It occurs to me that I need to do some more planning about how my portfolio is going to look in early retirement. I specifically need to be conservative with that money that is going to bridge the gap between 45 to 65.
Currently most of this money is in index funds with the following allocation:
25% Bond index
25% TSX index (Canada)
25% SP 500 index (US)
25% International index
This is what I’m thinking about using when I turn 45:
60% bond index or other fixed income
15% Real Estate Income Trust or similar
10% TSX index (Canada)
10% S&P 500 index (US)
At the same time I’m unsure about dropping the international portion of the portfolio. Despite being subject shifts in the currency exchange international markets does offer some diversification outside of North America just in case there is an economic slow down just in our local markets.
Another issue I’m a bit unsure on is how do I convert the one portfolio over to the other? Do I just wait until I’m a few years out and start to slowly pull back from the markets into bonds? Or do you just wait until I’m three or two years out and change over the entire thing?
I’m still a bit unsure on the international idea, but I think I’ve got a way to handle the portfolio conversion. I would use that old rule of thumb of having your age as your percentage of bonds in your portfolio. Therefore on Jan 1, 2008 I should rebalance my current portfolio to have 29% bond index.
I’m still working all this out so any ideas on how to handle all this would be appreciated.