Protecting principal with no risk: seeking validation Im not crazy or stupid

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tennesseerunner
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Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by tennesseerunner » Sat Mar 24, 2018 2:23 pm

I decided yesterday after worrying about a looming stock market crash to move all of my non-retirement investments at Vanguard into their Federal Money Market Fund which earns only 1.39%. I re-allocated my 401k which is also at Vanguard by putting 1/4 of the total into the Federal MM fund, 1/4 into their total bond market index fund and the remaining 2/4 divided between the Wellington and the Balanced index fund. So basically, I am risking only 17% of my portfolio that was at Vanguard and even then, those two Funds are a level 3. I have other investments elsewhere that are already in secure vehicles so that my principal is protected and just cumulates interest.

The bottom line is that I am very conservative and have a very low risk tolerance. I am a huge saver. I would rather keep what I have worked hard to save then lose it hoping for a big return. I am 52 1/2. My original plan was to retire at 62 but now I probably don't want to do that just b/c I would get bored.

I checked my balance this am and it was 3500 less than when I did the transaction b/c the market feel before the close at 4:00. Even so, I realized A nice (yes taxable) gain in those accounts which I am ok with. But the reason I did this was because after 2008, it took me at least 5 to 6 years or more to get back to the same amount that my accounts were on the day of that crash. This meant that the money had zero growth for that many years just to get back to what I had years earlier. And I did not sell or do anything -- I waited it out. I don't ever want to turn on the computer and look at my Vanguard accounts and see what I saw that day. It would take me way too long to ever build back up what I have saved since that time.

Hence- I decided to get out and just see what lies ahead. I figure I am still young enough I can put more money into the market when I feel more secure in our world. But as I see it, the market is due for a huge correction or even a crash that would take years to overcome. The political environment is crazy anything could set dominos in motion. So after years of gutting it out, I decided to get out (albeit not completely).

The guy at Vanguard told me on the phone that he had gotten calls from 4 other people who did the exact same thing as me. He didnt tell me their ages but to me, it wouldnt matter. B/c I dont want to spend the next 10 years saving money to simply end up where I was ten years prior.

Has anyone here done the same? Am I crazy or stupid to have done this? My brother (who is high risk) said I am not crazy and in fact said: you may be a genius.

Any commiseration would be appreciated!

dbr
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by dbr » Sat Mar 24, 2018 2:44 pm

You are not crazy or stupid, but I would say you are not taking an effective and rational approach to how you are managing your money.

I think the best concept to use regarding how much to put in stocks and how much to put in investments that offer low return and little risk of loss is to consider your need, ability, and willingness to take risk. That set of ideas can be attributed to Larry Swedroe who writes about that in a couple of his books. The read would be worthwhile. In brief the idea is:

1. Need is how much return need from your investments to gain your objectives. That can include that too little allocation to stocks will not support as high a withdrawal rate in retirement as can be obtained from a sufficient allocation to stocks. Otherwise allocating everything to low returning investments means that you don't need much growth in your assets to accomplish what you want to accomplish.

2. Ability is your circumstances relative to coping with bad outcomes if that is what materializes. People with income independent of investments such as pension, SS, and others and those who are young enough to keep earning money in spite of losses have a high ability to take risk. That is also true of those who have a lot of wealth and would not be much affected by losing some of it. Naturally those who do not have those resources have less ability to take risk.

3. Willingness is the psychological capacity to live with market volatility without doing stupid things such as selling out everything in a market downturn of in fear for the future. Over time I have become more convinced that this is not a passive condition but a matter of the will of the investor to make a commitment to devise a plan that meets one needs, initiate the plan, and stay the course with the plan. At a certain point a person as to harden the heck up and do what is needed.

