A reader asked me a question recently.

It was a good one, so I thought I would share it as a post, along with my response.

Hi Andrew,

Millionaire Teacher is great, plus I follow you on Asset Builder. Really appreciate what you do.

Now I’m at the point where I want to work one more year and figure out my drawdown strategy. The problem is, I don’t know any other early potential retirees — everyone else is on accumulation phase — and I’m having psychological trouble with rebalancing to 40% bonds from my current 25%.

Basically, I don’t know which stocks or ETF’s to sell, and I find myself not wanting to sell anything, even though one other friend pointed out that my portfolio is very aggressive if I’m planning to even partially retire in a year, and I expect a correction relatively soon (1-3 years). I do have a bit of cash, but a good chunk of it is in my 7 & 11 y.o. kids’ educational funds, and it seems mean to make them carry 40 or 50% bonds when they have the longest time horizons–but it makes more sense than me having to sell some of my high earners, right?

You also mention using your bonds as a dry powder keg that you sell when the market drops, but I don’t remember seeing exact percentages, e.g. if you dropped down to 25% bonds in 2009 so you could buy more stocks.

I know you’ll probably tell me to hire an advisor, but any input is appreciated re. rebalancing psychology and asset allocation across different family members’ portfolios and during market fluctuations.

Thanks very much,


Hi Michelle,

Your portfolio has likely had an amazing run over the past five years, especially. I think it’s pretty risky for a retiree to have just 25 percent in bonds, unless you have a trust fund or a defined benefit pension on its way. At 47 years old, I have 40 percent in bonds. That said, my retirement will likely last far longer than my working career (perhaps I should call it semi-retirement because I still enjoy writing) so, about six years ago, I decided to keep my bond allocation at 40 percent of my total. As I wrote in my new book, Millionaire Expat:

“Knock on wood, you might see me waterskiing in my 80s. You might yell out, ‘Hey Andrew! What’s your bond allocation?”‘ If my hearing aids work (I’m guessing I might have them by then) I’ll hollar: Forty percent of my portfolio’s total!”

If you followed any of the portfolio models in my books, then your decision of what to sell would be easy. I don’t know your nationality, so I don’t know exactly what you need to sell. But as a Canadian, my portfolio looks like this:

40% Bond index
20% Canadian stock index
20% U.S. stock index
15% Developed international stock index
5% Emerging market index.

For the sake of an example, assume the above portfolio were worth $1 million.

My current allocation would look like this:

$400,000 Bond index
$200,000 Canadian stock index
$200,000 U.S. stock index
$150,000 Developed international stock index
$50,000 Emerging market index.

Now, let’s assume I decided to boost my bond allocation to 50 percent. I wouldn’t. But for the sake of an example, it might help to answer your question. I would want roughly the same proportions, but with a shift to a higher allocation of bonds. For example, my goal allocation would be something like this:

50% Bonds
15% Canadian stock index
15% U.S. stock index
15% Developed international stock index
5% Emerging market stock index

In dollar terms, my goal would be this:

$500,000 Bonds
$150,000 Canadian stock index
$150,000 U.S. stock index
$150,000 Developed international stock index
$50,000 Emerging market stock index

To get to this allocation, I would just need to do the following:

1. Sell $50,000 of the Canadian stock index
2. Sell $50,000 of the U.S. stock index
3. Buy $100,000 of the Bond market index

This would get my allocation close enough. And I would maintain that allocation, rebalancing once a year as the market bumps it around.

I noticed that you also said, “I expect a correction relatively soon (1-3 years).”

This part concerns me more than your portfolio allocation. You shouldn’t try to predict (or even give an opinion) on where you think the markets might go. After all, nobody knows when the next crash will come. Thinking about it becomes a slippery slope because you might be tempted to speculate on that thinking. Investing is a lot simpler than you might think. I maintain a constant allocation. I rebalance once a year. That’s the strategy I recommend.

I hope this helps.