In other words, how do young dreamers set their equity to bond/cash allocation? To put things in perspective: our retirement will be fully funded with our investments (no pensions, etc.).
In general, folks tend to list something like “your age in bonds”, “your age – 10 in bonds” etc. I find such rules of thumb are not very useful when one is planning for an early out. Similarly, one can cut exposure to equities based on “the number of working years left”. Again, this is somewhat useless in our case, since we’re not waiting for some magic age/tenure (for us, the range is 9-17 yrs to go).
So, anyone else run into this problem? How do you handle it? Do you simply follow your gut feeling? I would really appreciate to hear your thoughts and any feedback you may have on the following method!
I settled on using the percentage of current portfolio vs. final portfolio needed (in today’s $) as a trigger for asset allocation. For example, assuming you need $1MM (today’s dollars) to attain FIRE, then you could:
Obviously, the actual percentages can/should be tweaked to reflect each individual’s situation and risk tolerance.
In general, folks tend to list something like “your age in bonds”, “your age – 10 in bonds” etc. I find such rules of thumb are not very useful when one is planning for an early out. Similarly, one can cut exposure to equities based on “the number of working years left”. Again, this is somewhat useless in our case, since we’re not waiting for some magic age/tenure (for us, the range is 9-17 yrs to go).
So, anyone else run into this problem? How do you handle it? Do you simply follow your gut feeling? I would really appreciate to hear your thoughts and any feedback you may have on the following method!
I settled on using the percentage of current portfolio vs. final portfolio needed (in today’s $) as a trigger for asset allocation. For example, assuming you need $1MM (today’s dollars) to attain FIRE, then you could:
- Be 100% equities up until $100K
- Be 85% equities between $100K to $250K
- Be 75% equities between $250K to $500K
- Be 65% equities between $500K to $750K
- Be 50% equities when you reach FIRE
Obviously, the actual percentages can/should be tweaked to reflect each individual’s situation and risk tolerance.