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Subject:  Re: The 30 year portfolio performance Date:  1/9/2011  9:13 PM
Author:  SirTas Number:  68184 of 100375

... this is why gauging one's risk tolerance accurately and holding an asset allocation that will allow the retiree to stay the course and not panic is so important.

Yes. An asset allocation of 80/20 (stocks/fixed income) is far more likely to have a higher terminal value after 30 years of inflation adjusted withdrawals than one with an AA of 60/40.

But when the markets go absolutely batguano and your stock portfolio loses half its value, it's far less scary with 60% stocks vs 80%.

Yes. But doesn't volatility matter in another way too. Given a specific portfolio value, the greater volatility there is in your portfolio (which is more or less the same as the percentage of stocks), the greater chance the portfolio has of hitting $0 at some specific time in the future.

It's possible to recover from 50% drops, but it's pretty much impossible to recover from $0.

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