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What stock-bond allocation to sleep better?

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What stock-bond allocation to sleep better?

I’m currently 36 y/o and late to the investing game. Currently holding 90/10 stock bond ratio. Sometimes have nightmare of losing 50% value because I did buy “high” in early December. Should I go 60/40 – do you think any losses will be significantly dampened?




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8 Comments

  • I’m 50 and have 40% stocks and 60% bonds and sleep great. If the market crashes i will be able to sleep with 60% stocks and 40% bonds.

    At 36 i would probably go 60/40 or 70/30

  • A lot depends on what’s going on in your life. If you’re talking retirement, what the market does today or next month shouldn’t worry you. You’re looking 30 years from now. If these are funds you’ll need soon, then yeah, take some off the table.

  • It depends on life situation. Career, savings rate, upcoming purchases, are all factors.

    90/10 is rather aggressive given the current macro economic environment. If it bugs you, cut back. 75/25 is my suggestion. Or perhaps 75/15 and 10 percent in CDs or cash equivalents.

    If in six more months you still feel uneasy, move another 5 percent out of equities. Drastic moves are not called for unless there are other factors that you have not mentioned.

  • I’m 33. I am 100% invested in stocks. But my risk tolerance is high and I’ve owned securities since I was about 12 years old so have seen huge swings in the market and have a long term view of investing.

  • I feel the best allocation before you get to 30 yrs before retirement is 100% stock because you have the time to make up for the downturns. That said, you need to sleep comfortably so whatever allocation makes that possible is what works for you. As you get to within 30 yrs of retirement then an increasing shift towards bonds make sense to protect what you have.

    But from what you say, it appears that your concern isn’t allocation but rather the fact that you bought high before the bottom. That sounds like you have individual stocks rather than an S&P index. Nothing wrong with that if your performance over time is around that of the S&P or perhaps better. If it’s not then your retirement money should be in the S&P and use discretionary money for individual names.

  • Use your age in % for bonds. I’m 40 so have 40% in bonds. I started late in investing so I’m less risk tolerant I guess. Of the 60% not in bonds I split 75% in index ETFs and 25% in individual stocks.

  • If you work, human capital is a bond and very valuable. If you have a mortgage it is a short bond. If you are scared of the markets you should either work more or pay down your mortgage. There is no reason to hold bonds and you should expect and welcome an occasional 50% dip because you’re still working and that means you get cheaper stocks

  • Only you can know your personal risk tolerance — it sounds like 90/10 is a bit too aggressive for you to sleep comfortably. 60/40 strikes me as pretty darn conservative for a 36-year-old, but that might just mean my risk tolerance is higher than yours.

    ​

    For what it’s worth, you’re 36, which means you might be looking to retire in ~30 years, which would be ~2050. The Charles Schwab, Vanguard, and Fidelity 2050 target date funds (SWYMX, VFIFX, and FIPFX) currently comprise 8.5%, 10%, and 6.8% bonds, respectively. So if you were to reallocate to 70/30 or even 60/40, you’d still be much more conservative than the retirement target date funds. If this isn’t for retirement, and you’re simply investing this money and looking toward the next couple of years, then sure, feel free to go more conservative.

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