Author Topic: Asset mix and early retirement  (Read 3323 times)

data.Damnation

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Asset mix and early retirement
« on: February 18, 2014, 08:04:14 AM »
I hear a lot about the 4% rule, which dictates how much you should be withdrawing in retirement, but not a lot about what asset mix you should be using. I've heard the general rule for "normal retirement" is roughly your age in bonds (so if you're 40 then you should be 30-40% bonds and 60-70% stock). Does this rule apply in early retirement scenarios as well?

arebelspy

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Re: Asset mix and early retirement
« Reply #1 on: February 18, 2014, 08:09:26 AM »
You should determine your own asset allocation based on your personal preferences and risk tolerance levels.

I previously favored the "120 - your age" in stocks rule (being a slightly more aggressive version of the rule you posted, which is "your age in bonds, 100 - your age in stocks" which is a bit too conservative for me), but the flavor I prefer of it nowadays is "set bond percent to half your age."

It depends on you though.

Run your scenarios through cFIREsim and see which asset mixes you are comfortable with and how they fared.
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Vjklander

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Re: Asset mix and early retirement
« Reply #2 on: February 20, 2014, 07:58:47 AM »
Not including my hard assets (precious metals and real estate), my investments are 100% stocks. While I don't totally rule out buying bonds at some point, I don't really expect to do so.
Vjk

soccerluvof4

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Re: Asset mix and early retirement
« Reply #3 on: February 20, 2014, 12:15:31 PM »
For what its worth I am in my 50th year and am 25% in bonds. I also currently am carrying about 25% in Reits. 

GlassStash

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Re: Asset mix and early retirement
« Reply #4 on: February 20, 2014, 12:29:12 PM »
At 26 and 28, my wife and I have an AA of 80% equities and 20% bonds. This is slightly more aggressive than the "age in bonds" rule of thumbs but we are comfortable with it. It also helps that we won't be retiring for at least 15-20 years.

+1 for the cFireSim calc. It should really illustrate for you how your chosen AA has performed over time. 

Cyrano

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Re: Asset mix and early retirement
« Reply #5 on: February 21, 2014, 05:33:52 AM »
Note that many ER types go more aggressive because if the market turns down, working another few years at 40 is a more viable option than working another few years at 70.

Undecided

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Re: Asset mix and early retirement
« Reply #6 on: February 21, 2014, 10:01:58 AM »
You should determine your own asset allocation based on your personal preferences and risk tolerance levels.

I previously favored the "120 - your age" in stocks rule ....


Advising children to invest on margin seems sort of extreme. :-)

Eric

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Re: Asset mix and early retirement
« Reply #7 on: February 21, 2014, 10:18:43 AM »
I hear a lot about the 4% rule, which dictates how much you should be withdrawing in retirement, but not a lot about what asset mix you should be using.

The 4% rule is based on a 96% success rate using a 50/50 stock bond mix over 30 years.  Although lots of other allocations were successful.  Take some time to read through the actual Trinity Study from where this is drawn.