Windfall of $5M, 28 years old, resigned last month to retire early. Need advice on portfolio allocation please!

[yungunddumb]

Hi guys,

So I have received a windfall of $5M about 1 year ago (I’m 28 years old right now). Haven’t touched the money for a year, so I could research what to do with it. Conclusion of my research: low fee broad-market index fund (for stocks and bonds). Based on ERN’s research (https://earlyretirementnow.com/safe-wit ... te-series/) I decided to go with a SWR of 3% in up markets and trim it down to 2.5% on down years (to lower sequence risk). Also, during a downturn I will withdraw from the bond allocation instead of equities (this will give me 10+ years of runtime before I have to sell equities). Will rebalance accordingly ofcourse.

Also important to mention: I have a paid off house that is big enough for starting a family later on the road.

Because I live in Europe, most standard index funds are not available. I’ve chosen the following index funds:

-EQUITIES = VWCE (Vanguard FTSE All-World UCITS ETF USD Acc) (ISIN: IE00BK5BQT80)
-BONDS = DBZB (Xtrackers II Glbal Governmnt Bnd UCITS ETF 1C HEUR) (ISIN: LU0378818131)

VWCE because it’s accumulating and that gives me tax benefits.
DBZB consist of globally diversified treasuries only because corporate bonds can be correlated with equities.

Based on my research I’m pretty sure my choice of index funds and SWR is solid. However, i’m not sure about the allocation. I was thinking of 70/30 or 60/40 or maybe even 50/50 (because some say why keep playing if you already won ?). All three the allocation have a 100% succes rate when using a 3% SWR according to ERN’s research. However, this is based on past performance.

Also to keep in mind: as the title says, at the moment I don’t have any income and i’m working on a side business of which I hope one day will give me some income. So for now I can be considered “retired”.


Thanks a lot!

[mikejuss]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

[JoeRetire]

Based on my research I’m pretty sure my choice of index funds and SWR is solid. However, i’m not sure about the allocation. I was thinking of 70/30 or 60/40 or maybe even 50/50 (because some say why keep playing if you already won ?). All three the allocation have a 100% succes rate when using a 3% SWR according to ERN’s research. However, this is based on past performance.

There's no generalized, magic, asset allocation. At your age, many choose an aggressive allocation.
Choose the one that makes you feel most comfortable.

[8foot7]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate pre cfiresim. "Not hav[ing] enough money to live on for another 50 years" is simply not a realistic concern in the slightest.
OP, There's zero chance you and any family you have can't figure out how to live on $150,000 a year adjusted for inflation.

[mikejuss]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate.
There's zero chance this guy and any family he has can't figure out how to live on $150,000 a year adjusted for inflation.

Really? Many people spend more than $150,000 a year.

[8foot7]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate.
There's zero chance this guy and any family he has can't figure out how to live on $150,000 a year adjusted for inflation.

Really? Many people spend more than $150,000 a year.

It's not against the law to spend less than $150k. If he inflates his lifestyle to 300k and then tries to cut it by 50%, sure, he's in for trouble. But living on 3% of his kitty which already puts him in the top 5% if not higher of portfolio sizes in the world, he'll practically never run out of money.

[yungunddumb]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

I forgot to mention that I have a paid off house that is big enough for starting a family later on the road. So nothing of the $5M will be needed to buy a house of whatsoever. I agree with you that life does throws curve balls at you. That's why I'm trying to start a side business right now with the hope of creating some extra source of income from it. I just want to make sure the allocation/portfolio is as good as it can get..

[mikejuss]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

I forgot to mention that I have a paid off house that is big enough for starting a family later on the road. So nothing of the $5M will be needed to buy a house of whatsoever. I agree with you that life does throws curve balls at you. That's why I'm trying to start a side business right now with the hope of creating some extra source of income from it. I just want to make sure the allocation/portfolio is as good as it can get..

Then maybe you're more of less good to go, OP. Do you think that you can live on $150,000 per year? Do you have expensive tastes? Regardless, I'd do some kind of work if I were you. Fifty years is a long time!

[yungunddumb]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate pre cfiresim. "Not hav[ing] enough money to live on for another 50 years" is simply not a realistic concern in the slightest.
OP, There's zero chance you and any family you have can't figure out how to live on $150,000 a year adjusted for inflation.

Thanks for the reply! I agree that most calculators conclude that a 3% SWR is safe. However, if that's the case which you then opt for the safest allocation (like 60/40 or 50/50?) or go all out on equities or doesn't matter?. Which is my dilemma at the moment.

[yungunddumb]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

I forgot to mention that I have a paid off house that is big enough for starting a family later on the road. So nothing of the $5M will be needed to buy a house of whatsoever. I agree with you that life does throws curve balls at you. That's why I'm trying to start a side business right now with the hope of creating some extra source of income from it. I just want to make sure the allocation/portfolio is as good as it can get..

Then maybe you're more of less good to go, OP. Do you think that you can live on $150,000 per year? Do you have expensive tastes? Regardless, I'd do some kind of work if I were you. Fifty years is a long time!

The average annual spending of a family in my country is around $35,000. So ofcourse $150,000 "should" be enough. Just need to be aware of lifestyle inflation yes. The thing i'm most concerned about is the long retirement horizon of 50 years... That's why i'm so focused on the little details like asset allocation even though all of them are 100% safe according to past data..

