Panic set in... now what?

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MisterMister
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Panic set in... now what?

Post by MisterMister » Thu Nov 01, 2018 10:18 pm

At the bottom last week, I had a failing of nerve and cashed mostly out mutuals leaving about 15%. So I am down the gains for the year, about 7% in my case. Leading up to this "mistake" I had become obsessed and stressed with the daily market gyrations.

I will be 67 in a few months and newly retired though I am not taking SS yet. I'll probably defer SS for a few years, maybe until I'm 70.

I have roughly 1M (over 800K in cash right now) in retirement funds plus 600K in non-retirement cash. I believe I could go for 10 years without drawing from my retirement funds since my home is paid for.

My Fidelity advisor is recommending a move to wealth managed accounts (Fidelity or external wealth management firms).

I am not sure this is the right time to get back into equities at all, much less via money managers.

Right now I am putting my cash into very short term treasuries until I decide what to do. I know I can't stay cash, but I almost feel like I need to wait for the back end of the next bear before diving back in to avoid the pain and risk of jumping back in on the latest bump.

What would you do? Really seeking some opinions I can trust rather than just from people who stand to make commissions on my decision.

[EDIT, 11/11/2018]

All,

There are so many interesting ideas posted here that I don't know where to start. I am fairly confident that I do not need to subject myself to much equity risk, it just arises out of a desire to have the feeling of a bit more cushion.

Here are some additional details about my situation, which will answer some of the questions raised.

My current net worth is just over 1.9M, of which about 240K comprise my property assets (home, vehicles). Home paid for. This year, my total after tax spend will be about 70K, which includes a 20K vehicle purchase and $6500 IRA contribution for my wife. I do not expect my expenses to increase substantially unless my wife stops working, in which case I will have her health insurance to consider (I am on Medicare, but it will be a while before she is eligible). I am not factoring in her income to my planning because it is modest and at risk.

My, and my wife's IRA monies are all at Fidelity (excluding some iBonds). In all we have 610K in cash/short term CDs, just under 1M in those retirement funds, and about 70K in iBonds and stocks (taxable stocks).

If I defer SS until age 70 the amount will be about 43.6K per year (barring changes in the law).

I don't really have any major goals of my savings/investment program other than to cover expenses and allow an occasional nice vacation, which have been rare during my working life. We have no children. But my wife is 12 years younger and I need to make sure she is protected after I "move on"; ultimately things will have to be simple for her or else I will need an advisor.

As for advisors, I effectively have none I am using now. Having raised the topic with my Fidelity representative he arranged meetings with two AUM companies. And on, my own, I have also met with one you all will know since they advertise heavily on TV. Fees range from 1 to 1.25%.

Despite comments from some below who think AUM might be best based on my first post, I am loathe to do it. What I am inclined instead to do now is moved my fixed-income or bond monies out of Fidelity and into Vanguard where costs are cheaper; establish a sensible AA and be done with it.

I am currently reading "The Bogleheads Guide to the Three-Fund Portfolio". It is very compelling as a strategy but more so (in my mind) to someone who is starting out, young, who can benefit from the long-term averaging effect of the market's upward movement. And I have wondered whether a balanced retirement fund (e.g. Balanced 2015) might be an alternative to choosing AA on my own.

Some here have recommended dollar cost averaging back in to get to my desired allocations. I like that, going back in whole-hog at once (regardless of my allocations) seems risky at best.

Thank you all for your ideas to this point and in future. I will answer any requests for more information.
Last edited by MisterMister on Sun Nov 11, 2018 3:55 pm, edited 4 times in total.

Lafder
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Re: Panic set in... now what?

Post by Lafder » Thu Nov 01, 2018 10:47 pm

What was your asset allocation before you panicked and went to all/mostly cash?

What has you asset allocation been over the past decade ?

Is there any asset allocation you would be comfortable with such as 50/50 or even 40/60 or 30/70 ?

If you stay cash, you can optimize returns with CDs and money markets. But do you want to miss possible gains from stocks ?

lafder

MisterMister
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Re: Panic set in... now what?

Post by MisterMister » Thu Nov 01, 2018 11:04 pm

Lafder wrote:
Thu Nov 01, 2018 10:47 pm
What was your asset allocation before you panicked and went to all/mostly cash?

What has you asset allocation been over the past decade ?

Is there any asset allocation you would be comfortable with such as 50/50 or even 40/60 or 30/70 ?

If you stay cash, you can optimize returns with CDs and money markets. But do you want to miss possible gains from stocks ?

lafder
Over the past 10 years 80/20 stock to cash in retirement accounts. Right now I might feel comfortable with 40/60. I really want more than I can get from cash but I am worried about timing.

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Misenplace
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Re: Panic set in... now what?

Post by Misenplace » Thu Nov 01, 2018 11:27 pm

I’m surprised your advisor had you at 80:20 at you age, although as luck would have it, it worked out well for you over JUST the past few years. That is an asset allocation more appropriate for someone in their 30s-40s with a lot more earning years ahead of them.

I am early retired at 56 two years ago. Last year I moved from 65:45 to 60:40. That might be at least as aggressive in stocks as you want to be, although it would depend upon your overall portfolio. I suggest posting in the preferred format (link below with instructions) with all of your assets for the best advice.
viewtopic.php?f=1&t=6212

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Charlie Foxtrot
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Re: Panic set in... now what?

Post by Charlie Foxtrot » Thu Nov 01, 2018 11:29 pm

MisterMister,

If you have been stressing over the relatively minor market gyrations of the last week, it is clear that you are seriously risk-averse, especially now that you are newly retired and may not have a steady income stream. It is also clear that to have accumulated $1.6M you have done a pretty good job of saving. What appears to be missing is the confidence in your financial situation to be able to sleep well at night.