Dandy
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by Dandy » Sat Mar 24, 2018 2:55 pm

It was a rash move but one that a very, very conservative investor is likely to make. Most times going that radical is usually not wise. It is amazing how a 10% drop in equities and the usual media comments can spook investors -- I am not immune either.
I heard today that last year no month was negative for equities which I think they said never happened before. They also said that most years usually have a 10% drop in equities and we haven't had that for awhile. I get that as you get closer to retirement the dollar drop when the market corrects is scary. You worked a long time to save that much an in a few days it is gone.

What you need now is a plan going forward. I like that you have chosen two balanced funds. That might be what will work with you. I don't think you can sit with an equity allocation in the 20% range and just save your way to adequate retirement funding. But, don't know your situation.

I was 60 in 2008 and forced to retire. I moved most of my ample 401k to the Vanguard Admiral Treasury Money Market fund while I figured out what to do. I selected my funds and then in a few months started moving a nice sum, I believe 10k a month, into those investments. When the market had a bad month I doubled up. It worked for me financially and emotionally. Maybe you could automate a sum monthly into your balanced funds until you reach a bit higher equity allocation.

You might also consider having some of your "safe" money in VG brokerage CDS rather than have all in the Fed money market fund. a 2yr is 2.55%, 3yr 2.75% and 5yr 2.90%. Read up on brokerage CDs before you buy. They are safe, pay interest directly into the Fed MMKt fund, no early redemption fee but you want the money before maturity you have to try to sell them - so market risk. I wouldn't tie up too much or go for longer terms since rates are rising. I guess 1,2 or 3 year CDs are the best now. The market value of the CDs can rise or fall but you get your investment back at maturity - directly into the Fed money fund.

Always passive
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by Always passive » Sat Mar 24, 2018 2:57 pm

The question that many investors ask is what to do when all looks too expensive. Selling and waiting for better times, like you have done, has proven to be the wrong answer. As many investors that have tried to play the active game of timing their sells and buys and more often than not have failed miserable, will tell you that investing is not about timing the market, but rather timing IN the market. Timing in the market because markets do not make gains gradually, they do it suddenly, often unexpectly, and in relatively short times. Therefore, there is always the very high likelihood, I would even say, certainty, that the active investor will miss the window, and history has certainly proven that.
Remember, Stocks are for the long run, MINIMUM 5 years, preferentially 10 years. History teaches that stocks go up, but in cycles, and the cycles are between 5 to 10 years.
Hold bond index funds with their duration in mind. Only commit to bond funds that have a DURATION that DOES NOT exceed the time you need the money. If you keep the fund for a bit more than its duration and the fund holds safe bonds, not junk that can default, you can assure to get about your initial yield (the yield to maturity when you bought the fund) no matter what happens to the bond fund in between.
Rebalance (return to your original allocation) with some frequency, maybe annually.
If you follow the above set of rules, along with with dbr suggests, success is most likely on your side.

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dm200
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by dm200 » Sat Mar 24, 2018 3:08 pm

