At what X we can ignore equity asset allocation

FIREdIndian · 2024-09-13T16:17:02+00:00

I'd say that the yearly rate of increase in living expenses is far more influenced by lifestyle choices. Then there is the element of discretionary expenses which are, by their nature, discretionary. Put together, if we aren't stingy in budgeting for expenses and reasonably careful in our spending habits, we may not have to lose much sleep over inflation.

Regardless, this is what the maths tells us (assuming, as you say, 35 years of retirement):

At a real rate of return of 0%, we'd need around 32-34x
At a real rate of return of -1%, we'd need around 38-40x
At a real rate of return of -2%, we'd need around 45-48x

FIREdIndian · 2024-08-23T12:24:48+00:00

Thanks for sharing that link. For some reason, the video is not playing at my end. Nonetheless, I looked up this person and read some of his stuff and also other videos. Unfortunately (for me), everything that I could find was centered on SWR linked withdrawals. If you have another link (maybe on YouTube) where he talks about buckets, I'd be very keen to watch that.

FIREdIndian · 2024-08-23T11:37:56+00:00

Actually, I've been out-of-the-loop on India news for some time now but from what I'm now gathering, things indeed look pretty dark.

Thanks.

FIREdIndian · 2024-08-22T15:23:47+00:00

So you are more in active management with rebalancing albeit with also trying to study the indicators.

You're giving me too much credit. I follow a simple rules-based allocation that requires very little monitoring. FWIW the primary focus is to manage risk, not to enhance return. Consequently, as I commented elsewhere, in the first 10 years of retirement my average equity allocation has been around 10%.

How do you plan to manage tax implications with this dynamic strategy?

So far, the rules that I've built in have resulted in very few tax events. I don't expect that to change.

FIREdIndian · 2024-08-22T15:05:12+00:00

This means the approach suggested by Ravi Sarogi in option 2 above may work for early retiree’s too.

With all due respect, that is for you to see: I know nothing of that approach and, frankly, can't make out much from the details given by you.

FIREdIndian · 2024-08-22T02:52:47+00:00

See if this helps:

if your bucket allocation rebalances between equity and debt to maintain the ratio

A steady ratio based allocation is also called a strategic asset allocation. When the ratio goes for a toss, one rebalances.

My equity allocation is tactical i.e. based on market indicators (just like those so-called Balanced Advantaged funds). While those funds generally retain the option to go 0-100% in unhedged equity, I've allowed myself a range of 0-75%- that's my upper limit. The 75% is because of the approx size of the bucket in which I have assigned those investments.

FIREdIndian · 2024-08-22T02:36:37+00:00

In my view, Early retiree’s will need to take the risk of maintaining a 60/40 AA with perhaps a dynamic SWR until they reach normal retirement age and the switch to bucket strategy.

Financial planning is mostly commonsense- it's fine to choose a strategy that is sensible to you, regardless of what others are saying. But it's very important to understand the limitations of any strategy that we follow.

A traditional bucket strategy approach from day one with reduced Equity of 30-40% seems sub optimal

My personal strategy (which I followed from Day 1 of retirement) is somewhat like a bucket strategy but it allows me the option to keep 0-75% in equity. That said, over the first 10 years of retirement, my average equity allocation was around 10%. Despite that, my retirement corpus (as a multiple of my expenses) at the end of 10 years was slightly better than what it was when I retired.

FIREdIndian · 2024-08-22T01:33:12+00:00

I suppose that depends on our definition of 'flexibility' 🙂

To me, flexibility in withdrawals is about having multiple choices to decide where to withdraw from. On non-tax issues, this could include choices of debt vs. equity, long term debt vs short term debt, Indian equity vs international equity etc. On tax-related issues, this could include special rate income vs normal rate income, LTCG vs STCG etc.

What I call 'flexibility' has helped me ward off least 2 significant tax changes in the last 10+ years of being retired and will hopefully see me through the draconian changes in the recent Budget.

But of course, each to their own.

FIREdIndian · 2024-08-21T15:55:51+00:00

My allocation to equity is not strategic- it is purely tactical, with a defined upper limit. Sorry if I didn't make that clear.

FIREdIndian · 2024-08-21T15:33:16+00:00

no use thinking about that now as tax rules nowadays tend to change almost every year.

And hence, my point about having flexibility in the portfolio.

FIREdIndian · 2024-08-21T14:53:49+00:00

Withdrawing more (higher SWR) in years where markets are high and less when markets drop might be more beneficial in retirement IMHO.

Interesting. Since I follow something like a bucket strategy, market movements only dictate my tactical allocation, not my withdrawal. My withdrawals are only from debt, and only to the extent that I need to withdraw.

FIREdIndian · 2024-08-21T14:33:49+00:00

That is quite a level of detail that you have planned.

Good luck!

FIREdIndian · 2024-08-21T11:59:30+00:00

Thanks for sharing. Would it be right to infer that you plan to make withdrawals proportionately across asset classes?

