Times change; circumstances change. Your investment portfolio with its ETFs, mutual funds, and individual stocks and bonds needs to keep up with the times.
Suppose you are 45 years old and saving for retirement. Using the 20x rule, you decide that your goal is someday to have a portfolio worth $1.0 million. Your current portfolio has $300,000, so you have a good ways to go.
To get where you want, you realize you need to take some risk, but when you start to approach your goal, you want to lower your risk. After all, at that point, you’ll have more to lose than gain with any market swings. You should model your portfolio today but also have a picture of what your portfolio may look like when you reach, say, $700,000 . . . whenever that is.
Your picture may look something like this:
Today’s $300,000 portfolio
| Vanguard Large Cap ETF (VV) | 20 percent |
| Vanguard Small Cap ETF (VB) | 20 percent |
| iShares MSCI EAFE Index Fund (EFA) | 30 percent |
| Vanguard Total Bond Market Fund (BND) | 20 percent |
| iShares Barclays TIPS Bond Fund (TIP) | 10 percent |
Tomorrow’s $700,000 portfolio
| Vanguard Large Cap ETF (VV) | 15 percent |
| Vanguard Small Cap ETF (VB) | 15 percent |
| iShares MSCI EAFE Index Fund (EFA) | 25 percent |
| Vanguard Total Bond Market (BND) | 30 percent |
| iShares Barclays TIPS Bond Fund (TIP) | 15 percent |
By having your portfolio model for today and your picture of what it may look like tomorrow, you’ll always know where you’re heading. Trust Yogi Berra, who said, “If you don’t know where you’re going, you may wind up someplace else.”
