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Early 40s, FIRE Planning & Portfolio Strategy
Financial independence
Hi everyone, this is my first question. Thanks for creating such an awesome community! Quick background - Couple in early 40s, PPOR paid off. - Super on track to cover expenses from age 60. - Recently stopped salary sacrificing into super to focus on building investments outside of super. - Currently have $300k invested in VGS, aiming to grow this to $900k over the next six years, then FIRE and spend it down until preservation age. Questions - Our risk mitigation for market downturns (besides a 2-year emergency fund) is to continue or return to work if needed. This is why we're all in VGS. Is this a wise strategy, or should we consider adding bonds? - If we add bonds, should we build up the allocation gradually or rebalance closer to FIRE? - Is there merit in adding VAS? My partner believes it’s good for diversification, but I argue we’re already exposed to Australia through our PPOR, jobs, and super allocation. - Once we stop working entirely, what’s a good portfolio allocation? Would 60% bonds and 40% stocks be appropriate? Thanks in advance for your advice!
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Elena Papadopoulos
Asked on 15 December 2024
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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.
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.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.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.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 dependingShow more.....
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