What is the Most You Would keep in Fixed Income?

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WhitePuma
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What is the Most You Would keep in Fixed Income?

Post by WhitePuma »

Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
rich126
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Re: What is the Most You Would keep in Fixed Income?

Post by rich126 »

Really need more info. $10M in savings or $1M? At 45 mine was close to zero. Doesn't make sense to think in terms of expenses.
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Doctor Rhythm
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Re: What is the Most You Would keep in Fixed Income?

Post by Doctor Rhythm »

You'll get random, uninterpretable answers unless posters do you the courtesy of giving you details of their financial picture. For example, Mr. Buffett is widely (and likely incorrectly) quoted as advocating 90% in broad market and 10% in treasury bonds. That would be 10x gross expenses for me and something north of 10e6 x expenses for Mr. Buffett.

But for what its worth, I think I had 5x then gross expenses at that age but under very different circumstances than you're describing and than I'm currently experiencing.
Last edited by Doctor Rhythm on Wed Jun 05, 2024 8:25 pm, edited 2 times in total.
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Hacksawdave
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Re: What is the Most You Would keep in Fixed Income?

Post by Hacksawdave »

32X for my early retirement. But then again, the hard income distribution Dollar figure per year I needed to reach was 130% of the expected budget. I did not use a X multiple for the equation goal.
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Re: What is the Most You Would keep in Fixed Income?

Post by placeholder »

I could give an answer framed the way you want but I don't invest that way so I have and have had 40% in fixed which is split roughly half between bond index fund and stable value or money market with the latter being used now because the mm rates are better than stv and I will change back whenever advantageous.
MarkRoulo
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Re: What is the Most You Would keep in Fixed Income?

Post by MarkRoulo »

WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
I don't think "multiple of annual expenses" is how most people here think of this.

It also often depends on age.

For *ME* at younger ages I tended to run with 0% bonds except around the peak of the dot-com boom I bought a bunch of Series I Bonds. At 3.6% real they just looked reasonable compared to the stock market (and I was working for a tech company that saw a 75% drop in stock price over 18 months after the dot-com peak).

Today ... things are different.

Are you trying to ask how much YOU should hold in fixed income?
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Re: What is the Most You Would keep in Fixed Income?

Post by jebmke »

MarkRoulo wrote: Wed Jun 05, 2024 8:34 pm
WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
I don't think "multiple of annual expenses" is how most people here think of this.
Me neither. Started ER with 60%. Now about 50%. Age 71.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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WhitePuma
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Re: What is the Most You Would keep in Fixed Income?

Post by WhitePuma »

It seems to me that expressing as a multiple of expenses IS a better approach than a % of overall. For those who disagree, what is your rationale for not doing so?
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Re: What is the Most You Would keep in Fixed Income?

Post by placeholder »

WhitePuma wrote: Wed Jun 05, 2024 9:09 pm It seems to me that expressing as a multiple of expenses IS a better approach than a % of overall. For those who disagree, what is your rationale for not doing so?
I don't understand why you think that so I can't even answer it other than to say that my portfolio has been 60/40 for many years now and I don't have any reason to change it.
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Re: What is the Most You Would keep in Fixed Income?

Post by steadyosmosis »

WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Please express the amount as a multiple of annual expenses. So for example, 10x.
50x.
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Re: What is the Most You Would keep in Fixed Income?

Post by KlangFool »

WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
WhitePuma,

What is the current portfolio size as a multiple of current annual expense?

A) I do not believe doing AA based on age and/or years to retirement. It could change based on how the market is doing.

B) I believe in efficient frontier. So, the AA could only be in the range of 70/30 to 30/70 at all times.

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Re: What is the Most You Would keep in Fixed Income?

Post by KlangFool »

OP,

The default answer would be 60/40. Unless you can come up with a reason of why 60/40 is not good enough.

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Re: What is the Most You Would keep in Fixed Income?

Post by carminered2019 »

I keep 25X in FI, I don't care for AA %.
Last edited by carminered2019 on Wed Jun 05, 2024 10:13 pm, edited 1 time in total.
WestCoastPhan
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Re: What is the Most You Would keep in Fixed Income?

Post by WestCoastPhan »

WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
Net of debt? If so, my current amount is about -4x
Doctor Rhythm
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Re: What is the Most You Would keep in Fixed Income?

Post by Doctor Rhythm »

Perhaps OP is considering a bond tent and wants to know how "big" that tent should be?
Normchad
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Re: What is the Most You Would keep in Fixed Income?

