Have you made any large changes to your asset allocation? If so, how did it feel? We'd love to hear from you in the comments. Make sure you let us know if those changes were made pre- or post-retirement!

@johngill2853

2 жыл бұрын

Yes in 2016. My investment plan called for when I reach a certain plateau and portfolio size to cut my risk some. Yes I lost a little because the market went up a lot but the Peace of mind was well worth it.

@jtjacobs6003

2 жыл бұрын

Before discovering FI, I was in a Couch Potato Portfolio configuration, and was glad to be there right as the great recession hit. I was losing a lot less of my portfolio than many of my peers. Since going to FI, I've moved to 85/15 for the parts of my portfolio I control, but I have an ESOP that is 'fixed' and only changes value once a year, so it kind of ballasts the account.

@KG-oe8oo

2 жыл бұрын

I grew up in a "non investing" household so I got a late start and missed out on gains I will never recover from. My intro to investing was my 401k which was later in life. Thanks to your videos, I started looking at my net worth as a whole and I am trying to allocate to cash (above my emergency fund), CDs (I don't understand bonds you buy on the market or bond funds so I stick with my CDs earning 3.25% interest) and stocks (the majority is in my 401k with small portions in Roth IRAs) I am trying to keep my cash bucket in HYSAs, my "safe" bucket in CDs earning 3.25% (this is taxable and traditional IRAs) and my investments in my 401k and Roth IRAs. It gets confusing when you are trying to balance buckets versus taxable/tax deferred/tax free versus well, not earning enough to fill the buckets you need! My issue this year is needing to contribute to a traditional IRA to reduce my taxable income and needing it in my "safe" bucket since that bucket is light and that money already "did its job" by saving me taxes. I just don't know where to put it since I can't find CDs earning 3.25% any more! I have space for $1k to earn 3% so I just need to figure out where to put the rest.

I rebalanced from an "accumulation" portfolio to a "retirement" portfolio one year before I retired early (November 2021). Watching the stock market climb in 2021 was tough when I had a significant portion in bonds/cash. On the other hand, now that I don't have a paycheck coming in, the first few weeks of January made me appreciate that my portfolio is not as volatile as the overall market.

@TwoSidesOfFI

2 жыл бұрын

Agree...loss aversion is real! Thanks for watching. /eric

@kcfd28

2 жыл бұрын

@@TwoSidesOfFI Eric, I'm glad you have shifted away from 100% stocks. I was in the same boat for most of my career and I discovered the concept of FIRE only a couple years before RE. Come over to the dark side of RE and embrace the underperforming (but insulating) part of your portfolio. I really enjoy the videos that you guys are putting out. Keep up the great work!

Great conversation. I really like 3 years of cash to use if there’s a downturn in stocks. Then u don’t need to sell anything in that timeframe. I also love the 3 bucket strategy too! U guys rock!

Love how We're able to see Eric see a different idea than his and change his perspective right before our eyes. thanks for sharing and this content guys!

For those who say 100% stocks, are either unaware of the markets history or just bold, consider from 2000- 2010, you lost a whole decade, but a balanced fund like VWELX doubled. Now from 2010 until now, the market wins, but no one knows when the next lost decade is coming, and depending on how close you are to retirement, a more balanced portfolio makes sense. I have always used a balanced approach and at times it stings, but the sting of losing gains hurts less than ruining your retirement due to sequence of return risk.

@TwoSidesOfFI

2 жыл бұрын

Excellent points and certainly ones important to consider. Would you consider sharing your own asset allocation details? We're interested in your view of what a balanced portfolio looks like. Thanks

@mcgragor1

2 жыл бұрын

@@TwoSidesOfFI 50/50 give or take. I like balanced funds, because managers might not always beat the index on the upside, but if you research the downside, they tend to beat. S & P has averaged about 10% over the last 15 years, and based on my current fund mix, its averaged 8.5%. I hold some cash and I also trade, so its kind of a mixed bag. The key to me has been the avoidance of downside and I have tried to set up my portfolio so that if the market loses 30%, I should only be down by 15% or less. Yes, that has cost me over this last decade, but not from 2000-2010, and no one knows what this next decade is going to do, so I just stay the course.

@johngill2853

2 жыл бұрын

@@TwoSidesOfFI I'll share my portfolio 35% s&p 500, 15% extended market index 8% total international index, 7% small cap international stocks and 35% fixed income (30% Total Bond market and 5% some old I bonds)

@TwoSidesOfFI

2 жыл бұрын

@@johngill2853 Thanks for sharing! We think it's really useful to see the portfolio choices that others make. Best wishes to you.

