OK, I exagerate.
However, based on historical results, it is undeniable that over the long-term, a 100% stock portfolio will provide the largest returns. It is widely accepted that this is also the most likely outcome for long-term future market performance.
Some bonds are required in the portfolio during the withdrawal phase (and during the run-up to the start of the withdrawal phase) to ensure that the portfolio is not excessively drawn down if a market downturn occurs. This is most critical if a market crash occurs immediately after retirement.
However, statistically speaking, the most likely outcome of a conservative SWR (say 3.5% to 4.5%) is a portfolio that grows significantly faster than inflation. In this case, the withdrawal rate will drop with time. One possibility in this situation is to adjust your withdrawals upward and enjoy a higher standard of living. However, this will not appeal to many FIRE’d who have moderate needs/taste. It seems to me that an alternative action in this event is to decrease your bond exposure, since your chances of fatally drawing down your portfolio is much less in this situation, say for example if your WR has dropped to 2.5%.
The question here; at what WR during the withdrawal phase would you be willing to move to a 100% equity portfolio? Alternatively, how many years of living expenses would your need in bonds before you would leave the remainder of your portfolio in 100% equities? Alternatively, would you never do this and always maintain some specified equity/bond ratio?
Personally, I believe that once I have 10 years of living expenses in bonds, it is safe to leave the remainder of my portfolio 100% in equities, regardless of the overall equity/bond ratio. The logic here is that a downturn is unlikely to last longer than 10 years, and if it does, the additional length is very unlikely to dangerously deplete your portfolio. This corresponds to a 40% bond allocation at a 4% SWR (which is what most people would advocate anyway) and a 20% bond allocation at a 2% SWR.
I should be honest here and admit that at the current time I only have 16% of my assets in cash/bonds, which corresponds to 5.5 times my basic living expenses (food, clothing, shelter and transportation at current levels). Even worse, I only had about 5% prior to rebalancing at the end of the year. OTOH, I am 5 years out from retirement and expect to have a larger total portfolio when I retire.
However, based on historical results, it is undeniable that over the long-term, a 100% stock portfolio will provide the largest returns. It is widely accepted that this is also the most likely outcome for long-term future market performance.
Some bonds are required in the portfolio during the withdrawal phase (and during the run-up to the start of the withdrawal phase) to ensure that the portfolio is not excessively drawn down if a market downturn occurs. This is most critical if a market crash occurs immediately after retirement.
However, statistically speaking, the most likely outcome of a conservative SWR (say 3.5% to 4.5%) is a portfolio that grows significantly faster than inflation. In this case, the withdrawal rate will drop with time. One possibility in this situation is to adjust your withdrawals upward and enjoy a higher standard of living. However, this will not appeal to many FIRE’d who have moderate needs/taste. It seems to me that an alternative action in this event is to decrease your bond exposure, since your chances of fatally drawing down your portfolio is much less in this situation, say for example if your WR has dropped to 2.5%.
The question here; at what WR during the withdrawal phase would you be willing to move to a 100% equity portfolio? Alternatively, how many years of living expenses would your need in bonds before you would leave the remainder of your portfolio in 100% equities? Alternatively, would you never do this and always maintain some specified equity/bond ratio?
Personally, I believe that once I have 10 years of living expenses in bonds, it is safe to leave the remainder of my portfolio 100% in equities, regardless of the overall equity/bond ratio. The logic here is that a downturn is unlikely to last longer than 10 years, and if it does, the additional length is very unlikely to dangerously deplete your portfolio. This corresponds to a 40% bond allocation at a 4% SWR (which is what most people would advocate anyway) and a 20% bond allocation at a 2% SWR.
I should be honest here and admit that at the current time I only have 16% of my assets in cash/bonds, which corresponds to 5.5 times my basic living expenses (food, clothing, shelter and transportation at current levels). Even worse, I only had about 5% prior to rebalancing at the end of the year. OTOH, I am 5 years out from retirement and expect to have a larger total portfolio when I retire.