I'd rather stick than go to cash, but.

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Topic Author
MuleyS
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Joined: Tue Jan 19, 2016 11:38 am

I'd rather stick than go to cash, but.

Post by MuleyS »

Re-doing this post thanks to good advice to do so.

I'm looking for reassurance that my investment position makes sense from a downside perspective. I'm retired and if the bottom falls out of the market, my time horizon may be inadequate for recovery.

Emergency funds: probably enough for 2.5 years, when I'll have to take RMD
Debt: none, and own my own home
Tax filing status: now single, tax bracket 28%?
Investments: everything now in VSCGX, 60/40 bonds to stocks and well diversified
Yield I'll need annual in retirement starting in 2 years: $35 - 40K

Question: made this transfer from mutual funds recently and have watched it plunge over 3 weeks to under $900K. I thought hard about the allocation of 60/40, bonds to stocks, and am satisfied with it. Just that it scares me to read that the markets might go down catastrophically and require a ten-year recovery. When I consider that if that money was in an FDIC account, and I live 20 years or so, the math works out to about what I'd need and w/o the risk.

I don't need to leave anything to family members; just would like to. Any comments or advice at all would be so appreciated because I want to stay the course and be optimistic. Also looking for work but 15 years since salaried, it will never amount to much. Thanks.
Last edited by MuleyS on Tue Jan 19, 2016 4:03 pm, edited 1 time in total.
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LadyGeek
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Re: I'd rather stick than go to cash, but.

Post by LadyGeek »

Welcome! You've got your first post in, but it's a bit tough to read.

Could you please edit your post (the pencil icon in the top right corner of the post) to break up your thoughts into separate paragraphs?

I also recommend posting in this format: Asking Portfolio Questions. It makes you think about the "big picture" while giving us the information we need to point you in the right direction. Add your post to this thread.

If you have any questions, ask them here.
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jfave33
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Re: I'd rather stick than go to cash, but.

Post by jfave33 »

Let me just start off by saying you are not in as bad a position as you think you are. In fact it looks pretty good. For a start you have a nice asset allocation with a good all-in one index fund. There is a very broad brush guideline that suggests your retirement funds will last for at least 30 years if you withdraw no more than 4% each year. For a $900k fund that would give $36k a year on top of your $20k social security. So right there in the high end of your spending needs. The study assumed a similar mix of stocks and bonds as you have and would have tested this through past crashes. It is no guarantee but a reasonable guideline to suggest you have enough to get through future crashes and keep you with a steady income supply thoughout the rest of your life. Your fund already provides 2.5% dividends so you would just sell a little to provide the remaining 1.5% or less to top it up if needed. Plus you have the cash and real estate fund on top of all of that.

The main thing to keep in mind is to make sure you do not sell in a panic but just leave things ticking along even if you see large drops or gains. Stick to a plan. Markets should in time recover. You are only withdrawing a small amount each year so the rest will have time to recover before you need the money.

The problem with going all cash is that it will be eaten up by inflation. Plus we do not know if this is the start of a crash or just a blip that will recover in a few days and be forgotten.

If you are really concerned you could consider a single premium immediate annuity to provide a regular stream of income with part of your fund. Normally people would say to delay social security instead of using these but for you who does not have this option and is worried about security of income this may be something to explore.

Another idea would be to really review your expenses. $50-57k seems high to me (maybe not to you or others though) for someone who already has their house paid off. If you could trim down the expenses during harder times that would help you feel less of a strain.

I'm sure others will chime in shortly but I hope you enjoy your retirement! But do try filling out the full portfolio as suggested above and include details such as whether you have kids you want to leave money to etc.
Bfwolf
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Re: I'd rather stick than go to cash, but.

