So just how oddball is my idea?
Every guide I am reading keeps mentioning that the older you are, the higher your allocation to bonds should be. If your young and carefree, its fine to go all-in on stocks as there is plenty of time to gain back in case of a crash. But if your over 60, then its better to have a lot in bonds to protect your nest egg. This advice usually comes in the form of "100-age" percentage allocation or similar.
The thing that doesn't make sense to me is that not everyone begins investing while young and not everyone ends investing when old. Someone 30 years old doing the MrMoneyMustash plan to retire early and someone 30 years old who got a late start in life and is just now starting to invest would, according to age, should in theory have the same bond allocation since they are the same age. This doesn't make much sense to me.
So I started thinking of the "why" behind this rule. Its about protecting any investment you have built up. And to me at least, that feels a lot like the gameshow "Who wants to be a millionaire". Just starting out and its the $100 question. Meh! Who cares. Take a risk and be wild. What's the worst that can happen. Get up to $10,000 and now maybe you should be more careful. At $100,000 I would be paranoid beyond belief. Bond allocation feels the same way. To use the previous examples, The "retire early" 30 year old would have a much greater bond allocation because they have much more to lose. The 30 year old with just $100 in the account can risk going all stock.
The exact percentage I don't quite know, but the rule of thumb I am thinking about is based off the general guide of "you need 8x your yearly pay in order to retire". So what about 10% in bonds for every year of pay you have in your portfolio? Just starting out (regardless of age) and you have 0x in your portfolio so you should have 0% stocks. Halfway there and you have 4x your pay in your portfolio would be 40% stocks. Ready to retire with 8x in your portfolio would be 80% stocks and I admit that is a bit high but not unheard of.
So just how oddball is my idea?
Submitted November 17, 2021 at 04:57AM by jackelfrink https://ift.tt/323L4dP
