# Asset allocation in retirement



## Jaberwock (Aug 22, 2012)

The general rule for asset allocation in retirement is to have a certain percentage of your assets in fixed income such as bonds and GICs. One rule I see often is to take 100 minus your age, and that is the maximum amount that should be in equities. For example a person at sixty would allocate 40% of his/her income to stocks, the rest to fixed income.

These days, when fixed income investments are paying less than 2%, does that allocation make any sense? 

My own RRIF is invested 100% in dividend paying stocks and REITs, returning 5% per year which is the amount that I withdraw (though that will have to be increased at some time when the minimum withdrawal exceeds 5%). My portfolio value goes up and down with the markets, but that is not a problem because the income generated goes up a little bit every year when the companies I own increase their dividends, and the long term trend is for the portfolio value to rise. I only hold companies whose dividends are stable. I stay away from companies whose dividend is dependent on commodity prices.

If I had allocated 60% of my RRIF to fixed income investments, as advised by the financial planning industry, then to maintain the same withdrawal rates, I would have to take out more than the RRIF earns annually. My income and portfolio value would be falling, whereas now it is rising.

Am I crazy, or is the financial advisory industry simply being too cautious?


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## agent99 (Sep 11, 2013)

Jaberwock said:


> The general rule for asset allocation in retirement is to have a certain percentage of your assets in fixed income such as bonds and GICs. One rule I see often is to take 100 minus your age, and that is the maximum amount that should be in equities. For example a person at sixty would allocate 40% of his/her income to stocks, the rest to fixed income.
> 
> These days, when fixed income investments are paying less than 2%, does that allocation make any sense?
> 
> ...


Percentages can be misleading. If an investor had 40% in FI before the 08/09 crash, they may soon have found they had 60% FI! yet they still had the same total amount of FI. So percentage was meaning less. What was important, was that the FI cushioned the crash.

We are well into retirement. What I have done, is figure out what the absolute minimum income we need would be if things went really bad. Then calculate how much we would need over and above our CPP/OAS (no other pensions). Then hold FI that pays that amount. In a crash, some FI may default but then some equity dividends will remain. 

I have no FI in taxable accounts - it is all in RRIFs. And it is in corporate bonds, convertible debentures and split preferreds. No GICs or low interest goverment bonds. So some risk, but less than equity risk. 

Now in our mid 70's, our RRIF FI allocation at present is about 60-65%. This goes up as we make withdrawals because I never withdraw FI. (However, sometimes I do draw cash that results for bonds maturing.)

Our target withdrawal rate is 4% of total portfolio value. So far that has resulted in no draw down of portfolio. It continues to grow, albeit slowly because overall yield is above 4%. Key is being selective about just what FI to invest in.


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## Sampson (Apr 3, 2009)

I think one has to consider how they spend money during retirement and also you to lay out the objectives whether you leave an estate, die broke, or eventually derive new income etc.

I believe most models using fixed asset allocation in retirement often assume constantly spending rates. If you can adjust soending in good and bad years, then the allocation could be changed from the basic model.


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## birdman (Feb 12, 2013)

Good question and not so sure there is a simple answer as it depends on your risk tolerance, pension income, future cash flows, and your financial needs for the future. 
I just turned 70 and have been retired for 14 years but was fortunate in having a supplemental retirement plan which has been paying me pretty well but expires next year. After this my wife's and my income consists of OAS and CPP totalling about $2,000. pm plus a defined benefit pension of about $22,000. PA. We own our home and have no debts and spend about 55,000. to 85,000. after tax annually. The shortfall will be covered by RIF and investment income which should be more than sufficient to meet our future needs. Our asset allocation of investments are as follows:
Cash and Fixed income (GIC's) 48%
Stocks: 28%
MIC's (not doing well) 16%
Other 8%

Working towards only having fixed income in our RSP's (soon to become RIF's) but not looking forward to seeing our net worth diminish as RIF withdrawals start at somewhere around 7% PA and GIC income is only around 2%. Hopefully the income from our other investments will make up for this reduction our total investments.
We feel we are conservative in both our investments and asset allocation and our plan is dynamic and can change depending on our needs and wants as we age.
We are comfortable with it and just hope it works out.


