[Jimansy]

I am 34 years old. I am at 50% of my FI number of 1.2million. I am currently 100% invested in index fund ETFs (+ emergency fund). At what point should I start diversifying into bonds? Or do I just stay 100% stocks in perpetuity?

I plan to retire before age of 40 and live a modest life.

Thanks.

[Michael]

I would stay 100% in stocks until 2 years out and then cut back on Traditional accounts and load up cash in the federal money market fund (VMFXX) at Vanguard if it is paying over 4% at the time. If it is below that, load up on the short term bond index fund (VBIRX).

This is money to be accessed early in retirement. P.S. I retired at 45 with this approach in March 2009.

Also, check out: What percent would you all invest in stocks, bonds, CDs? And lump sum or DCA?

[Carolyn]

I’d stay in ETFs 100% till you’re 5 years from retirement.

[Benjamin]

The rule of thumb is that you should have your age in bond- ie if you are 55 yo you should have 55% in bonds.

[Juliett]

I would stay where you are until you’re 5 years out from retirement.

1.2M is not enough to retire at 40 in most places.

Maybe at age 55. But that number is awfully low for 40.

[Tony]

I personally wouldn’t consider bonds until much later on in life (+/-60s). Your portfolio has plenty of time to keep growing at +/- 7%/yr on average while also enduring various recessions and down markets in the process.

[Tom]

If you are not set on the exact year of retirement, I wouldn’t do Bonds until 12 months prior.

IMHO they basically pace inflation. Better than cash, but why not let it make you money.

[Adam]

Remember, if you plan to retire at 40 and live to 90, you have 50 years until you need those “last” dollars. And your portfolio continues to grow using the 4% rule.

I prefer the bucket strategy with maybe 1-2 years cash equivalent and maybe 5-15% bonds during the FIRE/spending phase.

During accumulation phase I’ll be all equities and probably start buying 20-25% of new investments as bonds when I hit 5 years out from retirement.

[Bill]

We stayed 100% stocks up until the year my wife decided to retire. Then we abruptly moved to 70/30. We’ll ramp back up to at least 80/20 over the next several years.

For people on a “normal” retirement timeline, the recommendation is usually to start getting more conservative about 5 years out. I don’t think that is good advice for younger people though. Realistically, you are counting on market growth to get to your FI number.

If the market tanks a few years out, it’s going to delay your expected retirement date no matter what your allocation is. The bonds portion typically keeps your portfolio from falling as much, but it will still likely fall – not grow – in a down market.

[Author]

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