The Money Mustache Community
General Discussion => Post-FIRE => Topic started by: Reader on November 16, 2015, 09:25:32 AM
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Hiya. I'm curious.. for those of you who have FIRED (and congrats!), what is your current portfolio allocation and why?
I've been reading up on the case for various portfolios (PP, 80/20, 50/50) and 4% withdrawal vs Variable Percentage Withdrawal. Would really like to know what actual "working portfolios" look like and your thoughts on them.
Another related question - would you keep the same portfolio in accumulation and FIRE phase of life?
Thanks for all feedback!
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I wouldn't consider going below 60/40 in retirement, personally, and I actually plan to be 70/30 to 75/25.
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I'm about 18% in bonds and debt instruments and growing in FIRE. I hope to get to about 25%.
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Pfau is turning AA on its head. See this paper on 'reverse' glide paths. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2324930
That said, still working I have no first hand experience relevant to your question.
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I quit working in June, but we're technically not FIRE yet because 2/3 of our assets are tied up in our primary residence which we're about to sell. Once we sell our house, depending on what's happening in the market, I'm probably just going to dump almost everything into VTSAX. In FIRE I'm planning on being close to 100% equities all the time. Already, all of the money in our tax-deferred retirement accounts is in VTSAX.
100% equities will be more volatile, but statistically it's produced greater long-term returns than any mix of bonds/stocks. You just have to have the flexibility to ride out the market crashes and live frugally or generate some income somehow so you don't have to sell too many shares during downturns.
If you haven't read it already, Jeremy at Go Curry Cracker has a good post on why he's moving towards 100% equities.
The Path to 100% Equities (http://www.gocurrycracker.com/path-100-equities/)
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Great link to the GCC post. Thanks for sharing -- hadn't been over there in some time.
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It boils down to your aversion to risk. As been said above, the more stock you have, the more you'll make in the long run, but the volatility could scare you. Bonds are here to make you sleep at night...
I'm personally targeting 75/25
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100% equities will be more volatile, but statistically it's produced greater long-term returns than any mix of bonds/stocks. You just have to have the flexibility to ride out the market crashes and live frugally or generate some income somehow so you don't have to sell too many shares during downturns.
This is 100% true. But it also doesn't tell the whole story (http://portfoliocharts.com/2015/11/17/how-safe-withdrawal-rates-work/). IMHO, investing is a lot more interesting than maximizing returns between stocks and bonds.
Regarding switching portfolios at retirement, I personally believe that developing good habits takes practice, and chasing returns or assuming that your current portfolio is only temporary are counterproductive to that process. Most people would be far better off both emotionally and financially focusing that optimization energy on minimizing expenses and maximizing income from their career. For that reason, I think it's great when people find a single portfolio or investing style that truly works for them and just stick with it. Don’t think of it as investing in a risky way in retirement. Think of it as investing conservatively and sustainably not only in retirement but also in accumulation.
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I've only been FIRED for 5 month, but I spent a lot of time thinking about my allocation before pulling the trigger. My allocation is basically the same as it was pre-FIRE, which is roughly 70/30. I include my CD/MM/Savings in the "30". I don't include my home equity in the "70" or "30". My reason for the allocation is, despite a draw-down each year, that's only a small portion of my stash, and the rest is still a long-term investment, as it's been all along, so I saw no reason to change my allocation. I also feel, for me, 70/30 is a good balance of returns versus risk. I don't know if I'll change this allocation when I'm much older - I'll re-evaluate every 5-10 years or so.
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100% equities will be more volatile, but statistically it's produced greater long-term returns than any mix of bonds/stocks. You just have to have the flexibility to ride out the market crashes and live frugally or generate some income somehow so you don't have to sell too many shares during downturns.
This is 100% true. But it also doesn't tell the whole story (http://portfoliocharts.com/2015/11/17/how-safe-withdrawal-rates-work/). IMHO, investing is a lot more interesting than maximizing returns between stocks and bonds.