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## jargey3000 (Jan 25, 2011)

Frase - what are MICs?


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## birdman (Feb 12, 2013)

Mortgage Investment Corporations. Private companies which invest in higher risk mortgages. Unfortunately, one of the ones I am in invested in some larger projects as "work out" situations to try to recover original faulty loans. Very poor management and directors, several of which I new, but unfortunately most were realtors who thought they were lenders (my past profession). Anyways, instead of yielding say around 5% (formerly around 10%, the yield is down to 2% with withdrawal restrictions. Hopefully things are now on track as their policies have changed, there have been changes to the board, management has been strengthened, and lending policies amended. I should have know better but hopefully things will work out.


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## 1980z28 (Mar 4, 2010)

The future for retirement income for us without pensions will depend how we invest what we have saved

As cpp ,oas,gis will maybe be not enough if you are able to meet the requirements 

So I am a lot of equities as to me is a safe place to be as interest rates are so low

So 100% equities

This is my plan,,,hoping it works,,not much of a plan but all I got for now,,,,could get hit by a bus,,,,hoping to get to 100+


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## pwm (Jan 19, 2012)

I don't believe in the conventional "100 minus your age" rules. They seem to be based on the assumption that all one has to live on in retirement is one's own savings. They seem to ignore government benefits and company pensions. In my case, my company pension, CPP & OAS provide me with enough to live on. Therefore my investments are 100% equities. I consider my pensions to be equivalent to large government bond funds.


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## Jaberwock (Aug 22, 2012)

CPP and OAS could be regarded as fixed income assets. The cost of an annuity for a 65 year old man, for example, to replace a full CPP and OAS would be around $400,000, and that annuity would have no inflation protection.

It could be argued, therefore that a person with a full CPP and OAS entitlement has the equivalent of $400,000 in fixed income assets, which should perhaps be counted as part of the split


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## pwm (Jan 19, 2012)

Thank you Jaberwock. Exactly my point. Double that for a couple, and you see that there is little need for fixed income assets, paying pathetically low rates, when the pensions account for that portion of one's net worth.


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## My Own Advisor (Sep 24, 2012)

@Jaberwock,

I think if you own a diverse basket (i.e., multiple stocks, from multiple sectors) then nothing wrong with your plan. I too have a bias to dividend stocks and 5 or so REITs for passive income.

My yield is about 4.4% right now on my holdings and my plan is to live off dividends and distributions, at least in the early years of retirement.

My portfolio value goes up and down as well but I don't care; it's the income I'm after and not timing the market to sell equities.

I'm lucky to have a small workplace pension so that's my "big bond" and any government programs already listed in threads above, will also be very bond-like.

Personally, I think a 100-your age for bond allocation is simply an outdated rule by at least 30 years. Bond yields have nowhere to go but up, which means bond prices might be low for years or decades ahead. Not good for inflation fighting power.


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## Mechanic (Oct 29, 2013)

I'm starting to think that idea of 100 - your age was probably more of a sales tool by the investment industry to re-balance and generate fees. I do have about 50/50 in our rrsps and a chunk of bond funds in our non-reg but, if I have only 35% of our cash invested, with 65% still in cash, along with a paid for residence and 2 other paid for real estate properties I don't think I need anything other than dividend paying equities in the investment accounts. I think I should make some adjustments ?


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## james4beach (Nov 15, 2012)

> Am I crazy, or is the financial advisory industry simply being too cautious?


If you look at the SWR studies that have been done -- this is about making retirement capital last as long as possible -- they vary the % equities in their models. The classic SWR studies and outcomes are based on a 50/50 allocation which is where the original rules of thumb came from. More recent studies also include the 2008 crash and the resulting low interest rate environment.

BUT what surprised me, when I read the studies, is that increasing the equity allocation much higher does not necessarily give you an advantage. I think an optimal equity % allocation is in the 50% to 60% range.

So yes, keeping about 40% to 50% fixed income (considering all your fixed income things like pension) is the right thing to do, offering the greatest long-term return. I know that seems counter-intuitive, but this has to do with the horrors that result from volatile equities and waiting for prices to rebound.


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## james4beach (Nov 15, 2012)

This Trinity study update has extremely useful information on optimal asset allocation based on many studies.

