Couch Potato Portfolio Question

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LXEX55
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Joined: Fri Feb 12, 2016 9:12 am

Couch Potato Portfolio Question

Post by LXEX55 » Thu Jun 14, 2018 8:02 am

When I retire at the end of November I plan on moving my 401k money to a variation of the couch potato portfolio (mix of stock index fund, bond index fund). My question is, do people usually put ALL their 401k rollover money in such an account, or do they put some in a safe account such as brokered CDs, or does that defeat the purpose? What is conventional wisdom here? Thanks very much.

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dwickenh
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Re: Couch Potato Portfolio Question

Post by dwickenh » Thu Jun 14, 2018 8:12 am

The answer to your question requires more information. What is the timeline for this 401K money. Will you need to draw from it immediately
or do you have other sources of income? If you have to draw from it now, what percentage of the total do you intend to draw each year?
Some people keep a safety cushion of 1-3 years worth of income needs in short term instruments(CDs, Money Market, high yield savings)
If your base income of SS and pension cover your living expenses, then you may not need to hold the cushion.

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

LXEX55
Posts: 47
Joined: Fri Feb 12, 2016 9:12 am

Re: Couch Potato Portfolio Question

Post by LXEX55 » Thu Jun 14, 2018 8:26 am

dwickenh wrote:
Thu Jun 14, 2018 8:12 am
The answer to your question requires more information. What is the timeline for this 401K money. Will you need to draw from it immediately
or do you have other sources of income? If you have to draw from it now, what percentage of the total do you intend to draw each year?
Some people keep a safety cushion of 1-3 years worth of income needs in short term instruments(CDs, Money Market, high yield savings)
If your base income of SS and pension cover your living expenses, then you may not need to hold the cushion.

Dan
I would need to draw from it in about one year.

dbr
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Re: Couch Potato Portfolio Question

Post by dbr » Thu Jun 14, 2018 8:27 am

LXEX55 wrote:
Thu Jun 14, 2018 8:02 am
When I retire at the end of November I plan on moving my 401k money to a variation of the couch potato portfolio (mix of stock index fund, bond index fund). My question is, do people usually put ALL their 401k rollover money in such an account, or do they put some in a safe account such as brokered CDs, or does that defeat the purpose? What is conventional wisdom here? Thanks very much.
In this context CDs ARE bonds. That is, holding CDs can serve the same purpose as holding a bond fund in a portfolio. In my opinion way too much is made of trying to choose among the many options for the lower risk holding in a portfolio. CDs are not meaningfully "safer" than a bond fund in a long term portfolio holding. CDs are specifically useful for a person wanting to assure recovery of all of an exact amount of money on a specific date in the short run, but that is not what the retirement investor is doing.

dbr
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Re: Couch Potato Portfolio Question

Post by dbr » Thu Jun 14, 2018 8:29 am

LXEX55 wrote:
Thu Jun 14, 2018 8:26 am
dwickenh wrote:
Thu Jun 14, 2018 8:12 am
The answer to your question requires more information. What is the timeline for this 401K money. Will you need to draw from it immediately
or do you have other sources of income? If you have to draw from it now, what percentage of the total do you intend to draw each year?
Some people keep a safety cushion of 1-3 years worth of income needs in short term instruments(CDs, Money Market, high yield savings)
If your base income of SS and pension cover your living expenses, then you may not need to hold the cushion.

Dan
I would need to draw from it in about one year.
Then that is not an investment, but rather savings for a purpose. But this is a 401k, so what you really mean is that you are going to start withdrawing in small amounts from a large long term portfolio. It is not necessary to earmark components inside that portfolio for the withdrawal for next year, the year after, etc.

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midareff
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Re: Couch Potato Portfolio Question

Post by midareff » Thu Jun 14, 2018 8:30 am

I retired in 2012 and moved (rolled over) all my deferred compensation and 457 monies to a Vanguard IRA. I put the money in Total US Index, Total International Index and a Short Term and Intermediate Term Bond Index + a dash of High Yield. This is my first year of RMD so outside of conversions to Roth this is the first year of required withdrawals. I keep a couple of years worth of required draw in a short term bond fund which I will rebalance as needed and take my yearly draw in twelve sections, month by month.

dbr
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Re: Couch Potato Portfolio Question

Post by dbr » Thu Jun 14, 2018 8:32 am

I don't hold any short term money and take RMDs from whatever needs to be reblanced down, or otherwise in proportion to maintain AA. Note RMDs that are not spent are now reinvested in taxable accounts so the rebalancing or staying near target applies to the whole. If your AA is appropriate to the purpose there is no need to mentally separate short term holdings. Having short term holdings as a general approach to AA is fine if it is (a point needing to be supported).

delamer
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Re: Couch Potato Portfolio Question

Post by delamer » Thu Jun 14, 2018 9:15 am

You may be confusing two issues here. It depends on what you mean by “account.”

You can hold cash equivalents, like CDs, in your rollover account. Consider them part of your bond allocation.

But if you are talking about withdrawing some of the funds from your 401(k) and not rolling them into the IRA, then be aware that that money will be taxed as ordinary income.

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