Comparing our FIRE Portfolios + Asset Allocations (Part 2)

[@TwoSidesOfFI]

What tools and resources have you found useful to explore and model your own asset allocation? We'd love to hear from you in the comments! For more info on the ones we shared in the video be sure to check out the show notes: twosidesoffi.com/asset-allocation2/

[@jonathandaniels9910]

Fidelity retirement calculator

[@ledonuthole]

Thanks for the great material. In my opinion people look toward financial advisors with the wrong expectations and this leads to disappointment. Financial advisors will not help you get extra return or “beat the market” but instead can help you build a financial plan / FI date, reduce tax bills, determine insurance needs, determine cheapest way to diversify. All about expectations before visiting them.

[@TwoSidesOfFI]

Thanks, Matt. We agree 100% and this is a great summary.

[@Michael-schroder]

Lighting for you both is flipped. Is this a subtle play on the 2 sides, of the 2 sides of FI?

[@Maeda_Toshiie]

14:05 I like the distinction b/w risk tolerance and risk capacity. It's something that can be easily forgotten or ignored.

[@TwoSidesOfFI]

Thanks, Maeda! We agree that both are very important aspects to consider.

[@Coda1850]

@@TwoSidesOfFI Excellent point. Few get the nuanced difference.

[@heidihoiting]

Watched Part 2 on Christmas Day. Super useful in setting the tone for 2022. Thank you😊

[@TwoSidesOfFI]

You’re welcome! Merry Christmas

[@OnmywaytoFI]

Great video! Thanks for sharing your insights and strategies.

[@ronloftis9080]

I use a Adaptive allocation portfolio for my "stock" portion of my portfolio. It uses 9 ETF funds (SPY, IWM, QQQ, IYR, TLT, EEM, EFA, GLD, DBC). It invests in 5 of them based on momentum. You can see the results in Portfolio Visualizer. Click on Examples, then click on Adaptive Portfolio. Put in the tickers. Timing period 10 months, Volatility period 20 days, Assets to hold 5, Allocation weight Minimum Variance. Trade at end of month. Benchmark: choose either Vanguard 500 or Balanced portfolio. Notice the max drawdown of the portfolio vs benchmarks. Notice the returns.

[@TwoSidesOfFI]

Thanks for sharing. An interesting idea, but also a rather short period of backtesting data to compare against. We all know that "past performance is no guarantee of future results" - but the shorter that comparison period is, the less likely things are to be predictive in any way. Be careful of the risk you're assuming with such a strategy.

[@ronloftis9080]

@@TwoSidesOfFI Yes, I understand that flaw of a short period of backtesting. I consider it a variation of Chris Cole's work on the Dragon Portfolio,...just a version that a retail investor can execute easily.

[@Pieter2360]

Home bias is a fascinating topic. You worry that 25% int’l is a lot why I, as a eurozone-based investor, worry about the US being 60% of my market cap weighted equity portfolio (moreover as Vanguard’s recent 10 year outlook shows that the US is expected to have the lowest returns during the next decade).

[@HIYAharry]

I’m from the UK & think the same, most of the funds I have access to are overweight to the US and UK.

[@jonathancope2712]

Thank you for the discussion, as always. We’ve found listening to Buffett and Munger most interesting as it concerns asset allocation. S&P 500 (90), Fixed Income (10), and a purpose. For good measure, I’ve gone to the ends of the internet, too, listening to a range of alternative views. We’ve generally decided that we have a long enough time horizon for life and a low enough lifestyle cost to justify a simple portfolio of low cost indices (2). Our purpose is profitable and generates both income and asset appreciation. Not bad as a mix. One that keeps the tools limited to somewhere between none and books plus KZbin. Happy holidays to you and yours.

[@TwoSidesOfFI]

Thanks, Jonathan! We appreciate your support and you sharing your thoughts. Sounds like you’ve found a great approach that works well for you. Congrats! Happy holidays and best wishes to you too.

[@nickdoyle-achievefinancial2464]

Good coverage of the sequence of returns risk in retirement. One risk I think deserves more attention is longevity risk. When you combine these two risks and FIRE, I believe many people peoples' portfolios have higher than 5% chance of failing to meet their goals. For a healthy couple, odds are reasonably high one of you will live until age 95-100, which needs to be planned for. I don't think many retiring in their 40s with the 4% rule understand the risks they are taking with a 50+ year retirement. Sure, it will likely work out 9/10 times, but are you comfortable with a 5-10% failure rate?

[@TwoSidesOfFI]

Jason here - Thanks, Nick! We agree with you, hence my constant comments about my funds needing to last the "worst case" 50 years or more!

[@nickdoyle-achievefinancial2464]

@@TwoSidesOfFI Thanks Jason! You two are providing great information and coverage of such details. It's very valuable to the community.

[@watson457]

That 1/10 times assumes little to no course correction along the way though. When in real life we know doing something as simple as taking up a temporary part time job or monetizing a hobby for an extra $10k/yr works amazingly to correct course. Basically 5-10% failure rate is perfectly fine to accept if you don't sit on your hands and are proactive if you see yourself start to drift down one of those outcomes.

[@TwoSidesOfFI]

@@watson457 This is very true. We agree that it's vitally important to keep an eye on where you are vs. the projections over time, and make adjustments as/if needed.