[quietseas]

Thanks for the reply! I agree that most calculators conclude that a 3% SWR is safe. However, if that's the case which you then opt for the safest allocation (like 60/40 or 50/50?) or go all out on equities or doesn't matter?. Which is my dilemma at the moment.

That's a personal decision only you can make based on what you feel comfortable with, sorry I don't know of any way to be more objective about it. No one can predict the future. Personally I think I'd probably be about 70/30 or 80/20 in your situation but it is difficult to know for sure because I've never been in your situation.

Do you think you might need some of the $5M to invest in your new business? If so I'd treat that differently. Or, is it more that the $5M will let you work on the new venture without taking out salary?

[aristotelian]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate.
There's zero chance this guy and any family he has can't figure out how to live on $150,000 a year adjusted for inflation.

Really? Many people spend more than $150,000 a year.

Many do but the US average is in the 60's. If OP's priority is early retirement, he can make it work. They might need a lower budget but we are not looking at an eating ramen and cat food scenario.

[8foot7]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate pre cfiresim. "Not hav[ing] enough money to live on for another 50 years" is simply not a realistic concern in the slightest.
OP, There's zero chance you and any family you have can't figure out how to live on $150,000 a year adjusted for inflation.

Thanks for the reply! I agree that most calculators conclude that a 3% SWR is safe. However, if that's the case which you then opt for the safest allocation (like 60/40 or 50/50?) or go all out on equities or doesn't matter?. Which is my dilemma at the moment.

I don't think 60/40 is aggressive at all, esp considering inflation right now. I certainly wouldn't go lower than 50/50 with a 50-year+ drawing period.
I have not (and probably won't ) run the numbers on this, but have you considered taking 5-10 years of your 3% and stashing it in TIPS? That way the world could go to pot and you still have 5-10 years of your expenses covered, which is a pretty long runway to figuring out something if you had to do so. You could also consider drawing from that stash during a down year in your portfolio instead of taking the 3%. If you avoid withdrawing at your lowest three or four points in time over the next 50 years, I think you'll give yourself a tremendous margin of safety. Just a thought - cover yourself for a considerable amount of time even if your portfolio income went to zero.

[AnnetteLouisan]

Why do you think you will only live to age 78?

Check out the bogleheads wiki section on managing a windfall and Suze Orman’s list of what ifs on the podcast “Why I hate the FIRE movement,” which is specifically addressing young people with plans to retire early. You don’t have to like Orman or agree with her estimates of how much you need, but everyone can benefit from hearing her list of what ifs and planning for them.

[yungunddumb]

Thanks for the reply! I agree that most calculators conclude that a 3% SWR is safe. However, if that's the case which you then opt for the safest allocation (like 60/40 or 50/50?) or go all out on equities or doesn't matter?. Which is my dilemma at the moment.

That's a personal decision only you can make based on what you feel comfortable with, sorry I don't know of any way to be more objective about it. No one can predict the future. Personally I think I'd probably be about 70/30 or 80/20 in your situation but it is difficult to know for sure because I've never been in your situation.

Do you think you might need some of the $5M to invest in your new business? If so I'd treat that differently. Or, is it more that the $5M will let you work on the new venture without taking out salary?

The latter one. The $5M made me financial free (for now) so I can werk on my new venture. Will only need around $10-20k I think for this business to work out.

[yungunddumb]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate pre cfiresim. "Not hav[ing] enough money to live on for another 50 years" is simply not a realistic concern in the slightest.
OP, There's zero chance you and any family you have can't figure out how to live on $150,000 a year adjusted for inflation.

Thanks for the reply! I agree that most calculators conclude that a 3% SWR is safe. However, if that's the case which you then opt for the safest allocation (like 60/40 or 50/50?) or go all out on equities or doesn't matter?. Which is my dilemma at the moment.

I don't think 60/40 is aggressive at all, esp considering inflation right now. I certainly wouldn't go lower than 50/50 with a 50-year+ drawing period.
I have not (and probably won't ) run the numbers on this, but have you considered taking 5-10 years of your 3% and stashing it in TIPS? That way the world could go to pot and you still have 5-10 years of your expenses covered, which is a pretty long runway to figuring out something if you had to do so. You could also consider drawing from that stash during a down year in your portfolio instead of taking the 3%. If you avoid withdrawing at your lowest three or four points in time over the next 50 years, I think you'll give yourself a tremendous margin of safety. Just a thought - cover yourself for a considerable amount of time even if your portfolio income went to zero.

Thanks for the reply! So a big chunk of my portfolio will be in a bonds ETF consisting out of treasuries only (DBZB). My plan was to draw from that stash only during a down year (instead of drawing from the whole portfolio). Is that a solid idea or do you really recommend another stash besides this bond ETF, in your case TIPS / inflation adjusted bonds ETF?

[Blue456]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

Right ^^^. OP, happiness is a four legged stool: financial security, health, relationships and a sense of purpose. Find a job that can give you a little bit of income and a good sense of purpose. Maybe income matters less at this point.