Post by Normchad »

For me, I’m aiming to keep ten years expenses in cash/fixed income. So 10X.
gavinsiu
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Re: What is the Most You Would keep in Fixed Income?

Post by gavinsiu »

Maybe slowly build up to a 30 year position of TIPS in 10 years (retirement). This is the max you can build out a TIPS ladder (no 40 years TIPS). You can reduce the ladder rungs on when you start taking SS by the amount of SS you will be collecting. At 55, your ladder will go to about 85, which is beyond the life expectancy of a US male but not inconceivable to reach. If you end up living longer, the remaining equity should help you get by.

One issue may be if you die, your surviving spouse SS will get cut in half. You may want to work out if SS + remaining TIPS will be enough.
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Re: What is the Most You Would keep in Fixed Income?

Post by quattro73 »

WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
50 yo

Want to downshift in no more than 5 years.

Right now i have a lot in the cash/fixed side due to inheritance by my wife and a couple of property sales in past 3 years. Have considered keeping 15x to give us a cushion to 65.

I am letting our equity drift up by my monthly savings. Trying to find the right AA is far easier said than done.
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Re: What is the Most You Would keep in Fixed Income?

Post by tibbitts »

WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
"Would" is confusing because it might mean how much you would actually keep, or it might mean how much would the maximum be that you would ever theoretically consider keeping? I'd guess a reasonable theoretical maximum might be be 60x since 45+60 would get you to age 105. The 10 years to retirement is meaningless since you might lose your job tomorrow and never be able to find another one.
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Re: What is the Most You Would keep in Fixed Income?

Post by retireIn2020 »

WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
Age 45 and 10 years until retirement?
probably 5x as a SWAG(https://www.acronymfinder.com/Stupid-Wi ... SWAG).html).
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Re: What is the Most You Would keep in Fixed Income?

Post by simplesimon »

WhitePuma wrote: Wed Jun 05, 2024 9:09 pm It seems to me that expressing as a multiple of expenses IS a better approach than a % of overall. For those who disagree, what is your rationale for not doing so?
Because saying 10x is not meaningful if you only have 10x expenses saved i.e. it represents 100% of your portfolio.

If I was 10 years from retirement and would need to spend down a meaningful amount of the portfolio until social security kicks in, I'd probably be around 40% bonds +/- 10% based on your risk tolerance.
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Re: What is the Most You Would keep in Fixed Income?

Post by jebmke »

WhitePuma wrote: Wed Jun 05, 2024 9:09 pm It seems to me that expressing as a multiple of expenses IS a better approach than a % of overall. For those who disagree, what is your rationale for not doing so?
Now that I’m on SS and pension, I have no expenses.
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Re: What is the Most You Would keep in Fixed Income?

Post by TomatoTomahto »

jebmke wrote: Thu Jun 06, 2024 6:15 am
WhitePuma wrote: Wed Jun 05, 2024 9:09 pm It seems to me that expressing as a multiple of expenses IS a better approach than a % of overall. For those who disagree, what is your rationale for not doing so?
Now that I’m on SS and pension, I have no expenses.
I get what you’re saying, but you still have expenses, you just don’t have expenses that require cashing in part of your portfolio.

For me, I put $3M in fixed income a few years ago because it seemed to be the right number (nothing scientific). I recently added to it, and now it’s around $4M.

A pox on percentage based asset allocations, btw. No idea what x is, much less what n is in nx.
I get the FI part but not the RE part of FIRE.
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Re: What is the Most You Would keep in Fixed Income?

Post by dbr »

WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
If I had 100x in assets I might well keep 100x in fixed income.

If I had 10x in assets I might well keep 0x in fixed income, but retirement in 10 years would be questionable.

And allocating fixed income by setting at a multiple of expenses is a rationale that is probably harder to understand than understanding what will happen to a portfolio based on proportion of assets in fixed income. Also the situation moves from holding a portfolio that is too small to generate any useful answer to holding a portfolio that is so large that every answer can be justified. An irony is that at the region of critical portfolio size of 25x expenses (not already covered by income streams) the infamous 60/40 portfolio and the infamous sometimes heard 10x in fixed income are actually the same thing.

A completely different analysis applies if one might ask about what fraction of expenses is supplied by income streams that are not portfolio withdrawals, meaning SS, pensions, and annuities.
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Re: What is the Most You Would keep in Fixed Income?

