Using "Risk Parity" in the transition years prior to retirement?

Tools like those at Portfolio Charts dot com and Testfol dot io can show you the maximum drawdowns of your portfolio now versus your target portfolio so you can assess the risks of transitioning slowly versus quickly. You need to be comfortable with your system, so while gradual is fine if that’s what you’re comfortable with, TBH 10% bonds/cash won’t be an effective counterweight against a big dip in 90% equities. For that reason and because you said you’re at or near FI, you may want to make your gradual transition over the next 1-2 years instead of over the next 7.

Do pay attention to the tax treatment of accounts as you transition. It sounds like you have the right idea to leave your taxable account in whatever asset allocation it is now and focus on making changes in retirement accounts. As others have said, consider all accounts as one portfolio.

If you haven’t already found it, the Risk Parity Radio RSS feed is really handy to search for keywords to find episodes you’re interest in. It’s too big a file to open on a smartphone, so open the link on a desktop.

Since you are initially heavy in equities you could consider the duration of historical equity bear markets to guide your decision. For example, the 2000s in the United States market were painful and long. If you take too long to transition you could very well end up with a sequence of returns issue.

I'm too struggling with how and when to transition. Thanks for asking such an important set of questions!

Frank has talked about this before, a few notes.

Look at your portfolio all as one.

Frank typically suggests transitioning no more than 5 years out, yet he also notes that you can utilize risk parity as an accumulation portfolio. Won’t be as much growth but more stable. So if that’s what you’re going for yes, then go for it.

You could fully transition now but agree with a partial with transitioning over time. Start with new money, going into gold / futures / treasuries. If you can would definitely swap growth equity to split value and growth fully now.

if you figure a 5 yr transition, you can take your proposed final percentages and divide by 5 and each year that’s your transition goal (so 3% in gold in each if aiming for golden ratio)…

I just went through the transition from full equity to golden ratio over the last two years. Reach out with more questions.

Hi, I'm transitioning from work to retirement. Over the past few years I have been selling off my individual stocks and buying a risk parity portfolio. I haven't sold off much of my stocks in my taxable brokerage account in order to keep my taxable earnings low for ACA subsidies. My risk parity portfolio has continued to grow over the past 4 years. I'm sure I would have a greater amount in my portfolio if I had stayed with my stock heavy allocation but I'm happy where I am as I do not fear a massive pull back like I experienced in 2022.

Hope this helps

--don