Better at making than investing

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Topic Author
beachwalkerwalker
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Joined: Sat Dec 06, 2014 1:48 pm

Better at making than investing

Post by beachwalkerwalker »

At 55 years old, I am feeling the competitive and creative juices dry up and am considering steeping into the world of
retirement. If I take this step. I realize that success making money not the skill I would need. And investing is not what
I do best.

I have been very lucky. Married (also 55 years old). Assets $8 million. Real estate $1.5 million. Liquid $6.5 million.
No debt, kids paid for and well started. No pension, etc. Happy and would travel a bit now (the costs of which I have deducted
from the above numbers).

My questions:

I know that a 50/50 portfolio (+ / -) is talked about a lot. But if I just whack all of it into a laddered TIPs portfolio at $140,000/year
($6.5 million divided by 45) and lived within the $140,000 why bother with the risks of a 50/50 portfolio? When I downsize to a
smaller house, I would take proceeds and add to the ladder.

If I opted for a 50/50 portfolio, why chose bond funds/individual bonds for the 50% bond allocation? Why not just take $3.25 million
(50% of liquid assets), again divide by 45 year life horizon and ladder $75,000/year into TIPs and then rebalance as the equity balances changed?

Sorry if these are simple questions but these boards seem full of thoughtful answers.

Many thanks.
A hopeful beachwalker
mhalley
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Joined: Tue Nov 20, 2007 5:02 am

Re: Better at making than investing

Post by mhalley »

A refrain often seen here is the willingness, ability and NEED to take risk. With that much money, you may have no NEED to take risk. I have seen Suze Orman dissed about her personal investments at times, because she has a most of her money tied up in munis. She does this because she has no need to take risk. Another consideration would be legacy. Do you want to leave money to anybody, or a charity? You could consider putting say 25% into stocks in the hopes that it would appreciate for that. Otherwise, you have a huge amount of money and so should be fine. (I assume you have run your portfolio through various financial calculators to see how you would do using different allocations).
http://www.marketwatch.com/story/outing ... -portfolio
Investing that much money in individual bonds would be a pita, but I am sure you could do it. You might check out Swedroes Bond Book.
http://www.amazon.com/Only-Guide-Winnin ... edroe+bond
Mike
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baw703916
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Location: Seattle

Re: Better at making than investing

Post by baw703916 »

You might be someone who would do well to consider a fee-only advisor.

-your assets are high enough that the cost should be fairly low in terms of a ratio.
-you don't feel that investing is your strength.
-success given your current situation is probably a matter of avoiding major mistakes more than getting the highest possible return. So having someone to talk you out of any behavioral errors who might consider making could be helpful.
Most of my posts assume no behavioral errors.
Calm Man
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Re: Better at making than investing

Post by Calm Man »

Very interesting. So if there was little to no return, it wouldn't matter. You are willing to simply spend the 140K a year (let's assume zero return) and simply deplete the estate to zero. I assume you'd slow down in the later years and you do need to save some for potential nursing homes or catastrophes but that is easy. You are foregoing potential charities but if you don't care, well it might work.
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Watty
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Re: Better at making than investing

Post by Watty »

Even if you could get good at doing complex investing now, you might not be able to 30 years from now or your spouse might not be able to handle doing anything fancy if they had to take it over. The good news though is that you don't need to learn anything complex if you are willing to accept the market average using things like index funds. Once you get a long term portfolio set up with a few simple index funds then it can pretty much be on automatic pilot for the rest of your life.

beachwalkerwalker wrote: But if I just whack all of it into a laddered TIPs portfolio at $140,000/year
($6.5 million divided by 45) and lived within the $140,000 why bother with the risks of a 50/50 portfolio?

If I opted for a 50/50 portfolio, why chose bond funds/individual bonds for the 50% bond allocation? Why not just take $3.25 million
(50% of liquid assets), again divide by 45 year life horizon and ladder $75,000/year into TIPs and then rebalance as the equity balances changed?
Unless most of the money was in retirement account the way TIPS are taxed would generate a lot of taxes each year which would make that unworkable. There is also a small but non-zero chance that TIPS would not perform as promised so putting all your money into that one basket would have some risk.

If all the money is not in retirement accounts then selling what it is invested in today to buy the TIPS might also generate a lot of taxes.

The longest TIPS you can buy are 30 years so that would be an issue too since the government has gone through periods when they did not sell long term TIPS in the past and they might not always sell what you need to keep your ladder for 45 years.

You also have estate tax planning issue that these plans could run into trouble with.