Post by howard71 »

My investment strategy calls for 20%

Currently that would amount to about 5x my annual expenses.
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Re: What is the Most You Would keep in Fixed Income?

Post by MathWizard »

Until close to retirement, other than short term cash, I held only
equities. I had a long time to go.

Now, recently retired, I have 20X expenses after estimated SS benefits. Equities are double that.
I am planning assuming only 75% of SS and portfolio, and 3.5% real return .
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Re: What is the Most You Would keep in Fixed Income?

Post by Florida Orange »

dbr wrote: Thu Jun 06, 2024 6:56 am If I had 100x in assets I might well keep 100x in fixed income.
I've thought about doing this. The problem is that fixed income may not keep up with inflation and you may soon find that you no longer have 100 X annual expenses.
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Re: What is the Most You Would keep in Fixed Income?

Post by dbr »

Florida Orange wrote: Thu Jun 06, 2024 7:17 am
dbr wrote: Thu Jun 06, 2024 6:56 am If I had 100x in assets I might well keep 100x in fixed income.
I've thought about doing this. The problem is that fixed income may not keep up with inflation and you may soon find that you no longer have 100 X annual expenses.
No matter what you have it is a virtual guarantee you won't have the same tomorrow you have today, fixed income or equities, real or nominal dollars. The point is that if the conversation is in units of expenses then 100x means you don't care.
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Re: What is the Most You Would keep in Fixed Income?

Post by jebmke »

TomatoTomahto wrote: Thu Jun 06, 2024 6:26 am
jebmke wrote: Thu Jun 06, 2024 6:15 am
WhitePuma wrote: Wed Jun 05, 2024 9:09 pm It seems to me that expressing as a multiple of expenses IS a better approach than a % of overall. For those who disagree, what is your rationale for not doing so?
Now that I’m on SS and pension, I have no expenses.
I get what you’re saying, but you still have expenses, you just don’t have expenses that require cashing in part of your portfolio.

For me, I put $3M in fixed income a few years ago because it seemed to be the right number (nothing scientific). I recently added to it, and now it’s around $4M.

A pox on percentage based asset allocations, btw. No idea what x is, much less what n is in nx.
yes, but the convention here seems to be that the metrics Nx refer to net expenses -- e.g. the infamous 25x and out (retire).

tbf, I don't pay attention to any of it. I use the Taylor method to manage my finances. I no longer re-balance on the up side so theoretically, my fixed can go to zero at some point. We never had "a number" -- it just wasn't a thing in my day.
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Re: What is the Most You Would keep in Fixed Income?

Post by windaar »

My AA is based on risk tolerance and age, not expenses.
Nobody knows nothing.
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Re: What is the Most You Would keep in Fixed Income?

Post by dbr »

Another comment is that if you want to compute descriptions of your portfolio you can certainly run a column in a spreadsheet that computes how many years withdrawals you have in fixed income and a column that computes what percent fixed income comprises as a whole. What sense you make of those numbers is up to you. One of those, both of those, or neither of those might be sensible to anyone in particular. I would just suggest taking some time and making some effort to see what one learns from whatever you do and if you are already there then more power to you.
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Re: What is the Most You Would keep in Fixed Income?

Post by TomatoTomahto »

jebmke wrote: Thu Jun 06, 2024 7:28 am
TomatoTomahto wrote: Thu Jun 06, 2024 6:26 am
jebmke wrote: Thu Jun 06, 2024 6:15 am
WhitePuma wrote: Wed Jun 05, 2024 9:09 pm It seems to me that expressing as a multiple of expenses IS a better approach than a % of overall. For those who disagree, what is your rationale for not doing so?
Now that I’m on SS and pension, I have no expenses.
I get what you’re saying, but you still have expenses, you just don’t have expenses that require cashing in part of your portfolio.

For me, I put $3M in fixed income a few years ago because it seemed to be the right number (nothing scientific). I recently added to it, and now it’s around $4M.

