Author Topic: If you have enough, how do you invest?  (Read 3262 times)

CoffeeR

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If you have enough, how do you invest?
« on: July 24, 2021, 02:50:53 PM »
So, I have enough using any reasonable metric. Of course inflation and life can change that, but... for now if you have enough how do you invest? I know a lot will say nothing changes stay the course (whatever that means), but I am struggling with finding an asset allocation and IPS I am comfortable with.

Traditionally most people who simply raise their bond allocation to decrease their risk, but bonds seem problematic to me these days. I can go to cash or short term treasury (or the like), but I need something to fight inflation and it is not clear to me that this only creates the illusion of safety. Due to the nature of location of my investments my only reasonable options are mutual funds & ETF's.

How do people here who are not in the accumulation stage balance the need for safety with the need to invest?
« Last Edit: July 24, 2021, 08:07:19 PM by CoffeeR »

JGS1980

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Re: If you have enough, how do you invest?
« Reply #1 on: July 24, 2021, 03:13:06 PM »
So, I have enough using any reasonable metric. Of course inflation and life can change that, but... for now if you have enough how do you invest? I know a lot will say nothing changes stay the course (whatever that means), but I am struggling with finding an asset allocation and IPS I am comfortable with.

Traditionally most people who simply raise their bond allocation to decrease their risk, but bonds seem problematic to me these days. I can go to cash or short term treasury (or the like), but I need something to fight inflation and it is not clear to me that this only creates the illusion of safety. Due to the nature of location of my investments my only reasonable options are mutual funds & ETF's.

How a people. here who are not in the accumulation stage balancing the need for safety with the need to invest?

You don't buy bonds to fight inflation -> you buy bonds to keep from losing your principal during bear markets. 0% return may be a awesome considering current market conditions. Equities tend to perform better against inflation over time.

Are you still working? Do you need the money anytime soon?

If I were retiring early in the current environment, I would probably keep an Equity percentage of 50%, with focus on TIPS focused mutual fund for the other 50%.

Just my 2 cents.

JGS

MDM

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Re: If you have enough, how do you invest?
« Reply #2 on: July 24, 2021, 04:05:15 PM »
There are (at least) two ways to approach things after you "have enough" (aka "won the game"):
a) be very conservative because you don't have to be aggressive
b) be very aggressive because you don't have to be conservative

Either of the above is defensible.

bthewalls

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Re: If you have enough, how do you invest?
« Reply #3 on: July 24, 2021, 05:12:55 PM »
So, I have enough using any reasonable metric. Of course inflation and life can change that, but... for now if you have enough how do you invest? I know a lot will say nothing changes stay the course (whatever that means), but I am struggling with finding an asset allocation and IPS I am comfortable with.

Traditionally most people who simply raise their bond allocation to decrease their risk, but bonds seem problematic to me these days. I can go to cash or short term treasury (or the like), but I need something to fight inflation and it is not clear to me that this only creates the illusion of safety. Due to the nature of location of my investments my only reasonable options are mutual funds & ETF's.

How a people. here who are not in the accumulation stage balancing the need for safety with the need to invest?

Ray dalio all weather portfolio, or some of the other similar?

whywork

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Re: If you have enough, how do you invest?
« Reply #4 on: July 24, 2021, 05:23:14 PM »
If I had enough, I would do this

Calculate at a SWR of 2% what I would need. Then invest that in standard target retirement fund with retirement date set as next year.

You don't need this remaining. It will mostly be wasted or left as legacy. So I wouldn't worry how to invest. Anyway you invest is actually fine. I personally would like to continue to grow my assets so I would invest this aggressively (but not foolishly). Definitely index ETFs, some in FAANG stocks, a low percent (say 5-10%) in Crypto.

MustacheAndaHalf

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Re: If you have enough, how do you invest?
« Reply #5 on: July 25, 2021, 08:54:40 AM »
There are (at least) two ways to approach things after you "have enough" (aka "won the game"):
a) be very conservative because you don't have to be aggressive
b) be very aggressive because you don't have to be conservative
Either of the above is defensible.
This is a nice starting point, but I suspect people might need a more detailed explanation.  Someone who wants to ignore their investments could invest with a traditional 60/40 split, so they don't have to pay attention to it.  Before the pandemic, I went with an equal split of bonds, US stock index, international stock index.  Someone with a 1% withdrawal rate can lose 1/2 their assets and still retire on a 2% withdrawal rate.  So they can also afford to take more risk.

ender

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Re: If you have enough, how do you invest?
« Reply #6 on: July 25, 2021, 09:01:53 AM »
What are your goals?

Hard to really answer this without that.

Malcat

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Re: If you have enough, how do you invest?
« Reply #7 on: July 25, 2021, 09:17:58 AM »
First: why would you be changing your investment strategy?

You don't *have to* change your investment strategy once you finish accumulating. Unless we know exactly what you are trying to achieve compared to accumulation, we can't really give you advice.

reeshau

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Re: If you have enough, how do you invest?
« Reply #8 on: July 25, 2021, 08:36:43 PM »
I find myself having gone from 95% of my retirement number--close enough to give it a try--to 140%, after a spectacular 2020.  My thoughts have immediately gone to doing more giving.  Through some organized charities, yes, but also directly for friends and family.  This is surplus, and we are cautious because It's only been a year (now rounding on two) but as we get more experience with being retired, we are just more excited to try some things we hadn't even imagined we could do.

