Lower risk is in my plan but I just can't!

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Cody6136
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Lower risk is in my plan but I just can't!

Post by Cody6136 » Thu May 09, 2019 2:30 pm

My plan says I need a smooth path from a heavy stock allocation in my tax advantaged accounts...to more fixed income there. My plan makes sense in this regard as I'm 59 and I need to adjust for my age and balance my taxable accounts, which are heavy on equities.

The problem is that I have a death grip on the stock mutual funds. I feel like I'm plowing good crops under.

How have you gotten yourself to downshfit to lower risk instruments when higher risk choices have become manifestations of your self image and more important, they're humming along. I've lived through 2007 to 20011. It wasn't pleasant but I hung in.

DemoEngr
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Re: Lower risk is in my plan but I just can't!

Post by DemoEngr » Thu May 09, 2019 2:39 pm

I am (59.25) waiting until 59.5 so i can move them out of 401k to brokerage firm where the choices and ER are tolerable. Only good ER in our fidelity account is the S&P index fund (.35). Bond funds are all over a ER of 1 point

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SevenBridgesRoad
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Re: Lower risk is in my plan but I just can't!

Post by SevenBridgesRoad » Thu May 09, 2019 2:39 pm

I assume your plan was designed to acheive your goals. Have your goals (not your feelings) changed?
Retired 2018 Every day is Saturday | Simple is good | One Vanguard TDF except for a bunch of individual stocks = Still recovering from Fidelity AUM experience years ago | Sleeping well at night

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5th_Dimension
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Re: Lower risk is in my plan but I just can't!

Post by 5th_Dimension » Thu May 09, 2019 2:43 pm

The drop at the end of last year caused me to rethink my risk tolerance. I'm the same age as you. My new plan is to have enough in fixed income to cover five years of expenses and then let the equity side do what it wants. Last month I moved enough from equities to go from 70/30 to 65/35, which almost gets me to five years fixed. I plan to move some more in the near future to get me closer to 60/30, which should put me over the top of five years.

Like you I hated moving money from equities that were doing well but watching my portfolio drop ~$70,000 in three months was a bit of a wake up call, especially being so close to retirement.

Good luck!
"My idea of rich is ordering the most expensive thing at Denny's"

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TheTimeLord
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Re: Lower risk is in my plan but I just can't!

Post by TheTimeLord » Thu May 09, 2019 2:45 pm

When I retire I have some bucket list activities I want to check off and I will need money from my portfolio for those activities. So I set aside X number of years expenses to insure that I will have the money I need. A negative sequence of returns could make me cutback and I really don't want to cutback in my early retirement.

My goal is to enjoy my savings, not be the richest guy in the cemetery.
Last edited by TheTimeLord on Thu May 09, 2019 2:48 pm, edited 1 time in total.
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fabdog
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Re: Lower risk is in my plan but I just can't!

Post by fabdog » Thu May 09, 2019 2:45 pm

you created a plan... why did your plan say you should move to more bonds?

Also, you mentioned you needed to balance your taxable accounts. Do you also have tax deferred accounts? Are you looking at your AA across all accounts?

If you feel like you are "plowing under" good crops, go ahead and grab the NAV's from March 2 2009 and see how you feel... and imagine you are now retired with no more income coming in

If all that fails and you are still working... I assume at the very least all new investments are going into bonds?

Mike

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Leif
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Re: Lower risk is in my plan but I just can't!

Post by Leif » Thu May 09, 2019 2:51 pm

If you cannot follow your plan then you will be blown around with the winds of the market. I set a glide path of 2%/year down to 50% equities and stuck with that.

The best of luck to you.
Last edited by Leif on Thu May 09, 2019 2:52 pm, edited 1 time in total.

dknightd
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Re: Lower risk is in my plan but I just can't!

Post by dknightd » Thu May 09, 2019 2:51 pm

I started doing it a couple of years ago.

Thesaints
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Re: Lower risk is in my plan but I just can't!

Post by Thesaints » Thu May 09, 2019 2:54 pm

Cody6136 wrote:
Thu May 09, 2019 2:30 pm
The problem is that I have a death grip on the stock mutual funds. I feel like I'm plowing good crops under.

How have you gotten yourself to downshfit to lower risk instruments when higher risk choices have become manifestations of your self image and more important, they're humming along. I've lived through 2007 to 2011. It wasn't pleasant but I hung in.
Back then you were 12 and 8 years younger, though. What if 2007 comes around again in 2022, when you would be 15 years older ?

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Watty
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Re: Lower risk is in my plan but I just can't!

Post by Watty » Thu May 09, 2019 3:03 pm

Cody6136 wrote:
Thu May 09, 2019 2:30 pm
The problem is that I have a death grip on the stock mutual funds.
One painless first step is to set your mutual funds to not automatically reinvest dividends and capital gains distributions and put them into bonds instead

Likewise any new contributions should be put into bonds.

That will not be enough but as the old saying goes, "When you find yourself in a hole, stop digging."

abc132
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Re: Lower risk is in my plan but I just can't!

Post by abc132 » Thu May 09, 2019 3:09 pm

Those that chase after better performance do worse than those that can stick to a plan. You are mentally chasing performance instead of following a plan. Unless your life situation has changed significantly and a course correction is needed, you need to follow your plan.