A pox on percentage based asset allocations, btw. No idea what x is, much less what n is in nx.
yes, but the convention here seems to be that the metrics Nx refer to net expenses -- e.g. the infamous 25x and out (retire).

tbf, I don't pay attention to any of it. I use the Taylor method to manage my finances. I no longer re-balance on the up side so theoretically, my fixed can go to zero at some point. We never had "a number" -- it just wasn't a thing in my day.
Yeah, and you and I probably sleep as well as those whose pencils are always sharpened. I’m as dumb as a sack of hammers and sometimes I wonder if those much smarter than me aren’t getting themselves in trouble with their 2 decimal place early retirement trigger pulls. The best thing, among many, that BH ever did for me was Livesoft and sscritic teaching me a new word: satisficer. That’s how I came to my fixed income amount, and I figure that no matter what, it’s close enough.
I get the FI part but not the RE part of FIRE.
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Re: What is the Most You Would keep in Fixed Income?

Post by CloseEnough »

TomatoTomahto wrote: Thu Jun 06, 2024 8:32 am
jebmke wrote: Thu Jun 06, 2024 7:28 am
TomatoTomahto wrote: Thu Jun 06, 2024 6:26 am
jebmke wrote: Thu Jun 06, 2024 6:15 am
WhitePuma wrote: Wed Jun 05, 2024 9:09 pm It seems to me that expressing as a multiple of expenses IS a better approach than a % of overall. For those who disagree, what is your rationale for not doing so?
Now that I’m on SS and pension, I have no expenses.
I get what you’re saying, but you still have expenses, you just don’t have expenses that require cashing in part of your portfolio.

For me, I put $3M in fixed income a few years ago because it seemed to be the right number (nothing scientific). I recently added to it, and now it’s around $4M.

A pox on percentage based asset allocations, btw. No idea what x is, much less what n is in nx.
yes, but the convention here seems to be that the metrics Nx refer to net expenses -- e.g. the infamous 25x and out (retire).

tbf, I don't pay attention to any of it. I use the Taylor method to manage my finances. I no longer re-balance on the up side so theoretically, my fixed can go to zero at some point. We never had "a number" -- it just wasn't a thing in my day.
Yeah, and you and I probably sleep as well as those whose pencils are always sharpened. I’m as dumb as a sack of hammers and sometimes I wonder if those much smarter than me aren’t getting themselves in trouble with their 2 decimal place early retirement trigger pulls. The best thing, among many, that BH ever did for me was Livesoft and sscritic teaching me a new word: satisficer. That’s how I came to my fixed income amount, and I figure that no matter what, it’s close enough.
Close enough is all you need :happy

I would point out the obvious, that your sleep has more to do with your absolute level of assets than your dull pencil. And that for those without that much buffer, some level of pencil sharpening might be needed. If you are close to the line, you likely need to, or at least may benefit from, a more detailed approach to sleep well. I say that as someone who also has enough buffer to not sharpen the pencil, much. Grateful for my luck, as much of it is luck.
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Re: What is the Most You Would keep in Fixed Income?

Post by coachd50 »

Florida Orange wrote: Thu Jun 06, 2024 7:17 am
dbr wrote: Thu Jun 06, 2024 6:56 am If I had 100x in assets I might well keep 100x in fixed income.
I've thought about doing this. The problem is that fixed income may not keep up with inflation and you may soon find that you no longer have 100 X annual expenses.
Would that really present a problem? If you have 100 years worth of expenses and it drops by HALF, you have 50 years worth of expenses. Unless you are retiring at 30, is that horrible.

That said, it clearly is not optimal, and one would likely be more secure doing something a bit different. But if one has accumulated 100 years worth of expenses, they are probably ok.
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Re: What is the Most You Would keep in Fixed Income?

Post by hudson »

WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
All fixed…CDs and Ts
Retired 10 years
Age 76
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Re: What is the Most You Would keep in Fixed Income?

Post by Circle the Wagons »

coachd50 wrote: Thu Jun 06, 2024 8:45 am
Florida Orange wrote: Thu Jun 06, 2024 7:17 am
dbr wrote: Thu Jun 06, 2024 6:56 am If I had 100x in assets I might well keep 100x in fixed income.
I've thought about doing this. The problem is that fixed income may not keep up with inflation and you may soon find that you no longer have 100 X annual expenses.
Would that really present a problem? If you have 100 years worth of expenses and it drops by HALF, you have 50 years worth of expenses. Unless you are retiring at 30, is that horrible.

That said, it clearly is not optimal, and one would likely be more secure doing something a bit different. But if one has accumulated 100 years worth of expenses, they are probably ok.
If we took a hard look at 100x+ people who failed, I think we'd find the real dangers are situations like: spendy friends and family, quirky expensive collectable habits, divorce, gambling, etc.

