Hi Friends, 

What percentage of your portfolio should you hold in stocks? The answer for most people is probably higher than you may think. At Presilium we plan for our clients to live to at least age 95, and hopefully longer. Holding a high percentage of your portfolio in bonds can lead to a lower long-term return and consequently limit the financial goals you can reach during your lifetime.

Let’s look at a real-world example together:

Jake and Emma have just retired at age 60 and have $5 Million saved for retirement. They would like to spend $200,000/year after taxes with a raise each year for inflation going forward. They need to decide how much of their portfolio to keep in bonds during their retirement.

To help them make this important decision, we used the long-term average returns of the S&P 500 and of 10-year government bonds.

If they keep 100% of their portfolio in bonds and earn a long-term average of 4.25%/year they will be able to spend $200,000/year but their portfolio will have shrunk to about $2.4 Million, and they will eventually run out of money if they live long enough.

If they feel comfortable holding 50% stock and 50% bonds and receive a 7% annual return, their portfolio will grow to $7.6 Million, and they will likely never run out of money- even if they live to 120.

Finally, if they were comfortable with market volatility along the way and choose a 70% stock and 30% bond model, which by the way will still allow them to keep about 9 years in the more stable bond side of their portfolio, they will have $10.5 Million at age 95- likely $8 Million more than the all-bond portfolio. That is a lot of extra vacations, hobbies, gifts, and financial freedom during their retirement.

Deciding what percentage of your portfolio to keep in stocks vs. bonds and cash will be one of the most important decisions you make in your financial life. It should match your financial plan and be stress tested to ensure that you will feel comfortable maintaining it during a wide variety of market conditions. We are happy to discuss this with you at any time. 

Thank you and we look forward to talking with you next Friday. 

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