Loved the conversation guys! This has definitely given me some thoughts in regard to my own portfolio and asset allocation. Thanks for what you do.

@TwoSidesOfFI

2 жыл бұрын

Thanks, Nick! Glad it was helpful!

Good discussions. I've watched a number of your videos over last few weeks and its been very helpful. I'm looking at retiring in next few months and despite having accumulated a good bit of wealth, I'll be 60 later this year, I'm still a bit nervous. Its an emotional rollercoaster to go through this and not all related to finances. And the discussions you both have had are not easy to have with friends/co-workers as money is not something most feel comfortable talking about. So nice to hear you 2 going over a lot of the same things I've thought about and struggled with. Looking forward to next videos. Thanks.

@TwoSidesOfFI

2 жыл бұрын

Thanks, Scott! We really appreciate your support. Congratulations on your imminent retirement! You’re absolutely right that there are so many emotions leading up to and following retiring. Best wishes to you on navigating this change.

@scottrandell4281

2 жыл бұрын

@@TwoSidesOfFI Thanks for reply. Yes, I'm looking forward to retiring, think I'll be fine, but it will be an adjustment. Just listening to your talks has made me feel more confident in what I'm doing. Easy to doubt yourself. As I said, emotional rollercoaster, but I'm mostly excited about what's to come.

I feel like I am in a similar boat as Eric where a couple of my buckets are behind. I am taking some advice from the money guy show and using new dollars to shore up those buckets instead of rebalancing. That is one of the things I love about M1 finance actually.

@TwoSidesOfFI

2 жыл бұрын

Thanks, Mike! We're both big fans of The Money Guy Show as well.

Another valuable discussion. Very much appreciate these conversations as they help me think through my situation. I'm sure I'm not alone.

@TwoSidesOfFI

2 жыл бұрын

Thanks, Jake! We appreciate the feedback and your support.

Best FI channel on KZread for sure. Thanks for all the good work!

@TwoSidesOfFI

2 жыл бұрын

You’re very kind, thank you! Thanks for your support.

Really great conversation. I see you already executed the rebalance - but for others, to achieve exposure to another asset class without having to sell, perhaps what you could do is rather than sell stocks to buy bonds, apply the breaks to buying stocks and redirect further contributions to buying bonds. I suppose in your case with a close FIRE date, maybe you don’t have enough runway left to accumulate enough bonds - but that’s what I would do to avoid the sell and buy conundrum.

There is no world where I retire before I die but still interesting to hear the different experiences and perspectives. Thanks for the conversation!

Great content guys. I enjoy your videos and perspectives. This conversation encourages my thoughts on asset allocation and risks. I am still 5-8 years from FI but tend to be more conservative in some of my investments. My plan is to become FI to the point I can cut back to less demanding work and only work 1-2 days a week around 50 til age 59 1/2. I have a similar allocation of 33/66 non q / q funds and plan to keep that allocation til my FI date. One thought on the selling in the non q funds to reduce taxes consider building a larger cash buffer where you can get your taxable income to the 0% cap gains tax rate and re allocate then. Of course this depends on market conditions at the time of re allocation. Til next time!

@TwoSidesOfFI

2 жыл бұрын

Thanks, Matthew! Best wishes to you,.

Great conversation thank you for sharing. Our portfolio got hit pretty badly due to heavy equity weightage. The way we reallocated was consolidating into fewer positions where we have more conviction. The big drop also pushed back our target by 1 year (target 2023 instead of this year) but it's indeed better to face this during accumulation phase than after we retired.

Some people fall asleep to relaxing music - I fall asleep (unsuccessfully) to Two Sides of FI. Of course this means that I have to watch each episode multiple times LOL!

The hardest part is selling some of your winners to rebalance. A skill and a tolerance I do not have.

@paulacothren3591

2 жыл бұрын

Jack Bogle did not see the need to rebalance. Do it at the end of the year if it makes you feel better, is basically what he said. Today, Vanguard Flagship PAS advisors are rebalance crusaders and will pick, pick, pick at your individual stocks. I had to terminate my PAS relationship at Vanguard and begin self-allocating when my advisor went behind my wishes and ridiculously sold one share of Google to buy in an effing bond fund in my 25 year old son's $750k beneficiary trust account, just to bring an 81/19 back to a 80/20 balance. Her defense sounded like she felt she was protecting her career. She basically fired herself. The subject of hyper-vigilant rebalancing is touchy for me.

