Reading an older sticky thread on the Boglehead forum that is interesting..Came across this statement by Grogs in a discussion on the market sharp downturn in 2011
That's where asset allocation comes in. Let's say you're just hitting retirement, and you have $1MM saved up, split equally between stocks and bonds. If the stock market drops by 50%, your AA is now 67% bonds and 33% stocks. You would sell bonds until you AA was back down to 50/50. If doing a 4% SWR, that would be about 6.25 years of selling bonds. Hopefully the stocks recover before then, and you can rebalance back to 50/50. If it's "really ugly" and stocks are still down 50% after 6+ years, then sure, you might have to start selling at a big loss.
I'm recently RE and haven't experienced a bear market yet .. is this rebalancing strategy for taking distributions on target for inevitable down years?
That's where asset allocation comes in. Let's say you're just hitting retirement, and you have $1MM saved up, split equally between stocks and bonds. If the stock market drops by 50%, your AA is now 67% bonds and 33% stocks. You would sell bonds until you AA was back down to 50/50. If doing a 4% SWR, that would be about 6.25 years of selling bonds. Hopefully the stocks recover before then, and you can rebalance back to 50/50. If it's "really ugly" and stocks are still down 50% after 6+ years, then sure, you might have to start selling at a big loss.
I'm recently RE and haven't experienced a bear market yet .. is this rebalancing strategy for taking distributions on target for inevitable down years?