Some notes based on what I found there,

- There isn't much of a difference, for overall returns, between 50% equities and 75% equities
- There isn't even much of a difference when equities are between 35% and 90% of the portfolio
- Pfau's 2010 study showed equity allocation between 30% and 80% had little effect on results

So you can see, that once you are in retirement and start drawing money out of your retirement portfolio, your stock exposure should be in the 40% to 75% range and you can possibly keep it as low as 30% without detrimental impacts.

Surprising, right?


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## My Own Advisor (Sep 24, 2012)

Does the Trinity study include bond yields close to 2% for the next 20+ years?


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## james4beach (Nov 15, 2012)

Nope, but remember that expectation for stock returns have also come down.


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## fraser (May 15, 2010)

I do not think that there is a hard and fast rule. I believe that the split between equities and fixed/bonds depends on whether one has DB pension income, if it is inflation protected, and how much of one's after tax income is covered by DB,CPP, etc. Age and longevity also play a factor.

When we first looked at it we included the after tax cash value of my DB pension in the equation as an additional component of the fixed component. This served to increase the percentage of equities that we might otherwise have selected. In hindsight it was a good decision since our equities have performed very well over the past three years. 

I do not think there is a one size fits all solution.


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## pwm (Jan 19, 2012)

That's another thing about the "100 minus age" rule of thumb which makes it irrelevant to many people. It assumes a systematic withdrawal of capital. In my case, I don't need to sell anything and can quite easily live on my pensions. The investment income is just gravy, so as a result, I am in 100% dividend paying equities. 

However, if I was in a position where I had to draw down my capital over time, then yes I would hold some bonds or GIC ladder because you can get jammed up having to sell securities in a down market.


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## agent99 (Sep 11, 2013)

My Own Advisor said:


> Does the Trinity study include bond yields close to 2% for the next 20+ years?


And does the study allow for taxes? 

The amount of our savings that is in a taxable account vs registered accounts can make a huge difference. 

In taxable account, you only pay tax on your income and net capital gains if you sell. 

In registered account, you pay tax at full rate on capital and income when you are forced to make the minimum withdrawal (~5.4% at 72 and higher as you get older). For past few years, our combined CPP/OAS just covered our taxes. Partly because good part of savings are in registered accounts.

When doing retirement planning, you need to calculate how much you would like to have to live off. Then add up your pensions and income from investments on AFTER TAX basis to see if you will have to draw down your capital or reduce your expectations.


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## AltaRed (Jun 8, 2009)

pwm said:


> That's another thing about the "100 minus age" rule of thumb which makes it irrelevant to many people. It assumes a systematic withdrawal of capital. In my case, I don't need to sell anything and can quite easily live on my pensions. The investment income is just gravy, so as a result, I am in 100% dividend paying equities.
> 
> However, if I was in a position where I had to draw down my capital over time, then yes I would hold some bonds or GIC ladder because you can get jammed up having to sell securities in a down market.


A DB pension is fixed income and should be Present Valued to put it into context about how it affects the overall asset allocation. For someone age 65 with a mostly COLA'd pension, a rule of thumb might be 25 times, i.e. a $3000/mo pension = PV of $900k. A non-COLA'd pension might be a factor of 20. If a person is 50 that same factor might be in the order of 15 instead of 20. Those are all simplifications of course because of the complexities of DB pensions, joint survivor rights, etc. but it is a way of valuing the Fixed Income worth of one's pension.

I have a modest DB pension but using my rule of thumb, I am able to keep my FI in my investment portfolio in the 15% range rather than say, 40% or 50%.

As rules of thumb go, many financial planners are now using (110-age) for the equity component since people are living longer, i.e. circa 85-90. My bro and I used 110-age for my mother, who passed away early this year at age 96. She had 15% in equities when she died and we would have dropped that 15% to 13% by this year end for living expenses.


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## james4beach (Nov 15, 2012)

Absolutely must consider those pensions and other pseudo-fixed-income assets. If you have huge pensions somewhere, then of course that matters -- it all goes into the total allocation picture.

