Author Topic: asset allocation in FIRE  (Read 5767 times)

tmitchell

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asset allocation in FIRE
« on: April 12, 2015, 10:14:49 AM »
Hi Mustachians

What is the general thinking for a single person who's planning to FIRE at age 50 with appx $1 million in assets? I currently have about 80/20 stock/bond. Vanguard et al suggest that's too high for bonds, but my horizon is more like 40 years than 30, assuming I make it to 90 years old! I have been thinking of doing what Jim Collins suggests and move to 75/25 once I reach my initial goal of 1million.

Where are all of you FIREs at?

Thanks!

forummm

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Re: asset allocation in FIRE
« Reply #1 on: April 12, 2015, 11:05:40 AM »
This is a personal decision. One way to inform your decision is to run cFIREsim calculations and see what allocation strategies end up with what results for your scenario. What is your personal risk tolerance? If you would panic in a downturn and sell, then you need to know that about yourself and invest more conservatively before the downturn.

I personally may FIRE in my 30's and have a much longer trajectory, so I would need a pretty high exposure to equities. I also have a very strong resolve when the market crashes. I also have plans to spend flexibly (do more fun things when the markets are high, cut back significantly if there's a downturn). So your path may be different than mine. I'll probably be 90+% equities initially.

Eric

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Re: asset allocation in FIRE
« Reply #2 on: April 13, 2015, 01:09:29 PM »
I plan to stick with my current AA.  Like you OP, my investing timeframe is 40-50 years, so a heavy stock index portfolio is best in my estimation.  I'm also about 80/20.  Although unlike Jim Collins (as much as I love him), I'm definitely diversified internationally.  His "USA Only" approach is about my only disagreement with his investing philosophy.

More here if you're interested (arguments from both sides):

http://forum.mrmoneymustache.com/investor-alley/i-don%27t-want-to-invest-internationally/


Frankies Girl

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Re: asset allocation in FIRE
« Reply #3 on: April 13, 2015, 01:29:13 PM »
I am FIREd as of the last month, and also planning on sticking to my pre-FIRE AA for a while. It's a mix of 75% stock index, 10% REIT index, 10% bond index and 5% cash. So that's something like a simplified 85%/15% growth vs. stable funds...

I need my money to last well over 45 years, so my AA is considered pretty aggressive. I'll have to keep the panic to a minimum during the corrections/crashes because it will be a pretty wild ride, but I think I'll be able to deal.

http://jlcollinsnh.com/2014/05/27/stocks-part-xxii-stepping-away-from-reits/
My personal investing hero, Jim Collins, has his AA set up as 75% stocks/25% bonds, and he's been retired for many years and is in his late 50s/early 60s and so far hasn't changed his allocation to be more conservative.

http://www.gocurrycracker.com/path-100-equities/
Go Curry Cracker posits going 100% equities; and he makes a strong case for it, but it would be a white knuckle ride.

But it really is personal - what level of volatility you can stomach versus how much growth you want out of your money.
Gotta find the sweet spot on your own. ;)



My Own Advisor

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Re: asset allocation in FIRE
« Reply #4 on: April 13, 2015, 06:26:37 PM »
I intend to have a >75% allocation to equities for the rest of my life, even in retirement.  Growth has not come from bonds long-term and never has.

If you think you'll sell equities when the market tanks then you need as much in bonds to prevent you from doing so.





h2ogal

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Re: asset allocation in FIRE
« Reply #5 on: April 13, 2015, 09:39:05 PM »
Hello - Im around that age (52) and close to FIRE (2 years or less).  Im working towards this allocation:

My Retirement Investments: 
60% US Equities (Total Market/S+P)
10% Global Equities
30% Inflation protected bonds

PLUS:
Cash:  $100K Cash in Savings/Money Market/HSA accounts - for emergencies and/or riding out market declines

Many on this forum would disagree with keeping this much cash, and once I start collecting SS and Pension I may keep less cash on hand, but for now it seems wise to have a cushion to ride out any market downturns.

Retired To Win

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Re: asset allocation in FIRE
« Reply #6 on: April 14, 2015, 07:02:39 AM »
I earlier retired at 53, 14 years ago.  My allocation has not changed much.  My investments are 100% stocks.  I also hold cash for various purposes that amounts to 30% of what I have in stocks.  I'm also financially backstopped by fixed income which by itself covers all my basic living expenses. So you probably don't necessarily want to go by what I do unless your circumstances are similar. 

soccerluvof4

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Re: asset allocation in FIRE
« Reply #7 on: April 14, 2015, 07:51:42 AM »
I recently retired and am fine with my asset allocation for now. 70% equities. 10% reits and 20% bonds. I do have a surplus of cash on hand i am working into the market from liquidation of my business but will stick close the these percentages.

MarciaB

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Re: asset allocation in FIRE
« Reply #8 on: April 14, 2015, 07:52:23 AM »
Hello - Im around that age (52) and close to FIRE (2 years or less). 

Hi h2ogal - I'm about your age (53) and also planning on FIREing in 2 years (class of 2017!). Have you got a journal that I can follow? Middle aged women aren't a big demographic in the financial blogosphere (hey bitch, who you callin' middled aged?) and I'm glad to know you're out there.

Dodge

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Re: asset allocation in FIRE
« Reply #9 on: April 14, 2015, 08:32:27 AM »
I plan on staying 80/20 stocks/bonds for the duration.  If you're retiring based on the 4% rule, 20% works out to 5 years worth of expenses in bonds.  That's enough of a buffer for me.

DoubleDown

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Re: asset allocation in FIRE
« Reply #10 on: April 14, 2015, 10:35:42 AM »
This is a personal decision.

+1. There is no general consensus, everyone has to decide their own approach.

FWIW, I have a fairly contrary approach from most of the others who have reported so far. I RE'ed at 47:

55% = Stocks (approx. 80% in total market, 10% international, 10% small cap/growth)
15% = Bonds/Government Securities
30% = Real Estate

Later years for us can be 100% covered through pension and social security, so I don't feel the need for a wild ride between now and then. At the OP's age of 50, I would argue they also likely don't need to be too heavily exposed in stocks.

tmitchell

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Re: asset allocation in FIRE
« Reply #11 on: April 16, 2015, 09:44:54 AM »
DoubleDown, is your real estate your personal home or investment?

tmitchell

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Re: asset allocation in FIRE
« Reply #12 on: April 16, 2015, 09:51:21 AM »
thanks all, it's very informative to see the wide approach.

i think i'm a bit more conservative than most because i got a very late start saving and i'd hate to see all my hard work disappear in a flash. i'm thinking i may FIRE around 70/30. since i'm hoping to do so around 50yrs, in 15 years i should also be able to pull some SS income (though i'm not counting on that).

another strategy i've been considering is to FIRE at 70/30 with my main nest egg, and then add to that more aggressively as time goes on (since i won't be just laying in a hammock i'm sure! see: http://www.mrmoneymustache.com/2015/04/15/great-news-early-retirement-doesnt-mean-youll-stop-working/). i suppose that will amount in the end to something closer to 80/20 depending on what i earn, but at least i'll have some peace of mind for the core holdings. this is probably just a psychological game i have to play with myself.

thanks Dodge for your math on the bonds--it's helpful to think of 20% providing 5 years income in a downturn.

thanks all!