A couple different theories on fixed income percentage are:
a) Use your risk tolerance. How large a percentage drawdown are you comfortable seeing in your portfolio? If you might sell stocks when they’re down, you probably need more bonds. I view this method as more for the accumulation phase since in the long run, stocks will outpace bonds and with a large time horizon, it pays to have higher risk tolerance.
b) Relate bond percentage with a dollar value. If you want to have 8 years of fixed income to make it through a drawn out bear market, then multiply your living expenses by 8. In my view, this works well in retirement.
Transitioning between the two is really a matter of personal preference. Conventional wisdom is a gradual transition with some number minus your age. If you want to take more risk for higher reward, stay with more stocks for longer leading up to retirement. Doing this may be fine for someone who wants to retire early but is willing to work longer if stocks drop close to retirement. Someone who plans to retire in their mid 60’s may not want to take that risk.
a) Use your risk tolerance. How large a percentage drawdown are you comfortable seeing in your portfolio? If you might sell stocks when they’re down, you probably need more bonds. I view this method as more for the accumulation phase since in the long run, stocks will outpace bonds and with a large time horizon, it pays to have higher risk tolerance.
b) Relate bond percentage with a dollar value. If you want to have 8 years of fixed income to make it through a drawn out bear market, then multiply your living expenses by 8. In my view, this works well in retirement.
Transitioning between the two is really a matter of personal preference. Conventional wisdom is a gradual transition with some number minus your age. If you want to take more risk for higher reward, stay with more stocks for longer leading up to retirement. Doing this may be fine for someone who wants to retire early but is willing to work longer if stocks drop close to retirement. Someone who plans to retire in their mid 60’s may not want to take that risk.
Statistics: Posted by kappy — Thu Jan 01, 2026 8:12 am — Replies 4 — Views 153