worked in one specific set of circumstances.


RRSP contribution limits recently have increased much faster than incomes or inflation. When this couple first started it was limited to 20% of income or $7,500. We've gone backwards to 18%, but up to $22,450 for 2011. As well, self directed RRSPs are much more commonplace and the restriction on foreign investments has been removed.

TFSAs were recently introduced.

The internet, television, books and other print media are more abundant with personal financial education.

Many big ticket items (cars, televisions, computers) are far superior and either in many cases far cheaper than earlier. House prices in most areas are likely barely above inflation over the last 25 years. I'd anticipate that rents are tracking closely to house prices.

On the other hand, the average person probably has seen their wage growth decline over the past 25 years. But, a significant portion of the private sector population has seen better than inflation growth.

The point made earlier about a 600% increase in house prices is irrelevant for the issue whether or not a couple can more easily save greater than half of what they earn at these high income levels.

Their incomes are a major reason why they could save so much. If you take it from a perspective that a couple who is making $130k combined in the province of AB (which is quite tax friendly) could save over half of their gross income, would that seem so unreasonable? 

They don't have any children... they didn't suffer through a marital breakup.

When you really look at it, why not? 

I personally believe, and I know from my own failings, we don't set the bar high enough for ourselves. As they say, "If it was easy, everybody would be doing it."


----------



## cannon_fodder (Apr 3, 2009)

Square Root said:


> I think one needs a reasonable balance in their lives. The problem with living so frugally for so long is that when you retire you still hate to spend money.


Funny, my wife and I were talking about this last night... as it turns out she was talking about this with a coworker yesterday. I could definitely see this as being a challenge and that is why I told my wife earlier this year that we can start to loosen the purse strings.

It's a reward for several years of plowing all bonuses, raises, etc. into either debt reduction or investing. Now we can treat ourselves more often, or at a higher level of service, much earlier in our life than we had planned.

This is my slow evolution from accumulator to spender. I still can't see me paying as much as $50 for a pair of jeans or running shoes though.


----------



## kcowan (Jul 1, 2010)

cannon_fodder said:


> ...There is a difference between enjoying the fruits of your labour by rewarding yourself with material items, or life experiences, while ensuring you are saving for the future, and spending it as fast, or faster, than it comes in. Just like there is a difference between being miserly, where you deny yourself basic comforts, and spending where needs are always met, but wants are typically unrealized.


Yet people will judge people who could afford a big house and a nice car with driving a ten yo vehicle and iving in a modest home (like Warren Buffet) as being miserly. That is why it is important to not try to impress anyone. Live for your own satisfaction!


----------



## Square Root (Jan 30, 2010)

Maybe it's just that we have made the transition from saving for retirement to actual retirement. Our retirement plan is to spend our dividends and pensions. This turns out to be a pretty high annual amount but only about 3.25% of our portfolios. Lived well below our means for quite a while and this seems like a reward for good financial management in my view. However, if I mentioned the actual figures , I suspect the vast majority on this board would think we spend too much? Some people have actually called our spending "obscene". Maybe it's because so many people don't have enough? Anyway, I think money can only be used to spend or give away. One should do both.


----------



## Belguy (May 24, 2010)

"Live simply so that others can simply live!"


----------



## Square Root (Jan 30, 2010)

Belguy said:


> "Live simply so that others can simply live!"


care to elaborate?


----------



## cannon_fodder (Apr 3, 2009)

Square Root said:


> Maybe it's just that we have made the transition from saving for retirement to actual retirement. Our retirement plan is to spend our dividends and pensions. This turns out to be a pretty high annual amount but only about 3.25% of our portfolios. Lived well below our means for quite a while and this seems like a reward for good financial management in my view. However, if I mentioned the actual figures , I suspect the vast majority on this board would think we spend too much? Some people have actually called our spending "obscene". Maybe it's because so many people don't have enough? Anyway, I think money can only be used to spend or give away. One should do both.


This is not completely dissimilar to a story told to me by my father. A fellow factory line worker won the lottery. Instant retirement, never worry about money ever again kind of money.

He would go to the local union hall and would graciously offer to buy everyone a drink. Well, after a while, some people complained that he was showing off. So, he took that to heart and stopped doing that. Then, some other people complained that he was a tightwad.

My dad met him at a local harbour as the lottery winner was taking out his rather large boat. Even though they barely had spoken at work, he invited my dad onboard. My dad said the fellow was actually quite nice but had lost all of his work friends because of the lottery.

Sometimes you can't win when it comes to people. I wouldn't worry at all what other people think - as long as you and your partner are enjoying your success and not hurting anyone, then more power to you.


----------



## Square Root (Jan 30, 2010)

Good story cannon. Thanks. Yes we have reached that conclusion. We do our own thing, be as generous as we can,and try not to "show off" We are having a great time. Cheers.


----------

