Early 40s, FIRE Planning & Portfolio Strategy

Hello and welcome to the community! It’s great to see you’re actively planning for your financial future and considering various strategies for achieving financial independence and early retirement (FIRE). Let’s address your questions one by one.

1. Risk Mitigation Strategy:
   Your current strategy of relying on returning to work in the event of a market downturn, while maintaining a 2-year emergency fund, is a practical approach. However, incorporating bonds into your portfolio could provide additional stability and income, especially during volatile market periods. Bonds typically have a lower correlation with stock markets and can serve as a cushion when stock prices fall. Therefore, adding bonds might be a wise decision to mitigate risk further.

2. Building Bond Allocation:
   If you decide to include bonds, building up the allocation gradually could be more beneficial than a sudden rebalance closer to your FIRE date. Gradual allocation allows you to average out the purchase price of the bonds over time, potentially reducing risk and giving you more control over the portfolio balance as you approach retirement.

3. Adding VAS for Diversification:
   Adding VAS (Vanguard Australian Shares Index ETF) could indeed offer diversification benefits. While you have exposure to Australia through your PPOR (principal place of residence), jobs, and super, VAS would increase your exposure to Australian equities, which behave differently from real estate and employment income. Diversification across different asset classes and within asset classes (like different types of equities) can help reduce risk and smooth out returns over time.

4. Post-Retirement Portfolio Allocation:
   A common strategy for retirement is to shift towards a more conservative portfolio as you stop working, to preserve capital and maintain income. A 60% bonds and 40% stocks allocation could be appropriate depending

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Hey Elena – awesome situation to be in, credit to you for the hard work in getting yourselves where you are.

— Strategy: Cash is basically like bonds, so I personally wouldn’t bother. Your willingness to work part time is an enormous strength that not many people consider.

— Increasing allocation doesn’t make a lot of sense in my mind, since super is already enough to cover expenses. If you wanted to be conservative then sure, but you likely won’t spend down all your shares by then, so it’ll likely be overkill.

— As for Aussie shares, your jobs will disappear on purpose, your home is in AUD but isn’t an investment to live off, so I wouldn’t really count those, but yes your super may have a decent allocation. Up to you whether to add – it would give you an alternative fund to draw on in this 10 year period of early retirement before super, so he’s right that it would add some diversification in that sense.

— Portfolio allocation is massively personal and depends on risk appetite, so can’t really comment there. 60% bonds is unbelievably conservative, given your retirement is likely to be from say 50-odd to 90? That’s a long timefame to opt for a huge portion of your portfolio in low returns investments.

Hope that helps.