How much passive/fixed income would you need to get out of equities?

[audreyh1]

So if you are already in the position as described on fixed income then what is the point of risking volatility of some market exposure just because you have enough when it isn't necessary?



Cheers!

These are simply personal choices. You can go either way.

 

[daylatedollarshort]

In this article, from Investopedia: https://www.investopedia.com/articles/investing/081315/9-top-assets-protection-against-inflation.asp

TIPS did the best in back testing against inflation out of 9 asset classes. A 60/40 stock bond portfolio came in 7th, and Barclay's Aggregate Bond Index came in 3rd. I would be interested in seeing others post studies like this with perhaps different results on the best assets for inflation protection.

 

[audreyh1]

In this article, from Investopedia: https://www.investopedia.com/articles/investing/081315/9-top-assets-protection-against-inflation.asp

TIPS did the best in back testing against inflation out of 9 asset classes. A 60/40 stock bond portfolio came in 7th, and Barclay's Aggregate Bond Index came in 3rd. I would be interested in seeing others post studies like this with perhaps different results on the best assets for inflation protection.

We, fascinating that AGG does so wellsgainst inflation.

Most intermediate bond index funds track it.

 

[I was misinformed]

In this article, from Investopedia: https://www.investopedia.com/articles/investing/081315/9-top-assets-protection-against-inflation.asp

TIPS did the best in back testing against inflation out of 9 asset classes. A 60/40 stock bond portfolio came in 7th, and Barclay's Aggregate Bond Index came in 3rd. I would be interested in seeing others post studies like this with perhaps different results on the best assets for inflation protection.

Thanks for pointing to this interesting study.

The percentage of 12 month periods in which an asset class beat inflation is interesting, but perhaps more relevant is the chance over a longer period - 5, 10, 20 yrs.

Also even on the short-term it would be interesting to learn how each class does when the inflation rate is rising or falling.

And, of course, in reality it is harder to beat inflation when taxes are factored in

 

[OldShooter]

With absolutely no facts to back me up, I think that if we really get a dose of inflation, like two digits, TIPS will do far better than the simple arithmetic of bonds would predict.

First, Treasury will stop issuing TIPS. The rationale will be that they do not want to throw gasoline on the fire. Second, at the same time supply is constricted demand will rise. There will be panicky people who want the guaranteed inflation protection at almost any price. Hence, the price of TIPS will rise driven not only by inflation but by behavioral factors. How much? I don't know but I do expect to be selling part of our TIPS position if/when things get exciting. But my hope is that the excitement never comes.

 

[Sojourner]

How much passive/fixed income would you need to get out of equities?

In recent years I've told myself that if I could generate approximately $20K/month from fixed, passive sources, I'd be quite comfortable reducing my equity exposure to zero. Assuming something like a 3.5% return on FI investments, I would need around $7MM in a 0/100 portfolio to accomplish this. So I suppose if my investable net worth climbs gets up into the $6.5-7MM range one day, I'll have to decide whether I truly feel like it's time to stop chasing "more". If I had to say right now, I'd guess I'd still keep at least 30% in equities due to that little voice in the back of my mind greedily urging me on to the 8 digit mark.

 

[GravitySucks]

For me it wouldn't be how much, but how long. If I got 10 years or less left I might go all FI.

 

[Retch The Grate]

Since my goal is to get to a 3% withdrawal rate and then ratchet up with portfolio growth, there's no amount where I would switch to fixed income.

 

[ShokWaveRider]

How about this one then. IF your pensions, SS and other somewhat guaranteed income was $50k..... What would it be then?

 

[eytonxav]

I also subscribe to the theory if you've already one the race, why keep playing, but I suppose that could mean something between 0 - 20% equities.

 

[Dtail]

How about this one then. IF your pensions, SS and other somewhat guaranteed income was $50k..... What would it be then?

Hey, I don't see myself going under 50% equities in the near future, but that is for my portfolio and needs.
Due to your past posts, I agree with you and your philosophy. If I effectively won the game, I would stop playing.

 

[audreyh1]

When Bernstein switched to his “having won the game” point of view, he still said it was OK to invest in equities as long as you had 20 to 25 years income covered by safe fixed income type investments.

 

[HI Bill]

...what would make one comfortable enough so as not to take any additional investment risk.

A bit of an ambiguous question, as we don't know your AA (unless I missed it), but it looks like fixed income (annuities, CDs, bonds, savings accounts, ?). I took the question to mean when can you get out of equities altogether. Of course, this depends on a lot of factors (like how many times your annual expenses do you have saved up, and your age). Also, where will you put your $ that is absolutely safe? CDs? Bonds? US currency? Foreign currency?


Not sure that I ever would, unless I only had a few years to live, and was running out of money, but thought I could make it stretch. I recommended to my 81 year-old father that he remain at 60/20/20, even though he may outlive his money.

Every downturn in the markets eventually has recovered, typically within 3 to 5 years. If it's worse than that, hyper-inflation would likely have taken hold, as some catastrauphic event likely occurred, and even having 40x your annual expenses may not be enough.

 

[audreyh1]

If you’re quite elderly, it makes a world of difference whether the money is mostly invested for heirs, or if you need use of the investments to fund the rest of your life.