This is a tax management issue. It is not easy to switch from stocks to bonds in a taxable account if you have significant gains, unless you are no longer working.

If you are still working:

1. I would recommend you change your taxable stocks to not reinvest dividends. Once you build up enough cash, you would buy a bond fund.

2. I would try to get bonds in your tax deferred account. Sell stocks there and immediately get up to your desired AA. If you don't have tax deferred, I would sell in your Roth and buy the bonds there.


Once you retire, you can sell some of your taxable stocks while keeping yourself in a lower tax bracket.

JoeRetire
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Re: Lower risk is in my plan but I just can't!

Post by JoeRetire » Thu May 09, 2019 3:10 pm

Cody6136 wrote:
Thu May 09, 2019 2:30 pm
My plan says I need a smooth path from a heavy stock allocation in my tax advantaged accounts...to more fixed income there. My plan makes sense in this regard as I'm 59 and I need to adjust for my age and balance my taxable accounts, which are heavy on equities.

The problem is that I have a death grip on the stock mutual funds. I feel like I'm plowing good crops under.
Who developed your plan? Have you discussed your new feelings with them?
How have you gotten yourself to downshfit to lower risk instruments when higher risk choices have become manifestations of your self image and more important, they're humming along. I've lived through 2007 to 20011. It wasn't pleasant but I hung in.
No. I'm quite happy with my plan. None of my investments are manifestations of my self image. They are just assets that support my goals.

reddison
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Re: Lower risk is in my plan but I just can't!

Post by reddison » Thu May 09, 2019 3:12 pm

I asked the same question in July 2018 when I was just shy of 61, with a couple of years left to work before retirement. I was at 77/11/12 (equity/bonds/cash). The market had been humming along for years but I knew it was time to become less aggressive. Everyone who responded asked my why I wanted to continue to take on that much risk when I'd "won the game" already. I didn't really want to leave $ on the table but I knew it was the right thing to do. So I started moving quite a bit from equities to bonds within my 401k, and wound up around 68/28/4. It was easy to do. It made the drop in October 2018 a little less painful, and it makes me feel better about withstanding another similar or even greater downturn that could easily strike at any time. If you think you should be doing it, do it and don't look back.

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Phineas J. Whoopee
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Re: Lower risk is in my plan but I just can't!

Post by Phineas J. Whoopee » Thu May 09, 2019 3:22 pm

I got there by focusing on implementing my carefully thought-through plan, rather than on achieving higher returns. Higher risk choices did not become manifestations of my self image. Following my plan didn't become one either.

This is what I did, and a couple of years later I answered some questions about it. I'm happy to answer more, if you or someone else have any. It would probably be better to post them in the original thread, so everything stays together.

With respect to my portfolio I view myself as a risk manager, rather than as a return maximizer.

PJW
Last edited by Phineas J. Whoopee on Thu May 09, 2019 3:38 pm, edited 1 time in total.

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Re: Lower risk is in my plan but I just can't!

Post by Fallible » Thu May 09, 2019 3:36 pm

Cody6136 wrote:
Thu May 09, 2019 2:30 pm
My plan says I need a smooth path from a heavy stock allocation in my tax advantaged accounts...to more fixed income there. My plan makes sense in this regard as I'm 59 and I need to adjust for my age and balance my taxable accounts, which are heavy on equities.

The problem is that I have a death grip on the stock mutual funds. I feel like I'm plowing good crops under.

How have you gotten yourself to downshfit to lower risk instruments when higher risk choices have become manifestations of your self image and more important, they're humming along. I've lived through 2007 to 20011. It wasn't pleasant but I hung in.
I gradually downsized from equities for a simple reason: aging and a resulting lower time horizon to recover from the next market crash. My allocation is based on how much I can afford to lose in the next crash before I need the money - five years? Ten?
Last edited by Fallible on Thu May 09, 2019 3:38 pm, edited 1 time in total.
"John Bogle has changed a basic industry in the optimal direction. Of very few can this be said." ~Paul A. Samuelson

abc132
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Re: Lower risk is in my plan but I just can't!

Post by abc132 » Thu May 09, 2019 3:37 pm

I was 100% stocks all the way through mid 2018. I made the decision to switch to 20% bonds a year or two earlier than planned, because the gains of 2008-2019 allowed me to take risk off the table, and I would rather switch to bonds when the market is up than when the market is down. I now want to add about 1% a year to bond AA and stay at a final 70/30 portfolio. Last Friday I transferred another 5% to bonds, after 2019 gains, getting me back to 21% bonds.

My goal is to maximize the success of my portfolio, not to maximize returns. Finding a plan that is "good enough" is key to financial success. Lowing risk can be a part of getting better, if not perfect returns.

If you google the great depression, everything was going great in the economy, and there really was not much warning. 90 years later, it's hard to find really good causes for the great depression, even after the fact. Even the smartest people of the day missed it. We like to believe we know much more than we do, but the next major market correction is likely to be just as unpredictable, and for reasons we did not truly understand ahead of time. 2008 crash, Oct 2018 correction, these were missed by almost everyone.

Knowing what you don't know is also key to a successful plan. Plan for the recessions that are likely to happen several more times in your life, without chasing the returns.

Quirkz
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Re: Lower risk is in my plan but I just can't!

Post by Quirkz » Thu May 09, 2019 3:37 pm

I'm not at quite the same stage, but I was dealing with a similar issue. I'm in my early 40's, and had always been all-stock.

