To inparadise: Ok, so you are retired. So what is your asset allocation in retirement?
“Buy your home in cash.”
If you buy a home with a mortgage, the “drag” on your portfolio is the interest you pay. If you buy a home for cash, the “drag” on your portfolio is the rent you pay. It may take decades of paying rent for the “extra” to add up to the price of a house. Plus, the rent rises every so often…sometimes each year.
Many of us, who bought >25 years ago are making a house payment that’s less than the rent of a much smaller house or even an apartment. Besides the finance amount being on a >25 year old purchase price, the mortgage rate has ratcheted down a few times thanks to refinancing at a lower rate.
Like you, I find that his advice on this aspect is wrong.
Also, thanks for the links on divorce. I could see “Plan for the possibility of divorce,” but his advice to “count on getting divorced” is unnecessarily pessimistic.
Rayvt: You are having a totally different discussion. You are making the case that “it’s different this time”, therefore having 40% of your assets in fixed income (at 1% or less, as Intercst posted) isn’t optimal. But the whole portfolio IS optimal for many of us who don’t believe it’s different this time.
But it is “different [at] this time”. We don’t mean different now and forever, we mean different just now.
The 60/40 came about from data of the historical average over an extremely long period, 1926-2020. Some good periods and some bad periods, averaging out to medium.
But at this time we are not in an “average” period. At this time, equities are higher than average risk and fixed income is MUCH HIGHER than average risk.
And are willing to accept near zero interest rates on 40% of our money in return for reduce equity risk.
Fair enough. De gustibus non disputandum est.
But don’t ignore the fact that bonds currently have a large interest rate risk. Cash doesn’t, of course.
And if 40% is sloshing around at zero ANYWAY, it makes no sense to have a 3% mortgage
Setting risk aside, this would make sense if fixed income is going to be sloshing around at zero for 30 years. Do you think that is going to be the case? Or is it more likely that bonds are going to bounce back to more “normal” rates? Vanguard says 100% bonds averaged 6.1%, 1926-2020.
The 3% 30-yr FRM will stay at 3% for the entire 30 years. Even better, when/if rates go down, you can ratchet your mortgage rate down by refinancing, and lock in a lower rate for a new 30 year period. Many of us have been doing that for 15+ years.
Don’t mix timeframes. You can’t informatively compare the non-fixed rate of today with a fixed 30 year rate.
To inparadise: Ok, so you are retired. So what is your asset allocation in retirement?
Not really sure why that matters to you, since your needs are not mine.
But if it helps, we are currently at about 60% stocks, 5% rental property net mortgage, (what I consider a bond proxy and earning about 24%/yr on initial investment,) and 35% cash and I bonds. We are actively looking for investments to throw the cash into, but fine with waiting for an opportunity and resisting FOMO. This does not include our other real estate that is not income earning but increasing in value and could be rented if need be. We sleep very well.
A Fidelity rep called yesterday to check in, asking if he could help in any way. I said if he knew of where I could find a Unicorn, that would earn me a bit of money without tying it up too long, not having risk to share price or subject to extremely low investment maximums like I bonds, I would be happy to hear about it. He agreed he knew nothing to meet those requirements.
If you have not done so yet, check out I-bonds. You may have missed out on the 2021 $10K allocation/SS#, but you can still do the 2022. Best option for Unicorn status at this time, though sadly no ability to invest large sums.
But you have to run your own numbers and realize that the traditional 60/40 allocation was developed in an era where gov’t bonds actually earned you some money. It was not developed using other bonds than gov’t, and the data cannot be extrapolated. I would not in fully invested mode have more than 5 years of spending in cash/bonds, nor would I include my rental/bond proxy as part of that 5 year allocation. I don’t consider ourselves to be fully invested at this point.
There is a lot of articles on asset allocation out there, so I am not going to reproduce it. This article looks as though it may answer some of your questions, but in fairness, I only skimmed it lightly: https://www.barrons.com/advisor/articles/asset-allocation-60…
It’s a critical question to answer for yourself so kudos for thinking about it.
IP