I'm just pointing out that the theory shows that very high % stocks (as a % of total allocations) has little/no beneficial impact on results when drawing down from a retirement portfolio.

e.g. 1 M pension treated as fixed income + 0.5 M personal investments = 1.5 M total assets
Say as per the research you put 40% in stocks, that's 0.6 M in stocks.
which means you could put your entire personal portfolio (the 0.5 M) into stocks


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## AltaRed (Jun 8, 2009)

One's CPP payments can be treated the same way since that is just like a DB pension. OAS less so unless one is already getting it AND one is not into clawback territory. OAS is going to need to be reformed someday.


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## Jaberwock (Aug 22, 2012)

The Trinity Studies which claim there is little difference between a 30% and an 80% stock allocation were done in the 1990's, the latest updates to those studies used data prior to 2009. The latest update would have caught the 2008 downturn, but not the recovery from that downturn and the long period of low bond rates. The conclusion may well be different in today's low interest rate environment.


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## james4beach (Nov 15, 2012)

I think this is one of those things you can't squint and eyeball. These studies involve monte carlo simulations, where entry/exit points are randomly varied throughout history. Yes stocks have rebounded a lot since 2009, and that will change things, but it's hard to tell how much it will change the outcome. I doubt that it will radically change the guidance on stock allocation %.

And let's say we had an outcome that was up to date, to 2014 or 2015 -- which are new all time stock market highs. Do you really want to base your retirement planning on an absolute best case scenario?

That's why I like the 2009 study. I think it's good to plan conservatively for things like: will I run out of money in retirement and become destitute.


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## james4beach (Nov 15, 2012)

I am going to revive this thread and again bring up the point that *many investors have too high a stock allocation.* Anyone who is "feeling pain" due to plummeting markets should honestly ask themselves if their stock allocation is too high. This absolutely is a suitable time to reconsider these important questions.

(First as a definition, I am talking about total stock exposure embedded inside index funds/mutual funds, after treating DB pensions as fixed income)

Again I will cite those trinity studies in which there is little difference between 30% and 80% stock allocation. Next I was intrigued, and came to new realizations, when I read the reports by Toronto's own Jim Otar in which he identified some of the systemic flaws in the kind of portfolio modeling that has recommended the traditional stocks=(100 - age). I agree with Otar's analysis. The traditional models are wildly over-optimistic.

Another eye opening thing for me was when I started playing with back-testing to vary asset exposures between stocks, bonds, and gold. This is along the lines of the "permanent portfolio" and I've been playing with https://www.portfoliovisualizer.com/backtest-asset-class-allocation to look at historical data up to present.

I'm currently aiming for: *40% fixed income, 30% stocks, 20% gold bullion, 10% cash* (though the equally-weighted permanent portfolio is also very compelling). Yes I'm a young guy but that doesn't change anything -- I'm maximizing returns here. Running this through the model I see excellent results in performance vs risk/volatility. And this is despite running it at a time when stocks are near their all time highs, which if anything, gives stocks an unfair advantage in the comparison.

I don't see why anyone needs more than 30% stock exposure. I've read a lot before coming to this conclusion. I think the traditional advice for higher equity exposures is flawed, and dangerous to people near retirement.


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## BC Eddie (Feb 2, 2014)

I came across this article a number of years ago and found it quite eye-opening.

It uses the same historical methodology as Otar but predates his analysis by about 15 years:
http://www.retailinvestor.org/pdf/Bengen1.pdf


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## Moneytoo (Mar 26, 2014)

BC Eddie said:


> I came across this article a number of years ago and found it quite eye-opening.
> 
> It uses the same historical methodology as Otar but predates his analysis by about 15 years:
> http://www.retailinvestor.org/pdf/Bengen1.pdf


"An asset allocation as high as 75 percent in stocks during retirement seems to fly in the face of conventional wisdom—at least the wisdom I have heard. But the charts do not lie—they tell their story very plainly."

Thank you so much for the link!


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## james4beach (Nov 15, 2012)

That article was written in 1994. It does not consider the two major crashes within the last few years, both of which were very significant because inflation was above 0%, and the stock market went a whopping 13 years without an increase.

Besides, bogleheads points out, the same Bengen whose article you linked here had updated his research two years later:



> As well, already by 1996, William Bengen produced a figure showing that the safe withdrawal rate from a historical perspective *varied very little for stock allocations between 35% and 90%*. Using data for the S&P 500 and intermediate-term government bonds, he found that the historically-safe withdrawal rate was always above 4% for rolling 30-year periods since 1926 for stock allocations between 35% and 90%.