I had a hard time coming to terms with including bonds at all. One of the things that finally swayed me was remembering back in 2008, when I would have happily bought a bunch of cheap stock, but I didn't have any non-stock investments to sell. I realized having a portion of my investments in something more stable wasn't just about dampening volatility, but also about giving me opportunities that I wouldn't have if I was single track. (Sure, diversifying between US stocks and International stocks might also help, but it definitely didn't in the Great Recession, and I suspect they're more tightly correlated than bonds.)

I'm not really sure if that's the right way to look at it, but it added an additional comfortable rationale to the existing plan.

kaudrey
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Re: Lower risk is in my plan but I just can't!

Post by kaudrey » Thu May 09, 2019 3:40 pm

Well, maybe we were able to do it because I read this.... "when higher risk choices have become manifestations of your self image", and just thought, WHAT?????

The fact that I invest in low cost stock funds and have a AA of 60/40 (compared to about 90/10 before 2008), has nothing to do with how I think about myself. We have a plan, we stick to it. I would be prouder of telling people that we actually have a plan and follow it, as compared to the fact that I invest in stocks.

Maybe you should read up on behavior finance; it might give you some insight.

WillRetire
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Re: Lower risk is in my plan but I just can't!

Post by WillRetire » Thu May 09, 2019 4:26 pm

OP: If you still believe in your plan, focus on the percentages (%) of the different asset classes as goals and ignore the total amounts. That advice helps me (gives me courage!) to rebalance. It may also help you execute your AA change plan.

Whereas staring(!) at the lovely totals of a successful stock portfolio might make one reluctant to shift out of stocks.

I use a spreadsheet to calculate my current vs. target AA, and that spreadsheet also tells me by how much stocks & bonds are over/under, so know the $ to transfer from one to the other, and use that as my "instruction".

bhsince87
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Re: Lower risk is in my plan but I just can't!

Post by bhsince87 » Thu May 09, 2019 5:55 pm

I recently moved from 95/5, where I was at for 30 years, to 55/45, at age 53. And then retired.

It was a bit difficult at first. I kept telling myself, "This is what "winning the game" looks like. I've made it this far, and now it's time to lock in the gains and protect what I have."

Now I get a kick out of the monthly bond fund payments that show up like clockwork.

And sometimes (like this week), I'll watch the market drop and think, "Phew, nice that I'm only down X$ today. A few years ago I would have been down 2X!"
Retirement: When you reach a point where you have enough. Or when you've had enough.

Topic Author
Cody6136
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Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Thu May 09, 2019 6:19 pm

SevenBridgesRoad wrote:
Thu May 09, 2019 2:39 pm
I assume your plan was designed to acheive your goals. Have your goals (not your feelings) changed?
No my goals remain. I need to think GOALS!!!

Topic Author
Cody6136
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Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Thu May 09, 2019 6:20 pm

bhsince87 wrote:
Thu May 09, 2019 5:55 pm
I recently moved from 95/5, where I was at for 30 years, to 55/45, at age 53. And then retired.

It was a bit difficult at first. I kept telling myself, "This is what "winning the game" looks like. I've made it this far, and now it's time to lock in the gains and protect what I have."

Now I get a kick out of the monthly bond fund payments that show up like clockwork.

And sometimes (like this week), I'll watch the market drop and think, "Phew, nice that I'm only down X$ today. A few years ago I would have been down 2X!"

Winning the game is a great re-framer!

Topic Author
Cody6136
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Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Thu May 09, 2019 6:22 pm

5th_Dimension wrote:
Thu May 09, 2019 2:43 pm
The drop at the end of last year caused me to rethink my risk tolerance. I'm the same age as you. My new plan is to have enough in fixed income to cover five years of expenses and then let the equity side do what it wants. Last month I moved enough from equities to go from 70/30 to 65/35, which almost gets me to five years fixed. I plan to move some more in the near future to get me closer to 60/30, which should put me over the top of five years.

Like you I hated moving money from equities that were doing well but watching my portfolio drop ~$70,000 in three months was a bit of a wake up call, especially being so close to retirement.

Good luck!
Having five years in expenses would be a guarantee of a great night's sleep. Well, many great nights!

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Cody6136
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Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Thu May 09, 2019 6:23 pm

kaudrey wrote:
Thu May 09, 2019 3:40 pm
Well, maybe we were able to do it because I read this.... "when higher risk choices have become manifestations of your self image", and just thought, WHAT?????

The fact that I invest in low cost stock funds and have a AA of 60/40 (compared to about 90/10 before 2008), has nothing to do with how I think about myself. We have a plan, we stick to it. I would be prouder of telling people that we actually have a plan and follow it, as compared to the fact that I invest in stocks.

Maybe you should read up on behavior finance; it might give you some insight.
I am reading up as we speak, and I was only half serious when I talked about self image.

Topic Author
Cody6136
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Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Thu May 09, 2019 6:25 pm

Quirkz wrote:
Thu May 09, 2019 3:37 pm
I'm not at quite the same stage, but I was dealing with a similar issue. I'm in my early 40's, and had always been all-stock.