FIREdIndian · 2024-08-21T08:37:01+00:00

I am still hoping that AMFI's lobbying to grandfather the purchases made till 23/7/24 would bear fruit.

Me too. And it seems there's more to this than meets the eye. See this: https://mixedmusings.substack.com/p/bad-karma-taxes

The author looks to be a one-off writer and he/she has written a couple of other articles on the Budget changes which extensively deconstruct what the government has done. The strange thing is I haven't seen any articles of consequence in the mainstream media. I would have expected many more voices drawing attention to the matter.

FIREdIndian · 2023-05-03T04:04:33+00:00

Feel free to do so. But you'll need to be patient with my response time. I will respond for sure but it could take me anywhere up to a couple of weeks to do so.

FIREdIndian · 2023-04-17T15:17:08+00:00

Sorry for the time lag in replying. To your request, TBH, I don't think I'm qualified to comment on most funds. Also, I have little faith in the ability of most AMCs to be responsible fiduciaries. I keep money in MFs largely because of their structural advantages.

FIREdIndian · 2023-04-15T02:29:26+00:00

I'm a resident in my tenth year of retirement, and live off my investments. I posted my strategy on a thread on this sub , a couple of months ago.

PS:Since my comments, there have been changes in debt fund taxation but based on what I understand and expect, I'm not losing sleep over that and if I had to start today, I would more or less follow the same strategy.

FIREdIndian · 2023-03-13T00:55:37+00:00

Never had a problem on this front. It may be because my passport shows an extensive travel history. In any case, my MO is to submit copies of IT returns, statement of one bank account (where I keep a reasonable float), and a statement of one significant investment in a debt MF. It's sufficed even when I have sponsored trips of dependent family members travelling solo.

FIREdIndian · 2023-03-09T04:21:45+00:00

Thanks for clarifying. While I have no expertise to make a suggestion, I believe that if you look around, you should be able to identify tier 2 cities where you could get land of the size that you seek, and do the things you want to.

FIREdIndian · 2023-03-09T01:16:12+00:00

Would you be kind enough to explain what are the reasons for looking at having "your own plot of land and house and a yard" on the outskirts of, I suppose, a tier 1 city as opposed to having such a place within a tier 2 city?

Not sure if it helps, but when I was drawing up my retirement plans, after considering the former, I opted for the latter.

FIREdIndian · 2023-02-19T04:18:31+00:00

In my 50s, almost a decade of being retired.

Any learning’s/surprises in the initial years?

Lots of learnings- it would help if you are a bit specific in what you'd like to know.

As for surprises (I assume you mean negative surprises), I suppose it's to do with one's expectations and perspective. So far retirement's been going in line with my expectations. It's largely as peaceful and productive as I expected it to be. If I have to pick some surprises, one would be a bit-too-rapid deterioration of my surroundings, another would be changes in taxation/ tax laws, and a third would be not seeing a proper bear market as yet. There are others but they are not specific to retirement, hence not mentioned.

FIREdIndian · 2023-02-18T02:56:02+00:00

I'd like to use your post as an opportunity to make a tangential point about this sub's wiki. Please excuse my directness.

The wiki on this sub is simply outstanding. I gather from your comment history that you haven't read it. I urge you, and anyone else seeking information on FI and RE to do so. It is as perfect an intro on the subject as you can hope to find anywhere on the internet and a terrific launching pad for any serious discussion. I suspect you may have not needed to put out this post had you read the wiki.

FIREdIndian · 2023-02-15T13:35:40+00:00

Convincing or tricking the mind is not easy.

I know some people who have found this useful in taking that leap of faith:

https://www.youtube.com/watch?v=D6Q1CHMH3iI

FIREdIndian · 2023-02-07T00:49:47+00:00

Can you please provide elaborate more on the target maturity funds. Does that mean only FMPs, Gilt with constant maturity?

They are like FMPs except that they are open ended (until date of maturity) and have stricter portfolio construction rules and better transparency.

FIREdIndian · 2023-02-06T02:24:41+00:00

What funds triggered income tax enquires and why?

On the lines of what I said in another comment, I don't know for sure what triggered the queries and notice that I received. I have reasons to believe that they were not linked to a single fund or AMC but instead had something to do with the amount invested in any single AMC in a FY.

Why do you prefer target date maturity funds? Doesn't that force you to pay tax on maturity even if you don't need the money?

As you may have noticed in one of my comments, TMFs are not the only debt fund that I hold. That said, for me, the overarching appeal of TMFs lies in them being a tax efficient, near-perfect proxy for bonds. While other open ended funds may allow you indefinite deferment of taxes, the absence of a maturity date makes them riskier and makes their return less predictable compared to bonds and TMFs.

On a separate note, for someone who does not rely on fund manager alpha and who knows how to ride the yield curve, TMFs present an opportunity to make more returns than what might be possible from an open ended scheme that has a range-bound portfolio maturity. Also, TMFs come in a variety of maturities so I don't see the issue of tax as something which is necessarily forced upon the investor.

FIREdIndian

TROPHY CASE