BGLASGAL
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| ASSET ALLOCATION |
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A friend of mine, in determining his bonds/equities asset allocation, backs into his equities allocation by including his pension present value as part of his fixed income(bond) portion of his allocation. This leads to a lower equity percentage than when determined in a conventional manner of only considering deployable assets. I haven't heard of this viewpoint before. What's the general consensus pro and con?
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Fri Apr 06, 2007 5:17 pm |
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coaster
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Are you talking about a defined-benefit pension? That's basically like an immediate annuity your employer gives you at retirement. So I think it's appropriate to consider it part of the fixed-income allocation.
On the other hand, it's not an investment; you have no control over it. So from the standpoint of allocating one's investment portfolio, my own choice is to just leave it out altogether.
~Tim~
Eye Candy : Why Whimsy
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Fri Apr 06, 2007 5:30 pm |
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BGLASGAL
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Cash: $ 0.45
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It is a defined benefit pension, so I guess you are an advocate of including it as part of the Bond/Fixed Income allocation. This would cause one to significantly increase the equity portion of the deployable assets.
Now regarding the rule of thumb 100-age=% bonds/fixed income, would you back into the percent equities by reversing the equation while including the pension in the B/FI portion?
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Fri Apr 06, 2007 5:43 pm |
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coaster
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Cash: $ 1358.00
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Since people are living longer these days, I've read that many financial advisors are now using 125 in that calculation rather than 100. The old formula gives too high a fixed-income allocation too soon in life.
~Tim~
Eye Candy : Why Whimsy
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Fri Apr 06, 2007 9:39 pm |
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