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Asset Allocation Calculator
Posted on 4/10/10 at 9:17 pm
Posted on 4/10/10 at 9:17 pm
I'm curious to hear the board's thoughts on this simple asset allocation calculator: LINK. It's from the Iowa Public Employees Retirement System's website.
This post was edited on 4/10/10 at 9:40 pm
2
Posted on 4/11/10 at 8:18 am to The King
I'm interested in it, but it won't show any fields for me.
Posted on 4/12/10 at 7:35 am to TheHiddenFlask
Works for me...you might just need to update java.
Posted on 4/12/10 at 11:52 am to jmtigers
Looks very useful to me. Gives me a clear picture of how I should be allocated for my given age and risk tolerence. I'm going to see later on today if my actual allocations are close to what this calculator is telling me.
Posted on 4/12/10 at 12:05 pm to The King
I find it rather useless due to:
Can't put large enough portfolio size in it
-put in my real age in my 40's coupled with fairly low loss tolerance and weak outlook for economic environment and it tells me I should have 68% in equity, that is bull shite. It also does not ask about other assets, ie home, investment property, alternative holdings, taxable cash, private company ownership, etc and how much debt is owed. Regardless of that, at my age I should never be 68% equity unless the market was down at ~ 600 S&P level. It is another fantasy calculator IMO and dangerous for uninformed savers/401k accumulators.
Can't put large enough portfolio size in it
-put in my real age in my 40's coupled with fairly low loss tolerance and weak outlook for economic environment and it tells me I should have 68% in equity, that is bull shite. It also does not ask about other assets, ie home, investment property, alternative holdings, taxable cash, private company ownership, etc and how much debt is owed. Regardless of that, at my age I should never be 68% equity unless the market was down at ~ 600 S&P level. It is another fantasy calculator IMO and dangerous for uninformed savers/401k accumulators.
Posted on 4/12/10 at 12:09 pm to tirebiter
I found it to be pretty strong on equities for my info too.
Also, as my economic outlook worsened, it suggested buying more large cap stocks.
Also, as my economic outlook worsened, it suggested buying more large cap stocks.
Posted on 4/14/10 at 9:58 pm to TheHiddenFlask
Equities have been pretty stable in this country over the long term. I think the age deal assumes that you are retiring at around 65. If so, 68% equity doesn't seem that high to me assuming you want to retire in about 20 years.
Posted on 4/14/10 at 10:02 pm to The King
Pretty stable compared to what?
Posted on 4/14/10 at 10:02 pm to tirebiter
quote:I think it's intended for folks with modest salaries who probably aren't sitting on a huge portfolio--some one for whom it makes no sense to hire a professional investment advisor and who probably doesn't have much personal knowledge of how to manage risk. I found it pretty useful. Ran various scenarios, and they all seemed defensible to me.
I find it rather useless due to:
Can't put large enough portfolio size in it
-put in my real age in my 40's coupled with fairly low loss tolerance and weak outlook for economic environment and it tells me I should have 68% in equity, that is bull shite. It also does not ask about other assets, ie home, investment property, alternative holdings, taxable cash, private company ownership, etc and how much debt is owed. Regardless of that, at my age I should never be 68% equity unless the market was down at ~ 600 S&P level. It is another fantasy calculator IMO and dangerous for uninformed savers/401k accumulators.
Posted on 4/14/10 at 10:13 pm to kfizzle85
quote:I'm just saying that with a 20-year outlook and a decent, diversified stock portfolio, American equities are likely to yield a positive return that is greater than the return you would get from cash or bond holdings over the same period. I suppose that might not hold true over the next 20 years, but I think it's a decent assumption.
Pretty stable compared to what?
Posted on 4/14/10 at 10:16 pm to TheHiddenFlask
quote:Same for me. Are you using Firefox like I am?
I'm interested in it, but it won't show any fields for me.
Posted on 4/14/10 at 10:26 pm to The King
quote:
I'm just saying that with a 20-year outlook and a decent, diversified stock portfolio, American equities are likely to yield a positive return that is greater than the return you would get from cash or bond holdings over the same period. I suppose that might not hold true over the next 20 years, but I think it's a decent assumption.
Didn't hold for the last 20 years either [LINK] [LINK] (also why buy and hold is a terrible fricking strategy, amsterdam, and has been for thirty years). In any event, with standard deviation of ~15% a year for the S&P, stocks are not stable. It doesn't make them a bad investment, it doesn't mean they won't make you money, but they are definitely not stable.