This year... I'm 53... I sold a majority of my overseas funds (25% of portfolio) and purchased bond funds. The overseas funds have never performed well, and I wanted to reduce the risk level of my portfolio. The compound interest is really kicking in these last couple of years so things seem to be doing well for me.

I think this has been my favorite conversation to date. I'm hoping to retire in 15yrs, and up until last year, had just been maxing out my 401k and a ROTH IRA. This past year I started opening taxable brokerage accounts, and feeling overwhelmed and uncertain about how to best diversify that money. I loved the Vanguard charts that Eric shared; great way to reinforce that doing the work to save will pay off, even with a more conservative, balanced portfolio.

@TwoSidesOfFI

2 жыл бұрын

Wow, thanks so much, Delora! Very glad to learn you found this episode useful. Best wishes to you on your journey!

We're currently 100% global market weight in stocks accepting risk of delayed FIRE date. Our current plan is to retire early at an allocation of 70% stocks & 30% bonds & 2.5% withdrawal rate. This is for a ~60 year retirement. We may do a bond tent and/or move to a lower cost of living area for the first several years of retirement to mitigate sequence risk. I wonder about decreasing risk since the bulk of what will get us to FIRE is the income (65% savings rate), but we are going for fat FIRE so the last couple years of growth could be substantial.

4 years before retirement I reallocated our portfolio: 3-5 years in cash to ride out downturns (this required a lot of cash hoarding that was previously going to investment assets) and shifting from an 80/20 to a 70/30 split between equity and bonds. These changes felt good and bad. The cash felt good. The bonds felt bad.

@TwoSidesOfFI

2 жыл бұрын

We can identify with how you're feeling! It's interesting to be of two minds: sad because you know that bond allocation can't make the gains that the stocks can, and relieved that they are in place (along with the cash) to help us weather the downturns.

Great job - very useful information

@TwoSidesOfFI

2 жыл бұрын

Thanks, Joel!

You'll be saving a lot more before RE, so you can rebalance by investing that into dividend stocks and other vehicles providing income. Don't discount downturns for a chance of rebalancing. You can take advantage of downturns to sell stocks from your brokerage account at reduced capital gains taxes (because your profit is less), then use it to purchase dividend stocks / bonds. The drawback is that growth stocks have probably dropped more than dividend stocks. Downturns are also good moments to move an investment from your tax-deferred to your taxed account. (Sell X from your tax-deferred, buy the same X to your brokerage account.)

I'm in that same spot with wanting to re-allocate my taxable accounts and not incur all the capital gains taxes... I have not made any moves yet. Hit FI 4 years ago and formally retiring April 2022. good discussions!!

This was an eye opener

We haven't made any big changes to our portfolio, but we are relying on downsizing our home to provide a few years of cash. There is a little pressure on me to sell the house this year so we don't run into liquidity issues, but I've always been a little too cautious.

Great video. I’m curious to know where you decided to put your bond funds. Or will all be revealed in Part II?

@TwoSidesOfFI

2 жыл бұрын

Thanks! Stay tuned!

While we are talking about the runway into retirement...many of us are in a Target Date Retirements funds in our 401k. I can mimmick my 401k with other funds available in my 401k offerings. Maybe talk about and think about changing to the other funds to mimmick the TDF so that at retirement I can choose which funds get withdrawn from so that I am not selling stocks at a low let's say.

How does the 3 bucket strategy work in a downturn when you sell or use cash,your allocation as a percentage increases (potentially significantly) towards stock - which is counter to where you want to be. Wouldn't it be prudent to dollar cost average regardless of the economy on a SWR vs a forced bucket strategy which may expose you to more risk?

The only time I made a major shift in my overall allocation was a long time ago when I panic sold equities when Iraq invaded Kuwait. Don't like to think about how much that reallocation cost in the long term. Ever since then I try to make more measured changes so last year I shifted from 75% to 70% in the deferred accounts. I am still 5 years from retirement. Seems like after retirement is the best time for major changes in your after tax account to minimize taxes.

Should check out the Risk Parity Radio podcast for ideas on asset allocation / location for portfolios during drawdown. Good sample portfolios using diversified (non-correlated) assets and a lot of fun from the host.

TBH I'm terrified of sequence of return risk now that I'm so close to RE so I have 1 year of expenses in iBonds, 1 year in savings account and 1 year in Money Market inside my 401k, it may be very dumb but helps me to sleep at night, especially with the possibility of market meltdown. So glad that my exposition to Meta was just indirectly on the index funds.