Regarding switching portfolios at retirement, I personally believe that developing good habits takes practice, and chasing returns or assuming that your current portfolio is only temporary are counterproductive to that process. Most people would be far better off both emotionally and financially focusing that optimization energy on minimizing expenses and maximizing income from their career. For that reason, I think it's great when people find a single portfolio or investing style that truly works for them and just stick with it. Don’t think of it as investing in a risky way in retirement. Think of it as investing conservatively and sustainably not only in retirement but also in accumulation.
Thanks, Tyler, for the link to the portfoliocharts.com article on safe withdrawal rates and their relationship to asset allocation. I enjoyed reading it.
Our main plan is to be flexible in FIRE. Not if, but when our 100% stock portfolio crashes, we plan to be creative and spend time doing things that cost little or no money for a couple of years, which will allow us to minimize the number of shares we need to sell at low prices. In years when the stock market is booming we may withdraw 5% or more, but having the ability to vary our WRs from 0-5%+ will give our porfolio the ability to make it through the inevitable market crashes. That's the plan, anyway.
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Our main plan is to be flexible in FIRE. Not if, but when our 100% stock portfolio crashes, we plan to be creative and spend time doing things that cost little or no money for a couple of years, which will allow us to minimize the number of shares we need to sell at low prices. In years when the stock market is booming we may withdraw 5% or more, but having the ability to vary our WRs from 0-5%+ will give our porfolio the ability to make it through the inevitable market crashes. That's the plan, anyway.
Seems like a good plan to me! As much as I enjoy discussing the theory behind withdrawal rates, I fully believe that smart and flexible money management working in real time will outperform even the best mechanical withdrawal method. We're all ultimately responsible for our own success, and having a good plan does not excuse you from needing to make wise choices along the way.
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We are still about 7 months off FIRE, but here's what we are planning in terms of asset allocation.
- We are still quite heavily invested in property, with about 50% of our net worth in our home and investment properties.
- At 55 (17 years from now) I'll get a defined benefit pension from my employer, which should cover most of our essential expenses comfortably
- I plan on investing the remainder of our 'stash along the lines of the permanent portfolio. Having lost significantly in '08, I know I'm a lot more conservative than most folks here, so my focus is on yield. I'd rather not rely on draw down too much. I'm still too heavily weighted in cash, but am slowly dollar-cost-averaging into the market.
We are very conservative compared to many here, but that's ok. Financial security is extremely important to me, especially when I still have a long lifetime to live and a 3 year old son.
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I'm still 7 years off FIRE, but my current, and intended portfolio is 100% stocks, but I don't intend to use the 4% rule. Instead, I intend to retire on the maximum of dividend yield and 4%. In general, dividends are nowhere near as volatile as stock prices. Usually, when stocks boom, dividends only slightly increase, and dividend yields get smaller and smaller. Then, when there's a crash, usually dividends fall a bit, but then recover fairly quickly. With my stocks in 2008, it was about a 20% drop, but they'd recovered after 3 years.
Lastly, I should say, I live in Australia, which is happy, happy dividend land. My stocks are currently yielding almost 5%, so I could live on 4 - and still build my investments.
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100% equities will be more volatile, but statistically it's produced greater long-term returns than any mix of bonds/stocks. You just have to have the flexibility to ride out the market crashes and live frugally or generate some income somehow so you don't have to sell too many shares during downturns.
This is 100% true. But it also doesn't tell the whole story (http://portfoliocharts.com/2015/11/17/how-safe-withdrawal-rates-work/). IMHO, investing is a lot more interesting than maximizing returns between stocks and bonds.
Regarding switching portfolios at retirement, I personally believe that developing good habits takes practice, and chasing returns or assuming that your current portfolio is only temporary are counterproductive to that process. Most people would be far better off both emotionally and financially focusing that optimization energy on minimizing expenses and maximizing income from their career. For that reason, I think it's great when people find a single portfolio or investing style that truly works for them and just stick with it. Don’t think of it as investing in a risky way in retirement. Think of it as investing conservatively and sustainably not only in retirement but also in accumulation.
