Many of you have heard of the famous 60-40 portfolio, but is it a realistic portfolio distribution? I recently had a listener ask this question.

In this episode of Money Mile, we’ll explore what it means to save for retirement and how the accumulation and decumulation phases differ. Then we’ll dive into the nitty-gritty of portfolio distributions.

So, grab your earbuds and running shoes and press play to share a mile with me to learn more about portfolio distributions.

You will want to hear this episode if you are interested in…

How can we save for retirement?

Social Security accounts for at least 50% of half of American retirees’ household income.

Since the median Social Security income is only $1505 and the median household income for Americans is $6500, few Americans can comfortably rely on Social Security.

This means that it is more important than ever to save appropriately. However, this brings the question: how do we do that?

Investing freedom brings a myriad of choices

The 60-40 portfolio was created by Harry Markowitz in 1952 as a way to help investors understand a balanced portfolio. And while that was very helpful to get people thinking about balance the world has changed since then.

Nowadays, we have more access to investing options than ever before. Investors can use online brokerage platforms like Etrade and no longer need to rely on brokers to buy and sell stocks. This freedom means they have to consider their asset allocation themselves. This is where many investors struggle and begin to wonder how they should allocate their portfolios.

How to balance long-term investing

The purpose of investing money for the long term is to grow your purchasing power over time.

The best way to do that is by investing in the most efficient portfolio that you are comfortable with and that provides the highest return. While it can be challenging to strike a balance it is always something to work towards.

While you are accumulating assets, finding a balance is a bit easier. You can accomplish a lot in a few years by saving regularly in your investment accounts or employer-sponsored plans

How to allocate your portfolio in the distribution phase

Once you get to the distribution phase things get more complicated. Now, instead of adding money to your portfolio, you are taking money out. Since the stock market swings up and down, you don’t want to take money directly from your portfolio each month.

Instead, try taking out enough to live on for the next two years. You can place this money in a stable cash instrument like a short-term bond, CD, money market account, or even an HYSA.

Once 2 years’ worth of expenses are covered then you can turn to the next 3-5 years. You won’t need these funds immediately so the funds should be set aside in a low-risk portfolio.

Once you have these funds covered, then you can focus on long-term growth by using an 80-20, 90-10, or even a 100% stock portfolio.

With a modern distribution strategy there no room for a 60-40 portfolio. It is too volatile for cash distributions and not aggressive enough to account for inflation. Instead, choose an appropriate growth strategy and tweak it to fit your needs.

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