We will all ultimately retire, and most on the earlier side. While that is a big decision, I see a bigger one, and ultimately a lifelong one, of how to allocate one's nest egg. I have read here and elsewhere, that there are 2 major choices:
equities - higher returns with more risks
bonds/money market - lower returns with more safety
Up until now, I have always gone with equities (about 90%), and it has rewarded us well. Of course, it is always just paper gains/losses while you have a paycheck and do not rely on it for living expenses.
Even as I get closer to RE, it is not a major concern, but it is a leap of faith to live off a pile of money that will shrink/grow depending on the markets. We will have no pension other than SS which is a ways off. That makes it even more difficult.
Fortunately, we have saved a bit, and can live off an estimated 2.5% withdrawal, which is essentially the dividend yield currently. So even with a prolonged bear market, if dividends were not cut much, we would not have to sell into it to live.
The other option is to move more into fixed income, but that goes against my nature. Call it greed and habit. Although I am starting to come around to the thought of giving up some potential return for portfolio stability. Some market watchers see future returns in the 7-8% range, which is closer to bonds.
More than anything else I do, this can make or break our future. If the markets do give 8% over the next 30 years, we will wind up with millions and I will have happy kids (since we could never spend that much anyway). I see this as the more likely scenario, but the Japanese market is an indication that things can go wrong.
Long winded, but how are others handling their allocations?
equities - higher returns with more risks
bonds/money market - lower returns with more safety
Up until now, I have always gone with equities (about 90%), and it has rewarded us well. Of course, it is always just paper gains/losses while you have a paycheck and do not rely on it for living expenses.
Even as I get closer to RE, it is not a major concern, but it is a leap of faith to live off a pile of money that will shrink/grow depending on the markets. We will have no pension other than SS which is a ways off. That makes it even more difficult.
Fortunately, we have saved a bit, and can live off an estimated 2.5% withdrawal, which is essentially the dividend yield currently. So even with a prolonged bear market, if dividends were not cut much, we would not have to sell into it to live.
The other option is to move more into fixed income, but that goes against my nature. Call it greed and habit. Although I am starting to come around to the thought of giving up some potential return for portfolio stability. Some market watchers see future returns in the 7-8% range, which is closer to bonds.
More than anything else I do, this can make or break our future. If the markets do give 8% over the next 30 years, we will wind up with millions and I will have happy kids (since we could never spend that much anyway). I see this as the more likely scenario, but the Japanese market is an indication that things can go wrong.
Long winded, but how are others handling their allocations?