Is anyone thinking the way I am? Now that I’m retired for a year (wife still working), we have no intention to get any bonds. We’ll have 3-5 years of base expenses in cash. Base being expenses minus income taxes. We have mostly individual stocks and several mutual funds. We’ll still spend what want. We don’t see the need to re-allocate to “safer investments” based on a shorter time horizon or lowering risk. Our kids have a long time horizon…Every bit as long as we had since they are now where we were when we started. They’ll get whatever is left. We see the time horizon as indefinite. Am I alone in this this mindset?
Welcome! I can’t give individual investing advice, so please take this discussion as general thoughts and educational content.
You’re not alone — but you also haven’t shared enough to know whether you’re “sufficient” in the event of a raging bear market.
What matters is the size of your spending relative to the size of your “guaranteed” income. If Social Security plus a pension plus any other guaranteed income is more than sufficient to cover your costs throughout retirement, then a high stock allocation could be fine.
More generally, the concept that matters is your “mandatory portfolio withdrawal rate.” In other words, what percentage of your portfolio do you need to sell to cover your absolutely mandatory costs? The lower that rate, the more aggressive you can generally afford to be. And if that rate gets too high, no allocation can guarantee a long-term financially comfortable retirement.
Also, you mentioned a three-to-five-year cash buffer: what are your plans to replenish that buffer should you have to tap it? Presumably, you’ll be tapping it because stocks are dropping and you don’t want to be forced to sell. If you drain that buffer, how do you plan to refill it?
Regards,
-Chuck
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Much depends on how big your assets are compared to TMF’s 25X guidelines. Your 3 to 5 yr cash base is excellent. And probably adequate if you have surplus assets beyond the minimum.
Talking heads are forever talking of the 60/40 portfolio. In the good old days they often recommended your age as the percentage of assets in bonds. That is way too conservative for TMF.
You are best off to keep as much in equities as you can tolerate. That gives the best potential to keep up with inflation.
Personally I have no bonds except for miscellaneous cash in money markets. I think I can rely on credit card for most short term needs.
Ask 100 people get 100 different answers.
Sounds like a decent plan to me. Five years living expenses in cash would give your stock portfolio time to recover if a market crash were to happen tomorrow. So low chance (but not zero) of having to sell low to cover expenses.
I’ve been retired for 3+ years. I’m currently living off 80% of the dividends from my portfolio (reinvest the other 20%) and keep 1 year of living expenses in cash. One caveat, I have rental properties that are generating cash that I can tap into in an emergency.
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The cash buffer is for the bear markets. That’s why we lean to the 5 yr mark on the range. Granted there are bear markets that could deplete the buffer like the Lost Decade. Whatever is not refilled with budget cutting, dividends and capital gains distributions, we will need to be replace by selling equities. Our mandatory withdrawal rate is low at 0.1%
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Agreed. Even among my three siblings, we have drastically different situations regarding retirement and legacy.
I do still hear TMF discussing bonds to lower risk in retirement. I’m not sure if they advocate bonds over money market funds. I’ll have to look through TMF, but I don’t think I’ll ever try bonds or bond funds. We have sufficient cushion over the 25X guideline
To me, bonds are a non-starter. To get something with a low default possibility, you don’t get much more return over CDs. Just easier to buy CDs. Bond funds you can loose NAV just like any mutual fund so no real advantage. I do laddered CDs for my cash reserves and get around 0.3-0.5% more than just holding in money market.
Of course treasury bills or govt insured CDs are safe enough for most of us. Many use alternatives that are safe enough. Preferred stocks, dividend stocks, etc. Good quality works fine for that purpose.
That might be, and only “might” be true today but for the vast majority of this century, CD yields have been significantly below bond yields.
The difference is even more significant if you are in a high tax bracket where those CDs are generating federal and state taxable income.
Keep in mind, that while 5% vs 4% is just 1% more yield, it is actually 25% more annual income.
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I think investment grade corporate bonds rated BBB or better are fairly safe. I would avoid junk bonds. Some prefer A or better to avoid a downgrade taking you into junk territory.
