Going from cash to equities now?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
FL1234
Posts: 25
Joined: Sat Jun 03, 2017 9:29 pm

Going from cash to equities now?

Post by FL1234 »

Two years ago I transferred a 401k to Vanguard into a money market fund. I was concerned about the stock market/election and procrastinated...
Last month I met a financial planner through friends and he explained to me that a diversified portfolio is best (like mix of 60%stock/40%bonds) and to re-balance it periodically. I know he's right but hate to make another mistake now. I asked for his opinion.... He stated that the day after I make the change the market could crash but it would recover and I would come out ahead. Yes this is true based on history. I'm 8 years away from retirement and the planner charges 1% annually. I do own stock mutual funds at Vanguard in a Roth IRA, about 25% of the assets, rest in money market. I'm self employed, no debt, house paid off.
So I wonder what I should do? I understand I need guidance/advice but also think 1% year after year is too much and all the risk is still mine. My idea is to change from cash to stock funds over a time period (1-2 years) versus buying it all at once.
maniminto
Posts: 103
Joined: Wed Jan 04, 2017 4:50 pm

Re: Going from cash to equities now?

Post by maniminto »

How much money are we talking about? and what percentage of your investable assets does it constitute
tibbitts
Posts: 12540
Joined: Tue Feb 27, 2007 6:50 pm

Re: Going from cash to equities now?

Post by tibbitts »

You may not feel you can accept market risk, and that's okay - especially if you have "enough", but even if you don't. I would say to not invest in equities unless equities drop below the levels at which you originally decided not to invest. How you measure that is up to you, but make it something quantifiable, so you won't invest or not based on "feelings."
User avatar
BolderBoy
Posts: 5188
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Going from cash to equities now?

Post by BolderBoy »

FL1234 wrote:My idea is to change from cash to stock funds over a time period (1-2 years) versus buying it all at once.
Do it over 12 months rather than 2 years.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: Going from cash to equities now?

Post by NiceUnparticularMan »

I'll be blunt. You are expressing the classic symptoms of myopic loss aversion. Most investors have this problem, so it is not surprising you do too.

People with this problem--which again is most people--should get on a path where they are not in charge of making a lot of evaluations, not constantly gathering information, not rebalancing for themselves, and so on.

A tool has been designed for just this purpose: low cost Target Date retirement funds. They do all the work of figuring out the right mix of assets to achieve an appropriate balance of risk and return, including the benefits of diversification. You could simply put everything in these funds and let them handle these matters for you, and it wouldn't cost you that adviser fee, and there is no predictable benefit to having a personal adviser or doing it yourself versus this approach.

So that's my recommendation: stick everything in a Target fund (use the same fund choice for both the MM funds and the Roth funds). That's the smart thing to do in your circumstances.
dbr
Posts: 34211
Joined: Sun Mar 04, 2007 9:50 am

Re: Going from cash to equities now?

Post by dbr »

In my view behind every proposal to gradually change asset allocation lies unrecognized uncertainty about what asset allocation to select. In short, the investor has not really addressed risk but has transferred his fears to an irrational corner of risk, namely chances of an immediate market correction if he invests.

The only thing wrong with the planner is paying him 1%, which is a big mistake, especially if one is not even going to follow the advice.

As to risk, I recommend reading Larry Swedroe's discussion of need/ability/willingness to take risk as found in some of his books.
cfp4me
Posts: 20
Joined: Sun Mar 22, 2015 11:34 pm

Re: Going from cash to equities now?

Post by cfp4me »

Considering your past behavior of loss aversion, my suggestion would be this. At an overall level keep 3 years worth of expenses in cash / cash equivalents in your portfolio and move the rest to 60%-40% allocation:
- If the market continues to go up, at the end of every year make sure you balance your portfolio for this 3 year cash equivalent window by selling your market allocations
- if the market tanks, wait for it to come roaring back to balance back to 3 year cash equivalent (while eating from the cash and NOT touching the allocation pegged to market, till then). You may feel bit uncomfortable seeing your assets tank, but it always reverts back and 3 years is typically a reasonable window for that.

This approach will not force your hand to liquidate market holdings in a downturn and thereby booking a loss permanently, but will let you enjoy the ride as well
aspiringlawyer
Posts: 48
Joined: Fri Apr 07, 2017 10:06 am

Re: Going from cash to equities now?

Post by aspiringlawyer »

NiceUnparticularMan wrote:I'll be blunt. You are expressing the classic symptoms of myopic loss aversion. Most investors have this problem, so it is not surprising you do too.

People with this problem--which again is most people--should get on a path where they are not in charge of making a lot of evaluations, not constantly gathering information, not rebalancing for themselves, and so on.

A tool has been designed for just this purpose: low cost Target Date retirement funds. They do all the work of figuring out the right mix of assets to achieve an appropriate balance of risk and return, including the benefits of diversification. You could simply put everything in these funds and let them handle these matters for you, and it wouldn't cost you that adviser fee, and there is no predictable benefit to having a personal adviser or doing it yourself versus this approach.

So that's my recommendation: stick everything in a Target fund (use the same fund choice for both the MM funds and the Roth funds). That's the smart thing to do in your circumstances.
+1
Throw it in Vanguard's Target Date 2025 Fund (VTTVX) or 2020 Fund (VTWNX). They do all the work for you and the expense ratio is no where near the 1% at .14%. While historical returns should not be used as a guarantee of future returns, both show great returns since inception (6.63% and 6.10% respectively).
NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: Going from cash to equities now?

Post by NiceUnparticularMan »

aspiringlawyer wrote:While historical returns should not be used as a guarantee of future returns, both show great returns since inception (6.63% and 6.10% respectively).
And the thing I can say with some confidence is that getting a better bet is quite hard, and effectively impossible for the typical investor (due to the large risk of behavioral mistakes like the ones we are discussing in this thread).
User avatar
goingup
Posts: 3971
Joined: Tue Jan 26, 2010 1:02 pm

Re: Going from cash to equities now?