tennesseerunner wrote:
Sat Mar 24, 2018 2:23 pm
I decided yesterday after worrying about a looming stock market crash to move all of my non-retirement investments at Vanguard into their Federal Money Market Fund which earns only 1.39%. I re-allocated my 401k which is also at Vanguard by putting 1/4 of the total into the Federal MM fund, 1/4 into their total bond market index fund and the remaining 2/4 divided between the Wellington and the Balanced index fund. So basically, I am risking only 17% of my portfolio that was at Vanguard and even then, those two Funds are a level 3. I have other investments elsewhere that are already in secure vehicles so that my principal is protected and just cumulates interest.
The bottom line is that I am very conservative and have a very low risk tolerance. I am a huge saver. I would rather keep what I have worked hard to save then lose it hoping for a big return. I am 52 1/2. My original plan was to retire at 62 but now I probably don't want to do that just b/c I would get bored.
I checked my balance this am and it was 3500 less than when I did the transaction b/c the market feel before the close at 4:00. Even so, I realized A nice (yes taxable) gain in those accounts which I am ok with. But the reason I did this was because after 2008, it took me at least 5 to 6 years or more to get back to the same amount that my accounts were on the day of that crash. This meant that the money had zero growth for that many years just to get back to what I had years earlier. And I did not sell or do anything -- I waited it out. I don't ever want to turn on the computer and look at my Vanguard accounts and see what I saw that day. It would take me way too long to ever build back up what I have saved since that time.
Hence- I decided to get out and just see what lies ahead. I figure I am still young enough I can put more money into the market when I feel more secure in our world. But as I see it, the market is due for a huge correction or even a crash that would take years to overcome. The political environment is crazy anything could set dominos in motion. So after years of gutting it out, I decided to get out (albeit not completely).
The guy at Vanguard told me on the phone that he had gotten calls from 4 other people who did the exact same thing as me. He didnt tell me their ages but to me, it wouldnt matter. B/c I dont want to spend the next 10 years saving money to simply end up where I was ten years prior.
Has anyone here done the same? Am I crazy or stupid to have done this? My brother (who is high risk) said I am not crazy and in fact said: you may be a genius.
Any commiseration would be appreciated!
You took this action AFTER there was a significant drop in the "value" of your holdings. What changed?

Your actions of having a non-trivial portion of investments in equities (before this latest move) seems completely contradictory of having a very low risk tolerance. Which is it?

tennesseerunner
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by tennesseerunner » Sat Mar 24, 2018 3:14 pm

I did not take this action after a drop in my holdings. I just had been thinking about it and decided now was the time. The only reason I left 2/4 of my 401K in level three mutual funds is b/c it was only 17% of my portfolio at VG. I still have other savings elsewhere. I don't plan to access my 401k until I'm 70 1/2.

I like Dandy's suggestion. And I haven't missed out on gains since 2008 regarding the money I left at Vanguard. My 1 year personal rate of return in my 401K was over 9% and in my non-retirement accounts, it was 8.5%. My three and five year returns were around 6.8 to 7%. Obviously, I was invested in conservative mutual funds. I know lots of people get over 20% returns but that's not my desire or what I am seeking.

All I want to do now is preserve what I have saved and earn enough interest to beat inflation. I think the CDS are a good idea and have the interest go to the FFMMT. I realize that to beat inflation, I will have to move some of that money to my level 3 funds again or do that when I re-invest. But I want to wait and see what happens with the presidency, North Korea etc before I go putting more money in the market.

I am not relying on huge returns on my investments to meet my retirement goals. I have already saved enough to retire right now if I really wanted to -- but I don't want to retire yet and the cost of health insurance is too high. I just don't want to lose what I have and I think the market, if it does crash, will take a lot longer than 10 years to recover this time around. Didn't it take a lot longer after the crash of 1929 for the market to get back on its feet? I know we are not living in 1929 but people are crazy these days doing crazy things. I just don't trust the market anymore or our leaders on either side of the aisle.

Sometimes sitting on the sidelines and watching is a smart thing to do.

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dm200
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by dm200 » Sat Mar 24, 2018 3:17 pm

tennesseerunner wrote:
Sat Mar 24, 2018 3:14 pm
I did not take this action after a drop in my holdings. I just had been thinking about it and decided now was the time. The only reason I left 2/4 of my 401K in level three mutual funds is b/c it was only 17% of my portfolio at VG. I still have other savings elsewhere. I don't plan to access my 401k until I'm 70 1/2.
I like Dandy's suggestion. And I haven't missed out on gains since 2008 regarding the money I left at Vanguard. My 1 year personal rate of return in my 401K was over 9% and in my non-retirement accounts, it was 8.5%. My three and five year returns were around 6.8 to 7%. Obviously, I was invested in conservative mutual funds. I know lots of people get over 20% returns but that's not my desire or what I am seeking.
All I want to do now is preserve what I have saved and earn enough interest to beat inflation. I think the CDS are a good idea and have the interest go to the FFMMT. I realize that to beat inflation, I will have to move some of that money to my level 3 funds again or do that when I re-invest. But I want to wait and see what happens with the presidency, North Korea etc before I go putting more money in the market.
I am not relying on huge returns on my investments to meet my retirement goals. I have already saved enough to retire right now if I really wanted to -- but I don't want to retire yet and the cost of health insurance is too high. I just don't want to lose what I have and I think the market, if it does crash, will take a lot longer than 10 years to recover this time around. Didn't it take a lot longer after the crash of 1929 for the market to get back on its feet? I know we are not living in 1929 but people are crazy these days doing crazy things. I just don't trust the market anymore or our leaders on either side of the aisle.
Sometimes sitting on the sidelines and watching is a smart thing to do.
What? If you decided and did this yesterda, then you certainly did decide and take the action well after the drop in the value of your holdings over the past number of weeks. How can you say this?

