Philosophical question regarding Asset Mix approaching "fat fire"

[wannabefire]

Interested to hear some thoughts on asset mix for those approaching, or in retirement. I realize there is no "right answer" but want to hear some perspectives. Also, I realize that "fat fire" is a relative term so I'll frame it in terms of x times expenses.

If you are in a position where you have >60x base expenses or >40x expenses with healthy travel, discretionary spend & charitable giving, do you:

1. Adjust portfolio mix to become more conservative? (you've won the game)
2. Keep doing what you've done to get here? (why change now)
3. Adjust portfolio to become even more aggressive (ability to get that 2nd home or expand travel budget, & make a bigger pile to give to heirs or charity)

Thanks for a healthy discussion for those who have "won the game" or close to it.

 

[Gumby]

We have kept the same asset mix that got us here in the first place. The only things we are doing or intend to do are consolidating our various far flung 401k, 403b, 457 accounts into our tIRA's and adjusting the location of certain holdings to be more tax efficient.

 

[pb4uski]

Either 1, 2 or 3 are all fine... whatever floats your boat. Some would advocate more aggressive investing to maximize inheritances for future heirs and others would say whatever you are most comfortable with and the heirs get whatever is leftover.

We've chosen 1... capital preservation because if something crazy happens we don't want to be a financial burden to our kids and they'll get whatever is left.

 

[Koolau]

We have tried to do 1 - become more conservative. We started at about 1/3 equities but they have crept up - and continue to do so. We adjust downward (lower equities) each balancing period, but the equities grow back faster. We're more like 40% equities now. That's still conservative enough to sleep at night.

We HAVE won the game so do not need a lot of growth - except to adapt to the rampant inflation of the past 3 years.

 

[Cassius King]

I'm not quite there yet, but my plan is to have approximately 5 years worth of cash needs in Savings/CD's. I plan to keep the asset allocation at 80/20 for the remainder.

 

[luckydude]

DW and I have enough such that rationally we know we will never outlive our money and will leave a big pile to our 2 heirs.

So, we don't care about AA. We don't care about taking on more risks for better returns, or reducing risks for capital preservation, because we know one way or another, it just won't move the needle.

So, to answer OP's question, I'll add a 4th option: Our primary concerns are simplifying our assets for ease of management and estate planning. All other considerations are secondary.

 

[SecondCor521]

I'm probably in your "option 2" camp. I kept doing what I was doing, although I have made some minor changes as my understanding of FIRE finance has grown.

I divide my portfolio into two parts.

The first part is the part I expect to live on. The amount is 25x current expenses. The AA on this part is whatever FIREcalc tells me is the maximally safe AA at 95% historically safe SWR for my life expectancy, SS benefit, and other parameters. I use 95% historically safe because that way the portfolio AA matters in FIREcalc. While this AA may change over time as my planning horizon shrinks, currently it is at 90/10.

The second part is anything above and beyond the first part. Since I expect my kids to inherit this second part in about 30 years, it is 100% low cost broadly diversified US stock index mutual funds.

Because I don't spend much, and because I've been doing something approximately like this for about 40 years, the blended average of the above two parts is currently 98.6%. I'm breaking my own rebalancing rules by being at 99.4% currently, mostly because I'm lazy and partly because I know the small difference doesn't matter much at a ~1% net WR%.

ETA: I am starting to look at both simplicity and estate tax avoidance as additional goals.

 

[marko]

We've kept our 70/30 since day one. The only exception has been a recent move to 50/50 in order to grab some easy high interest. Once the rates cool, we'll go back to 70/30.

2008 and the subsequent recovery made us very sanguine about volatility and risk. We're well beyond the "need" for more but (and maybe that's why) it's now become a game. As Rockefeller said "just a little bit more".

 

[mystang52]

We're pretty much in the "we already won the game" camp. Our pensions and S.S. meet all of our needs - and that includes vacations and bulky expenses. We're also conservative by nature, and our allocation reflects that.

 

[RetMD21]

When you have enough that any asset allocation isn't it just a matter of preferences?

 

[HI Bill]

If your investments are fully diversified, then any allocation should do at your point in the 'won the game' category. I would keep 2-3 years in cash/cash equivalent so you don't have to sell investments in a down market, but I'd keep everything else in a diversified portfolio of equities.

 

[pjigar]

We plan to do #2 when we get there. We can't do #3 because we have reasonably aggressive allocation to begin with!

 

[Midpack]

As noted above, any of the three is a viable option if you're "fat FIRE" - depends on your risk tolerance and financial legacy goals. We're at least 60x, so we could be more conservative but I'd like to grow the portfolio some to benefit family and charities. I sleep like a baby every night no matter what the market is doing - that’s what the OP needs to ask him/herself. I was 100% individual stocks until around 2000, and you can see the progression since from about 80/20 to about 50/50.

 

[HarveyS]

I'm in the #2 camp. However, with new money to invest I am more aggressive, choosing individual stocks or aggressive growth funds. While my stock/bond/cash ratio is somewhat stable, the stock portion is getting more aggressive. I have not invested in crypto, commodities, gold, etc.

 

[armor99]

Interested to hear some thoughts on asset mix for those approaching, or in retirement. I realize there is no "right answer" but want to hear some perspectives. Also, I realize that "fat fire" is a relative term so I'll frame it in terms of x times expenses.

If you are in a position where you have >60x base expenses or >40x expenses with healthy travel, discretionary spend & charitable giving, do you:

1. Adjust portfolio mix to become more conservative? (you've won the game)
2. Keep doing what you've done to get here? (why change now)
3. Adjust portfolio to become even more aggressive (ability to get that 2nd home or expand travel budget, & make a bigger pile to give to heirs or charity)

Thanks for a healthy discussion for those who have "won the game" or close to it.