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## My Own Advisor (Sep 24, 2012)

I agree with you James...

"...Anyone who is "feeling pain" due to plummeting markets should honestly ask themselves if their stock allocation is too high. This absolutely is a suitable time to reconsider these important questions."

I think if you (me) cannot stomach 10% or 20% equity losses, easily, that's a sign for too many equities vs. bonds/FI.

I also consider any pension a "big bond". This is why I personally hold 100% equities.

Two of the sharpest retirement minds in this country suggest the following for an asset mix leading into retirement and how to manage your portfolio for the next few decades:
http://www.myownadvisor.ca/real-retirement-review-giveaway/

"Some key messages from The Real Retirement include:

Always focus on “real returns” – after inflation has been accounted for.
The best times for investing have historically been when fear is rampant.
Expect negative returns on equities will occur for 2 to 3 calendar years out of every 10.
Studies indicate government bond yields go through cycles lasting about 60 years: 30 years for the uptrend and 30 years on the other side. If the theory holds true, yields have “virtually no room to move further downward, thus no capital gain opportunities remain”. *This means some sort of 70/30 portfolio split (equities/bonds) is a better bet for the foreseeable future.*
“Actuaries estimate that real returns on bonds over the next 25 years will average between 1 and 1.6 per cent depending upon the term of the bond”."


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## AltaRed (Jun 8, 2009)

Another way to look at it is to always have ~4 years of fixed income capital around to tide one through stock market 'crashes', i.e. to mitigate the risks of having to sell equities in bear market territory. 

This 'rule of thumb' from the 'bucket method' works best when a person is already retired since s/he will have real life experience with their cash in/cash out flows and will know how much cappital they have to set aside to supplement their cash flows for this safety net. The key to success is the discipline to refill this bucket at the first opportune time when stocks have recovered their recent past losses. 

I have been retired almost 10 years and am less concerned with my asset allocation split than I am about ensuring the size of this safety net. By default then, I should (and do) have less concern about equities rollercoasting up and down. The difficulty for most though is seeing their net worth drop during stock market corrections/bears and keeping their trigger fingers off the sell button.


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## james4beach (Nov 15, 2012)

There is still a problem here, that 4 years is no guarantee that stocks would recover from a crash. Again just look at the Japanese example for a worst case scenario.


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## AltaRed (Jun 8, 2009)

james4beach said:


> There is still a problem here, that 4 years is no guarantee that stocks would recover from a crash. Again just look at the Japanese example for a worst case scenario.


Nothing helps in a black swan event, but the charts here https://theirrelevantinvestor.wordp...erything-you-need-to-know-about-bear-markets/ suggest the average bear market is 69 weeks, with a max of 106 weeks although if one looks at a complete peak-to-trough-to peak over a very long period, there are 3 instances of 13-25 years of theoretical bear markets....the latter of which are not that relevant, since for example in the 2000-2013 bear market, there was an intermediate peak in 2007 where a fixed ladder would have been replenished in real life.


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## james4beach (Nov 15, 2012)

^ and all of that was measured in US markets, which have had the strongest and longest lasting bull market(s) of any market in modern history.

All of these ideas of stock allocations and long term growth rates are based on US stock markets, which compared to other world markets have been _unusually strong_ for a long time. Look at what happens to either the SWR studies or backtesting when they look at international markets. The results are much worse.

Personally I think that everyone is basing their planning on the "best case scenario", i.e. the US stock market of the last couple centuries. This is a fundamental flaw in reasoning and analysis.


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## AltaRed (Jun 8, 2009)

I don't dispute US markets have outperformed global markets historically. They may, or may not, continue to do so in the future. That is the reason for geographic and currency diversification. I maintain that as long as one has 'sufficient' reserves in cash/fixed income to handle the more typical nasty 'curve' balls, as compared to a hand grenade, we cannot do much more without withdrawing into bunker mentality.


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## james4beach (Nov 15, 2012)

It's true that you can't do much more. Other than (perhaps at the start of retirement) have more realistic, lower ambitions for portfolio returns.