In none of this have I thought about changing my investment strategy.  I do not consider my strategy particularly risky, although some outside observers might.  You are right about bonds; they are more expensive than stocks, compared to their average yield.  If the situation was reversed, a high interest rate might interest me in bonds or an immediate annuity.  But I am not sweating that.

MDM

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Re: If you have enough, how do you invest?
« Reply #9 on: July 25, 2021, 11:31:58 PM »
There are (at least) two ways to approach things after you "have enough" (aka "won the game"):
a) be very conservative because you don't have to be aggressive
b) be very aggressive because you don't have to be conservative
Either of the above is defensible.
This is a nice starting point, but I suspect people might need a more detailed explanation.  Someone who wants to ignore their investments could invest with a traditional 60/40 split, so they don't have to pay attention to it.  Before the pandemic, I went with an equal split of bonds, US stock index, international stock index.  Someone with a 1% withdrawal rate can lose 1/2 their assets and still retire on a 2% withdrawal rate.  So they can also afford to take more risk.

Just observing that the question in the OP,
How do people here who are not in the accumulation stage balance the need for safety with the need to invest?
could yield answers anywhere from 100% stocks/0% bonds to 0% stocks/100% bonds, with all those answers being reasonable.

ChpBstrd

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Re: If you have enough, how do you invest?
« Reply #10 on: July 26, 2021, 08:20:02 AM »
Traditionally most people who simply raise their bond allocation to decrease their risk, but bonds seem problematic to me these days. I can go to cash or short term treasury (or the like), but I need something to fight inflation and it is not clear to me that this only creates the illusion of safety. Due to the nature of location of my investments my only reasonable options are mutual funds & ETF's.

How do people here who are not in the accumulation stage balance the need for safety with the need to invest?

Bonds are problematic to me too. It's weird to see so much risk being sold for so little return.

When you say "location of my investments" do you mean an account where you cannot use options to protect assets? I ask because my answer involves using options to protect an otherwise large equity allocation.

CoffeeR

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Re: If you have enough, how do you invest?
« Reply #11 on: July 26, 2021, 08:31:45 AM »
Traditionally most people who simply raise their bond allocation to decrease their risk, but bonds seem problematic to me these days. I can go to cash or short term treasury (or the like), but I need something to fight inflation and it is not clear to me that this only creates the illusion of safety. Due to the nature of location of my investments my only reasonable options are mutual funds & ETF's.

How do people here who are not in the accumulation stage balance the need for safety with the need to invest?

Bonds are problematic to me too. It's weird to see so much risk being sold for so little return.

When you say "location of my investments" do you mean an account where you cannot use options to protect assets? I ask because my answer involves using options to protect an otherwise large equity allocation.
Correct, most of my asset are in accounts that do not have options as an option, but I do have enough assets in taxable/brokerage accounts that I could probably make an options strategy works. I admit, I've been pondering how I might use options, but I'm still in the learning phase.

CoffeeR

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Re: If you have enough, how do you invest?
« Reply #12 on: July 26, 2021, 08:54:01 AM »
First: why would you be changing your investment strategy?
During accumulation I was 100% stocks and I wanted to see my assets grow to provide for a time when I no longer can or want to work as hard. The risk and volatility of the market bothered me, but I stayed the course because I had a good income and no specific time horizon and I could always work longer if the market went down.

Things have changed. My jobs with a large enough pay to live and save it no more (by choice). My part time jobs covers 100% of my expenses, but leaves little room for new savings. Giving the change in my circumstances, I'm pondering changing my investment strategy. For better or worse my investment strategy did not deal with the change in my circumstances.

I recently I moved to an 80/20 allocation, but this was not so much based on a deep dive on my finances and asset allocation as it was a temporary move until I figure out what to do next.

You don't *have to* change your investment strategy once you finish accumulating. Unless we know exactly what you are trying to achieve compared to accumulation, we can't really give you advice.
I acknowledge that not clearly defining what I'm trying to accomplish is part of the problem. I'm still working through this. The answer is a combination of wanting to live well on my savings with a decent potential of growth and a level of risk I'm comfortable with. I guess in some ways many of us want this. How then, for me, do I accomplish this? No one can answer that for me, except me. But hearing others peoples answers is helpful.
« Last Edit: July 26, 2021, 09:52:31 AM by CoffeeR »

CoffeeR

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Re: If you have enough, how do you invest?
« Reply #13 on: July 26, 2021, 08:56:54 AM »
You don't buy bonds to fight inflation -> you buy bonds to keep from losing your principal during bear markets. 0% return may be a awesome considering current market conditions. Equities tend to perform better against inflation over time.

Are you still working? Do you need the money anytime soon?

If I were retiring early in the current environment, I would probably keep an Equity percentage of 50%, with focus on TIPS focused mutual fund for the other 50%.
I currently do not need the money. I will need the money when I quit or loose my part time job. This is unlikely to happen except by choice, but I must plan to be wrong on that.

I've considered 50% stocks / 50% tips. Not ready to do that (yet).

CoffeeR

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Re: If you have enough, how do you invest?
« Reply #14 on: July 26, 2021, 08:58:42 AM »
There are (at least) two ways to approach things after you "have enough" (aka "won the game"):
a) be very conservative because you don't have to be aggressive
b) be very aggressive because you don't have to be conservative

Either of the above is defensible.
So it comes down to my personal psychology of money. I knew that, but I'm not sure I know myself well enough to know how to know if I should choose a) & b). Neither appeal to me.