[@nickdoyle-achievefinancial2464]

@@watson457 If people are accurately estimating the risk, I agree with you. From what I see, many in the FIRE community are underestimating these risks. The returns of the market have been on the happy path recently, so it's purely theoretical how most peoples' FIRE strategies would have worked in the 5% worst case. Those who are willing and able to adapt will likely come out okay, but I do think it deserves more emphasis.

[@luiscaminero9145]

Man, it sucks that international has been underperforming for such a long time. Just like you guys, I hold around 10% international index for diversification but it often feels like it is hurting my long-term returns.

[@nickdoyle-achievefinancial2464]

I hold the global market cap, so currently it's about 62% US & 38% international. Historically, every decade or two the performance has shifted. The 10 year return of VTIAX is still 7.9%, even with the underperformance. What might hurt your returns more is if you are 100% in US stocks and it has no growth for 10-20 years (see 2000-2010, Japan, ..), a currency crisis, etc.

[@Cwilly13ify]

in 2000-2010 you would have said "Man, it sucks that US has been underperforming such a long time" - Bonds beat most stocks for a decade.

[@tamib64]

I agree! I've tried for several years, not the returns I'm looking for..

[@pistopit7142]

If you are in accumulation phase, then you should be happy that it sucks. Good when things are on sale for long time.

[@scottrandell4281]

Another good discussion guys. I'm sitting here listening while working on a little hobby which I plan on continuing into retirement. So instead of TV or music, I've got your voices and discussions going on and gives me some things to think about. Regard tax loss harvesting, being a novice investor I was ignorant of what that even was. I have my non-retirement funds in Wealthfront, one of the robo advisors. They do all that automatically once you reach $250K or $500K, don't remember exact value, and its nice as I don't have to worry about things like that. I picked a robo advisor over an actual person after talking with 2 finance guys and getting creeped out by both (just not a good feeling with either). And robo advisors like Wealthfront, Betterment, etc. give you lots of options, ability to increase/decrease risk, etc. Not an advertisement for either, everyone has to do their own thing with what they feel comfortable with. I just knew I didn't have the financial background to do it myself and apparently I trust computers more than people.

[@TwoSidesOfFI]

Thank you! We appreciate your support. Robo-advisors can be a good option to consider. Just be sure to avoid any issues with wash sales if you or others are doing any trading in other accounts not under the purview of the robo-advisor that you're using.

[@J-D248]

Great video!! By far the most informative I've seen across KZbin.. Curious to see a follow up after the bear market we went through right after the time of this video's date.

[@TwoSidesOfFI]

Thanks! Barring Jason simplifying his portfolio (covered in later eps), and Eric increasing and later decreasing his bond allocation, we have kept our AAs very consistent. We didn't make any moves due to the bear market. Stay the course!

[@laurareinholdt8819]

Forecast is that the fed is going to raise interest rates, right? - that means bonds will be on sale soon, good time to buy!

[@jonathandaniels9910]

Dumb question Re: FIRE. Is age 57 considered “early”? Fed worker here who could leave earlier but the ability to continue health insurance is too good to leave behind

[@TwoSidesOfFI]

Hi Jonathan, not dumb at all. Looking at the US, it’s earlier than the average and 10-15 years younger then many. We all have different factors that weigh into when it makes sense to step away from our careers, and there is no one answer. Best wishes to you.

[@rogercallnan6560]

What are everyone's thoughts on the use of Vanguard's Lifestrategy VSMGX for a 60-40 or VASGX for an 80-20 allocation? Low expense ratio and no need for rebalancing.

[@reedallred8739]

Love this conversation! I feel like I’m more like Eric, ALL EQUATY! But then I realize that’s not the best when you’re getting close to retirement. I think the bucket strategy hits home with me. Unlike you both, rental property is where I’m leaning to for income, that way I can hold more equity and not worry so much about bonds. But I have to say DEFI is very promising for income generating in retirement, I’m going to follow it closely in the coming years in hopes there will be enough data at some point to trust my retirement with it.

[@shawn4692]

Thanks guys great stuff

[@jeffsim4191]

Could look at a covered call strategy with high dividend output to balance things out considering the awful bond yields. Here in Canada an example would be zwu... Covered calls on utility stocks, current yield of over 7%. Not as defensive as bonds, but also not as sucky in sideways markets.

[@rjlane3475]

you might want to look at an 80/20 mix of SCHD & SCHY. SCHD yields 3% and SCHY yields 4%. You can use SCHY as a bond proxy. SCHD will deliver dividends during a down market. This might keep you from selling, as well as having to rebalance.

[@TwoSidesOfFI]

We appreciate your point but dividend stocks aren’t a proxy for our goals with fixed income. Thanks

[@ramonedetroitguam6075]

i added bitcoin and Ethereum to my portfolio...📈

[@relaxingnaturesounds9675]

I think a small percentage of bonds is a good idea maybe 5-10%

[@Doso777]

TIL: I am crazy.

[@MrNGTfan123]

I think a 1-5% allocation to crypto is a necessity, 50/50 Bitcoin Ether or something similar.

[@rpguitar]

Sure, if you have a time machine and can go back a few years and buy it, I would agree.

[@MrNGTfan123]

@@rpguitar no even today you should still be dollar cost averaging into crypto just like any other investment

[@matthewharrigan3568]

Only 100% equity? No leverage? 🤣

[@shawn4692]

This guy is hilarious about being 100% stocks during retirement Imagine a lost decade in the 1970s and the high inflation period. Buffett has some good points on that you might want to listen to on investing in the 70s