Some historical perspective: retail investors and pop culture didn't even care about stocks and mutual funds until the 1990s. Unsurprisingly, the popularity exploded in the middle of the most powerful stock bull market in world history. This notion ... commonly believed on this forum ... that stocks are the key to riches and a good retirement, only really appeared in the 1990s. This was also a great time for the economy, lots of jobs, high incomes, good spirits.

Before the 90s, stocks were a thing that just rich people invested in. Once the booming bull market attracted people, mutual funds and stock investment became popular, we started getting TV shows and magazines about stock investing, a whole mutual fund industry appeared. Investment banking took off, Wall Street people got rich, and people admired and craved their wealth. All of this only happened in the 90s.

The reason I bring this up is that it means that _most_ people joined the stock game in recent history, only within the last 20 years or so. Now think of the timing of that. Based on the amazing historical performance of US stocks, _people all joined the game near the highs_, historically speaking. You can see this plain as day on any long term stock chart. *We are all buying at very high levels, in the big picture.*

I think the US markets right now are much closer to Japan of 20 years ago. Persistently overvalued, in denial about long term deterioration, and an economy past its prime. So I think you have to strongly consider the Japanese example.

If this was 30 years ago, we wouldn't all be talking about eagerly buying the dips and how our retirements are going to be based on 70% stock allocations. This way of thinking is a modern phenomenon that emerged in the bull market years. So are all the studies that have been published on the topic.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... Some historical perspective: retail investors and pop culture didn't even care about stocks and mutual funds until the 1990s ... Before the 90s, stocks were a thing that just rich people invested in.


I can agree on the stocks ($120 - $200 commission that my uncle was paying is steep per transaction).

I need more detail before I'll believe the '90's as the start. Or are you saying that institutional investors and the rich were responsible for the $25 billion in Canadian MFs in 1980?


Then too ... if it is the '90's when stocks became popular, why would write ups for the '20s say:


> From 1921 to 1929, the Dow Jones rocketed from 60 to 400, creating many new millionaires. Very soon, *stock trading became America’s favorite pastime* as investors jockeyed to make a quick killing.


http://www.thebubblebubble.com/1929-crash/

It is hard for me to reconcile "America's favourite pastime" with the idea that:


> ... stocks were a thing that just rich people invested in.


The two are opposites, are they not?




james4beach said:


> ... Once the booming bull market attracted people, mutual funds and stock investment became popular, we started getting TV shows and magazines about stock investing, a whole mutual fund industry appeared. Investment banking took off, Wall Street people got rich, and people admired and craved their wealth. All of this only happened in the 90s.


Odd ... putting the "favourite pastime" aside, if there was no market for MFs before the 90's, why can I find multiple MFs created in the US in the 1920's? In Canada, there's AGF that was started in 1957 and in the Netherlands, a MF was created in 1774.

https://en.wikipedia.org/wiki/AGF_Management
https://www.ific.ca/en/articles/who-we-are-history-of-mutual-funds/




james4beach said:


> ... If this was 30 years ago, we wouldn't all be talking about eagerly buying the dips and how our retirements are going to be based on 70% stock allocations. This way of thinking is a modern phenomenon that emerged in the bull market years. So are all the studies that have been published on the topic.


Certainly not all of us ... but that's pretty much the same time frame that my mother was upset with my dad for trying to dictate her RRSP allocation to 100% GICs when she thought a MF would be a better choice for a portion. I seem to recall the way it ended up was that they agreed to keep out of each other's RRSP choices.


I have no doubt that the '90s with discount brokers, ETFs and media coverage has increased interest, added new capabilities and increased assets under management.

I am not so sure MF's were key catalyst or that stocks were as limited to the rich as the theory claims.


Cheers


*PS*

I'd describe my stay-at home mom, raising five kids where dad went to work as middle class. Her BA was in English. 

It can't have been that difficult to find info on MFs, including advantages and disadvantages as she would not have had tons of free time or any advanced financial education to prime the pump for her. Never mind Dad's "stocks are risk, GICs are safe" mantra.


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## Spudd (Oct 11, 2011)

I don't know if that's true, James. I recall as a child in the 80's being very grumpy that I couldn't watch The Dukes of Hazzard on Friday nights because my dad always had to watch Wall Street Week (and we were not rich by any means). 



