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93195 t1_jab14ki wrote

Not 100% stocks. You can’t afford to risk a possible 30% portfolio hit when you’re within a few years of retirement.

A target date fund would probably be a prudent move in a few more years. If you don’t want to risk 100% stocks (and you shouldn’t), let the pros worry about asset allocation.


91ge t1_jab1wdl wrote

What are the mechanics of moving to something like a target date fund, if I had been fully invested in equities for the previous ~30 or so years? Sell the equities and simply buy into a target date fund?


TheBestNarcissist t1_jab9myv wrote

From my understanding, yes, and since it's in an IRA you don't owe capital gains taxes.


93195 t1_jabai6h wrote

Yup. No tax implications of anything done within an IRA. Sell VTSAX, buy VFFVX.


splendid_zebra t1_jaccyn7 wrote

I just want to point out that some people MAY be able to ride the ride IF their retirement account is plenty large enough. It also is dependent on risk tolerance.


whisky_in_your_water t1_jactbhw wrote

Another option is a bond tent. Basically, shift your portfolio to 40% bonds as you get closer to retirement (say, over 5-10 years), and then glide back down to 100% stocks over 10 years or so. This is more useful for early retirees expecting a long retirement, but it can certainly work for anyone retiring at any age.

The intuition is that the biggest risk is sequence of returns risk, i.e. taking a big hit (your 30%) in the first few years of retirement, so the plan is to just protect the first 10 years or so of retirement. Invested money approximately doubles every 10 years, so your 60% stocks should be 120% of their original value after 10 years, which is enough buffer to ride out another hit without needing bonds.

This strategy obviously takes some effort, so it's only really valuable if you expect to have a long time horizon.