Posted on 4/14/10 at 10:27 pm to LSURussian
I've been using Chrome, but they haven't updated Java for Chrome yet (unbelievable really).
Posted on 4/14/10 at 10:56 pm to kfizzle85
quote:Your first link describes a 15-year period, not a 20 year period. And you're ending that 20 year period in the midst of the largest crash in recent history. Your second link demonstrates that stocks vastly outperformed bonds in most of the 20th century. I'm not sure that data from the 19th century is all that relevant. At any rate, I'm not trying to suggest that stocks are risk free or that you're foolish to invest your money elsewhere; I'm just saying that having 68% of your portfolio in stocks 20 years out from retirement does not make you reckless.
Didn't hold for the last 20 years either [LINK] [LINK] (also why buy and hold is a terrible fricking strategy, amsterdam, and has been for thirty years). In any event, with standard deviation of ~15% a year for the S&P, stocks are not stable. It doesn't make them a bad investment, it doesn't mean they won't make you money, but they are definitely not stable.
Posted on 4/14/10 at 11:11 pm to The King
quote:
Your first link describes a 15-year period, not a 20 year period.
You are right, I apologize.
quote:
And you're ending that 20 year period in the midst of the largest crash in recent history.
It is just to prove the point that timing is everything. You could move it backwards 8 months or forwards 8 months, and the result would be dramatically different. The point is that the increased risk (the definition of which is volatility) you take for holding stocks versus the risk you take from bonds is much smaller than your average guy thinks.
quote:
Your second link demonstrates that stocks vastly outperformed bonds in most of the 20th century.
See above response.
quote:
I'm not sure that data from the 19th century is all that relevant.
Completely agree, its not, I was just trying to get in a reponse quickly and that was the first thing I could find to demonstrate my point.
quote:
At any rate, I'm not trying to suggest that stocks are risk free or that you're foolish to invest your money elsewhere; I'm just saying that having 68% of your portfolio in stocks 20 years out from retirement does not make you reckless.
I don't think it makes you reckless at all, I didn't suggest that, and I am certainly not suggesting that you not invest in stocks, or not allocate a significant portion of your portfolio to stocks. I suggested that your characterization of stocks as being "stable" was incorrect, and that the reward you get for holding stocks (sharpe ratio if you will) vs bonds [in the long run, in a hypothetically fully diversified portfolio in the S&P] is not as dramatic as people would have you believe. This all comes back to this calculator being more or less useless. Allocation isn't nearly as important as timing. Its not even close.
Posted on 4/15/10 at 9:25 am to kfizzle85
I think we're in agreement.
Posted on 4/15/10 at 9:44 am to LSURussian
quote:
Same for me. Are you using Firefox like I am?
Google chrome on a mac.
It worked from my work PC.
Posted on 4/15/10 at 12:39 pm to LSURussian
quote:
Same for me. Are you using Firefox like I am?
firefox worked fine for me, there has been a java update within the last week or so, it just takes a few seconds for the app to pull up.
This post was edited on 4/15/10 at 12:52 pm
Posted on 4/15/10 at 12:51 pm to The King
quote:
Equities have been pretty stable in this country over the long term. I think the age deal assumes that you are retiring at around 65. If so, 68% equity doesn't seem that high to me assuming you want to retire in about 20 years.
shite ask someone who invested a large sum into the market in 1999 or 2007 if things were stable later, or even early 2002. I read the posts by kfizz and you, that really wasn't my point. That calulator is run of the mill, can go to numerous financial sites and access similar, or moneychimp/dinkytown, etc. It totally is void of real life, ie are market valuations high and is the market riskier at that point and how long has a business cycle run, etc, leading to expectations of much lower returns going forward. Instead of blindly plowing money into a high equity allocation maybe a 40 something year old should be investing in cash in the 401k or might get a much better return paying down a mortgage, etc. It is just not realistic, and I don't think average 401k investors should put much reliance on a calculator to reach financial goals, that was my primary point of emphasis. The other is if someone has other financial assets outside a 401k then they definitely should factor that into their planning and subsequently choose to lower risk exposure unless the market is at a point where excess returns are more likely to occur than not.
Posted on 4/16/10 at 12:15 pm to tirebiter
I hear what you're saying. It's just that the typical audience for this asset calculator is not going have a significant amount invested elsewhere, except for in his home. And he is going to be putting modest amounts of money in his 401k monthly over a long period of time. The crashes in 2007 and 1999 would not be all that tramatic for that type of investor. And if he continues to invest steadily through those crashes, he'll be buying some equities on the cheap and taking advantage of dollar cost averaging.
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