@TwoSidesOfFI

2 жыл бұрын

That sounds hardly dumb to us! You may recall that Fritz at The Retirement Manifesto keeps three years in cash. Jason has recently moved to two years himself, plus ample bonds (70/30). You can't put a price on confidence and sleeping well, right? Uncertainty in the market is, well, certain! Best wishes to you.

@carlnascnyc

2 жыл бұрын

@@TwoSidesOfFI thanks, it's appreciated!!

Thanks for another great video! I haven't done any major rebalances in my portfolio yet but I have a rough plan that I'm considering to avoid the big tax hit you talk about in the episode. The idea is to start by doing the rebalance in the tax-deferred accounts first, so that 20% of the total portfolio bonds is in the 70% retirement bucket, making them temporarily overweight bonds. Then in the taxable account turn off dividend reinvestment and make all new contributions and dividends go to bonds. Slowly over time, the allocation to bonds in the retirement accounts would rebalance down as the taxable account goes up closer to the target without a taxable event. Meanwhile, the portfolio as a whole is at the target allocation the whole time. If you have the time, this could help spread that big taxable event over a couple years or remove it completely. If you have a Roth conversion ladder set up you could move the location of the bonds even faster.

@TwoSidesOfFI

2 жыл бұрын

Hi, Kevin...Eric here, that's exactly what I'm doing, nice to have confirmation on the plan! Cheers and thanks for watching.

I’m comfortable at 60/40. If I’m making an offensive move, I’ll bump it to 75/25 but that’s the limit. It ebbs & flows of course depending on the BS going on. Nfw that I’d be balls deep all in on stocks though

Each to their own I guess, but as someone coming to FIRE relatively late (my target for RE is around 55 years old) and with the ability to access a workplace pension early within a couple of years of that, my plan is to keep 100% stocks and 'let it rip'. Additionally, I intend having a 4-year cushion and aiming for a drawdown of perhaps 3.5% initially and adjusting further down as things progress hopefully... My plan is that the combination of a 4 year cushion together with income from the workplace pension (not enough to live off) I should see off the majority of market downturns etc. without damaging the portfolio.

@TwoSidesOfFI

2 жыл бұрын

We all have our own risk tolerance, right? Thanks for sharing your plan. Best wishes to you.

So my plan is to retire in roughly 20 years when im 55. If i stay with my current employer for that long I can pull from my 401k at that age w/o penalties. Currently I am all equities. My plan is when I am closer to retirement say the ages of 45-55 start converting over my 401k to maybe a 70/30 80/20 stock to bond ratio. Having bonds in my 401k makes the most sense to me due to the way that withdraws from 401ks always being taxed at your normal income rate. I have a small % in my roth ira as REITs where that makes the most sense to me. My taxable account is primarily blue chip dividend payers.

Good conversation guys! I just went through this myself and it did sting, but I do agree that a balanced approach makes me feel a little better during a volatile market.

@TwoSidesOfFI

2 жыл бұрын

Thanks! The sting is real

Have you both considered a risk parity portfolio design? I love the simplicity of the portfolio and how it increases your safe withdrawal rate by lowering the volatility which is key in the drawdown phase of retirement. There are many risk parity variations depending on your risk tolerance. One of the most well-known is called 'The Golden Butterfly'. Which is 20% Total US Stock Market, 20% US Small Cap Value, 20% Long-Term Treasury Bonds, 20% Short-Term Treasury Bonds, and 20% Gold. The Long Term Bonds are negatively correlated with Stocks and Gold tends not to be correlated to either. Since 1970, it has a compounded annual growth rate (after inflation) of 6.4%, and an expected permanent safe withdrawal rate of 5.3%. I love to hear your take on this approach. .

@mcgragor1

2 жыл бұрын

Permanent portfolio has done well, but to be honest, just pair SPY and TLT in any analyzer and its an awesome risk adverse fund. I don't do it except in small amounts because I like more holdings and I always fear the bottom falling out of US Treasury's in a crisis (maybe an unwarranted fear), but you can't argue with the historical return/risk profile which is excellent.

