This guest post is by Vaughn, a long-time Financial Samurai reader who retired at 44 and is now 55. Vaughn’s early retirement was driven by necessity rather than choice due to a congenital bone disease. Fortunately, his high income during his working years secured a solid SSDI benefit, and his mother’s foresight provided future rental income through a duplex. Vaughn shares his approach to maintaining an aggressive 80/20 retirement portfolio with 80% in equities and 20% in fixed income.
Imagine having an 80/20 stock/bond portfolio in retirement, or an even riskier allocation of 100% stocks. Most would not recommend such an extreme allocation for traditional retirees after the age of 65. But if you’re retiring early, maybe you’ll do just fine.
Living off the dividends of a heavily weighted stock portfolio (80/20) can be a retiree’s best friend, especially if they expect to be retired for a long time. I’m thinking about the would-be centenarian or the FIRE individual who ideally wants their assets to produce indefinitely, starting at an early age.
Let’s first discuss why people would object to a stock-heavy retirement portfolio. Then I’ll argue why the concerns may be overblown.
The Downside Of Having A Heavy Stock Weighting 80/20 Portfolio In Retirement
The cost of this 80/20 retirement portfolio comes in the form of extreme volatility.
Volatility is often defined as risk, but I disagree. To me, true risk is the permanent impairment of capital—losing money for good. Volatility, on the other hand, is just a feature of equity investing.
Next to the risk of losing my capital permanently, inflation is the biggest threat. It’s the risk that my money won’t be worth as much in five years as it is today. Inflation is like a silent killer—slow, creeping, and insidious. You might not even realize you’re in