[dbr]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate pre cfiresim. "Not hav[ing] enough money to live on for another 50 years" is simply not a realistic concern in the slightest.
OP, There's zero chance you and any family you have can't figure out how to live on $150,000 a year adjusted for inflation.

Thanks for the reply! I agree that most calculators conclude that a 3% SWR is safe. However, if that's the case which you then opt for the safest allocation (like 60/40 or 50/50?) or go all out on equities or doesn't matter?. Which is my dilemma at the moment.

If you look at the tools that calculate that success rate they show you how much different those two choices are regarding success rate, wealth as function of time, how uncertain the outcome and how much overlap in possible outcomes, how bad the worst cases might be and so on.

How "safe" the different choices are depends on what you mean by "safe," meaning what you are looking at to decide you outcome, withdrawal rate, wealth, maximum drawdown of wealth, etc.

I think I would anticipate that if you do look at all the results and how variable they can be that between 50/50 and 100/0 the results are sufficiently unpredictable that you will decide it doesn't matter. It is a point that all stocks puts everything in the peculiar results that affect only stocks and that seems not as good an idea as appealing to the general idea if diversity of risks.

Look at the visuals here and play around with the asset allocation: https://engaging-data.com/visualizing-4-rule/ or check out the percentiles of results in a Monte Carlo model.

Also, when faced with indeterminant situations, meet halfway, like at 75/25.

Also, anticipate what can go wrong. The anecdotal experience on windfalls of that magnitude is that people fritter away their wealth until it is gone. Be prepared to rule with an iron hand. Funding business ventures out of your money is one of the obvious sources of losing all of it. Of course you can also go back to work somewhere.

Also, I don't know what end point age you have in mind, but one should at least think about getting to 95 or so.

[dbr]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate pre cfiresim. "Not hav[ing] enough money to live on for another 50 years" is simply not a realistic concern in the slightest.
OP, There's zero chance you and any family you have can't figure out how to live on $150,000 a year adjusted for inflation.

Thanks for the reply! I agree that most calculators conclude that a 3% SWR is safe. However, if that's the case which you then opt for the safest allocation (like 60/40 or 50/50?) or go all out on equities or doesn't matter?. Which is my dilemma at the moment.

I don't think 60/40 is aggressive at all, esp considering inflation right now. I certainly wouldn't go lower than 50/50 with a 50-year+ drawing period.
I have not (and probably won't ) run the numbers on this, but have you considered taking 5-10 years of your 3% and stashing it in TIPS? That way the world could go to pot and you still have 5-10 years of your expenses covered, which is a pretty long runway to figuring out something if you had to do so. You could also consider drawing from that stash during a down year in your portfolio instead of taking the 3%. If you avoid withdrawing at your lowest three or four points in time over the next 50 years, I think you'll give yourself a tremendous margin of safety. Just a thought - cover yourself for a considerable amount of time even if your portfolio income went to zero.

Thanks for the reply! So a big chunk of my portfolio will be in a bonds ETF consisting out of treasuries only (DBZB). My plan was to draw from that stash only during a down year (instead of drawing from the whole portfolio). Is that a solid idea or do you really recommend another stash besides this bond ETF, in your case TIPS / inflation adjusted bonds ETF?

Messing around with asset allocation and bucket schemes does not have a large effect on either chances in the market or on dealing with spending too much.

[mikejuss]

I'm not familiar with the funds you mention, but for asset allocation, maybe think around 60/40 (more aggressive) if you plan to work and 50/50 (less aggressive) if you don't. Don't go all equities, and don't pull your hair out worrying over the differences between these asset allocations. Just pick one with which you can live for the long term.

[pasadena]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate.
There's zero chance this guy and any family he has can't figure out how to live on $150,000 a year adjusted for inflation.

Really? Many people spend more than $150,000 a year.

Not in (most of) Europe. I mean, some people certainly do, but not "many", relatively speaking.

[retired@50]

Hi guys,

...Also, during a downturn I will withdraw from the bond allocation instead of equities (this will give me 10+ years of runtime before I have to sell equities).
...However, i’m not sure about the allocation.

The above statements are guiding you toward an allocation.

If you always intend to have at least 10+ years of bond assets to draw on during a downturn in the stock market, then you'll need at least 10x (or maybe 15x) of your annual living expenses in a sensible short or intermediate term government bond fund, or something that is relatively stable.

So the question is, what are your annual living expenses?

Of course the answer to this question will change as you get older, perhaps married, perhaps children, etc. so it may require that you shift things around every 5 or 10 years as needed.

Regards,

[dbr]

Hi guys,

...Also, during a downturn I will withdraw from the bond allocation instead of equities (this will give me 10+ years of runtime before I have to sell equities).
...However, i’m not sure about the allocation.

The above statements are guiding you toward an allocation.

If you always intend to have at least 10+ years of bond assets to draw on during a downturn in the stock market, then you'll need at least 10x (or maybe 15x) of your annual living expenses in a sensible short or intermediate term government bond fund, or something that is relatively stable.

So the question is, what are your annual living expenses?

Of course the answer to this question will change as you get older, perhaps married, perhaps children, etc. so it may require that you shift things around every 5 or 10 years as needed.