> Wall Street Week is an investment news and information TV program that was broadcast weekly each Friday evening on Public Broadcasting Service in the United States from 1970 to 2005


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## Eclectic12 (Oct 20, 2010)

I missed commenting on this part ...


james4beach said:


> ... how our retirements are going to be based on 70% stock allocations. This way of thinking is a modern phenomenon that emerged in the bull market years.


What was the percentage of people in the mid-80's who had a DB pension?

With in 2009, sixty one percent of Canadians workers being without a company pension plan ... how much of the attention to retirements funds/investing is *being driven by the loss of company pensions*? If there's no company pension ... then I would think it stands to reason that one's investments take on an importance that those with a company pension had less need to be concerned about. 

IMO, there's more factors at play here than the theory looks at.


Cheers


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## Moneytoo (Mar 26, 2014)

My main reason for staying out of bonds now and considering a higher allocation to stocks in retirement is this:



My Own Advisor said:


> "Some key messages from The Real Retirement include:
> 
> Always focus on “real returns” – after inflation has been accounted for.
> The best times for investing have historically been when fear is rampant.
> ...


I do believe that the more expensive something gets - the riskier it becomes. I might be wrong, but I just don't want to be taking risks for such lousy yields and potentially negative returns with bonds - and feel more comfortable betting on red with the stocks, risk vs reward yada-yada


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## hboy43 (May 10, 2009)

Spudd said:


> I don't know if that's true, James. I recall as a child in the 80's being very grumpy that I couldn't watch The Dukes of Hazzard on Friday nights because my dad always had to watch Wall Street Week (and we were not rich by any means).


Somewhere in there between watching Louis, I bought my first stock, Redpath Sugar circa 1981 via a predecessor discount brokerage company of TD Waterhouse, Gardiner Group IIRC. I was a wealthy newspaper baron 3 or 4 years prior, that is, I made my early money delivering the Globe and Mail, and the Montreal Gazette.

Chances are if a discount brokerage existed back then, they had more than just me as a client.


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## james4beach (Nov 15, 2012)

There certainly were mutual funds before the 1990s, but you can see from this graph how the mutual fund industry really blossomed in the 90s. You could equally well say this growth started in the late 1980s. Mutual funds were truly an 80s-90s phenomenon, and that's when stocks opened up to the common man.

This was also the period in which American 401(k)s appeared and average people really started embracing stocks.


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## el oro (Jun 16, 2009)

Do you have a projected retirement age for yourself j4b?


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## AltaRed (Jun 8, 2009)

DIY investing became practical once the Internet came of age circa 1995 with the advent of the World Wide Web. It was more cumbersome to be DIY before that and most investors would have invested via full service commission brokers, even if that was in mutual funds. Indeed, other than equities, various forms of open end or closed end funds was the only viable alternative. My first foray into DIY investing was, I believe, in 1998 when E*Trade came to Canada and I had broadband Internet.


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## james4beach (Nov 15, 2012)

el oro said:


> Do you have a projected retirement age for yourself j4b?


I don't have a good projection, no. I'm especially worried about employment because (like most of my friends in my age group, 30s) unemployment is always right around the corner. I don't know how to account for this.

On average, I've been able to increase my net worth at 20K-23K/year, which takes into account the periods of unemployment. At this pace I think it's feasible that I could retire around age 70 as long as I keep my cost of living low.

I'm single and I'm hoping that whatever partner I end up with has good income too, because if she thinks I'll be carrying the household, then we'll be eating catfood in retirement. I hear that catfood has improved a lot over the years.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> There certainly were mutual funds before the 1990s, but you can see from this graph how the mutual fund industry really blossomed in the 90s.
> 
> You could equally well say this growth started in the late 1980s. Mutual funds were truly an 80s-90s phenomenon, and that's when stocks opened up to the common man.


I am not convinced the MF growth of assets means what your theory says it does.

For fun, I went back to look at my taxable and RRSP account from 1988 to 2003. By my calculations ... DB pensions proceeds accounted for 69% of the dollars I put in to MFs. So like the overall MF asset levels, it grew but a large part was equity transfer ... not net new money.


Cheers


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## Moneytoo (Mar 26, 2014)

james4beach said:


> ...we'll be eating catfood in retirement. I hear that catfood has improved a lot over the years.