You changed your target asset allocation, which is very different than rebalancing a portfolio back to a constant desired asset allocation

to people that plan on withdrawing less than 40K a year long term cap gains wise how much would that affect the makeup and % of the 3 buckets? ive been going back and forth between 55 59.5 and 62... with my current lifestyle i can do 55 easy but am afraid ill get too bored especially in the winter time (NE ohio) another idea is working full time from thanksgiving till easter and taking off easter till thanksgiving once i hit 55

Just DGI and don’t worry about the market ups and downs. Don’t have too worry about selling stocks. Just continue to collect JNJ, PEP dividends every quarter. I will bet my FI those dividends won’t be going away.

@TwoSidesOfFI

2 жыл бұрын

Dividends are great and a valuable source of retirement income. But they aren't equivalent to fixed income in terms of their risk profile. In a down market, those stocks go down too and so will the dividends.

@travisshooks7374

2 жыл бұрын

@@TwoSidesOfFI yes during a recession dividends for the whole market decrease. But many companies do not JNJ and PEP for example. Both have increased there Div every year for decades through some very bad recessions. JNJ stock price for example can get cut in half that has nothing to do with them paying the dividend every quarter. They have proven they will continue to pay it and increase it every year. Those companies tend to have a much lower beta than the market making them less volatile. I would consider them a middle ground between SPY and a corporate bond. Hard to argue with a 50yr track record.

I think one problem going forward is that Bonds and Stocks may lose their negative correlation. For the past 30 years or so they have been mostly negatively correlated but from the 1960s to 1990s they were mostly positively correlated. Also I think it will be really hard to time when to stop selling stocks in retirement and when to restart selling....you are effectively trying to time the market bottom. If you accept Dollar Cost Averaging on the accumulation phase of buying stocks then maybe you have to when selling too?

Eric should look into his 401(k). It may be very possible to take advantage of the IRS rule of 55. You can then tap into your 401(k) at 55 years old. A couple of guidelines but easy ones that can make it work.

@jetstang6185

2 жыл бұрын

He would have to work until age 55, I don’t think that is his desire at all.

@straitjacketstudios

2 жыл бұрын

@@jetstang6185 True. But he sounds really hesitant and very nervous to make the leap. Maybe this would help take the edge off.

How would you say this applies to someone more on the starting side of this journey? I get the changing the allocation closer to retirement, but what if your 15 or more years from target retirement?

@TwoSidesOfFI

2 жыл бұрын

Jason here - this isn't investment advice as of course all situations are different. But for most people that far out, 100% Total Market is a low cost, diverse approach to consider. As you get closer to your target retirement date, it's essential to move from that position as Eric has. Have a look at the Bogleheads forum and specifically the lazy three-fund portfolio. I suspect you'll find that interesting. Best wishes to you.

I highly suggest you look into a roth conversion ladder soon. 5 year waiting period starts on Jan 1st of the year of the first conversion. You can access that contribution after 5 years. Then repeat the next year and so on. Every year new money is accessible with out tax or penalty. It creates a nice bridge till you reach 59 1/2.

@TwoSidesOfFI

2 жыл бұрын

Thanks. This can be a good strategy particularly for those who don't have sufficient funds in a taxable brokerage account.

@stevenobrien595

2 жыл бұрын

Just found your show and it's a great take on the f.i.r.e concept. Excellent.

@TwoSidesOfFI

2 жыл бұрын

@@stevenobrien595 thank you!

When Eric says apart of his 30% bond allocation is cash, does he mean a money market fund or in just a cash position at a brokerage at Fidelity or Vanguard? I use M1 Finance and unlike Fidelity, they don't consider percentage of portfolio in just cash because you can spread that cash across different portfolios.

@TwoSidesOfFI

2 жыл бұрын

Eric here replying...sorry, I should've been more clear! Current Pre-FI strategy is to carry as little cash as possible, to that end, I take cash reserves and DCA into new investments each week. Post-FI, I plan to keep 24 months of cash in a MM account/HYSA/or, depending on inflation, iBonds. The remainder of invested assets will be allocated 70/30 (equities/bonds) and I plan to slowly ratchet that up over time to be weighted more toward equities. Hopefully that makes sense.

@vulpixelful

2 жыл бұрын

@@TwoSidesOfFI That makes sense! Thanks for clarifying 🙂

this is an awesome video... BTW 100% bonds are just as unsafe as equity. :) I am 100% equity and large % in Canadian oil and gas and I plan on retire in June. LOL I am going to clean it up soon, Worst is I am a CFA. . Thanks for the great video ..

@TwoSidesOfFI

2 жыл бұрын

Jason here - thanks, Greg! So glad you liked it. OK I'm smart enough -not- to argue with a CFA about investments :) But can you please explain your meaning? Perhaps you're using the concept of safety differently than we are. Isn't the risk-adjusted return of 100% Treasuries (for example) rather different than that of 100% stock? The volatility is certainly far different. Help us understand! :)

@grega4450

2 жыл бұрын

@@TwoSidesOfFI long term bonds in a rising interest rate environment will get trashed especially when they are so low(interest rates).. You want the bond portfolio duration to be low in this rising interest rates and high in a lowering interest rate environment if you are invested in bonds. ie do not invest in 30 year ones in a rising environment.

@TwoSidesOfFI

2 жыл бұрын

@@grega4450 I'm hearing a lot of recommendations for intermediate treasuries funds from FAs. What are your thoughts on that? Or another popular choice like a total bond funds (BND/VBTLX)?

It's not a "major" change, but I recently added an allocation to bonds due to my proximity to FI. With 5 year to go, I decided to add a couple percent allocation and will probably add a few more as time goes on. I was thinking 25% might be my lifetime cap, but after listening, that might be the new minimum at the point of FI.

@xaldath4265

2 жыл бұрын

The worst part is, I am fully aware of the fact that the shorter the timeline the less impact the gains have compared to contributions...and it still took months to decide to actually put some less risky, preservation assets to complement the growth/returns from equities. Hopefully I can stay out of my own way less and less as time goes on.

@TwoSidesOfFI

2 жыл бұрын

Well said, Right there with you!

Reduce the need for cash/bonds by reducing expenses. Pay off all loans.

Don't forget to take into consideration the fact that bonds have been on a tremendous 30 year run, and that at today's low interest rates, they are priced to earn ~3% at best (and worse after inflation). They will still protect you in a downturn, but the idea that their contribution to your total return (in reference to the Vanguard portfolio allocation expected returns you showed) will be as high as historically experienced is mathematically impossible. They'll hedge you in a crash, but don't expect high returns. Be prepared to significantly drag your total return, starting at today's level

@TwoSidesOfFI

2 жыл бұрын

Very true. We wouldn't use the word "drag" perhaps. But it's absolutely true that counting on bonds to return profit is a poor assumption, indeed.

Jason, how did you look for and select a financial advisor. Any recommendations?

@TwoSidesOfFI

2 жыл бұрын

Most in the FIRE community are interested in being pretty hands-on with respect to their portfolio. Therefore, our recommendation for most people seeking financial planning support is to seek out advice-only fiduciary advisors, working under a flat fee model - either hourly, project-based, or ongoing retainer. One source I've found that is really great for this and does have FIRE as a search option is www.xyplanningnetwork.com/ Traditional assets under management (AUM) planning is an option for those who truly want to be hands-off and need full asset management and comprehensive, ongoing financial planning. It's essential to understand the fee structure and what you're trading in terms of costs to your portfolio over time vs. the benefits you're receiving.

@dlitepix3752

2 жыл бұрын

@@TwoSidesOfFI Thanks for your generous response. Super helpful.

I like the 75/25 approach, but the 25% can be made up of bonds, gold, crypto. Cash is just the emergency fund and a two year cushion. I hit 55 this month and my retirement plan will be executed in six months.

I don’t understand bonds. Why not use cash and equities? How do bonds help with inflation over cash investments?

@TwoSidesOfFI

2 жыл бұрын

Wilma, fully agreed that there's plenty of complexity when it comes to bonds, part of which comes from the fact that there are a variety of types of bond vehicles to consider. We, like many view them as an important part of a well-diversified portfolio, which of course includes cash and equities. At a high level, bonds give us something to sell as cash reserves are depleted and equity positions are still down. As you may know there are also bonds aimed at performing in an inflationary environment - see I-bonds and TIPS for more details. In the end, there are a variety of variables that must be considered as part of a personal strategy - including age, timeline to / in retirement, and risk tolerance/capacity. It's also true that some will choose to maintain very large cash positions. Particularly during an environment of rising inflation, cash is guaranteed to lose value, so this must also be considered. This article provides a decent summary of some of these topics: fortune.com/2022/03/17/heres-the-stuff-about-bonds-you-were-always-too-bored-to-learn-about-inflation-means-you-have-to/

Could we have a little more specifics on that "Market Neutral" fund or the use of that strategy? 3 years out and although 80% is in a 401K there are some choices there right now for REITs etc. and there will be many more after the big move to retirement at 55. -thanks again guys.

@TwoSidesOfFI

2 жыл бұрын

Hi Ray, we're no expert (and not qualified to give financial advice). But one commonly used one is CMNIX (or different share classes with lower buy-in / different fees), and the strategy is described in the prospectus.

@rayanderson3164

2 жыл бұрын

@@TwoSidesOfFI Thank you. I appreciate the need not give direct advice but the fund (CMNIX) was more what I had in mind to give me an idea for future planning. Thanks again!

Conversations about stock bond allocations always seem to presume there is a negative correlation between them. While historically this has been the case, it has not been so in recent memory. The point made about the impact of a high savings rate should assure those who are in the accumulation phase that your savings rate is a much more important factor than the precise division between stocks and bonds. When one starts to draw down, one needs to consider all of one's assets, including the value of your house (if you have one), Social Security, etc. You may find that the sources of fixed income outside of your portfolio are a substantial part of your overall wealth.

@TwoSidesOfFI

Жыл бұрын

Fully agree with all points excepting that we're not sure what you mean about the value of the house in draw down. It's certainly part of your network (and therefore your wealth), but unless a home sale is planned, or a later reverse mortgage is part of your strategy, it's just an asset on the balance sheet in most cases. It generally doesn't affect withdrawal rate.

@rudged123

Жыл бұрын

@@TwoSidesOfFI Correct, I'm thinking of its value via a reverse mortgage as a buffer asset.

26:30 Wouldn't you want REITs in retirement account(s)? No need to be wary of REITs when there are low expense REIT funds.

@TwoSidesOfFI

2 жыл бұрын

REITs are ~4% of VTI/VTSAX which I hold in both taxable and pre-tax.

I understand that you had to reallocate because you are close to retirement (2024) but if you are further out from retirement how do you reallocate if you are still earning? I'm struggling with the buckets I need if I am 10 years out from retirement. I followed The Retirement Manifesto but that assumes you have enough to fill your buckets.

@TwoSidesOfFI

2 жыл бұрын

You can reallocate anytime you want. It's easiest in your tax-advantaged accounts since there is no tax hit for realizing gains upon sale. Caution is warranted in your taxable brokerage account, since any gains will result in a tax hit - the magnitude of which depends upon whether you've held the assets for more or less than one year (long term vs. short term capital gains). The latter is taxed as ordinary income so at your standard income tax rate. If you're earning, another way to reallocate is to change what you're purchasing with your regular investments, whether in your workplace 401K, IRA, or after-tax account. That could be a slower path, but might make sense to avoid selling things in a taxable account, for example. Does that make sense?

@KG-oe8oo

2 жыл бұрын

@@TwoSidesOfFI yes, it does! I think I am just getting bogged down in the MULTIPLE things you have to think about! Using VERY conservative estimates (75% of EARLY Social Security and a pension estimate of leaving work today and collecting at 55), I subtracted those numbers from my estimated annual spend in retirement to figure out the spend I would need from my savings/investments. Based on those estimates, I have 2.5 years (11%) in cash, 4 years (19%) in CDs paying between 3% and 3.25% interest (mostly taxable) and 15 years (70%) in investments (mostly my traditional 401k) so I think that's a good 70/30 split. I lucked out and locked in good CD rates literally weeks before rates started to drop. Looking at my taxable/non taxable is where I think I may get into trouble down the line - 30% currently taxable, 68% tax deferred and only 2% non taxable. The plan is to slowly convert to fill up lower tax brackets each year. First order of business is resetting my stock basis in taxable accounts since that results in zero tax (LT cap gains rate of 0% if your income is low enough). Next step is slowly converting traditional to Roth filling up lower tax brackets - but keeping traditional in low return buckets since that money already did its job in saving taxes and my Roth in more aggressive buckets since it grows tax free. There is SO MUCH to think about! I am COMPLETELY lost with municipal bonds so now I am struggling with where to put my next batch "safe" money that will still earn more than a pittance! The hard part is trying to fill all the buckets when you don't earn 6 figures! Thanks so much for doing these videos. I've learned so much!

@TwoSidesOfFI

2 жыл бұрын

@@KG-oe8oo From what you've written, it sounds to us like you're on the right track. One tip - it's relatively inexpensive and very comforting to talk with an advice-only fiduciary advisor. Even just a one-time pulse check consult can do wonders to put your mind at ease about your plan, and supply tips to make any tweaks needed. Stay tuned for an episode on that topic before too long... Best wishes to you!

@KG-oe8oo

2 жыл бұрын

@@TwoSidesOfFI thanks for the recommendation - I am looking into advisors currently :) Looking forward to the next episode!

