So I have been noodling and running some different "what if" models as I tentatively plan to launch RE at the end of 2019 (age 55). Mathematically, I have personally settled in on a 60/40 AA based on what I believe to be my sweet spot and for now, plan on riding that through RE until/if I discover a better mousetrap. Additionally, I have bought into the Total Return philosophy with plans to rebalance every year. While naturally dividends/interest will first fill my yearly expense bucket, I anticipate the balance to come from annual rebalancing. I have run some simple models using simple stock/bond mutual funds over 10 - 15 yr periods purposely including the great recession to get a sense of where my overall balances would fall year after year before and after rebalancing. I did this to get a sense of my risk tolerance as well as see how the balances recovered and how soon. Interestingly, while the balances from year to year were volatile, particularly during the great recession, the ending balance was above where I started the analysis as of the end of 2017. While this gives me some confidence of my strategy (at least using this snapshot in time), it has me wondering if a combination bucket strategy would 1) give me/most people a better sleep at night during significant down markets and 2) close to the same ending balance?
Assume for a min you are 60/40 and you buy into the 4% rule (what I do). Your 40% effectively covers 10 yrs of expenses. Using a hybrid bucket strategy, if equities crap out for 3, 5, 7, God forbid 10 years, you would live out of your 40% and just let your equities ride. There is a part of me that says I might be able to make more peace with this strategy as it may make me feel like I have my 10 yrs of living expenses "safe" and therefore basically ignore any extended downturn in equities. Alternatively, if I stay as a Total Return purist, I will probably end up buying more equities during rebalancing in certain years which will further deplete my "safe" money. Again, my analysis proves this works, but just a little more volatile.
Anyone follow my drift here? Did any of you great recession RE-ed folks who follow a Total Return approach end up doing a hybrid bucket??
Assume for a min you are 60/40 and you buy into the 4% rule (what I do). Your 40% effectively covers 10 yrs of expenses. Using a hybrid bucket strategy, if equities crap out for 3, 5, 7, God forbid 10 years, you would live out of your 40% and just let your equities ride. There is a part of me that says I might be able to make more peace with this strategy as it may make me feel like I have my 10 yrs of living expenses "safe" and therefore basically ignore any extended downturn in equities. Alternatively, if I stay as a Total Return purist, I will probably end up buying more equities during rebalancing in certain years which will further deplete my "safe" money. Again, my analysis proves this works, but just a little more volatile.
Anyone follow my drift here? Did any of you great recession RE-ed folks who follow a Total Return approach end up doing a hybrid bucket??