CoffeeR

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Re: If you have enough, how do you invest?
« Reply #15 on: July 26, 2021, 09:03:58 AM »
If I had enough, I would do this

Calculate at a SWR of 2% what I would need. Then invest that in standard target retirement fund with retirement date set as next year.

You don't need this remaining. It will mostly be wasted or left as legacy. So I wouldn't worry how to invest. Anyway you invest is actually fine. I personally would like to continue to grow my assets so I would invest this aggressively (but not foolishly). Definitely index ETFs, some in FAANG stocks, a low percent (say 5-10%) in Crypto.
When I say enough (by my standards), I'm not talking reddit fatfire. I mean 2% would be lean but do-able, 3.0% to 3.5% comfortable.

I actually agree, that as long as it is reasonable, how I invest may not matter that much.

CoffeeR

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Re: If you have enough, how do you invest?
« Reply #16 on: July 26, 2021, 09:07:32 AM »
What are your goals?

Hard to really answer this without that.
As I stated in another post, something like "wanting to live well on my savings with a decent potential of growth and a level of risk I'm comfortable with". Not clearly defined. I agree. That is part of the problem.

Also, knowing myself, I will make a decision and be done with it and move on. I'm right now in the stage of pondering the matter.

MustacheAndaHalf

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Re: If you have enough, how do you invest?
« Reply #17 on: July 26, 2021, 09:41:26 AM »
I recently I moved to an 80/20 allocation, but this was not so much because so much based on a deep dive on my finances and asset allocation as it was a temporary move until I figure out what to do next.
Have you heard of allocating different risk levels in different buckets?
One bucket might be very short term, with cash (a couple years?)
The next bucket has bonds, covering several years expenses
And finally you have an equity bucket, for expenses a long time in the future

If your portfolio is much larger than your needs, that might allow you to have a very low risk portion for years of expenses... and the rest in stocks.  Most years the market does well, and you sell enough to replace the last year in the bond bucket (maybe 2% inflation?).  When the market drops, you let the cash and bond buckets drain, waiting for the market to recover.  You resupply your cash and bonds during good times, and wait for a recovery during crashes.

CoffeeR

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Re: If you have enough, how do you invest?
« Reply #18 on: July 26, 2021, 10:08:28 AM »
I recently I moved to an 80/20 allocation, but this was not so much because so much based on a deep dive on my finances and asset allocation as it was a temporary move until I figure out what to do next.
Have you heard of allocating different risk levels in different buckets?
One bucket might be very short term, with cash (a couple years?)
The next bucket has bonds, covering several years expenses
And finally you have an equity bucket, for expenses a long time in the future

If your portfolio is much larger than your needs, that might allow you to have a very low risk portion for years of expenses... and the rest in stocks.  Most years the market does well, and you sell enough to replace the last year in the bond bucket (maybe 2% inflation?).  When the market drops, you let the cash and bond buckets drain, waiting for the market to recover.  You resupply your cash and bonds during good times, and wait for a recovery during crashes.
I'm familiar with the strategy. Christine Benz from Morningstar advocates this method. A different version of it would be some kind of liability matching portfolio. Of course, both methods generally require bonds/cash or the like and I suspect part of my mental struggle with this is my complete and utter dislike of bonds in the current environment. I suspect in the end I will have to hold my nose and proceed with a reasonable allocation of bonds, tips, cash or the like... of course I suspect my biases on bonds will bias my definition of "reasonable".

Malcat

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Re: If you have enough, how do you invest?
« Reply #19 on: July 26, 2021, 10:13:38 AM »
First: why would you be changing your investment strategy?
During accumulation I was 100% stocks and I wanted to see my assets grow to provide for a time when I no longer can or want to work as hard. The risk and volatility of the market bothered me, but I stayed the course because I had a good income and no specific time horizon and I could always work longer if the market went down.

Things have changed. My jobs with a large enough pay to live and save it no more (by choice). My part time jobs covers 100% of my expenses, but leaves little room for new savings. Giving the change in my circumstances, I'm pondering changing my investment strategy. For better or worse my investment strategy did not deal with the change in my circumstances.

I recently I moved to an 80/20 allocation, but this was not so much based on a deep dive on my finances and asset allocation as it was a temporary move until I figure out what to do next.

You don't *have to* change your investment strategy once you finish accumulating. Unless we know exactly what you are trying to achieve compared to accumulation, we can't really give you advice.
I acknowledge that not clearly defining what I'm trying to accomplish is part of the problem. I'm still working through this. The answer is a combination of wanting to live well on my savings with a decent potential of growth and a level of risk I'm comfortable with. I guess in some ways many of us want this. How then, for me, do I accomplish this? No one can answer that for me, except me. But hearing others peoples answers is helpful.

Okay, so you're kind of overcomplicating it.

Look at it this way, at a certain level of wealth, both high risk and low risk approaches make sense.
So, say I need 40K to live on, and I have 10M. I could leave it all in 100% stocks, because the market basically can't get low enough for me to lose money with such a small withdrawal rate. Likewise, I could leave it in cash and never run out of money. The outcome is exactly the same no matter what I do, I won't ever run out of money.

What's my point? My point is that one approach isn't necessarily better than another, or even any different in terms of outcomes.

Obviously you aren't in a 40K spend with 10M assets situation, so the key is to figure out the differences that actually matter, your specific risks, and account for them.

