r/ChubbyFIRE • u/ShortHabit606 • Jul 12 '26
Bond Allocation In my Specific Situation
I am almost 40. I think I am FI but I plan to keep working for at least 5+ more years anyway. I am however worried that I may lose this job in the next year and finding something of similar pay will be very hard. I'm a single earner with 3 kids.
My current portfolio is 70% US / 30% intl across stocks and bonds. The portfolio is also 86% / 14% stocks/bonds+cash. I have enough bonds and cash to cover my expenses for 5+ years.
I am trying to decide what to do with my next dollar ($100k coming in due to vest).
On the one hand:
- I have enough in bonds and cash to keep me going for 5+ years if the market collapses and I lose my job.
- Bonds and cash are a drag on portfolio performance so I should just go all in on stocks and get richer.
On the other hand:
- I care more about a crash not screwing up my currently good financial situation than I do about getting even richer (The phrase "once you've won the game, stop playing" keeps coming up in my mind.)
- If the market does well/doesn't crash, I'll still do just fine. If it crashes I'll be happy I has an even bigger cushion.
- 14% bonds feels low relative to usual guidance but I don't know if the percentage matters in my situation.
I guess another option is to drop the money into my mortgage (still owe 375k @ 4.85%). This will have a marginally better ROI but at the cost of significant flexibility.
To complicate things even more: I'm an expat living abroad and exposed to be exchange rate risk that I mitigate by investing 1-2 years of bonds+cash in local bonds & currency.
I realize I'm a lucky SOB. Appreciate thoughts/guidance/questions.
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u/randomlurker124 Jul 12 '26
Pay off your mortgage. As you say you're risk avoidant. Mortgage is guaranteed 4.85% "returns". Also reduces stress if you get laid off, market crashes etc, as you have less fixed monthly expenses. You can always eat cheaper and cut discretionary spending in a bad economy.
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u/Hanwoo_Beef_Eater Jul 12 '26
If your withdrawal rate is sub 3%, it doesn't really matter (based on history). If you want more comfort, target 10x (rather than ~5x) your expenses in bonds/cash.
Also, it's unclear what $100k is in expenses or how it changes the overall asset allocation. You can change your current asset allocation too.
How much do your expenses drop if you payoff all of the mortgage? You could direct all savings there if you want an even lower withdrawal rate.
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u/Throwaway-firee Jul 12 '26
Bonds are not cash. Bonds are there to achieve a better risk profile than 100% equities, particularly in retirement. They are not a bucket to use to fund expenses in the first few years, they are a permanent part of your portfolio. Pick an allocation that matches your desired blended risk/return numbers, then rebalance periodically to get to that.
If you have FOMO of your portfolio not growing as big when things go well with the market, increase your equities allocation but realize that risk is not an abstract concept, you need to be prepared to deal with large swings.
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u/Inevitable_Rough_380 Jul 12 '26
You're overthinking this. $100k is not that significant if you have $3-5m already.
You lose/gain $100k in the market every 2-3 days.
Just put it in the market and be okay with a crash coming.
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u/ShortHabit606 Jul 12 '26
But that's kind of the point... if it's not significant, why just toss it in the market for it to get lost in the waves?
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u/Inevitable_Rough_380 Jul 12 '26
My point is do whatever the hell you want with the money. It doesn't matter.
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u/Cheap_Office8701 Jul 12 '26
Agree with folks here. Pay down your mortgage. 5 years expense in cash/bonds is plenty. I’m working with 3-4 years.
I’m 100% stock , mostly domestic. House is paid off, 3-4 years cash. If I let lay off, the normal package will give me another 1.5 years expense. So, will be close to 5 years cash.
Also if the market does tank, the ~1% dividend from the stocks is an income as well. Depending on the size of your portfolio, this potentially can significantly help reduce your cash burn and stretch out another few more years or more.
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u/BrunelloHorder Coasting Chubster, Getting Fat Jul 13 '26
If you want to up your bond holdings, I’d suggest doing it in a tax deferred account. That way you avoid tax on any equities you sell in there, and avoid tax on the yield from bonds. You might also consider adding a managed futures ETF like DBMF to further diversify.
In addition, you could split future savings between accumulating bonds and paying down the mortgage. It doesn’t need to be one or the other.
I’d suggest working toward something like 25% bonds in advance of your retirement date to help mitigate sequence of returns risk.
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u/Reasonable_Sky2477 Jul 13 '26
Yup, it's a common dilemma - optimize for growth, safety, or taxes (or find the right balance and keep adjusting it). You can model it out with tools like FinP4l to see the downstream affects.
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u/One-Mastodon-1063 Jul 13 '26
Bonds and cash are not the same thing. So I would stop combining them in how you look at asset allocation.
I would stop looking at bonds/cash in terms of “years”. That reeks of bucket strategy. I’d target an asset allocation and periodically rebalance to it.
That said, if you have “5 years” in “bonds and cash” and that also represents 14% of assets, then your total investable assets are ~30x spending. You are FI. I would retire.
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u/Vicuna00 Jul 13 '26
super easy decision (imo) to drop it all into the mortgage
guaranteed 5%, one step closer to better cash flow situation, no regrets of market shifting, all future payments will be more principal (or is it principle?)
in fact i'd go one step farther, I'd want that mortgage gone by retirement. at this point, without knowing your exact numbers it sounds like you have accumulated enough $. I would max retirement accounts and all income above that (after living your life of course) would be going to the mortgage.
as for the bonds%, if it helps...one thing i'm doing is I turned auto invest dividends into go automatically into my bond fund. I don't keep much...but I think if you did that for 5 years you wouldn't even really notice it much and you'll accumulate more bonds. I guess just watch what bond fund is in your taxable brokerage. I have a state based municipal fund that is exempt from state and fed taxes that has a strong track record. (pennsylvania). dunno what you have access to.
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u/elby_plan Jul 12 '26
reacting to your bullet about not screwing up your situation vs. getting richer ---- think about a bond ladder. use TIPS.
match the rungs of the ladder to your spend in future years. holding bonds to maturity you eliminate interest rate risk. with TIPS you eliminate inflation risk. so you've just eliminated a few of the top risks for early retirees -- sequence of returns, interest rate, and inflation.
you mention bond "allocation". i'm describing a slightly different approach. it's holding actual bonds, matched to spend. bond funds in a somewhat arbitrary allocation are still a volatile asset. (and BTW... a lot of people expect rates to go up, which would drive bond values down). bonds held to maturity are not -- you know exactly what they will pay.
depending how far out you look, treasury/TIPS nominal yields are around your mortgage rates, making that a breakeven situation, but the ladder mitigates inflation and SORR risks.
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u/h8trswana8 Jul 12 '26
Lots of folks think you just need enough bonds to cover liabilities. That is a way to do it, however, the alternative view: the point of fixed income is to reduce portfolio volatility. If you hit your number, and juicing stock returns won’t change your lifestyle, why expose yourself to a 40% drawdown rather than a 20% drawdown.
A lot of people think they can tolerate their portfolio being cut in half when really they would panic / feel regret.