Post by goingup »

Your investing behavior may be helped a lot by hiring an advisor. It's an expensive solution but less expensive than staying in cash.

Have you considering using Vanguard's Personal Advisory Service? The fee is .30 AUM. They'll set you up with an asset allocation that fits your risk profile. The portfolio construction isn't complex but the point is that someone else is managing it. The idea is to put a live person between you and stupid. :wink: https://investor.vanguard.com/financial ... ce?lang=en
Topic Author
FL1234
Posts: 25
Joined: Sat Jun 03, 2017 9:29 pm

Re: Going from cash to equities now?

Post by FL1234 »

Thanks for all the advice....
I have an appointment with a Vanguard adviser tomorrow. Two years ago they recommended me specific allocation with all assets in
a Target Retirement Fund or a combination of funds similar to that.
I understand the point about "myopic loss aversion" but converting me is not easy....I'm my own biggest enemy in retrospect?
I have done well at times with fund selection (lucky) and had losses. I guess my own feelings about political/economic outlook are not helpful....

I did not listed $ values as I thought this might not be appropriate. Although I'm now quite convinced to keep things simple by using a target fund or follow the Vanguard advisers suggestion, here are still two questions:
a.)Regarding Target Retirement funds, I looked specifically how low a 10k investment (10 years ago) dropped in late 2008:
The VTTVX went to $5950 where and the VWINX (Wellesley) in my portfolio went to ~$8300 and did better over the 10 year period.
What would be the reasons to ignore the Wellesley Fund. Need diversification with international holdings?
b.) Should I switch the money market funds into a Target Retirement fund (or similar) all at once or do it over a time period (and why?)
aristotelian
Posts: 8622
Joined: Wed Jan 11, 2017 8:05 pm

Re: Going from cash to equities now?

Post by aristotelian »

Do you have any need to take risk? If you are set for comfortable retirement with 80% cash you should not take any risk that makes you uncomfortable. If you decide to take the advisors advice just do it yourself, there is no need to pay 1% annually when you are capable of shifting to 60/40 yourself.
jayoco
Posts: 21
Joined: Tue Jan 05, 2016 6:01 pm

Re: Going from cash to equities now?

Post by jayoco »

With GREAT respect to all the advisors out there, the vast majority of people out there should NOT be paying 1% of assets to an advisor. Go find a good hourly advisor who you can meet with once per year or so and I think you'll be in good shape.

1% on 1 Million over 20 years is 200k (before growth and compounding). That is some serious opportunity cost for most people.

Diversify across low cost index funds and move on.
delamer
Posts: 10677
Joined: Tue Feb 08, 2011 6:13 pm

Re: Going from cash to equities now?

Post by delamer »

FL1234 wrote:Thanks for all the advice....
I have an appointment with a Vanguard adviser tomorrow. Two years ago they recommended me specific allocation with all assets in
a Target Retirement Fund or a combination of funds similar to that.
I understand the point about "myopic loss aversion" but converting me is not easy....I'm my own biggest enemy in retrospect?
I have done well at times with fund selection (lucky) and had losses. I guess my own feelings about political/economic outlook are not helpful....

I did not listed $ values as I thought this might not be appropriate. Although I'm now quite convinced to keep things simple by using a target fund or follow the Vanguard advisers suggestion, here are still two questions:
a.)Regarding Target Retirement funds, I looked specifically how low a 10k investment (10 years ago) dropped in late 2008:
The VTTVX went to $5950 where and the VWINX (Wellesley) in my portfolio went to ~$8300 and did better over the 10 year period.
What would be the reasons to ignore the Wellesley Fund. Need diversification with international holdings?
b.) Should I switch the money market funds into a Target Retirement fund (or similar) all at once or do it over a time period (and why?)
a.) It isn't a question of ignoring Wellesley. The issue is that what happened in the last 10 years with a fund doesn't predict what will happen going forward -- either in absolute terms or relative to other funds. You need to decide on a risk level and allocation that you are comfortable with, and invest accordingly.

b.) Based on your history, move all your money at once. If you plan on moving it over time, you are likely to not complete the move if market conditions change.

"I understand the point about "myopic loss aversion" but converting me is not easy....I'm my own biggest enemy in retrospect?
I have done well at times with fund selection (lucky) and had losses. I guess my own feelings about political/economic outlook are not helpful...."

Many investors are their own worst enemy. You are right that making decisions based on your analysis of current events only gets in your way.

This might help: http://awealthofcommonsense.com/2014/02 ... ket-timer/

This shortish document is designed for younger people, but you will fund the basic information and recommendations useful:

http://www.etf.com/docs/IfYouCan.pdf
Last edited by delamer on Sun Jun 04, 2017 3:05 pm, edited 2 times in total.
livesoft
Posts: 74551
Joined: Thu Mar 01, 2007 8:00 pm

Re: Going from cash to equities now?

Post by livesoft »

FL1234 wrote:I did not listed $ values as I thought this might not be appropriate. Although I'm now quite convinced to keep things simple by using a target fund or follow the Vanguard advisers suggestion, here are still two questions:
a.)Regarding Target Retirement funds, I looked specifically how low a 10k investment (10 years ago) dropped in late 2008:
The VTTVX went to $5950 where and the VWINX (Wellesley) in my portfolio went to ~$8300 and did better over the 10 year period.
What would be the reasons to ignore the Wellesley Fund. Need diversification with international holdings?
b.) Should I switch the money market funds into a Target Retirement fund (or similar) all at once or do it over a time period (and why?)
There are many Target Retirement funds with various asset allocations and stock:bond ratios. You selected Wellesley with a 40% stock and 60% bond allocation (today) and compared to VTTVX with a 65% stock and 35% bond allocation today. Furthermore, the asset allocation of Wellesley stayed pretty close to that AA, but a Target Retirement changed over time. That is, you compared apples and oranges.