One of the first things you need to do is create a Financial Plan, which includes an Investment Policy Statement (IPS). The IPS, in particular, is where you establish your goals and objectives for your investments, what kind of income you will need those investments to generate in retirement, your asset allocation, and especially for you, your RISK TOLERANCE. I’m assuming you don’t have an IPS because, if you did, the market gyrations wouldn’t have bothered you at all.

If you haven’t done so already, you should read all of the main links on the Bogleheads Wiki Home page. However, since you are already retired, your main focus should be on the:

Financial Plan https://www.bogleheads.org/wiki/Financial_planning

Investment Policy Statement https://www.bogleheads.org/wiki/Investm ... _statement

I don’t think you should do anything with your investments UNTIL you have a solid Financial Plan and IPS. Keep most everything in cash for the time being. I also don’t think you need to pay a Financial Advisor to put together these plans when there are hundreds of extremely knowledgeable people on this forum who will give you excellent advice for free! The fact that your home is already paid off, that you don’t even need your investments for another 10 years, and that you are planning to defer Social Security until 70 tells me that you are probably in much better shape than you may realize.
"Man plans... God laughs"

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UpsetRaptor
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Re: Panic set in... now what?

Post by UpsetRaptor » Thu Nov 01, 2018 11:33 pm

If you're fretting over market gyrations and making panic moves, a wealth adviser may make sense in your case.

hawkfan55
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Re: Panic set in... now what?

Post by hawkfan55 » Fri Nov 02, 2018 12:47 am

MisterMister,
First, welcome to the forum.
Second, don't do anything until you've formulated a plan you trust and feel comfortable with. Bogleheads will be glad to give you their opinions on your plan.
Third, make sure you read the first two posts by Laura on investing and asking questions. There's a ton of great information in the WIKI, arranged by subject matter so you can read what's most of interest to you.

You haven't done anything that most investors have done, some many times, including me. :oops: Fortunately, I made these mistakes 20-30 years ago and didn't sell stocks during the last big downturn in 2008-2009. The more you learn about investing, the more comfortable you will be with your plan and you'll be able to stay the course thru the inevitable downturns. Over history, the market has gone up but it is definitely not a straight line up :annoyed

We've been retired for a couple years now and feel comfortable with our Asset Allocation. In our early 60's and both retired, our Asset Allocation is 45/50/5 Stock/Bond/Cash index mutual funds, all with Vanguard. Since we are holding off on starting SS till FRA or later, it's important to have enough bond/cash fixed income investments to withstand a major market downturn in stocks. Bonds can lose value if interest rates rise so you should try to match a fund's duration with when you'll want to spend bond assets. Cash can lose value due to inflation. Stocks should keep pace with inflation over time and provide an opportunity for your portfolio to grow. Your situation will be unique to you and should reflect your willingness and need to take risks. Other income streams such as pensions and/or social security might affect how much risk you need or want to take with your portfolio.
My Fidelity advisor is recommending a move to wealth managed accounts (Fidelity or external wealth management firms).
If you decide to pay for help, Vanguard offers assistance for .30% of assets under management. It might be something to help you gain confidence and you might get to the point where you feel comfortable making all the decisions yourself and sticking to your plan. I'm sure Fidelity offers something similar. Both would be good choices at reasonable costs. I would not want to pay a 1% fee annually for assets under management. If you withdraw 4% yearly from your portfolio, giving up 25% of my annual income would not be something I would want to do. YMMV.

A great DIY planning tool is the Optimal Retirement Planner, www.i-orp.com, use the extended version for best results. You may want to consider some Roth Conversions prior to starting Social Security. ORP can help you determine if doing these might be beneficial.

Knowledge will help you "stay the course" whether you decide to do it yourself or enlist some professional help.
Last edited by hawkfan55 on Fri Nov 02, 2018 12:56 am, edited 1 time in total.
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StormShadow
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Re: Panic set in... now what?

Post by StormShadow » Fri Nov 02, 2018 12:54 am

MisterMister wrote:
Thu Nov 01, 2018 10:18 pm
I have roughly 1M (over 800K in cash right now) in retirement funds plus 600K in non-retirement cash. I believe I could go for 10 years without drawing from my retirement funds since my home is paid for.
I'd go for 50/50 for 5 years, then 40/60 after that.

I don't think anybody would fault you for being more conservative. Even 100% bonds is not unreasonable, IMO.

I certainly place value in peace of mind.

Valuethinker
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Re: Panic set in... now what?

Post by Valuethinker » Fri Nov 02, 2018 4:12 am

StormShadow wrote:
Fri Nov 02, 2018 12:54 am
MisterMister wrote:
Thu Nov 01, 2018 10:18 pm
I have roughly 1M (over 800K in cash right now) in retirement funds plus 600K in non-retirement cash. I believe I could go for 10 years without drawing from my retirement funds since my home is paid for.
I'd go for 50/50 for 5 years, then 40/60 after that.

I don't think anybody would fault you for being more conservative. Even 100% bonds is not unreasonable, IMO.
Generally I think just about every investor should be a minimum of 20% in equities. All the data seems to show that an 80% bond 20% equity portfolio both has higher returns and lower risk (volatility) than a 100% bond portfolio.

The other thing with very high weightings in bonds is that TIPS and/or ibonds should play a role.

Valuethinker
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Re: Panic set in... now what?

Post by Valuethinker » Fri Nov 02, 2018 4:41 am

MisterMister wrote:
Thu Nov 01, 2018 10:18 pm
At the bottom last week, I had a failing of nerve and cashed mostly out mutuals leaving about 15%. So I am down the gains for the year, about 7% in my case. Leading up to this "mistake" I had become obsessed and stressed with the daily market gyrations.

