1. The allocation between equities and bonds depends on when you will retire:
|Time to retirement||% in stocks||% in bonds|
My view-point: Very aggressive and risky
2. If your investing horizon is longer than your living horizon, then the wiser, better decision is to invest 100% in equities.
My view-point: True, but you need to be really sure you are leaving it for the next generation
3. There are five major unknowns:
- Rate of return on investments
4. How to withdraw money during retirement:
- 4% annual withdrawal of a three-year moving average of your portfolio
- If u need to withdraw 5% then put a rolling 5 years expenditure in medium-term bonds and the rest in equity the year you retire.Each year convert 1 year spending from equities to bonds. If equity has good prospects- then 2 years spending in bonds. If equity has great prospects- then 3 years spending in bonds.
- Only spend the cash income of a portfolio( dividends and interest)
- If u spend 6% you will run out of money.
5. Long term returns of various asset classes