So what's the actual risk of leaving your investments in 100% stocks? Now, I'm going to use the term "risk" for it's actual meaning, and not for to mean volatility. From this point on, I will only use "volatility" when referring to market performance. So, what is the actual risk of leaving your money in 100% stocks? Is there actually ANY risk?

Not necessarily.

There is only risk in 100% bonds if there's a need to withdraw enough money to erode your principal. But do you have to do that? Not necessarily. As long as you can reduce your withdrawals in a given period of time in proportion to market forces, then there isn't actually any risk to staying 100% stocks.

So, for example, if you have a couple where one spouse has a pension and the other has investments, and they can live on the pension alone, then they never need to worry about hedging against market volatility. They can just elect to have some years where they spend less from their investments.

That's not your situation either, but you do have the capacity to earn. So that has to be accounted for as well.

Basically, how much do you really need? How much are you able and willing to cut down on withdrawals in a down market? Are there market forces that would make the markets low AND reduce your earning power at the same time (meaning, is your employability recession proof or recession fragile?). Etc. etc.

So the amount of volatility taming investments like bonds or cash that you might want are directly proportional to how difficult it would be to modulate your withdrawals in any given year.

If you were someone with limited professional skills in an industry filled with ageism and competition, who has a special needs adult child who is fully dependent on you, and you have to live in an HCOL area for their medical care, and you are living 100% on investments for the next several decades, plus will have to leave behind a lump sum for your special needs kid's care once you are gone? And you don't have a huge excess of savings????
Yeah, you are going to have to balance your volatility management and growth very carefully.

However, if you don't have a ton of factors forcing you into a necessary high spend, and have a lot of flexibility in terms of withdrawal, either through cutting spending or adding income at will, then there's no need at this time to hedge against market volatility.

The key is to understand your ACTUAL risks, and understand how to hedge against them.

DaMa

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Re: If you have enough, how do you invest?
« Reply #20 on: July 26, 2021, 10:25:15 AM »
I recently I moved to an 80/20 allocation, but this was not so much because so much based on a deep dive on my finances and asset allocation as it was a temporary move until I figure out what to do next.
Have you heard of allocating different risk levels in different buckets?
One bucket might be very short term, with cash (a couple years?)
The next bucket has bonds, covering several years expenses
And finally you have an equity bucket, for expenses a long time in the future

If your portfolio is much larger than your needs, that might allow you to have a very low risk portion for years of expenses... and the rest in stocks.  Most years the market does well, and you sell enough to replace the last year in the bond bucket (maybe 2% inflation?).  When the market drops, you let the cash and bond buckets drain, waiting for the market to recover.  You resupply your cash and bonds during good times, and wait for a recovery during crashes.

My portfolio is larger than my needs.  I have 10% in 3% APR CDs.  I have 15% in a cash balance pension paying 4% APR minimum guaranteed.  (That's my "bonds.")  I have the rest in stocks - 10% in income funds like Wellington, the rest (65%) in VTSAX or equivalent. 

Just to give you another data point. 

moof

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Re: If you have enough, how do you invest?
« Reply #21 on: July 27, 2021, 12:41:38 AM »
Pick a number between 50 and 80.  Put that in stocks.  Roll a die if you want, it makes little difference.

Put the rest in bonds.

Rebalance annually.  Enjoy your retirement.

Playing with Fire UK

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Re: If you have enough, how do you invest?
« Reply #22 on: July 27, 2021, 03:09:21 AM »
I rethought my asset allocation as I approached having enough and found portfoliocharts.com very helpful. I like the idea of having a range of asset types to reduce the chance of needing to withdraw from something that's just taken a fall. There's more to diversifying than just buying bonds.

CoffeeR

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Re: If you have enough, how do you invest?
« Reply #23 on: July 27, 2021, 08:36:16 AM »
Okay, so you're kind of overcomplicating it.

Agreed.

Look at it this way, at a certain level of wealth, both high risk and low risk approaches make sense.
So, say I need 40K to live on, and I have 10M. I could leave it all in 100% stocks, because the market basically can't get low enough for me to lose money with such a small withdrawal rate. Likewise, I could leave it in cash and never run out of money. The outcome is exactly the same no matter what I do, I won't ever run out of money.

What's my point? My point is that one approach isn't necessarily better than another, or even any different in terms of outcomes.

Obviously you aren't in a 40K spend with 10M assets situation, so the key is to figure out the differences that actually matter, your specific risks, and account for them.

So what's the actual risk of leaving your investments in 100% stocks? Now, I'm going to use the term "risk" for it's actual meaning, and not for to mean volatility. From this point on, I will only use "volatility" when referring to market performance. So, what is the actual risk of leaving your money in 100% stocks? Is there actually ANY risk?

Not necessarily.

There is only risk in 100% bonds if there's a need to withdraw enough money to erode your principal. But do you have to do that? Not necessarily. As long as you can reduce your withdrawals in a given period of time in proportion to market forces, then there isn't actually any risk to staying 100% stocks.

So, for example, if you have a couple where one spouse has a pension and the other has investments, and they can live on the pension alone, then they never need to worry about hedging against market volatility. They can just elect to have some years where they spend less from their investments.

That's not your situation either, but you do have the capacity to earn. So that has to be accounted for as well.

