Portfolio (and sanity..) check

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Portfolio (and sanity..) check

Post by 512Texan » Tue May 12, 2020 2:59 pm

Hi all,

Longtime lurker here – finding this forum years ago radically improved the simplicity an efficiency of my financial planning and investment strategy.

I have been a “stay the course” investor since I began investing, and have stuck to that approach, even during the 2008 crisis. While I would typically continue to stay the course, even in light of current events, I have concerns related to timing that I did not have 12 years ago. The result is that I have pretty much lost all appetite for risk, and I’m trying to decide if that is reasonable given my specific circumstances, or simply a reaction to the times…

I’m currently 54, my wife (who does not work outside the home) is 50, and we have two children ages 13 and 16 (both of whom will attend college). I’ve had a career in technology which I anticipate wrapping up by the time I am 59-60, at which time I plan to ease into a retirement career as a solo practitioner in a very different (and far less materially lucrative!) field.

That’s where the timing piece comes in: while I will certainly bring in *some* income, my goal is not to build a large, demanding business in retirement. I have assumed that I would begin living off of my investments at 59, but reduce the rate of withdrawal by supplementing with a bit of income from the new business (realistically $15-$50K annually). I’d like to delay social security as long as possible. The cost of health insurance to bridge us to Medicare is also a big unknown.

My question is this: My goal is to have a $3M investment portfolio by the time I “retire” at 59. I’m actually closer to that number right now than I expected I would be. While my risk tolerance has been moderate in the past, it is EXTREMELY low right now, primarily because I am concerned about:
• Being close to my magic number
• Being within 5 years of retirement
• Not having any clear sense of what the pandemic holds in store for us long term. There have obviously been many posts on this topic, but the truth is none of us knows how this will play out, if we’ve seen the bottom, what the recovery timeline looks like, how the market will react if early vaccine trials fail, etc.

Bottom line: I am tempted to convert most of my stock funds (say 80%), and all of my VWUIX, to a treasury fund and call it a day for now; frankly, I’m tempted to convert Total Bond holdings to treasuries as well. My thinking is that I’m pretty close to “winning the game” by the rules I established, so why take any risk during an extraordinarily volatile period? I would certainly sleep better at night, though I’m sure I will also kick myself when the upside materializes – but no-one knows when that might happen, and there is the distinct possibility that we have not yet seen the bottom and that the recovery will be a very protracted process. As I say, I have never been any where near this risk averse, but I have also never been within striking distance of actually needing my retirement funds either. Perhaps this is an overly emotional reaction to the recent bear, but I am sincere in asking myself the question “why would I take much of any risk if I have almost reached my goal?” Sure, there’s always more money to be made, but there’s comfort in knowing what is “enough” for oneself as well.
I’d love to get the community’s thoughts on my current portfolio, and moves I might make to most effectively lower risk while not giving up on the possibility of gains entirely. Does anyone else find themselves in a similar predicament right now due to retirement timing?
Here’s my current situation:
Cash/Emergency Funds: $975,000 in CD’s at 2%, spread across multiple banks. $600,00 of this was the result of an inheritance I did not invest, thinking that I might pick up a couple of rental houses instead. I would not normally keep this kind of cash on the sidelines.
Debt: $8K left on a car loan at 1%. House is paid off and valued at approximately $800,000
Asset Allocation: has traditionally ben 65/35, but shifted last year to 50/50. The decision not to invest inheritance/cash has obviously skewed that considerably.
Post-retirement expenses: should be around $120K annually, but insurance until Medicare is a big unknown
Savings from salary and RSU’s over the next five years (assuming no early job loss – hardly a guarantee these days) should easily get me to my overall portfolio goal in 5 years, even assuming zero returns on existing investments. My wife might also return to the workforce in a limited way, and all of that money would initially go towards bolstering the kids’ 529’s.
Currently living in Texas – reasonable chance we’ll retire here.
VTIAX $38,000
VTSAX: $470,000
VWIUX: $245,000

Vanguard Rollover 401(K)
VBLTX: $26,000
VAIPX: $60,000
VTIAX: $26,000
VTSAX: $93,500