I will be 67 in a few months and newly retired though I am not taking SS yet. I'll probably defer SS for a few years, maybe until I'm 70.

I have roughly 1M (over 800K in cash right now) in retirement funds plus 600K in non-retirement cash. I believe I could go for 10 years without drawing from my retirement funds since my home is paid for.

My Fidelity advisor is recommending a move to wealth managed accounts (Fidelity or external wealth management firms).

I am not sure this is the right time to get back into equities at all, much less via money managers.

Right now I am putting my cash into very short term treasuries until I decide what to do. I know I can't stay cash, but I almost feel like I need to wait for the back end of the next bear before diving back in to avoid the pain and risk of jumping back in on the latest bump.

What would you do? Really seeking some opinions I can trust rather than just from people who stand to make commissions on my decision.
You need to understand your risk tolerance.

A good rule of thumb is that stocks can drop 50%. Bonds 10% (short term bonds probably more like 5%).

However stocks can also go up 20% (they've gone up more than 50% in at least one year, I am sure).

Just as a general rule of thumb it's best to be not less than 20% in equities and not more than 80% in equities.

Of your bonds I would suggest that in the long run 20% of total portfolio (including equities) should be in TIPS -- either directly held or fund.

Exceptions are if you have private pension income: either fixed (private sector) or CPI indexed (public sector).

In your case on $1.4m that would imply something like $240k in equities - S&P 500 index fund or Vanguard Total Stock Market fund.

The split "retirement funds" and "non-retirement cash" is somewhat artificial -- it's really all just one pool of capital to live on.

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White Coat Investor
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Re: Panic set in... now what?

Post by White Coat Investor » Fri Nov 02, 2018 5:31 am

MisterMister wrote:
Thu Nov 01, 2018 10:18 pm
At the bottom last week, I had a failing of nerve and cashed mostly out mutuals leaving about 15%. So I am down the gains for the year, about 7% in my case. Leading up to this "mistake" I had become obsessed and stressed with the daily market gyrations.

I will be 67 in a few months and newly retired though I am not taking SS yet. I'll probably defer SS for a few years, maybe until I'm 70.

I have roughly 1M (over 800K in cash right now) in retirement funds plus 600K in non-retirement cash. I believe I could go for 10 years without drawing from my retirement funds since my home is paid for.

My Fidelity advisor is recommending a move to wealth managed accounts (Fidelity or external wealth management firms).

I am not sure this is the right time to get back into equities at all, much less via money managers.

Right now I am putting my cash into very short term treasuries until I decide what to do. I know I can't stay cash, but I almost feel like I need to wait for the back end of the next bear before diving back in to avoid the pain and risk of jumping back in on the latest bump.

What would you do? Really seeking some opinions I can trust rather than just from people who stand to make commissions on my decision.
You need a less aggressive asset allocation. You took more risk than you could tolerate. That said, a 15/85 portfolio probably doesn't take enough risk to keep you from running out of money.

It might also help if you can figure out a way to not look at your accounts as often as you do.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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White Coat Investor
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Re: Panic set in... now what?

Post by White Coat Investor » Fri Nov 02, 2018 5:33 am

This might also be a good time to quote Demuth:
Your psychological predisposition to take or shun risk is irrelevant to the ultimate means to reach your investment objectives…If you are a sensitive soul who can brook no paper losses, the solution is to get a grip, not to invest “safely” if that locks in running out of money when you are old.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

3funder
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Re: Panic set in... now what?

Post by 3funder » Fri Nov 02, 2018 5:35 am

StormShadow wrote:
Fri Nov 02, 2018 12:54 am
MisterMister wrote:
Thu Nov 01, 2018 10:18 pm
I have roughly 1M (over 800K in cash right now) in retirement funds plus 600K in non-retirement cash. I believe I could go for 10 years without drawing from my retirement funds since my home is paid for.
I'd go for 50/50 for 5 years, then 40/60 after that.

I don't think anybody would fault you for being more conservative. Even 100% bonds is not unreasonable, IMO.

I certainly place value in peace of mind.
+1, except I'm not comfortable with the idea of 100% anything. I think the 50/50 --> 40/60 suggestion is a thoughtful one.

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aspirit
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Re: Panic set in... now what?

Post by aspirit » Fri Nov 02, 2018 5:52 am

MisterMister wrote:
Thu Nov 01, 2018 10:18 pm
At the bottom last week, I had a failing of nerve and cashed mostly out mutuals leaving about 15%. So I am down the gains for the year, about 7% in my case. Leading up to this "mistake" I had become obsessed and stressed with the daily market gyrations.

I will be 67 in a few months and newly retired though I am not taking SS yet. I'll probably defer SS for a few years, maybe until I'm 70.

I have roughly 1M (over 800K in cash right now) in retirement funds plus 600K in non-retirement cash. I believe I could go for 10 years without drawing from my retirement funds since my home is paid for.

My Fidelity advisor is recommending a move to wealth managed accounts (Fidelity or external wealth management firms).

I am not sure this is the right time to get back into equities at all, much less via money managers.

Right now I am putting my cash into very short term treasuries until I decide what to do. I know I can't stay cash, but I almost feel like I need to wait for the back end of the next bear before diving back in to avoid the pain and risk of jumping back in on the latest bump.

What would you do? Really seeking some opinions I can trust rather than just from people who stand to make commissions on my decision.
Please tell me you or your advisor know how to do this? Calling the next "bear" that is.

Because theres overwhelming evidence your incorrect.