Post by Bfwolf »

I agree with jjface. Based on the situation you described, you are in fine shape for your money to last close to 30 years even under unfavorable market conditions. In the study that jjface references (the Trinity Study), you hold 50% of your money in stocks and 50% in bonds...then you withdraw 4% of your total portfolio in year 1 and increase that withdrawal amount every year by inflation. Based on historical stock/bond market performance, that strategy would be highly unlikely to run out of money in 30 years. You're holding 40% stocks/60% bonds, which is pretty close to the 50/50 in the study. If you tighten your spending a little in bad stock market years and loosen it a little in good stock market years, there's no reason this money shouldn't last you until you are almost 100. And if stock market performance is average, your money would actually last you quite a bit longer than that.

The alternative that jjface mentions is to buy a Single Premium Immediate Annuity. With this, you give a portfion of your $900K to a few different insurance companies who promise to pay you a certain number of dollars every month for the rest of your life. This increases the amount of money you know you'll have so provides more certainty and potentially a higher amount of money to spend. But it also guarantees that there won't be an inheritance for any of the money you use to buy the SPIA. When you die, the insurance company's obligation is complete. If you are not concerned with passing on an inheritance, this can be an excellent option.

Going to all cash is a terrible option. But if you stick with your 40% stock/60% bond portfolio, you've got to be able to ride out the bad years without selling out at the bottom.
staythecourse
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Re: I'd rather stick than go to cash, but.

Post by staythecourse »

Investing really is as simple as below in your situation:

Find out how much you need to survive, i.e. NEED per year.

Find out how much gauranteed, principle stable investment dollars you make per year (SS, DB benefit pensions, CD, MM, short term bond funds, TIPS, I bonds, etc...)

Subtract the 2nd number from the first.

If there is a difference and have money still available increase the amount to principle stable investments as above. If there is still a difference than needs to be made up somehow. Think SPIA, reverse mortgage, Working longer, living on less money, downsizing home and freeing up equity, etc...

The above is a MUST.

Any left over money can be invested in some allocation 20/80 to 80/20 depending on how much cushion you have between your MUST number and extra money lying around. If there is not much leeway would err on the 20/80 to 40/60 range. If you have a big cushion then you can go more aggressive if you want more spending money or want money for heirs when you pass or for charities.

Good luck.

p.s. I think this approach (even if it is mental accounting) makes more sense for someone in the deaccumulation phase where they should by now know there MUST number/ yr. and the dollars available to invest.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
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MuleyS
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Re: I'd rather stick than go to cash, but.

Post by MuleyS »

I'm not sure how this reply posting works but thank you jjface! i hadn't even thought about dividends, i have much to learn. but I'm all over the spend less and have come in under budget every one of the last few months I've been on one.

And now I see more information from Bfwolf. I will find and read that trinity study, and I will investigate the annuity potential you both suggested.

I'm kind of absurdly grateful to see a future in which I'm not scrabbling on some absurd pendulum between the grim reaper and my bank account.

I see my re-post simplified but also dropped information. Thanks for slogging through it, both of you, and for this advice.

I know I've got to figure out how to reply properly only I also want to add 'staythecourse' to my thank yous. I am, indeed, beginning to appreciate the difference in numbers between 'wouldn't it be nice' and, as you put it, the 'must' numbers.
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Toons
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Re: I'd rather stick than go to cash, but.

Post by Toons »

"Just that it scares me to read that the markets might go down catastrophically and require a ten-year recovery"

Sit tight,Sit tight.
The Market rewards those that remain invested while others are reacting to the doom and gloom ,sky is falling forecasts.
I suggest you do the same.
Give your fund time to work FOR you.
Continue reinvesting the dividends and capital gains.
Just stay the course and DO NOT let your emotions derail your investment plan.
You will be just Fine. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: I'd rather stick than go to cash, but.

Post by White Coat Investor »

MuleyS wrote:Re-doing this post thanks to good advice to do so.

I'm looking for reassurance that my investment position makes sense from a downside perspective. I'm retired and if the bottom falls out of the market, my time horizon may be inadequate for recovery.

