RetireJapan

When I get closer to retirement I was thinking of using the permanent portfolio (25% international stocks, 25% international bonds, 25% Gold, 25% Cash) to limit draw downs: https://www.optimizedportfolio.com/permanent-portfolio/

If your primary worry is a major downturn at retirement time, I would second the earlier comment that recommended checking out Michael Kitces. There is a very good episode of the Mad Fientist podcast with him as a guest, where he addresses this very topic in some detail. https://podcasts.google.com/feed/aHR0cH ... 2MWI?ep=14

Regarding commodities, Andy Craig, author of "How to Own the World" is the one advisor that I've heard recommending them as a non-correlated portfolio hedge. (the majority of advisors don't seem to agree with him though)

Unless you think this sort of diversification will be the only thing to prevent you panicking and selling next time there's another major downwards swing, the attempt to overcompensate for volatility seems a bit moot... you're potentially tempering your own long-term growth prospects in exchange for an increased perception of stability. The far easier way to hedge for that retirement-date downturn risk is the simple "keep cash on hand" method.

RetireJapan wrote: ↑Mon Mar 15, 2021 4:59 am To deal with the issue you seem to be concerned about (stock crash just when you were planning to retire) I am thinking of having a cash fund with 3-5 years living expenses in, then using that for daily needs and selling investments once a year to top it up. If there were to be a crash I would just use the cash instead of selling. I think Michael Kitces writes about this with the glide path stuff: https://www.kitces.com/blog/should-equi ... ly-better/

Thanks Ben, that's a really clear-headed approach to the problem. It touches on something else I've been thinking about but haven't mentioned -- we usually talk about asset allocation in terms of x% equities (growth) and y% bonds/cash (low-risk), but it seems to me that the actual value of the low-risk portion -- having enough to ride out a market slump -- is more important than the percentage.

The article you linked is very interesting and I can see how it makes sense and ties into the topic. I haven't read beyond that article but I guess it implies rebalancing down to a lower-equity AA shortly before retirement.

Just to add to the choir: cash Yen (assuming you are retiring in Japan) sufficient to cover several years' of expenses. In addition to all the points Ben makes, Yen deposits are insured by the government up to 10 million per account. The only risk is inflation which, if it ever does occur, should be met with rising interest rates which will be hopefully be applied to fixed term deposits mitigating the downside. I am coming around to the view these days that stocks and cash are really the only two asset classes any normal person needs - especially now that the 40 year bond bull may be on its last legs.

eyeswideshut wrote: ↑Tue Mar 16, 2021 1:25 am Just to add to the choir: cash Yen (assuming you are retiring in Japan) sufficient to cover several years' of expenses. In addition to all the points Ben makes, Yen deposits are insured by the government up to 10 million per account. The only risk is inflation which, if it ever does occur, should be met with rising interest rates which will be hopefully be applied to fixed term deposits mitigating the downside. I am coming around to the view these days that stocks and cash are really the only two asset classes any normal person needs - especially now that the 40 year bond bull may be on its last legs.

Does a "Cash, not bonds" model really make sense when one can still get risk-free yield from American treasuries or even annuity products?

Does holding more than a year`s worth of cash make sense unless you are looking to make a down-payment on a house or property in the near future?

I wonder if age is a factor in some of these calculations. If commenters already own their own homes and are coasting towards retirement calculations are bound to be different.

Established wrote: ↑Tue Mar 16, 2021 1:42 am I wonder if age is a factor in some of these calculations.

Absolutely. We're talking about portfolios immediately before/heading into retirement. I am currently 100% stocks