Many people want to know whether they should rebalance their portfolios. This is an excellent question, and it becomes essential once in retirement.
Rebalancing is the fact of selling the shares that have overperformed and then buy the stocks that underperformed. The idea is to keep your portfolio allocation to the same level.
People disagree on whether you should rebalance in retirement or not. People do not even agree on that during the accumulation phase. So we will cover this subject as well.
And since I now have a lot of data about the stock market, I figured it would be great to use. So, I am also going to simulate whether it has historically been better to rebalance or not.
The data on this article is based on more than 3.2 million simulations of withdrawal rates! So, without further ado, let’s delve into rebalancing!
Continue reading “Should you rebalance your portfolio in retirement?”
If you plan to retire early based on a withdrawal rate strategy, you base your FIRE plan on historical data. So, what would happen if the future is very different from the past?
We obviously cannot predict the future. So, what can we do? We can improve our FIRE plan with some margin of safety!
In this article, we will see several ways of adding some margin of safety into your FIRE planning.
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Your Safe Withdrawal Rate (SWR) is an essential component of your retirement planning if you plan to retire based on your investment portfolio. We have already talked at length about this method of retirement, the essence of the Financial Independence and Retire Early (FIRE) movement.
But we have not talked in-depth about how to choose a Safe Withdrawal Rate for your situation. No SWR would fit every situation. And while there are some rules of thumb, it is still something you have to decide for yourself.
So, by the end of this step-by-step guide, you should know how to choose your Safe Withdrawal Rate.
Continue reading “How to choose a Safe Withdrawal Rate?”
You have probably heard of the 4% rule if you are interested in early retirement. This rule states that if you withdraw 4% of your portfolio every year, you can sustain your withdrawals for 30 years. But do you know where it comes from? If you have read a lot about it, you probably heard about the Trinity Study. This study is where it all started.
But do you know what the Trinity Study is? Probably not. A lot of things people are saying about the Trinity Study are not correct. A lot of people talking about this study have not even read the original paper.
There is nothing mystical about this study. It is merely a research paper by three professors of The Trinity University. Hence the name.
And do you know that it has nothing to do with early retirement? So, why is it the cornerstone of most Early Retirement articles?
Continue reading “All you need to know about the Trinity Study”
Many people are saying that I make FIRE and early retirement look too simple. And many people are falling into the trap of believing that retiring early is easy.
I want to delve into that important subject. For me, retiring early is simple. There is no doubt. However, it is not easy! The difference is fundamental. And there are no secrets to getting to FIRE. You need to focus your efforts on that goal. And how much effort you are going to put into it will shape how fast you can retire.
So, let’s see why FIRE and early retirement are simple concepts but not easy to reach.
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Having a personal finance routine can help save time and money! For a lot of people, having a strict routine will help them remember essential things. It is the case for me. Each month, I am following the same personal finance routine for my budget. In this article, I am going to describe the steps I am doing every month.
It is great to have a routine. It helps you get more efficient, and like this, you do not forget to do anything. And once you start doing it routinely, it becomes automatic, and you will save time. And time is your most important resource. And following a personal finance routine will help you avoid mistakes and maybe save money in the process!
Of course, you do not need to follow the same steps as me. You should probably not have the same steps. Every people can have different things to do based on the way they are investing or based on their situation.
But I would encourage you to define least a monthly routine clearly. You can use mine as a base template if you want. And why not even a weekly routine?
So, here are the 13 steps of my monthly personal finance routine.
Continue reading “The 13 Steps of My Monthly Personal Finance Routine”
A widespread misconception about the Trinity Study is that people believe that they will withdraw 4% of the current portfolio. If the portfolio is worth 1’000’000 USD this year, they can withdraw 4% of it, 40’000 USD.
But in reality, the withdrawal is based on the initial portfolio at the time of retirement. If you start with 800’000 USD, you can withdraw 32’000 USD of it. And then, you adjust the withdrawal every year for inflation. During the first year, this is the same thing, but these two methods are widely different in the following years.
But what would happen if you were to withdraw based on your current portfolio and not the initial portfolio? Let’s find out!
Continue reading “Can you withdraw 4% of your current portfolio?”
I have recently done simulations of how often you should invest to maximize your gains. And I thought that it would also be interesting to simulate how often we should withdraw money from the portfolio while in retirement.
If you are retired and living from your portfolio, you will have to withdraw money from the portfolio to pay for your expenses. For this, you have to sell shares and use the proceeds to live.
But how often should you do that? Does it even matter (hint: it does!)? This is what we are going to see in this article. I am going to use historical to simulate different withdrawal frequencies for different Safe Withdrawal Rates.
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We have already covered a lot on the subject of Financial Independence (FI). However, we need to go into more detail about the FI Number. Your FI Number is an essential Personal Finance Metric.
Your FI number will tell you how much money you need to be financially independent or retire. It is essential to know this number precisely if you want to see where you stand in your journey towards Financial Freedom. It sounds straightforward. But it is not as simple as it looks.
If you want an accurate view of your FI number, you need to estimate how your expenses will be once you are financially independent. And you also need to consider your future income. There is also a second more straightforward strategy where you only consider your current expenses. We are going to see all of that and more!
This article will cover in detail how to calculate your Financial Independence (FI) number.
Continue reading “Your FI Number – How much do you need to retire?”
There are three main axes of personal finance: your expenses, your income, and investing. These axes are the ones on which you can work to improve your personal finance.
In the end, you want to improve your wealth or improve your state of living. Whether you want to retire early or afford an expensive vacation to Hawaii, you can work on these three axes.
In this article, we will see what you can do to improve your financial situation by using the three axes of personal finance.
Continue reading “The Three Axes of Personal Finance”