I am still learning about managing my Retirement Portfolio and would like to get some feedback on my current approach for Dynamic Asset Allocation. At this point I am comfortable with my investments and the overall Asset Allocation. I am more focused on the idea of being able to Dynamically adjust our Asset Allocation based on market performance. I think it's a variation of the Bucket Strategy and Liability Matching Portfolio -- at least at the conceptual level.
Currently refining my IPS statement and want to make sure this is clear and complete. Plan will be to review this my wife so she will have a clear understanding just in case she has to take over the management of the finances.
- Do you see any major issues with this approach?
- Has someone already come up with this?
- Any suggestions for making things clearer?
- Ages: 59 (me), 58 (wife)
- Retired: Jan2018
- Avg Asset Spend: 3% (5% 59-70, 1% 71-90)
Current Asset Allocation
Under normal circumstances the goal is a 60/40 allocation (Stocks/Bonds with 25% of the Stocks invested Internationally). During a major downturn in stocks, we may temporarily lower this to no lower than 40/60.
Note: To reduce Sequence of Returns Risk during the early part of Retirement We have planned to increase the Equities allocation from 52% (at age 58) to 60% (at age 66).
Two Parts – One Portfolio:
- Liability Matching Portion is designed to fund a rolling 10 years of Expenses throughout Retirement and is invested in very safe assets that are not expected to be significantly impacted by market swings.
- Growth Portion will fund unanticipated expenses, protect against inflation and provide an inheritance for our heirs. This is invested in US and International Stocks and has the most risk (or reward).
Liability Matching Portion -- Re-balance Thresholds
- Always fully fund the Cash and Short-Term Bonds allocations (CurrentYear+1 to CurrentYear+3 Expenses).
- Intermediate Bonds may be sold to purchase Equities in the Growth Portion to insure a minimum 40/60 portfolio.
- Extra funds from the Portfolio may also be invested in Intermediate Bonds to insure a maximum 60/40 portfolio
Growth Portion – Re-balance Thresholds.
- 75% of the Portfolio will be invested in low-cost index funds of US equities (e.g. VTI).
- 25% of this Portfolio should be invested in International Equity Funds (e.g. VXUS).
Our Asset Allocations can shift within a band of 40/60 to 60/40 (Stocks/Bonds).
- During Bear Markets the preference will be to fund expenses from the Liability Matching Portion and use any excess capacity to buy Stocks.
- In a severe and prolonged Bear Market, we may be forced to have less than a 10-year funding to insure Stocks do not fall below 40% of the Portfolio. In this case Intermediate Bonds will be sold to purchase additional stocks.
- During Bull Markets, the preference will be to fund expenses from the Growth Portion and use any excess capacity to buy Intermediate Bonds.
- In a prolonged Bull Market, we may have more than a 10 year funding in the Liability Matching Portion and sell Stocks to insure they do not rise above 60% of the Portfolio.