Is it time to rebalance your early retirement portfolio? With the Dow Jones breaking 25,000 this week (I remember when it broke 1,000!) – and after posting 37% growth since the 2016 Presidential Election – maybe it is time to look at your balance of stocks, bonds, and cash and ensure that you have not become overweighted in equities?
The year 2017 was a great year for most investors from start to finish. Our portfolio lagged until the final two months, but finished really strong. They say that the biggest risk your retirement nest egg faces is the market’s performance in your first few years of not working. I’m happy to say that we have had two solid ones so far and are ahead of our FIRE projections,
At the end of the year, we cashed out a lot of stock options that were expiring soon and that helped offset the gains we had in our other stock holdings. Since we didn’t reinvest the money at this point – we kept it in cash – it has effectively rebalanced our portfolio without us spending a lot of time thinking about it. Our cash balances had drawn down to what equals a couple years spending for us. By cashing out those stock options, our cash balance is now back up to about 3 years spending – where I want it to be.
Here’s what our investment mix looks like right now:
My goal is to keep the relatively ‘safe’ stuff – cash, pension, real estate, and bond funds – at roughly the same percent of our portfolio that matches my age. I’m just over 50 now and the yellow/green ranges on the chart almost perfectly match that benchmark.
I’m told by my financial planner that I likely could be more aggressive in investing. Since we are healthy, carry no debt, and have no risk of losing our jobs (we don’t have any!), we could probably tip the portfolio another 5-10 percentage points toward the more risky investments. I see that naturally happening over the course of 2018 as we spend some of our cash.
Some of the strategy here has to involve where you think the market is going to go in 2018. I don’t have any idea, of course, and have seen articles that claim the bull is likely to keep running at the same time other articles expect that a bear is now due to emerge. I will remain cautiously optimistic, but assume the market is pretty fairly valued or maybe tipped to risk after the nice run that we have had. If we could get +5% growth in the S&P 500 this year, I think I would consider that successful.
What do you think the stock market will do in 2018? Are you balancing your portfolio to take advantage of that?
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