Emergency funds: probably enough for 2.5 years, when I'll have to take RMD
Debt: none, and own my own home
Tax filing status: now single, tax bracket 28%?
Investments: everything now in VSCGX, 60/40 bonds to stocks and well diversified
Yield I'll need annual in retirement starting in 2 years: $35 - 40K

Question: made this transfer from mutual funds recently and have watched it plunge over 3 weeks to under $900K. I thought hard about the allocation of 60/40, bonds to stocks, and am satisfied with it. Just that it scares me to read that the markets might go down catastrophically and require a ten-year recovery. When I consider that if that money was in an FDIC account, and I live 20 years or so, the math works out to about what I'd need and w/o the risk.

I don't need to leave anything to family members; just would like to. Any comments or advice at all would be so appreciated because I want to stay the course and be optimistic. Also looking for work but 15 years since salaried, it will never amount to much. Thanks.
This is a correction/bear market. You have 30+ more years to invest. You will go through another 10-20 of these in your investing lifetime. I would suggest getting used to them. Even reasonable investing plans (which I assume you have) don't work if you don't stick with it. VSCGX (Life Strategy Conservative Growth) is reasonable. When the market goes down, the value of your investments goes down. Deal with it. The alternative is to not have your money keep up with inflation over the long run.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Topic Author
MuleyS
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Joined: Tue Jan 19, 2016 11:38 am

Re: I'd rather stick than go to cash, but.

Post by MuleyS »

Additional gratitude to Toons and EmergDoc. These are affirming and practical messages. I guess I've been watching a roller coaster when I don't even really need to be in the amusement park at all, yet.

This has been most helpful. Love this forum.
itstoomuch
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Re: I'd rather stick than go to cash, but.

Post by itstoomuch »

We are doing GIWB deferred annuities (mimicks a tier1 PER) (hold) And regulated utilities (trade and div income) . We have a legacy motive.

Some do SPIAs, CDs, bonds, Asset allocations, and stock/bond mix,
YMMV.
IMO, either works. But ours works better in down markets and especially in prolonged down markets.
GL
Last edited by itstoomuch on Tue Jan 19, 2016 11:09 pm, edited 2 times in total.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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blueblock
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Re: I'd rather stick than go to cash, but.

Post by blueblock »

MuleyS wrote:Emergency funds: probably enough for 2.5 years, when I'll have to take RMD
Debt: none, and own my own home

Question: made this transfer from mutual funds recently and have watched it plunge over 3 weeks to under $900K. I thought hard about the allocation of 60/40, bonds to stocks, and am satisfied with it. Just that it scares me to read that the markets might go down catastrophically and require a ten-year recovery.
That's about where I am right now: retired; 2 year's living expenses in cash; about a million in my IRA (3-fund portfolio); another few hundred K in taxable and roth. My allocation is a bit more aggressive than yours, but not by much. I'm definitely staying the course no matter what happens, and I'm not losing a wink of sleep.

If I may suggest, stop listening to the "investment porn" such as you find on television, as it's clearly rattling you, and start reading higher-quality business publications like the Economist, in order to gain a better understanding of the fundamental forces shaping the global economy.

Finally, please remember that the losses paining you right now are not actually losses unless you panic and sell.
Topic Author
MuleyS
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Joined: Tue Jan 19, 2016 11:38 am

Re: I'd rather stick than go to cash, but.

Post by MuleyS »

To Blueblock, I will seek higher non-porn sources and sleep better thanks to your post and the others. Thank you.

To itstoomuch: I don't know what YMMV or SPIA are, but I'll find out. I'm pretty sure GL means Good Luck. Thank you, too!
letsgobobby
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Re: I'd rather stick than go to cash, but.

Post by letsgobobby »

You are probably taking more risk than you need to.

You seem to be taking more risk than you want to.

So I would take less risk.

30% stocks? With a 3-4% withdrawal rate, that should be ok. You might particularly value I bonds and TIPS in that situation.
N52570
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Re: I'd rather stick than go to cash, but.

Post by N52570 »

MuleyS wrote:......To itstoomuch: I don't know what YMMV or SPIA are, but I'll find out. I'm pretty sure GL means Good Luck. Thank you, too!
YMMV: Your Mileage May Vary

SPIA: Single Premium Immediate Annuity; basically your purchasing a Pension from an Insurance Company.
Last edited by N52570 on Tue Jan 19, 2016 6:49 pm, edited 1 time in total.
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LadyGeek
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Re: I'd rather stick than go to cash, but.

