@Skyrefuge, but at $1500/month and using the 4% total return, I would need $450k. Since I haven't seen the 4% be tied to a certain AA, I'm assuming 4% be for any AA from 100/0 to 0/100. So once I get my $450k invested, this would generate my $1500/month "fixed" because according to the 4% rule, I can reliably withdraw that much each month. So any money after that I would move to a 2nd account and invest at 100% stocks. I could rebalance the first account to keep my "swr" income "safe".
When I said "fixed" income, yes I did plan on using bonds but I also meant the 4% rule or even rentals. As long as I can get $1500/month, my living cost would be covered and anything above that amount I would invest in stocks which would alter my AA.
I guess my real question is why aren't people deciding their AA based on their spending instead of their risk tolerance? If I feel like 100/0 would drop 40% and hurt the amount of living money, I would add bonds so it drops less. I understand this to be the risk part of equation. As I add bonds, I reduce the amount my portfolio drops. But once I get a certain amount of money in the bonds side of the equation, it seems like I don't need more bonds. So once I hit this target amount, does AA become less important? Like Skyrefuge pointed out, at some point once you have enough invested, the actual AA isn't as important?
The forbes link
http://www.forbes.com/sites/greggfisher/2014/10/17/portfolio-rebalancing-theory-and-practice/ actually is part of what causes my confusion. Because in my mind the article says that leaving the portfolio at 100% stocks (it's S&P 500) gave the highest annual return of 10%. So if I had enough invested in the 5-year treasury notes which returned 5%, I would in theory only need $360k of notes to cover my living. I plan to have $500k to be on safe side. So if $1.5m is my goal, would it not make sense for the $1m between $500k to $1.5m be 100% stocks? Yes this is an AA of 1/3 notes but if my portfolio grew to 2m, I would still only need $500k notes so my AA would change. In a market drop, my portfolio could fall completely to $500k where it is entirely notes, and I would still be fine until markets recovered. I'm saying notes to use the examples in link but I plan to use a 4% SWR as my "fixed" income where my dividends from investments/bonds don't cover.
I do see you guys' point about rebalancing as selling high and buying low. When the markets are doing well, stocks are up and you want to sell them and buy bonds which are low. And the opposite in a down market. But I guess I wasn't reading rebalancing as what this accomplished before. I read it and thought I understood it as people rebalanced to time the next market crash and their "risk" tolerance at how much the portfolio would drop. Not that it was to lock in the high returns and buy "discounted" bond/stock (depending on which is being bought).
I'm going to stick with my 80/20 AA since it did well for me in the past year. Well, being around 10%, which is lower than if I was 100% stocks but better than if I left it in bank. I haven't had to rebalance yet because I haven't been in market long enough. I'm just researching and planning things out for the eventual future where I'll have to make these decisions. I just always figured that AA was useful up until you have reached your "fixed" income goals then it could be 100% stocks on wards. That it wasn't something that I would be forever nit picking over. If I had enough to live on, does it really matter what the rest of my portfolio is doing?