Regards,

I think he mooted $150K, in which case the fixed income would be $1.5M out of $5M or a 70/30 portfolio, for all it matters. The only difference is that if stocks fall the person spending from bonds lives with a higher allocation to bonds for awhile while the "allocation investor" sells bonds both to withdraw and to rebalance to stocks so the allocation stays at 70/30. It is really hard to prove any of that makes any meaningful difference over the entire course of the retirement, though the person spending from bonds may eventually switch from too much a fraction in bonds to too little and has to decide when to add back to bonds. It is really difficult to reason by imagining scenarios while ignoring the probabilities of all the things that are likely to happen.

[lostdog]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate.
There's zero chance this guy and any family he has can't figure out how to live on $150,000 a year adjusted for inflation.

Really? Many people spend more than $150,000 a year.

70%+ of the USA lives paycheck to paycheck.

[lostdog]

Go 70/30 for life. In between an aggressive and a conservative allocation. The sweet spot.

I think ERN recommends a 75/25 for very early retirees.

[dbr]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate.
There's zero chance this guy and any family he has can't figure out how to live on $150,000 a year adjusted for inflation.

Really? Many people spend more than $150,000 a year.

70%+ of the USA lives paycheck to paycheck.

The OP gets to choose what he spends, at least hopefully. The least safe aspect of this situation is his ability to do that astutely.

A problem with spending statistics is that while the preponderance of statistics is on very low numbers and people in situations without options, there is no upper limit and no mechanisms to control behavior.

[dbr]

Go 70/30 for life. In between an aggressive and a conservative allocation. The sweet spot.

I think ERN recommends a 75/25 for very early retirees.

That is certainly where I come out. As a sop to those who think that way it also appears this means 10x in fixed income.

FWIW the classic historical models at 50 years and 3% withdrawal still don't fall off a cliff until 30/70 and below.

[quietseas]

Also keep in mind the economy of where you will be living. Europeans are not quite as all in on the stock market as Americans, and in your situation I'd definitely consider owning rental real estate for diversification. The details matter of course, and owning real estate in Latvia or Romania might not be the same as owning it in Netherlands.

[yungunddumb]

Hi guys,

...Also, during a downturn I will withdraw from the bond allocation instead of equities (this will give me 10+ years of runtime before I have to sell equities).
...However, i’m not sure about the allocation.

The above statements are guiding you toward an allocation.

If you always intend to have at least 10+ years of bond assets to draw on during a downturn in the stock market, then you'll need at least 10x (or maybe 15x) of your annual living expenses in a sensible short or intermediate term government bond fund, or something that is relatively stable.

So the question is, what are your annual living expenses?

Of course the answer to this question will change as you get older, perhaps married, perhaps children, etc. so it may require that you shift things around every 5 or 10 years as needed.

Regards,

Well the average length for a portfolio to recover from a bear market is around 3-4 years according to sources. So 10 years should be sufficient enough in that case.

[yungunddumb]

Why do you think you will only live to age 78?

Check out the bogleheads wiki section on managing a windfall and Suze Orman’s list of what ifs on the podcast “Why I hate the FIRE movement,” which is specifically addressing young people with plans to retire early. You don’t have to like Orman or agree with her estimates of how much you need, but everyone can benefit from hearing her list of what ifs and planning for them.

Great, will look it up and listen to it, thanks!

[AnnetteLouisan]

Why do you think you will only live to age 78?

Check out the bogleheads wiki section on managing a windfall and Suze Orman’s list of what ifs on the podcast “Why I hate the FIRE movement,” which is specifically addressing young people with plans to retire early. You don’t have to like Orman or agree with her estimates of how much you need, but everyone can benefit from hearing her list of what ifs and planning for them.

Great, will look it up and listen to it, thanks!

And use some of your money for a good diet and doctor visits and live to 99 or longer! Good luck in all your endeavors.

[yungunddumb]

Also keep in mind the economy of where you will be living. Europeans are not quite as all in on the stock market as Americans, and in your situation I'd definitely consider owning rental real estate for diversification. The details matter of course, and owning real estate in Latvia or Romania might not be the same as owning it in Netherlands.

From what I have seen, Real Estate kind of correlates with the stock market (a bit lagging yes). Also dealing with tennants is not something I'm looking forward to.

[yungunddumb]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate pre cfiresim. "Not hav[ing] enough money to live on for another 50 years" is simply not a realistic concern in the slightest.
OP, There's zero chance you and any family you have can't figure out how to live on $150,000 a year adjusted for inflation.

Thanks for the reply! I agree that most calculators conclude that a 3% SWR is safe. However, if that's the case which you then opt for the safest allocation (like 60/40 or 50/50?) or go all out on equities or doesn't matter?. Which is my dilemma at the moment.

If you look at the tools that calculate that success rate they show you how much different those two choices are regarding success rate, wealth as function of time, how uncertain the outcome and how much overlap in possible outcomes, how bad the worst cases might be and so on.

How "safe" the different choices are depends on what you mean by "safe," meaning what you are looking at to decide you outcome, withdrawal rate, wealth, maximum drawdown of wealth, etc.

I think I would anticipate that if you do look at all the results and how variable they can be that between 50/50 and 100/0 the results are sufficiently unpredictable that you will decide it doesn't matter. It is a point that all stocks puts everything in the peculiar results that affect only stocks and that seems not as good an idea as appealing to the general idea if diversity of risks.