You might compare Wellesley with another 40% stock, 60% bond fund, such as LifeStrategy Conservative Growth VSCGX. And you would probably still go with Wellesley.
Wiki This signature message sponsored by sscritic: Learn to fish.
livesoft
Posts: 74551
Joined: Thu Mar 01, 2007 8:00 pm

Re: Going from cash to equities now?

Post by livesoft »

FL1234 wrote:b.) Should I switch the money market funds into a Target Retirement fund (or similar) all at once or do it over a time period (and why?)
No one can tell you what you should do. That something strictly for you to decide and you have to take full responsibility for your decision.

No one can predict the future and that includes you, so no matter what you decide to do, it will probably not be the best thing to do. Nevertheless, there is nothing you can do that will not be wrong in some respects. Can you accept that whatever you do will lose you money? And whatever you don't do will lose you money. Since you are going to lose money no matter what, how does that make you feel?
Wiki This signature message sponsored by sscritic: Learn to fish.
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: Going from cash to equities now?

Post by PFInterest »

what should scare you more is how you are getting horrid returns. Missing out on both FI and stock gains and getting hosed with management fees. this is scarier than the stock market to me.
NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: Going from cash to equities now?

Post by NiceUnparticularMan »

FL1234 wrote: a.)Regarding Target Retirement funds, I looked specifically how low a 10k investment (10 years ago) dropped in late 2008:
The VTTVX went to $5950 where and the VWINX (Wellesley) in my portfolio went to ~$8300 and did better over the 10 year period.
What would be the reasons to ignore the Wellesley Fund. Need diversification with international holdings?
I'm not an active management person, and I am skeptical about whether one can predict an advantage to it in this case. But if you want to pick an active balanced fund, that's fine too, as long as that is a permanent commitment of all your funds.
b.) Should I switch the money market funds into a Target Retirement fund (or similar) all at once or do it over a time period (and why?)
Yes, figure out a single fund which you can stick with forever, then invest in it all at once. That day will be the first day of a new and better investment period for you.
jjface
Posts: 3097
Joined: Thu Mar 19, 2015 6:18 pm

Re: Going from cash to equities now?

Post by jjface »

Wellesley is a great fund. It isn't a typical boglehead fund but has many of the desirable qualities of a good investment for a retiree or someone who has a low risk tolerance. Target retirement funds are great too. Vanguard life strategy conservative or moderate growth are good too.

Just pick one - invest it - don't look again until the year end at least - and stick with the fund. From now on you make yourself only sell if you need the funds to buy something in retirement.
Topic Author
FL1234
Posts: 25
Joined: Sat Jun 03, 2017 9:29 pm

Re: Going from cash to equities now?

Post by FL1234 »

Okay - this will be a "stupid" question but I don't get it....

Vanguard VSMGX 10 year growth 5/31/07 to 5/31/17 is 10'000 to 15,854
Price of share on 5/31/07 was 21.73 and on 5/31/17 was 25.83

This does not give the same ratio. Does the number of shares in a portfolio increase?
dbr
Posts: 34211
Joined: Sun Mar 04, 2007 9:50 am

Re: Going from cash to equities now?

Post by dbr »

FL1234 wrote:Okay - this will be a "stupid" question but I don't get it....

Vanguard VSMGX 10 year growth 5/31/07 to 5/31/17 is 10'000 to 15,854
Price of share on 5/31/07 was 21.73 and on 5/31/17 was 25.83

This does not give the same ratio. Does the number of shares in a portfolio increase?
Growth includes dividends; price does not.

Yes, the number of shares increases by reinvestment of the dividends. If you don't reinvest the dividends the number of shares would not increase and you would not have that growth. You would have to decide what accounting to do regarding the dividends you get but don't reinvest.
NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: Going from cash to equities now?

Post by NiceUnparticularMan »

FL1234 wrote:Okay - this will be a "stupid" question but I don't get it....

Vanguard VSMGX 10 year growth 5/31/07 to 5/31/17 is 10'000 to 15,854
Price of share on 5/31/07 was 21.73 and on 5/31/17 was 25.83

This does not give the same ratio. Does the number of shares in a portfolio increase?
The former is probably assuming reinvestment of all distributions.
User avatar
bertilak
Posts: 8079
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Going from cash to equities now?

Post by bertilak »

FL1234 wrote:Okay - this will be a "stupid" question but I don't get it....

Vanguard VSMGX 10 year growth 5/31/07 to 5/31/17 is 10'000 to 15,854
Price of share on 5/31/07 was 21.73 and on 5/31/17 was 25.83

This does not give the same ratio. Does the number of shares in a portfolio increase?
Yes, if you reinvest dividends and that's what growth (as opposed to price) charts show. As you can see, reinvesting dividends makes a big difference!

EDIT: At least I made it into the first three answers to that question. All within four minutes.
Last edited by bertilak on Mon Jun 05, 2017 9:04 am, edited 1 time in total.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
lazydavid
Posts: 3548
Joined: Wed Apr 06, 2016 1:37 pm

Re: Going from cash to equities now?

Post by lazydavid »

VSMGX has a dividend yield just over 2%. 10-year growth includes reinvestment of dividends, so yes, the portfolio at the 10-year mark is comprised of about 154 more shares (33% more!) than at the beginning.
User avatar
BolderBoy
Posts: 5188
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Going from cash to equities now?

Post by BolderBoy »

FL1234 wrote:b.) Should I switch the money market funds into a Target Retirement fund (or similar) all at once or do it over a time period (and why?)
This is the Lump Sum vs Dollar Cost Averaging question. Lump Sum comes out ahead of DCA most of the time over the long term. But some folks can't stomach doing a lump sum for fear of seeing it go down vs up in the short term.