tennesseerunner
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by tennesseerunner » Sat Mar 24, 2018 4:09 pm

The gains my accounts showed at the beginning of February were more than what was shown yesterday. But I still had a good overall net gain on my investments. In other words, none of my principal investment was lost. I simply decided to move it while I was still netting a gain.

To your point: yes - had I made this move shortly before the stock market dropped in February, my net gain would have been $26,000 more than the amount I realized yesterday. So in your mind, I lost that money. In my mind, I forfeited actualizing that additional gain because I chose not to wait until after stocks rose enough again to get me back to the amount my accounts totaled in early Feb.

If I were not so conservative, I might not be so fearful. But I think the market is going to continue to drop and be all over the place for many many months to come, and quite frankly, I do think it's going to crash sooner rather than later. I just decided that I didn't want to look at my accounts one morning after that happens and see hundreds of thousands of dollars gone. I was invested in conservative mutual funds in 2008 and was heavier in bonds than stock and STILL lost well into the six figures. Liek I said, it toook me 5 years to get back to the same amount I had right before the 2008 crash and I didnt sell then.

But when it did get back to that number in 2013, I moved 1/2 into secure vehicles and left the other half in the market and I continued to add to it and it has grown ever since. I am basically doing that again albeit I am putting away more than half now b/c I'm older. It's like when I went to Vegas with a friend. He bet all kinds of money and left there with a loss. I bet the same tiny amount every time, pocketed my winnings every time, and re-bet the same tiny original amount each time. And I did it over and over. And I left Vegas $1000 richer. Clearly my bet was tiny but it paid off.

I know it's not most people's strategy but I still want to see what happens in the next few months to a year. If I lose out on some big upmarket, oh well.

delamer
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by delamer » Sat Mar 24, 2018 5:13 pm

My spouse and I are leaving our stock allocation at 75%, because we believe the stock market return — in the long-run — is worth the risk of short to medium term loss. So I think you are wrong in the way you are assessing risk. But “wrong” is not the same thing as crazy and/or stupid.

Your biggest problem is that “ ... I want to wait and see what happens with the presidency, North Korea etc before I go putting more money in the market” is not an investment plan. It is a type of market timing.

An investment plan is determining a long-term stock allocation that you are comfortable with and sticking with it. There is nothing wrong with being conservative and limiting your exposure to stocks. But what you are doing is market timing, and it is just dumb luck if that works out.

You should read these:

http://www.businessinsider.com/cost-of- ... 500-2015-3

http://awealthofcommonsense.com/2014/02 ... ket-timer/

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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by Fallible » Sat Mar 24, 2018 6:26 pm

tennesseerunner wrote:
Sat Mar 24, 2018 2:23 pm
I decided yesterday after worrying about a looming stock market crash to move all of my non-retirement investments at Vanguard into their Federal Money Market Fund which earns only 1.39%. I re-allocated my 401k which is also at Vanguard by putting 1/4 of the total into the Federal MM fund, 1/4 into their total bond market index fund and the remaining 2/4 divided between the Wellington and the Balanced index fund. So basically, I am risking only 17% of my portfolio that was at Vanguard and even then, those two Funds are a level 3.

