I am now Gun Shy!!

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Topic Author
Bill@LakeGeorge
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I am now Gun Shy!!

Post by Bill@LakeGeorge »

I am 59 single and just retired. I have enough cash and income to get me to Social Security at 62 and at that point I will need to start to tap my investments.

I have no debt. I own 2 homes outright and will sell one within the next 3 - 4 years.

My tax rate this year should be 20%/8%.

I just moved all my investments in cash into Vanguard:

Taxable Account 30%
IRA Rollover 45%
Roth IRA 13%
IRA 12%

My original plan was to do a 60/40 split Total Stock Market/Total Bond Market until the last 2 weeks. I have put everything into a NY Tax Exempt MM with a yeild over 5%. I know it won't last.

Two very good accountant friends told me to stay in cash. Isn't that to conservative?

I need someone to hit me up along side my head and tell me what to do.
Hemispheres
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Post by Hemispheres »

Are you all cash right now? I think it's perfectly appropriate to be worried about investing in stock right now. It seems like the best way to get around that fear is to tip-toe into stocks. Maybe move 2-5% of your portfolio to TSM on a down day like today. Do it once or twice a month. You'll drag out the risk over time.
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paul e
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Post by paul e »

Where did you find > 5% yield on NY Muni bond? Fund? VNYTX yesterday quoted 4.38%. Was that a few days back?

Im also 59 yrs age.. Current investments set up no more than 4 yrs ago, when I was much more bullish. Way too much stock. I dont have your options. I have to leave my portfolio alone else lock in losses. On the plus side I dont have to take it out either, for at least 5-10 years. So iM just staying put. If I needed it in <= 5 yrs Id be more concerned. But who knows.. bear markets dont usually last for more than 1-2 yrs, and weve already been in it since January, so its hard to say.. Imagine the opportunity loss if you go way conservative now, only to watch the dow come back strong late next year. Cant the sale of that 2nd house be used to tide you over?
retiredjg
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Post by retiredjg »

My original plan was to do a 60/40 split Total Stock Market/Total Bond Market until the last 2 weeks.
So, do they think you should wait for the stocks to be more expensive before you buy them? That makes no sense. Buy now. Or start buying a predetermined amount each week or month. As for buying bonds, I don't really have an opinion, but if it were me, I would probably start buying TBM too.

The only way your friends' recomendation makes sense to me is if they think you should wait for prices to go even lower before you buy, but I don't think that is what you meant.

That said, I would keep at least 1 year's expenses, maybe even 2, in cash as a buffer, so that you don't have to sell low when you do start using your investments.
dbr
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Post by dbr »

One thing you need to do is consider the risks of staying in cash (or bonds as your case is). Reading some of the basic books on investing will take you through a systematic understanding of the all the varieties of risk for all kinds of assets, including specifically need, ability, and willingness to take equity risk. Also to be appreciated are the dilemmas of market timing, ie the decision when to move out of cash.

Forming a plan for how to finance your retirement is important. It is indeed even possible that 100% investment of your assets in NY Muni's would be a feasible plan for retirement income, but much more would need to be considered to conclude that.

Note that bonds in general have risks, muni's have their particular risks, and single state investing has risks. You do not have individual bond risk because you are in a bond fund, which has its own characteristics compared to individual bonds.
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Bill@LakeGeorge
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Post by Bill@LakeGeorge »

paul e wrote:Where did you find > 5% yield on NY Muni bond? Fund? VNYTX yesterday quoted 4.38%. Was that a few days back?

Im also 59 yrs age.. Current investments set up no more than 4 yrs ago, when I was much more bullish. Way too much stock. I dont have your options. I have to leave my portfolio alone else lock in losses. On the plus side I dont have to take it out either, for at least 5-10 years. So iM just staying put. If I needed it in <= 5 yrs Id be more concerned. But who knows.. bear markets dont usually last for more than 1-2 yrs, and weve already been in it since January, so its hard to say.. Imagine the opportunity loss if you go way conservative now, only to watch the dow come back strong late next year. Cant the sale of that 2nd house be used to tide you over?
As of yesterday VYFXX compound yield 5.04%
Topic Author
Bill@LakeGeorge
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Post by Bill@LakeGeorge »

Hemispheres wrote:Are you all cash right now? I think it's perfectly appropriate to be worried about investing in stock right now. It seems like the best way to get around that fear is to tip-toe into stocks. Maybe move 2-5% of your portfolio to TSM on a down day like today. Do it once or twice a month. You'll drag out the risk over time.
Yes all cash after being bled by Smith Barney, but I guess I lucked out to a degree I went to all cash 2 weeks ago otherwise I'd be another 10 - 15% down.

So Consensus Says ease back in.

I am just worried the market makers are going to run this down much more to break the little guy and make him sell.
Last edited by Bill@LakeGeorge on Tue Oct 07, 2008 1:52 pm, edited 1 time in total.
Hemispheres
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Post by Hemispheres »

Bill@LakeGeorge wrote:Yes all cash after being bled by Smith Barney, but I guess I lucked out to a degree I went to all cash 2 weeks ago otherwise I'd be another 10 - 15% down.
I wish I had gone to all cash two weeks ago! I'm mostly hiding out in the Treasury and Prime MMF but am taking it in the shorts on my stock holdings. My one remaining individual stock, which had held up relatively well, is biting the dust today.