You've had a lot of good advice to pick a target date fund, put it all in at once and quit looking at it often.

Investing involves gains and losses. Over time, the gains tend to outnumber the losses. That is why we invest.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
Topic Author
FL1234
Posts: 25
Joined: Sat Jun 03, 2017 9:29 pm

Re: Going from cash to equities now?

Post by FL1234 »

Didn't sleep well last night...then thinking about posting this morning gave me some ease. I'm overthinking my situation but that's who I am.
I can take months to decide on buying a new car, reading reviews, test driving, looking for the best deal etc. But afterwards I'm completely happy with my decision as I have done all the homework (lately I buy Toyota's LOL). Here we go...
I spoke with the Vanguard adviser yesterday and he recommended the life strategy moderate growth fund. He was also okay keeping 10% each in one of the w funds. So I look at their 10 year returns, they are okay but mostly because the equities did great lately... Now I have to sell my Vanguard healthcare fund and precious metal fund. First one did very well for me (my position for 25 years) and the other poorly but seems to be a hedge against disaster and could bounce back. Sell half of each and see what happens over 6-12 months was my thought.
The next concern was about moving my money market funds (~400k) into the life strategy fund. Should I move 300k now and have some backup with 100k? This went on for a while then I gave up - the same I did two years ago!! How do I deal with that? I know that the status quo is wrong but also don't like to feel stupid if I make a mistake now.
Sounds familiar to anyone?
letsgobobby
Posts: 12073
Joined: Fri Sep 18, 2009 1:10 am

Re: Going from cash to equities now?

Post by letsgobobby »

Deleted
Last edited by letsgobobby on Fri Oct 25, 2019 8:30 pm, edited 1 time in total.
NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: Going from cash to equities now?

Post by NiceUnparticularMan »

FL1234 wrote:Didn't sleep well last night...then thinking about posting this morning gave me some ease. I'm overthinking my situation but that's who I am.
I can take months to decide on buying a new car, reading reviews, test driving, looking for the best deal etc. But afterwards I'm completely happy with my decision as I have done all the homework (lately I buy Toyota's LOL). Here we go...
I spoke with the Vanguard adviser yesterday and he recommended the life strategy moderate growth fund. He was also okay keeping 10% each in one of the w funds. So I look at their 10 year returns, they are okay but mostly because the equities did great lately... Now I have to sell my Vanguard healthcare fund and precious metal fund. First one did very well for me (my position for 25 years) and the other poorly but seems to be a hedge against disaster and could bounce back. Sell half of each and see what happens over 6-12 months was my thought.
The next concern was about moving my money market funds (~400k) into the life strategy fund. Should I move 300k now and have some backup with 100k? This went on for a while then I gave up - the same I did two years ago!! How do I deal with that? I know that the status quo is wrong but also don't like to feel stupid if I make a mistake now.
Sounds familiar to anyone?
Again, from an outside perspective it could not be more clear to me that what you are describing is normal myopic loss aversion, and that it is being triggered by the fact you are trying to be a "high evaluation" investor. Odds are this will end up very poorly for you, and that is the mistake you should be trying to avoid.

There is a very simple solution to this problem, which is to pick a single good balanced fund, put everything into it, and end your time as a high evaluation investor. This is not a mistake, it is the smart thing to do, and the right time to do it is now.

Your "compromise" ideas for just doing this partially aren't working for an obvious reason: you haven't changed the fact you are a high evaluation investor with these compromise plans, and instead you are clinging to your high evaluation ways by doing so. Once you understand that the goal is not about optimizing your asset allocation (which no one can do with precision anyway), but rather about not being a high evaluation investor anymore, it is obvious you need to quit cold turkey.

I don't know what else to tell you. To me, you are like a patient who walks into the doctor with head wounds, and it turns out you are hitting yourself on the head with a hammer each morning. The doctor tells you that you need to stop hitting yourself on the head with a hammer. You then come back to the doctor the next day with a proposal: you will only hit yourself on the head with a hammer every other morning, and see how that goes. Your rationalization is you don't want to make a mistake by stopping with the hammer-hitting all at once.

So my advice is stop hitting yourself on the head with a hammer, and put everything in a single balanced fund. That's not a mistake, the mistake is refusing to do it. And every day that passes while you refuse to do it is another day you hit yourself with the hammer.
User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: Going from cash to equities now?

Post by in_reality »

FL1234 wrote:Should I move 300k now and have some backup with 100k? This went on for a while then I gave up - the same I did two years ago!! How do I deal with that? I know that the status quo is wrong but also don't like to feel stupid if I make a mistake now.
Sounds familiar to anyone?
Backup? Yeah consider why you are asking about that!

I think you need to do one thing. Figure out your expenses in retirement and allocate so that you won't be having to sell stocks if they tank (go ahead and spend the dividends though).

Whatever you do - Target Retirement, all-in-one, three fund portfolio, Wellesley -- don't pay an advisor 1% and don't sell out when stocks crash. You have decades in retirement. Even investing today at high valuations with low expected future returns [even if it's crummy, crummy 2% after inflation for the next 30 years], you are still better off than not investing.

So I see two problems. 1) you run out of money late in retirement because you didn't put your savings to work 2) you put too much too work and unluckily suffer early in retirement when there is a big crash and you have to sell your stocks at very low prices to meet expenses.

I think you can easily plan to avoid #2 (especially if you can be flexible on spending) and doing so will help you get invested to avoid #1.
chinto
Posts: 296
Joined: Wed Jan 04, 2017 7:39 pm

Re: Going from cash to equities now?

Post by chinto »

Amigo, you really, really need to assess your risk tolerance. One should never be invested to the point of losing sleep, nausea or stomach upset. Know thyself in all things.

