I got to thinking about asset allocation (equity vs fixed income) and what ratio I am comfortable with. I'm thinking about three scenarios and assumptions:
If you use the common 100-age rule (Age 60 should be 40-60 equities-fixed_income, etc) you should start adjusting your asset allocation to match some comfortable ratio as conventional wisdom says you don't have time to make it all back in the event of a market crash.
Let's say you define FI as $2million. 2 times would be $4million, 4 times would be $8million, etc.
I believe at 1xFI or $2million I should be 40-60 at age 60, no argument there.
What about 2xFI or 4xFI? I feel I can afford to take more risk if I have $8million vs if I have $2million as long as I'm comfortable with having $2million in the event of a market crash. My feeling is I'm OK with 40-60 with the first $2million and 0-100 with the remaining $6million something like 10-90 (fixed income to equities) assuming I have $8million.
Is this thinking flawed? I do believe in equities as it is the reason I have FI now but how much optimism is too much and is it reckless to maintain a 10-90 asset allocation over 60?
- 1-times FI ($2million)
- 2-times FI ($4million)
- 4-times FI ($8million or more)
If you use the common 100-age rule (Age 60 should be 40-60 equities-fixed_income, etc) you should start adjusting your asset allocation to match some comfortable ratio as conventional wisdom says you don't have time to make it all back in the event of a market crash.
Let's say you define FI as $2million. 2 times would be $4million, 4 times would be $8million, etc.
I believe at 1xFI or $2million I should be 40-60 at age 60, no argument there.
What about 2xFI or 4xFI? I feel I can afford to take more risk if I have $8million vs if I have $2million as long as I'm comfortable with having $2million in the event of a market crash. My feeling is I'm OK with 40-60 with the first $2million and 0-100 with the remaining $6million something like 10-90 (fixed income to equities) assuming I have $8million.
Is this thinking flawed? I do believe in equities as it is the reason I have FI now but how much optimism is too much and is it reckless to maintain a 10-90 asset allocation over 60?