Basically, how much do you really need? How much are you able and willing to cut down on withdrawals in a down market? Are there market forces that would make the markets low AND reduce your earning power at the same time (meaning, is your employability recession proof or recession fragile?). Etc. etc.

So the amount of volatility taming investments like bonds or cash that you might want are directly proportional to how difficult it would be to modulate your withdrawals in any given year.

If you were someone with limited professional skills in an industry filled with ageism and competition, who has a special needs adult child who is fully dependent on you, and you have to live in an HCOL area for their medical care, and you are living 100% on investments for the next several decades, plus will have to leave behind a lump sum for your special needs kid's care once you are gone? And you don't have a huge excess of savings????
Yeah, you are going to have to balance your volatility management and growth very carefully.

However, if you don't have a ton of factors forcing you into a necessary high spend, and have a lot of flexibility in terms of withdrawal, either through cutting spending or adding income at will, then there's no need at this time to hedge against market volatility.

The key is to understand your ACTUAL risks, and understand how to hedge against them.
Thank you for your thoughtful response.

As many here have pointed out directly and indirectly... the investment strategy (as long as it's somewhat reasonable) probably does not matter that much if there is sufficient buffer and surplus (which could take the form of high LNW or capacity to earn of flexibility in spend, etc.). Even when posting the original question I was sort-of aware of this. I still do not know how I will proceed, but that is on me. I'll figure something out.

CoffeeR

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Re: If you have enough, how do you invest?
« Reply #24 on: July 27, 2021, 08:40:25 AM »
My portfolio is larger than my needs.  I have 10% in 3% APR CDs.  I have 15% in a cash balance pension paying 4% APR minimum guaranteed.  (That's my "bonds.")  I have the rest in stocks - 10% in income funds like Wellington, the rest (65%) in VTSAX or equivalent. 

Just to give you another data point.
Thank you for the data point. 3% APR CD's are nice.... where? I have no access to any guaranteed 4% investment vehicles (that I know of).

CoffeeR

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Re: If you have enough, how do you invest?
« Reply #25 on: July 27, 2021, 08:41:08 AM »
I rethought my asset allocation as I approached having enough and found portfoliocharts.com very helpful. I like the idea of having a range of asset types to reduce the chance of needing to withdraw from something that's just taken a fall. There's more to diversifying than just buying bonds.
I'll check it out. Thanks!

CoffeeR

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Re: If you have enough, how do you invest?
« Reply #26 on: July 27, 2021, 08:42:26 AM »
Pick a number between 50 and 80.  Put that in stocks.  Roll a die if you want, it makes little difference.

Put the rest in bonds.

Rebalance annually.  Enjoy your retirement.
I believe you are right on this. Now I have to figure out which loaded die I'll roll :-).

Malcat

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Re: If you have enough, how do you invest?
« Reply #27 on: July 27, 2021, 08:53:58 AM »
Pick a number between 50 and 80.  Put that in stocks.  Roll a die if you want, it makes little difference.

Put the rest in bonds.

Rebalance annually.  Enjoy your retirement.
I believe you are right on this. Now I have to figure out which loaded die I'll roll :-).

Don't think of it that way.

You seem to be putting pressure on yourself to "get it right", when in reality, it's pretty hard to get wrong as long as you use some common sense.

Also, you don't have to commit to something forever. Your asset allocation can change depending on what happens with your life circumstances. Like you could just keep everything as is for as long as you continue having income, and then change things if/when you decide to stop.

This really isn't something to have any angst about. Don't put pressure on yourself that you don't need.

This is like stressing out about which socks to wear. It's just not necessary.

ericrugiero

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Re: If you have enough, how do you invest?
« Reply #28 on: July 27, 2021, 10:19:11 AM »
Pick a number between 50 and 80.  Put that in stocks.  Roll a die if you want, it makes little difference.

Put the rest in bonds.

Rebalance annually.  Enjoy your retirement.

+1

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Re: If you have enough, how do you invest?
« Reply #29 on: August 01, 2021, 06:53:36 AM »
Pick a number between 50 and 80.  Put that in stocks.  Roll a die if you want, it makes little difference.

Put the rest in bonds.

Rebalance annually.  Enjoy your retirement.
I believe you are right on this. Now I have to figure out which loaded die I'll roll :-).

Don't think of it that way.

You seem to be putting pressure on yourself to "get it right", when in reality, it's pretty hard to get wrong as long as you use some common sense.

Also, you don't have to commit to something forever. Your asset allocation can change depending on what happens with your life circumstances. Like you could just keep everything as is for as long as you continue having income, and then change things if/when you decide to stop.

This really isn't something to have any angst about. Don't put pressure on yourself that you don't need.

This is like stressing out about which socks to wear. It's just not necessary.

I agree with all this.  One thing that helped me was to backtest the different allocations I was considering so to see how little difference there was in the results.  Higher equity allocation just means on average higher ending portfolio for heirs, lower means less volatility.

