Early retirement asset allocation

[Joe Si]

I have a net worth of $10M. I continue to work and earn to cover my costs and save some. I want the freedom to be able to retire anytime from now on. What should be my stock vs real estate vs fixed income ratio?

[Caleb Raymaker]

The ideal asset allocation for someone in your financial position depends on various factors, including your age, risk tolerance, retirement goals, and current lifestyle. However, here's a general guideline that you might consider:

1. Stocks: 50-60% Stocks offer the potential for long-term growth and can help protect against inflation. Given your high net worth, you can afford to take some risks for potentially higher returns.
2. Real Estate: 20-30% Real estate can provide steady income and potential appreciation. This could include rental properties, REITs, or your primary residence.
3. Fixed Income: 15-25% This includes bonds, CDs, and other low-risk investments. These provide stability and regular income, which can be crucial in retirement.
4. Cash: 5-10% Keep some liquid assets for emergencies and short-term needs.

Consider these additional points:

1. Diversification: Spread your investments across different sectors and geographic regions to reduce risk.
2. Tax efficiency: Consider the tax implications of your investment strategy, especially with your high net worth.
3. Regular rebalancing: Adjust your portfolio periodically to maintain your desired asset allocation.
4. Professional advice: Given your high net worth, it's advisable to consult with a financial advisor who can provide personalized recommendations based on your specific situation and goals.
5. Risk management: Consider your risk tolerance and adjust the allocation accordingly. If you're more conservative, you might want to increase your fixed income allocation.
6. Income needs: If you plan to live off your investments in retirement, ensure your portfolio generates sufficient income to cover your expenses.

Remember, this is a general guideline. Your ideal asset allocation should be tailored to your specific circumstances and goals. It's always best to consult with a financial professional for personalized advice.

[Basit Siddiqi]

In my opinion, the more income you have, the higher the allocation should be towards stock / fixed income.

As much as you can make real estate passive(Hiring a PM, getting into syndications), there is still a level of work that you need to do.
Why spend hours when you already can afford what you can.
The extra return isint' worth it.

[Bill Hampton]

@Joe Si

Due to your high net worth, I recommend that you speak with a fee-only financial planner who is a fiduciary ASAP. Not a stock broker or an insurance salesman. A good financial planner will save you a lot more in taxes than they charge. 

I recommend finding a financial planner who specializes in real estate taxation, tax planning and financial planning.

You may want to consider working with your financial planner remotely to expand your options.

I would also recommend looking for a financial planner willing to work with you throughout the year. You want an financial planner who can help you strategize and who is responsive when you want to know the consequences of the financial decisions you are making throughout the year.

Good luck. 

[Zachary Jensen]

Quote from @Joe Si:

I have a net worth of $10M. I continue to work and earn to cover my costs and save some. I want the freedom to be able to retire anytime from now on. What should be my stock vs real estate vs fixed income ratio?

 Hey Joe, 

Please take advice here with a grain of salt as they are either financial advisors trying to sell you something that you probably don't need or people without 10M who have no idea. Being able to retire "anytime" is a monthly burn question and the timing on that burn. You would need to give us a monthly expense requirement for the asset allocation to be suggested. You want to be as long term focused as possible while maintaining a stable source of cash to burn every month for life expenses 

[Ashish Acharya]

@Joe Si With a $10M net worth and the goal of early retirement, a balanced allocation could be 40-50% stocks for growth, 25-35% real estate for stable income and appreciation, and 20-25% fixed income (bonds) for security. 

Keeping 5-10% in cash or alternatives provides liquidity and diversification. This allocation offers a blend of growth potential and stability while ensuring flexibility. Real Estate can offset taxes if you plan your involvement correctly.

[Henry Clark]

OP my wife and I went thru this exercise about 4 years ago. The following is our approach, not just financial, but mental also getting ready for retirement.

1.  Read my post “What happens if I die?”

2.  Work backwards and see what is left over. Balance returns versus risk versus time constraints 

3.  Determine how much cash or liquid assets you need to live X years.  We picked 5 years.  You want a figure where you don’t care about the stock market going up or down.  Bad from  return standpoint, but good from a retirement view.

4. Making this up. 95% of all Financial advisors will not help on your non Financial investments since they don't get paid to cover that and that is not where their expertise is. We use our bankers, Commercial Realtor, and other similar Real Estate investors to give input on our REI.