I had a hard time coming to terms with including bonds at all. One of the things that finally swayed me was remembering back in 2008, when I would have happily bought a bunch of cheap stock, but I didn't have any non-stock investments to sell. I realized having a portion of my investments in something more stable wasn't just about dampening volatility, but also about giving me opportunities that I wouldn't have if I was single track. (Sure, diversifying between US stocks and International stocks might also help, but it definitely didn't in the Great Recession, and I suspect they're more tightly correlated than bonds.)

I'm not really sure if that's the right way to look at it, but it added an additional comfortable rationale to the existing plan.
This is a really helpful perspective. Thank you!!

Topic Author
Cody6136
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Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Thu May 09, 2019 6:27 pm

Cody6136 wrote:
Thu May 09, 2019 6:23 pm
kaudrey wrote:
Thu May 09, 2019 3:40 pm
Well, maybe we were able to do it because I read this.... "when higher risk choices have become manifestations of your self image", and just thought, WHAT?????

The fact that I invest in low cost stock funds and have a AA of 60/40 (compared to about 90/10 before 2008), has nothing to do with how I think about myself. We have a plan, we stick to it. I would be prouder of telling people that we actually have a plan and follow it, as compared to the fact that I invest in stocks.

Maybe you should read up on behavior finance; it might give you some insight.
I am reading up as we speak, and I was only half serious when I talked about self image.
And I actually have quite a bit of insight, or I would not be exploring --and be bound to change-- my former tendencies. Nor would I have a plan.

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tooluser
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Re: Lower risk is in my plan but I just can't!

Post by tooluser » Thu May 09, 2019 6:55 pm

I had similar thoughts as you this year, when I continued my glideslope from 80/20 to a 70/30 goal. I'm only moving 2% a year, but this year I ended up with one tax-deferred account at 60/40 due to it being the best account to hold bonds. 60/40 is too conservative for me!

I had to remind myself:
1) The overall allocation is still correct.
2) I would feel bad if I didn't follow my (hopefully) well thought out plan and the market declined significantly. (These days, I'm more concerned with the downside than the upside.)
3) The transaction is easily reversible in a tax-deferred account, if I change my mind later based on some well-reasoned argument (rather just "feeling" that I was going too conservative).

I think it helps not just to feel or think about what your risk tolerance is, but to simulate the experience of a large stock downturn in a planning spreadsheet (a stress test). It's better to know the effect than to feel some vague way or another. If you are older, nearing retirement, and want to withstand a 50% downturn, it's a lot easier to maintain your lifestyle at 60/40 than at 100/0 (essentially a 30% vs 50% loss). Looking at the numbers in a disciplined way provides some sense of scale for how bad things can get.

Any arbitrary allocation may be perfectly tolerable for some. Not concerned about working 5 years longer after a downturn? No issue then. If you're younger, farther out from retirement, it's easier to tolerate the downside. It's all sort of abstract when you're younger, but I've found that the reality sinks in as one gets closer to the goal (by portfolio value or age).

Topic Author
Cody6136
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Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Thu May 09, 2019 7:41 pm

tooluser wrote:
Thu May 09, 2019 6:55 pm
I had similar thoughts as you this year, when I continued my glideslope from 80/20 to a 70/30 goal. I'm only moving 2% a year, but this year I ended up with one tax-deferred account at 60/40 due to it being the best account to hold bonds. 60/40 is too conservative for me!

I had to remind myself:
1) The overall allocation is still correct.
2) I would feel bad if I didn't follow my (hopefully) well thought out plan and the market declined significantly. (These days, I'm more concerned with the downside than the upside.)
3) The transaction is easily reversible in a tax-deferred account, if I change my mind later based on some well-reasoned argument (rather just "feeling" that I was going too conservative).

I think it helps not just to feel or think about what your risk tolerance is, but to simulate the experience of a large stock downturn in a planning spreadsheet (a stress test). It's better to know the effect than to feel some vague way or another. If you are older, nearing retirement, and want to withstand a 50% downturn, it's a lot easier to maintain your lifestyle at 60/40 than at 100/0 (essentially a 30% vs 50% loss). Looking at the numbers in a disciplined way provides some sense of scale for how bad things can get.

Any arbitrary allocation may be perfectly tolerable for some. Not concerned about working 5 years longer after a downturn? No issue then. If you're younger, farther out from retirement, it's easier to tolerate the downside. It's all sort of abstract when you're younger, but I've found that the reality sinks in as one gets closer to the goal (by portfolio value or age).
Very helpful regarding the downturn simulation...many thanks!!!

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Cody6136
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Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Thu May 09, 2019 9:42 pm

DemoEngr wrote:
Thu May 09, 2019 2:39 pm
I am (59.25) waiting until 59.5 so i can move them out of 401k to brokerage firm where the choices and ER are tolerable. Only good ER in our fidelity account is the S&P index fund (.35). Bond funds are all over a ER of 1 point
I'm also waiting on that timing and better choices!
Best of luck!

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Cody6136
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Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Thu May 09, 2019 9:47 pm

bhsince87 wrote:
Thu May 09, 2019 5:55 pm
I recently moved from 95/5, where I was at for 30 years, to 55/45, at age 53. And then retired.

It was a bit difficult at first. I kept telling myself, "This is what "winning the game" looks like. I've made it this far, and now it's time to lock in the gains and protect what I have."

Now I get a kick out of the monthly bond fund payments that show up like clockwork.