I think tip-toeing in is the smart play to built up the stock allocation. At a minimum, it'll let you sleep better :)
bookshot
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Post by bookshot »

Why would anyone be 60/40 and retired at 59?
My take:
You need to decide on a detailed AA.
Generally, if you "need" 60% stocks at such a young age to meet your income goals, you probably should continue to work or at least take a part-time job so you won't need such a risky position. If you don't "need" that much in stocks, you are taking unnecessary risk, You could perhaps afford the risk if you didn't have to soon tap into it for income.
I assume that you need a return greater than can be expected with 100% fixed income.
I would never commit 100% to one sector, even something as presumably safe as munis, and certainly not to munis of one state. If short-term rates stay at 5%, that would be a market signal that there is serious risk; as you say, they probably won't, so you haven't made very much and you will have to change tactics soon.
So you need to figure out what your long term income needs are, and if it turns out that the equity position is too risky for you (e.g., you can't afford to lose, say 50% of your equity exposure for several years and still survive financially), you need to consider alternate sources of income or cutting back on living expenses. It's not as bad as it seems, since you have missed some of the downside and are in position to get back into stocks and longer term fixed income until you reach your appropriate AA. Start DCAing bonds and CDs, then stocks, hopefully to less than a 40% equity position (the less the better).
retiredjg
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Post by retiredjg »

bookshot wrote:Why would anyone be 60/40 and retired at 59?
bookshot, I don't actually disagree with most of your post, but the statement above makes it sound like 60/40 and retired at 59 is just outrageous. I don't think it is outrageous at all. Course, I'm no expert. I would guess that some consider it aggressive, but not outrageous. Just my 2 cents.
bookshot
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Post by bookshot »

retiredg, I have very very low tolerance of risk for retirees. Could be I am indeed too conservative but considering it is not impossible to lose 50% or even a lot more in stocks in a couple years...
Of course, at age 59, I guess you can usually make up for it by going back to work for awhile, so as long as you accept that possibility...
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Youngblood
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Post by Youngblood »

bookshot wrote:retiredg, I have very very low tolerance of risk for retirees. Could be I am indeed too conservative but considering it is not impossible to lose 50% or even a lot more in stocks in a couple years...
Of course, at age 59, I guess you can usually make up for it by going back to work for awhile, so as long as you accept that possibility...
I do too bookshot. But most financial planners would recommend and even encourage an investor around that age to the 60/40 split and defending it by saying you might live past ninety and don't want to run out of money.

I guess they gloss over the fact that there are other ways of running out of money. Frankly, that constant mantra they insist on gets me angry.
"I made my money by selling too soon." | Bernard M. Baruch
retiredjg
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Post by retiredjg »

bookshot wrote:retiredg, I have very very low tolerance of risk for retirees. Could be I am indeed too conservative but considering it is not impossible to lose 50% or even a lot more in stocks in a couple years...
Of course, at age 59, I guess you can usually make up for it by going back to work for awhile, so as long as you accept that possibility...
The only reason I brought it up is that the OP is new and might not realize that not everyone's opinion is as conservative as the one you expressed. I don't think you are "too conservative" at all. Just more conservative than some.

One idea to chew on - a person retired at 59 has to plan to depend on a portfolio for more years than someone who retires later. Thus, there might be some more need for risk. (By "some", I don't mean a lot!) That's how it seems to me, anyway. But I'm just some unknown person on the internet expressing an opinion. I'm sure there are some people here who actually know some facts about this.
Easy Rhino
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Post by Easy Rhino »

If you were around 60/40 before, and you want to be around 60/40 in teh future, then I'd recommend resuming the target allocation ASAP.
Topic Author
Bill@LakeGeorge
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Post by Bill@LakeGeorge »

Easy Rhino wrote:If you were around 60/40 before, and you want to be around 60/40 in teh future, then I'd recommend resuming the target allocation ASAP.
My original intent was to go 60/40 but with current events I am rethinking that, even Bogle said that future returns on equities will be lower. So I am reconsidering 50/50 or 40/60.

In any event I think I should sit on the sidelines for a month or two.

I was just looking for other thoughts if you were in my position.

Thanks
dbr
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Post by dbr »

One of the interesting results of looking at retirement ruin in historical data is that the survival of portfolios at modest withdrawal rates (say 4%) does not depend very much on asset allocation as long as equities are not too low (say much less than 40%). Debates about 40/60 vs 60/40 may be tempests in a teapot or dancing on the head of a pin, as we like to say here. This is by no means an argument that retirees should run high equity allocations, however.
muddlehead
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Post by muddlehead »

i think the eq/fixed income retirement how much can i safely withdraw annually discussion should be revised for many. if you take all your cash, can you live on interest of current cd rates - about 4-5%? if answer is yes, and you are averse to equity risk ...
dbr
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Post by dbr »

muddlehead wrote:i think the eq/fixed income retirement how much can i safely withdraw annually discussion should be revised for many. if you take all your cash, can you live on interest of current cd rates - about 4-5%? if answer is yes, and you are averse to equity risk ...
A better answer is that if you can live on the real yield of TIPS then you are 100% adverse to equity risk. This is equivalent to being wealthy enough to live on an inflation index withdrawal rate of about 2% if you can lock up that TIPS real yield for a very long time.
muddlehead
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Post by muddlehead »

i've never dabbled in the world of tips. bonds of all types i understand. bond mutual funds i understand. how would a tip compare to buying a 5.25% cd maturing in october 2018?
pkcrafter
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Post by pkcrafter »

Hi Bill,

It would seem that equities are a much better buy now than when the prices are higher. Can it go lower, yes, but I would suggest you not be entirely out of the market now. What was your AA before you retired? You should have rolled over to the same AA, but since you are now in cash and nervous, I'll suggest you add 50% of your desired equity AA into the market now and DCA the remainder over the next 12 months.

Is you AA right? That all depends on your particular situation including the amount of assets you have, your back up reserves, and your withdrawal rate. So it's really impossible for anyone to say whether your AA at 60/40 is too aggressive.

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.
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