Life Stage Asset Allocation Reference Timeline

  • Consensus Life Stage appropriate asset allocation
  • Historical Life Stage asset allocation returns
  • Forecasted Life Stage asset allocation returns

During this long Bull market, some portfolios have been more aggressive than might be expected over the long-term. Now, we are approaching or may be in the 9th inning or the 11th hour, and are exposed to some extraordinary event risks. It may be appropriate to review what the consensus Life Stage allocation is according to major money management institutions.

By Life Stage, we mean, not age, but how many years before you convert from adding assets to your portfolio to withdrawing assets – the Withdrawal Stage of Life.

While people can enter the Withdrawal Stage at any age, the standard reference model is at age 65 with an estimated 30 years to live (for the portfolio to last). Based on that assumption, institutions have designed what they believe are the most sensible and prudent allocations leading up to and following the commencement of the Withdrawal Stage.

This is the model simplified to 4 asset categories that is near the average of the recommendations of 12 leading institutions (excluding the cash level, which tends to be around 2%-4% in later stages):

You may wonder how those allocation levels have performed historically.

This table shows recommended allocations at 5-year intervals before and after entering the Withdrawal Stage, and how they performed over various cumulative periods through July 2018, and over individual calendar years through 2017, plus forecasts by Vanguard and BlackRock.

The data is for indexes, except for international Dollar hedged government bonds which is based on the Vanguard fund with that objective from 2014-2017, and the VALIC foreign government bonds fund (Dollar hedged opportunistically) from 2008-2013.

 

Even though the stock market may continue on longer than expected, we think those near or in the Withdrawal Stage should give careful consideration to these “rule of thumb” allocation levels; judge strategic aggressiveness relative to them; and if more aggressive, shift tactically toward them.

We’d like to be more safe than sorry over the next couple of years. As we have discussed before, we are using ultra-short-term, investment grade, floating rate US bonds in lieu of other bonds during this Fed rate hiking cycle; probably until early 2019 (maybe longer for the international bonds portion).

[directly related securities:  VTI, VXUS, BND, BNDX, FLOT, FLRN]

One Response to “Life Stage Asset Allocation Reference Timeline”

  1. hyip investment companies

    Life Stage Asset Allocation Reference Timeline

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