I’ve seen a lot of interesting thoughts about portofolios to speed up FIRE, but nothing about transforming it for retirement. Did I miss some posts or everyone is thinking to stick to the current portfolio even during retirement?
For some people the 4% rule means that they must stick to their current portfolio in order to get enough returns. This is probably against the “your age in bonds” rule (and its derivatives) since at some point you won’t get the same return. So, how are you planning to change your portfolio?
Food for thoughts : the canadian blogger from Millenial Revolution talked about it in a recent post: https://www.millennial-revolution.com/freedom/not-deplete-portfolio-retirement/
It talks about how their reached FIRE, and then on the first year of retirement the canadian stock market was severely impacted by the oil price crash, and how they managed to limit the damages.
JCollins suggests being 100% in stocks for the wealth building phase, and then 75% stocks 25% bonds after that. In the end it depends on your tolerance of volatility.
all these tips are nothing more than guidelines, just as the “your age in bonds” rule. none of them has a better motivation than any other. Only one thing stays true: the expected return on the long term (85y-60y=25y) is highest with higher stock percentage.
so i (currently) plan to stick to my 100% stocks portfolio until i pass away. holy sh*t, that’s a long expected time! no idea how my mind set evolves!
Finally someone revealed a plan
Recently JCollins published a guest post by a retired guy who keeps almost no stocks. His reasoning is: “if you won the game, why keep playing”. On the other hand, some people say that bonds are in a huge bubble. Imagine what would happen, if it exploded. Some say, if the interest rates go back up, it’s due to happen. Others just say, it will be a mild transformation and no crash will happen on the bond market.
The central banks have been printing a lot of money out of thin air and pumping it into stock market, bond market etc. This makes it even harder to figure out what’s going on…
The “if I won, why keep playing?” argument assumes you can stop playing. Even if you get out of the stock market to go all cash (which currency?) you are still very much playing and are going to be impacted by inflation and whatever interest rates apply to your currency of choice. So it might not be sensible to keep the same asset allocation but getting completely out of stock may not be in your best interest either. Unless you have a truly ridiculously large pile of money and you can just afford to spend it all of course.
If your time horizon is relatively long (because your retired early) compared to your assets you most certainly want to keep a significant part in stocks as you are trying to live mostly off the dividends and capital gains without depleting your capital too quickly. This all comes back to figuring out your safe withdrawal rate.
Coincidentally Monevator posted an article today about the Permanent Portfolio which seems more adapted to a “wealth preservation” strategy typical of a retiree than the “growth strategy” most people are likely to benefit from before retirement: http://monevator.com/the-permanent-portfolio/
I strongly recommend you checking out EarlyRetirementNow blog and series of excellent posts on the topic.
A bit of thread necromancy here…
Looking into helping my mother and father make their savings work for them a bit during retirement.
They have ca. 50k EUR at hand, and just nearing retirement (within 1-2-3 years).
They live in Croatia, so a bit different context with taxation etc. - as far as I know there are both capital gains and dividend tax involved (and knowing Cro, not insignificant; will need to do a bit more research on this).
I would prefer to find something with low(er) risk, and thus accept lower returns, for their age.
However, their “safe” instrument during past 20-30 years, in form of savings accounts, has gone to the gutters, with the interest rates being miserable (probably not covering even the inflation).
Also reading a bit on bonds here on the forum - according to your discussions they seem to not make too much sense at the moment.
A few ideas I read so far over here:
- split the amount into cash + World ETF; e.g. 40+60%
- get some good quality stocks with decent dividends (this might not be too productive, if the above taxes are very high)
- something else?
I am also querying from them some data on their monthly expenses, so we can employ some math.
They own their apartment and a car, and unfortunately “in their time” in Croatia there were not many good options for 3rd pillars (like here today).
For the moment, they will only rely on their pensions (which should suffice to break even on the months’ budget), and whatever can come out of the cash stash above.
Thanks a lot for your input,
That’s what I’m planning to build too, something like this: Swiss Permanent Portfolio Version.
With two changes:
- Gold: besides the ETF also gold bars
- Stocks: 15% Swiss Stocks ETF and 10% Total World Stocks ETF
It depends on the country. Check inflation-adjusted returns from your home country in your home currency. It might make more sense than CHF bonds, which yield negative real returns.