Behavioral stuff that has nothing to do with the thread title.

So it would be smart for such a person to focus time and effort over there if minimizing risk.
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Re: What is the Most You Would keep in Fixed Income?

Post by coachd50 »

Circle the Wagons wrote: Thu Jun 06, 2024 9:18 am
coachd50 wrote: Thu Jun 06, 2024 8:45 am
Florida Orange wrote: Thu Jun 06, 2024 7:17 am
dbr wrote: Thu Jun 06, 2024 6:56 am If I had 100x in assets I might well keep 100x in fixed income.
I've thought about doing this. The problem is that fixed income may not keep up with inflation and you may soon find that you no longer have 100 X annual expenses.
Would that really present a problem? If you have 100 years worth of expenses and it drops by HALF, you have 50 years worth of expenses. Unless you are retiring at 30, is that horrible.

That said, it clearly is not optimal, and one would likely be more secure doing something a bit different. But if one has accumulated 100 years worth of expenses, they are probably ok.
If we took a hard look at 100x+ people who failed, I think we'd find the real dangers are situations like: spendy friends and family, quirky expensive collectable habits, divorce, gambling, etc.

Behavioral stuff that has nothing to do with the thread title.

So it would be smart for such a person to focus time and effort over there if minimizing risk.
Valid. I was placing such things as spendy friends, collectable habits, gambling etc. into the expenses.
Yes, unexpected expenses would hurt a plan based on a certain amount of expenses.
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Re: What is the Most You Would keep in Fixed Income?

Post by Florida Orange »

dbr wrote: Thu Jun 06, 2024 7:26 am
Florida Orange wrote: Thu Jun 06, 2024 7:17 am
dbr wrote: Thu Jun 06, 2024 6:56 am If I had 100x in assets I might well keep 100x in fixed income.
I've thought about doing this. The problem is that fixed income may not keep up with inflation and you may soon find that you no longer have 100 X annual expenses.
No matter what you have it is a virtual guarantee you won't have the same tomorrow you have today, fixed income or equities, real or nominal dollars. The point is that if the conversation is in units of expenses then 100x means you don't care.
If inflation is 3% per year you lose about a third of your purchasing power in a decade. Even with 100x I think most people would care about that unless they're very old.
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Re: What is the Most You Would keep in Fixed Income?

Post by Florida Orange »

coachd50 wrote: Thu Jun 06, 2024 8:45 am
Florida Orange wrote: Thu Jun 06, 2024 7:17 am
dbr wrote: Thu Jun 06, 2024 6:56 am If I had 100x in assets I might well keep 100x in fixed income.
I've thought about doing this. The problem is that fixed income may not keep up with inflation and you may soon find that you no longer have 100 X annual expenses.
Would that really present a problem? If you have 100 years worth of expenses and it drops by HALF, you have 50 years worth of expenses. Unless you are retiring at 30, is that horrible.

That said, it clearly is not optimal, and one would likely be more secure doing something a bit different. But if one has accumulated 100 years worth of expenses, they are probably ok.
If inflation is 3% per year, you lose about a third of your purchasing power per decade, every decade. For somebody who might live another 30 or 40 years that's a problem.
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Re: What is the Most You Would keep in Fixed Income?

Post by Normchad »

Florida Orange wrote: Thu Jun 06, 2024 9:55 am
coachd50 wrote: Thu Jun 06, 2024 8:45 am
Florida Orange wrote: Thu Jun 06, 2024 7:17 am
dbr wrote: Thu Jun 06, 2024 6:56 am If I had 100x in assets I might well keep 100x in fixed income.
I've thought about doing this. The problem is that fixed income may not keep up with inflation and you may soon find that you no longer have 100 X annual expenses.
Would that really present a problem? If you have 100 years worth of expenses and it drops by HALF, you have 50 years worth of expenses. Unless you are retiring at 30, is that horrible.

That said, it clearly is not optimal, and one would likely be more secure doing something a bit different. But if one has accumulated 100 years worth of expenses, they are probably ok.
If inflation is 3% per year, you lose about a third of your purchasing power per decade, every decade. For somebody who might live another 30 or 40 years that's a problem.
If my fixed income was returning 2% a year, I wouldn’t care. I know some would, just not me.

I’ve spent 50+ years doing the best that I could, but I always knew that it was never optimal. And it was never the case that I knew the future with any certainty. My 2 decimal place plans never worked out. But all in all, everything is just fine. And I’ll just keep doing it that way u til I croak. Everyday, I’ll wake up, and do the best I can, always knowing it probably isn’t optimal, and that smart people would sternly scold me for my actions.