Theres a well known tenant called age in bonds, a rough outline. Could be age +10, or 20 could be age -10 or 20. :| Thats all I have at this point as a unknown internet poster on BH.org.
Good luck!
Time & tides wait for no one. A man has to know his limitations.

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bertilak
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Re: Panic set in... now what?

Post by bertilak » Fri Nov 02, 2018 6:27 am

White Coat Investor wrote:
Fri Nov 02, 2018 5:33 am
This might also be a good time to quote Demuth:
Your psychological predisposition to take or shun risk is irrelevant to the ultimate means to reach your investment objectives…If you are a sensitive soul who can brook no paper losses, the solution is to get a grip, not to invest “safely” if that locks in running out of money when you are old.
Or quote Clint Eastwood:
  • Little Bill Daggett (Hackman): You just shot an unarmed man!
    Munny (Eastwood): He should have armed himself.
    -- Unforgiven, 1992
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

Grt2bOutdoors
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Re: Panic set in... now what?

Post by Grt2bOutdoors » Fri Nov 02, 2018 6:35 am

Charlie Foxtrot wrote:
Thu Nov 01, 2018 11:29 pm
MisterMister,

If you have been stressing over the relatively minor market gyrations of the last week, it is clear that you are seriously risk-averse, especially now that you are newly retired and may not have a steady income stream. It is also clear that to have accumulated $1.6M you have done a pretty good job of saving. What appears to be missing is the confidence in your financial situation to be able to sleep well at night.

One of the first things you need to do is create a Financial Plan, which includes an Investment Policy Statement (IPS). The IPS, in particular, is where you establish your goals and objectives for your investments, what kind of income you will need those investments to generate in retirement, your asset allocation, and especially for you, your RISK TOLERANCE. I’m assuming you don’t have an IPS because, if you did, the market gyrations wouldn’t have bothered you at all.

If you haven’t done so already, you should read all of the main links on the Bogleheads Wiki Home page. However, since you are already retired, your main focus should be on the:

Financial Plan https://www.bogleheads.org/wiki/Financial_planning

Investment Policy Statement https://www.bogleheads.org/wiki/Investm ... _statement

I don’t think you should do anything with your investments UNTIL you have a solid Financial Plan and IPS. Keep most everything in cash for the time being. I also don’t think you need to pay a Financial Advisor to put together these plans when there are hundreds of extremely knowledgeable people on this forum who will give you excellent advice for free! The fact that your home is already paid off, that you don’t even need your investments for another 10 years, and that you are planning to defer Social Security until 70 tells me that you are probably in much better shape than you may realize.
I understand the OPs hesitance. While you say it’s minor and it is in percentage terms compared to what it could be, watching $150k evaporate before one’s eyes can be unsettling to say the least. The OP’s asset allocation is too aggressive at 80/20 and too conservative at 0/100 in cash. A 30/70 or 40/60 allocation may be a more suitable choice.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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welderwannabe
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Re: Panic set in... now what?

Post by welderwannabe » Fri Nov 02, 2018 6:46 am

If you retired and may need the money at some point (in other words, not just investing for your heirs), I suggest between a 40/60 and 60/40 allocation.

80/20 is way too aggressive IMHO and likely contributed to your panic.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

FoolMeOnce
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Re: Panic set in... now what?

Post by FoolMeOnce » Fri Nov 02, 2018 7:20 am

As everyone note above, pick a more comfortable allocation.

Then get to it now, don't wait for a bear. How will you know when to pull the trigger? You definitely won't be able to predict the bottom. And even if you accurately recognize a bear and get in somewhere near the bottom, it might yet be at a point when the market is higher than today.

moghopper
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Re: Panic set in... now what?

Post by moghopper » Fri Nov 02, 2018 7:24 am

MisterMister wrote:
Thu Nov 01, 2018 10:18 pm
...I almost feel like I need to wait for the back end of the next bear before diving back in to avoid the pain and risk of jumping back in on the latest bump.
Please tell me when this will happen. It will aid in my own planning.

HEDGEFUNDIE
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Re: Panic set in... now what?

Post by HEDGEFUNDIE » Fri Nov 02, 2018 7:25 am

The good news is if you were 80/20 all the way until last week, you benefited greatly from the equity run-up, and you very likely ended up ahead of someone who was in a more “appropriate” AA this whole time.

Going forward though, pick the more appropriate AA.

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tennisplyr
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Re: Panic set in... now what?

Post by tennisplyr » Fri Nov 02, 2018 7:39 am

As many have said, you sound risk averse and it's not likely to get better as you age. (I'm your age and am at 50/50). Here's a Vanguard tool that can give you some general direction for your AA.

https://personal.vanguard.com/us/FundsInvQuestionnaire
Those who move forward with a happy spirit will find that things always work out.

RickBoglehead
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Re: Panic set in... now what?

Post by RickBoglehead » Fri Nov 02, 2018 7:52 am

That allocation was clearly not right for you based on how risk adverse you really are coupled with your age and needs.

I'm always amused (amused in a bad way) when my early 80s mother is so happy with her portfolio returns (52/48) when she should be more like 30/70. The problem is that her spending is far, far, far (did I say far) to high for her portfolio to support, so she needs higher equity weighting to feed her spending. Of course the minute the market takes a downturn she's on the phone asking me how she's doing (answer "I haven't looked").

I worked in the business in '87, when as the market was plummeting investors cashed out and then called the next day asking what the impact of their cashing out was (capital gains), and how they'd get their money back (don't sell in the first place).

OP, please sit with a professional and come up with an AA that you can live with when the market drops hugely. Figure out your expected returns, and model out how much you can spend over your expected lifetime.

Independent George
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Re: Panic set in... now what?