Thanks, Tyler, for the link to the portfoliocharts.com article on safe withdrawal rates and their relationship to asset allocation. I enjoyed reading it.
Ditto -- cool charts, Tyler!
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Thanks dude, Velociraptor, Wololo, AlwaysBeenASaver - it seems like 75/25 to 70/30 is the "allows me to sleep well at night" zone for a fair number of people...
JZinCo - thanks for the paper on reverse glide paths! it didn't occur to me that the more the portfolio is tilted towards bonds with age, the less the portfolio can capture gains for the risk of unexpected old age and hence possible portfolio failure before death.
Shane - thanks for the GCC post! it is eye opening. i wonder if one way to deal with the psychological effect of huge swings in a 100% portfolio could be to have one year of expenses in money markets so that you effectively need to look at the market once a year.
Tyler - thanks for the really cool charts and advice on "switching" portfolios. the intent of FIRE for me is to focus on other interesting things in life. unfortunately the markets is a necessary but uninteresting evil for me and i was wondering if a portfolio that does not change over time will work for real retirement. your point on it being less emotionally draining is very relevant for me.. hence my current focus on spending more intentionally to get more personal satisfaction for my buck. thankfully i like cheap activities like reading and chatting with friends :)
For the chart, it comes as a surprise that having more in total international will require less years of expenses than total stock market. guess international is where the growth is?
faramund - i have the impression that even CDs are impressively high in Australia. How much are they now?
MsRichLife - we're about the same age! what is your PP portfolio likely to be like?
thanks so much for the insights so far!
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For the chart, it comes as a surprise that having more in total international will require less years of expenses than total stock market. guess international is where the growth is?
The best one can argue is that it's where the growth was. The future may not look like the past, and I always recommend staying well-diversified.
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Non-real estate is 90:10 stocks/bonds. Always has been, always will be.
" Once we sell our house, depending on what's happening in the market, I'm probably just going to dump almost everything into VTSAX." <----- that's market timing. Your strategy shouldn't change based upon whats happening in the market. My .02
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Non-real estate is 90:10 stocks/bonds. Always has been, always will be.
" Once we sell our house, depending on what's happening in the market, I'm probably just going to dump almost everything into VTSAX." <----- that's market timing. Your strategy shouldn't change based upon whats happening in the market. My .02
I agree. Under normal circumstances I plan on putting all the proceeds of our house sale into VTSAX. My qualification was just meant to cover all the bases. In the event that the stock market has just tanked 40% in the week before our house sale closes, I might start out by putting half of the money in, and then wait another week or month or 6 to see if the market is going to drop some more before putting the rest to work... :)
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Reader: From some quick searching, the best 'term deposit'/CD that I found, was for 3.2% for 5 years.
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JZinCo - thanks for the paper on reverse glide paths! it didn't occur to me that the more the portfolio is tilted towards bonds with age, the less the portfolio can capture gains for the risk of unexpected old age and hence possible portfolio failure before death.
By the way, if you learn more by listening or just want a casual conversation about this reverse glide path idea, check this podcast out: http://www.doughroller.net/retirement-planning/wade-pfau-interview/
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MsRichLife - we're about the same age! what is your PP portfolio likely to be like?
At the moment our 'stash outside of property and superannuation (we're in Australia) is only small relative to our Net Worth. Because I've been slowly Dollar-Cost-Averaging (DCA) my PP is still unbalanced with 60% cash, 26% stocks, 12% gold and 2% bonds.
I've actually found a high yielding ETF (11.5%) that I'm really happy with, so I'm starting to consider whether I need to be a bit more flexible with the PP. For example I don't intend to buy bonds at the moment, so rather than just holding that 25% in cash, I might add more into stocks.
My intent is that we don't touch the 'stash if possible and let it keep growing for a while before we consider drawing down.
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About 85/15 for me. Ideally would like to target 75/25, but not interested in increasing bond positions at current low interest rates.