I do think 60/40 is a great start g point for planning and discussions. And if you’re at a portfolio size of 25X, you’d have about 10 years expenses in FI. I don’t think I ever want more than that though. If I had a billion dollars, I wouldn’t put 400 million in FI.

I sort of hold my nose when I buy bonds. It’s like eating broccoli. I don’t like it, I do it because I should.
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bertilak
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Re: What is the Most You Would keep in Fixed Income?

Post by bertilak »

I can't answer in your requested format because:
A. I don't allocate things that way.
B. I have almost no regular expenses not covered by my income streams. Trying to answer your way would result in a divide-by-zero error (a good thing). I spent some of my assets on an annuity to get me into this position.
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WhitePuma
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Re: What is the Most You Would keep in Fixed Income?

Post by WhitePuma »

TomatoTomahto wrote: Thu Jun 06, 2024 6:26 am
jebmke wrote: Thu Jun 06, 2024 6:15 am
WhitePuma wrote: Wed Jun 05, 2024 9:09 pm It seems to me that expressing as a multiple of expenses IS a better approach than a % of overall. For those who disagree, what is your rationale for not doing so?
Now that I’m on SS and pension, I have no expenses.
A pox on percentage based asset allocations, btw.
What does this mean?
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TomatoTomahto
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Re: What is the Most You Would keep in Fixed Income?

Post by TomatoTomahto »

WhitePuma wrote: Thu Jun 06, 2024 4:27 pm
TomatoTomahto wrote: Thu Jun 06, 2024 6:26 am
jebmke wrote: Thu Jun 06, 2024 6:15 am
WhitePuma wrote: Wed Jun 05, 2024 9:09 pm It seems to me that expressing as a multiple of expenses IS a better approach than a % of overall. For those who disagree, what is your rationale for not doing so?
Now that I’m on SS and pension, I have no expenses.
A pox on percentage based asset allocations, btw.
What does this mean?
It’s hyperbolic, which isn’t called for, but I dislike percentage (eg, 60/40, 50/50, etc) asset allocations.
I get the FI part but not the RE part of FIRE.
Mayacallie
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Re: What is the Most You Would keep in Fixed Income?

Post by Mayacallie »

Prior to retirement 9 years ago, I tried to keep my bonds at 20-25% of total portfolio.
But I now believe that it really is more important to measure fixed income as a buffer against expenses as the OP alludes to. I’m currently at 25X in bonds, which is too much.
Florida Orange
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Re: What is the Most You Would keep in Fixed Income?

Post by Florida Orange »

Normchad wrote: Thu Jun 06, 2024 10:10 am
Florida Orange wrote: Thu Jun 06, 2024 9:55 am
coachd50 wrote: Thu Jun 06, 2024 8:45 am
Florida Orange wrote: Thu Jun 06, 2024 7:17 am
dbr wrote: Thu Jun 06, 2024 6:56 am If I had 100x in assets I might well keep 100x in fixed income.
I've thought about doing this. The problem is that fixed income may not keep up with inflation and you may soon find that you no longer have 100 X annual expenses.
Would that really present a problem? If you have 100 years worth of expenses and it drops by HALF, you have 50 years worth of expenses. Unless you are retiring at 30, is that horrible.

That said, it clearly is not optimal, and one would likely be more secure doing something a bit different. But if one has accumulated 100 years worth of expenses, they are probably ok.
If inflation is 3% per year, you lose about a third of your purchasing power per decade, every decade. For somebody who might live another 30 or 40 years that's a problem.
If my fixed income was returning 2% a year, I wouldn’t care. I know some would, just not me.

I’ve spent 50+ years doing the best that I could, but I always knew that it was never optimal. And it was never the case that I knew the future with any certainty. My 2 decimal place plans never worked out. But all in all, everything is just fine. And I’ll just keep doing it that way u til I croak. Everyday, I’ll wake up, and do the best I can, always knowing it probably isn’t optimal, and that smart people would sternly scold me for my actions.

I do think 60/40 is a great start g point for planning and discussions. And if you’re at a portfolio size of 25X, you’d have about 10 years expenses in FI. I don’t think I ever want more than that though. If I had a billion dollars, I wouldn’t put 400 million in FI.

