He advises 100% stock during your working years since your paycheck and future Social Security benefit represent a large fixed income allocation. As you close in on retirement, you want to add some fixed income – perhaps as much as a 60/40 stock/fixed income allocation.
There’s also a downloadable spreadsheet if you want to calculate the number for your situation.
intercst
TMF has always noted that equities have the best returns, the best odds of keeping up with inflation. Yes, while you are working you should own as much equities as your risk concerns can tolerate. Most need an emergency fund that can cover your living expenses if you lose your job, etc. The borrowing potential on your credit card can cover part of that. I would be comfortable with your equity position as part of that. You can sell stocks from a diversified portfolio to cover some of those expenses. Yes, CDs, savings account or bonds can be part of the emergency fund.
For most of us I think 40% bonds is way too conservative. Maybe if you anticipate spending the funds soon as for downpayment on buying a home or kids entering college etc. Most can manage with a lot less bonds than that.
As pointed out in the article, one danger of the human capital argument is if the person works in a cyclical industry. I mean, Prof Choi has the benefit of working in a stable educational position, and has tenure. Would he feel the same way if he had not received tenure yet? Is his own portfolio 100% stocks? I did listen to a portion of one of his presentations - I did find the material useful.
I haven’t exactly been vocal about this, but I’ve always been essentially 100% stock. Sure, I also have a significant HYSA balance (E-fund), but my investments choices have never included bonds. I’m fine with that risk, and don’t feel the need to pull back into bonds until I’m on the eve of retirement. I’m still in my 40s… the earliest I can see myself retiring is 55, and that’s still early.
So when I’m looking at our total portfolio, how should I be categorizing my cash balance pension? Would it be a bond position or a cash position? We get 7% match on annual income and 4% match on Cash Balance. I’m sure it is in a post around here somewhere.
My take is that if it exists, you should count it. You may mentally move some things off the list as you think about it (raging debate over whether to include the value of your house. I say. “Yes’ but don’t pretend you can’t live without a roof somewhere.)
If you have surety in a pension or other instruments, I would absolutely count them in your assessment of where you are. There is a tiny, remote chance that everything will go toes up and somehow it will be lost (many news stories) mostly that doesn’t happen and you will be fine. Heck, Social Security could wind up in the morgue with a tag on its toe. You never know.
I count it all. But I never counted Social Security until I got there and the checks began to flow. But sure, it’s real, it counts.
As you’re accumulating in it, you should account for it as whatever it’s invested in. (Note - if you don’t know what it’s invested in, that would be something that you might want to figure out.)
If it’s in a money market or a GIC (Guaranteed Investment Contract) count it as cash. If it’s in bonds, bond ETFs or bond mutual funds, then count it as a bond. Once you reach retirement, you may be able to roll the balance into your 401(k) or IRA, or you may be able to annuitize it and start getting payments. If you can roll the balance into another account, then you can invest it in whatever you want. If you start taking payments, then count it as cash flow, like SS.
AJ
This is good advice. Yes I am a dinosaur working in a top five Telecom. I do have a cash balance ~$250K and it will probably be ~$300K when I move it to my own IRA upon exit. Funny thing, I asked the internal AI what it is invested in and they sent me to the SPD. That is telling me contact the admin. Too much work. I’ll pretend it is in the widow’s and orphan’s fund. I’m sure the 10-K’s or whatever you call them will say it is fully funded. Thanks for the responses.