Unemployment is typically around 5%. This can spike to 10% in bear markets. The chance that you will be unemployed for three years in a bear is roughly 1 in 1000 and the rest of the time it is roughly 1 in 8000.
I recommend building up the emergency fund if you are 100% stocks and thinking about bonds. Put this in I-Bonds so you have no duration risk beyond the 1 year initial waiting period and build this up over time. In your 20's a few months expenses is good, by the 30's this should be 6-12 months, and 40's-60's 1 to 3 years of expenses depending on preference.
I think 10 years before expected retirement is the sweet spot for replacing stocks with bonds. Some people will transition evenly but I recommend more of a leap if you experience a good sequence. If you were 10 years out and well ahead of schedule I would jump to 10-20% bonds all at once, but there is little risk-based reason to do this if you are still 15 years away.
I'd be careful of those saying both it doesn't make much difference and 100% stocks is highly risky. These thoughts need to be consistent with each other. A 30% bigger portfolio is about 10x less likely to fail (25x vs 32.5x) given historical returns and deviations. I call 10x more likely to succeed meaningful. Your retirement stock/bond AA will have a smaller impact than your retirement portfolio size with maybe a 2x increase in safety by switching to a good amount of bonds by retirement. I think the wise investor achieves the bigger portfolio and de-risks to the extent needed by their portfolio size - Warren Buffett at 90/10 and the 25x portfolio at 70/30. Anything more than 30% bonds tends to be more of a preference and is fine given that it is the retirement portfolio size and not the retirement AA that matters.
I recommend building up the emergency fund if you are 100% stocks and thinking about bonds. Put this in I-Bonds so you have no duration risk beyond the 1 year initial waiting period and build this up over time. In your 20's a few months expenses is good, by the 30's this should be 6-12 months, and 40's-60's 1 to 3 years of expenses depending on preference.
I think 10 years before expected retirement is the sweet spot for replacing stocks with bonds. Some people will transition evenly but I recommend more of a leap if you experience a good sequence. If you were 10 years out and well ahead of schedule I would jump to 10-20% bonds all at once, but there is little risk-based reason to do this if you are still 15 years away.
I'd be careful of those saying both it doesn't make much difference and 100% stocks is highly risky. These thoughts need to be consistent with each other. A 30% bigger portfolio is about 10x less likely to fail (25x vs 32.5x) given historical returns and deviations. I call 10x more likely to succeed meaningful. Your retirement stock/bond AA will have a smaller impact than your retirement portfolio size with maybe a 2x increase in safety by switching to a good amount of bonds by retirement. I think the wise investor achieves the bigger portfolio and de-risks to the extent needed by their portfolio size - Warren Buffett at 90/10 and the 25x portfolio at 70/30. Anything more than 30% bonds tends to be more of a preference and is fine given that it is the retirement portfolio size and not the retirement AA that matters.
Statistics: Posted by abc132 — Fri May 31, 2024 1:03 am — Replies 162 — Views 12750