ILikeStarTrek
Recycles dryer sheets
- Joined
- Nov 4, 2017
- Messages
- 107
I've read various articles which basically tend to give a similar rule of thumb, which says that for retirement assets, one should have about 60% stocks, 35% bonds, 5% cash. I'm not asking about tweaks to this formula if someone thinks that one or two of these percentages should be 5% higher or lower; but just at a rule-of-thumb level, this is what I perceive to be the majority recommendation.
The general idea I've seen behind this is, stocks have a higher rate of return than bonds over time, so one wants a higher percentage of one's assets in stocks. However, because of the sequence-of-return risk of a stock market crash early in one's retirement, one should have some bonds which will give a guaranteed yield. This protects one's assets from going down too much in a stock market crash, since (again as a rule of thumb) bonds don't tend to fall at the same time as stocks, so it's a way of diversifying one's assets.
However, I believe that most typical retirees have most or all their income-producing assets in monetary funds (stocks/bonds/cash). In my case, I have over 50% of my overall income producing assets in real estate rentals.
The following numbers are round numbers which tend to describe my situation. Let's say I have $1 million in monetary assets and $1.1 million net value in real estate rental assets. Using a 3% withdrawal rate on the monetary assets, let's say I plan to start drawing out $30k/yr from that, and my real estate rentals are reliably bringing in $35k/yr income (with an inflation rate growth in both net value and rental rates). For an overall retirement income of $65k/yr.
My question is, do I still need a 60/35/5% split to diversify my $1 million in monetary assets? Or do my real estate rentals give me all the diversification I need for asset and income protection? If stocks fall in value, it affects less than half of my overall retirement assets and income. If I were to diversify my monetary funds using the 60/35/5 split, then $600k would be in stocks, which would actually be less than 30% of my overall retirement assets. I don't see why I would need to do that. It seems to me that I already have enough asset diversification and I should keep most of my monetary funds in stocks to get the higher long-term rate of return.
I'm thinking I want to keep a 90/10% or 95/5% split for stocks/cash. I don't see why I need any bonds since it seems like the guaranteed yields it is supposed to bring is for me being substituted by reliable real estate rental income.
I look forward to seeing what the financial gurus (or others, even if you don't consider yourself a guru ) on this site have to say in considering my situation.
The general idea I've seen behind this is, stocks have a higher rate of return than bonds over time, so one wants a higher percentage of one's assets in stocks. However, because of the sequence-of-return risk of a stock market crash early in one's retirement, one should have some bonds which will give a guaranteed yield. This protects one's assets from going down too much in a stock market crash, since (again as a rule of thumb) bonds don't tend to fall at the same time as stocks, so it's a way of diversifying one's assets.
However, I believe that most typical retirees have most or all their income-producing assets in monetary funds (stocks/bonds/cash). In my case, I have over 50% of my overall income producing assets in real estate rentals.
The following numbers are round numbers which tend to describe my situation. Let's say I have $1 million in monetary assets and $1.1 million net value in real estate rental assets. Using a 3% withdrawal rate on the monetary assets, let's say I plan to start drawing out $30k/yr from that, and my real estate rentals are reliably bringing in $35k/yr income (with an inflation rate growth in both net value and rental rates). For an overall retirement income of $65k/yr.
My question is, do I still need a 60/35/5% split to diversify my $1 million in monetary assets? Or do my real estate rentals give me all the diversification I need for asset and income protection? If stocks fall in value, it affects less than half of my overall retirement assets and income. If I were to diversify my monetary funds using the 60/35/5 split, then $600k would be in stocks, which would actually be less than 30% of my overall retirement assets. I don't see why I would need to do that. It seems to me that I already have enough asset diversification and I should keep most of my monetary funds in stocks to get the higher long-term rate of return.
I'm thinking I want to keep a 90/10% or 95/5% split for stocks/cash. I don't see why I need any bonds since it seems like the guaranteed yields it is supposed to bring is for me being substituted by reliable real estate rental income.
I look forward to seeing what the financial gurus (or others, even if you don't consider yourself a guru ) on this site have to say in considering my situation.