I think you are good with your plan, assuming that Social Security plus another $40k per year is enough to sustain you at/after the age of 70. That $40k figure is 4% of the amount left (the 4% withdrawal rate from Trinity Study, said to last 30 years)
I would only caution you that you shouldn't invest in any bond funds. Especially after the rates dip. When the rates drop, the NAV of the bond funds rises, so if you move into BND or FXNAX then, you will be "buying high". If, after you bought, the rates rise, your investments take a bath. I had the miserable experience of doing exactly that. I "rebalanced", in January 2021, a substantial chunk of my portfolio ($432k) into VBTIX, in my 401(k) plan. Spectacularly bad timing. As of October 2023, I saw it whittled down to $348k or so, a loss of $83k. Then I saw it rise, on EXPECTATIONS of rate cuts -- mind you there weren't any actual rate cuts -- up to $382k. But thus year it has again been bad news after bad news, it dropped another $7k so far. All in all, down 10% in approximately 3.5 years.
Can you take such an experience in your stride? Especially when you are retired and no income coming in? I am able to grit my teeth, for now, since I am gainfully employed. I would be climbing walls in panic otherwise.
As an alternative, consider increasing your stocks allocation slightly but invest the rest in cash/money markets. You can check this in portfolio visualizer: a 50% stocks + 50% bonds mix and a 60% stocks + 40% Cash mix gave almost exactly the same returns with approximately the same volatility. Similarly a 60:40 stocks:bonds mix gave approximately the same results as a 70:30 mix of stocks:cash.
The beauty of stocks and cash is that a portion of your portfolio is always immune from risk. Both equity risk as well as interest rate risk. With a stocks + bonds portfolio you are subjecting your entire portfolio at risk, part of it to equity risk and another part of it to interest rate risk. And to my mind, you have just taken uncompensated risk if you invested in bonds.
I would only caution you that you shouldn't invest in any bond funds. Especially after the rates dip. When the rates drop, the NAV of the bond funds rises, so if you move into BND or FXNAX then, you will be "buying high". If, after you bought, the rates rise, your investments take a bath. I had the miserable experience of doing exactly that. I "rebalanced", in January 2021, a substantial chunk of my portfolio ($432k) into VBTIX, in my 401(k) plan. Spectacularly bad timing. As of October 2023, I saw it whittled down to $348k or so, a loss of $83k. Then I saw it rise, on EXPECTATIONS of rate cuts -- mind you there weren't any actual rate cuts -- up to $382k. But thus year it has again been bad news after bad news, it dropped another $7k so far. All in all, down 10% in approximately 3.5 years.
Can you take such an experience in your stride? Especially when you are retired and no income coming in? I am able to grit my teeth, for now, since I am gainfully employed. I would be climbing walls in panic otherwise.
As an alternative, consider increasing your stocks allocation slightly but invest the rest in cash/money markets. You can check this in portfolio visualizer: a 50% stocks + 50% bonds mix and a 60% stocks + 40% Cash mix gave almost exactly the same returns with approximately the same volatility. Similarly a 60:40 stocks:bonds mix gave approximately the same results as a 70:30 mix of stocks:cash.
The beauty of stocks and cash is that a portion of your portfolio is always immune from risk. Both equity risk as well as interest rate risk. With a stocks + bonds portfolio you are subjecting your entire portfolio at risk, part of it to equity risk and another part of it to interest rate risk. And to my mind, you have just taken uncompensated risk if you invested in bonds.
Statistics: Posted by lakpr — Sun Apr 21, 2024 2:49 am — Replies 1 — Views 288