UnThreaded | Threaded | Whole Thread (11) | Ignore Thread Prev | Next
Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75340  
Subject: Re: Questions on diversification and MPT Date: 5/31/2011 6:01 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
...This shows how the chart is all over the place when graphed by decade. This doesn't mean that MPT is useless, but to me a least it instead of showing and absolute best strategy it instead shows more a general style of how and why to mix your asset classes

Agree with this. What kinds of strategies do you use to hone in on proper allocation?....


The ideal strategy is unknowable so the best you can reliably do is to make sure that you don't have a clearly bad asset allocation.

Realistically the old rules of thumb about having your age in bonds and 20% in international stocks is probably in the right ballpark and a good starting point. You could adjust the numbers by maybe 10 or 20 percent because of your preferences and analysis of the current situations and even if you are not right, that would not be far enough off to make it a catastrophically bad choice. Even if you do make a less than theoretically ideal choice, then you still have about a 50% chance of getting lucky and having the wrong choice turn out to be the right choice just by dumb luck.

Personally I am greatly underweighting long bonds in my portfolio because the low interest rates and the risk of a loss if interest rates rise, which I suspect is pretty likely at least over the next 20 years or so. I have substituted a TIPS mutual fund for these that have an intermediate duration.

I do try to set up my plans have a lot of margin of safety so that I will still be OK is some of my estimates are off;

For example I try to plan so;

1) I have enough for a budget a pretty comfortable lifestyle in retirement, nothing lavish but if my yearly retirement income ends up being a third or so short, then I still wouldn't have to worry about starving.

2) I budget to try to be able to retire at around the age of 60 to 62. If I fall short I can work a few more years.

3) I plan be able to be able to be financially independent until at least the age of 95. The odds are that I won't live that long, but if my retirement money falls short the "good" news is that I still might not actually outlive my money.


For me to get into a lot of trouble I would have to have my investments greately underperform, not be able to make it up by working a bit more, and get lucky in the logevity lottery. That is a pretty long shot and I am just as likley to have things turn out better than planned for and be able to retire a few years earelier, live a fancier lifestyle, and not outlive my money.

Greg
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (11) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Post of the Day:
Value Hounds

Medallion Financial: TAXI!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement