My strategy is very similar to what Jas09 recommended. I know how much i need to withdraw each month, and keep 24 months of withdrawals in cash or cash equivalents, CDs, money markets and the like. I keep eight years worth of withdrawals in a bond fund, the Vanguard Total Bond Market Index Admiral fund, VBTLX, and everything else is in a Vanguard Total stock market index fund, VTSAX. If the stock market crashes i can go a decade without selling a share of stock. I rebalance annually.
I think @Bill_Door did an excellent job, but IMO he’s still too conservative.
I’m running 9 mos of cash / cash - equivalents, 5 years of bond ladder behind that, all to be held to maturity so no intermediate rate risk, and stocks for the rest / later.
Even that feels kinda conservative to me.
Of course how conservative or aggressive to be has a lot to do with how much your total portfolio is bigger than you want, smaller than you need, or someplace in the middle. If I had $200M the whole thing could be in nil-return cash and I still couldn’t spend it all. Sadly I’m not there, and neither are almost all of us.
My own strategy, being Canadian,. is to keep equal parts in Canadian stock index funds, American stock index funds, Canadian and American income index funds, and then a handful of stocks that are stable and return high dividends. Enbridge, for example. I also have some hedges, like an inflation-protected bond ETF and a gold ETF. Looking to buy more commodity and resource funds.
I also trade some individual stocks, but only in industries that I know very well. Probably a bad idea, but I’m way ahead of the game having purchased Microsoft and AMD when they were both down around 20 bucks. Now I’m kicking myself for not investing more in them, but that’s hindsight. I do it mostly for fun.
I currently have about 30% of my portfolio in cash. I’m worried about where the markets are going in the next six months. I’ll probably put a lot of it in a GIC after the next bank of Canada meeting if they raise rates again or keep them fixed.
Be sure to keep your management to expense ratio low. An MER of .1 or .2 is what you want to shoot for. Some funds have outrageous management fees that will eat your profits. My wife just found out that her union-managed RRSP has only earned 1% over the last 5 years because of high management fees. She’s moved all her money to a self-directed RRSP and put it in index funds and income index funds, which tend to have very low management fees.
Back in the day when people were earning 10% per year off their portfolios, you could maybe handle a 2% management fee. In an era of low returns, they kill you.
This is probably controversial here, but I make some effort to avoid funds with eavy ESG content. Not for political reasons, but because I think stocks will underperform if they take their eye off of investor value and start serving two masters. It’s not a big factor, but I do look at it when deciding between two funds. I’ll skip the one more heavily invested in ESG. It’s impossible to avoid if you are buying index funds, though.
This is an excellent way to design a portfolio, I do essentially exactly the same thing. The only minor difference is that I don’t have any fixed income beyond 5 year maturity, for reasons I gave above.
Bear in mind that your cushion here is more than 10 years if you are not reinvesting stock dividends. You said you do rebalance, but just taking the dividend income and not reinvesting amounts to a small steady reduction in equity exposure that you probably want anyway.
Any return of capital or dividends generated spill into the cash bucket. I"m right now 79% in stocks, which is pretty aggressive for a +70 year old, but I’m investing for my heirs now, so my time frame has shifted. I need enough money, but I don’t need all the money.
And that situation, and that thinking, is close to the ideal.
If you’re 79% in stocks but have ten years of spending in cash equivalents or bond funds, you have way more retirement assets than most people. Good job, though.
Or at least way more than his unusually modest annual spending.
My aged MIL ended up there due to timing of the stock market boom vs. her age. She’d always lived stupid cheap and despite only low to midling lifetime income had saved diligently. As her assets finally bloomed late in life her spending only went down as “old” turned to “elderly”.
@Bill_Door is not elderly, but he may just have very modest tastes and/or live in a very low cost part of the world.
Nevertheless, you’re surely correct that his expense/asset ratio is way, way an outlier versus most American retirees or near-retirees. And that congratulations are in order.
My parents may be in a similar situation. I happened to see their taxable income from a recent 1040 filing and was surprised how large it was, and it was just Social Security plus minimum required distributions from their retirement accounts. I think they may be earning more now than when they were working.
Ref my own post two posts up, I didn’t mean to imply @Bill_Door was faking or a miser. I meant nothing pejorative at all. He may in fact be seriously 10s of millions of rich. He’s certainly rich compared to his needs and evident wants. Which is a comfortable place to be.
I was very clumsily introducing the idea that what matters isn’t so much income or assets as absolute numbers, but rather income or assets relative to needs or wants.
I apologize if I’ve given offense.
@Dewey_Finn: Yeah. We’ve done this in any number of retirement threads.
Without a comprehensive lifetime universal pension system for everyone, each individual retiree needs to save & invest far more than they will need if they are lucky in health, in their investments, and in longevity. But even that excess may not prove enough if instead they are unlucky in all three. It’s monumentally economically inefficient collectively, but Amerika hates collective financial security. SS is but a small down payment on lifetime economic security for most of us
Your parents are probably in that fortunate group who saved plenty and then have been lucky with health & returns. Now they’re silly well-off as they sail comfortably into the sunset. Good for them.
The year my MIL was 95 she (or her assets) earned more snoozing at the old folks’ home than she did in any decade of her working life. That’s the happy outcome. And for every one like hers there are uncountably many unhappy ones.