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I feel the only reason for bonds would be to draw upon them when the market is down. That allows stocks to recover from a bear without being sold for living expenses. Once the market recovery occurs you can rebalance back. I'd look at bonds as more of an emergency fund. Stocks are your engine.
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I feel the only reason for bonds would be to draw upon them when the market is down. That allows stocks to recover from a bear without being sold for living expenses. Once the market recovery occurs you can rebalance back. I'd look at bonds as more of an emergency fund. Stocks are your engine.
+1
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I'm in the 70/30 category as well.
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faramund - at 3.2% a CD that provides guaranteed capital preservation sounds even better than bonds!
JZinCo - going through the podcast, i don't really understand what he meant by the U shaped approach and starting retirement at 30% stocks and building it up. does it mean i invest less now and start investing during retirement? this is a mind-bending recommendation. [afternote - i think i figured it out. start at 30/70 and shift more from cash and bonds into stock over time]
"Rob: So, what would be a range of stock-to-bond allocations that the U-shaped approach would suggest at the point of retirement?
Dr. Pfau: It does really vary by person. But as a baseline case study that we’ve looked at in more depth, because we thought it might be pretty realistic for a lot of people, is starting retirement at around 30 percent stocks and increasing over time to 60 percent stocks."
MsRichLife - should your superannuation funds be factored into the PP under stocks or bonds as they are essentially investments as well? i realised that when i factored in the superannuation equivalent as bonds for my portfolio under a 80/20 distribution, i will end up putting everything in stocks for some time to come. As of now, I'm 80% cash 20% stocks and DCA-ing into IWDA (world minus emerging) / local stock index ETF. Are you holding physical or paper gold (SPDR GLD)?
Colaman, Bateauxdriver, soccerluvof4 - thanks for your input. Given the high potential of rising interest rates, i'm finding it really hard to put money into bonds. would holding a much larger pile of CDs be a good substitute to holding bonds?
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Interestingly, my conventionally retired father-in-law is staying with us over Christmas, and he's been grumbling about only getting 3% interest on his bank deposits for a few months now. He's now going to take my advice to shift a slab of his money into the local Vanguard high yield exchange fund. At the moment its dividend is about 6%, and there's this nifty thing called franking credits in Australia. Basically there's another 3-4% that represents the company tax (which is 30%) that the company's already paid.
So if your tax rate is 30%, it basically doesn't matter, but if your tax rate (like him) is 0, then you get that 3-4% as well (but you have to wait until tax time when the government returns it).
As long as he doesn't panic when the inevitable next market dive/crash occurs - I think he'll be much better off. Anyway.. we'll see
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22% equities, ~10% real estate, the rest in CDs and bonds. (more CDs than bonds) I am following the rising glide path suggestion by Wade Pfau. When I resigned from my job in 1/2015 at age 44, I rec'd a good chunk of cash from the buyout of my partnership in the investment mgmt firm. (1/3 of my net worth) I couldn't stomach slugging it into the equities market at current valuations in the 7th year of a bull market. I realize I am risking a much nicer retirement 20 years from now, but I just don't want to be forced back into the job market at my age.
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22% equities, ~10% real estate, the rest in CDs and bonds. (more CDs than bonds) I am following the rising glide path suggestion by Wade Pfau. When I resigned from my job in 1/2015 at age 44, I rec'd a good chunk of cash from the buyout of my partnership in the investment mgmt firm. (1/3 of my net worth) I couldn't stomach slugging it into the equities market at current valuations in the 7th year of a bull market. I realize I am risking a much nicer retirement 20 years from now, but I just don't want to be forced back into the job market at my age.
Hi Sweet freedom, thanks for sharing. does this mean you're looking to buy into dips over time to increase your equity exposure? I'm also struggling to convince myself to put more money in equities now at current valuations.
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Interestingly, my conventionally retired father-in-law is staying with us over Christmas, and he's been grumbling about only getting 3% interest on his bank deposits for a few months now. He's now going to take my advice to shift a slab of his money into the local Vanguard high yield exchange fund. At the moment its dividend is about 6%, and there's this nifty thing called franking credits in Australia. Basically there's another 3-4% that represents the company tax (which is 30%) that the company's already paid.