You ask a very good question, and I am no expert. But I think it depends on what asset level you are at. For example, lets say you had 10mil. And you only needed 40k. year and you are fine. That is such a small portion of your portfolio to live on, that you can "afford" to be 100% equities if you want. Because the market going down, even drastically will not affect your day to day living at all.
However, lets say you needed minimum 100k/ year for expenses and your next egg was 2.5 million. So 4% is 100k. That means if there is a major market downturn for a year or two, you might really feel that.
I guess I am around 5-6 years from retirement. And a friend recently "woke up my worry monster" really bad! I was 100% equities as well. He convinced me to go to 60/40 (stocks/cash). Because for me, with this little amount of time left on my working clock, a major market downturn would really hurt for me. My goal was originally 2.5million. Its a good goal (4% = 100k/yr). But is it really worth it (for me anyway) to risk having to work more years to adapt to a huge market downturn, or should I just "limp" over the finish line with maybe 2.2 million, which will probably happen. Its a question of risk vs. reward. And how much time is still on the clock.

 

[RetiredHappy]

It's complicated. I turned my IRA into fixed income annuities, which is about as conservative as you can get. My brokerage is close to 100% equities. My husband's accounts are about 80-20. I don't think we have gotten more or less conservative. Our goal is to leave as large an estate as we can.

 

[Closet_Gamer]

We will be in a bit more of the “won the game” camp with a side helping of being able to dial back our expenses if things get bumpy.

 

[Onda]

With 100% in equities we will remain keep doing what we have done to get here?

 

[Koolau]

With 100% in equities we will remain keep doing what we have done to get here?

Have you "won the game?" If so, have you thought of moving some investments to fixed as you age? I would personally always want at least some fixed to weather any financial "storms" though YMMV.

 

[braumeister]

1. Keep doing what you've done to get here? (why change now)
2. Adjust portfolio to become even more aggressive (ability to get that 2nd home or expand travel budget, & make a bigger pile to give to heirs or charity)

I think you're the only one who can decide what your goal is, and that will inform the decision.

 

[Diogenes]

The standard retirement literature assumes an annual withdrawal rate of around 4%, maybe 3%. For this, we have copious studies on asset allocation. The answer is a matter of statistics.

For much lower withdrawal rates, essentially "any" allocation - within reason - will work. This thrusts us into the realm of psychology, not statistics. What do we want? What do we fear? What are our core values? It's highly personal and subjective... and can vary drastically even for one person, depending on evolving experiences, shocks, epiphanies.

Some people are motivated by wealth. More wealth is good! Pursuit of more wealth, is imperative. Slacking-off is reprehensible, regardless of what one has achieved. Then, an aggressive allocation makes sense. Others, are mainly driven by generating enough income. Money is merely a means to an end! Then, a more conservative allocation is merited. Loss is more hurtful, than gain is joyful; ergo, risk less.

I'm a money-driven person. Money is a scorecard. The aim isn't merely to "win the game", but to run up the score. I won't invest in flagrantly speculative things, but in the tension between equity index funds, bonds and cash, I'm resolutely on Team Equity.

 

[Koolau]

The standard retirement literature assumes an annual withdrawal rate of around 4%, maybe 3%. For this, we have copious studies on asset allocation. The answer is a matter of statistics.

For much lower withdrawal rates, essentially "any" allocation - within reason - will work. Thus thrusts us into the realm of psychology, not statistics. What do we want? What do we fear? What are our core values? It's highly personal and subjective... and can vary drastically even for one person, depending on evolving experiences, shocks, epiphanies.

Some people are motivated by wealth. More wealth is good! Pursuit of more wealth, is imperative. Slacking-off is reprehensible, regardless of what one has achieved. Then, an aggressive allocation makes sense. Others, are mainly driven by generating enough income. Money is merely a means to an end! Then, a more conservative allocation is merited. Loss is more hurtful, than gain is joyful; ergo, risk less.

I'm a money-driven person. Money is a scorecard. The aim isn't merely to "win the game", but to run up the score. I won't invest in flagrantly speculative things, but in the tension between equity index funds, bonds and cash, I'm resolutely on Team Equity.

I get your point of view. I just wonder then how you might feel if you took a 50% "bath" in the market. Would you just wait it out and maybe even buy more while everything was depressed?

I like the slower ride with less down side, but more is always better - though I do have "enough."

 

[Stormy Kromer]

Whatever you do....have fun and be generous.

 

[Diogenes]

I get your point of view. I just wonder then how you might feel if you took a 50% "bath" in the market. Would you just wait it out and maybe even buy more while everything was depressed?

I'd feel absolutely awful, but what's to be done? Suppose that I had a 50/50 allocation, so that a 50% drop in stocks (assuming that bonds held up) meant only a 25% cumulative drop. Would I feel any less bad? No, absolutely not! What is decidedly bad, is to be losing more than others, or gaining less than others. This is what's happened with any allocation to ex-US stocks. While the S&P 500 has done fantastically well, international or ex-US stocks have not. I feel downright awful about having diversified, or if you like, "diworsified", into international stocks.

Put another way, if all markets everywhere have fallen 50%, then with misery loving company, or strength in misery, or whatever - pick your nostrum - one feels less-bad. Them's the breaks, life is tough, etc. Dust-off and move on.. But suppose that "the market" has only fallen 10%, whereas my holdings are down 20%. Now that would be horrendous indeed!

 

[Dtail]

More money not the end all for me. Just be able to live my current lifestyle and perhaps increase it incrementally over the years if I wish to.