Struggling with asset allocation as young retiree
- Thread starter they_dont_know_me_son
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Two comments:
1. If you have a long time horizon then you should run two FireCalc scenarios, each with half the time horizon. First scenario: use the current portfolio balance. Second scenario: use the lowest balance of the first. There is no science but this is what I used to do when I was dreaming to FIRE at 45. My logic was two fold: there are not enough long-duration scenarios to run and if lowest balance of the first scenarios survived then I would be OK.
2. Looking at historic data for asset allocation is questionable. The world has changed and the central banks have been doing too much financial engineering. I question if the future bond rates will ever be what the history has seen. The equity has always generated higher returns compared to bond with higher standard deviation. So if you protect your portfolio's lowest balance high enough(?), you can ride out any dips in the equity prices. I know this is all wishy washy, but I am planning to maintain 100% equity when I retire (currently we are 60% equity, 40% real estate, 0% bond). We are planning a perpetual (or intergenerational) FIRE so retirement duration is a lot longer than yours! We have settled on 3% WR with 100% equity (public and private) to maximize the absolute portfolio returns.
PS: I just noticed earlier posts already commented about FireCalc.
1. If you have a long time horizon then you should run two FireCalc scenarios, each with half the time horizon. First scenario: use the current portfolio balance. Second scenario: use the lowest balance of the first. There is no science but this is what I used to do when I was dreaming to FIRE at 45. My logic was two fold: there are not enough long-duration scenarios to run and if lowest balance of the first scenarios survived then I would be OK.
2. Looking at historic data for asset allocation is questionable. The world has changed and the central banks have been doing too much financial engineering. I question if the future bond rates will ever be what the history has seen. The equity has always generated higher returns compared to bond with higher standard deviation. So if you protect your portfolio's lowest balance high enough(?), you can ride out any dips in the equity prices. I know this is all wishy washy, but I am planning to maintain 100% equity when I retire (currently we are 60% equity, 40% real estate, 0% bond). We are planning a perpetual (or intergenerational) FIRE so retirement duration is a lot longer than yours! We have settled on 3% WR with 100% equity (public and private) to maximize the absolute portfolio returns.
PS: I just noticed earlier posts already commented about FireCalc.
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If you ever decide to hold 100% (or >70%) equity then do it slowly over the years (like 5-10 years). This will minimize SORR risk. Google "equity glidepath".
Following in particular talks about equity glide path with long duration: https://earlyretirementnow.com/2017...e-withdrawal-rates-part-19-equity-glidepaths/
Following in particular talks about equity glide path with long duration: https://earlyretirementnow.com/2017...e-withdrawal-rates-part-19-equity-glidepaths/
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pacergal
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Bolded by me
Are you saying you have enough liquid assets to support a 60 year retirement?
If so, then the rest of your investments, etc probably won't matter how you invest, but studies tend to show a higher stock will hedge inflation over time.
50/50 might be a good option for you, which is what it looks like your taxable account is.
You have to do what is comfortable for you and what your "sleep at night" number is.
For some, 0% equities is what they need, some are comfy with 100%. I have been anywhere from 90/10 to 50/50. Finally settled on about 70/30.
Also, firecalc runs a 30 year max I believe. So for longer time frames, you need to run two, as stated earlier.
Best Wishes for you and congratulations on such an early retirement!
I would echo the desire for more equities. Also the comments about running firecalc using shorter time frames- at 60 years you are severely limiting the available scenarios, so you might be getting a false sense of security as a result.
If you can have all your scenarios looking great after 30 years (124 possible firecalc cycles), it is probably a better indicator than the 94 firecalc cycles they can check in a 60 year backtest situation. (The number of available cycles drops even further - (by about half)- when I input a 7 year starting time frame, though I don’t actually understand why, as the total years are the same).
If you can have all your scenarios looking great after 30 years (124 possible firecalc cycles), it is probably a better indicator than the 94 firecalc cycles they can check in a 60 year backtest situation. (The number of available cycles drops even further - (by about half)- when I input a 7 year starting time frame, though I don’t actually understand why, as the total years are the same).
ncbill
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I'll just be doing the simpler 'never-refilled' cash bucket per the link below.