I sort of hold my nose when I buy bonds. It’s like eating broccoli. I don’t like it, I do it because I should.
1. I doubt anyone would sternly scold you for your actions.
2. Why wouldn't you want more than 10 years expenses in FI? If you had $1B you could put $400M in FI and live very comfortably on the interest without ever having to worry about money or pay attention to the stock market.
3. I smile when I buy bonds. I like broccoli almost as much as I like money.
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Re: What is the Most You Would keep in Fixed Income?

Post by Jack FFR1846 »

Most? There is no Most for me. My bond/fixed income/savings bonds is half and called 50% in my asset allocation. Let me plug in my investments spread sheet. Ok, so today, before entering today's stock market numbers, my total is 58.88 times my retirement spending. My actual AA today is 51.41% US Stock and 48.59% US Bond/cash/savings bonds. My total is $4,463,862.

Now my confusion. Why would I set some maximum on my bond/fixed part? You've got my numbers above if you want to calculate # of years but even though it's a simple enough thing to put into my Excel spread sheet, why would I ever want that number?
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Nahtanoj
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Re: What is the Most You Would keep in Fixed Income?

Post by Nahtanoj »

WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
The timing of your expenses should be considered. If you don’t need to withdraw from your portfolio until you retire in 10 years, you are in a very different position than if you are already at retirement and living off your portfolio. Instead of thinking of a multiple of annual expenses in fixed income, you may want to think in terms of a multiple of annual portfolio withdrawals in fixed income. The author Bill Bernstein refers to this annual portfolio withdrawal amount as “residual living expenses” or “RLE,” and he has encouraged people at the time of retirement to have a very substantial number of years of RLE in fixed income — like 15 or 20 years or more. (RLE is essentially the expenses you have to cover from your portfolio, so it excludes expenses you expect to cover from other resources, such as income from employment, Social Security, income from a business you own, etc.)

But if you are not planning to retire for another 10 years, you may be in a very different position — and your portfolio withdrawals may be zero (or negative) until you retire. The author Charley Ellis has sometimes recommended that all money not needed in the next 10 years should be in equities - i.e., not in fixed income. Of course, you can’t be entirely sure when the money will be needed — you may have an unexpected need for cash during the next 10 years, which is why you would want to have an emergency fund. And there are lots of potential situations where you might prefer to have some additional amounts in fixed income — think of market crashes, major wars, serious health emergencies, etc. (call this “precautionary savings”). But following Ellis’s rule of thumb, once your emergency fund and any precautionary savings are in place, you might put a large percentage of your remaining assets in equities - not fixed income.

But then you get older, and you get closer to the point when you will be withdrawing from your portfolio. As you get closer, the RLEs from the initial years of retirement get closer, and they start to fall within the 10-year window where portfolio withdrawals should be covered by fixed income. At that point, you would want to be increasing the number of years of RLEs that are covered by safe fixed income (and maybe up to the 15 to 20 years level, although 10 years would be my personal minimum).
Last edited by Nahtanoj on Thu Jun 06, 2024 9:11 pm, edited 1 time in total.
coachd50
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Re: What is the Most You Would keep in Fixed Income?

Post by coachd50 »

Florida Orange wrote: Thu Jun 06, 2024 5:26 pm
... If you had $1B you could put $400M in FI and live very comfortably on the interest without ever having to worry about money or pay attention to the stock market.
I'll take "Things you will only read on bogleheads" for $600 Alex.

I mean a 2% coupon on that $400 million yields more than double the income than the top 0.1% in the USA. So, sure, someone could spring for extra cheese on their burgers :)

Gotta love this site.
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billthecat
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Re: What is the Most You Would keep in Fixed Income?

Post by billthecat »

So the approach I took was formulaic:

MAX(MIN(age - 13%, 10x spend),25%)

Basically, the lesser of age-13 percent or 10x estimated annual spend, but no less than 25% of my total portfolio. (I wouldn't use that 25% minimum if I were young, of course, but I'm not young.) Right now, the 25% is the floor, which equates to about 11 years.
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feh
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Re: What is the Most You Would keep in Fixed Income?

Post by feh »

WhitePuma wrote: Wed Jun 05, 2024 9:09 pm It seems to me that expressing as a multiple of expenses IS a better approach than a % of overall. For those who disagree, what is your rationale for not doing so?
In retirement, perhaps. With 10 years before retirement, I don't know why one would think about fixed income dollars in this way.
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