And sometimes (like this week), I'll watch the market drop and think, "Phew, nice that I'm only down X$ today. A few years ago I would have been down 2X!"
95/5 for that
bhsince87 wrote:
Thu May 09, 2019 5:55 pm
I recently moved from 95/5, where I was at for 30 years, to 55/45, at age 53. And then retired.

It was a bit difficult at first. I kept telling myself, "This is what "winning the game" looks like. I've made it this far, and now it's time to lock in the gains and protect what I have."

Now I get a kick out of the monthly bond fund payments that show up like clockwork.

And sometimes (like this week), I'll watch the market drop and think, "Phew, nice that I'm only down X$ today. A few years ago I would have been down 2X!"
95/5 for that long? Nerves of steel!

bhsince87
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Re: Lower risk is in my plan but I just can't!

Post by bhsince87 » Thu May 09, 2019 10:56 pm

Cody6136 wrote:
Thu May 09, 2019 9:47 pm
bhsince87 wrote:
Thu May 09, 2019 5:55 pm
I recently moved from 95/5, where I was at for 30 years, to 55/45, at age 53. And then retired.

It was a bit difficult at first. I kept telling myself, "This is what "winning the game" looks like. I've made it this far, and now it's time to lock in the gains and protect what I have."

Now I get a kick out of the monthly bond fund payments that show up like clockwork.

And sometimes (like this week), I'll watch the market drop and think, "Phew, nice that I'm only down X$ today. A few years ago I would have been down 2X!"
95/5 for that
bhsince87 wrote:
Thu May 09, 2019 5:55 pm
I recently moved from 95/5, where I was at for 30 years, to 55/45, at age 53. And then retired.

It was a bit difficult at first. I kept telling myself, "This is what "winning the game" looks like. I've made it this far, and now it's time to lock in the gains and protect what I have."

Now I get a kick out of the monthly bond fund payments that show up like clockwork.

And sometimes (like this week), I'll watch the market drop and think, "Phew, nice that I'm only down X$ today. A few years ago I would have been down 2X!"
95/5 for that long? Nerves of steel!
It made sense then. But 55/45 makes sense now.

Times change!
Retirement: When you reach a point where you have enough. Or when you've had enough.

TravelforFun
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Re: Lower risk is in my plan but I just can't!

Post by TravelforFun » Thu May 09, 2019 11:23 pm

DemoEngr wrote:
Thu May 09, 2019 2:39 pm
I am (59.25) waiting until 59.5 so i can move them out of 401k to brokerage firm where the choices and ER are tolerable. Only good ER in our fidelity account is the S&P index fund (.35). Bond funds are all over a ER of 1 point
Why do you have to wait until 59.5? You can move money from your 401k to a rollover IRA at any age without penalty if you no longer work for the company.

TravelforFun

Topic Author
Cody6136
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Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Fri May 10, 2019 4:38 pm

TravelforFun wrote:
Thu May 09, 2019 11:23 pm
DemoEngr wrote:
Thu May 09, 2019 2:39 pm
I am (59.25) waiting until 59.5 so i can move them out of 401k to brokerage firm where the choices and ER are tolerable. Only good ER in our fidelity account is the S&P index fund (.35). Bond funds are all over a ER of 1 point
Why do you have to wait until 59.5? You can move money from your 401k to a rollover IRA at any age without penalty if you no longer work for the company.

TravelforFun
This is what I am doing right now from 401k (old one) to the newly established one. I regret that I took such a huge one for my beginning "maiden voyage" from Merrill Edge to TIAA, which I'm no longer enamored of but I know I don't have to wait til age 59.5 to do that.

I am making progress on my new Asset Allocation with this particular change, because the Merrill funds were very heavily weighted towards stock.

I'm doing it!!

epictetus
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Re: Lower risk is in my plan but I just can't!

Post by epictetus » Fri May 10, 2019 5:41 pm

how about putting X years worth of expenses in bonds (1,3,5,10, whatever you decide) and then the rest in stocks? and then you don't have to worry re: percentages, etc.
Focus on what you can control

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dratkinson
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Re: Lower risk is in my plan but I just can't!

Post by dratkinson » Fri May 10, 2019 9:36 pm

BH Lower risk is in my plan but I just can't



To echo others....

I'm retired and it was hard to let go of the urge to reach for additional yield and buy bonds to have an age-appropriate AA. But I did it.

But the urge abides. So now I scratch it by reaching for additional yield in my bonds. (I buy bonds that are slightly more risky than typically recommended---for the higher yield.)

Now, each month, I smile when I record my bond distributions. They, plus my quarterly equity distributions, cover my modest annual living expenses. This is in my taxable account. A small pension + SS + reinvested Roth (all equities to "shoot for the moon") distributions are on top of this.

To maintain my AA, with the market continuing to rise, means my monthly excess income is reinvested in bonds in taxable. Which causes their distributions to slowly rise.

I did backslide in December. I TLHed bonds and bought TSM on its ex-dividend date, before its rebound. (One in a row.)

I currently have >3yrs of living expenses in bonds (taxable). Once I hit 5yrs of living expenses, my plan is to resume buying equities in taxable and allow my AA to float. (But I’m now so addicted to buying bonds and seeing their dividends rise that it may be hard to resume buying equities in a high market. …Which would be a complete reversal from my starting point. :) )



Suggestion. You can keep your existing equities for now. (To minimize your feeling of loss while you adapt to buying bonds.)