Most of the annuities that people might try to sell you are terrible but the exception is the single premium immediate annuity(SPIA) which is like buying a pension. It would take good professional financial and tax planning to look at this but one option would be to buy a large SPIA for your core expenses then to keep the rest of the money invested so that you would have funds to cover any purchasing power that is lost to inflation.
john94549
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Re: Better at making than investing

Post by john94549 »

You could take your liquid, buy a 30-year, clip coupons and live happily ever after.
tony5412
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Re: Better at making than investing

Post by tony5412 »

How did you make that much money? I am sure you will be fine with either option.
kolea
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Re: Better at making than investing

Post by kolea »

beachwalkerwalker wrote:...Assets $8 million. Real estate $1.5 million. Liquid $6.5 million.
No debt, kids paid for and well started. No pension, etc. Happy and would travel a bit now (the costs of which I have deducted
from the above numbers).
Travel expense is normally included in a budget. That is accounted for differently than your liquid assets. That makes me wonder if you have worked out a budget for what you envision you will need in retirement. I think that is step #1 here - an accurate budget. For most people that is not all that different from pre-retirement expenses.
Kolea (pron. ko-lay-uh). Golden plover.
Topic Author
beachwalkerwalker
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Joined: Sat Dec 06, 2014 1:48 pm

Re: Better at making than investing

Post by beachwalkerwalker »

Thank you everyone for your responses.
I figured if we planned to live to 100 and didn't make it, we could leave the remaining to our children, charities, etc.
We have never budgeted. That will be a new experience...we have just lived below our means, embracing neither
self-denial nor self indulgence and slowly socked money away over time.

I am a ghostwriter and am finding today's celebrities tendentious bores instead of real characters. The great American
novel is not in me but (thanks to the advice) perhaps the great American retirement is a possibility.

If I wanted to leave a legacy, I assume the advice would be to move up the risk profile with something closer to
a traditional 50/50 mix and then rebalance as needed?

Again, thank you for your help.
Twins Fan
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Joined: Fri Mar 08, 2013 12:02 pm

Re: Better at making than investing

Post by Twins Fan »

Is the $6.5 million sitting under the mattress or what? What is your current set up.... maybe we can go from there?

Sounds to me like you're pretty dang good at making/saving/keeping/building money.... wish I was that "lucky". :beer
letsgobobby
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Re: Better at making than investing

Post by letsgobobby »

I second the idea of an advisor. You can find a good one who posts right here on these boards for fifty basis points per year. Well worth it in my opinion given the facts as you've described them.
livesoft
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Re: Better at making than investing

Post by livesoft »

One cannot create a 30-year TIPS ladder because some issues/maturity dates do not exist. Plus one might live longer than 30 years. This TIPS-ladder problem is discussed often when it comes to TIPS. For instance, http://wpfau.blogspot.com/2013/12/how-d ... r-for.html
Wiki This signature message sponsored by sscritic: Learn to fish.
Laura
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Re: Better at making than investing

Post by Laura »

Vanguard also has some advising services you can use if you want to turn this over to someone else. Here is a WSJ article on the new Vanguard service.
I am a ghostwriter and am finding today's celebrities tendentious bores instead of real characters.
This one made me laugh.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
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TomatoTomahto
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Re: Better at making than investing

Post by TomatoTomahto »

TIPS ladders are fine, but you'd be very un-diversified.

I'm pretty much an idiot about investing, but luckily my wife is darned good at making. And, as it turns out, if you've made enough, you can be an idiot (albeit a disciplined idiot) about investing and do quite well. My glide path to 50/50 has been as wobbly as a first-time pilot's, but I'm getting there.

IMO, forget advisors and all that. Read some of the books recommended in the wiki. Get a 50/50 portfolio. I like TIPS, as you seem to, so I have a fair amount in those. Buy some I-Bonds with spare cash. Quit ghostwriting if it curdles your spirit.
I get the FI part but not the RE part of FIRE.
mhalley
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Re: Better at making than investing

Post by mhalley »

Dang, had to look up tendentious . Disappointed it was not more disparaging.
Mike
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William Million
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Re: Better at making than investing

Post by William Million »

Almost any fixed income option will work well for you. If you're most comfortable with TIPS, then that's an option.

The question is whether you want equities. I believe 0% equities for someone as "young" as you to be a mistake, even though you have enviable assets. You might want to consider 25-30% equities so that you benefit from the years with big stock market gains.
Topic Author
beachwalkerwalker
Posts: 12
Joined: Sat Dec 06, 2014 1:48 pm

Re: Better at making than investing

Post by beachwalkerwalker »

Is the $6.5 million sitting under the mattress or what? What is your current set up.... maybe we can go from there?

This simple question prompted the first real look I have had at
my financial health in years.

Money markets $750k
CDs $1 million
Bonds - $2.75 million (50% - tax free, 50% TIPs - all individual issues, no bond funds)
Stock funds - $500k
Individual stocks $1.5 million (all individual issues). My wife fancies herself quite the
trader in spite of all evidence to the contrary. And since I still fancy her, this has been
okay with me. We will have a "frank and open discussion" about that and we will retire
together.

Trust me - luck and not much more has been the catalyst. Lucky again that so many of you
have provided your thoughtful (and much appreciated insight) input.
Twins Fan
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Joined: Fri Mar 08, 2013 12:02 pm

Re: Better at making than investing

Post by Twins Fan »

Well, you're roughly 30/70... stocks/fixed income now by my numbers. I find that reasonable for someone with $6.5 million and not wanting or needing to take risk.

Although money markets are worth about diddly now days. There may be better places for that portion... even CDs.

We aren't big fans of individual stocks around here. That might be a concern depending on how that's set up... all in a few stocks, or spread over hundreds?

Still wish I was that lucky. :beer
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