Should I lower my mix of stocks now that I have used my Reserve?
Posted on September 27, 2024

I used my Reserve for my spending in 2023 because the returns in 2022 were so poor that I wanted to give both stocks and bonds a chance to recover. (See Chapter 7, Nest Egg Care). I rebalanced last December – without thought – to my mix of 85% stocks that I had for my Investment Portfolio. The question I asked myself this week was, “Should I change my investment mix to 80% stocks?”

My answer is, “No”. I have enough protection from outliving our portfolio with my current mix of 85% stocks: 80% doesn’t lowerthe risk of outliving our money by a significant degree.

Details:

My total portfolio was ~80% stocks at the start of my plan. That was ~5% Reserve + 85% stocks for the balance I describe as my Investment Portfolio (Chapter 1, Nest Egg Care). Now that I’ve used my Reserve, I have only my Investment Portfolio at 85% stocks.

I spent time this looking again at this post and its spreadsheets to see the difference in downside risk of a portfolio that is 85% stocks vs. one that is 80% stocks..

The baseline spreadsheet showed a better outcome than I find with FIRECalc. For example, my base spreadsheet using the same data inputs showed no chance for depletion for 21 years. FIRECalc shows 20 years. I use a different data source for stock and bond returns than FIRECalc. I trust my spreadsheet is accurate.

In general, the years to depletion – the risk of outliving your money – is not affected that much by the choice of mix. (Investing cost is much more important, for example.) You don’t find much difference in terms of the number of years for a full withdrawal for your spending between 85% stocks, 80% stocks or 75% stocks. The spreadsheet that I used in the prior post confirms that.

I compared the results with 80% stocks and with 85% stocks. My table summarizes the differences: no meaningful change. I’m sticking with our 85% mix.

Conclusion: Patti and I basically started our retirement plan in late 2014 with a mix of 80% stocks. I used ~5% off the top – the initial “Reserve” – for our spending for 2023 and have rebalanced to 85% since then. This week I asked myself if the change in our total portfolio mix altered our risk of outliving our portfolio to any significant degree. I re-ran spreadsheets from a post about three years ago that calculated the years of full withdrawals for spending – using the same steps that FIRECalc uses. I find no meaningful change in the number of years for full withdrawals for 85% mix of stocks compared to 80%. I’m staying with 85% mix even though I no longer have a Reserve.