Author Topic: Investment horizon and smart portfolio  (Read 567 times)

Linda_Norway

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Investment horizon and smart portfolio
« on: August 08, 2017, 02:41:23 AM »
Hello,

My plan is to be able to FIRE in a couple of years. In best case scenario: part time from the end of 2019 and fulltime 2 years after that. In worst case scenario: fulltime from 2023. From 2037 we will receive 1 old age pension and from 2040 we will receive 2 old age pensions that hopefully will cover all our expenses. So my self financed FIRE period is 17 - 21 years.

Assets are currently invested into:
75%: The expensive house we live inn. To be downsized some time after FIRE. No property taxes on it.
10%: A mountain cabin, some property taxes on it. Not renting it out because of too much fuss for too little profit.
15%: Cheap Index funds spread throughout the world. This pot is getting bigger all the time, because this is what we invest in from now.

After fulltime FIRE we are supposed to live of the 4% rule and eating up a bit of the stash each year.
With this time schedule is it smart to keep investing in index funds from now? Or should I switch to a certain percentage of bonds or something else?

coconutindex

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Re: Investment horizon and smart portfolio
« Reply #1 on: August 08, 2017, 04:57:55 AM »
Ptf.

Mr. Green

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Re: Investment horizon and smart portfolio
« Reply #2 on: August 08, 2017, 09:50:52 AM »
If 85% of my portfolio was in real estate and I was looking to retire in a couple years I'd continue investing my extra in index funds until then. It's such a small part of your networth that even a downturn won't hurt you much. A 33% drop would only be a loss of 5% of your overall networth and that would only be temporary until the market recovered. In fact a downturn before then would be a very nicely timed buying opportunity for you. If the market ended up rising instead, you could rebalance to a higher percentage of bonds at FIRE if you wanted to decrease your volatility exposure right after retirement. Just my opinion.
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SeattleCPA

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Re: Investment horizon and smart portfolio
« Reply #3 on: August 08, 2017, 10:31:05 AM »
If 85% of my portfolio was in real estate and I was looking to retire in a couple years I'd continue investing my extra in index funds until then. It's such a small part of your networth that even a downturn won't hurt you much. A 33% drop would only be a loss of 5% of your overall networth and that would only be temporary until the market recovered. In fact a downturn before then would be a very nicely timed buying opportunity for you. If the market ended up rising instead, you could rebalance to a higher percentage of bonds at FIRE if you wanted to decrease your volatility exposure right after retirement. Just my opinion.

+1

And a tangential comment: If you wanted to worry about something financial, probably worrying about all the wealth tied up in real estate would be a more rational thing to wring your hands over.
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Linda_Norway

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Re: Investment horizon and smart portfolio
« Reply #4 on: August 08, 2017, 01:14:05 PM »
If 85% of my portfolio was in real estate and I was looking to retire in a couple years I'd continue investing my extra in index funds until then. It's such a small part of your networth that even a downturn won't hurt you much. A 33% drop would only be a loss of 5% of your overall networth and that would only be temporary until the market recovered. In fact a downturn before then would be a very nicely timed buying opportunity for you. If the market ended up rising instead, you could rebalance to a higher percentage of bonds at FIRE if you wanted to decrease your volatility exposure right after retirement. Just my opinion.

+1

And a tangential comment: If you wanted to worry about something financial, probably worrying about all the wealth tied up in real estate would be a more rational thing to wring your hands over.

@SeattleCPA:
I am worried about that, but I only saw this website soon after we purchased the house. Otherwise I might have reconsidered. And as selling houses is a lot of stress and costs a lot of money, we don't want to sell it at this moment, as we only bought it two years ago.

@Mr. Green:
That might indeed be a good moment to look into buying more bonds. We also think about taking up a mortgage whenever there comes a severe stockmarket crash and use it to buy stock at low price. We'll see if we get that done fast enough.

Mr. Rich Moose

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Re: Investment horizon and smart portfolio
« Reply #5 on: August 09, 2017, 11:32:02 AM »
You're always taking a big chance if your game plan is to time market bottoms, especially with leverage. It might not be wise when you're so close to retirement.

Your asset mix is a problem though. It's never good to have 85% of your networth tied up in assets which are non-productive.

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