Quote:
Originally Posted by amil23
No worries.
73 in July
I retired in Jan. 22
Yes I have taken several of Fidelity's risk tolerance evals over the years with most labeling me as 'Conservative' which I was fine with. In fact probably 75% of what is in there we put in with pay checks. That and 6% company match. Like one of my brother says, that money is part of the family now.
Since we are in a position to not need money from our 401K I want to make that number go up. Not trying to shoot the moon, just get a bigger cushion. I will take my first RMD this summer sometime after talking to our tax man but my main goal is to increase our 401K so that we (DW and I) don't have to draw the principal, and it increases for the coming years if one of us should require care.
Really, if we could be lucky enough to just keel over our RMDs would be plenty of money till we're both gone but circumstances change.
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First, congratulations on retiring back in early 22.
So, you're 73, and you're at least somewhat conservative. And you want your 401K to grow. I'm a bit surprised you can even execute a Risk Parity strategy inside your 401K.
As you think about risk parity investing - and indeed, in any type of risk-bearing investing - one thing to consider is how much time you and your DW have left, and the implications of what might happen to the total value of all your investments in the unlikely event that the Poop Hits The Fan. If you were 40 years younger, you'd have a long time to recover. But you're 73, not 33.
Please note that some of us in this thread have substantial financial resources, and that has an impact on how we think about risk-parity investing. Absent something dramatic and cataclysmic happening, I will not outlive my investments, and I suspect that is true of others here. Think about the freedom that gives me and people like me to invest in ways we might not do if we only possessed modest means. You didn't mention your overall financial picture. If you plan for your investment portfolio to live long after you and your wife are gone and you are thinking in terms of generational wealth that will be available for your grand- and great-grandchildren, you can take a different approach than if you are concerned about outliving your investments. My point: a risk parity portfolio, according to the data, still subjects us to as much risk as a 60/40 (although with higher expected returns.) Note that Warren Buffet is an investor who has gone to great lengths to control risk, and he doesn't appear to invest this way.
Speaking of Warren Buffett, I watched his Q&A at the televised Berkshire Hathaway shareholder meeting this past weekend. There were the thing she said, and the things he didn't say but were evident if you paid attention. Reading between the lines, Warren was perhaps more cautious than ever. He's raising more cash and comfortable having that in risk-free short term US Treasuries. He can't find a place to put that cash right now either by buying stock in companies or by buying companies outright. There have been several times over the past 60 years where Buffett preferred "to be on the sidelines," and now seems to be one of those times. What does this mean for you personally?
Warren continued with his refrain that we are lucky to have been born in the USA and that the USA has great economic prospects in front of us... but his
actions were to sell stock in AAPL and others to raise cash now while Berkshire
only pays 20% to Uncle Sam in capital gains taxes.
There is a non-zero chance that federal income tax rates on corporations will increase, and via the price/earnings multiplier, will be reflected in lower price of equities. Warren's forecast was that taxes are likely to go up because of all the deficit spending going on the past several years.
There is a non-zero chance that our personal income tax rates will go up for all the same reasons. With less money in their pockets, how will consumers cut back, and how will that be reflected in future earnings of companies who serve consumers, and via the Price/Earnings multiplier, on the price of equities?
There is a small but non-zero chance the USA will get into a shooting war with Communist China in the coming 5 years. Our two countries are at odds and we are each pushing each other's buttons. What would happen if, say, China were to invade Taiwan? How would the USA respond? As a nation, we are remarkably unprepared for war with China right now.
https://features.csis.org/preparing-...ct-with-China/ AND importantly, as an investor, what might that mean for the value of your 401K?
There is a non-zero chance Iran will launch a war against the USA in the coming years. Via its proxies, Iran already has launched a war against Israel and Iran doesn't seem at all reluctant to confront the USA in the region. Events of last October remind us that Iran has a network of terrorists capable of savagery so repellent that Western elites refuse to contemplate it. What might a shooting war with Iran do to your investment portfolio?
Russia appears guaranteed at least a partial victory against Ukraine as things stand right now. That makes a conflict with NATO all but certain at some point in the coming decade, and of course the USA is part of NATO. What might a shooting war in Europe do to your investment portfolio?
And, of course, Kim Jong Un has been preparing for war for decades. All of this against the backdrop of the USA's humiliating retreat from Afghanistan. What is the implication for your portfolio?
And, of course, the USA's energy policy is a "circular firing squad." What's the implication for your portfolio?
***
There are so many things that could go wrong - yet Buffett is correct that the USA is still the best place for investing.
Are you sure you're well positioned to prevent bad things happening to you? You should think about that in the context of committing funds to a risk parity solution.
One book I suggest you read: "Investing Amid Low Expected Returns: Making the Most When Markets Offer the Least" by Antti Ilmanen, published in April 2022. This book is an update to Ilmanen's 2011 book and provides a blueprint for investors facing lower future expected returns. Antti worked at Applied Quantitative Research with Cliff Asness. Both Antti and Cliff earned their PhDs at the University of Chicago studying under Nobel Laureate Gene Fama (as did I).
OK, I'll get off my soapbox.
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