Post by Independent George » Fri Nov 02, 2018 7:53 am

Would an SPIA be good for the OP in these circumstances? I know very little about them, but they seem like a good tool for the risk averse.

tibbitts
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Re: Panic set in... now what?

Post by tibbitts » Fri Nov 02, 2018 7:57 am

I disagree with most of the posts here. You've found your correct allocation, although if people want to suggest 20% equity vs. 15%... whatever. However I wouldn't add that 5% unless equities drop below the value they were at when you sold, which is a pretty simple rule. That might mean waiting forever, but it's not a big deal either way. In any case all the talk about running out of money assumes that equities will return more than bonds/cash over the rest of your lifetime, which may be a reasonable bet, but is only a bet.

Personally I didn't even notice last week, since I was traveling and not paying attention, but it was kind of a non-event relative to even recent history, so if that caused you to panic, you don't need to hold more equities.

staythecourse
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Re: Panic set in... now what?

Post by staythecourse » Fri Nov 02, 2018 8:00 am

That is easy. First, figure out how much your spending is per year. Take that amount minus what you are collecting in SS+ pension+ any SPIA. Any difference make up in SPIA's. This insures yearly liabilities are covered.

Then everything else give to a fee only advisor using low cost index funds. Consider Vanguard. Set it up and then let it go on automatic. Maybe something like 30/70?

Last, go find a hobby that is NOT investing. Sounds like you are like many out there that investing should NOT be an interest as it likely will worsen your outcome.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

TN_Boy
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Re: Panic set in... now what?

Post by TN_Boy » Fri Nov 02, 2018 8:51 am

StormShadow wrote:
Fri Nov 02, 2018 12:54 am
MisterMister wrote:
Thu Nov 01, 2018 10:18 pm
I have roughly 1M (over 800K in cash right now) in retirement funds plus 600K in non-retirement cash. I believe I could go for 10 years without drawing from my retirement funds since my home is paid for.
I'd go for 50/50 for 5 years, then 40/60 after that.

I don't think anybody would fault you for being more conservative. Even 100% bonds is not unreasonable, IMO.

I certainly place value in peace of mind.
I think 100% bonds is unreasonable for just about anybody. It is more risky than a portfolio with a small amount of equities.

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dratkinson
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Re: Panic set in... now what?

Post by dratkinson » Fri Nov 02, 2018 12:25 pm

#1. Stop listening to market news. That stuff is a killer of nerve.

#2. Right-size your investments. We can help you do that.


You've lived long enough to know the market will do what it will do.

You also know that over the long term the market goes up. So bailing out of the market now may be more risky than staying in.

But don't compound the problem by bailing back in without a plan. We can help you come up with a plan you can live with.

But we need information. To help you come up with a plan, please edit your OP (original post, original poster) to provide the information requested in the sticky "Asking Portfolio Questions". And we'll go from there.



Disclosure. The forum reviewed my investments prior to the 2008-2009 market drop. I was 60 at the time. The BHs took me from an AA of 90:10 to 50:50, and from tax inefficient to tax efficient. So during the coming 40% market drop, my investments lost only 20%. And I couldn't have been happier.

Why? It was the first investment advice I’d received that worked exactly the way it was advertised---if your investments are 50% stocks, then your investments will lose only 50% of the stock market drop.

And while the market was down 40%, dividends were down less than that, so I still had them to offset my living expense.

So all together 2008-2009 was not that bad. It also helped that I did not listen to any market news during the whole time. Or since.


So whether the current market hiccup is one and done, or the first of many, you'll be better able to weather whatever comes after you come up with a plan to right-size your investments.

If your Fido advisor did not tell you this---80:20 is too risky for you---then Fido is not serving your best interest. The conspiracy theorist in me suspects your Fido advisor allowed you to remain at 80:20 so Fido could move you into a "wealth managed" account---to get more fees from you---the first time you panicked in retirement.



Welcome.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

bloom2708
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Re: Panic set in... now what?

Post by bloom2708 » Fri Nov 02, 2018 12:36 pm

UpsetRaptor wrote:
Thu Nov 01, 2018 11:33 pm
If you're fretting over market gyrations and making panic moves, a wealth adviser may make sense in your case.
Not really. OP has a wealth advisor and still sold. Best to figure out a "sleep well at night, don't care, don't look" stock allocation with a healthy cash reserve.

I would set a 40% stock target with 20% international. Dollar cost average in over 6 months. It depends on how much you are paying the wealth advisor. If 1% of assets, that is 25% of your 4% withdrawal each year. Steep. Maybe pair with a move to Vanguard or Fidelity.

It may or may not be the best plan, but being at 15% stocks isn't optimal.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

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dratkinson
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Re: Panic set in... now what?

Post by dratkinson » Fri Nov 02, 2018 1:12 pm

Food for thought.



You may find these (public library) books to be helpful.
--The Boglehead's Guide to Retirement Planning.
--How to Make Your Money Last, Jane Bryant Quinn.



Data points.
--Need a mix of stock/bonds to survive the pressure of retirement withdrawals.
--A 4% SWR (safe withdrawal rate) is reported to last 30 years to depletion in retirement.
--A 2.5% SWR is reported to never be depleted. Expect heirs to receive whole initial retirement investment.

See: viewtopic.php?p=3377701#p3377701

This chart's authors assumed bonds returned 0% against inflation for 10-years, so skewed results to needing more stocks. Previously, 40/60 AA was reported to last longest under pressure of retirement withdrawals. (A newer author suggested 30/70 might be more appropriate now, but I don't find that reference.)

Image



The SWAN (sleep well at night) test. We know our investments are right for us because we can pass our personal SWAN test.