 

[Earl E Retyre]

What I find interesting is my observation that while most would likely agree that no one knows for sure what the future holds; the past may or may not represent the future; and everyone should choose the AA and path moving forward that they feel comfortable with given their current situation .... I find that many on this forum get extremely passionate of their AA points of view to the point of almost attacking those who act differently. In particular, that there may be a time and place for an allocation less than 30% equities.

I believe many folks (including myself) may sometimes become silent and not express any opposing views on fear of being criticized regarding their chosen AA. IMHO, this thread is quite a refreshing change and discussion.

I believe diversification of investments are important and have learned a ton from many very smart folks on this forum to which I am grateful. And, I continue to learn every day. Having said that, I believe that if everyone would state their opinions in a non-contentious manner, then we will continue to see a diversity of views which I believe is beneficial to everyone.

Respectfully,
Earl

 

[gwraigty]

How about this one then. IF your pensions, SS and other somewhat guaranteed income was $50k..... What would it be then?

I stand by my earlier answer to you.

What if your investment income alone was $50k? Or more? $70k? Same answer.

 

[NW-Bound]

I also subscribe to the theory if you've already one the race, why keep playing...

Though I spent less than 3% the last 12 months with no SS yet, I do not think I have won the race unless my WR is even lower.

And then, I do not see why I should get out of the race. It's fun, and another thing to make life interesting.

 

[MarieIG]

Though I spent less than 3% the last 12 months with no SS yet, I do not think I have won the race unless my WR is even lower.

And then, I do not see why I should get out of the race. It's fun, and another thing to make life interesting.

+1

 

[RobbieB]

I see not having equities as a major investment risk.

 

[Steeler75]

What I find interesting is my observation that while most would likely agree that no one knows for sure what the future holds; the past may or may not represent the future; and everyone should choose the AA and path moving forward that they feel comfortable with given their current situation .... I find that many on this forum get extremely passionate of their AA points of view to the point of almost attacking those who act differently. In particular, that there may be a time and place for an allocation less than 30% equities.

I believe many folks (including myself) may sometimes become silent and not express any opposing views on fear of being criticized regarding their chosen AA. IMHO, this thread is quite a refreshing change and discussion.

I believe diversification of investments are important and have learned a ton from many very smart folks on this forum to which I am grateful. And, I continue to learn every day. Having said that, I believe that if everyone would state their opinions in a non-contentious manner, then we will continue to see a diversity of views which I believe is beneficial to everyone.

Respectfully,
Earl

+1

I know with my level of “secured” funds equaling by average expenditures, I still have 40 in equities, knowing that a 50 percent interim drop would not affect my lifestyle. Truly blessed for that

 

[pjigar]

Someone commented that OP's question is not related to inflation but the fact is that fixed-income is VERY related to inflation. The fixed income amount "today" is meaningless unless it is inflation protected in the future. The highest "real interest rate" in last two decades has been 4%. The "real interest rate" have been negative for several years in the last decade.

Reference: https://en.wikipedia.org/wiki/Real_...e:Inflation-Indexed_Government_Bond_Yield.png

I would assume a "real interest rate" of -1% if I am planning to live off the fixed-income. Or you can stick with what has worked historically: add some equity to your portfolio.

If you really are "volatility challenged" then you should look for generating inflation-protected fixed income by owning some rental real estate, I-bonds at positive real coupon rate, dare I say it: annuities and such.

 

[ShokWaveRider]

Someone commented that OP's question is not related to inflation

This needs to be changed to One's PERSONAL Inflation rate, then I agree. But to base one's strategy on a GENREAL Inflation rate, for us is being over cautious.

I do not see why I should get out of the race. It's fun, and another thing to make life interesting.

For you and some others maybe, but for me it is a recipe for insomnia. Especially if folks are reasonably well off and happy with their quality of life with fixed income returns.


Also what is the difference if a couple spend say $125k a year and have $5m saved vs having $7m or even $10m. The expenditure does not change. We could have $50m at our age and our life would not really change one iota. Again we do not care about a legacy as we have no heirs.

 

[pb4uski]

IMO, if you've "won the game" then there are two extreme possibilities.

One, you can go 100% safe.... minimal if any equities... and live off of your stash and pension and SS.

Second, you can now "afford" to assume equity risk and volatility because it is long-term money and it is well established that in the long run that equities provide higher returns.

And of course, if the two extremes are ok then anything in between would be ok too.

For me, I'll probably have at least 60% equities no matter what. First, I am accepting of risk and as a long time equities investor I believe in equities.... and more importantly, whatever is left will go to our kids and charity so investing in equities will leave more for them and is what the kids would invest in given their ages.

 

[Dawg52]

For you and some others maybe, but for me it is a recipe for insomnia. Especially if folks are reasonably well off as they are.


Also what is the difference if a couple spend say $125k a year and have $5m saved vs having $7m or even $10m. The expenditure does not change. We could have $50m at our age and our life would not really change one iota. Again we do not care about a legacy as we have no heirs.

+1. But some still think that approach is risky. Which is fine. No way we will all be on the same page.

 

[eytonxav]

Though I spent less than 3% the last 12 months with no SS yet, I do not think I have won the race unless my WR is even lower.

And then, I do not see why I should get out of the race. It's fun, and another thing to make life interesting.

While I subscribe to that theory, I don't feel I've won the race either and that is why my equity position more resembles that of Wellesley.