"So, for the record, let me state that this cash bucket strategy seems to work pretty well, despite my previous doubts!
It’s relatively inexpensive insurance against Sequence Risk!
Think of it as a mini-glidepath during the first few years of retirement!
And it 'only' takes the flexibility of getting to 27.5x instead of 25x annual spending!"
Cash bucket
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Yes, I remember reading about it. Thanks for clarifying. If that is what you are going then a large portion of the rest of the portfolio should be in stock in order for it to work.
almost there
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For me its hard to relax if I am invested in things with risk. So I don't.
Just my 2. Sleep like a rock. I cant really enjoy life if I am worried about investments'.
Politics, market swings, world problems etc. Just dont need the drama.
Just my nature, probably not for everyone. Was in the market about 30 years.
So much happier being out.
Just my 2. Sleep like a rock. I cant really enjoy life if I am worried about investments'.
Politics, market swings, world problems etc. Just dont need the drama.
Just my nature, probably not for everyone. Was in the market about 30 years.
So much happier being out.
WhenIsItTime
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This is what makes it such a personal choice. I hope to be retired for 40 more years. I have a <3% WR and am at 80% equities. I don't see myself ever going below 70% equities. I no longer work, but my money can keep working for me.
almost there
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After showing up here about 16 years ago on this forum, I realized most here are either heavy in the stock market, or bank heavy on a govt pension or both. None of which were an option for me. So I worked around it. Zero debt. Rental income, a small annuity and SS at 62 puts me right at 100k a year. With a 0% WR. With the $29,200 married exemption, will do 30k or so Roth conv's. a year till 73. at a 12% tax rate. Next 10 yrs. So the IRA and Roth will just continue to grow, plugging along at 3-4%.Rather than chasing 6-8%. As mentioned, its a personal pref. One size does not fit all.
concur with invest in yourself
Spot on here. 60 is too long. Invest in yourself and you will find the tools along the way to maintain and expand. Better tools will come along, no need to stand pat at this point. As Dicken's Mr. Micawber used to say, "Look about yourself".
Spot on here. 60 is too long. Invest in yourself and you will find the tools along the way to maintain and expand. Better tools will come along, no need to stand pat at this point. As Dicken's Mr. Micawber used to say, "Look about yourself".
Too much in equities and you may have too much risk of drawdowns, not enough and you have other risks such as inflation. The advise to "stay the course" is fine but I know many people that lost their jobs at the same time their portfolio was virtually wiped out (not just high equity but stocks that in hindsight were riskier than they thought). Not so easy, or in some cases even possible to "stay the course" in cases like that.
There is a good book on asset allocation available freely online here: https://mebfaber.com/wp-content/uploads/2016/04/GAA-Book-1.pdf
It looks at long term returns of stocks, bonds, and TBills as well as US vs other countries. A key point is that choosing among many well known asset allocations is less important than controlling costs. Another is country risk. With the US stock market outperforming significantly over the last 15 years or so, many hold high concentrations in the US stock market at a time that it appears to be overvalued compared to other countries (this is my point, not the book's).
Ultimately you have to decide what level of risk lets you sleep at night.
There is a good book on asset allocation available freely online here: https://mebfaber.com/wp-content/uploads/2016/04/GAA-Book-1.pdf
It looks at long term returns of stocks, bonds, and TBills as well as US vs other countries. A key point is that choosing among many well known asset allocations is less important than controlling costs. Another is country risk. With the US stock market outperforming significantly over the last 15 years or so, many hold high concentrations in the US stock market at a time that it appears to be overvalued compared to other countries (this is my point, not the book's).
Ultimately you have to decide what level of risk lets you sleep at night.
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almost there
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Side note, I would never bank on 1 or 2 sources of income. Having 3, 4 or more is a safe hedge in case one of them bites the dust. And as mentioned, predicting the future is tough. Am unable to see out the next 40 years, let alone 60. 
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W2R
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Back in 2005 I was trying to figure out a good retirement asset allocation (for me). I found Rick Ferri's book, "All about Asset Allocation" helped me to think through it. Here's the link to that book:
USGrant1962
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I like that book too. At one point Rick indicated that he was working on a revision but that hasn't come out yet. I think he said that back in 2019 or so - so perhaps a revision is no longer in the works.