Simple action steps.
--Get forum review. Why? Fast interactive way to jumpstart creation of your right-sized retirement plan.
--Read recommended books. Why? They may help you tweak your right-sized retirement plan.

It may require a few months to make-tweak your retirement plan so you can SWAN.
Last edited by dratkinson on Fri Nov 02, 2018 1:45 pm, edited 1 time in total.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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Re: Panic set in... now what?

Post by Jack FFR1846 » Fri Nov 02, 2018 1:17 pm

I never say this.....but yes. You should just hand your account over to that Fidelity advisor to manage for you. As much as he's going to put you in high ER funds and charge you stupid high rates to play with your account, he isn't going to panic and sell with these little tiny drops in the market. Being in the market at high cost will cost you far less than what you just did.
Bogle: Smart Beta is stupid

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GoldStar
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Re: Panic set in... now what?

Post by GoldStar » Fri Nov 02, 2018 1:25 pm

Take the loss as a lesson not to make the mistake a second time. No market timing - ever.
Pick an allocation and stick with it.
Figure out what allocation you require and stick with it.

delamer
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Re: Panic set in... now what?

Post by delamer » Fri Nov 02, 2018 1:28 pm

moghopper wrote:
Fri Nov 02, 2018 7:24 am
MisterMister wrote:
Thu Nov 01, 2018 10:18 pm
...I almost feel like I need to wait for the back end of the next bear before diving back in to avoid the pain and risk of jumping back in on the latest bump.
Please tell me when this will happen. It will aid in my own planning.
Right. You can’t implement a plan based on waiting for “the back end of the next bear” because you will only be able to identify that point in time well after the fact.

There is an investment guru named Bill Bernstein who is widely respected on this forum.

He recommends an investment plan at retirement that puts 25 years of net expenses (meaning after pensions and Social Security) into cash or cash equivalents.

The balance of investments then go into stocks.

So if you would need to spend $1 million to cover your expenses over the next 25 years, then you’d put that in cash and the other $600K in stocks.

This method provides peace of mind for someone like yourself, because you know you can pay your bills regardless of what happens in the market.

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GoldStar
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Re: Panic set in... now what?

Post by GoldStar » Fri Nov 02, 2018 1:34 pm

Take the loss as a lesson not to make the mistake a second time. No market timing - ever.
Pick an allocation and stick with it.
Figure out what minimum-equity allocation (maybe its 15% but perhaps 20% or 25%) you require and stick with it.

Dottie57
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Re: Panic set in... now what?

Post by Dottie57 » Fri Nov 02, 2018 1:54 pm

GoldStar wrote:
Fri Nov 02, 2018 1:34 pm
Take the loss as a lesson not to make the mistake a second time. No market timing - ever.
Pick an allocation and stick with it.
Figure out what minimum-equity allocation (maybe its 15% but perhaps 20% or 25%) you require and stick with it.
This.

Set a lower stock allocation. Don’t change it until 5 or 10 years out from retirement. Seriously. Panic selling is one of the risks of high stock allocations. Also never do all or nothing types of selling.

Btw, we have only seen a correction in October, not a bear market.

Dollar cost average your money back into the market. Get all of your money into the market within 6 months.

Stop looking at the financial news for 3 months.

Good luck.

davidsorensen32
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Re: Panic set in... now what?

Post by davidsorensen32 » Fri Nov 02, 2018 1:55 pm

No worries. Just dive right back in to your original allocation. You didn't miss much. What the market giveth, the market taketh away. And vice versa.
MisterMister wrote:
Thu Nov 01, 2018 10:18 pm
At the bottom last week, I had a failing of nerve and cashed mostly out mutuals leaving about 15%. So I am down the gains for the year, about 7% in my case. Leading up to this "mistake" I had become obsessed and stressed with the daily market gyrations.

I will be 67 in a few months and newly retired though I am not taking SS yet. I'll probably defer SS for a few years, maybe until I'm 70.

I have roughly 1M (over 800K in cash right now) in retirement funds plus 600K in non-retirement cash. I believe I could go for 10 years without drawing from my retirement funds since my home is paid for.

My Fidelity advisor is recommending a move to wealth managed accounts (Fidelity or external wealth management firms).

I am not sure this is the right time to get back into equities at all, much less via money managers.

Right now I am putting my cash into very short term treasuries until I decide what to do. I know I can't stay cash, but I almost feel like I need to wait for the back end of the next bear before diving back in to avoid the pain and risk of jumping back in on the latest bump.

What would you do? Really seeking some opinions I can trust rather than just from people who stand to make commissions on my decision.

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celia
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Re: Panic set in... now what?

Post by celia » Fri Nov 02, 2018 1:59 pm

While most of the posters above are talking about a proposed Asset Allocation, I think we should first find out how much you need to rely on your investments for living expenses. What are your living expenses? What are your other sources of income [pensions, SS--if you should start claiming it now (which I don't recommend yet), rentals, dividends]? In other words, how much of your assets need to be spent on living expenses each year?

I ask this because with your nice savings, you may have also have a pension or other income. Others may be assuming all of your living expenses need to come from your $1.4M or $1.6M portfolio, whereas maybe you don't need to withdraw any/very little of it.

While you're at it, let us know what percentage of your retirement funds are in tax-deferred and in Roth. Those are very different to me and give you different spending abilities.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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UpsetRaptor
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Re: Panic set in... now what?

Post by UpsetRaptor » Fri Nov 02, 2018 3:04 pm

Independent George wrote:
Fri Nov 02, 2018 7:53 am
Would an SPIA be good for the OP in these circumstances? I know very little about them, but they seem like a good tool for the risk averse.
+1, good idea.

TravelforFun
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Re: Panic set in... now what?