I am modestly financially savvy but I also know how experiences of childhood and young adulthood impacted me. My personal sleep well point is 10-15 years of expenses plus no debt (yep no mortgage, no car loan, I had a loan once and it drove me crazy), which is a sizable chunk...that is a whole lot of unproductive assets getting nibbled at by inflation and taxes, but that is my sleep well point, plus it lets me take advantage of those 2-3 times in a life opportunities (like 2008). In 2008, I batted and eye but was never worried and picked up a whole lot of distressed assets.

This, is what worked for me, psychologically and philosophically. In other words, my head tells me one things, my emotions, constitution, and heart tells me another. I value the little sleep I do get and fretting over market gyrations I cannot control is not my idea of a sound plan. I strongly suggest you figure your sleep well point in all markets, plant your emotional flag with the right liquid allocation you need to feel secure, and then do what logic dictates with your equity allocation.
NibbanaBanana
Posts: 247
Joined: Sun Jan 22, 2017 10:34 pm

Re: Going from cash to equities now?

Post by NibbanaBanana »

From John Bogle's Seven Pillars of Wisdom

"Wisdom to know that not investing is a surefire way to fail to accumulate the wealth necessary to ensure a sound financial future."
pkcrafter
Posts: 14565
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Going from cash to equities now?

Post by pkcrafter »

Two issues you need to think about.

1. Based on the limited information you have provided, It appears you are not properly grounded in investing fundamentals, and you don't have a plan. This makes it hard to know what to do, and it makes it hard to even select a good advisor, although it doesn't sound like you want an advisor. If you want to continue to self-manage, you have to spend some time learning.

2. You have not provided enough information for us to offer specific suggestions. We need to know your financial ability to take risk and your financial need to take risk. In other words, how much in assets do you have, and how much (percentage) of those assets will you need to withdraw at retirement.

https://www.bogleheads.org/wiki/Risk_tolerance

Here is our suggested format for providing information. If you decide to fill this in, it will help us and it will be a first step for you in getting the big picture. If you want to do it, edit your original post and put the information there. Go to the post and click on the pic of a pencil in the upper right corner.

viewtopic.php?f=1&t=6212

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Topic Author
FL1234
Posts: 25
Joined: Sat Jun 03, 2017 9:29 pm

Re: Going from cash to equities now?

Post by FL1234 »

Thanks for the different views....ranging from go all into a diversified fund (no matter what) to ...we need to know your situation and risk tolerance.

My view....I don't have a problem with risk but want to know why I'm doing it. In 35 years being in stock market I have experienced a few things. First one was was equity growth in the early 80's and then the crash of 87. I also invested into Japanese index funds and they never recovered.
If in 2008 the fed didn't pump lots of $$'s into the financial market we could be in the same situation as Japan?? That's why w/o some thought on my side I'm critical of the put it into one fund and forget it solution when stocks are at an all time high. Yes I was fully invested in stocks for decades - this was not a problem for me. If stocks declined the past two years I would be okay with my current situation - I made the wrong bet/procrastinated

From past discussion at work my time frame was always my retirement date (8-10 years from now). I also know that age related I do not have much chance/desire to get a high paying job and save like crazy. I'm self employed and make enough to live comfortably - my wife is a part time teacher and half her income goes to pay for my health insurance!!! Based on the feedback here I realize that I have 20+ years to stay fully invested and maybe draw 4%/year in retirement in 10 years.

Here some info on financial and personal
Me: 59 years old, wife is 54 years.
2 boys out of the house and independent
1 girl with disability (receives SSI) and lives at home
Net Income: 75k/year
Assets: House valued: 450k, Cash in bank: 100k, no debt of any kind

Investments (~600k):
Precious Metal fund: 30k,
Healthcare fund: 80k
Star fund: 70k
Wellesley fund: 50k
Money market: 350k
Oakmark Equity&Income: 20k
(of the above 190 k are in a Roth/ equities)

I always thought to retire abroad in a place where living expenses are lower than here (South Florida). Currently this is a big ? due to my daughter's disability. I never gave much thought to how much I need per year in retirement. My goal is to maximize investment return and live on what is within my means. Life (health) is unpredictable, so I don't worry about what I need at 90+.
I will not use an adviser but do very much listen to what others suggest, maybe I over analyze what makes sense or not. I still have worries about
the one fund and forget it solution....is it the right thing to do for me? Please realize for someone that has done this for the past 20 years the answer is obviously yes - put yourself in my shoes.
delamer
Posts: 10677
Joined: Tue Feb 08, 2011 6:13 pm

Re: Going from cash to equities now?

Post by delamer »

FL1234 wrote:Didn't sleep well last night...then thinking about posting this morning gave me some ease. I'm overthinking my situation but that's who I am.
I can take months to decide on buying a new car, reading reviews, test driving, looking for the best deal etc. But afterwards I'm completely happy with my decision as I have done all the homework (lately I buy Toyota's LOL). Here we go...
I spoke with the Vanguard adviser yesterday and he recommended the life strategy moderate growth fund. He was also okay keeping 10% each in one of the w funds. So I look at their 10 year returns, they are okay but mostly because the equities did great lately... Now I have to sell my Vanguard healthcare fund and precious metal fund. First one did very well for me (my position for 25 years) and the other poorly but seems to be a hedge against disaster and could bounce back. Sell half of each and see what happens over 6-12 months was my thought.
The next concern was about moving my money market funds (~400k) into the life strategy fund. Should I move 300k now and have some backup with 100k? This went on for a while then I gave up - the same I did two years ago!! How do I deal with that? I know that the status quo is wrong but also don't like to feel stupid if I make a mistake now.
Sounds familiar to anyone?
What would you consider a mistake? If you are afraid of making one, then you should define what that means. You will end up living in a cardboard box or you will only be able to take two cruises a year instead of 3 or you won't be able to pay for your grandchildren's college education or what?

