How should you respond to market conditions to ensure financial stability? Like the famous Mike Tyson quote says, “Everyone has a plan until they get punched in the mouth”. In this episode, Eric talks with Jason about an unexpected opportunity to update his early retirement portfolio. Topics discussed include bond and cash allocations, asset location, and what they’re doing to manage extreme market volatility.
Show Notes
Essential Background:
- Asset allocation is a topic that has come up often on Two Sides of FI – and our portfolios have indeed changed over time. For more on our history there, don’t miss our two-part series from back in 2021. The show notes for “Getting Your FIRE Asset Allocation Right. Here’s Ours (Part 1)” are a great collection of resources on this topic; and here’s Part 2: “Comparing our FIRE Portfolios + Asset Allocations”
- For more on asset allocation decisions, don’t miss how Eric decided to move from a 100% stock allocation and added bonds to his portfolio. We have a two-part series: “I Rebalanced My FI/RE Portfolio and I Hate It!” (Part 1) and “Buying Bonds. Still Not Convinced I’m Doing the Right Thing!” (Part 2). As you’ll note, this decision was made prior to the market downturn in 2022. As a bonus, check out the conversation with Eric + his wife Laura, “FI-nancial Decisions – Transitioning to FI with Laura + Eric”, for a behind the scenes look at how they decided on their revised asset allocation.
- Relating to asset allocation, rebalancing, and several other topics we hit on in this episode, Jason and Eric talked about the former’s Investment Policy Statement (IPS) in Is This a Part of Your FIRE Plan?
- Times like there are good opportunities for stress testing your plan and considering alternate scenarios. We both find ProjectionLab an essential and easy-to-use software package to support this important practice. You can get your own free trial here.
- Unsurprisingly, the Safe Withdrawal Rate Toolbox came up in this conversation. For practical help with modeling your own safe withdrawal rate plan, don’t miss our very popular multi-part tutorial series on the SWR Toolbox. You can find them all here.
- Rebalancing is natural counterpart to any conversation about asset allocation. Are you interested in a free copy of the rebalancing tool that we use? That link will take you to it, as well as the episode in which it was discussed, Stock Market on FIRE: What We’re Doing in a Downturn.
A Bond Tent strategy is one of the common approaches used by the FIRE community to mitigate both Retirement Date + Sequence of Returns Risks. As is often the case, Michael Kitces has a great article on the topic. We couldn’t cover sufficient depth on this important topic in our episode, but this post has all the details you need.
Despite there being several good rules of thumb, the “right” asset location for bonds can be a controversial subject, and one that involves many factors to consider. Jason mentioned The White Coat Investor podcast and blog as having covered this topic before. Here are three articles worth your time, particularly for high income earners: Asset Location – Bonds Go In Taxable!, My 2 Asset Location Pet Peeves, and What Is Asset Location? Tax-Efficient Fund Placement.
How To Build A Retirement Paycheck: This is the first of three great Retirement Manifesto posts on author Fritz Gilbert’s implementation of the Bucket Strategy, which we have touched on in several episodes to date. Here you’ll find guidance on how to determine the asset allocation you’ll want to have in place by the time you retire early. The other two articles in the series are linked here as well.
Have you checked out the Two Sides of FI Discord server? If you’re not familiar, this is an instant messaging social network. Ours is meant to be a community for viewers of our show, as well as a space to discuss all things relation to FIRE. It’s totally open, free of charge, and is anonymous as you’d like. This makes it a safe space to talk about financial topics you might otherwise be sensitive about sharing. Come check it out and see if it fits your interests! There are both desktop and mobile apps available.
Did you know Jason resumed blogging? To be notified of his future posts, please consider subscribing here. He’s also archived his old blog, which documents the first two years after he retired from his career, which started even before Two Sides of FI began. Get more information on those archived posts here.
- Links + Resources
- Eric’s business: 30X40 Design Workshop
- Jason’s blog: the next phase is now
- Eric’s YouTube Channel
- Our podcast