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Old 09-30-2021, 05:12 AM   #21
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Originally Posted by freedomatlast View Post
I have been retired for a couple of years and while I still maintain a relatively high allocation of stock, I also have several years of expenses in cash stashed to be able to ride out a potential downturn in the stock market, so I won't have to sell equities at a loss. History says this should work. Time will tell.
Ditto
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Old 09-30-2021, 05:31 AM   #22
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Originally Posted by freedomatlast View Post
I have been retired for a couple of years and while I still maintain a relatively high allocation of stock, I also have several years of expenses in cash stashed to be able to ride out a potential downturn in the stock market, so I won't have to sell equities at a loss. History says this should work. Time will tell.
I like your strategy and history tested plan. I also have more then several years in cash to survive a long drawn out down time. I hope history is right.
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Old 10-02-2021, 03:08 PM   #23
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Just come up with an allocation that lets you sleep well at night.
I have reduced my AA (in stages) from 84% equities a few years before RE to 54% a few years after. I should say that I am over funded and have done this in the face of the rising market over that period.
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Old 10-03-2021, 10:09 PM   #24
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My investment philosophy has been to keep 2 years of income in bonds. That is because the average recession lasts around 18 months. And then keep the rest in stocks. I like to play the market a little so I keep around 80% in etfs and play around with individual stocks with the rest. But like others have said, it is what allows you to sleep at night.
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Old 10-04-2021, 03:33 PM   #25
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Investing is one area of life where, fortunately and ironically, less-is-more and it pays handsomely to KEEP IT SIMPLE. Here’s an excellent, easy to understand little book that I wish existed 30 years ago:

“Twenty benefits from the three-fund total market index portfolio.

The Bogleheads’ Guide to The Three-Fund Portfolio describes the most popular portfolio on the Bogleheads forum. This all-indexed portfolio contains over 15,000 worldwide securities, in just three easily-managed funds, that has outperformed the vast majority of both professional and amateur investors.

If you are a new investor, or an experienced investor who wants to simplify and improve your portfolio, The Bogleheads’ Guide to The Three-Fund Portfolio is a short, easy-to-read guide to show you how.

https://www.amazon.com/dp/1119487331...RB4QM3J3M33NJB
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Old 10-08-2021, 03:30 PM   #26
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Hello everyone,
So I am around 7 years out I am thinking. At present, I have 1.4mil in retirement accounts. Goal is to hit 3mil by then. Should be 50/50 Roth and Traditional 401k. A bit ambitious, but we will see.
So at the moment, I am almost 100% stocks. I fully understand that the market can tank (hopefully now and not years later). So after I retire, do I go for super safe, and just try to get that 4% return, or do I stay the course I have now, or maybe split the difference? I worry about hitting that huge market downturn at exactly the wrong time. The first few years of retirement.
Your goal of 3 million could also be only 800,000 if the market tanks your 100 pct stock portfolio.
You have no way of knowing what you will have 7 years from now with your current allocation. If I was you I would be more worried about the next 7 years than you seem to be.
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Old 10-08-2021, 03:41 PM   #27
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Originally Posted by freedomatlast View Post
I have been retired for a couple of years and while I still maintain a relatively high allocation of stock, I also have several years of expenses in cash stashed to be able to ride out a potential downturn in the stock market, so I won't have to sell equities at a loss. History says this should work. Time will tell.
Agree.



OP, you have 7 years to start building your cash cushion. I understand you are giving up on market returns (or potential market returns) holding cash, but life is about tradeoffs.

I started focusing on my cash cushion about 5 years out, with the goal of having 5 years of retirement expenses saved. It has worked out 3 years into it. It was not perfect, and I overestimated my retirement expenses (some due to good fortune, some due to the pandemic) so my cash will last a lot longer than planned... but I am fine with this, and can choose to start putting any "excess" back into the market as I desire.
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Old 10-08-2021, 03:48 PM   #28
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What you are talking about is Sequence of Returns Risk, fondly jargonized here as SORR. A search will bury you in threads to read.

Nobody knows what's right for you. For us, the strategy was to stay nearly 100% in stocks until maybe a couple of years before retirement, then to move enough money into fixed income that we could live for several years without selling stocks if there was a big downturn. Most people here talk about that as an asset allocation, often around 50/50 but the allocation depends critically on each person's assets, goals, and spend rate. Another way to talk about it is to visualize "buckets" where the first bucket is what gets tapped in a down market. I think both views are useful, but a little searching here will find heated debate.

Another consideration is inflation. Recently calm inflation has, IMO, lulled people into not worrying too much about it. Look back around 1980 +/- to see how exciting it can get, though. Our strategy there is to hold a good bit of FI in TIPS, viewing the yield penalty as the cost of our inflation insurance. We are definitely not with the mainstream on this.

