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Glide Path Starting Point Mix
Huge ERN fan! My first time posting here. I’ve been working my way through all of the posts (and data!) and have a question on how to implement a guide path mix in practice.
Unless I’m missing something, my takeaway is if we’re comfortable in 100% equity ultimately but are most concerned (as it sounds like we should be) with sequence of returns risk, a 80–>100 or 60–>100 glide path would be the best option, especially if we’re looking to retire in a high stock valuation time period.
My question is around how to get to the starting place. Is the idea that we’re saving into the starting mix (eg 80/20) along the accumulation phase? Or rebalancing into it from 100% equity when ready to start glide path? Feels like the trade off would be tax implications at rebalancing versus return upside in accumulation phase.
Thanks in advance for any thoughts!
Good question. I haven't written about the GP toward retirement yet. Hopefully, next week I'll have a post addressing that issue! 🙂
Also, rebalancing should likely be done in the tax-efficient accounts. That's something everyone has to plan for individually! If you have no tax-efficient accounts at all, you definitely have to start a GP toward 80/20 through new cash flows into bonds during the last few years before retirement so as to avoid generating large equity capital gains!
If most of your assets are in taxable accounts, one strategy could be to get at or close to your target amount of equities then save bonds for your last "bucket" to save and you wouldn't have to do many tax triggering transactions. Just don't reinvest dividends and use those to get to your target glide path. Say if your target was 800k equities/200k bonds, and you're 3 years out with 800k in 100% equities just buy $67k in bonds per year with new contributions + un-reinvested dividends.
If you have a mortgage though you might want to pay it off before or while you transition to bonds if it has a higher interest rate than bonds will pay.
Looking forward to ERN's post on timing strategies on when to start the bond tent!