Sitting on the sidelines for 2 years

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Sitting on the sidelines for 2 years

Postby cyclinggirl » Fri Dec 28, 2012 4:02 pm

Need help getting back in the market after selling everything 12-31-2010. At that time I was almost even from the crash of 2006.
But having my money in money market is ridicules so I'm finally going to do something. Here's where I stand.
I'm 55 and not working, with no prospect to start. Partner has agreed to cover most bills until I can take funds from my retirement accounts which I plan on doing at 59 1/2.

In my Vanguard IRA account I have the following:

$590,000 in cash
$7,000 in IYW, an ETF of Tech Companies
$5,000 in EMC (purchased in 2000,when it doubled I sold 1/2)

In Vanguard single account
$60,000 in cash

Bank account, single
$30,000 cash

Morgan Stanley IRA (previous employer)
$40,000 in cash
$20,000 in General Mtrs Bonds paying 7.5%
$40,000 VTA - A closed end bond fund, fixed income senior floating rate paying 7.2%

Morgan Stanley single
$10,000 cash

I have a rental home where the rent covers the mortgage, but not taxes and insurance - loss of $6,000 a year. Currently on the market with good prospect to sell with a profit of approx. $50,000 (nothing is for certain).

Any suggestions would be greatly appreciated.
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Re: Sitting on the sidelines for 2 years

Postby jdilla1107 » Fri Dec 28, 2012 4:20 pm

You need to really prod yourself about why you got out in the first place. Then prod yourself about why you want to get back in now. Is it because stocks have gone up?

The concerns here are that if you get back in and the market goes down 10-30% that you will sell it all again if you don't have a plan in place. Even intermediate or longer bonds could drop somewhat significantly from where we are.

What was your asset allocation when you got out? I think you really need to think about what your risk tolerance is. What percent are you willing to lose w/o selling, losing sleep, or being concerned?

You need a plan you are comfortable with and then stick to it.

Have you looked over the wiki? Lot's of good info in there:

http://www.bogleheads.org/wiki/Main_Page
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Re: Sitting on the sidelines for 2 years

Postby cyclinggirl » Fri Dec 28, 2012 4:50 pm

Got out because I lost my job and a divorce. Not a new comer to the market, was an investor for over 30 years and went through some pretty tough times, also worked in the business for 30 years. It was just one of those things where I just needed some calm somewhere in my life. This now seems pretty silly but didn't at the time.
I was all over the place as far as investments, many mutual funds in Janus, Seligman, Pimco etc and pretty much no cash in the portfolio. Had a pretty balanced portfolio for my age, large cap growth and value for about 40%, small and mid for about 20% and tech funds 5%, and bonds and the positions listed for the rest.
Since I now have about 5 years (or more) before I plan on taking withdrawals from my IRA I figured I better start making some money. Even though the market is up about 12% from where I got out it's not a factor in the decision and I feel I can handle a downturn if one comes along. Have always been in moderate to high risk positions and now that life is more stable I feel it's time to get off the sidelines.
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Re: Sitting on the sidelines for 2 years

Postby The Wizard » Fri Dec 28, 2012 4:54 pm

Decide what Asset Allocation percentage structure you are comfy with.
Find a few funds at Vanguard to implement your plan with.
Let us know what you decide on...
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Re: Sitting on the sidelines for 2 years

Postby HardKnocker » Fri Dec 28, 2012 4:54 pm

Right now I'd be leery of jumping into equities with both feet.

Two wrongs don't make a right.

An allocation based on your age in bonds would be logical so 55% in bond index and 45% in equity index. Maintain an emergency fund in interest bearing cash.
Last edited by HardKnocker on Fri Dec 28, 2012 4:57 pm, edited 2 times in total.
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Re: Sitting on the sidelines for 2 years

Postby livesoft » Fri Dec 28, 2012 4:56 pm

Perhaps something easy to do to get you started is to take the IRA money and invest it in the Target Retirement Income fund. If you cannot invest all of it, try to invest at least half of it. Once that step is taken, you can then decide what other path you want to take. The beauty of the Target Retirement Income is that it gets you off your butt (sorry!), but is neither irreversible nor too aggressive. Also the ups and downs of market volatility are hidden within it.
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Re: Sitting on the sidelines for 2 years

Postby joshr » Fri Dec 28, 2012 4:58 pm

These are all really interesting questions!

