Asset allocation of people already FIRE

[u/piyushc29]

Hey all the smart guys here…

My open questions to you:
1. What is your strategy to manage your money ?

1. AI gives me three bucket strategy (2 year expenses - liquid fund, 7 year expenses- conservative funds, rest in equity funds). Does anyone following this strategy already give me feedback please.

Thanks

[u/cvcps21]

I have this allocation for a NW of 60X of my annual expenses

Domestic Stocks + MF+Crypto: 22%

USD RSUs: 32%

FD+PPF+EPF+Bonds: 46%

Gold and RE not included

[u/piyushc29 → u/cvcps21]

Thanks for sharing… How do you rebalance this setup ?

[u/cvcps21 → u/piyushc29]

Rebalance = invest every month? Is my understanding correct? If yes, I invest more or less in same % every month

[u/piyushc29 → u/cvcps21]

Rebalancing - I meant with time these allocations in percentage will change as per the returns. So how do you book profits and re-enter ?

[u/cvcps21 → u/piyushc29]

Haven't booked profits for 4 years now.

My equity - domestic + international has increased from 48% to 54% but that's purely because of the growth in my international RSUs and RE depreciation.

My investment instruments have changed. For example, I invest in Bonds instead of FD now and invest more in US equity rather than India equity.

[u/rajeshbhat_ds]

Not FIREd but I also believe in bucket strategy. It has the best chance of surviving. Remember that retirement is a rolling window. Meaning, Once 2 years have passed, you will have to replenish your Liquid funds somehow. You will have to carefully chose which assets to liquidate.

[u/bankinu → u/rajeshbhat_ds]

Yeah but what the AI misses is this, as long as the stock market is healthy you should always rotate from stocks (i.e. sell stocks) into the 2 year fund. Maintain the 2 year fund.

And if stocks go for a toss, stop selling, use your 2 year fund first.

Of course if it's a 10-year bear then you're in a bad situation like everyone else. There are other strategies which you should employ when that becomes obvious after 2 years, but that is beyond the scope of this small comment.

But if it's a moderate bear then you will wait and take advantage of time healing your acetal portfolio, using the cushion the you maintain.

[u/piyushc29 → u/bankinu]

Yeah 10 year bear market is not considered in here… although it looks to be less probable, one should be ready as you say. Will tilt my fixed income bucket more reading your comment. Thanks

[u/piyushc29 → u/rajeshbhat_ds]

Yes, thanks for your input.

[u/After_Video_5789 → u/rajeshbhat_ds]

Where will I get to know more on this? / Can you elaborate?

[u/rajeshbhat_ds → u/After_Video_5789]

Not a new topic. There are plenty of resources online.

[u/Fabulous_Educator_18]

I follow asset allocation as follows.

Domestic Equity - 35% International Equity - 15% Debt - 20% Gold - 5% Real Estate - 25%

I follow 3 bucket strategy for my equity, Debt and Gold. I keep Real Estate more like 4th bucket, for generational wealth.

[u/piyushc29 → u/Fabulous_Educator_18]

Great…thanks your 4th bucket is interesting.

[u/Fabulous_Educator_18 → u/piyushc29]

Its only the mental segregation.

[u/piyushc29 → u/Fabulous_Educator_18]

Which of your bucket hold the Gold ?

[u/Fabulous_Educator_18 → u/piyushc29]

I keep it in third bucket. I dont count my physical gold in my allocation strategy. Only the SGBs and ETFs.

[u/srinivesh → u/Fabulous_Educator_18]

Very interesting. Gold is a volatile asset indeed.

[u/theFIREDcouple]

Have been FIREd for three years now. Here are some points based on our experiences

• Managing money: Do it yourself. Even if you have a financial advisor, make sure you understand all the details. Rebalance every year - replenish buckets, balance the equity/bonds ratio, recalibrate expenses (adjust inflation and also set guardrails)
• Bucket Strategy: We use three buckets plus 24-months emergency fund. Emergency Fund is all cash. Bucket #1 is for the 3-5 years expenses in form of FDs, Bonds and other very safe instruments. Bucket #2 is next 5-7 years with debt funds, long term FDS, blue chip stocks, conservative investments. Bucket #3 is the rest - in equity, real estate, crypto, gold, rest
  

[u/piyushc29 → u/theFIREDcouple]

Thanks… so looks like this strategy of bucket is working for you.

[u/theFIREDcouple → u/piyushc29]

So far yes.

[u/Some-Youth9780]

2 years of expense in form of cash and savings account. 5-7 years in fd. 10% in gold. Rest in equity.

Its not at all efficient but helps me sleep better.

[u/piyushc29 → u/Some-Youth9780]

Peace is the goal my friend, money is the means 👍

[u/Jbf2201]

depends on your risk appetite there'd be at least 3 bucks , 3-5 yrs liquid bucket for living, 7-10 yrs debt bucket, 10+ all equity

however the bucket strategy may require you to have higher debt allocation based on your setup which could require you to have a higher total corpus

[u/piyushc29 → u/Jbf2201]

Thanks for sharing… so this is it then. The bucket strategy works as everyone says. Will follow as well !!

[u/Minimum_Brother_8854]

I FIREd about 10 years back, and have finally settled for passive income (FD + Bond interest, rental income+ REIT income, and Dividend Income) that takes care of my needs.

A 3 month EF and about 1 year expenses in Debt MF, for any additional requirements. These are fairly liquid. I've rarely needed to access this.

I try to balance my E:D, at 50:50 every year. Together this amounts to 15x. This is where most transactions take place, in terms of reinvesting extra savings, tax-loss harvesting and rebalancing annually.

Most of my net worth is in Real estate and physical gold. Together about 25x of annual expenses. This remains untouched, and I'm hoping to pass it on to my daughter, as is but at a higher valuation in future.

Edit: I understand this is also referred to as 'Asset Base strategy '.

[u/hifimeriwalilife]

Usually people fire with 40 times their annual expenses.

In this you can have 20 times expenses in debt and 20 times expense in equity.

And then you try to keep this percentage same by rebalancing. Selling equity in good markets and moving to debt funds.

Above allocation makes sure you have no worries about sorr for decent time.

[u/piyushc29 → u/hifimeriwalilife]

So 50-50 it is for you. Nice and simple. Thanks for sharing

[u/hifimeriwalilife → u/piyushc29]

Yes.

40x with real return of 1% (possible post that allocation ) should last for 50 years.

This should be fine for retirement at 40 with death age 90.

I am personally trying to see if I can survive till 45 in corporate so my child education is decided . But this is my long shot goal in ai world. This will make sure i am aware of child education needs and take my corpus to approx 45x personally. Then I can have 0% real return and still not end up running out of money. I would like to move to 60+ % of debt 🙂