The point is that you should be thinking not in terms of whether you end up with the optimal investment strategy -- because you probably won't; I know I don't think that I will -- but whether you have invested in a way that met your needs. Especially in your case, given all your indecision, you should adapt the most conservative approach that fits your long run financial picture.

EDIT: "My goal is to maximize investment return ..." This is not a philosophy that I agree with, because 1) it doesn't take your capacity for risk into account and 2) maximizing returns means a lot of volatility in the short run, which can be hard to stomach (and cause people to bail out after a drop in value).

https://personal.vanguard.com/us/insigh ... llocations

"All stocks" maximizes your return over the long run, but look what it can do in terms of fluctuations in the short run.

Figure out what you need to live on in terms of a budget and then figure out how much money you need to get there, and invest accordingly. How much in Social Security will you get? Will your wife have a pension and, if so, how much? Will your daughter continue to live with you and will her income help? Can you sell your house and buy a cheaper place, either locally or somewhere with a lower cost-of-living?
pkcrafter
Posts: 14565
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Going from cash to equities now?

Post by pkcrafter »

Thanks for adding some information.
FL1234 wrote:Thanks for the different views....ranging from go all into a diversified fund (no matter what) to ...we need to know your situation and risk tolerance.

My view....I don't have a problem with risk but want to know why I'm doing it.

You don't have a problem with risk, but you do have a problem with loss. :happy People dislike losses twice as much as they like an equivalent gain. The fact is that with a rather short time frame, you should be concerned with losses. A bad sequence of returns could cause a lot of problems. So, first thing you need to figure out is what asset allocation should you have. You will have to balance need with ability.

In 35 years being in stock market I have experienced a few things. First one was was equity growth in the early 80's and then the crash of 87. I also invested into Japanese index funds and they never recovered.
If in 2008 the fed didn't pump lots of $$'s into the financial market we could be in the same situation as Japan?? That's why w/o some thought on my side I'm critical of the put it into one fund and forget it solution when stocks are at an all time high.

No one has recommended you put all assets in one fund.

Yes I was fully invested in stocks for decades - this was not a problem for me. If stocks declined the past two years I would be okay with my current situation - I made the wrong bet/procrastinated

OK, but two years ago a 100% stock portfolio was too aggressive for your time horizon. You did need to cut back, but you went too far in attempt to time the market.

From past discussion at work my time frame was always my retirement date (8-10 years from now). I also know that age related I do not have much chance/desire to get a high paying job and save like crazy. I'm self employed and make enough to live comfortably - my wife is a part time teacher and half her income goes to pay for my health insurance!!! Based on the feedback here I realize that I have 20+ years to stay fully invested and maybe draw 4%/year in retirement in 10 years.

Here some info on financial and personal
Me: 59 years old, wife is 54 years.
2 boys out of the house and independent
1 girl with disability (receives SSI) and lives at home
Net Income: 75k/year
Assets: House valued: 450k, Cash in bank: 100k, no debt of any kind

Investments (~600k):
Precious Metal fund: 30k,
Healthcare fund: 80k
Star fund: 70k
Wellesley fund: 50k
Money market: 350k
Oakmark Equity&Income: 20k(of the above 190 k are in a Roth/ equities)

The two sector bets are not a good idea, and precious metals has volatility 2x the total market.

Are you aware that you could be using a self-employed tax-deferred investment account?
The above information indicates you still need some growth (need to take risk), but you also don't have a lot of ability (can't afford a big loss). If you want 75K income, you will need more savings, but you can subtract SS and any pension your wife may have from the 75k.


My goal is to maximize investment return and live on what is within my means.

I think you have to give some thought to what you will need and when you want to access it. Having goals helps.

I will not use an adviser but do very much listen to what others suggest, maybe I over analyze what makes sense or not. I still have worries about the one fund and forget it solution....is it the right thing to do for me? Please realize for someone that has done this for the past 20 years the answer is obviously yes - put yourself in my shoes.

There really isn't anything wrong with a TR or LS fund, so it's hard to dismiss them, but it isn't the only good option. Having said that, best single fund portfolios are low cost and rather simple (the 3-fund). Are you maxing the Roths each year - 6.5k each. If not, use some taxable $$ to max them.

Paul
.
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: Going from cash to equities now?

Post by NiceUnparticularMan »

FL1234 wrote:My view....I don't have a problem with risk but want to know why I'm doing it. In 35 years being in stock market I have experienced a few things. First one was was equity growth in the early 80's and then the crash of 87. I also invested into Japanese index funds and they never recovered.
If in 2008 the fed didn't pump lots of $$'s into the financial market we could be in the same situation as Japan?? That's why w/o some thought on my side I'm critical of the put it into one fund and forget it solution when stocks are at an all time high. Yes I was fully invested in stocks for decades - this was not a problem for me. If stocks declined the past two years I would be okay with my current situation - I made the wrong bet/procrastinated
LifeStrategy Moderate Growth only has 36% in U.S. equities. Target 2025 is similar--about 39% currently. That is reasonable protection against a Japan-style scenario.

Generally, these "one funds" are entire portfolios, just like your portfolio is an entire portfolio. They just make these decisions rationally, not out of fear. And you have proven why their approach is preferable.
I still have worries about
the one fund and forget it solution....is it the right thing to do for me?
Yes.

But look, keep in mind if all of this is in tax-advantage accounts, you can switch back any time. So just put it all in something like Target 2025, and see how it feels for a bit. If you really want to sell that and buy back your old portfolio, you can do so at any time. But you should give it a real shot first--and that means doing all of it.
epictetus
Posts: 624
Joined: Sat Mar 10, 2007 6:43 pm

Re: Going from cash to equities now?

