Portfolios and Withdrawal Simulations

The FIRE movement stands for Financial Independence, Retire Early.

It is a lifestyle and financial movement that aims to achieve financial independence and retire early by saving and investing a high percentage of their income, living frugally, and avoiding consumer debt.

The idea is to accumulate enough wealth to cover living expenses and retire before the typical retirement age.

The ideal portfolio for your retirement

Unlike when you're saving, where it's okay to take more risks, when you're retired, it's smarter to have a balanced mix of different types of investments.

A balanced mix of investments, like some in stocks and some in bonds, helps you avoid big losses when the stock market is unpredictable.

In retirement, the impact of the stock market going down can hurt more, especially when you're taking money out of your savings. But a balanced mix spreads the risk, so if one part isn't doing well, the others might be. This helps keep your savings from dropping too much.

The Significance of Sequence Risk

Decumulation is the stage in an investor's journey where they start using the wealth accumulated during their working years to fund their retirement.

This phase is marked by a shift in focus from capital appreciation to generating income and preserving wealth. During decumulation, individuals often rely on their investment portfolios, pensions, and other assets to cover living expenses.

Sequence risk refers to the order in which investment returns occur. For retirees, a crucial concern is the sequence of returns risk during the initial years of the decumulation phase.

If a portfolio experiences a significant downturn early on, it can have lasting negative effects, even if the market eventually recovers. This happens because, with your witdrawals, you can run out of money if your capital becomes very poor.

For this reason, avoiding big drawdowns is very important; that's why, for retirement, a balanced asset allocation, even with a modest return, can be fundamental.

Some examples

If you are already an expert, we can suggest you to go to practice and consult our Homepage. Otherwise you can learn more following our guide here.

Let's introduce a set of portfolios for you to start exploring.

Balanced Portfolios (mix of Stocks and Bonds)

US Stocks/Bonds 60/40
US Stocks/Bonds 40/60

Portfolios with Gold

Permanent Portfolio
Golden Butterfly
All Weather Portfolio

Asset Classes

Total US Stock Market
Total US Bond Market