Look at the visuals here and play around with the asset allocation: https://engaging-data.com/visualizing-4-rule/ or check out the percentiles of results in a Monte Carlo model.

Also, when faced with indeterminant situations, meet halfway, like at 75/25.

Also, anticipate what can go wrong. The anecdotal experience on windfalls of that magnitude is that people fritter away their wealth until it is gone. Be prepared to rule with an iron hand. Funding business ventures out of your money is one of the obvious sources of losing all of it. Of course you can also go back to work somewhere.

Also, I don't know what end point age you have in mind, but one should at least think about getting to 95 or so.

Thanks for the sound advice! How is 72/25 halfway? Wouldn't 60/40 feel more halfway?
Also, can you consider a bond ETF fund composed of treasuries equivalent to TIPS to withdraw from in a downturn?

[dbr]

Hi guys,

...Also, during a downturn I will withdraw from the bond allocation instead of equities (this will give me 10+ years of runtime before I have to sell equities).
...However, i’m not sure about the allocation.

The above statements are guiding you toward an allocation.

If you always intend to have at least 10+ years of bond assets to draw on during a downturn in the stock market, then you'll need at least 10x (or maybe 15x) of your annual living expenses in a sensible short or intermediate term government bond fund, or something that is relatively stable.

So the question is, what are your annual living expenses?

Of course the answer to this question will change as you get older, perhaps married, perhaps children, etc. so it may require that you shift things around every 5 or 10 years as needed.

Regards,

Well the average length for a portfolio to recover from a bear market is around 3-4 years according to sources. So 10 years should be sufficient enough in that case.

That has nothing to do with whether or not such an anecdote makes sense as a way to set asset allocation. In any case just about any reasonable asset allocation you would choose will not be different because you looked at some Xx rule.

You might find it helpful to read on the concept from Larry Swedroe of need, ability, and willingness to take risk with asset allocation that involves taking a thoughtful approach to what you are trying to do and how that affects how you invest.

[mykesc2022]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

OP, this comment is nonsense. $5M in a 3% CD (which is easy to find now) = $150K per year. $5M safe. Paid off house. You didnt mention your expenses, but if they are more than $100K, you are likely a party animal or major travel which has been hard to do for the past 2 years and remains hard today.

Now, I wouldn't go the route above, but it is a very safe route if your expenses allow. Good luck, nice problem to have.

[dbr]

I know that this might sounds nuts you--I agree that $5 million is a lot of money--but you may not have enough money to live on for another 50 years, especially if you decide to buy a house, have a family, etc. Have you considered your expenses should things like that arise? I bet you'd be fine if you made a least a little income, but straight-up retiring right now may not be smart. Which comes to my second question: what are you going to occupy your time with for, say, the next 5 years?

Life has a way of throwing us curve balls. Having a little bit of income and something or someone for which you're responsible on a daily basis will be good for you in the long run.

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate pre cfiresim. "Not hav[ing] enough money to live on for another 50 years" is simply not a realistic concern in the slightest.
OP, There's zero chance you and any family you have can't figure out how to live on $150,000 a year adjusted for inflation.

Thanks for the reply! I agree that most calculators conclude that a 3% SWR is safe. However, if that's the case which you then opt for the safest allocation (like 60/40 or 50/50?) or go all out on equities or doesn't matter?. Which is my dilemma at the moment.

If you look at the tools that calculate that success rate they show you how much different those two choices are regarding success rate, wealth as function of time, how uncertain the outcome and how much overlap in possible outcomes, how bad the worst cases might be and so on.

How "safe" the different choices are depends on what you mean by "safe," meaning what you are looking at to decide you outcome, withdrawal rate, wealth, maximum drawdown of wealth, etc.

I think I would anticipate that if you do look at all the results and how variable they can be that between 50/50 and 100/0 the results are sufficiently unpredictable that you will decide it doesn't matter. It is a point that all stocks puts everything in the peculiar results that affect only stocks and that seems not as good an idea as appealing to the general idea if diversity of risks.

Look at the visuals here and play around with the asset allocation: https://engaging-data.com/visualizing-4-rule/ or check out the percentiles of results in a Monte Carlo model.

Also, when faced with indeterminant situations, meet halfway, like at 75/25.

Also, anticipate what can go wrong. The anecdotal experience on windfalls of that magnitude is that people fritter away their wealth until it is gone. Be prepared to rule with an iron hand. Funding business ventures out of your money is one of the obvious sources of losing all of it. Of course you can also go back to work somewhere.

Also, I don't know what end point age you have in mind, but one should at least think about getting to 95 or so.

Thanks for the sound advice! How is 72/25 halfway? Wouldn't 60/40 feel more halfway?
Also, can you consider a bond ETF fund composed of treasuries equivalent to TIPS to withdraw from in a downturn?

Good, grief. 10% or even more either way means absolutely nothing in outcome. I was, however, referring to the choice between 50/50 and 100/0.

For practical purposes a Treasury bond ETF and a pile of TIPS will not be different for any difference you can forecast. A ton of other bond choices cannot be predicted to be different either.

I assure you that exactly how you allocate this money will have nothing to do with how this works out over the next 40 or 50 or 60 years.

