The one single advantage of running a blog is that people ask some really intelligent questions too!! One such question was “Can I invest my RETIREMENT money, the way Warren Buffet suggests?”
I realised that this question comes from the 2013 letter wherein WB says “he says his will stipulates that cash be delivered to a trustee for his wife’s benefit and that 90% of that cash go into a “very low cost” Standard & Poor’s 500 index fund and 10% into short-term government bonds. He doesn’t talk about retirement specifically.
Also please do remember that you do not know a) his wife’s current age b) the size of the portfolio c) standby arrangements – she can fall back on her children, or Bill Gates? d) her expenses.
Yes WB gives a hint saying this portfolio will hold itself well over a 30 year period with about 3-4% annual withdrawals. Good show. He also says when the markets are in very poor shape, withdrawals should be from the bond portfolio.
I am fine with these thoughts for an older person say aged 75 to think of such strategies, however for a 55 year old I think this strategy is too aggressive. I would rather have you go for a 70% equity and a 30% debt strategy, and hope that this works just as well. You surely do not need a 90% equity assuming that you will live for another 40 years (makes sense to provide till your wife is 90 years of age, so your age of 95 years. You have to decide how you will react if there is a situation that from your age of 65 years to 77 years if the market just gave you a 2% (cagr) return when inflation was about 7%. It is one thing to say how to behave and another to see what happens in real life.
I find it difficult to convince 30 year olds to invest as aggressively as suggested by WB. Even if you look at last 3 years SIP returns, the investors are not really enthused by a 3% differential between a bond fund return and a managed index fund return (which is innumeracy, because even a 1% difference over a 30 year period is going to make a huge, humongous difference in your portfolio). Like the say, it is the ‘n’ stupid, not the ‘r’ that makes the difference.
So what will exactly work for you? Honestly, I do not know. I do not know how you would react to risk at the age of 55, 65, 75, 85 and 95. I am not sure that it would be the same rational reaction that you are ‘thinking’ you will do when you are 48 and asking me this question. A few days ago I did an article showing how people have worked with a 30% equity, 50% equity and a 70% equity while at retirement. Even then I did not have the guts to go to a 90% portfolio as suggested by WB.
Please do remember I did a story where a 85 year old man had (has, he is now 88) a 90% equity portfolio. Let me tell you he is an outlier, very active and has a huge portfolio (by his needs, in absolute terms he has annual expenses of about Rs. 4 lakhs and his portfolio is now worth about Rs. 20 crores and his house is worth about Rs. 10 crores). Looking at him and trying to copy him would be wrong. It is like looking at Sachin Tendulkar and saying “cricketers have a Rs. 1000 crore net worth).
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