10% yield is really great! this sounds like the reverse glide path strategy shared by JZinCo.
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100% in stocks pre and post . Wife and I have pensions that easily cover our expenses and 4 years EF so really don't have to touch the investments. We can just let it ride.
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I'm 90/10 in favor of stocks. FI, but not yet RE.
I may scale back a bit on stocks depending on when I pull the trigger to retire. Interestingly, the more $ you have (in terms of years worth of expenses), the more aggressive you can afford to be. If I was to retire with 25 to 30x expenses, I might want to lean a little more towards bonds, maybe 70/30 or 60/40. If I reach 50x or higher, I will probably keep the 25x overage in 100% stocks.
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JZinCo - going through the podcast, i don't really understand what he meant by the U shaped approach and starting retirement at 30% stocks and building it up. does it mean i invest less now and start investing during retirement? this is a mind-bending recommendation. [afternote - i think i figured it out. start at 30/70 and shift more from cash and bonds into stock over time]
"Rob: So, what would be a range of stock-to-bond allocations that the U-shaped approach would suggest at the point of retirement?
Dr. Pfau: It does really vary by person. But as a baseline case study that we’ve looked at in more depth, because we thought it might be pretty realistic for a lot of people, is starting retirement at around 30 percent stocks and increasing over time to 60 percent stocks."
You got it; the idea is decreasing equity exposure up to and during the first set of years in retirement when the retiree's whole retirement is most at sensitive to sequence of returns, and then picking up equities over the course of retirement to capture potential growth.
This is in converse to a higher amount of equities early in retirement, which are subject to sequence of returns risk, and lower amount of equities later in retirement which limits upside.
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Interestingly, the more $ you have (in terms of years worth of expenses), the more aggressive you can afford to be. If I was to retire with 25 to 30x expenses, I might want to lean a little more towards bonds, maybe 70/30 or 60/40. If I reach 50x or higher, I will probably keep the 25x overage in 100% stocks.
IDK--there's two ways to look at it.
If you have way more than needed, you can be aggressive because you can easily ride out the lows. Or you can afford to go more conservative cause you don't need the potential extra income you're giving up by being more conservative.
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I'm 90/10 in favor of stocks. FI, but not yet RE.
I may scale back a bit on stocks depending on when I pull the trigger to retire. Interestingly, the more $ you have (in terms of years worth of expenses), the more aggressive you can afford to be. If I was to retire with 25 to 30x expenses, I might want to lean a little more towards bonds, maybe 70/30 or 60/40. If I reach 50x or higher, I will probably keep the 25x overage in 100% stocks.
that's an interesting bucketing system that appeals to the risk-adverse side of me -> keep the core 25 to 30x expenses in a permanent allocation i am comfortable with and 100% stocks on the rest to capture the potential returns.
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100% in stocks pre and post . Wife and I have pensions that easily cover our expenses and 4 years EF so really don't have to touch the investments. We can just let it ride.
that's enviable. does EF refer to Emergency Funds? are your pensions from the government or a company? your post prompted me to think about the risk profile of pensions and annuities : government-backed vs company-backed. i was thinking buying an annuity from an insurance company but that seemed like a company backed pension of sorts for which i would lose everything if the company went belly up.
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Interestingly, the more $ you have (in terms of years worth of expenses), the more aggressive you can afford to be. If I was to retire with 25 to 30x expenses, I might want to lean a little more towards bonds, maybe 70/30 or 60/40. If I reach 50x or higher, I will probably keep the 25x overage in 100% stocks.
IDK--there's two ways to look at it.
If you have way more than needed, you can be aggressive because you can easily ride out the lows. Or you can afford to go more conservative cause you don't need the potential extra income you're giving up by being more conservative.