You will get generally good advice here, but remember that it is coming from people who know nothing about you, your goals, your priorities, and your risk tolerance. On the latter subject, try to remember that volatility is not risk and that every single market downturn so far has been followed by a recovery. So the risk is not a permanent loss of money; it is having to sell equity during the downturn.
This is one of the smartest, spot-on responses on this topic I have yet read. Could not agree more with Mr. Shooter.
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Old 10-08-2021, 07:40 PM   #29
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In March 2020, I was at T-2 months to FIRE, and was at 95% equities. I returned from a month-long vacation, and had lost $1M out of $3M due to the COVID-19 world crisis. My AA allowed great losses that effectively resulted in me working another year. If I'd been more conservative (and had held 3 years of expenses in cash), I wouldn't have had to delay. As it turned out, it wasn't that bad, as I worked from home, sold our condo and bought a house, moving into my FIRE home prior to RE. All of the prior losses have been made up, and then some.

It can happen...so if you have a firm date in mind that's relatively close in terms of 1-3 years, rather than OMY syndrome, then I'd suggest moving to an AA that you can tolerate, and determine how much of a loss you're able to stomach and still RE. Best wishes!
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Old 10-08-2021, 08:11 PM   #30
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During a crash or a bear market, your equities investment may lose liquidity because you do not want to "sell low". (Remember to buy low and sell high). You can look up the historical duration of crashes and bear markets and the recovery time on the internet to determine how much liquidity that you need for a rainy day fund...which will suit your personal risk tolerance.

For example, if you feel comfortable with 5 years of liquidity to cover most of the historical crashes and bear markets and recovery, and your yearly expenses are $50,000 per year in retirement, then you should have $250K of conservative liquid assets in cash, bonds or treasuries that can hold you over until your equities recover.

Assuming you have a $1M portfolio, then this implies an AA of 75% equities and 25% conservative cash/bonds/treasuries.

Here is your dilemma: During a bull market, corporate bonds earns more than cash and treasuries while cash and treasuries do better during a bear market. Too much cash and treasuries hurts your performance during a bull market but does well in a bear market.

Everyone should have a safety net. What type of safety net is up to you because everyone's risk tolerances are different.
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Old 10-08-2021, 08:54 PM   #31
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Regarding inflation: Bonds provide a hedge against a crash or bear market but does NOT help much during inflation.

I saw inflation coming when the federal government started to print money like crazy so I invested a lot of money in VCMDX which involve commodities and derivatives and is designed specifically as a hedge against inflation. It earned 47% (1 year performance) so I will be selling soon because I expect energy prices to drop and VCMDX involves 35% energy commodities.

During inflation, commodities are where you want to be...because prices of commodities rises first.
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Old 10-09-2021, 07:01 AM   #32
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@armor99 I would run the playbook that got you (will get you) to your $3m goal. High equity allocation and several years’ worth of cash. Done. That’s my plan.

Most mainstream retirement planning ideas are hyperconservative. Financial planners and investment companies don’t want your phone calls putting in panic selling orders during volatile periods. So they create “safe” and “stable” investment vehicles which are in their own best interests, and not so much in the client’s.


High equity allocation and several years of cash allows significant estate opportunities for the next generation if that’s on your radar. If it’s not, it gives you lots of money to figure out what to do with.
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Old 10-12-2021, 04:39 AM   #33
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... and glide to that allocation between now and retirement.
Read Kitces article on glide paths - it goes against conventional wisdom but has numbers to back it.
https://www.kitces.com/blog/should-e...tually-better/

I'm in my early 60s, have been retired for 13 years and have maintained a 60/40 stock/bond allocation through this time. Before ER, I was at 80/20
That's a great article and here's a key snippet:

"...notably, the truly dire situations are not merely severe market crashes that occur shortly after retirement, but instead the extended periods of "merely mediocre" returns that last for more than a decade, which are far too long to "wait out" just using some cash and intermediate bond buckets."
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Old 10-12-2021, 10:54 AM   #34
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That's a great article and here's a key snippet:

"...notably, the truly dire situations are not merely severe market crashes that occur shortly after retirement, but instead the extended periods of "merely mediocre" returns that last for more than a decade, which are far too long to "wait out" just using some cash and intermediate bond buckets."
No 'bond tent' for me...I'm using the 'cash bucket' (note: never refilled once depleted) approach here:

https://earlyretirementnow.com/2018/...ibility-myths/
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Old 10-12-2021, 12:24 PM   #35
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That's a great article and here's a key snippet:

"...notably, the truly dire situations are not merely severe market crashes that occur shortly after retirement, but instead the extended periods of "merely mediocre" returns that last for more than a decade, which are far too long to "wait out" just using some cash and intermediate bond buckets."
Sure. There are always hypotheticals where the greatest scheme in the world doesn't work well. We all have to evaluate for ourselves the probability of hypotheticals and make decisions on what to do, if anything. Probably a few people on La Palma are now wishing that they had planned a little differently, but to plan for every possible disaster is impossible.
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Old 10-12-2021, 12:55 PM   #36
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This is one of the smartest, spot-on responses on this topic I have yet read. Could not agree more with Mr. Shooter.
I'm reminded that the NYTimes refers to singer Meatloaf as "Mr. Loaf".
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