New cash into a retirement portfolio

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LFremont
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Joined: Tue Feb 27, 2007 2:11 pm
Location: Cleveland, Ohio

New cash into a retirement portfolio

Post by LFremont » Mon Dec 05, 2016 10:33 pm

I recently received an inheritance. I'm in my 70s and retired. I know that I have way too much cash now in my portfolio but, it's my understanding that US stocks are overvalued, as are foreign stocks, although less so. Bond fund returns don't look good for the immediate future either. My portfolio is otherwise balanced and consists of Vanguard total market index funds (US, Int'l, US Bond and Int'l Bond) although I have an actively managed investment grade bond fund to complement the Total Bond Fund.

I am thinking what I need to do is DCA the cash into the stock index funds over a number of years to mitigate the risk of the highly priced US stock market but, I would be forgoing a number of years of returns. Does this make sense or am I being too careful? Being in my 70s it's not like I have 30 years to recover.
LFremont

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Peter Foley
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Re: New cash into a retirement portfolio

Post by Peter Foley » Mon Dec 05, 2016 11:47 pm

I would DCA the funds into the stock market over a period of 2-3 years if it is unlikely that you will have to use the inheritance for living expenses during that time period.

Grt2bOutdoors
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Location: New York

Re: New cash into a retirement portfolio

Post by Grt2bOutdoors » Tue Dec 06, 2016 8:55 am

Do you have a need for this cash? Retirement expenses or future legacy?
If you need bonds, but don't want to buy funds, consider purchasing at auction short-term US Treasuries and hold to maturity.
If you need equities, put in half now and dollar cost average over next 6-12 months.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

investor1
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Re: New cash into a retirement portfolio

Post by investor1 » Tue Dec 06, 2016 9:50 am

Why not live off of it and DCA in the rest until you've either spent it or invested it all? This way you leave your current assets invested.

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Garco
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Re: New cash into a retirement portfolio

Post by Garco » Tue Dec 06, 2016 10:11 am

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Last edited by Garco on Tue Dec 06, 2016 10:24 am, edited 1 time in total.

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Garco
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Re: New cash into a retirement portfolio

Post by Garco » Tue Dec 06, 2016 10:17 am

You have a very nice problem. I had something similar a few years ago but the inherited investments were quite a mixed bag, and a significant amount was simply cash.

I needed very little cash, i.e., income from this inheritance. The first thing I did was to help one of my children liquidate debt from federal loans for graduate school. That took care of a pretty good sum (>$100k). I set aside another cache of cash for a possible relocation (and new home) in a couple of years. And we took one big family vacation to Europe. This still left >90% of the inheritance.

I invested in some "income" funds that would provide a dependable cash flow, such as PIMIX. I kept some inherited investments, such as a CD that had a nice legacy yield of 5.25% and still had a few years to run, as well as some individual stocks that had quite a capital gain since the stepped up date (about 2 years prior to my receiving them) such as RAI and UHS. I sold a few individual stocks (e.g., XOM).

Then I set up a plan to DCA the remaining cash into a balanced portfolio of ETF's over a period of 12 months. I now have a portfolio that's about 50% equities that throws off some income.

This portfolio is in addition to my own retirement funds, from which I take required minimum distributions along with SS to cover my monthly family expenses. We're not living high off the hog. But we don't have any major money worries.
Last edited by Garco on Tue Dec 06, 2016 4:28 pm, edited 3 times in total.

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: New cash into a retirement portfolio

Post by dbr » Tue Dec 06, 2016 10:27 am

LFremont wrote:I recently received an inheritance. I'm in my 70s and retired. I know that I have way too much cash now in my portfolio but, it's my understanding that US stocks are overvalued, as are foreign stocks, although less so. Bond fund returns don't look good for the immediate future either. My portfolio is otherwise balanced and consists of Vanguard total market index funds (US, Int'l, US Bond and Int'l Bond) although I have an actively managed investment grade bond fund to complement the Total Bond Fund.

I am thinking what I need to do is DCA the cash into the stock index funds over a number of years to mitigate the risk of the highly priced US stock market but, I would be forgoing a number of years of returns. Does this make sense or am I being too careful? Being in my 70s it's not like I have 30 years to recover.
You should decide what asset allocation is appropriate and invest that way now. Otherwise you are trying to time the market. There is also nothing wrong with choosing to increase your risk and expected return as you age but that should not be based on thinking you can predict future trends in the stock market based on "understanding that US stocks are overvalued." My thought is that people who try to DCA into markets are trying to take more risk than they can stand and should cut back on the intended allocation to stocks. It would be good to know what objectives you have for your investments and therefore how much risk you need to take. Need, ability, and willingness to take risk are good guidelines to follow.

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