The bottom line is that I am very conservative and have a very low risk tolerance. I am a huge saver. I would rather keep what I have worked hard to save then lose it hoping for a big return. ...
Just to comment on that "bottom line": If you think you would bail out in the market crash you are "worrying" about, then I think you are right in saying the bottom line is a conservative nature and very low risk tolerance and in taking steps to deal with it. That said, risk tolerance is known to change often and, if you are interested, there is more on that in the wiki's "Risk tolerance" page with links to books and blogs on the subject.

https://www.bogleheads.org/wiki/Risk_tolerance
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

KlangFool
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by KlangFool » Sat Mar 24, 2018 7:02 pm

OP,

What is your portfolio size in term of your current annual expense? 20X? 25X? 50X?

KlangFool

Olemiss540
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by Olemiss540 » Sat Mar 24, 2018 7:03 pm

Some great advise above, but if you are looking for validation that you market timing thinly veiled as a recent change in your risk tolerance was an appropriate move, you may have clicked on the wrong bookmarked link. Try Reddit at r/wallstreetbets.

Good luck with your decision, but a more thoughtful and delicate change to your AA would seem to be an appropriate Boglehead response instead of setting a claymore to an approach that has been successful for you personally over the last few decades (through quite a few political issues I would imagine).

You could have 30-40 more years of use for this money, and there may never be a lower stock valuation than today. Pick a reasonable and conservative all in one fund and invest it all forever.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

Jon H
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by Jon H » Sat Mar 24, 2018 8:01 pm

Do not expect bogleheads to support your point of view. It’s contrary to the boglehead philosophy. It’s possible your point of view and the boglehead can both be correct but only you shepherd your own finances. It’s your money and it’s always your call. You made a good decision considering your risk tolerance. You are correct about 2008 and the years thereafter.

I’m in agreement with you and think your approach is concordant with a near term significant down turn. I see significant risk in this market. Enough so, that I’m selling this market and taking profits accumulated over the last decade in order to preserve gains. I am maintaining an exposure to stocks but it’s alot less than about a month ago.
Consider gain and loss, but never be greedy and everything will be alright (fortune cookie)

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bottlecap
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by bottlecap » Sat Mar 24, 2018 8:13 pm

I’d say you’re not crazy or stupid. You are typical. That's not a good thing when investing, but you’re in good company.

I don’t envy you on deciding your eventual reentry, but I do wish you luck.

JT

protagonist
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by protagonist » Sat Mar 24, 2018 8:19 pm

tennesseerunner wrote:
Sat Mar 24, 2018 2:23 pm
I decided yesterday after worrying about a looming stock market crash to move all of my non-retirement investments at Vanguard into their Federal Money Market Fund which earns only 1.39%. I re-allocated my 401k which is also at Vanguard by putting 1/4 of the total into the Federal MM fund, 1/4 into their total bond market index fund and the remaining 2/4 divided between the Wellington and the Balanced index fund. So basically, I am risking only 17% of my portfolio that was at Vanguard and even then, those two Funds are a level 3. I have other investments elsewhere that are already in secure vehicles so that my principal is protected and just cumulates interest.

1.39% will likely not keep up with inflation. Your finances will likely die a slow bleeding death.

There is nothing wrong with being very conservative....and if you have enough to finance your retirement there is no real reason to gamble.

But given your philosophy and your fear of the futture, why would you not at least invest in , say, long-term CDs? You could get 3% or close to it today.

Stocks and bonds may lose money. But at 1.39% you are most likely going to lose (real) money. An account like that should only be used for an emergency fund and for current expenses. There are better safe alternatives.

indexonlyplease
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by indexonlyplease » Sat Mar 24, 2018 8:33 pm

3 yrs before I retired I was 100% in funds. Then I found this site and the 3 fund portfolio. When I retired I lowered my AA to a more consertative AA. For the same reason you did. But I was able to understand why I did it. I retired with a pension that supports my needs. So, I decided I did not want to take more risk than I really needed.