Congratulations! That is a much better spot than most of us will ever reach. It certainly sounds like it would likely take something major to go wrong for things to get to the point where you’d run out of money before you run out of retirement.
So now, the key question becomes where along the risk vs. effort vs. reward trade off do you want to be with that buffer? Cash, high yield savings, money market funds, CDs, T-bill ladders, T-note ladders, investment grade bond ladders… They all have tradeoffs in terms of risk, effort, and potential rewards.
Personally, I would rather keep my cash holdings down closer to a 3-month emergency fund plus savings for anticipated near-term purchases. The rest of my “buffer”, I want to at least give it a fighting chance to hold its ground vs. inflation over time.
Of course, a key difference between you and me is that it is very unlikely that my mandatory minimum withdrawal rate will ever be as low as 0.1%. And because of that, my buffer will likely be a higher percentage of my assets than yours is of your assets. That makes it more important to me to try to squeeze out a bit more of risk-adjusted returns from that buffer, while still asking it to provide that key role of a place to pull money from when stocks aren’t cooperating.
Regards,
-Chuck
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Don’t be so sure… You have to be fortunate enough to buy a number of good rule breakers when they cross your path. Most from the Fool and some I see.
“Some prefer A or better to avoid a downgrade taking you into junk territory.”
Paul,
The only group of bond buyers that needs to fear the downgrade of an invest-grade issue to spec-grade are those institutionals who, by charter, can’t own spec-grade debt and would be forced to sell in case of such a downgrade. For the rest of us, a downgrade is just an annoyance, and the only thing that matters is a Ch 11 filing.
Here’s the thing with lower-tier, invest-grade debt, the Baa3/BBB- tranche. How sure can an investor be that the rating wasn’t bought with a bribe rather than earned on the basis of its financials? Or how sure can an investor be that the issuer didn’t tweak its books to avoid being rated as a spec-grade issuer? Thus, to my way of thinking, I’d much rather buy an honest double-BB and gain the prem it offers than a lower-yielding and questionable Baa3/BBB-.
The one exception I make to that policy is munis. There, I don’t mess with anything rated less than AA, because muni financials are fairly opaque. I’ll buy spec-grade corporates, but only those that have a publicly-traded stock whose price is a constant ‘tell’ on the bond’s prospects.
Just to throw something else in the mix, here’s a gift linked article in the Wall Street Journal about a new study from a Yale professor attempting to answer this same question. The short version is “more stocks”.
A Yale Professor’s Investment Formula Says You Need More Stocks. See How It Works.
The formula incorporates income, risk tolerance and other factors absent from typical rules of thumb
Are you invested too much in stocks or not enough? There is a new way to answer that question.Yale University finance professor James Choi recently developed a formula that recommends an asset allocation based in part on your age, income, savings and risk tolerance. The formula is drawn from a paper he co-authored last year and was adapted for The Wall Street Journal.
In many scenarios, the formula recommends a more aggressive, stock-heavy portfolio than other popular guidelines.
It also incorporates more of people’s financial circumstances than common rules of thumb for equity allocation, such as the classic 60/40 division of stocks and bonds or subtracting your age from 100. Many simply outsource the decision to a target-date fund based on the year they plan to retire.
My problem with this - and with many similar formulas or concepts is that they rely on the stock market being more or less the same as it has been for the past [however many] years. And I will admit that betting against that has been a losing strategy. In the US.
Take, however, the experience of Japan, where the stock market peaked in 1989 - and didn‘t recover until 38 years later. It was the so-called “lost decade” of the 90’s, which turned out to be almost 4 times that, so someone invested aggressively in stocks wound up with no gains for nearly an entire investing lifetime.
Now we might argue whether that’s likely in US markets (I don’t think it is) but then it didn’t really look that likely in the 1980’s, as Japan seemed poised to outshine any other economy at the time. Its automotive sector was ascendant - with both the US and Europe worried about “the flood of imports”. Japanese technology (SONY, etc) was the envy of the world, and their standard of living had risen to spectacular new heights considering the low place from which it started in 1945.
So, I’m more cautious than this formula suggests, but I offer it here as another view which some may find interesting.