Various inherited IRA’s
VTSAX: $32,000

Vanguard Roth
VBMFX: $1,800
VTSMX: $3,200

Vanguard Traditional IRA
VTHRX: $9,500

Wife’s Vanguard Traditional IRA:
VBTLX: $42,000
VIPSX: $12,500
VTIAX: $16,214
VTSAX: $65,200

My Current Fidelity 401(k)
VBTLX: $282,300
VSIGX: $9,700
VRINX: $79,300

Treasury Direct
iBonds: $30,000

Bonds: $596,000
INT Stocks: $79,720
Domestic Stocks: $750,455
TIPS: $75,514
iBonds: $30,000
Cash/Emergency: $975,000
Total portfolio: $2,500,000
I also have $110K per kid in Vanguard 529 plans. I would like for my kids to graduate debt-free with their bachelor’s degrees – grad school will be on their dime.

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Re: Portfolio (and sanity..) check

Post by bloom2708 » Tue May 12, 2020 4:03 pm

Inflation is also an enemy to watch.

I would go to 30-35% stocks and stay there.

I am OK with switching to Short/Intermediate Treasuries. I did this move (from Total Bond) in Nov 2018.

Even if you retire early, a portion of your portfolio will need to last for 25+ years.

My mid-70s parents have stayed at 30-35% stocks. When stocks are zooming, they want more. When stocks are tanking, they want 0% stocks. I just tell them "don't do anything".

Make the safe piece "safer" and keep a portion in stocks.

I only see 1 Roth IRA. You can fund your wife's Roth each year from your income. Another small thing. Only stock index funds in Roth. Tax free growth, let those run for the long haul.

Maybe move to 35 stocks/safer bonds/money market. Hold for 6 months. See what happens. If you still want to move lower, go by 5% increments.

I would not go lower than 20% stocks. Keep some skin in the game. Good luck!
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

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Re: Portfolio (and sanity..) check

Post by 512Texan » Wed May 13, 2020 8:40 am

Many thanks for the reply Bloom, your suggestions are right in line with the direction I'm headed.

May I ask which treasury funds you went with to replace Total Bond?

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Re: Portfolio (and sanity..) check

Post by bloom2708 » Wed May 13, 2020 9:48 am

512Texan wrote:
Wed May 13, 2020 8:40 am
Many thanks for the reply Bloom, your suggestions are right in line with the direction I'm headed.

May I ask which treasury funds you went with to replace Total Bond?
I have mostly Int-Term Treasury Index (VSIGX) and some Short-Term Treasury Index (VSBXS).

SEC yield is nothing to write home for, but I'm OK with that.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

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Re: Portfolio (and sanity..) check

Post by WoodSpinner » Wed May 13, 2020 11:19 am


I hear you on the struggles with Risk, especially since you are close to Retirement! I am 60 (retired at 58) and am still getting used to the de-cumulative phase, not having a job, and managing a much more complex financial picture.

What worked for me was building a Liability Matching Portfolio (LMP) to cover my expenses for the first 20 years and not to worry so much about the risk. To do this well, you do need to project your Cashflow requirements, Income, Expenses, Taxes through Retirement to see what funds need to be covered By the LMP.

This process helped me discover some key aspects of our finances that I had been missing.

- My pension plus SS will cover my expenses once I start collecting at 70. This means I really have to fund 0 years of expenses with the LMP.

- Roth Conversions have become a financial priority, especially during the early Retirement years before 63. Taxes on these conversions will be my highest expense.

- I now have an approximation of my Cashflow needs and can build an LMP to match (somewhat) the duration of the bonds to reduce interest rate risk.

- The LMP portfolio turns out to be about 1/3 of my assets.

- I chose an AA of 55/45 for the combined portfolio. This leaves some bonds in the Growth Portfolio which can be used for rebalancing.

At this point, I am much less concerned about unexpected inflation so I decided to build the LMP portfolio using Treasuries (trading safety for return) and using a combination of Short Term and Intermediate Term Treasuries to roughly match the duration of my needs.

The process of working through this analysis has really helped me psychologically deal with the risk during these uncertain times. I have a plan for what to do in the next downturn (if it happens) and feel much more relaxed about the whole matter.

Not sure if any of this will work for you, but it’s been helpful for us.


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