So, I think you need to figure out what your AA need to be. The AA that will support you in retirement. By the way I retired at 52. 18 months ago.

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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by Grt2bOutdoors » Sat Mar 24, 2018 8:37 pm

Read my signature. Depending on size of portfolio you could go 100 percent cash if it was enough to last multiple lifetimes.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

tennesseerunner
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by tennesseerunner » Sat Mar 24, 2018 11:33 pm

I will read the items suggested. And I did look at the rates on VG's website for CDs. I think those ideas are good. I could earn 2.75 to 2.9% for a CD or ladder for a couple of years and not be stuck with the 1.39%.

Thank you everyone who commented or shared -- I dont feel so alone!

And I have decided to spend some of the money I have saved -- planning on some cool trips and I just re-did my master bathroom and sun-room -- improves the house's value and I get to enjoy long before I downsize.

We only live once and you never know what could happen -- so here's to saving, spending and to those of you who love investing, making a good return.

I hope I'm wrong about the market ---

TR

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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by pkcrafter » Sun Mar 25, 2018 12:14 am

tennesseerunner, what asset allocation are you comfortable with? Have you reached your number, meaning you now have 25X the amount of needed annual withdrawals at retirement?

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.

TreadLightly
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by TreadLightly » Sun Mar 25, 2018 12:31 am

tennesseerunner wrote:
Sat Mar 24, 2018 11:33 pm
I will read the items suggested. And I did look at the rates on VG's website for CDs. I think those ideas are good. I could earn 2.75 to 2.9% for a CD or ladder for a couple of years and not be stuck with the 1.39%.

Thank you everyone who commented or shared -- I dont feel so alone!

And I have decided to spend some of the money I have saved -- planning on some cool trips and I just re-did my master bathroom and sun-room -- improves the house's value and I get to enjoy long before I downsize.

We only live once and you never know what could happen -- so here's to saving, spending and to those of you who love investing, making a good return.

I hope I'm wrong about the market ---

TR
you are so not alone. we have kept 100s of thousands out of the market for years because of this. i have recently found this site for help with these decisions.

i sent you a personal message

onourway
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by onourway » Sun Mar 25, 2018 5:54 am

The important question is how much you have saved relative to your expenses. If you have 40-50x annual expenses or more, you can probably get away with holding the entire thing in cash and not run out. If you don't have that much you must take on some risk because you are relying on the power of compounding to make sure you have enough to last you.

Remember, at age 52 you likely have 30-40 years still ahead of you. You need to take the long view. Do you really believe that the world economy will be worth less 30 years from now than it is today? If you don't believe that, you should be invested at an asset allocation that meets your need to take risk and simply leave it alone. Stop reading the news if you have to.

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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by Marketman » Sun Mar 25, 2018 7:04 am

If it's low volatility that you want, I seem to remember that the lowest volatility mix of stocks/bonds has historically been 20/80 (someone correct me if I'm wrong). This might be the portfolio you want. However, I personally would hold it through thick and thin, rebalance when it gets out of whack, and NOT try to time the market. I usually like treasury or high grade munis for bonds, but if I held a bond heavy portfolio I would be tempted to include perhaps 50% credit bonds on the taxable bond side. I don't like lending to the same companies I hold as equity but if I were equity-light, this would not be such a problem.

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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by Call_Me_Op » Sun Mar 25, 2018 7:20 am

I am also very conservative. But I adjust my equity allocation down to a level where I am comfortable. That has never been at zero, but I don't fault you for doing what you did.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by michaeljc70 » Sun Mar 25, 2018 8:10 am

You say you are conservative. People don't always understand that there are many kinds of risks and focus on the most obvious ones. At 1.39% you are LOSING money in real terms. You are earning less than inflation. There is inflation risk. I would be worried about that.

