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3 fund retirement strategy (self.personalfinance)

submitted 2 weeks ago by root to c/[email protected]

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For someone in their 30s, does the following allocations make sense? The goal is to have a fair amount of diversity and to more or less “set it and forget it”

55% VG INST 500 IDX 35% VG INTL STOCK IDX 10% VG TOT BD MKT IDX

I’m wondering if maybe there should be less in International and more in one of the other two, etc

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[–] [email protected] 2 points 2 weeks ago

Agreed. IMO, there's no reason have much of anything in bonds until you're close to retirement. 10% is fine if you want some bonds to even out returns a bit, but the only reasons I can think of to have any significant amount in bonds are:

you have super low risk tolerance - as in, you're likely to panic sell if stocks drop a bunch; it's better to have worse returns than to panic sell at the worst possible time
you need to live off the money - bonds are stable, and if the market tanks, you're guaranteed to always at least have your bond portion available for use

The only bonds I have are part of my emergency fund (half in t-bills, half in money market fund), and I don't intend to buy any more than that until I'm about 10 years from retirement. And even then, I'm considering a bond tent, meaning I'd buy bonds just before retiring (5-10 years) and then draw them down to zero over a longer term (10-20 years) and then be 100% stocks. The idea here is that my stocks will grow enough over that bond tent period that I won't need to worry about sequence of returns risk anymore since the stocks will more than make up for it. But even loading up to 40% or whatever in the 10 years prior to retirement is pretty reasonable (switch contributions to all bonds), if you want that security of a larger bond position.