VTSAX and chill, or Risk Parity?

I am pining for a "10 steps to withdrawal phase" that is as easy as the "10 steps to FI" that ChooseFI has on the website. It feels like the wild west out here. There is this gray period when one has enough accumulated and sees the light at the end of the tunnel for retirement that it seems sensible to diversify from 100% VTSAX. But the alternatives then are extremely strong conflicting opinions (Risk Parity, Merriman, ERN, etc.). It's finally sinking in that this is all a game of risk management. So at the end of the day, I just need to make my best decisions about my risk tolerance (low), my appetite for rebalancing and actively managing (low), and some of my other values. Make my decisions and be done with it because I can absolutely churn in the vortex of highly qualified and opinionated FI leaders proposing solutions-- and I am grateful for the resources. But the whole point of this is to move on to life pursuits that are epically more interesting than index funds, so decisions are worth gold over the trap of "one more podcast syndrome."

I began switching to RP-esque portfolio last year after largely being 95/5 stocks to bonds, mostly U.S. equities with some international. I increased my international exposure in early 2025 and gradually throughout the year, divested from VTSAX and redirected into gold, REIT and managed futures. It's worked out well so far and with retirement on the horizon in 2027, I didn't want to be mostly U.S. equities that are heavily weighted toward tech, as much as that growth has been great in the past decade. I have a 457 and moved it to 100% bonds/money market and all new contributions are bonds. My stock/bond ratio is now about 80/20 and I plan to get to 75/25 upon retirement next year. I wrote "esque" as I'd say it's more of a blend of RP and traditional FIRE portfolio that eventually will not have so much small cap value as recommended in many of its portfolios. It's good advice to keep it simple and VTI/VTSAX + chill during accumulation years for people in their 20s, 30s and 40s, maybe throw in some international. Also important to transition to and de-risk as you get <3 years from leaving full-time work. Once you've mostly won the game, no need in keeping all your chips on the table. I certainly sleep better at night, considering all the geopolitical tension and uncertainty today.

Here's the performance of that portfolio. Well outperforms VTI n chill. The drawdown volatility is less than VTI as well. Play around with the numbers yourself. You should be able to answer this question on your own with a bit of research. Sites like Portfolio Charts, TestFol.io, and Risk Parity Radio have all the info you need. 

If FI in 5 years or less, and you don't want to risk a big downturn Risk Parity all the way. No question. Also, people who claim you should be VTI for accumulation are bad at math and/or haven't actually run any backtests. Many Risk Parity style portfolios outperform VTI. 

Thanks for your thoughts everyone. I did pose the question purposely vague because folks always nitpick about whatever information is NOT included. The problem is that we’ve largely been JL Collins fans. Still am, of course. But I’ve been listening to a lot of Risk Parity Radio lately and it’s pretty persuasive. Good returns are still possible, with less downside.

Either way, you should consider that the few years before retirement and few years after are the highest Sequence of Returns Risk (SORR), so you may want to consider derisking your portfolio one way or another, especially if you think you may want the flexibility to retire soon after achieving FI. Conventional wisdom would be to reduce your equity allocation during this "retirement red zone" (you could increase it again a few years after retirement). If you don't plan to retire soon after achieving FI, then derisking has more to do with increasing your optionality to not lose FI (and thus option to retire) due to a severe market downturn near your potential retirement date. In other words, if you are willing to delay retirement if the market goes south, then less concern about derisking than if you want to retain retirement date optionality.

"VTSAX and chill" is well suited for accumulation. It enables faster growth than risk parity but at the cost of greater risk. Risk parity is well suited for drawdown. It lowers risk but at the cost of faster growth. They are two approaches with different goals. Ask yourselves what happens if the AI bubble bursts within the next 5 years. How will it feel if you're all VTSAX versus risk parity. Ask yourselves what happens if AI goes to the moon. How will it feel if you're all VTSAX versus risk parity. It sounds like your wife and you have different risk tolerances. A solution may be simply to compromise and do some of both. If you've subdivided your spending and can identify what's your FI number for needs versus wants versus wishes, you could transition just the needs spending portion to risk parity to better protect that sum then keep the money for wants and wishes in VTSAX. Or maybe protect needs + wants and accept greater risk for wishes. Whatever portfolio you plan to hold during retirement, it's a good idea to transition a few years ahead of time to become familiar with rebalancing, tax loss harvesting, etc. Disclosure: I'm on team risk parity. I moved my own portfolio in 2022 from tech-heavy all LCG to risk parity because my plan is to retire in 2027.

This is why my partner and I have separate accounts :-) I am kind of shifting towards risk parity, but maybe you can split the difference... VTSAX mostly and dabble in the other stuff as well? Maybe you can find a middle ground that makes you both a little more comfortable? I'm just starting to invest in some of the risk parity funds, myself, but I'm not super organized yet...

Investing in a single broad market index fund is good for people just starting out accumulating or people who want to automate investing and never think about it again. Ive recommended it to family members who are just starting to familiarize themselves with investing. Risk parity investing reduces effects of a downturn through diversification by holding uncorrelated assets. It improves safe withdrawal rate and reduces drawdown risk but can also reduce future returns (but not by much for a well constructed portfolio). Whichever style is better for you really depends on what you’re doing and the goals of those investments.

I agree w/ @JoeQ17 that better depends on your goals. Specifically, are comfortable with a "conventional" asset allocation a withdrawal rate in the more conservative safe range (3.5%-4.5%) or do you need your portfolio to support a higher withdrawal rate (with less volatility)? As @JoeQ17 pointed out, this would impact your timeline to reaching your "number". Also, in addition to your goals concerning things like withdrawal rate and portfolio volatility, it is necessary to consider goals related to your portfolio when you pass away. That is, do you want to try to minimize the time spent working and maximize the time in retirement (and thus potentially spend down to near $0), or do you want to leave a meaningful inheritance to your children, grandchildren, favorite charity, etc.? The approach to the portfolio will need to take that into account.

I've been stuck on this question as well. Big ERN's series would say that risk parity actually doesn't improve your preservation. It seems like very smart people disagree on this and have case studies and math to support themselves. Maybe either might work??

Better depends on your goals, which may tie to the at odds. If within 5 years of FI number / retirement, my question is what would you regret? Missing out on a lot more gains and over save however with the potential of a long turn drop which means you can retire when you want? for me it was a no brainer last year to switch to Risk Parity. Yes I’ve missed out on some gains probably but I never lost sleep on the what ifs and on market drops. For me the risk of losing the ability to walk away was not worth added gains that we don’t need. We have enough.