You talked about it taking 5 or 6 years for you to come back after 2008 (which seems long to be honest). However, I bet you had quite a bit more by 2017. Right? How would it have compared if you put everything in a 1.39% account in 2008 and then looked at it again in 2017?

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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by PFInterest » Sun Mar 25, 2018 10:39 am

tennesseerunner wrote:
Sat Mar 24, 2018 2:23 pm
I decided yesterday after worrying about a looming stock market crash to move all of my non-retirement investments at Vanguard into their Federal Money Market Fund which earns only 1.39%. I re-allocated my 401k which is also at Vanguard by putting 1/4 of the total into the Federal MM fund, 1/4 into their total bond market index fund and the remaining 2/4 divided between the Wellington and the Balanced index fund. So basically, I am risking only 17% of my portfolio that was at Vanguard and even then, those two Funds are a level 3. I have other investments elsewhere that are already in secure vehicles so that my principal is protected and just cumulates interest.

The bottom line is that I am very conservative and have a very low risk tolerance. I am a huge saver. I would rather keep what I have worked hard to save then lose it hoping for a big return. I am 52 1/2. My original plan was to retire at 62 but now I probably don't want to do that just b/c I would get bored.

I checked my balance this am and it was 3500 less than when I did the transaction b/c the market feel before the close at 4:00. Even so, I realized A nice (yes taxable) gain in those accounts which I am ok with. But the reason I did this was because after 2008, it took me at least 5 to 6 years or more to get back to the same amount that my accounts were on the day of that crash. This meant that the money had zero growth for that many years just to get back to what I had years earlier. And I did not sell or do anything -- I waited it out. I don't ever want to turn on the computer and look at my Vanguard accounts and see what I saw that day. It would take me way too long to ever build back up what I have saved since that time.

Hence- I decided to get out and just see what lies ahead. I figure I am still young enough I can put more money into the market when I feel more secure in our world. But as I see it, the market is due for a huge correction or even a crash that would take years to overcome. The political environment is crazy anything could set dominos in motion. So after years of gutting it out, I decided to get out (albeit not completely).

The guy at Vanguard told me on the phone that he had gotten calls from 4 other people who did the exact same thing as me. He didnt tell me their ages but to me, it wouldnt matter. B/c I dont want to spend the next 10 years saving money to simply end up where I was ten years prior.

Has anyone here done the same? Am I crazy or stupid to have done this? My brother (who is high risk) said I am not crazy and in fact said: you may be a genius.

Any commiseration would be appreciated!
i am affirming you are both those things. good luck.

jts
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Joined: Wed Mar 07, 2018 5:41 am

Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by jts » Sun Mar 25, 2018 11:20 am

tennesseerunner wrote:
Sat Mar 24, 2018 4:09 pm
The gains my accounts showed at the beginning of February were more than what was shown yesterday. But I still had a good overall net gain on my investments. In other words, none of my principal investment was lost. I simply decided to move it while I was still netting a gain.

To your point: yes - had I made this move shortly before the stock market dropped in February, my net gain would have been $26,000 more than the amount I realized yesterday. So in your mind, I lost that money. In my mind, I forfeited actualizing that additional gain because I chose not to wait until after stocks rose enough again to get me back to the amount my accounts totaled in early Feb.

If I were not so conservative, I might not be so fearful. But I think the market is going to continue to drop and be all over the place for many many months to come, and quite frankly, I do think it's going to crash sooner rather than later. I just decided that I didn't want to look at my accounts one morning after that happens and see hundreds of thousands of dollars gone. I was invested in conservative mutual funds in 2008 and was heavier in bonds than stock and STILL lost well into the six figures. Liek I said, it toook me 5 years to get back to the same amount I had right before the 2008 crash and I didnt sell then.