Post by epictetus »

the "one fund" suggestion others have made refers to funds (like the STAR fund and Wellesley funds you hold) that have a balance of stocks/bonds.

you could put it all into a Lifestrategy Fund, Target Retirement Fund, Balanced Index fund, STAR fund, Wellington, or Wellesley and have a "one fund" solution.

if you could determine some sense of your desired stock/bond ratio that would let you know which direction to go on a one-fund/balanced fund solution.
Focus on what you can control
User avatar
goingup
Posts: 3971
Joined: Tue Jan 26, 2010 1:02 pm

Re: Going from cash to equities now?

Post by goingup »

OP-
The information you provided gives a bit more insight to you as an investor. It appears that you don't have a strategy, as poster pkcrafter noted upthread. Without a strategy there is no conviction. Without conviction, investors just dabble and chase returns. You are what I would call a "fund collector".

The first part of strategy is deciding what your Asset Allocation is. Ask any BH here and he/she can tell you whether they are 100/0, 70/30. 50/50 etc. They're talking about stock to bond ratio. They have decided how much risk they are comfortable with in their portfolio.

So maybe you should back up and make a few preliminary decisions. The forum Wikipedia provides some direction. https://www.bogleheads.org/wiki/Asset_allocation

Reading the "Bogleheads Guide to Investing" was also very helpful to many of us.

Once you have the fundamentals in place it is no longer a chore to deploy money. You'll know what you need to do keep your target allocations in balance. You'll still have to choose funds, but they will fit into your framework. Most importantly, you'll feel more settled about all of this!
anoop
Posts: 1996
Joined: Tue Mar 04, 2014 1:33 am

Re: Going from cash to equities now?

Post by anoop »

I'm sitting on almost all cash and individual treasuries and have been doing so since 2008 (before the crash). I have gone back and forth about investing in stocks but have decided against it.

There are too many weirdnesses about the current recovery that bother me. The field I work in has been going through massive consolidation and I have never known as many people (personal contacts) as I now know that are looking for work. At the same time, retail seems to be struggling big time. The main areas of job growth -- waiting/bartending, and administrative staff for healthcare and education. Stocks are overvalued by almost any measure.

I have decided that I'm OK with losing out on gains. In other words, I don't care if the Dow goes to 40,000. I'm fine earning whatever is available in money market and short-term bond funds until interest rates normalize, at which point I will move out to longer duration funds. I can afford the luxury of inflation eating away at my funds and I'm choosing to enjoy it. :D
dbr
Posts: 34211
Joined: Sun Mar 04, 2007 9:50 am

Re: Going from cash to equities now?

Post by dbr »

Maybe a definition of wealth is you are wealthy when you don't have to have a plan.
NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: Going from cash to equities now?

Post by NiceUnparticularMan »

dbr wrote:Maybe a definition of wealth is you are wealthy when you don't have to have a plan.
Or when you are so far out the marginal utility of weath curve that many years worth of inflation don't make any difference to you.
User avatar
HomerJ
Posts: 15711
Joined: Fri Jun 06, 2008 12:50 pm

Re: Going from cash to equities now?

Post by HomerJ »

NiceUnparticularMan wrote:Yes, figure out a single fund which you can stick with forever, then invest in it all at once.
This is not as easy it sounds. The OP is only 8 years from retirement. A single fund may not meet his needs.

OP, there's nothing wrong with being very conservative when you get close to retirement. There WILL be a crash in the stock market. None of us know when. It could be tomorrow. It could be 5 or 10 years from now.

We would need more information to give good advice.

What are your expected expenses in retirement? What kind of pensions/SS will you get? How much money do you have?

You may not need to invest much in the stock market. Maybe you only need 20%-40% stocks, and you could put the rest in CDs and bond funds.

Reading your posts, I certainly would not make a change all in one day. You will seriously second-guess your decision if the market tumbles the week after you do that. It would probably be better to start with a conservative portfolio, and slowly move money into the market.
Topic Author
FL1234
Posts: 25
Joined: Sat Jun 03, 2017 9:29 pm

Re: Going from cash to equities now?

Post by FL1234 »

Great....I decided not to visit the forum for a day and just checked now if there were any new posts. Great feedback.

a) I have little idea what I need when retired. I expect it will be less that 50k per year (make that 65k for inflation in 10 years).
I assume to get half of that in social security, foreign small pension and my wife's small pension. So I would need 30k from investments. I would
hope to have ~800k by then (now 600k plus adding 130k to Roth over 10 years). I do not count the value of the house. Either it would be sold and
my living expenses go up but also the assets we could live of. I have professional skills that would allow me to make some money as long as my
health permits - so that's a backup I hope. All in all I there are too many variables but I'm not concerned. Just staying the course...?

b.) It is clear to me that jumping heavily into stocks now is not wise. I will go to a 50%stock/50%bonds mix over a few months. I will
keep some portion in funds like Wellesley (10%) and Healthcare (5%). I realized this is a forum of index investors - wrong place to ask for
managed funds? These two funds have done well - yes there are no guarantees but I feel comfortable (Wellesley seems solid to me).

c.) I have the following funds in mind for the bond and stock portion. (Also listed the two mentioned above)

Stock: - VHCIX 5%
- VWIAX 10%
- VTSAX xx %
- VTIAX xx %
- VTIAX xx %

Bond: - VBTLX 50 %

I'm asking for recommendation/opinion on the above funds.I know little about bond funds but it would be ~50% of my portfolio with some in the
Wellesley (10% of total ?). I kind of want to ignore that as I consider Wellesley having risk... Is one fund for the bond portion okay? As it is 50%
of total this is important.

d.) Curiosity... Does anybody have a similar setup like the proposed above... does it make sense or not. I will revisit my allocation a few times (2x per
year) as I learn more. I will not sell stocks in a down market - just buy more to keep the ~50/50 and vice-versa.

Any comments welcome....

