Author Topic: Reconsidering AA approaching FI number  (Read 517 times)

Le Barbu

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Reconsidering AA approaching FI number
« on: March 11, 2021, 05:08:04 PM »
Since I knew MMM back in 2013, my AA have always been 100% stocks and I even refinanced my mortgage to maximise investments. Before that, AA was more like 70% stocks/30% bonds (high cost funds) and paying debt agressively. Everything went well for me and now, I hit my barebone FI numbers

With the recent stock rally, PE are quite high and I began to reconsider my AA and leverage strategy. Previous AA was 30%VCN, 30%VTI, 10%VBR and 30%VXUS and mortgage represent 15% of total assets (house is 25% of total assets)

I am now close to 5% of cash (new contributions and distributions) so, not very efficient because I still have a debt and paying interests...! I could repay about a third of the debt with this cash but with few caveats. First, some of the cash is into registered accounts so, I will pay taxes withdrawing it because I still have incomes. Some is into TFSA and keeping it there kind of "protect" rights (like in case of one of the spousal death)

The mortgage is splited between different terms at 2.24% to 2.69% and 50% of the mortgage interests are deductible via Smith Manoeuvre (taxable investments)

Through the first months of the pandemic, I was very happy to have some dry powder and no financial stress at all. I am now trying to convince myself that since I almost won the game (like 85%) and still working for a few years (maybe 2-3?) I can let go some efficiency and relax a bit. 

I work as a commercial account manager in a bank and see a lot of peoples (busines) keeping a few thousand grands (50,000-100,000$) sitting still and then, they have an opportunity to use it. It's great to show the money and negociate to refinance afterward because, a lot of competitors are already out of the game!

What do you think?
« Last Edit: March 11, 2021, 05:38:36 PM by Le Barbu »

ChpBstrd

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Re: Reconsidering AA approaching FI number
« Reply #1 on: March 12, 2021, 12:36:11 PM »
Early Retirement Now wrote a (rather technical) blog post on the optimum glide path as one approaches retirement. His conclusion was "do 100% stocks if you want to do it" but noted this decision is a tradeoff between optimizing for maximum value at time X or optimizing for best odds of being retired by time X.

https://earlyretirementnow.com/2021/03/02/pre-retirement-glidepaths-swr-series-part-43/

Lews Therin

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Re: Reconsidering AA approaching FI number
« Reply #2 on: March 12, 2021, 01:16:52 PM »
I`d say it depends on how much you need in expenses annually, minus the dividends your accounts throw out, pensions, or anything else like that.

I`m personally happy having a year, 1 1/2 year in cash, the rest in investments. removes any kind of short-term money crunch for me, and most of my money remains invested. I'd recommend going closer to 80/20 if you don't plan on having more cash on hand, but like I said, it depends a lot on how you are getting your money in retirement.

PhilB

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Re: Reconsidering AA approaching FI number
« Reply #3 on: March 13, 2021, 02:04:38 AM »
AA is an intensely personal decision.  There is no 'right' answer for someone in your position and you are very much getting towards the point where (within reason) what makes you feel good becomes more important than what maximises efficiency.

Personally, I built up an embarrassingly large cash position when I got to my FIRE number on the simple logic that if stock valuations were at a sustainable level, then I already had enough of them.  If they weren't then I'd be glad I'd hung on to my cash.  The odds are that I will end up with less than if I'd kept investing, but who cares if I already have enough?

cool7hand

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Re: Reconsidering AA approaching FI number
« Reply #4 on: March 13, 2021, 04:53:09 AM »
I'm always sharing how other asset allocations can provide lower volatility. The asset allocation we use for this purpose is the All Season's Portfolio designed by Ray Dalio of Bridgewater Associates. https://portfoliocharts.com/portfolio/all-seasons-portfolio/
Other people use Butterfly for the same reason. Give them a Google. We don't maintain a large cash position because of the lower volatility of this portfolio.

Le Barbu

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Re: Reconsidering AA approaching FI number
« Reply #5 on: March 15, 2021, 08:26:16 PM »
Thank you for replying

I decided to use the 5% cash and new money to buy some short term bonds (VSB) and repay a part of the mortgage @ 2.69%

So, VCN will be 25% of AA instead of 30% and replaced with VSB. I backtested this AA over the last 10 years and it mean only 0.25% less return, not a big deal!

Debt will drop from 14% of total assets (including house) to 12% over the next 6 months and then to 10% in about 2 years