Older Investors Have a Lot of Money in Stocks. How to Check if It's Too Much.

[progree]

7. I thought I read, "If not in stock, what should older investors have their money in?"

Last edited Tue Feb 8, 2022, 02:36 AM - Edit history (3)

as a reply to an OP titled, "Older Investors Have a Lot of Money in Stocks. How to Check if It's Too Much."

You replied,

"If not in stock, what should older investors have their money in? What exactly is the return on bonds? And what is the current inflation rate?"

That sure sounded like advocating a 100% allocation in stocks to me, and none in bonds (most here know that intermediate corporate bonds are yielding a very miserly 2 to 3% rate or thereabouts, Treasuries even less, well below the inflation rate. You characterized bond yields as "abysmally low" in #3. As compared to an 8% average annual return in stocks that you mentioned in #3). Though I suppose you can say you were just asking questions and not advocating anything.

Anyway, I'm very glad we got that cleared up.

"The 89% in equities you say you had in 2018 was well above what sensible advisors suggested"

Yes, the equity ratio drifted above my target, obviously I thought it was too high too. I'm about 60-40 now which is higher equity than most advocate for my age, but then as you indicated up thread, given the dismal returns in bonds, the allocation percentages need to be rethought. There are many articles in the past few years suggesting the same thing -- increasing the stock-bond allocation compared to the old thumb-rules.

But allocation decisions are mostly a matter of risk tolerance. The simulations I've seen, for hypothetical people at 65 is the mix that will allow a portfolio to last the longest in the face of withdrawals. Those were mostly around 80-20 equity to fixed income.

"My investment advisor tells me that stock market valuations are not all that high, and that stock prices overall are not out of line with historic values"

The P/E ratio is not out of line with historic values? The total stock market valuation to GDP ratio is not out of line with historic values? Is he really telling you that?

But I suppose, given that he is selling you equity investments, what else would he say?

https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart
https://www.multpl.com/shiller-pe
https://fred.stlouisfed.org/graph/?g=qLC
For some reason, the last one above defaults to an end point in 2014. Click the MAX button to see the whole thing.

Given the historically high valuation of the stock market, both Vanguard and Schwab project about a 3.5% return for equities over the next decade. And this does not assume a big change in inflation or interest rates. (Unsurprisingly, bonds are projected to do even less well).

"the annuities ....The current payout I'm taking from them is somewhat above the 4% that is considered the industry standard."

As we discussed in https://www.democraticunderground.com/11213049 at great length, you bought your annuities back in 2012 when annuities (and bonds) had higher yields than currently. And the "yield" on annuities includes a return of principal, so they aren't comparable to a bond's yield. How well you do in annuities depends on how long you live. How well I do with my annuity depends on how long I live.