Anybody doing five years of cash the rest in stocks or anything like that?

[FREE866]

Yes. Had to look it up, because all I could remember was the Vanguard mutual fund ticker, VGSLX. The ETF equivalent is VNQ; ER of 0.12%. Fidelity is FREL; it's got an even lower expense ratio of 0.08%.

I should note here that I am still far from retirement--even ER--so I am worried about setting up a well-diversified asset allocation that I can stick with for the next 20+ years. I'm also worried more about growth & accumulation than about capital preservation, so if any particular asset class takes a beating next month, it doesn't bother me. In fact, I'll buy more

Regarding REITs, YMMV depending on where you're at in life. A retiree, or near-retiree, would be wise to be cautious with making REIT investments; maybe 5% or so if anything.

I'm personally considering a slightly larger proportion, because bonds are likely to be a huge drag on my portfolio for the foreseeable future.

In looking at VNQ it looks like since inception in 2004 it's up ~7.5% annually. If my research is correct that is roughly half what the S and P has done over that time.



And yes, if you're 20+ years out from retirement you'd be very wise to consider 100% equity.

 

[ZachTB]

Also, for the OP @FANOFJESUS.

Sorry for getting kind of off-topic here in the replies, but you may want to read and consider this link as well, regarding sequence-of-return risk: https://www.kitces.com/blog/url-ups...eturn-risk-in-retirement-median-final-wealth/

The overarching message is that, due to asymmetries in things going up or things going down, there's a very real possibility that your portfolio will grow substantially, even after drawing on it for 30 years. And that's even without going 100% stocks! [Kitces said he used a 60/40 portfolio that was 60% large-cap stocks/40% intermediate-term bonds.]

So it's probably a mostly academic question anyway. If it helps you sleep better at night, 80/20 or 60/40 has good odds for you over the long run, and you won't need to keep quite as much cash on the sidelines. Unless you want to.

 

[ZachTB]

In looking at VNQ it looks like since inception in 2004 it's up ~7.5% annually. If my research is correct that is roughly half what the S and P has done over that time.

VGSLX goes back a little further, to November of 2001. It's yielded 9.68% since inception, according to the Vanguard webpage. From that same page, after-tax returns are just under 8%.

A quick look at the S&P 500 from Nov. 2001 to Dec. 2020 shows me a starting value of 1671 and and ending value of 3703. I plugged these values into an investment performance calculator at MoneyChimp, and got an annualized rate of return of 4.28%. This figure, of course, does not include dividends. Or taxes. And so on...

It really depends on the timeframe you're evaluating. Apparently, Paul Merriman's data stretches back to the 1970s (see the link I provided above). From that article:

From 1975 through 2006, U.S. REITs had an annualized return of 16.7% — hence their popularity in 2007. From 1975 through 2014, the figure was almost as favorable: 14.1%.

Further reading on the matter: https://www.reit.com/news/blog/mark...age-reit-returns-and-stocks-over-long-periods
^This should probably be taken with a grain of salt. Considering that this is a REIT website, it's likely that they cherry-picked a good time period for REITs. But the author states that from 1978 to 2016, REITs outperformed the Russell 3000--12.87% to 11.64%; a difference of over 1% annually.

With such multi-decade figures in mind for REITs, it would seem that REITs would make sense for a young-ish investor such as myself. I'm thinking in the neighborhood of 10-20% of one's portfolio. Maybe not quite so much for someone who's closer to retirement, or if volatility keeps that person from sleeping well at night.

But over very long periods, REITs have yielded largely comparable returns to stocks. And they don't always do well at the same time, hence why I like them for high-yield diversification.

I've found this conversation to help clarify my thinking on the matter, FREE866. So thanks!

 

[OldShooter]

VGSL ... A quick look at the S&P 500 from Nov. 2001 to Dec. 2020 shows me a starting value of 1671 and and ending value of 3703. I plugged these values into an investment performance calculator at MoneyChimp, and got an annualized rate of return of 4.28%. This figure, of course, does not include dividends. Or taxes. And so on...

With respect, all this has done is to get you a number that is not good for much of anything. Dividends are a big part of total return and dividend rates can vary significantly from portfolio to portfolio. There are S&P total return calculators available, though a bit hard to find. https://dqydj.com/sp-500-return-calculator/ seems like a reasonable one, but I would cross check its results with another calculator also claiming to include dividend reinvestment.

You can also get pretty close by researching the total return of a low-cost S&P fund, adding back the expense ratio. Sometimes this is easier.

 

[ajs56]

We keep about 4-5 years living expenses in cash/MMKT/CDs. The rest is in ETF funds, approx 90% domestic 10% Int'l.

We try to replenish the cash "bucket" before it gets down to 2-3 years, selling some ETFs when the market is strong. Works for us.

 

[TheWizard]

No, I'm not a bucketeer and don't keep investments in cash, beyond about $10k in checking.
I retired in 2013 and will continue with this concept indefinitely.
Excess retirement income from SS + pension/annuity gets reinvested in my taxable account, in stock index mutual funds or ETFs.

Now when indexes are pushing all-time highs, I do keep new investment funds in my settlement fund for a while, waiting for the eventual drop...

 

[james22]

Just retired, I've three years in cash (MM) and the rest equity.