Title says it all. I always planned on staying 100% in stocks until FIRE in 3-5 years, then when I stopped worked sell some company stock to have cash and move 401K funds to Bonds to have a split of 65% stocks, 30% bonds and 5% cash.
Only move I've done recently is buy international index funds, but I'm still 100% stocks.
What would you do if you were 3-5 years out? In normal circumstances I was fine with staying all in on stocks but current events have left me stressed. Wife too!! Is 3-5 years enough to bounce back if anything crashes because of current global issues?
3-5 years out from FIRE. Stay 100% stocks or move to bonds?
byu/Poseidon2027 infinancialindependence
Posted by Poseidon2027
12 Comments
What I did was when I rebalanced my portfolio, which I did at the end of each year, I rebalanced into bonds in cash until I had about three years expenses there.
pretty wild timing to be asking this with everything going on but yeah 3-5 years should be plenty of runway if markets tank. ive been driving for a delivery company and seeing how crazy unpredictable everything is day to day makes me think having some bonds might help you sleep better at night. maybe start shifting like 10-20% into bonds now instead of waiting until you actually fire just to take the edge off the stress you and your wife are feeling
When I was 5 years out, I shifted my asset allocation to be about 20% bonds. I retired this year and shifted to 30%, which for me equates to about 7-8 years of expenses in bonds.
No one knows when the next crash will be or how long it will take to recover. Better to have a plan that survives all market conditions.
What if the week before you want to FIRE the market drops 40%? If you are willing to keep working or still retire then stay 100% stocks. Most people aren’t willing to take that chance. You don’t need a ton of bonds. I’m FIREd and have 25% in bonds.
Bond tent is some typical advice shared around these parts but the world is a chaotic place so who knows what the right thing to do is.
A true boglehead would simply ignore the Macro and stick to the typical advice….so bond tent?
I started saving my extra cash into bonds about 2 years before fire. It was difficult watching the bull run, but I’m glad I have a cushion now just in case shit hits the fan. SORR is real!
I have a few years’ worth of expenses in cash to handle market downturns. In my investments, I’m slowly moving towards 30% bonds and 70% stocks. I may increase the percentage in bonds as I get older.
Sounds like you are figuring out you don’t have the risk tolerance for 100%equity.
I think this depends on how flexible your retirement date is. I’m 100% in equities but I’m OK with delaying retirement if a bear market hits during accumulation close to my target FI date.
My reasoning is that if I instead had a 30/70 AA bonds / stocks, and a bear market hits prior to pulling the trigger, I wouldn’t retire into that market. I don’t need to and it would be scary to do so.
I’m also in a career I like, so that is part of it too.
Note: I’m looking at a bonds allocation IN retirement, just not before.
Hi there Poseidon2027 This is the sequence of returns risk question and it’s one of the most important decisions you’ll make. A crash in year 1-2 of retirement is far more damaging than one 10 years in because you’re selling depressed assets to fund living expenses with no time to recover.
The conventional wisdom of gliding toward bonds as you approach FIRE exists for good reason — not because bonds outperform, but because they reduce volatility right when volatility hurts most.
At 3-5 years out, a common approach is to keep 1-2 years of expenses in cash/stable assets as a buffer. That way if the market drops 30% you’re not forced to sell stocks — you spend the cash buffer and let equities recover.
Your 65/30/5 target sounds reasonable. The real question is what your actual monthly spend in retirement looks like vs your portfolio size — that determines how much sequence risk you’re actually carrying.
Personally, I would diversify when I’m 2-3 years out. Most of our recent history with financial crises see recovery within 2 years. So that feels safe enough to me
Because of SORR, I’d be putting at least a year of expenses in cash and doing another ~5 year bond ladder to cover the next 5 years of expenses. And diversify out of company stock as much as possible – now is not the time for concentrated holdings.
Edited:typo