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Read an article the other day about Buffett and how things will be designed to take care of his wife when he passes. Cliff Note’s: 90% S&P index funds and 10% short term government bonds.
Thanks. I’ve been more of a dividend growth / value focused investor. That said, as my foundation gets stronger, I’ve been more willing to try out more aggressive strategies…
The Rule Breakers type approach does raise a question regarding concentration risk. If all your wealth is tied up in a small number of stocks that have done exceptionally well, then you face an outsized risk to your portfolio should they fail.
Of course, if your guaranteed income is high enough relative to your expenses, that risk may not translate to a major lifestyle risk…
Regards,
-Chuck
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Maybe not really.
If you get 4% and inflation is 2.4%, and your marginal tax rate is 25%, then you have 4% * (1 - .25), or 3% nominal, minus 2.4% inflation is a real 0.6% return.
If your rates rise to 5%, and inflation is 3.4%, and marginal tax rate is 25%, then you have 5% * (1 - 0.25), or 3.75% nominal, minus 3.4% inflation is a real 0.35% return. If inflation only goes up to 3%, then you have a real 0.75% return which is 25% more than previously, but interest rates/inflation rarely works that way, and if it does, it only does so for a short period of time.
Because interest income is taxed on the nominal amount, sometimes you have less of a real return after taxes. And because interest rates tend to follow inflation, higher rates aren’t always a “win”.
I didn’t word what I wrote quite right. The Rule Breakers we own were bought on our own and it’s a coincidence they are recommended in Rule Breakers. What I meant to say is that you invest in several Winners that run. And you’re right they end up by default being outsized proportions of your portfolio. Like Rule Breakers, we don’t re-balance our stock positions though, and do get rid of the weeds sometimes…We have ridden more than a half dozen stocks to $0. I have forced most of them out of my memory, but SLCA, EMES, and HOME come to mind. Concentration is an over-rated risk. Sell your junk if you want some cash/bond safety, but keep and reinvest in your winners. And make sure your not holding BS like Worldcom or Theranos. I haven’t always practiced this since I ran some junk to zero…and not invested more into Oracle beside the original $1200 plus dividends that ended up being one of our biggest winners.
That is true if you never need to spend money from your investments. It is a different story if you are depending on your portfolio to cover your costs in retirement. From what you’ve described, you probably won’t be dependent on your portfolio, which puts you in an incredibly fortunate position.
This is a great example of a potential concentration risk. Oracle feels like it is falling behind in the AI race, so it tried issuing bonds like crazy to try to invest to keep up. In fact, it was recently sued by its bondholders over its financing plans: https://www.reuters.com/sustainability/boards-policy-regulation/oracle-sued-by-bondholders-over-losses-tied-ai-buildout-2026-01-14/ .
So instead, it shifted its financing plans to directly dilute shareholders, on top of taking on less additional debt: https://investor.oracle.com/investor-news/news-details/2026/Oracle-announces-Equity-and-Debt-Financing-Plan-for-Calendar-Year-2026/default.aspx .
Is it going to work out for them? I don’t know, but I hope it does. What I do know is that I own shares in Kinder Morgan, an energy pipeline company. Back in 2015, when it tried to take on too much debt to fund an acquisition, it ended up being forced to cut its dividend and scale back its expansion plans. Its stock tanked, and it still hasn’t recovered to its 2015 highs.
Kinder Morgan has a clear market, is essentially in the business of digging its own moat, and consistently generates a ton of cash. Yet had I been relying on its stock to cover my costs, I would have been in a world of hurt.
Instead, since I was in my accumulation years and was not overly concentrated in it, I was able to invest more in its shares post-crash, and it has done reasonably well overall.
Same company, same time frame, same market performance. Still, the result is a completely different investment outcome, driven by the role the investment needed to play in the investor’s portfolio.
If you truly will never need to rely on your investments to cover your costs, I agree with you that concentration risk can be overrated. If you do need to rely on your investments to cover your costs, I’d rank it up there with Sequence of Returns risk.
Both are risks that may or may not bite. Both are risks that matter much more to people who need to spend from their portfolios. Both are addressable in advance with portfolio planning.
Regards,
-Chuck
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