I also don't like bonds right now, so am starting RE with a 70/15/15 allocation (the last being cash), but plan to spend down the cash first and not rebalance to it, therefore I'm not selling any hurting investments for a while (in the case equities and bonds both drop), but I'm also not holding onto the cash long enough I really have to be that concerned with inflation crippling it.  Backtesting again showed this approach made little difference than the others, but its one that makes me feel better.  Maybe in 5 years I'll love bonds and slowly will move more to that.  Maybe I am retiring at a horrible time and everything does horribly for a while and so I cut spending 10% at some point (which makes a big difference in portfolio spend-down).  Its all fine.

boarder42

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Re: If you have enough, how do you invest?
« Reply #30 on: August 01, 2021, 08:33:33 AM »
I go more volatility on both sides. 20% long term Treasury. 80% small cap value. Gives me huge comfort for down sides at 4-5 years in long term treasuries. Which sky rocket when the market tanks. And small cap values worst down cycle is only about 4.5 years. Then you get the huge upside of small value over the sp500. Which is all VTI is. It doesn't hold enough of any other asset class to actually outperform the sp500 in any meaningful way

BicycleB

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Re: If you have enough, how do you invest?
« Reply #31 on: August 02, 2021, 01:54:44 PM »
I agree that bonds look really bad right now. It's therefore possible that choosing a relatively high % stocks (70-100%) instead of 50% could be advantageous. In your shoes, I'd lean toward 75-80%, about what you have already.

Learning the options piece might give you more control, and an alternative to bonds that would still help you be protected against downturns. Since they're complex, I'll assume bonds not options for now.

Defining your contingencies more precisely might help. For example, the work contingency covers your spending already if I read correctly, making a little-to-no-bonds choice tolerable. So you just need to be ready in case you quit your job/ get laid off (that's my case) / etc. Define those buckets that will pay the first five years, map out how payments will be withdrawn after that. Consider using a solid % of bonds in the early buckets and all stock in the later ones, just like other posters suggested. One rule of thumb I use to "stress test" scenarios is "What if stocks go down 50% tomorrow and take 10 years to go back up?" Don't use more bonds than it takes to withstand that! :)

PS. My individual case is a bit different: thin FIRE, older guy (50s). I have significant pensions and Soc Sec in my future relative to expenses, but financial portfolio now around 80% stock just like you. I'm not quite as firm against bonds, so my outlook is more "conservative". Still ends up with about the same stock % once the different factors balance out. All roads lead to Rome, eh?
« Last Edit: August 02, 2021, 01:58:35 PM by BicycleB »

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Re: If you have enough, how do you invest?
« Reply #32 on: August 04, 2021, 10:05:14 AM »
I really like the "pick a number between 50 and 80" approach.

Personally, we're at our FIRE number, still working for now.  We recently moved internationally, so we're keeping more cash than usual both because we're thinking we'll shift to part-time work (or quit completely) and to avoid having to exchange money at inopportune times.  Historically, we've been 90/10 stock/bonds, now we're more like 80/10/10 (with the last 10 being cash in two currencies).

As we shift to less / no work, I think the cash portion might grow (like we might keep two or three years worth of cash in a CD ladder or high interest account) but I don't see us doing much with bonds.  So maybe we'd end up somewhere closer to 70/30, with most of that 30 being in cash / CD / GIC and a bit in bonds.

As someone planning to be retired for a while, I'm not interested in shifting to a conservative allocation.

alienbogey

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Re: If you have enough, how do you invest?
« Reply #33 on: August 04, 2021, 11:24:20 AM »
We invest the same way that got us to being very comfortably FIRE’d:

100% equities 100% of the time.  Roughly 55% funds and 45% individual stocks.

CoffeeR

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Re: If you have enough, how do you invest?
« Reply #34 on: August 04, 2021, 03:19:30 PM »
Learning the options piece might give you more control, and an alternative to bonds that would still help you be protected against downturns. Since they're complex, I'll assume bonds not options for now.

I'm definitively will investigate options for defense and income. I tend to be cautious, so I will move slow.

Defining your contingencies more precisely might help. For example, the work contingency covers your spending already if I read correctly, making a little-to-no-bonds choice tolerable. So you just need to be ready in case you quit your job/ get laid off (that's my case) / etc. Define those buckets that will pay the first five years, map out how payments will be withdrawn after that. Consider using a solid % of bonds in the early buckets and all stock in the later ones, just like other posters suggested. One rule of thumb I use to "stress test" scenarios is "What if stocks go down 50% tomorrow and take 10 years to go back up?" Don't use more bonds than it takes to withstand that! :)

My spreadsheet tells me the number of a 50% stock decline (from max) and I do not like that number (but RE still works, albeit more lean). I've not clearly defined what buckets to use, when & where. Like many here, I have many account buckets (e.g. tIRA, Roth, 401K, 401K Roth, 457, taxable brokerage with long term capital gains, etc.) . The buckets you refer to have to be "mapped" on top of those which is another discussion altogether.

PS. My individual case is a bit different: thin FIRE, older guy (50s). I have significant pensions and Soc Sec in my future relative to expenses, but financial portfolio now around 80% stock just like you. I'm not quite as firm against bonds, so my outlook is more "conservative". Still ends up with about the same stock % once the different factors balance out. All roads lead to Rome, eh?
See you in Rome!

« Last Edit: August 04, 2021, 03:21:06 PM by CoffeeR »

Loren Ver

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Re: If you have enough, how do you invest?
« Reply #35 on: August 04, 2021, 08:55:16 PM »
We invest the same way that got us to being very comfortably FIRE’d:

100% equities 100% of the time. 

We are very close to that, with one caveat, we have 18 months of cash/cash-like efund (since the average market down turn seems to run about 18 months) of things that must be paid (i.e. mortgage, insurance out of pocket maximums,...).  But once that money came out of investments, it it no longer counts towards the stash.  Since it isn't growing to support us, it's dead to us :).  One of our concessions towards security now that we are FIRE'd. 