Post by TravelforFun » Fri Nov 02, 2018 4:01 pm

UpsetRaptor wrote:
Thu Nov 01, 2018 11:33 pm
If you're fretting over market gyrations and making panic moves, a wealth adviser may make sense in your case.
If the OP is panic over market gyrations, an advisor may not be able to help him. Let's look at the numbers. Assuming his SS at 70 is near the max of $43k a year, and if he wants $600k to last 10 years, he could withdraw $90k a year from age 67 to 70, then $47k a year from 70 to 77 ( total income is $90k). After 77, with a 4% SWR from the $1m, he could withdraw $40k ( total income $83k) for the rest of his life providing that the $1m is in a 40/60 asset allocation.

OP, could you live on $90k per year the next 10 years and $83k after that. If you could, you're all set.

TravelforFun

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Re: Panic set in... now what?

Post by z3r0c00l » Fri Nov 02, 2018 4:03 pm

Nothing wrong with just using CD ladders at 67...

J295
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Re: Panic set in... now what?

Post by J295 » Fri Nov 02, 2018 4:17 pm

Don't sweat the decisions you made .... hopefully you've learned something about and have a high motivation to settle in on an allocation you can live with regardless of market conditions.

I've been retired for 6 years (now 59), so I understand that part of your situation.

Here's what works for us:
We have a simple IPS that can't be changed unless we make a decision to change and then wait 3 months (a sort of cooling off period). That IPS has an asset allocation that is age based so it only changes annually.

FYI, we are 110 - age = equities

So, at 51% equities I'm uninterested in market gyrations like the most recent ones. My mindset is that if the market goes down 50% our investment portfolio probably is down only 25% which has no impact on our day to day lives. Your situation and temperament may result in a different allocation, but you need one you can stick with. Period!

Don't beat yourself up. Take this as a wake up call.

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Artsdoctor
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Re: Panic set in... now what?

Post by Artsdoctor » Fri Nov 02, 2018 4:20 pm

MisterMister wrote:
Thu Nov 01, 2018 10:18 pm
At the bottom last week, I had a failing of nerve and cashed mostly out mutuals leaving about 15%. So I am down the gains for the year, about 7% in my case. Leading up to this "mistake" I had become obsessed and stressed with the daily market gyrations.

I will be 67 in a few months and newly retired though I am not taking SS yet. I'll probably defer SS for a few years, maybe until I'm 70.

I have roughly 1M (over 800K in cash right now) in retirement funds plus 600K in non-retirement cash. I believe I could go for 10 years without drawing from my retirement funds since my home is paid for.

My Fidelity advisor is recommending a move to wealth managed accounts (Fidelity or external wealth management firms).

I am not sure this is the right time to get back into equities at all, much less via money managers.

Right now I am putting my cash into very short term treasuries until I decide what to do. I know I can't stay cash, but I almost feel like I need to wait for the back end of the next bear before diving back in to avoid the pain and risk of jumping back in on the latest bump.

What would you do? Really seeking some opinions I can trust rather than just from people who stand to make commissions on my decision.
Mister,

Nothing bad has happened here. You've learned something about yourself and your investing limits. You're right in taking a breather.

Take a look at Celia's comments above. She is spot on.

You've described your account balances, but you haven't described your investment income needs. This is an extremely common mistake. The most important thing is for you to come up with figures that you'll need each year in income, and then you can figure out how to generate that income. The years will vary (you'll need more from your investments now, and then less when you start social security).

For all you know, you may need to take very, very little risk. The figures that you provided do not help any of us assess what the minimum amount of risk might be.

hoping
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Re: Panic set in... now what?

Post by hoping » Fri Nov 02, 2018 8:34 pm

I’m 71 and before the bear market of 2007 I was at AA 70/30 S/B. Against my better judgement I sold a small amount of stock near the bottom of the bear. There was no way I was going to rebalance, which is what I should have done. But I was not sleeping well and suffering.

And then the bull came and I regretted my action. But I learned a lot during that experience, which was that my risk tolerance, which I prefer to think of as my ‘volatility tolerance’, is not as great as I had thought. Now I am at 55/45, by which I mean, since I rebalance at + or - 5%, I keep equities between 50 and 60%,

I think that a good exercise in choosing an AA is to ask yourself, with a given AA under consideration, is whether if stocks fell 50%, whether you would be able to rebalance. Calculate the actual dollar amounts involved in rebalancing and whether you would be able to do it.

longinvest
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Re: Panic set in... now what?

Post by longinvest » Fri Nov 02, 2018 8:37 pm

hoping wrote:
Fri Nov 02, 2018 8:34 pm
I think that a good exercise in choosing an AA is to ask yourself, with a given AA under consideration, is whether if stocks fell 50%, whether you would be able to rebalance. Calculate the actual dollar amounts involved in rebalancing and whether you would be able to do it.
That's an awesome suggestion!
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VLB/ZRR

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StormShadow
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Re: Panic set in... now what?

Post by StormShadow » Fri Nov 02, 2018 11:23 pm

TN_Boy wrote:
Fri Nov 02, 2018 8:51 am
StormShadow wrote:
Fri Nov 02, 2018 12:54 am
MisterMister wrote:
Thu Nov 01, 2018 10:18 pm
I have roughly 1M (over 800K in cash right now) in retirement funds plus 600K in non-retirement cash. I believe I could go for 10 years without drawing from my retirement funds since my home is paid for.
I'd go for 50/50 for 5 years, then 40/60 after that.

I don't think anybody would fault you for being more conservative. Even 100% bonds is not unreasonable, IMO.

I certainly place value in peace of mind.
I think 100% bonds is unreasonable for just about anybody. It is more risky than a portfolio with a small amount of equities.
Image
Equities can get hammered for a very long time.