But all new money and reinvested distributions should go to bonds. (To accustom you to buying bonds. To minimize the tax owed in your taxable account as you move toward your retirement AA.)

Target owning bonds worth 5yrs of living expenses in taxable. (Many retirees report doing this because they expect most market downturns to recover within 4yrs. This is to avoid the "sequence of return" risk---being forced to sell equities in a low market. Can search forum for other methods of handling same risk.)

And when you do retire, you can tweak your tax-advantaged investments to align them with your desired retirement AA. (To minimize the tax owed to reach your final retirement AA.)

Many report skewing tax-advantaged tax-deferred accounts to bonds. Why? You need bonds in taxable, and since bonds are expected to grow less than equities, bonds should minimize growth/taxes on RMDs.

Many report skewing tax-free accounts to equities. Why? You need equities in taxable, and since equities are expected to grow more than bonds, equities should maximize tax-free growth.



Potential problem with waiting to convert to bonds. If you maintain a high allocation to equities until retirement, the market could be lower later when you need to convert to bonds to reach your retirement AA.

So which situation would cause you more actual grief?
--Converting tax-advantaged accounts to bonds now while market is high? (Perceived emotional loss.)
--Or waiting until a potentially lower market in retirement to convert them to bonds? (Real financial loss, due to sequence of return risk.)

The suggestion to begin buying bonds now is an attempt to split the difference and minimize your later grief.
--If the market is later down, you'll need to convert fewer* equities to bonds, so grief is minimized.
--If the market continues to be up, you'll get a boost so need to convert even fewer equities to bonds.
--* If you have 5yrs of bonds in taxable at the time of your retirement, then the market condition is less of an issue, as you have the option to convert more equities or wait. Your choice.

Bottom line. Plan for the worst. Hope for the best.



Edit. Logic.
Last edited by dratkinson on Sat May 11, 2019 8:10 pm, edited 1 time in total.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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Cody6136
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Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Fri May 10, 2019 10:13 pm

reddison wrote:
Thu May 09, 2019 3:12 pm
I asked the same question in July 2018 when I was just shy of 61, with a couple of years left to work before retirement. I was at 77/11/12 (equity/bonds/cash). The market had been humming along for years but I knew it was time to become less aggressive. Everyone who responded asked my why I wanted to continue to take on that much risk when I'd "won the game" already. I didn't really want to leave $ on the table but I knew it was the right thing to do. So I started moving quite a bit from equities to bonds within my 401k, and wound up around 68/28/4. It was easy to do. It made the drop in October 2018 a little less painful, and it makes me feel better about withstanding another similar or even greater downturn that could easily strike at any time. If you think you should be doing it, do it and don't look back.
I am doing it. Today I made another move. I reminded myself of what I Iearned in agronomy class....you have to build the soil and sometimes that does mean plowing something under!

Topic Author
Cody6136
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Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Fri May 10, 2019 10:18 pm

dratkinson wrote:
Fri May 10, 2019 9:36 pm
BH Lower risk is in my plan but I just can't



To echo others....

I'm retired and it was hard to let go of the urge to reach for additional yield and buy bonds to have an age-appropriate AA. But I did it.

But the urge abides. So now I scratch it by reaching for additional yield in my bonds. (I buy bonds that are slightly more risky than typically recommended---for the higher yield.)

Now, each month, I smile when I record my bond distributions. They, plus my quarterly equity distributions, cover my modest annual living expenses. This is in my taxable account. A small pension + SS + reinvested Roth (all equities to "shoot for the moon") distributions are on top of this.

To maintain my AA, with the market continuing to rise, means my monthly excess income is reinvested in bonds in taxable. Which causes their distributions to slowly rise.

I did backslide in December. I TLHed bonds and bought TSM on its ex-dividend date, before its rebound. (One in a row.)

I currently have >3yrs of living expenses in bonds (taxable). Once I hit 5yrs of living expenses, my plan is to resume buying equities in taxable and allow my AA to float. (But I’m now so addicted to buying bonds and seeing their dividends rise that it may be hard to resume buying equities in a high market. …Which would be a complete reversal from my starting point. :) )



Suggestion. You can keep your existing equities for now. (To minimize your feeling of loss while you adapt to buying bonds.)

But all new money and reinvested distributions should go to bonds. (To accustom you to buying bonds. To minimize the tax owed in your taxable account as you move toward your retirement AA.)

Target owning bonds worth 5yrs of living expenses in taxable. (Many retirees report doing this because they expect most market downturns to recover within 4yrs. This is to avoid the "sequence of return" risk---being forced to sell equities in a low market. Can search forum for other methods of handling same risk.)

And when you do retire, you can tweak your tax-advantaged investments to align them with your desired retirement AA. (To minimize the tax owed to reach your final retirement AA.)

Many report skewing tax-advantaged accounts to bonds. Why? You need bonds in taxable, and since bonds are expected to grow less than equities, bonds should minimize growth/taxes on RMDs.

Many report skewing tax-free accounts to equities. Why? You need equities in taxable, and since equities are expected to grow more than bonds, equities should maximize tax-free growth.



Potential problem with waiting to convert to bonds. If you maintain a high allocation to equities until retirement, the market could be lower later when you need to convert to bonds to reach your retirement AA.

So which would cause you more actual grief?
--Converting your tax-advantaged accounts to bonds now while equities are high? (Emotional loss.)
--Or waiting until retirement and a potentially lower market to convert to bonds? (Financial loss, due to sequence of return risk.)