Sometimes I wonder where this catfood scarecrow as the worst thing that can happen to a retiree came from? It's definitely very popular as after hanging out at financial blogs and forums for a few months I started using it to motivate my husband to save aggressively. And he had to stop me at some point at ask, "Who are you and what you've done to my wife?"

My mom lives alone in a subsidied apartment, receiving only GIS and OAS. About 16K a year with tax credits. Yet she doesn't eat catfood - her cat does 

She had a "cancer scare" late last year, and yesterday we took her to a hospital as it looked like she was having a stroke. After 11 hours she was released - and nobody knows what she has. When my husband, our daughter and myself crowded in a tiny ER room to listen to the doctor's conclusion, and mom introduced us proudly, "My whole family is here!" - and couldn't wait to get out for a smoke and be released to go home to feed her cat... I suddenly realized that my husband was right: I lost my ways - our ways.

I think it's time to move on - but thanks for everything I have learned!


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## james4beach (Nov 15, 2012)

Don't lose your ways, Moneytoo! Stay true to yourself. I am guilty of having become a little bit money obsessed in recent years. Money isn't everything, and humans are always flexible. If there isn't "enough money" we can make do. People are remarkably resilient, and communities of people and friends can do wonders for each other


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## RBull (Jan 20, 2013)

My Own Advisor said:


> I agree with you James...
> 
> "...Anyone who is "feeling pain" due to plummeting markets should honestly ask themselves if their stock allocation is too high. This absolutely is a suitable time to reconsider these important questions."
> 
> ...


This is good information. Although I do not personally have a DB pension (my wife does) and take a more cautious approach with regards to the amount of equity now 2 years into retirement. According to this information we might be encouraged to shift another ~10-15% into equities. It is interesting to me that Canada is a global leading market with regards to the stretch for yield in terms of equity market dividends, and is also of relatively limited size. I don't know what this means into the future but makes me wonder. 
I think its important to consider "best times for investing have historically been when fear is rampant" would refer more to equities but typically most of the gains come very early in the recovery from a trough, so timers beware. 

I tend to put more weight on "need to take risk" vs. what we might do better with regarding equity vs FI, at least in this stage of retirement. My thinking has evolved on this as we moved from accumulation to protection/depletion stages of our finances. I note the bond return suggestions refer to government bonds vs corporate, which typically will pay more. The key it seems to me for those holding FI is make sure you have low real return assumptions, for the foreseeable future. Low return assumptions for equities may also be wise. We're operating/planning 1% real return assumptions overall. 



AltaRed said:


> Another way to look at it is to always have ~4 years of fixed income capital around to tide one through stock market 'crashes', i.e. to mitigate the risks of having to sell equities in bear market territory.
> 
> This 'rule of thumb' from the 'bucket method' works best when a person is already retired since s/he will have real life experience with their cash in/cash out flows and will know how much cappital they have to set aside to supplement their cash flows for this safety net. The key to success is the discipline to refill this bucket at the first opportune time when stocks have recovered their recent past losses.
> 
> I have been retired almost 10 years and am less concerned with my asset allocation split than I am about ensuring the size of this safety net. By default then, I should (and do) have less concern about equities rollercoasting up and down. The difficulty for most though is seeing their net worth drop during stock market corrections/bears and keeping their trigger fingers off the sell button.


Experience in retirement means a lot IMO. 
As retirement evolves I see things similarly with having a large safety net bucket cash and/or maturing FI in amounts that will cover expenses for a long period. For sure, staying disciplined on the ratios and replenishing is key. Whatever govt benefits arrive for us in the next decade will impact our allocation ratios, possibly allowing more equity risk. 

A decent spread between needs and discretionary spending should provide a little extra buffer if things were really bad for a prolonged period.


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## My Own Advisor (Sep 24, 2012)

Comments like these continue to reinforce for me, having an adequate cash buffer/cash wedge is _critical to retirement planning_. I'm thinking a good 3-5 years expenses sitting in cash is good, as a retiree, and then you can likely tip your retirement equity allocation to closer to 70% (for retirees).

For savvy retirees like RBull, this means counting on pensions and gov't benefits as fixed income, and likely keeping the personal portfolio in mostly equities.


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