Again, if someone wanted to stay 100% bonds after they've won the game... I would have no problem with it.

Mr. Jelly
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Re: Panic set in... now what?

Post by Mr. Jelly » Sat Nov 03, 2018 8:17 am

What isn't often considered when discussing investing is that the money someone of an advanced age loses in the market may never be recovered in their life time. It's a little hard to put a value or logic on that fact so it's always the elephant in the room.

BoggledHead2
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Re: Panic set in... now what?

Post by BoggledHead2 » Sat Nov 03, 2018 8:28 am

Once I’ve reached my goal, I will not own stock/equity

Until I do, aggressive allocation with 50% of my take home pay invested monthly - should work out in 20 years

If it doesn’t, we have bigger problems in this work than asset allocation

TN_Boy
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Re: Panic set in... now what?

Post by TN_Boy » Sat Nov 03, 2018 8:52 am

StormShadow wrote:
Fri Nov 02, 2018 11:23 pm
TN_Boy wrote:
Fri Nov 02, 2018 8:51 am
StormShadow wrote:
Fri Nov 02, 2018 12:54 am
MisterMister wrote:
Thu Nov 01, 2018 10:18 pm
I have roughly 1M (over 800K in cash right now) in retirement funds plus 600K in non-retirement cash. I believe I could go for 10 years without drawing from my retirement funds since my home is paid for.
I'd go for 50/50 for 5 years, then 40/60 after that.

I don't think anybody would fault you for being more conservative. Even 100% bonds is not unreasonable, IMO.

I certainly place value in peace of mind.
I think 100% bonds is unreasonable for just about anybody. It is more risky than a portfolio with a small amount of equities.
Image
Equities can get hammered for a very long time.

Again, if someone wanted to stay 100% bonds after they've won the game... I would have no problem with it.
As long as you define winning the game as not needing to keep ahead of inflation. I guess you could try a 100% TIPs portfolio, though TIPS showed price volatility during the 08/09 crash.

I assume that is a price-only chart, not showing dividends. Also, like many investors, I would never have a "my country only" stock portfolio. In fact, Japan is a sterling example of the risks of a "my country is the best!" equity portfolio.

Thanks for making the point that a lack of diversification is a bad idea!

And Japan's deflation made it a little better than it might have been otherwise. And of course, if you had money in Japan stocks for a few years BEFORE the meltdown, you were not nearly so badly off -- look at the investor who got into stocks in 85 or 86, and even without dividends or accounting for deflation you'll notice that while bad, it wasn't nearly as bad as cherry-picking endpoints.

Every simulation I've ever seen of withdrawal rates shows 0% stocks as worse than just about any mix of stocks and bonds. And obviously, an all bonds portfolio has minimal diversification.

Are you really arguing that across the spectrum of investor risks a non-diversified 100% bond portfolio is the least risky? Are we talking about objective risk or fear?

If your argument is that a) some people do not understand risk and b) are spooked by stock fluctuations and c) that they have a lot more money than needed THEN they should bail out of stocks, I might buy that. I think it is an example of fear overriding good investment choices, but whatever.

carolinaman
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Re: Panic set in... now what?

Post by carolinaman » Sat Nov 03, 2018 9:18 am

MisterMister wrote:
Thu Nov 01, 2018 10:18 pm
At the bottom last week, I had a failing of nerve and cashed mostly out mutuals leaving about 15%. So I am down the gains for the year, about 7% in my case. Leading up to this "mistake" I had become obsessed and stressed with the daily market gyrations.

I will be 67 in a few months and newly retired though I am not taking SS yet. I'll probably defer SS for a few years, maybe until I'm 70.

I have roughly 1M (over 800K in cash right now) in retirement funds plus 600K in non-retirement cash. I believe I could go for 10 years without drawing from my retirement funds since my home is paid for.

My Fidelity advisor is recommending a move to wealth managed accounts (Fidelity or external wealth management firms).

I am not sure this is the right time to get back into equities at all, much less via money managers.

Right now I am putting my cash into very short term treasuries until I decide what to do. I know I can't stay cash, but I almost feel like I need to wait for the back end of the next bear before diving back in to avoid the pain and risk of jumping back in on the latest bump.

What would you do? Really seeking some opinions I can trust rather than just from people who stand to make commissions on my decision.
How will you know when the back end of the next bear is? The reality is you can't. It only becomes evident later. Timing the market is always difficult and error prone. That is why bogleheads recommend setting an AA and leave it there for all the market gyrations.

Like so many others, I recommend that you have more than 15% in equities, but not so much to cause you to panic in a serious downturn. IMO, one needs at least 30% in equities to provide long term returns and protect against inflation.

Your anxiety is understandable for retired people because they realize they no longer have human capital working for them. It is easy for those working to recommend a more aggressive AA because they have not experienced the loss of human capital. I am 74, retired 8 years and have 45/55 AA. I am comfortable with that for me. You have to decide what is best for you.

John88
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Re: Panic set in... now what?

Post by John88 » Sat Nov 03, 2018 3:10 pm

Once you decide in an AA you might be a good candidate for a Balanced or Life Strategy Fund.. forever

MisterMister
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Re: Panic set in... now what?

Post by MisterMister » Sun Nov 04, 2018 1:36 pm

Thank you all for your insightful advice. It is much appreciated. Some of you have asked for additional information and I also may want to respond to certain individual comments. Stay tuned. I should say I recently viewed some YouTube videos by Mr. Bogle. I feel confident I would not have made my original mistake had I viewed those sooner. Live and learn; I hope to slowly claw my way back with a bit a good luck and discipline.

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