If you have a long retirement horizon, invest 90%+ of your savings in stocks.

People are living longer than ever

If you plan to achieve financial independence and retire early, then you have a longer time in retirement compared to someone who retires in their 60’s. A male child born in the United States today will live to be 74.5 years old on average.  On average, US women are 5.7 years older, reaching an age of 80.2.  This has been increasing over the years as you can see below.



And thats just the average. Taking one standard deviation (~8 years) into account, you are looking at a life expectancy of 90+ years.  Somebody who retires at say 40, then, still has to plan for an additional 50 years. 

What to invest in for long retirement horizons?

One of the rules of thumb for withdrawing money from your portfolio for living expenses after retirement is to use a 4% annual withdrawal rate (adjusted to inflation every year). Using this very rough rule, lets look at 50 year performance of different portfolio types (Eg: 100% stocks, 75% stocks/25% bonds). See this chart from The Poor Swiss:


It is very clear that the lower the percentage of stocks in your portfolio, the lower the chance of “success”. “Chance of success” for FIRE retirees is not running out of money in your lifetime. Given that case, you have a much better chance of not running out of money if you primarily invest in stocks rather than bonds. Investing in only stocks can be more volatile over the short term, but that shouldn’t faze you. You are in it for the long term! If you are risk averse and market gyrations give you sleepless nights, feel free to increase the component of bonds in your portfolio. For example, invest 75% in stocks and 25% in bonds. But be aware that this might push your FIRE date further away, because you need to accumulate a bigger portfolio before you can pull the trigger. If short term market declines don’t bother you, aim for a 90%+ stock portfolio.