5.  Stocks-  we are very uncomfortable with the economic environment.  Thus dont like being in stocks near term.  We have about 1/3 in stocks, so we look at growth.  But this is for funds beyond 15 years.  This was the left over allocation after all other needs were met.

6. Debt- we paid down all personal debt and some REI debt. This is a bad decision from average standpoint, but good mentally from a retirement standpoint. From a purely REI standpoint you should keep debt for leverage and to get a better Cash in cash return. Also with inflation you pay with cheaper dollars.

7.  Fixed income- realize you’re talking about interest or dividend bearing.  But we only consider that on our 5 year cash needs. We do have an annuity, social, 401k distributions, pensions,   Consider those when you decide how much to invest in Fixed income.  Longterm you will lose wealth the more your in Fixed income due to inflation.

8.  Retired Lifestyle.  We are in Iowa (cold during winter), have a house and Teak plantation in Belize, our son and Brother both happen to be in Italy for the next few years. Determine what your Retirement lifestyle might be and set aside funds for that.  Could be a winter home or rental in a warm climate.   Or several cruises or trips per year.  Or a hobby, like buying an airplane.  

9.  To much money left over-  so you set up your trust and have money designated for donations, have your lifestyle covered, no kids, no spouse.  Your sibling kids are young.  You decide to do generational wealth for the next 100 years.  Ask your financial planner to find an Annuity/Insurance product.  This will put them in the top 1% for the rest of their lives tax free.  

10.  Financial planner-  ask your estate Attorney (not your regular attorney), ask your insurance person, your CPA, a large commercial realtor.  Who would they recommend as a financial advisor.  You want a high net worth advisor.  

There is no set mix %.  Fit to your needs.  

[Joe Si]

Quote from @Henry Clark:

OP my wife and I went thru this exercise about 4 years ago. The following is our approach, not just financial, but mental also getting ready for retirement.

1.  Read my post “What happens if I die?”

2.  Work backwards and see what is left over. Balance returns versus risk versus time constraints 

3.  Determine how much cash or liquid assets you need to live X years.  We picked 5 years.  You want a figure where you don’t care about the stock market going up or down.  Bad from  return standpoint, but good from a retirement view.

4. Making this up. 95% of all Financial advisors will not help on your non Financial investments since they don't get paid to cover that and that is not where their expertise is. We use our bankers, Commercial Realtor, and other similar Real Estate investors to give input on our REI.

5.  Stocks-  we are very uncomfortable with the economic environment.  Thus dont like being in stocks near term.  We have about 1/3 in stocks, so we look at growth.  But this is for funds beyond 15 years.  This was the left over allocation after all other needs were met.

6. Debt- we paid down all personal debt and some REI debt. This is a bad decision from average standpoint, but good mentally from a retirement standpoint. From a purely REI standpoint you should keep debt for leverage and to get a better Cash in cash return. Also with inflation you pay with cheaper dollars.

7.  Fixed income- realize you’re talking about interest or dividend bearing.  But we only consider that on our 5 year cash needs. We do have an annuity, social, 401k distributions, pensions,   Consider those when you decide how much to invest in Fixed income.  Longterm you will lose wealth the more your in Fixed income due to inflation.

8.  Retired Lifestyle.  We are in Iowa (cold during winter), have a house and Teak plantation in Belize, our son and Brother both happen to be in Italy for the next few years. Determine what your Retirement lifestyle might be and set aside funds for that.  Could be a winter home or rental in a warm climate.   Or several cruises or trips per year.  Or a hobby, like buying an airplane.  

9.  To much money left over-  so you set up your trust and have money designated for donations, have your lifestyle covered, no kids, no spouse.  Your sibling kids are young.  You decide to do generational wealth for the next 100 years.  Ask your financial planner to find an Annuity/Insurance product.  This will put them in the top 1% for the rest of their lives tax free.  

10.  Financial planner-  ask your estate Attorney (not your regular attorney), ask your insurance person, your CPA, a large commercial realtor.  Who would they recommend as a financial advisor.  You want a high net worth advisor.  

There is no set mix %.  Fit to your needs.  

Solid advice! Much appreciated. Thank you, @Henry Clark

[Joe Si]

Thank you @Basit Siddiqi