Fixed Income Allocations

[Jax]

I posted my questions under the "Other Topics' sections and received some good responses (thank you).
Original questions were:
"Do you have a benchmark/indicator (Dow, S&P, NASDAQ) or others that would guide you to adjust your porfolio accordingly?
2. As retirees (I'm ER), do you rely most on a) dividends b) equity appreciation c) bond income d) others?"

Trumpeting_angel suggested that I started a thread for my questions here for some additional comments/suggestions.

Perhaps some background to provide perspective to my questions? For most of my working life, my portfolio has been primarily approximately 90/10 equity/FI allocations. A few months ago, a work related situation enabled me to increase my portfolio significantly. My porfolio became 45/3/52 equity/bond/cash. With the extra cash providing a cushion to living expenses, I intended to take a few months off and then perhaps find a low stressed/low paying job for a year or two before rejoining the rat race. I received some free portfolio analysis from advisors who wanted my money and they were all telling me that I can live off this amount of money (provided that I invested in their products ). Anyway, I wasn't interested in their products but was interested to hear the assessment.

After some research and number crunchings, I concluded that I can live comfortably with 3% withdrawal in good time and can really tighten to 1.5% in lean time if I have to do so. I'm planning on a target allocations of 45/45/10 equity/FI/cash from today's 45/3/52. Being new to living off my portfolio and fixed income investing, I'm taking my time to research and learn and also the current rising rate environment that is not rising also factors into the indecisiveness.
I'm entitled to a pension from an established company in 19 years and SS in 21/24 years that would more than cover my living expenses but I'm not including any of it in my calculations other than taking comfort in one or two more potential sources of income in the future. So planning on managing my portfolio more closely and also allocating the cash to higher yielding FI instruments were the reasons for my original questions. Thanks for any comments/suggestions that you care to provide.

 

[trumpeting_angel]

Well, hell, Jax, this should teach you not to listen to me!

I dunno, maybe they said all they had to say on that other post. I just thought you might get a better response with a thread of its own. As you might recall, I'm not qualified to offer any opinion on this at all, so I can't help.

Don't give up on this group, though. When they're not busy talking about Porsches, politics, and asset allocation, they have some great ideas.

Anne

 

[ESRBob]

Jax,
Congrats on your windfall, and welcome to ER.
Plenty of advice here for the new ER, and the financial part may be the least of your concerns over time.

I use roughly a 40% equity, 40% FI and 20% "Other" split, with other being a blend of venture/private equity, commodities, oil&gas, market neutral hedge funds and real estate. Goal is to get things that don't correlate with the other broad categories. Domestic Equity and FI can seem like Tweedle-Dee and Tweedle-Dum some years. (Sort-of different but substantially the same at the end of the day)

For the FI, I use mostly all funds from Vanguard and DFA, with just the short term (2 year) and medium term (5 year), and a blend of domestic and international.

I do not, however, think of living off dividends or interest any more. (Maybe because I am a 4% SWR guy and not a 3% or indeed 1.5% -- congratulations!)

Instead, I just asset rebalance once or twice a year, draw the money out of wherever it is convenient (or pump up the short term FI at the beginning of the year or half-year period and draw it off, almost as if it isn't in the asset allocation pool, over the course of the year)

I am selling what makes sense to sell from a tax p.o.v.-- appreciated assets for long term capital gains or whatever, based on the rebalancing and tax efficiency, not based on 'spending dividends or interest'.

In fairness, most of the funds throw off some cash for the long term capital gains or dividends, which you have the option to reinvest, and so some of the funds are set up to not reinvest, but to funnel that into a cash account, since the money is taxed anyway. This is mostly for convenience and not part of a plan to 'spend dividends', as it would not be enough in any case by itself.

Hope this helps, and good luck in ER! You can see some of my earlier posts for free advice on the benefits of fun part time work to keep yourself sane, but for now, take a sabbatical and enjoy!

ESRBob (S for 'Semi'-retired!)

 

[unclemick]

Well I've always been a fan (not always in practice) of keeping it simple:

Buy one fund out of the can: one of the Vanguard Target Retirement Series with a current SEC yield above 3% - or be a sinful non indexer and buy Vanguard Wellesley.

Relax, read, decide what horse you want to ride in ER. You'll find from reading forum posts - a ka-zillion ways ER's can be successful.

 

[Familyretired]

I agree with the adage of keeping it simple.

After countless hours of analysis and small trials - considering it a occupation - ie look how much I save if I get rid of the "mutual funds" and "wrap manager" fees - I finally came to the conclusion that keeping the majority of my cash in the Wellesley fund (60% bonds/40% stock) made more sense than anything else. This way I can keep a bit in stocks, ETFs, etc. to play without worrying about overall asset allocations.

As an example - if your target allocation is 50/50. 80% goes into the fund and you play with 20%. If your equity allocation is 60% - you get to play with a lot more (which is useful if you have some non-liquid non-standard equity like stock options or real estate holdings).

Of course - now I'm spending my time trying to figure out what to do with the excess time I spent doing financial analysis and managing the money!