(PS . I mentioned earlier.... a decision like this is a process for me, getting close now...)
CantPassAgain
Posts: 577
Joined: Fri Mar 15, 2013 8:49 pm

Re: Going from cash to equities now?

Post by CantPassAgain »

FL1234 wrote:Great....I decided not to visit the forum for a day and just checked now if there were any new posts. Great feedback.

a) I have little idea what I need when retired. I expect it will be less that 50k per year (make that 65k for inflation in 10 years).
I assume to get half of that in social security, foreign small pension and my wife's small pension. So I would need 30k from investments. I would
hope to have ~800k by then (now 600k plus adding 130k to Roth over 10 years). I do not count the value of the house. Either it would be sold and
my living expenses go up but also the assets we could live of. I have professional skills that would allow me to make some money as long as my
health permits - so that's a backup I hope. All in all I there are too many variables but I'm not concerned. Just staying the course...?

b.) It is clear to me that jumping heavily into stocks now is not wise. I will go to a 50%stock/50%bonds mix over a few months. I will
keep some portion in funds like Wellesley (10%) and Healthcare (5%). I realized this is a forum of index investors - wrong place to ask for
managed funds? These two funds have done well - yes there are no guarantees but I feel comfortable (Wellesley seems solid to me).

c.) I have the following funds in mind for the bond and stock portion. (Also listed the two mentioned above)

Stock: - VHCIX 5%
- VWIAX 10%
- VTSAX xx %
- VTIAX xx %
- VTIAX xx %

Bond: - VBTLX 50 %

I'm asking for recommendation/opinion on the above funds.I know little about bond funds but it would be ~50% of my portfolio with some in the
Wellesley (10% of total ?). I kind of want to ignore that as I consider Wellesley having risk... Is one fund for the bond portion okay? As it is 50%
of total this is important.

d.) Curiosity... Does anybody have a similar setup like the proposed above... does it make sense or not. I will revisit my allocation a few times (2x per
year) as I learn more. I will not sell stocks in a down market - just buy more to keep the ~50/50 and vice-versa.

Any comments welcome....

(PS . I mentioned earlier.... a decision like this is a process for me, getting close now...)
Read the post above from Goingup again, specifically the part about being a "fund collector" as it looks like you are still thinking that way. Buying a bunch of different funds based on past performance and because it feels good is not a good strategy.

Decide what percentage of stocks and fixed income you want. Write an investment policy statement (see the Wiki). Keep it simple and to the point. Now you have a plan.

Then execute your plan in the simplest way possible. That means not buying a bunch of balanced and sector funds without rhyme or reason.

For example, if you want to own US stocks, you could simply by the entire universe of publically traded US stocks using Vanguards Total US Stock Market Index Fund. For international stocks, you could use Vanguards Total International Stock Index Fund. Then for bonds, you could go with Vanguards Total Bond Market Index fund. Search "three fund portfolio."

There may be some ways to do better than this, but there are infinite ways to do worse. And without a crystal ball you are pretty much going to do worse.
Explorer
Posts: 612
Joined: Thu Oct 13, 2016 7:54 pm

Re: Going from cash to equities now?

Post by Explorer »

FL1234 - The first question you need to ask yourself is about "the need to take risk" with the money you have in cash. If there is no need, don't expose that money to either stocks or bonds ever.

Assuming there is a need (to take risk since you want to grow the balance), if I were in your shoes I will only consider conservative balanced funds like Wellesley and PIMCO RealPath Blend Income (PBRNX) funds. Both are comparably conservative allocation 40% stocks/60% fixed income. Those two funds complement each other.. Wellesley is US stock/Intermediate Term US Corp Credit; PBRNX has US/Intl stock indexes and PIMCO active bond funds that cover a range of bond categories.

I would forget about slicing and dicing with a bunch of funds... I would also forget about investing all of the cash you have at one time, go slow at the pace you are comfortable with.

Just my 2 cents..good luck.
User avatar
Boris
Posts: 552
Joined: Tue Feb 27, 2007 11:10 am
Location: CT

Re: Going from cash to equities now?

Post by Boris »

goingup wrote:Your investing behavior may be helped a lot by hiring an advisor. It's an expensive solution but less expensive than staying in cash.

Have you considering using Vanguard's Personal Advisory Service? The fee is .30 AUM. They'll set you up with an asset allocation that fits your risk profile. The portfolio construction isn't complex but the point is that someone else is managing it. The idea is to put a live person between you and stupid. :wink: https://investor.vanguard.com/financial ... ce?lang=en
Oh jeez, I wouldn't use Vanguard for this if it were free. Although I love Vanguard for their low fees, they're really not up to par with high-net-worth individuals. Their Flagship and Flagship Select services suck. Don't get me started!

There are plenty of great fiduciaries who'll charge much less and provide much more. When I was a regular here, several of these people were on this very forum. Not sure if they're still around.
Short term moves in the market are like "a tale Told by an idiot, full of sound and fury, Signifying nothing." | - John C. Bogle quoting Shakespeare
NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: Going from cash to equities now?

Post by NiceUnparticularMan »

HomerJ wrote:
NiceUnparticularMan wrote:Yes, figure out a single fund which you can stick with forever, then invest in it all at once.
This is not as easy it sounds. The OP is only 8 years from retirement. A single fund may not meet his needs.
Target 2025 is perfect. Done.
It would probably be better to start with a conservative portfolio, and slowly move money into the market.
You are suggesting the OP continue to be a HEHR investor. I really feel like that process would be an obvious mistake for this individual.
Last edited by NiceUnparticularMan on Thu Jun 08, 2017 6:46 am, edited 1 time in total.
NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: Going from cash to equities now?

Post by NiceUnparticularMan »

FL1234 wrote:It is clear to me that jumping heavily into stocks now is not wise.
It is clear to me that your decisions are still being driven by myopic loss aversion. That's truly unwise.
Post Reply