Do you intend to sell your large cap holdings as they accrue in value every year? How do you rebalance your portfolio to account for under performers and handle cap gains?
Sorry for asking so many questions! This is super informative. Thanks! :)
I haven't fully considered this, as I haven't crossed that bridge. A naive approach would dictate holding a 100/0 stock/bonds portfolio, which would never necessitate rebalancing. To date, I've likely experienced some drift, but not meaningfully since my portfolio composition was 99/1. However, of the stock portion of my portfolio, I do plan to hold about one-third international; so I should rebalance annually. This can be done in tax-advantaged accounts, to avoid capital gains taxes. (A common FI strategy is to maximize contributions to tax-advantaged accounts, as I do). I handle capital gains, currently, by simply not selling taxable investments.
IIRC the Trinity study (where the 4% SWR comes from) was for portfolios with a decent chunk of bonds? And that it only claimed that SWR for a horizon of 30 years? As in, running to zero in 31 years was counted as a success.
Separately, not to rain on your parade, but I'd really be worried that 4% might not be feasible based on current market conditions - that study was based on a period when the US was rising into the role of world superpower, and most of the industrialized world had just been decimated.
That skepticism is valid. 3.5% might be the new 4%. Personally, I don't worry too much about returns because even though U.S. standing has declined, our returns have been incredible, mostly due to stock buybacks. Corporations have been the net purchasers, by a significant margin, in the past decade [0], somewhat driven by debt and specifically, low interest rates. Returns are increasingly untethered from actual performance. For these reasons, the U.S.' waning hegemony may not lower returns.
They way I do this (in the UK using ISA's and mostly Investment Trust based) is when an individual stock gets to big relative is to stop reinvesting dividends in that stock and reinvest that dividend in other's.
At the moment I just invest once a month combining last months savings with accrued dividends - which rebalances a little.
For example I have stopped reinvesting in Witan, Lowland and TR Property - in favor of smaller holdings - which at the moment looks like this.
