No. of Recommendations: 3
GollumLives wrote"
At what point do you add bonds, savings accounts and the like to retirement investing and what do you buy? According to the retirement advice posted on the fool site stocks and possibly index funds are the most important thing for long term retirement investing. So that is just fine for while you are saving. At some point though you will want to have some protection against a downturn in the market when you are no longer earning an income. Do you put your money in a savings account, buy bonds, a bond fund, T bills or what?

Before you retire, volatility doesn't hurt you (except psychologically, but that's another discussion). Before retirement the goal is to maximize growth which implies a high percentage of equities and the attendant high volatility. In fact, many people invest nearly 100% in diversified equities prior to retirement, which offers the highest historical total return of all.

Then at about five years prior to retirement, most people start adding bonds to their portfolios to achieve an equity/bond ratio that suits their own personal tolerance for risk. Historical data suggests that a 75/25 equity/bond ratio will support the highest long term safe withdrawal rate (around 4%). However, the volatility of a 75/25 mix is substantial, so when I retired, I decided to use a 60/40 equity/bond mix which gives a lot less volatility and a slightly lower safe withdrawal rate.

During retirement, the portfolio should be rebalanced at least annually back to your chosen equity bond mix to assure your continued chosen withdrawal rate.

You also asked about what types of bonds to add. Well, most studies are based on a conservative bond porfolio that includes both treasuries and short term corporates. Of course, you can always add a little more potential income and a little more risk by using longer term bonds.

I recommend you read the Retire Early Home Page at .

You'll find all sorts of great studies and ideas for portfolio asset allocation in retirement.

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