[quietseas]

Also keep in mind the economy of where you will be living. Europeans are not quite as all in on the stock market as Americans, and in your situation I'd definitely consider owning rental real estate for diversification. The details matter of course, and owning real estate in Latvia or Romania might not be the same as owning it in Netherlands.

From what I have seen, Real Estate kind of correlates with the stock market (a bit lagging yes). Also dealing with tennants is not something I'm looking forward to.

I'd have to offer that's a recent American Boglehead view of real estate, I think, which may or may not apply to the country you expect to live in and may not persist for decades. My main point is to consider your local economy (country and EU) not a global or American centric economy, unless you are a US citizen planning to return to the US.

You hire someone to deal with the tenants.

[KyleAAA]

For a very long retirement, a higher equity allocation is likely going to end up being safer. I'd go with at least 70/30. Your plan to reduce your spending by ~16% in down years is a good one for portfolio longevity purposes. I think you'll be just fine. Mixing in some rental real estate might not be a bad idea and managing the properties could function as a nice little side business if you get bored.

[yungunddumb]

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate pre cfiresim. "Not hav[ing] enough money to live on for another 50 years" is simply not a realistic concern in the slightest.
OP, There's zero chance you and any family you have can't figure out how to live on $150,000 a year adjusted for inflation.

Thanks for the reply! I agree that most calculators conclude that a 3% SWR is safe. However, if that's the case which you then opt for the safest allocation (like 60/40 or 50/50?) or go all out on equities or doesn't matter?. Which is my dilemma at the moment.

If you look at the tools that calculate that success rate they show you how much different those two choices are regarding success rate, wealth as function of time, how uncertain the outcome and how much overlap in possible outcomes, how bad the worst cases might be and so on.

How "safe" the different choices are depends on what you mean by "safe," meaning what you are looking at to decide you outcome, withdrawal rate, wealth, maximum drawdown of wealth, etc.

I think I would anticipate that if you do look at all the results and how variable they can be that between 50/50 and 100/0 the results are sufficiently unpredictable that you will decide it doesn't matter. It is a point that all stocks puts everything in the peculiar results that affect only stocks and that seems not as good an idea as appealing to the general idea if diversity of risks.

Look at the visuals here and play around with the asset allocation: https://engaging-data.com/visualizing-4-rule/ or check out the percentiles of results in a Monte Carlo model.

Also, when faced with indeterminant situations, meet halfway, like at 75/25.

Also, anticipate what can go wrong. The anecdotal experience on windfalls of that magnitude is that people fritter away their wealth until it is gone. Be prepared to rule with an iron hand. Funding business ventures out of your money is one of the obvious sources of losing all of it. Of course you can also go back to work somewhere.

Also, I don't know what end point age you have in mind, but one should at least think about getting to 95 or so.

Thanks for the sound advice! How is 72/25 halfway? Wouldn't 60/40 feel more halfway?
Also, can you consider a bond ETF fund composed of treasuries equivalent to TIPS to withdraw from in a downturn?

Good, grief. 10% or even more either way means absolutely nothing in outcome. I was, however, referring to the choice between 50/50 and 100/0.

For practical purposes a Treasury bond ETF and a pile of TIPS will not be different for any difference you can forecast. A ton of other bond choices cannot be predicted to be different either.

I assure you that exactly how you allocate this money will have nothing to do with how this works out over the next 40 or 50 or 60 years.

Ahh thanks for the elaboration. You could say I'm overthinking too much yes.

[Tyler9000]

Because I live in Europe, most standard index funds are not available. I’ve chosen the following index funds:

-EQUITIES = VWCE (Vanguard FTSE All-World UCITS ETF USD Acc) (ISIN: IE00BK5BQT80)
-BONDS = DBZB (Xtrackers II Glbal Governmnt Bnd UCITS ETF 1C HEUR) (ISIN: LU0378818131)

VWCE because it’s accumulating and that gives me tax benefits.
DBZB consist of globally diversified treasuries only because corporate bonds can be correlated with equities.

Based on my research I’m pretty sure my choice of index funds and SWR is solid. However, i’m not sure about the allocation. I was thinking of 70/30 or 60/40 or maybe even 50/50 (because some say why keep playing if you already won ?). All three the allocation have a 100% succes rate when using a 3% SWR according to ERN’s research. However, this is based on past performance.

The good news is that with $5mm and a sub-3% withdrawal rate, your asset allocation is largely irrelevant and you will very likely be just fine as long as you invest conservatively and don't do anything crazy. Ignore the doubters -- you're in great shape.

But the more detailed explanation is that the SWR calculations are a little more complicated in your situation. The numbers for a portfolio of global stocks and hedged global bonds using European currency and inflation can be quite different than those calculated from the traditional US perspective. In addition, since you're only 28 I would highly recommend learning about perpetual withdrawal rates (that are designed to last forever) rather than safe withdrawal rates (that are designed to run out of money in a certain amount of time -- commonly 30 years). Long story short, you're in a great financial position but I would advise against blindly following retirement advice based on an asset allocation, home country, and retirement duration that doesn't apply to you.

