Financial experts have utilized the combination of 60% stocks and 40% bonds in a portfolio model since the decade of the 1960s. Financial experts adopted this portfolio management approach through Modern Portfolio Theory which Harry Markowitz introduced during the 1950s.

Financial planner Bill Bengen established in the 1990s the optimal retirement withdrawal rate because he wanted to determine a safe yearly amount retirees could take to maintain their savings. His research of 30-year retirement periods which started from 1926 revealed that retirement during 1966 was the most challenging. Through analysis of retirement data he determined that retirees could withdraw 4.15% during their first year without exhausting their funds. The calculation of 4% transformed into the widely recognized “4% rule” throughout history.

Investors normally calculate their stock-to-bond portfolio ratio by subtracting their age from 100 according to the “Rule of 100.”

Sounds reasonable, right? The well-established thinking needs to be reviewed.

A More Flexible Approach to Asset Allocation

According to Bengen during his recent conversation he concluded that many retirees can achieve success with a 5% withdrawal rate. The 4% rule started as an exceptionally oversafety-based strategy that relied on the most challenging historical situations.

Only investors who understand this strategy can protect their retirement funds by shifting to bonds and cash reserves at the start of their retirement phase as insurance against market drops. The mitigation of Sequence of Returns Risk becomes possible through this approach which protects retirement accounts from early withdrawal depletions.

Senior citizens who distribute their retirement funds between stocks and money gradually from one year to the next could obtain a yearly withdrawal amount of 5% instead of the standard 4%. To achieve annual $40,000 retirement income one would need $800,000 instead of $1 million.

Research Displays How Complete Stock Investments Produce Superior Results Than Standard Investment Strategies

The 60/40 stock and bond portfolio shows value for retirement planning adjustments yet research indicates it might not be the most optimal option throughout an entire pre-retirement period. Aizhan Anarkulova from Emory University together with her co-researchers discovered through their study that portfolios made entirely of stocks delivered superior results than blends of 60/40 stocks and bonds or target-date funds (TDFs).

An experimental research portfolio consisted of 33% U.S. stocks and 67% international stocks according to author definitions as “optimal portfolio.” Stock investments proved to be more profitable than bonds since the studied portfolio exceeded the wealth levels of both 60/40 portfolios and target-date funds by 50% and 39% respectively.

Even more surprising? Throughout the simulation the all-equity portfolio proved safer than the 60/40 mix because it crashed out in fewer occasions.

My Investment Strategy: Stocks and Real Estate

I have separated my investment resources between stocks and real estate at fifty-fifty proportions. I completely abstain from investing in bonds because of certain reasons.

Real estate investments in my book do not involve owning rental properties with their associated responsibilities of tenant management repair maintenance. Private equity funds along with debt investments combined with syndications provide me with passive real estate earnings which serve as portfolio diversification strategies found in institutional investor setups.

The Co-Investing Club allows members to break into various high-value real estate investments with minimum contributions starting at $5,000 per member by dividing pooled wealth between several assets and locations. Right now I own fractional shares in approximately 3000 units throughout the United States.

My real estate investment strategy includes properties with return periods ranging between 9–12 months and 1–3 years and beyond 4 years. The staggered sequencing of my investments lets me strategically use tax strategies to “lazy 1031 exchange” that generate tax benefits.

Among all investment options I opt for real estate instead of bonds.

The returns generated by bond investments have failed to deliver satisfactory results. Corporate bonds through the S&P 500 Bond Index declined to an annual average return of 2.36 percent since the last decade while falling short of the current 2.9 percent inflation rate.

The actual value of bond returns becomes negative when inflation rates are included in calculations. The returns from my real estate investments stay in the 15-20% annual return range. The assessment of investment opportunities must extend further than examining risk alongside reward because high returns can be achieved without high danger. The decision between investments depends on how liquid a resource is, the investment period, tax efficiency considerations and evaluation of market stability strength.

The risk assessment process stands as the main priority at our Co-Investing Club. Our investments target robust defense mechanisms and we target these protections through real estate assets which show resistance to economic recessions.

Would You Be Able to Support Yourself With Just At 8% Annual Withdrawal?

A combination of real estate generating an 8% average yield together with stock withdrawals at 5% would create a total effective withdrawal rate of 6.5%. A diversified mixture of stocks and real estate properties enables withdrawals at a rate of 6.5% irrespective of actual sales in real estate assets.

With a 6.5% withdrawal rate for $40,000 annual retirement income you would need $615,000 assets instead of the $1 million associated with traditional 4% rules.

The actual withdrawal amounts depend distinctly on individual investor situations. Analyzing standard financial principles leads individuals toward better ways of building wealth. Real estate provides investment routes to speed up personal financial independence that traditional stock-bond portfolios cannot reach.