The Retirement “Life Portfolio”
I got to thinking about my retirement “life portfolio.”
Remember the thought experiment in which you challenge yourself to imagine what you would do if you were 100% cash rather than invested in your current assets? What would you do? Would you buy back exactly what you have today in your portfolio, or would you buy something different?
If you’d buy something different in your financial asset allocation today, starting from all cash, how might that be similar to your day today and your retirement “life portfolio?”
Time is a little different. When you wake up, all you have is today. Tomorrow is pretty sure for most of us, but a logical planning period is from when you wake up to when you shut down for the night. That’s all you have is the portfolio of today. So what are you going to do?
I challenge you to think that 100% of your attention today needs to be filled with assets for as long as you are awake. Today must have an asset allocation. Retirement must have a “life portfolio.” What is your asset allocation for your attention today?
What is the Asset Allocation for Your Day?
So, today, what are you going to do? I bet you will have some stocks, some bonds, some cash, some speculation and leverage, and all of these good investing metaphors we will now infuse into planning your day.
Today’s portfolio probably includes all of your main roles as a person. You might still be burning human capital, which is usually a stock (except when it is a bond like a tenured college professor). Or maybe your human capital has been fully converted into your nest egg. Nest egg is a messy term, but when you are no longer actively “making” money, you will start withdrawing your total assets. Of course, compounding interest over time makes those assets more likely to grow faster than your withdrawals if you have enough of the right assets, so your nest egg may or may not get smaller during de-accumulation.
There are other roles, too! Some people think of 3 or 6 spokes in their life. All of those contribute to your total asset allocation, though some are more important than others. Let’s start with the basics, cash and bonds, and then go to more “risky” assets.
You Build Your Day on Cash and Bonds
You have “safer assets” today.
For instance, if you are young, you have a mortgage – your parents.
Literally, you could go live with them. Or, if something bad happens, they will help out. They are an insurance policy while they are around, but parents can also become a liability with age.
What else is safe to plan today? Well, you have people you love and a family! That is a source of joy for most people most days.
Let’s face it, if most days are good, then that is good. Of course, the more good days, the better, but to think there won’t be rain is to not plan for flowers.
Most of the time, you plan on loved ones bringing joy. That is like the cash in your bank account. It is FDIC-insured. Family is cash.
What are bonds in your life? People or activities you do because they are stable and provide long-term benefits? You eat well and brush your teeth. Exercise and maintain an idealish weight.
This “maintenance” that you spend a lot of the day doing are the bonds in your life.
Kids are Like Crypto
Let’s talk about the opposite side of the coin. Kids are like Crypto.
When you have them in your life, there is chaos. Children are chaotropes, and some systems (families) deal better than others with multiple hurricanes in one dwelling. And cars with 4-5 kids in them. But, Jimminy Krickets, that is a fun way to spend your day!
Like investing in crypto, buying crypto is like a road trip with five kids in the car. You never know what the day will bring!
I could go on with this metaphor, but if you have enough stocks and bonds in your life, it is fun to build in some craziness. Kids, hobbies, adventures, whatever floats your boat and brings you into flow state with the rest of your time you might be lucky enough to devote to experience.
Kids are like crypto. Man, I’m down 33% in the last month with this one kid. Or you might be up 50% today after a nice “6-second hug.” Best thing to do is to keep paying them attention and help them turn play into whatever it is that comes next for them. That’s the thing with children; we often spend the most time on them only to know that we eventually become much less important to them. I heard, “having teenagers is like a tug of war that you know you eventually must lose.” Don’t let go too soon, or they will fall over but don’t keep pulling them towards you, or you “win,” which means your child just lost.
Kids, hobbies, adventures: fill your day with them if you can. They have a pretty good risk/reward ratio!
The Stocks of My Life Portfolio
Stocks in your asset allocation provide long-term growth and are fundamental to your long-term goals. Most of us want our money to work for us, and investing in stocks is one main way to make your money work.
Other ways to make money are real estate and, in general, business. All of these provide “cash flow,” which are the parts of your day that make your life better over time and should appreciate over time as well.
Today, I am going to devote some time to my family pillar. I will spend a significant proportion of my days investing in it.
Other pillars today include working on my business.
Building a “Life Portfolio” in Retirement
So, that’s the portfolio of my day. I am probably about 80/20 right now with my asset allocation, and if I were forced to go all-in cash, I’d roughly buy back what I have.
This morning, my time for the day is all cash. So, what will be my asset allocation for my time spent today? I’m hoping it will be about 80/20. The 80 is the good stuff that moves the needle (and, by the way, will include loading the dishwasher and cleaning the kitchen and mudroom like I do every day. That is just as much fun as brushing teeth or getting dressed.) The 20% includes the people I bump into at work and the other things that make for a better life tomorrow. I might call my mom. But I probably won’t.
What stocks do you plan today? That likely includes work, exercise, or play.
And your bonds. Consider everything you have going for you in your background. Your education and upbringing. And perhaps your challenges. You have survived a lot to get where you are now. That thing that happened hurt. It is part of who you are, like a bad investment you are unwilling to sell. – It might come back – it might go to zero –
What is the asset allocation of today’s time? Time to build your retirement life portfolio.