JetBlast

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Re: If you have enough, how do you invest?
« Reply #36 on: August 04, 2021, 11:44:01 PM »
Am I the only one that seeing this topic in the forum list read it as “If you have enough coffee, how do you invest?”

SwordGuy

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Re: If you have enough, how do you invest?
« Reply #37 on: August 05, 2021, 06:40:58 AM »
Am I the only one that seeing this topic in the forum list read it as “If you have enough coffee, how do you invest?”


Enjoying your solitude?  :)

bthewalls

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Re: If you have enough, how do you invest?
« Reply #38 on: August 08, 2021, 06:23:44 AM »
Something occurred to me while reading these.....if you have enough isn’t that time to celebrate and to hell with detailed investment strategies.....pick one of the standard investment strategies off the shelf and forget about it?.....then go hiking for a year.

Otherwise fire is worthless?....

reeshau

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Re: If you have enough, how do you invest?
« Reply #39 on: August 08, 2021, 06:46:15 AM »
Something occurred to me while reading these.....if you have enough isn’t that time to celebrate and to hell with detailed investment strategies.....pick one of the standard investment strategies off the shelf and forget about it?.....then go hiking for a year.

Otherwise fire is worthless?....

I think the point of FIRE is that you have plenty of life left to live after the event.  That length of life means you need to continue to plan for it, although you could become more conservative: capital preservation vs. capital growth.  But having 50 years or more of inflation to deal with demands some growth, and therefore some risk.

To your point, there are plenty of templates readily available to choose from, or to begin with.  But also consider that government programs, both retirees benefits and tax schemes, are not set up to handle a FIRE situation.  In any given year, I could have any annual income I choose, starting with $0.  (Which is not necessarily a good thing)  Learning to tune that is a whole new skill, where when  I was working, it was all about how to maximize it.  (Maximize the total, anyway, while still trying to shelter as much as I could from taxes)

It's the person retiring at 75 or 80 who doesn't need to plan much, financially, to cover retirement.
« Last Edit: August 08, 2021, 07:05:45 AM by reeshau »

Malcat

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Re: If you have enough, how do you invest?
« Reply #40 on: August 08, 2021, 08:17:01 AM »
Something occurred to me while reading these.....if you have enough isn’t that time to celebrate and to hell with detailed investment strategies.....pick one of the standard investment strategies off the shelf and forget about it?.....then go hiking for a year.

Otherwise fire is worthless?....

Uh, most investment strategies here aren't particularly detailed.

It's really not a big deal to set a new strategy in FIRE if that's what makes sense. It's not a laborious process, just pick an AA and rebalance now and then.

RyanAtTanagra

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Re: If you have enough, how do you invest?
« Reply #41 on: August 08, 2021, 10:32:28 AM »
Like many here, I have many account buckets (e.g. tIRA, Roth, 401K, 401K Roth, 457, taxable brokerage with long term capital gains, etc.) . The buckets you refer to have to be "mapped" on top of those which is another discussion altogether.

Don't let the many buckets make it feel like it's more complicated.  Dump them all into a spreadsheet and have simple sum of the different asset classes.   For instance, I have 4 buckets (401k, tIRA, Roth, taxable), with more than one investment in each, but I have a table that sums up the different types of assets in all of them, and basically says:

Domestic equity: 81.17%
International equity: 18.83%

If my goal is 80/20, and I decide I want to buy more international, or sell domestic, that's when I think about what bucket I should ideally do that in.  80/20 stock/bond split would be the same.  But rebalancing is a rare enough event I'm really not thinking about how many buckets I have.  I could have 4x as many, and it's just more rows in a spreadsheet, but doesn't change the totals tables that I actually pay attention to.

BicycleB

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Re: If you have enough, how do you invest?
« Reply #42 on: August 08, 2021, 01:20:09 PM »
Like many here, I have many account buckets (e.g. tIRA, Roth, 401K, 401K Roth, 457, taxable brokerage with long term capital gains, etc.) . The buckets you refer to have to be "mapped" on top of those which is another discussion altogether.

Don't let the many buckets make it feel like it's more complicated.  Dump them all into a spreadsheet and have simple sum of the different asset classes.   For instance, I have 4 buckets (401k, tIRA, Roth, taxable), with more than one investment in each, but I have a table that sums up the different types of assets in all of them, and basically says:

Domestic equity: 81.17%
International equity: 18.83%

If my goal is 80/20, and I decide I want to buy more international, or sell domestic, that's when I think about what bucket I should ideally do that in.  80/20 stock/bond split would be the same.  But rebalancing is a rare enough event I'm really not thinking about how many buckets I have.  I could have 4x as many, and it's just more rows in a spreadsheet, but doesn't change the totals tables that I actually pay attention to.

The bolded part is appropriate for the accumulation stage. When you're at or near FIRE, withdrawal sequence can matter.

Some stratgies withdraw certain investment types first, such as bonds. Those should eventually be placed in the accounts from which actual living expenses will be drawn during the early years of FIRE.

RyanAtTanagra

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Re: If you have enough, how do you invest?
« Reply #43 on: August 08, 2021, 01:28:51 PM »
Like many here, I have many account buckets (e.g. tIRA, Roth, 401K, 401K Roth, 457, taxable brokerage with long term capital gains, etc.) . The buckets you refer to have to be "mapped" on top of those which is another discussion altogether.