Circling back to your core question about asset allocation, though, try this Portfolio Matrix. Choose your home country, sort by Perpetual WR, and it will show you the retirement performance of a bunch of different portfolios in your situation. You can even model your own portfolio ideas using the interface at the top. For world developed funds, just flip the toggle from XUS to DEV. And keep in mind that all bonds are unhedged (more like LU1737653631 than your selected fund).

I hope that helps! And good luck with your new early retirement journey. I hope you find lots of fun & rewarding challenges to conquer.

[yungunddumb]

For a very long retirement, a higher equity allocation is likely going to end up being safer. I'd go with at least 70/30. Your plan to reduce your spending by ~16% in down years is a good one for portfolio longevity purposes. I think you'll be just fine. Mixing in some rental real estate might not be a bad idea and managing the properties could function as a nice little side business if you get bored.

Thanks. Yeah I think 70/30 is around the sweet spot. The 30% in bonds gives me a bucket where I can withdraw from for 10+ years during a downturn without touching my equities. And the 70% in equities should be big enough to grow the portfolio..

[retired@50]

For a very long retirement, a higher equity allocation is likely going to end up being safer. I'd go with at least 70/30. Your plan to reduce your spending by ~16% in down years is a good one for portfolio longevity purposes. I think you'll be just fine. Mixing in some rental real estate might not be a bad idea and managing the properties could function as a nice little side business if you get bored.

Thanks. Yeah I think 70/30 is around the sweet spot. The 30% in bonds gives me a bucket where I can withdraw from for 10+ years during a downturn without touching my equities. And the 70% in equities should be big enough to grow the portfolio..

Bingo!

We have a winner.

Regards,

[dbr]

For a very long retirement, a higher equity allocation is likely going to end up being safer. I'd go with at least 70/30. Your plan to reduce your spending by ~16% in down years is a good one for portfolio longevity purposes. I think you'll be just fine. Mixing in some rental real estate might not be a bad idea and managing the properties could function as a nice little side business if you get bored.

Thanks. Yeah I think 70/30 is around the sweet spot. The 30% in bonds gives me a bucket where I can withdraw from for 10+ years during a downturn without touching my equities. And the 70% in equities should be big enough to grow the portfolio..

The 30% is NOT so that you can withdraw for 10+ years. It is because it is a good balance across all the likely factors of need, ability, and willingness to take risk, including safe withdrawals rates, your ability to manage downturns by having them not be too large, your ability to not do stupid things in a panic when stocks crash because the total loss will not be so great, and in general because not everything will be affected the same way at the same time. It is likely the better odds of doing well as stocks and bonds go up and down will be to keep the asset allocation roughly balanced and to attend to keeping your total withdrawal rate under control than it will be that you withdraw "from" this or "from " that.

Note that 10x in fixed income is also 70/30 for you and that staying rebalanced already means selling bonds and not selling stocks when stocks go down. It is already in the system.

[Wiggums]

We are at 65/35. Our children have been at 70/30 for over 20 years. 70/30 sounds good to me.

[AlohaJoe]

That's crazy. $5,000,000 at 3% inflation adjusted in a 60/40 with .2 in fees a year until the year 2080 has a 100% success rate pre cfiresim.

The OP lives in Europe, so your example using US inflation is meaningless.

[yungunddumb]

For a very long retirement, a higher equity allocation is likely going to end up being safer. I'd go with at least 70/30. Your plan to reduce your spending by ~16% in down years is a good one for portfolio longevity purposes. I think you'll be just fine. Mixing in some rental real estate might not be a bad idea and managing the properties could function as a nice little side business if you get bored.

Thanks. Yeah I think 70/30 is around the sweet spot. The 30% in bonds gives me a bucket where I can withdraw from for 10+ years during a downturn without touching my equities. And the 70% in equities should be big enough to grow the portfolio..

The 30% is NOT so that you can withdraw for 10+ years. It is because it is a good balance across all the likely factors of need, ability, and willingness to take risk, including safe withdrawals rates, your ability to manage downturns by having them not be too large, your ability to not do stupid things in a panic when stocks crash because the total loss will not be so great, and in general because not everything will be affected the same way at the same time. It is likely the better odds of doing well as stocks and bonds go up and down will be to keep the asset allocation roughly balanced and to attend to keeping your total withdrawal rate under control than it will be that you withdraw "from" this or "from " that.

Note that 10x in fixed income is also 70/30 for you and that staying rebalanced already means selling bonds and not selling stocks when stocks go down. It is already in the system.

Thanks for the answer. I'm still not getting through this point:
Why wouldn't you only withdraw from the bonds during a downturn? 1. It prevents you from selling equities for lower prices 2. Selling bonds will also rebalance your portfolio..

[LadyGeek]

This thread is now in the Non-US Investing forum (Europe).

What is your home country?

The wiki has quite a bit of information that can help. Start here: Getting started for non-US investors

[traveling_salesman]

I do not have $5M. But for a few months some years ago, I did some research on this. (I'm telling this upfront because thinking with imaginary money is very different that working with real money... you have a much harder job.)

In any case, my research suggested that what you need is "endowment thinking" rather than the SWR thinking that's common here. When you're planning for "only" a 30-year retirement, then the tail-risk of a bad outcome is much smaller than for a 50-60 year lifespan. Note that historical models post WW2 do not have many of these tail risks factored in. Over a 60 year period, there is a possibility that equity risk premiums become much smaller or even negative. This is much less likely over 30 years.