Hi ARS, which way would you go? :)
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100% in stocks pre and post . Wife and I have pensions that easily cover our expenses and 4 years EF so really don't have to touch the investments. We can just let it ride.
Ok, this is interesting. Do people here generally not include cash in their allocations?
When I read things like "100% stocks" here I assume this means no emergency fund. But if you have four years of EF then isn't that part of your asset allocation?
We are currently 20% cash, 10% bonds, and 70% stocks. I DO count cash in our AA.
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If I include cash and RE then the allocation is:
Stocks (403Bs) 75%
Cash (4 years exp) : 13 %
RE (paid for home) : 12%
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I am currently in a couple balanced funds that are approx. 60/40 stocks to bonds. Also have a couple years living expenses in cash. The reason that I am 60/40 is that it has a very low probability to fail over a long retirement. More stocks would increase my chances of dying with more money, but I already have enough, and am more concerned with security.
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Interestingly, the more $ you have (in terms of years worth of expenses), the more aggressive you can afford to be. If I was to retire with 25 to 30x expenses, I might want to lean a little more towards bonds, maybe 70/30 or 60/40. If I reach 50x or higher, I will probably keep the 25x overage in 100% stocks.
IDK--there's two ways to look at it.
If you have way more than needed, you can be aggressive because you can easily ride out the lows. Or you can afford to go more conservative cause you don't need the potential extra income you're giving up by being more conservative.
Hi ARS, which way would you go? :)
Hah, I waffle. :)
I see the merits in both.
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Interestingly, the more $ you have (in terms of years worth of expenses), the more aggressive you can afford to be. If I was to retire with 25 to 30x expenses, I might want to lean a little more towards bonds, maybe 70/30 or 60/40. If I reach 50x or higher, I will probably keep the 25x overage in 100% stocks.
IDK--there's two ways to look at it.
If you have way more than needed, you can be aggressive because you can easily ride out the lows. Or you can afford to go more conservative cause you don't need the potential extra income you're giving up by being more conservative.
Hi ARS, which way would you go? :)
Hah, I waffle. :)
I see the merits in both.
Same here. I have a guaranteed pension three years down the road (assuming I make it). One school of thought is you treat this as part of the fixed income (bond) allocation of your portfolio. By this rationale, I should be 100% stocks in my investment account. But I just CANNOT wrap my head around the idea of watching so much of my money evaporate in a big downturn. So I prefer to keep a 30-40% allocation to bonds in that account. Risk averse, I guess, but as the old adage goes, the best allocation is the one that allows you to sleep every night.
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Risk averse, I guess, but as the old adage goes, the best allocation is the one that allows you to sleep every night.
+1 Good for you for investing in a way that matches your personality.
It's not that investing in 100% stocks and holding onto it for 30 years is a bad idea at all. It's just that in the real world a good percentage of the people who try it really don't have the personality and conviction to follow through with their own life savings, and constantly switching portfolios or sitting on cash when down years spook you out of the markets destroys your long-term returns. As a result, an investor who chooses a portfolio that matches their personality and they can stick with through thick and thin will almost always do better in the long run than one who chooses a higher-returning portfolio (on paper) that they can't handle in the inevitable bad years.
Luckily, there are lots of good portfolios out there for all types of investors. Find one that meets not only your financial needs but also your emotional needs, and you'll likely be a lot happier and wealthier in the long run.
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^+1 I could /would never sleep 100% stocks but kudos to those that can.
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100% fixed income (CDs, preferred stocks, GICs) for me, not dealing with risk of equities.
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100% in stocks pre and post . Wife and I have pensions that easily cover our expenses and 4 years EF so really don't have to touch the investments. We can just let it ride.
Ok, this is interesting. Do people here generally not include cash in their allocations?
When I read things like "100% stocks" here I assume this means no emergency fund. But if you have four years of EF then isn't that part of your asset allocation?
We are currently 20% cash, 10% bonds, and 70% stocks. I DO count cash in our AA.
I agree with you however I also have the tendency to ignore my EF. Its like money that is just sitting there as a back-up.