The suggestion to begin investing in bonds now is an attempt to split the difference.
--If the market is down later, you'll need to convert fewer* equities to bonds, so your grief is minimized.
--If the market continues to be up later, you'll get some of the boost when you convert to bonds.
--* If you have 5yrs of bonds in taxable at the time of your retirement, then the market condition is less of an issue, because you have the option to convert more or wait. Your choice.
Here's hoping that I will become addicted to buying bonds. Lots to think on here ...thanks!

MathWizard
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Re: Lower risk is in my plan but I just can't!

Post by MathWizard » Fri May 10, 2019 10:28 pm

Forget the smooth path. Rip the band-aid off. Unless automated, it's a steady hard changeover.

I rebalanced into stocks and even went 100% stocks in 2008/9.
I just pulled back 2 years ago, to 50/50.

I expect a 30% + drop in the next few years. The PE10 is over 30. To get forward PE down in the 20 or below range requires wildly optimistic future earnings, in my opinion.

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HomerJ
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Re: Lower risk is in my plan but I just can't!

Post by HomerJ » Fri May 10, 2019 11:06 pm

Cody6136 wrote:
Thu May 09, 2019 2:30 pm
I've lived through 2007 to 20011. It wasn't pleasant but I hung in.
Did you keep your job last time?

What happens if you lose your job next time, or you're retired and you are pulling money from your accounts to eat?

Those are two very different scenarios.
The J stands for Jay

Grt2bOutdoors
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Re: Lower risk is in my plan but I just can't!

Post by Grt2bOutdoors » Sat May 11, 2019 1:42 am

MathWizard wrote:
Fri May 10, 2019 10:28 pm
Forget the smooth path. Rip the band-aid off. Unless automated, it's a steady hard changeover.

I rebalanced into stocks and even went 100% stocks in 2008/9.
I just pulled back 2 years ago, to 50/50.

I expect a 30% + drop in the next few years. The PE10 is over 30. To get forward PE down in the 20 or below range requires wildly optimistic future earnings, in my opinion.
Who says it WILL drop? Prices can stay higher for longer.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

MathWizard
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Joined: Tue Jul 26, 2011 1:35 pm

Re: Lower risk is in my plan but I just can't!

Post by MathWizard » Sat May 11, 2019 8:54 pm

Grt2bOutdoors wrote:
Sat May 11, 2019 1:42 am
MathWizard wrote:
Fri May 10, 2019 10:28 pm
Forget the smooth path. Rip the band-aid off. Unless automated, it's a steady hard changeover.

I rebalanced into stocks and even went 100% stocks in 2008/9.
I just pulled back 2 years ago, to 50/50.

I expect a 30% + drop in the next few years. The PE10 is over 30. To get forward PE down in the 20 or below range requires wildly optimistic future earnings, in my opinion.
Who says it WILL drop? Prices can stay higher for longer.
I didn't say it WILL. I said I believe it will. If I knew it would,I would go 100% bonds or cash. That is why I am only 50/50. I don't think that this is overly agressive or conservative. I wanted him to know that someone who was 100% stocks could move to a much more conservative AA quickly.

OP is saying he is having problem moving away from 100% stocks even though he should according to his plan. Do you think he should stay 100% stocks?

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Cody6136
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Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Sat May 11, 2019 9:35 pm

MathWizard wrote:
Fri May 10, 2019 10:28 pm
Forget the smooth path. Rip the band-aid off. Unless automated, it's a steady hard changeover.

I rebalanced into stocks and even went 100% stocks in 2008/9.
I just pulled back 2 years ago, to 50/50.

I expect a 30% + drop in the next few years. The PE10 is over 30. To get forward PE down in the 20 or below range requires wildly optimistic future earnings, in my opinion.
The ripping continues next week!

Topic Author
Cody6136
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Joined: Tue Apr 16, 2019 10:54 am

Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Sat May 11, 2019 9:40 pm

HomerJ wrote:
Fri May 10, 2019 11:06 pm
Cody6136 wrote:
Thu May 09, 2019 2:30 pm
I've lived through 2007 to 20011. It wasn't pleasant but I hung in.
Did you keep your job last time?

What happens if you lose your job next time, or you're retired and you are pulling money from your accounts to eat?

Those are two very different scenarios.
Yes...I kept my job. And it IS different! I realized on a long drive today that it may not be the allocation itself...but the knowledge that I'm less risk tolerant...that is getting the best of me! I need to get over myself and admit that times change.

Tick tock! :D

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celia
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Re: Lower risk is in my plan but I just can't!

Post by celia » Sat May 11, 2019 9:43 pm

DemoEngr wrote:
Thu May 09, 2019 2:39 pm
I am (59.25) waiting until 59.5 so i can move them out of 401k to brokerage firm where the choices and ER are tolerable. Only good ER in our fidelity account is the S&P index fund (.35). Bond funds are all over a ER of 1 point
Can you move (some of) them to cash within the 401K? Nothing says you have to wait till age 59.5 to change your AA.

Godot
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Re: Lower risk is in my plan but I just can't!

