The Importance Of Fixed Income Returns For Retirement Spending
When it comes to retirement spending, it’s mostly agreed upon that a large amount of capital should be allocated to fixed income. However, it’s not well understood that the returns of fixed income portion are playing an important role in the overall wealth and portfolio allocation.
Fixed income allocation
As we stated previously, an intuitive way to arrive at good allocations among stocks (risk assets) and bonds (fixed income) is to use a so called need based approach: first determine how much you can afford to invest in stocks. A rule of thumb is that you should invest in stocks for at least 15 years if you use a tactical asset allocation TAA or at least 20 years if you use a strategic asset allocation (buy and hold).
Let’s again work through a few scenarios:
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