Have you ever considered building your portfolio around your target withdrawal rate based on historical returns? Your perpetual safe withdrawal rate has THE largest impact on your income in retirement, so why not start there and work backwards?

When people tell me that they're bored during retirement I have no idea how that's even possible. Let's take me for example, during the basketball off-season I typically host different basketball camps and they paid me about $100 per camp. I usually do about four of them during the week. If I was retired, I could travel the world doing this in the great thing as I wouldn't even need to ask the camp for an income. Also, I haven't even gotten to the part about traveling and starting side businesses that I'm passionate about. Here's the thing, boring people are boring people. No matter what position they're in in life, they are going to be bored.

@TwoSidesOfFI

2 жыл бұрын

Jason here - I can't really disagree with your primary tenet. I've never been bored after leaving my career - far from it! I feel like I have so much to do and that's even with restricting travel and certain activities for the last two years. Best wishes to you.

Given interest rates are low, and likely to go much higher, I am staying out of bonds for now. I plan to wait for the Fed to take on inflation first.

@TwoSidesOfFI

2 жыл бұрын

We understand that reaction, and it's somewhat common. But it also sounds like market timing to us. If retirement isn't in your near term plans, it may be a fine position to take. But if you plan to drawdown within a short term timeframe, it's worth reconsidering the role of fixed income. Best wishes to you.

@craignewell8080

2 жыл бұрын

@@TwoSidesOfFI I should have added that I love your podcasts, they provide a lot of things to think about that I would have missed.

@TwoSidesOfFI

2 жыл бұрын

@@craignewell8080 Thank you!

Trust in S&P 500 ETF's! Blackrock or Vanguard, maybe Schwab. Set it and forget it.

@TwoSidesOfFI

2 жыл бұрын

Jason here - S&P 500 is great and a low cost S&P fund is a very large part of my own portfolio. But it's not the only thing, as diversification is essential to managing risk. We can't let ourselves be swayed by recency bias given the last 12 years or so of US Large Cap stocks. There's a bigger picture and the closer you get to retirement, the more important it is to have balance. Best wishes to you.

@emptor01

2 жыл бұрын

@@TwoSidesOfFI Thanks for the reply. I am 3-5 to FI. It is so hard taking ownership of our money isn't it? My experience with money and others though is that their opinions are often biased - whether they know it or not - by a desire to make sure you don't do better than them. I sometimes think FIRE and FEAR are really closely connected.

Bonds should be in your deferred IRA where you still have taxes to pay.

@TwoSidesOfFI

2 жыл бұрын

Definitely depends on your tax situation and if you have to keep them in taxable muni-bonds are an option.

Or you could own dividend paying stocks/etfs and live off the dividends

I interpret the chart as showing that a 8% vs 4% CAGR is more important than savings rate. Look at the difference in the orange solid and dashed orange line.

man we are living the same life these days

@johnguertin5054

2 жыл бұрын

I ask myself all the same questions as you do and have the same thoughts. I am closer to re than you are mostly because I can't stand my job. I have far less income and a lower number I'm sure. I was 0 bonds until a few months ago too. Now I get to watch them lose money and say I did the right thing. What could go wrong?!

@TwoSidesOfFI

2 жыл бұрын

Eric here...100%, I can so relate to this!

@johnguertin5054

2 жыл бұрын

On top of that I use an advisor for 1/3 of my portfolio and he thinks investing in bonds now is nuts YIKES

@TwoSidesOfFI

2 жыл бұрын

@@johnguertin5054 What do they recommend as an alternative? Are they a fiduciary and do they sell anything (whole life, etc)?

@johnguertin5054

2 жыл бұрын

@@TwoSidesOfFI yes they sell but if you get to a certain amount it's a flat 1%. He recommends all stock in these times. I let him do his thing and I have done well. I do my thing with fidelity but it's too soon to compare. I like to have investments in several places. Trust no one 😉

Bitcoin is averaging 170% per year

@timtaylor9339

2 жыл бұрын

Cyrpto is a Ponzi scheme

i have $15k 💵 of my portfolio in comic books 📚...

@TwoSidesOfFI

2 жыл бұрын

Physical assets are an interesting type of alternative investment for sure. And if the market they're sold in is stable to growth (predictably) oriented, they can make sense - just like art, jewelry, etc. So long as they're something you'd consider selling. Otherwise they are relevant to net worth but less so to your investment portfolio.