Before giving advice, the people on this board will probably have questions about asset allocations, debt, emergency funds, etc.

You might receive more thorough responses if you follow the board's preferred formatting, which can be found at http://www.bogleheads.org/forum/viewtopic.php?f=1&t=6212

My last piece of advice (I don't know all that much!) is to read up on lazy portfolios. Taylor Larimore has an excellent thread going on the power of simplifying your investments, yet keeping them as diversified as possible. The wiki also has a really well-written page on three and four fund portfolios. These are absolutely worth a look.

http://www.bogleheads.org/wiki/Lazy_Portfolios#Three_Fund_Lazy_Portfolios
Last edited by joshr on Fri Dec 28, 2012 5:07 pm, edited 1 time in total.
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Re: Sitting on the sidelines for 2 years

Postby letsgobobby » Fri Dec 28, 2012 4:59 pm

How much income do you need to generate from this portfolio? Eligible for SS? pension?
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Re: Sitting on the sidelines for 2 years

Postby MathWizard » Fri Dec 28, 2012 5:34 pm

Sorry about the divorce and job loss.

Though not optimal getting out of the market, I can imagine that those were tough times, and being on the sidelines
might have been the best for your sanity at the time.

If you were at MS, I assume that you are living in a high cost of living area, probably on the east coast.
Since you do not expect further employment, the portfolio looks a little small for my taste for living in a high COL area.
I would certainly take a hard look at expenses and see how the portfolio will do as supplying the needed income.
Make sure you include health care costs, they are a big ticket item without employer-subsidized insurance.
I am planning on about $8K/year per person even after Medicare kicks in.

If the portfolio can't supply the income you need, then once the rental sells, and if you can stand another disruption
in your life, you may want to consider moving to a lower COL area. The midwest is much cheaper than the coasts, and
university towns can provide much of the culture in quality if not in quantity. Health care costs are a big ticket item
without employer-subsidized insurance.
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Re: Sitting on the sidelines for 2 years

Postby shipwreck » Fri Dec 28, 2012 8:33 pm

You need to decide on an Asset allocation. I prefer age in bonds.

Move the Vanguard IRA into the Vanguard Target Retirement 2010 Fund (VTENX)

Current asset Allocation as of 11/30/2012
43.49% Stocks
54.72% Bonds
1.79% Short term reserves
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Re: Sitting on the sidelines for 2 years

Postby Taylor Larimore » Fri Dec 28, 2012 8:47 pm

Need help getting back in the market after selling everything 12-31-2010. At that time I was almost even from the crash of 2006.
But having my money in money market is ridicules so I'm finally going to do something.


Based on the information you provided, I think a Vanguard Target Retirement Fund in your IRA could be almost ideal. You can read about them here:

https://personal.vanguard.com/us/whatwe ... undchoices

Best wishes
Taylor
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Re: Sitting on the sidelines for 2 years

Postby mhc » Sat Dec 29, 2012 11:31 am

OP,

you don't have to wait until you are 59 1/2.

http://www.irs.gov/Retirement-Plans/Ret ... c-Payments
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Re: Sitting on the sidelines for 2 years

Postby grayfox » Sat Dec 29, 2012 11:43 am

cyclinggirl wrote:Need help getting back in the market after selling everything 12-31-2010. At that time I was almost even from the crash of 2006.
But having my money in money market is ridicules so I'm finally going to do something. Here's where I stand.
I'm 55 and not working, with no prospect to start. Partner has agreed to cover most bills until I can take funds from my retirement accounts which I plan on doing at 59 1/2.

In my Vanguard IRA account I have the following:

$590,000 in cash
$7,000 in IYW, an ETF of Tech Companies
$5,000 in EMC (purchased in 2000,when it doubled I sold 1/2)

In Vanguard single account
$60,000 in cash

Bank account, single
$30,000 cash

Morgan Stanley IRA (previous employer)
$40,000 in cash
$20,000 in General Mtrs Bonds paying 7.5%
$40,000 VTA - A closed end bond fund, fixed income senior floating rate paying 7.2%

Morgan Stanley single
$10,000 cash

I have a rental home where the rent covers the mortgage, but not taxes and insurance - loss of $6,000 a year. Currently on the market with good prospect to sell with a profit of approx. $50,000 (nothing is for certain).