Don't let the many buckets make it feel like it's more complicated.  Dump them all into a spreadsheet and have simple sum of the different asset classes.   For instance, I have 4 buckets (401k, tIRA, Roth, taxable), with more than one investment in each, but I have a table that sums up the different types of assets in all of them, and basically says:

Domestic equity: 81.17%
International equity: 18.83%

If my goal is 80/20, and I decide I want to buy more international, or sell domestic, that's when I think about what bucket I should ideally do that in.  80/20 stock/bond split would be the same.  But rebalancing is a rare enough event I'm really not thinking about how many buckets I have.  I could have 4x as many, and it's just more rows in a spreadsheet, but doesn't change the totals tables that I actually pay attention to.

The bolded part is appropriate for the accumulation stage. When you're at or near FIRE, withdrawal sequence can matter.

Some stratgies withdraw certain investment types first, such as bonds. Those should eventually be placed in the accounts from which actual living expenses will be drawn during the early years of FIRE.

Does it matter though?  Say I have an 80/20 bond split and all my bonds are in tax-advantaged accounts for tax purposes, and this year stocks are down so I want to withdraw my $40k from bonds, but can't/don't want to pull from tax-advantaged accounts yet.  So I sell $40k of stocks from taxable for my yearly cash needs, then sell $40k in bonds in my IRA and re-buy the same stock fund to compensate.  You end up with the same amount of money in stocks, but drew down on your bonds as desired.

To be fair, I'm still a ways out from draw-down phase so haven't done TOO much research on strategies, but is that not a valid way to do it?  Granted you need enough in taxable to cover this, but I would imagine for most people retiring early, at least half of their stash is in a taxable account.
« Last Edit: August 08, 2021, 01:32:28 PM by RyanAtTanagra »

BicycleB

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Re: If you have enough, how do you invest?
« Reply #44 on: August 08, 2021, 02:12:36 PM »
I'm really not thinking about how many buckets I have.  I could have 4x as many, and it's just more rows in a spreadsheet, but doesn't change the totals tables that I actually pay attention to.

The bolded part is appropriate for the accumulation stage. When you're at or near FIRE, withdrawal sequence can matter.

Some stratgies withdraw certain investment types first, such as bonds. Those should eventually be placed in the accounts from which actual living expenses will be drawn during the early years of FIRE.

Does it matter though?  Say I have an 80/20 bond split and all my bonds are in tax-advantaged accounts for tax purposes, and this year stocks are down so I want to withdraw my $40k from bonds, but can't/don't want to pull from tax-advantaged accounts yet.  So I sell $40k of stocks from taxable for my yearly cash needs, then sell $40k in bonds in my IRA and re-buy the same stock fund to compensate.  You end up with the same amount of money in stocks, but drew down on your bonds as desired.

To be fair, I'm still a ways out from draw-down phase so haven't done TOO much research on strategies, but is that not a valid way to do it?  Granted you need enough in taxable to cover this, but I would imagine for most people retiring early, at least half of their stash is in a taxable account.

It can. Examples:

1. Selling $40k of stock can de-optimize Affordable Care Act health insurance premiums, if the stock has appreciated a lot. This could cost thousands of dollars potentially. If the investments were in bonds originally, the appreciation and therefore the income would be lower, preventing the problem. As an ACA customer, this is relevant to my actual life.

2. Not everyone has fat taxable accounts. I don't.

3. Different accounts have different processes, timing and penalties for being accessed in FIRE. Whether there's enough money in the appropriate-for-first-use accounts can determine whether the person has enough cash for their actual needs. Allocating low-variance bonds instead high-variance stocks to the right accounts can solidify the availability of funds without requiring extra capital.

4. Side note - you're welcome to sell Stock A in your taxable account and buy the same amount in your 401k, but it's against the wash sale rule and can potentially invalidate the 401k's tax savings. There are plenty of workarounds, but you should learn them. (Fwiw, I believe you can wait 32 days betweeen the transactions, or buy a Stock B that's similar for your purposes but different for purposes of securities regulations.)

You can put off worrying about it personally until you're closer to FIRE, but it can make a difference to others. I may not be like half of the people who early retire, but I'm a real person.
« Last Edit: August 08, 2021, 02:20:27 PM by BicycleB »

RyanAtTanagra

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Re: If you have enough, how do you invest?
« Reply #45 on: August 08, 2021, 02:17:11 PM »
Ahh, those are good points, especially the one about having bonds as an option to draw from in a taxable account, for ACA/minimizing 'income' purposes.

Radagast

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Re: If you have enough, how do you invest?
« Reply #46 on: August 08, 2021, 03:35:44 PM »
There are (at least) two ways to approach things after you "have enough" (aka "won the game"):
a) be very conservative because you don't have to be aggressive
b) be very aggressive because you don't have to be conservative

Either of the above is defensible.
When in doubt do both! half Permanent Portfolio, half VT.
Or, if you don't like gold, half Larry Portfolio, half VT.

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Re: If you have enough, how do you invest?
« Reply #47 on: August 14, 2021, 10:23:17 AM »
Ahh, those are good points, especially the one about having bonds as an option to draw from in a taxable account, for ACA/minimizing 'income' purposes.
If your tax bracket is still high, consider tax-exempt bonds (or bond funds).  They might have a greater after-tax yield.  The tax code is complex, but I would assume it also helps lower taxable income for ACA purposes.