But when it did get back to that number in 2013, I moved 1/2 into secure vehicles and left the other half in the market and I continued to add to it and it has grown ever since. I am basically doing that again albeit I am putting away more than half now b/c I'm older. It's like when I went to Vegas with a friend. He bet all kinds of money and left there with a loss. I bet the same tiny amount every time, pocketed my winnings every time, and re-bet the same tiny original amount each time. And I did it over and over. And I left Vegas $1000 richer. Clearly my bet was tiny but it paid off.

I know it's not most people's strategy but I still want to see what happens in the next few months to a year. If I lose out on some big upmarket, oh well.

I understand your risk tolerance and believe you said at one point, that you could retire now if you wanted, so I do not question your conservative stance. However, I am curious what conservative fund you were in that took 5 years to gain the value back after 08. I have 1/3 each in three funds that total around 73% equity and they recovered in the next year after 08.

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JoMoney
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by JoMoney » Sun Mar 25, 2018 1:44 pm

I think Warren Buffett may be talking about you when he recently said, "Some people should not own stocks..."
https://youtu.be/lg9jPLoeWJc?t=2m22s
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

epictetus
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by epictetus » Sun Mar 25, 2018 1:59 pm

if you could decide on some mechanical way to allocate between stock/bonds that might help.

some consider age in bonds conservative.

or you could decide you wanted to be age plus 10 or 20 in bonds.

that helps give a mechanical way to think about allocation and you are adjusting to more conservative holdings with age.

or, as others have said, if you have saved enough maybe you don't need to risk much/any in the stock market.

or doing the 20/80 approach that has been suggested might be good.

Benjamin Graham suggested never to have less than 25% or more than 75% of your holdings in stocks.

what i am trying to say is if you could figure out some plan that fits you, that you will be able to stick with no matter what happens with the stock market, that could be a big stress reliever.

you have come to the right place to talk it out and sort it out
Focus on what you can control

RRAAYY3
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by RRAAYY3 » Sun Mar 25, 2018 3:11 pm

January’s ridiculous run up is making all this recent nonsense look worse than it actually is

But if you’re conservative / near retirement - hold onto what you have is not “stupid”. I get it

My outlook is 20+ years, so this recent turmoil is nothing more than a chance to buy things cheaper than they were in January

tennesseerunner
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by tennesseerunner » Mon Mar 26, 2018 10:44 am

Hi all:

I did leave 2 of my 401K funds in the Wellington Fund and Balanced income fund and one fund in the total bond market index fund. I also left my long term government bond fund alone and a tine amount I had in the Vanguard REIT fund. So technically, my Vanguard holdings are at 80/20 now. I intend to take some of the money I put in the FMM into short term CDs -- probably 2 to 3 years to get the 2.9% return.

As far as money I earn this year, I don't know what to do with it b/c I am afraid to put more into the market for all the reasons I have stated. But then if I do nothing, you are correct, I don't get any growth on it and thus there is the inflation argument.

I just know that I do feel better knowing that it's not all subject to drop way down and that gives me some peace of mind.

MrPotatoHead
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by MrPotatoHead » Mon Mar 26, 2018 8:37 pm

There is much to be said for sleeping well at night and knowing your investment temperament. I applaud you for having the courage to proactively reduce your holdings to your personal comfort level. Logical and rationality are often incongruent with our temperament. I think you are wise to listen to your innate nature. It likely is not a sound financial decision but as indicated worrying and fretting all the time is no way to live.

It seems to me that someone with your constitution may strongly want to consider single premium immediate annuities in their future.

michaeljc70
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Re: Protecting principal with no risk: seeking validation Im not crazy or stupid

Post by michaeljc70 » Tue Mar 27, 2018 7:55 am

ONe other point. You need to not only be comfortable with your AA right now when (you think) the market is high. You need to be comfortable with it when interest rates are rising and bond prices are dropping, when inflation is higher, after a recession when/if the market takes off again and you may feel you are missing out, etc. In other words, in all possible scenarios and not just today.

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