Any suggestions would be greatly appreciated.


First of all, you didn't miss anything being out of stocks during 2011. However, in 2012 stocks have done pretty well. I think the S&P500 is up about 14% this year. But who is 100% stocks? Balanced Index, which is 60/40 is up about 10.45% and 35/65 Wellesley Income is up 9.74%. So maybe you missed out on about 10 percent gain since you've been on the sidelines. But that's all water under the bridge.

:arrow: The first thing to do is to come up with realistic goals. Here is an example:

Goal: Starting on January 15, 2018, withdraw inflation-adjusted $X per month, continuing for N years without depleting principle.

Or it could allow for spending down principle, if you don't care about leaving a legacy. Once you have goals, then you can start to think about what portfolio characteristics would be necessary to meet those goals.

Are the goals so lofty that a high return is required? Then you might have to lean towards a high-risk/high-return portfolio.
Or can the goals be achieved with low-return/low-risk? If your goals are modest, maybe they can be met with 5-Year CDs.
Or somewhere in the middle.

:idea: You will never achieve your goals, if you don't know what they are.
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Re: Sitting on the sidelines for 2 years

Postby cyclinggirl » Sun Dec 30, 2012 11:37 am

Thank you all for the great advice, I am currently checking into some of the sites recommended.
I live in Florida and currently my partner is covering most expenses as we share a home together and he is covering my medical insurance. I'm hoping not to even touch the IRA until after 59 1/2 and know I can start earlier. We have agreed to partner covering our living costs until retirement as he is just starting to put funds aside for his retirement. Had 3 kids and with the last one in college he never got around to saving.
I would probably like something with a little more risk then a target fund and will check out the various mutual funds at Vanguard, but the 60% stock, 40% bond mix seems best. I will try to find something simple yet offer a greater chance for return in that ratio.
Thanks again.
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Re: Sitting on the sidelines for 2 years

Postby livesoft » Sun Dec 30, 2012 11:42 am

You need to know that a target fund can be very very risky because one can dial-in the risk level they wish by selecting a different "year". There are many balanced funds at Vanguard with asset allocations near the 60/40 you desire or you can buy separate funds and create you own.

However, for someone reluctant to invest and sitting on the sidelines for 2 years, it is a big step going from what you have now to 60/40. It is such a big step, that you might not even do it. That's why a baby step may be easier to handle, but that doesn't lock you into a given fund since one can exchange funds in tax-advantaged accounts without any tax consequences and at any time.
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Re: Sitting on the sidelines for 2 years

Postby cyclinggirl » Sun Dec 30, 2012 1:03 pm

After reading all the great advice I feel easing into the market would work best.
As of the 2nd I'll be putting $300,000 of the Vanguard IRA into VTWNX, Target 2020 fund, it appears to have the best stock/bond ratio for my age and situation.
Not sure after that first purchase the course I will take but at least I'll be in market.
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Re: Sitting on the sidelines for 2 years

Postby BL » Sun Dec 30, 2012 1:21 pm

It sounds like you have a plan. Just to throw another possibility into the mix, the Life Strategy Moderate fund may be exactly what you want: 60/40 using just Total Stock Market, Total International, & Total Bond Market, which doesn't change over the years (not necessarily an advantage if you don't increase bonds separately on your own).
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Re: Sitting on the sidelines for 2 years

Postby Taylor Larimore » Sun Dec 30, 2012 2:37 pm

cyclinggirl wrote:After reading all the great advice I feel easing into the market would work best.
As of the 2nd I'll be putting $300,000 of the Vanguard IRA into VTWNX, Target 2020 fund, it appears to have the best stock/bond ratio for my age and situation.
Not sure after that first purchase the course I will take but at least I'll be in market.


Congratulations!

You might do a little better--but you could certainly do a lot worse. No one can forecast the future.

Happy New Year!
Taylor
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