Basic asset allocation questions

[hotwired]

Hi
I am currently allocated in a typical "money magazine" type way (divided among large cap growth, large cap value, short and int. term bonds, small cap growth, etc.) based on our planner's recommendations which matches most target asset allocation models I've seen. Our target date is when our assets reach 2 Million (1 right now) OR when I'm 40 years old (42 now).

I am curious though, my "innner voice" keeps suggesting making things simpler and simply assembling a diversified "income" portfolio of preferred stocks, high quality corporate bonds, reits, lps, etc. and allowing that interest/dividend to stockpile then live off 3/4 of it when we FIRE. It just seems like so much more "sure" than relying on the long term results of the S and P, etc. which can be miserable some years!! (2000-2002 not to mention the past 6 months).

Any thoughts on this strategy?? Thanks!

 

[LOL!]

An income strategy is shown to be inferior to a total return strategy: https://institutional.vanguard.com/iip/pdf/WP_TotalRet.pdf
You have to be mindful of taxes.

Also small cap growth is one of the worst asset classes, while small cap value is one of the best. You can keep things simple, but I think you would want the highest risk-adjusted return (highest efficiency) and lowest taxes on that return.

See also: http://www.early-retirement.org/forums/f28/asset-allocation-tutorial-31324-2.html#post578722 and all the useful links in that thread.

PS: Your inner voice is often wrong. See the behavioral finance book: Why Smart People Make Big Money Mistakes.