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40% Bonds 60% Equites - Now semi FIRED as of this week.
I am thinking about switching to 25% Bonds and 75% Equites along with my paid off house and fun part time job.
Cheers
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40% Bonds 60% Equites - Now semi FIRED as of this week.
I am thinking about switching to 25% Bonds and 75% Equites along with my paid off house and fun part time job.
Cheers
will be interesting to understand why you're considering increasing equity exposure in (semi)FIRE?
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40% Bonds 60% Equites - Now semi FIRED as of this week.
I am thinking about switching to 25% Bonds and 75% Equites along with my paid off house and fun part time job.
Cheers
will be interesting to understand why you're considering increasing equity exposure in (semi)FIRE?
Well, I rode up the rise in the markets by being in 100% equites from 2010 - 2014. I then sold 40% of my holdings and put that into bonds. I know this is market timing but it worked at the time. I always thought that 25% bonds would create slightly better returns over time instead of 40%. So for the long hall - I will probably be in 25% short term bonds - but still yet to decide on this.
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40% Bonds 60% Equites - Now semi FIRED as of this week.
I am thinking about switching to 25% Bonds and 75% Equites along with my paid off house and fun part time job.
Cheers
will be interesting to understand why you're considering increasing equity exposure in (semi)FIRE?
Well, I rode up the rise in the markets by being in 100% equites from 2010 - 2014. I then sold 40% of my holdings and put that into bonds. I know this is market timing but it worked at the time. I always thought that 25% bonds would create slightly better returns over time instead of 40%. So for the long hall - I will probably be in 25% short term bonds - but still yet to decide on this.
At the risk of being burned at the stake, I feel some "gross market timing" like this is not a bad idea.. I mean, if you have a spare $100k in cash (or your bond allocation is a bit high) and the market is tanking.. well then why not invest that when the market pulls back.
I remember during the run up the DOW pulled back 330 points in one day and I was driving like a mad thing to get home before the market closed to do exactly this.. Worked out great.
of course the risk is you wait for the pullback.. then wait some more and you miss the opportunity.
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22% equities, ~10% real estate, the rest in CDs and bonds. (more CDs than bonds) I am following the rising glide path suggestion by Wade Pfau. When I resigned from my job in 1/2015 at age 44, I rec'd a good chunk of cash from the buyout of my partnership in the investment mgmt firm. (1/3 of my net worth) I couldn't stomach slugging it into the equities market at current valuations in the 7th year of a bull market. I realize I am risking a much nicer retirement 20 years from now, but I just don't want to be forced back into the job market at my age.
Hi Sweet freedom, thanks for sharing. does this mean you're looking to buy into dips over time to increase your equity exposure? I'm also struggling to convince myself to put more money in equities now at current valuations.
Yes, I am going to DCA some money this week and monthly forward...
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100% fixed income (CDs, preferred stocks, GICs) for me, not dealing with risk of equities.
That's fine, so long as you recognize that you are assuming a different risk, namely, that the buying power of your account will be eroded year upon year by inflation and you may run out of money. Here's a good real-world example of how poorly a 100% fixed income portfolio has fared over the past 20 years, as compared with other mixed portfolios:
http://www.retireearlyhomepage.com/reallife15.html
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Maybe Warren Buffett might be able to convince you? Here's a recent letter he sent to his shareholders:
Our investment results have been helped by a terrific tailwind. During the 1964-2014 period, the S&P 500 rose from 84 to 2,059, which, with reinvested dividends, generated the overall return of 11,196% shown on page 2. Concurrently, the purchasing power of the dollar declined a staggering 87%. That decrease means that it now takes $1 to buy what could be bought for 13˘ in 1965 (as measured by the Consumer Price Index).
There is an important message for investors in that disparate performance between stocks and dollars. Think back to our 2011 annual report, in which we defined investing as “the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power – after taxes have been paid on nominal gains – in the future.”