Post by Godot » Sat May 11, 2019 9:53 pm

DemoEngr wrote:
Thu May 09, 2019 2:39 pm
I am (59.25) waiting until 59.5 so i can move them out of 401k to brokerage firm where the choices and ER are tolerable. Only good ER in our fidelity account is the S&P index fund (.35). Bond funds are all over a ER of 1 point
What Fidelity S&P fund are you in? The Fidelity 500 index ER is 0.015%.
“Estragon: I can't go on like this. | Vladimir: That's what you think.” ― Samuel Beckett, Waiting for Godot

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nedsaid
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Re: Lower risk is in my plan but I just can't!

Post by nedsaid » Sat May 11, 2019 9:54 pm

Cody6136 wrote:
Thu May 09, 2019 2:30 pm
My plan says I need a smooth path from a heavy stock allocation in my tax advantaged accounts...to more fixed income there. My plan makes sense in this regard as I'm 59 and I need to adjust for my age and balance my taxable accounts, which are heavy on equities.

The problem is that I have a death grip on the stock mutual funds. I feel like I'm plowing good crops under.

How have you gotten yourself to downshfit to lower risk instruments when higher risk choices have become manifestations of your self image and more important, they're humming along. I've lived through 2007 to 20011. It wasn't pleasant but I hung in.
You aren't the only one. I have been in a "mild rebalancing" program since July 2013. It was the days of the "taper tantrum", stocks continued to climb and bonds got cheaper. I thought it was a good opportunity to rebalance. Whenever the markets hit new highs, I take a bit off the top. Back in July 2013, I was 69% stocks. Today, I am at 64%-65% stocks. Kept hitting the "sell" button and sold bit by bit from 0.50% of my portfolio to 1.00% at a time. Hence my moniker "mild rebalancing." Folks say, why bother? My answer is that if I had done nothing, I would probably be at 75%-76% stocks today. Each round of rebalancing seemed small but the bit by bit really added up over time.

I let my stock allocation drift all the way to 72% back in 2007. Then the financial crisis hit and my portfolio took a bit hit. From peak to trough, I was down 35%. Quite a hit, it represented about 2 years of take home pay. At that point, I told myself that when the markets hit new highs again that I would rebalance my portfolio. Starting in July 2013, I did just that.

I am a stock guy and generally a bull on the stock market. Even doing the very mild rebalancing caused me a bit of heart burn but I just held my nose and just did it. I just was not excited about 2% and 3% yields on bonds but memories of the 2000-2002 and 2008-2009 bear markets were still fresh. I thought of it as being my own fiduciary. In other words, I have a fiduciary duty to myself.
A fool and his money are good for business.

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telemark
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Re: Lower risk is in my plan but I just can't!

Post by telemark » Sat May 11, 2019 11:47 pm

I was at 60/40 for a long time, planned to move to 50/50, but when the time came to pull the trigger it seemed like a scary amount of money to move all at once. So I did 55/45 instead, and went to 50/50 about a year later.

Topic Author
Cody6136
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Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Tue May 14, 2019 12:50 pm

nedsaid wrote:
Sat May 11, 2019 9:54 pm
Cody6136 wrote:
Thu May 09, 2019 2:30 pm
My plan says I need a smooth path from a heavy stock allocation in my tax advantaged accounts...to more fixed income there. My plan makes sense in this regard as I'm 59 and I need to adjust for my age and balance my taxable accounts, which are heavy on equities.

The problem is that I have a death grip on the stock mutual funds. I feel like I'm plowing good crops under.

How have you gotten yourself to downshfit to lower risk instruments when higher risk choices have become manifestations of your self image and more important, they're humming along. I've lived through 2007 to 20011. It wasn't pleasant but I hung in.
In other words, I have a fiduciary duty to myself.

I also have a fiduciary duty to myself!!

I think this would make a great sleeve tattoo.

Oh. Wait. Tattooing is not in my plan.

Thanks for this one!!

Topic Author
Cody6136
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Re: Lower risk is in my plan but I just can't!

Post by Cody6136 » Tue May 14, 2019 12:52 pm

telemark wrote:
Sat May 11, 2019 11:47 pm
I was at 60/40 for a long time, planned to move to 50/50, but when the time came to pull the trigger it seemed like a scary amount of money to move all at once. So I did 55/45 instead, and went to 50/50 about a year later.

I am also doing the change in phases. I did 120k that's going to step down to bonds.
Then, I think I'll wait a few weeks and tackle another slice.
I am taking things a bit slower and that's helping some.
Thank you!!

deikel
Posts: 621
Joined: Sat Jan 25, 2014 7:13 pm

Re: Lower risk is in my plan but I just can't!

Post by deikel » Tue May 14, 2019 3:32 pm

Cody6136 wrote:
Thu May 09, 2019 2:30 pm
My plan says I need a smooth path from a heavy stock allocation in my tax advantaged accounts...to more fixed income there. My plan makes sense in this regard as I'm 59 and I need to adjust for my age and balance my taxable accounts, which are heavy on equities.

The problem is that I have a death grip on the stock mutual funds. I feel like I'm plowing good crops under.

How have you gotten yourself to downshfit to lower risk instruments when higher risk choices have become manifestations of your self image and more important, they're humming along. I've lived through 2007 to 20011. It wasn't pleasant but I hung in.
couple of days later and a minor downswing in the stock market....to the same S+P500 level then Jan 2018

...do you feel easier to move some stocks to bonds now ? Why not just DCA over the next 36 months and done with it ? Create your own glide path and stick with it
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

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