Author Topic: Asset allocation in first years of FIRE  (Read 1878 times)

spud1987

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Asset allocation in first years of FIRE
« on: February 13, 2017, 02:14:29 PM »
I read something recently that suggesting that the ideal asset allocation during the initial years of FIRE is more bond heavy. Then once you've been FIRE-d for a number of years it makes sense to switch more heavily into equities. I believe the argument is related to the sequence of returns risk issue with the initial years after FIRE.

The problem is that I can't remember where I read this. Could someone point me to this discussion?

effigy98

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Re: Asset allocation in first years of FIRE
« Reply #1 on: February 13, 2017, 02:47:41 PM »
I think you would be better off going to portfoliocharts and finding an asset allocation that has the best combinations of drawn downs and returns you are comfortable with. Within a few hours you can find something that can work for both accumulation and retirement. I'm personally pretty happy with slight modification of golden butterfly (swapped mid cap value for the cash portion) and plan to have that for both accumulation and retirement which past performance shows only has a 3 year draw down with over a 6% potential perpetual withdrawal rate.

Trede

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Re: Asset allocation in first years of FIRE
« Reply #2 on: February 13, 2017, 03:28:44 PM »

WildJager

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Re: Asset allocation in first years of FIRE
« Reply #3 on: February 13, 2017, 08:24:31 PM »
So, the idea is not that you "switch" is not right.  If you start your withdrawal period with some bonds (or cash or whatever) and draw those lower yield funds first, your equity will have the opportunity to grow regardless of market volitity during those early years.

Or you could be heavier and equities and hope that you don't get a bum sequence of returns.

Or you could work a bit longer for a lower WR overall.

All reasonable strategies depending on how well you roll the dice.  Since there's no clear path to the future, all three could be argued for.

spud1987

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Re: Asset allocation in first years of FIRE
« Reply #4 on: February 14, 2017, 10:19:07 AM »

Retire-Canada

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Re: Asset allocation in first years of FIRE
« Reply #5 on: February 14, 2017, 10:39:00 AM »
You might be referring to "rising equity glidepath:"
http://forum.mrmoneymustache.com/post-fire/using-the-rising-equity-glidepath-to-reduce-sequence-of-returns-risk/

Thanks, that's what I was remembering!

Glad you found that link. I'm planning to do something along those lines. It seems like a good way to deal with the sequence of returns risk without spending extra years of my working to get to a lower WR that I don't actually need. If you can also add in some spending flexibility you'll have a very robust FIRE plan.