The unconventional, but inescapable, conclusion to be drawn from the past fifty years is that it has been far safer to invest in a diversified collection of American businesses than to invest in securities – Treasuries, for example – whose values have been tied to American currency. That was also true in the preceding half-century, a period including the Great Depression and two world wars. Investors should heed this history. To one degree or another it is almost certain to be repeated during the next century.
Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray.
It is true, of course, that owning equities for a day or a week or a year is far riskier (in both nominal and purchasing-power terms) than leaving funds in cash-equivalents. That is relevant to certain investors – say, investment banks – whose viability can be threatened by declines in asset prices and which might be forced to sell securities during depressed markets. Additionally, any party that might have meaningful near-term needs for funds should keep appropriate sums in Treasuries or insured bank deposits.
For the great majority of investors, however, who can – and should – invest with a multi-decade horizon, quotational declines are unimportant. Their focus should remain fixed on attaining significant gains in purchasing power over their investing lifetime. For them, a diversified equity portfolio, bought over time, will prove far less risky than dollar-based securities.
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More on time scale, this time from "Stocks for the Long Run", by Siegal.
He has stock, bond and T-bill returns from 1802-2012. He reports the following real annualised figures (I haven't included the bond figures.. they are always in between stocks and T-bills)
Over 1 year, the worst stock return he found was -38.6%, T-bills were -15.6%.
Over 2 years, the worst stock return was -31.7, T-bills -15.1
5 years, stocks worst -11.9, T-bills -8.3%
10 years, stocks worst -4.1, T-bills -5.1%.
Once you reach 20 years, stocks have always gained money, T-bills worst was still -3%.
In a sense, this is the whole story about stocks/bonds. Short term, stocks are riskier, medium-long, T-bills and bonds are riskier.
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60% Mid Cap Blend,
20% 10 Year Treasury
20% Gold
http://portfoliocharts.com/portfolio/pixel/
Very nice CAGR, low volatility and best of all, I have all these necessary investment vehicles available to me in Sweden.
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50% Mid Cap Blend,
25% 10 Year Treasury
25% Gold
http://portfoliocharts.com/portfolio/pixel/
Very nice CAGR, low volatility and best of all, I have all these necessary investment vehicles available to me in Sweden.
Hiya lordmetroid, are you a Swede? is there any reason that you have essentially 100% of your FIRE investment based denominated in USD with no home bias? i'm also curious about your considerations of FX risk since your living expenses are in Krona.
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Yes, I am going to DCA some money this week and monthly forward...
all the best and stay the course.. huge dip so far in Jan..
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Hiya lordmetroid, are you a Swede? is there any reason that you have essentially 100% of your FIRE investment based denominated in USD with no home bias? i'm also curious about your considerations of FX risk since your living expenses are in Krona.
Sure am a Swede and of course I use swedish investment vehicles, except for gold as gold is always evaluated in USD anyways.
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I haven't left work yet, but I'm right around my FI baseline. I'm a little older (48) and I can't bear the thought of seeing my nest egg drop drastically so I'm at 75/25. I include in my "25" the equity I have in a rental property. Would love to know people's thoughts on that.
However, now that I have my baseline FI I feel like I can take on more risk going forward. My plan is to invest in any additional amounts in 100% equities and/or pay off rental property from here on out. I feel like the equity path is kind of like what Wade Pfau has talked about.
I have no idea how much money I'll earn between here & death and I'm not much of a math guy, but this feels pretty good to me.
Thoughts?
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Hiya lordmetroid, are you a Swede? is there any reason that you have essentially 100% of your FIRE investment based denominated in USD with no home bias? i'm also curious about your considerations of FX risk since your living expenses are in Krona.
Sure am a Swede and of course I use swedish investment vehicles, except for gold as gold is always evaluated in USD anyways.
ah ok. i was asking because you were using the portfoliocharts which models returns based on vanguard mutual funds (http://portfoliocharts.com/about-the-assets/) that are US based. that was why i assumed you had all investments in the US stock market for 50% Mid Cap Blend and US T-bills for 25% 10 Year Treasury.