Post by LadyGeek »

^^^This is an SPIA: Immediate fixed annuity
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Topic Author
MuleyS
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Joined: Tue Jan 19, 2016 11:38 am

Re: I'd rather stick than go to cash, but.

Post by MuleyS »

Thank you for translations, N525 and Lady Geek (and for the helpful link).

I'm more used to BLTs and FOFLOLs.
Topic Author
MuleyS
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Re: I'd rather stick than go to cash, but.

Post by MuleyS »

To letsgobobby, sage advice. I read the updated Trinity report and see a wide range of stocks from 30-80% or above would likely return what I'd need. I've been reacting to Vanguard and other's flat market predictions and thinking that even 3% yield might be optimistic, but as I told another poster, I hadn't even considered dividend role. Much to learn. Thanks.
john94549
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Re: I'd rather stick than go to cash, but.

Post by john94549 »

OP, you might consider a CD ladder for part of your fixed-income. The problem these days is (with a rising-rate environment), both stocks and bonds can go down. For those with a long-ish investing horizon, that's not a big issue. But for those in or at the cusp of retiring, it can be un-settling.

The irony is, even with a very conservative portfolio (say 30% equities/70% bond funds), a retiree can experience a loss of principal these days. To say that is disconcerting would be an under-statement.

By definition, a CD ladder (FDIC/NCUA-insured) entails no risk of loss of principal and has a predictable yield.
looking
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Re: I'd rather stick than go to cash, but.

Post by looking »

MuleyS wrote:Re-doing this post thanks to good advice to do so.

I'm looking for reassurance that my investment position makes sense from a downside perspective. I'm retired and if the bottom falls out of the market, my time horizon may be inadequate for recovery.

Emergency funds: probably enough for 2.5 years, when I'll have to take RMD
Debt: none, and own my own home
Tax filing status: now single, tax bracket 28%?
Investments: everything now in VSCGX, 60/40 bonds to stocks and well diversified
Yield I'll need annual in retirement starting in 2 years: $35 - 40K

Question: made this transfer from mutual funds recently and have watched it plunge over 3 weeks to under $900K. I thought hard about the allocation of 60/40, bonds to stocks, and am satisfied with it. Just that it scares me to read that the markets might go down catastrophically and require a ten-year recovery. When I consider that if that money was in an FDIC account, and I live 20 years or so, the math works out to about what I'd need and w/o the risk.

I don't need to leave anything to family members; just would like to. Any comments or advice at all would be so appreciated because I want to stay the course and be optimistic. Also looking for work but 15 years since salaried, it will never amount to much. Thanks.
I'd rather stick than go to cash, but.

nothing to perfect in investment reasonable AA and stay the course is the best way to go --there's not much alternative im sure there Are but all just similar
Topic Author
MuleyS
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Re: I'd rather stick than go to cash, but.

Post by MuleyS »

john94549 wrote:OP, you might consider a CD ladder for part of your fixed-income. The problem these days is (with a rising-rate environment), both stocks and bonds can go down. For those with a long-ish investing horizon, that's not a big issue. But for those in or at the cusp of retiring, it can be un-settling.

The irony is, even with a very conservative portfolio (say 30% equities/70% bond funds), a retiree can experience a loss of principal these days. To say that is disconcerting would be an under-statement.

By definition, a CD ladder (FDIC/NCUA-insured) entails no risk of loss of principal and has a predictable yield.
Unsettling and disconcerting: agreed. I've never heard of a CD ladder. I am less emotional about this now because I read these posts over and over and have printed them out. If buying a CD ladder means locking into the losses so far, I won't do that, will 'stay the course'. But I will investigate the CD option for when my real-estate partnership can be liquidated. Another calming thing I did yesterday was to chart out a hypothetical future under my old mutual funds that included advisor fees and transaction fee guesses and expense ratios, alongside the .15% Vanguard fee. The horizon was prettier where I am.

Thank you, John!
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