Investment Update Sep 2019 – The benefits of Asset Allocation

One of the key aspects of working towards Financial Independence is the asset allocation of our investments as we move towards FI, and after we have reached it. For many of the investment advisors we have talked with, their area of expertise is on the “accumulation” phase of investments, i.e. gaining the most and growing your investments.  This results in a larger weight towards stocks and reduced use of bonds and other fixed investments. The key with this is that if you have time, then ‘swing for the fences” and get the highest return.

But what happens as you close in on FI, or once you hit it? In some cases, folks continue to work, and so they don’t mind remaining heavily invested in stocks – as they can withstand a market correction like 2008/2009 – they just keep working and accumulating, and eventually it comes back.

However, as you get to the point in your FI journey where you are looking at the full “FIRE” reality (retire early) you start having to look at protecting what you have, and dialing back some of the stock investments. I don’t believe you should dial it back completely (after all, you could have 4+ decades to go before you pass away). This is where “asset allocation” becomes a part of your life.

For asset allocation, you determine the level of risk you are comfortable with at this time (it changes obviously as you move towards full retirement) and then determine the percentage of your investments you want in stocks, bonds, savings, and other assets. The objective is to maximize returns, while at the same time keeping your risk of major losses in line with what you are comfortable with.

As many of you know, the allocation for my retirement accounts (IRAs, 401K, etc) is pretty much index funds, spread out between the  S&P 500, small-cap, international, REITs and bonds.

Retirement Accounts: Remember, my allocation for these is:

  • 30% Bond Index Fund
  • 17.5% S&P500 Index Fund
  • 17.5% International Index Fund
  • 17.5% Small Cap Index Fund
  • 17.5% REIT Index Fund

My 401K doesn’t have REIT option, so its just 25% for each.

The folks more heavily invested in stocks have done better than me for 2019 (other than international stocks), though they did worse in 2018.

For the month of August, stocks were down (-1.6% for S&P500, 2% for international, and 4% for small cap) yet my REITS and bonds were up (+1.6% and +2.8%), so the end result for my accounts was only a -0.3%.

My dividend account allocation is:

  • 25% Dividend Stocks
  • 25% REITs
  • 50% Bond Index Funds

So as you can guess, it actually was up 1.3%

Overall, I’m just down -0.3% for August, and still trending at +13.3% for the year. My asset allocation may not be as “speedy” as some, but it allows me to sleep as night as I close in on FI. Only 10 Months left to go!

I hope you had a good August, and your journey continues to go well!

Mr. 39 Months

4 thoughts on “Investment Update Sep 2019 – The benefits of Asset Allocation”

  1. 30% bonds is your “close to FIRE” allocation?

    You can still see 35-40% swings with 70% stocks. 17.5% REIT is pretty high of a tilt.

    For someone who can live off 3% of their portfolio, 40-60% stocks seems the best range. But, personal finance has a lot of “personal” in it.

    1. I agree. I think everyone has their own way of allocating. Don’t forget, I’ve got Mrs. 39 Months in the equation as well, so it isn’t just me. As far as REITs go, I’ve always been a fan or real estate, and right now, this is my only way of working with it. When I hit FI, I’m considering getting into the rental/house flip lifestyle – we will see!

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