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^ This! Also, the most valuable part of investing is asset allocation, i.e. how you split your money up between stocks and bonds (and optionally real estate). T

^ This! Also, the most valuable part of investing is asset allocation, i.e. how you split your money up between stocks and bonds (and optionally real estate). Take your age, and put that percentage of your money into bonds (if you're 30, put 30% of your money in bonds). Bonds are safer and you want to conserve your money as you age. Make sure the bond maturity dates aren't later than you're going to need them. Reallocate your assets every 18 months so that your diversification continues to match your age. Read fund prospectuses to learn about the fees and expenses they incur -- this is boring, but the lower the fees and expenses the better your portfolio will perform.

peferron 8y ago
Regarding "your age in bonds", it's worth noting that Vanguard's all-in-one retirement funds don't follow this advice at all. For example, the Target Retirement 2050 fund has 10% bonds [1], while I would expect most people buying this fund to be 30+. [1] https://investor.vanguard.com/mutual-funds/profile/VFIFX https://investor.vanguard.com/mutual-funds/profile/VFIFX
- loeg 8y ago
  I'd suggest ramping up bonds shortly before retirement (and then ramping them back down again afterwards, which the vanguard funds do not do -- mostly because they cannot tell if you have actually retired on your target date).[1] [1]: https://earlyretirementnow.com/2017/09/13/the-ultimate-guide-to-safe-withdrawal-rates-part-19-equity-glidepaths/ https://earlyretirementnow.com/2017/09/13/the-ultimate-guide...
- JKCalhoun 8y ago
  There's the "100 minus your age rule", the "110 minus your age" rule... Linear, simple, all easy to remember — not necessarily "tuned".
mruts 8y ago
Unless you are borrowing at the risk free rate (levering your bonds), I don’t think this is the best advice, unless you are open to holding junk bonds. Your Sharpe ratio is largely irrelevant [(returns - risk free rate) / std dev]. What you want is to optimize your Sortino ratio [loss / std dev]. Or, put another way, it’s more preferable that you make 100% returns one year, and lose 25% the next than to make 25% each year. The bonds are going to really drag on your returns and since bonds don’t seem correlated with equities anymore, they might not even be an equity hedge. Risk parity portfolios are designed to solve this problem through leverage.

peferron 8y ago

Regarding "your age in bonds", it's worth noting that Vanguard's all-in-one retirement funds don't follow this advice at all. For example, the Target Retirement 2050 fund has 10% bonds [1], while I would expect most people buying this fund to be 30+. [1] https://investor.vanguard.com/mutual-funds/profile/VFIFX https://investor.vanguard.com/mutual-funds/profile/VFIFX

loeg 8y ago
I'd suggest ramping up bonds shortly before retirement (and then ramping them back down again afterwards, which the vanguard funds do not do -- mostly because they cannot tell if you have actually retired on your target date).[1] [1]: https://earlyretirementnow.com/2017/09/13/the-ultimate-guide-to-safe-withdrawal-rates-part-19-equity-glidepaths/ https://earlyretirementnow.com/2017/09/13/the-ultimate-guide...
JKCalhoun 8y ago
There's the "100 minus your age rule", the "110 minus your age" rule... Linear, simple, all easy to remember — not necessarily "tuned".

mruts 8y ago

Unless you are borrowing at the risk free rate (levering your bonds), I don’t think this is the best advice, unless you are open to holding junk bonds. Your Sharpe ratio is largely irrelevant [(returns - risk free rate) / std dev]. What you want is to optimize your Sortino ratio [loss / std dev]. Or, put another way, it’s more preferable that you make 100% returns one year, and lose 25% the next than to make 25% each year. The bonds are going to really drag on your returns and since bonds don’t seem correlated with equities anymore, they might not even be an equity hedge. Risk parity portfolios are designed to solve this problem through leverage.