Bonds/Equity/property split rebalance on approach to FIRE

[daveneedstoknow]

Hi,
I am looking to FIRE around March next year. My current holdings split is roughly;

46% Equity (UK Allshare tracker)
46% Property (I have a single rental property with no mortgage)
8% Bonds (Mixture of government and company bonds In a managed fund charges 0.4%)

I am wondering if I should shift the balance between equities and bonds in favour of more bonds but that feels like too much shift away from potentially high growth assets when I have such a large stake already in a stable / steady income investment in the property (UK rentals are very favourable right now and my property is located in an area with both good rental and value growth potential as its about to be on the commute line to central London when a new rail station opens).

Just wondering what other people would do with this balance of equities and if you were to do a major restructuring would you do it all in one go or follow the pound cost averaging model of migration over time?

 

[pb4uski]

I assume that the property is an income property rather than your principal residence.

While I normally think of properties as more equity-like, what you describe sounds like it has attributes of both. If one considers the property to be 50/50, you would land about 70/30 which isn't a horrible place to be.

 

[SVHoper]

Hi,

I am no expert... but the way I think of it is that you want bonds (1) so you don't have to sell stock (at a low) to fund living and (2) so you can buy stock at a low... and it goes without saying - so you won't sell low.

If you can live from your rental income, then IMHO the need for bonds is much less than if you can't.

I mainly focus on reason (1) as I hope my rentals will also appreciate and I will be OK with current stock. My general plan is to use rental income to fund a 100% of baseline of a "comfortable" retirement income (pay all regular bills and short vacations but excluding funds for lengthy overseas vacations, new cars that can be delayed etc).... then keep 100% stocks.

If stocks are doing well I may sell and hold cash/bonds/CD for large planned discretionary expenditure.

In summary, perhaps think of how much $ you plan to spend from stock portfolio... without the rental it might be 3-4% and lead you to 40%+ bonds... but if 0% withdrawal, I think I can justify 0% bonds.

 

[Senator]

I have 24 rentals, I look at my rental equity portion as 100% bonds, and the income it produces like a bond dividend. That said, make sure you are realistic in counting your income.

Do not mistake self-managed property management, maintenance, or vacancy rates as profit. Nor should you mistake any deferred maintenance for profit.

You still need a bunch of short term money for emergencies. At least enough to cover all your business and personal expenses, including any rehabs, if you were vacant. For a minimum of 6+ months.

I have about 3x - 4x more in rental income that I need to live on, assuming I keep self managing and have 5% or less in vacancy and 10% or less in maintenance. So, I just figure that is like a bond fund. The rest I have in equities and some emergency money.

 

[jj]

A few points:

- welcome, from a fellow Brit

- trackers (i.e. index funds) are good, but I wouldn't want all my equities in UK stocks, diversify to international with at least a substantial %age

- 0.4% expense ratio to manage bonds? Look at the monevator.com site (a UK-based investing site which looks at low cost index investing) for cheaper alternatives

- take advantage of your ISA allowances to keep emergency fund cash/fixed income, maybe increase from 8% to 12%

- rental property in the UK pays a good return (usually) so I agree with the other posters that you can treat that income as bond-like with the usual caveats outlined nicely by Senator

- don't make any rash/huge moves, dollar (pound) cost averaging sounds good

- realistically assess your living and property expenses under various 'stress-test' scenarios

Good luck!