What are the practical implications of this?

1. "Stocks and bonds" portfolios are insufficiently diversified. You might consider adding real-estate (especially non-residential), farmland, etc. (Some endowment book authors also suggest adding gold, but that only seems to be relevant for 100+ year horizons.)

2. You may need to look beyond public markets. Often with large portfolios, you don't care much about the "fair-value" of the portfolio but about the cashflow. So, if you find an opportunity that gives you $50k cashflow over many years, but is not tradeable, that is a great deal. (Hard to find such investments though.)

3. Portfolio size really matters. In my case, I found with less than $2M, I couldn't get much more diversification that public markets, or near-public markets. I don't know how $5M will change things.

[dbr]

For a very long retirement, a higher equity allocation is likely going to end up being safer. I'd go with at least 70/30. Your plan to reduce your spending by ~16% in down years is a good one for portfolio longevity purposes. I think you'll be just fine. Mixing in some rental real estate might not be a bad idea and managing the properties could function as a nice little side business if you get bored.

Thanks. Yeah I think 70/30 is around the sweet spot. The 30% in bonds gives me a bucket where I can withdraw from for 10+ years during a downturn without touching my equities. And the 70% in equities should be big enough to grow the portfolio..

The 30% is NOT so that you can withdraw for 10+ years. It is because it is a good balance across all the likely factors of need, ability, and willingness to take risk, including safe withdrawals rates, your ability to manage downturns by having them not be too large, your ability to not do stupid things in a panic when stocks crash because the total loss will not be so great, and in general because not everything will be affected the same way at the same time. It is likely the better odds of doing well as stocks and bonds go up and down will be to keep the asset allocation roughly balanced and to attend to keeping your total withdrawal rate under control than it will be that you withdraw "from" this or "from " that.

Note that 10x in fixed income is also 70/30 for you and that staying rebalanced already means selling bonds and not selling stocks when stocks go down. It is already in the system.

Thanks for the answer. I'm still not getting through this point:
Why wouldn't you only withdraw from the bonds during a downturn? 1. It prevents you from selling equities for lower prices 2. Selling bonds will also rebalance your portfolio..

Because it is not that simple. The basic dispute is that selling stocks when stocks are down is a problem when it may well not be. One can consider the fate of a person withdrawing from a portfolio of only stocks. Such an investor withdraws from stocks no matter what they do. In historical analysis the SWR for a 60/40 portolio is, in FireCalc, 3.8% and for a 100/0 portfolio 3.5%. You can look at the numbers for 50 year retirements. By all odds as predictions go, 3.8% and 3.5% are not different. At your 3.0% you can safely have any asset allocation and it works even if a person does sell stocks when stocks are down. In the meantime the 100% stock investor has much greater chances of becoming more and more wealthy of time with little chance of the worst outcome being worse than the worst outcome for a more conservative portfolio. Wealth may be an explicit objective of the investor, otherwise known as "need" in need, ability, and willingness. I think investment strategy arrived at by inventing anecdotes is a very incomplete approach.

Why does it work? It works because high stock allocations have higher average return and gain more money when they go up before they go down and after they go down. Volatility is offset by return with the result that asset allocation does not matter. Anecdotes about selling bonds when stocks are down are not an analysis of all the probabilities of what will happen to you when you try to retire for 50 years on $5M spending $150,000/year indexed by inflation.

Plus which we already mentioned that if you really feel that selling a small increment in stocks when stocks are down will surely bankrupt you, which it won't, then a 70/30 allocation with rebalancing will accomplish the same thing without introducing 10x and it will do it without having to figure out of stocks even are down. If you do that what is your answer to when stocks are down. My stocks went down between 1/1/22 and 6/20/22 but they are so far up from ten years ago when I last purchased stocks that tax loss harvesting is a never gonna happen theoretical. So are my stocks up or down and should I sell from bonds to withdraw today? It is also true that my asset allcotion is still so nearly inside its target bands that rebalancing is something I've done maybe twice in fifteen years. I cut stocks a bit after the big run ups of the last five by giving some away to someone. They didn't have to pay tax on it because the gain was within their 0% bracket.

[mikejuss]

1. "Stocks and bonds" portfolios are insufficiently diversified. You might consider adding real-estate (especially non-residential), farmland, etc. (Some endowment book authors also suggest adding gold, but that only seems to be relevant for 100+ year horizons.)

2. You may need to look beyond public markets. Often with large portfolios, you don't care much about the "fair-value" of the portfolio but about the cashflow. So, if you find an opportunity that gives you $50k cashflow over many years, but is not tradeable, that is a great deal. (Hard to find such investments though.)

3. Portfolio size really matters. In my case, I found with less than $2M, I couldn't get much more diversification that public markets, or near-public markets. I don't know how $5M will change things.

This is quite interesting to me. Could you say more about why index funds (for stocks and bonds) are not sufficiently diversified, in your opinion? The standard Boglehead line, I think, is that, generally speaking, alternative assets (real estate, private equity, hedge funds) aren't necessary for successful long-term investing. I'm interested in hearing an argument otherwise.