Sliding 25/75.

[TheFIREman]

Here's mine:

I would like to find out what investment strategies people are looking into. We may need another forum for this. I am looking into a "sliding" 25/75 fixed income/equity portfolio. The equity portion will be a mix of small-cap value/international/total market while the fixed income will consist of TIPS/Treasuries (maybe)/CDs/cash. By sliding, I mean I am going to increase my Fixed Income holding proportionally as I get older.

What's yours?

 

[friendlygirl]

How are you going to split up the different portions into their asset allocations (i.e., how are you going to decide how much of the equity portion should be total market or international or small cap)? Are you going to choose individual stocks, or look for good mutual funds or what? I would like to understand how people choose and set up their portfolios, besides the basic Coach potato. (I figure that even if I don't have the time or inclination to pick individual stocks right now, there is always time for that to change.)

TIA,
fg

 

[TheFIREman]

The equity portion will be mostly in index funds or ETFs. I will keep a small (<5%) portion to invest in individual stocks. After working for a decade in the financial industry, I have first hand knowledge: YOU CAN'T BEAT THE MARKET.

The fixed income portion is currently a mix of cash, govvies and (soon) corp bond funds.

I am a smallcap value fan and will probably make this the major portion of my equity holding (half US half Canada). International exposure will come in the form of an emerging market fund and that is speculative so only about 5-10% total portfolio value. I may add some midcaps soon too. Maybe 10-20% to diversify.

 

[intercst]

TheFIREman writes,

I would like to find out what investment strategies people are looking into. We may need another forum for this. I am looking into a "sliding" 25/75 fixed income/equity portfolio. The equity portion will be a mix of small-cap value/international/total market while the fixed income will consist of TIPS/Treasuries (maybe)/CDs/cash. By sliding, I mean I am going to increase my Fixed Income holding proportionally as I get older.
---------------------------------------------

There is substantial research that shows that shorter pay out periods require a large fixed income allocation to reach the maximum "safe" withdrawal rate. For example, REHP study showed a 15% fixed income allocation was optimal for a 60-year pay out period rising to a 52% fixed income allocation for those with a 10 year pay out period. If your goal is to maximize your safe withdrawal as you age, then steadily increasing your fixed income allocation over time makes sense.

On the other hand, not every retiree can actually spend all the potential cash flow generated by a growing portfolio. If you retire at age 40 with a 4% withdrawal rate and find that your portfolio has grown to the point where a 1% withdrawal more than meets your needs at age 60, there is little need to load up on fixed income securities with lower returns to boost your maximum withdrawal rate. If your plan is to leave much of your estate to charity, you probably have an "infinite" pay out period, rather than the much shorter time frame that ends with your death. A higher stock allocation makes more sense for those with a "infinite" pay out period.

intercst

 

[TheFIREman]

Too true. I guess its one day at a time then. Here is hoping that a 1% withdrawal rate is more than adequate in 20 years! I will ask DW, maybe she has an idea how we can spend the other 3%

Regards

FIREman

 

[TheFIREman]

I am debating the makeup of my equity portfolio. I am now primarily cash in taxables with the following mix in non-taxables:

30% Bonds
20% International
30% Domestic Large Cap
20% Domestic Mid Cap

I am considering the following:

40% Small Cap Value
30% Large Cap Blend
10% REIT(s? do I need more than one?)
10% International (probably Europe + Japan)
10% Mid Cap Blend

With fixed income being

40% TIPS
40% 5yr Govvies
20% Money Market

The TIPS go into the non-taxable along with an appropriate amount of the equities.

Any thoughts about this allocation? I know I am a bit low in Large Caps, but I am a big fan of SCV, so I am overweighting it. A think precious metals are now overpriced, so I have ditched them (for now )

Your collective wisdom is valued.

PS I think the tags are very nice

 

[Mr._johngalt]

I semiretired in1993 and fully retired in 1998. I am now
58. I have not owned publically traded common stcosk since 1998 and would not have then except that I
had some stock options which I exercised. I would not own common stocks under any circumstances because
while I can stand a low rate of return, I can not stand
loss of principle. I am strictly in CDs, Money markets,
bonds and corporate notes, although I do own a small
company which throws off some income. If you have
accumulated enough to retire early, I would advise
avoiding common stocks like the plague.

 

[Michael]

I suppose the danger of an all bond/cd portfolio is the possibility that high inflation could erode its value significantly. Have you considered hedging against inflation with TIPS or some such?

 

[Mr._johngalt]

With my ultraconservative investments, inflation is a
risk. However, the little company that I own is
mostly into real estate. If I became worried about
inflation (assuming CD rates were not inflated also)
I would go more heavily into real estate in spite of the
lack of liquidity. I just sleep better at night. Once I saw
that I could make it until my demise without owning
common stock, I got out and never looked back.