Am I panicking or being prudent?

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GeoMetry
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Am I panicking or being prudent?

Post by GeoMetry »

I'm less than a year from retirement. I don't have a pension to speak of. My stock/Bond portfolio is around $2.2M which closely matches my savings goals for retirement. My portfolio is 60/40 stocks/bonds. I was intending to keep it invested that way in retirement. My portfolio is currently down only 1.5% from its all-time high in mid March. Today I am considering moving the vast majority of my portfolio to stable value. From where the market is today I can't imagine an up side in excess of 10% by the end of the year for a 60/40 portfolio, but I am concerned about the possible downside. It would disappoint me to miss out on 10% upside but it would kill me to hit new lows and languish there for years. Once I see the a path back to normal I think I would dollar cost average back into the market over a year or so.

Am I panicking or being prudent?
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Re: Am I panicking or being prudent?

Post by Marmot »

If you were happy with your portfolio and how it was set up in January, it shouldn't be much different now. I think it is natural for most folks to second guess when the Sh** hits the fan. I am 3.4% down YTD, not changing a thing. I am staying the course.
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Re: Am I panicking or being prudent?

Post by KlangFool »

GeoMetry wrote: Fri May 29, 2020 9:41 am I'm less than a year from retirement. I don't have a pension to speak of. My stock/Bond portfolio is around $2.2M which closely matches my savings goals for retirement. My portfolio is 60/40 stocks/bonds. I was intending to keep it invested that way in retirement. My portfolio is currently down only 1.5% from its all-time high in mid March. Today I am considering moving the vast majority of my portfolio to stable value. From where the market is today I can't imagine an up side in excess of 10% by the end of the year for a 60/40 portfolio, but I am concerned about the possible downside. It would disappoint me to miss out on 10% upside but it would kill me to hit new lows and languish there for years. Once I see the a path back to normal I think I would dollar cost average back into the market over a year or so.

Am I panicking or being prudent?
GeoMetry,

1) Before you do that, why do you think that it will be safe to move your money into the stable value fund? It is not CASH. It is unlikely to lose its principal but there is no guarantee.

2) It is safer and a better choice to move X years of the expense of your portfolio into CASH or CASH equivalent. You should do that anyhow as preparation for your retirement.

KlangFool
Last edited by KlangFool on Fri May 29, 2020 9:47 am, edited 1 time in total.
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Re: Am I panicking or being prudent?

Post by livesoft »

GeoMetry wrote: Fri May 29, 2020 9:41 amAm I panicking or being prudent?
Definitely, yes.
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nix4me
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Re: Am I panicking or being prudent?

Post by nix4me »

Sounds like panicking and trying to time the market with incomplete data. Nobody knows what is going to happen, including you. Sounds like 60/40 is not conservative enough for you. Maybe adjust to 50/50 or 40/60?
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Re: Am I panicking or being prudent?

Post by climber2020 »

GeoMetry wrote: Fri May 29, 2020 9:41 am It would disappoint me to miss out on 10% upside but it would kill me to hit new lows and languish there for years.
If that happens, how many years can you live off of your bonds?
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galeno
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Re: Am I panicking or being prudent?

Post by galeno »

I recommend going into retirement with your age in FI. You can always increase your equity allocation as you get used to retirement.
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Re: Am I panicking or being prudent?

Post by bloom2708 »

+1 for 40/60 or 50/50.

Being all "out" of stocks is not a good place to be either. You need to keep up with inflation for a long retirement.
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Re: Am I panicking or being prudent?

Post by tealeaves »

GeoMetry wrote: Fri May 29, 2020 9:41 am I'm less than a year from retirement. I don't have a pension to speak of. My stock/Bond portfolio is around $2.2M which closely matches my savings goals for retirement. My portfolio is 60/40 stocks/bonds. I was intending to keep it invested that way in retirement. My portfolio is currently down only 1.5% from its all-time high in mid March. Today I am considering moving the vast majority of my portfolio to stable value. From where the market is today I can't imagine an up side in excess of 10% by the end of the year for a 60/40 portfolio, but I am concerned about the possible downside. It would disappoint me to miss out on 10% upside but it would kill me to hit new lows and languish there for years. Once I see the a path back to normal I think I would dollar cost average back into the market over a year or so.

Am I panicking or being prudent?
Given what you have said, I think moving a portion (10-20%) into stable value is being prudent. I think moving the "vast majority" seems more like panicking. But nobody but you can determine what's right. Think about different crystal ball scenarios (go back to new lows and recover, go up 10% from here, etc.) and think to yourself what will cause you the least regret if you just stay the course. You might get your answer from that.
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Re: Am I panicking or being prudent?

Post by randomguy »

GeoMetry wrote: Fri May 29, 2020 9:41 am I'm less than a year from retirement. I don't have a pension to speak of. My stock/Bond portfolio is around $2.2M which closely matches my savings goals for retirement. My portfolio is 60/40 stocks/bonds. I was intending to keep it invested that way in retirement. My portfolio is currently down only 1.5% from its all-time high in mid March. Today I am considering moving the vast majority of my portfolio to stable value. From where the market is today I can't imagine an up side in excess of 10% by the end of the year for a 60/40 portfolio, but I am concerned about the possible downside. It would disappoint me to miss out on 10% upside but it would kill me to hit new lows and languish there for years. Once I see the a path back to normal I think I would dollar cost average back into the market over a year or so.

Am I panicking or being prudent?
Expecting to make 10% in 7 months with a 60/40 AA (or pretty much any AA) isn't realistic. I doubt your (or mine) ability to predict how the markets will perform over the next 6-24 months is any better than chance. I sure didn't think in March 2009 that stocks would be up 26% for the year. IMNHO by the time the path back to "normal" is clear, you are likely closer to buying at a peak than in capturing gains.

That being said, why not go to 40/60 in retirement? You realize now that that 60/40 didn't work for you (you will probably have 3 or 4 swings like Feb/march during your retirement years). Why not try and find something that does.
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Re: Am I panicking or being prudent?

Post by 7eight9 »

bloom2708 wrote: Fri May 29, 2020 9:53 am +1 for 40/60 or 50/50.

Being all "out" of stocks is not a good place to be either. You need to keep up with inflation for a long retirement.
I'm not sure that any equities are needed historically to keep up with inflation.

Over 1926-2019 inclusive, Treasury bills earned an average (CAGR) of 3.29%/year, while inflation over the same time period averaged over 2.88%/year.
viewtopic.php?f=10&t=316029&p=5278293&h ... h#p5278293
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Re: Am I panicking or being prudent?

Post by HomerJ »

GeoMetry wrote: Fri May 29, 2020 9:41 am I'm less than a year from retirement. I don't have a pension to speak of. My stock/Bond portfolio is around $2.2M which closely matches my savings goals for retirement. My portfolio is 60/40 stocks/bonds. I was intending to keep it invested that way in retirement. My portfolio is currently down only 1.5% from its all-time high in mid March. Today I am considering moving the vast majority of my portfolio to stable value. From where the market is today I can't imagine an up side in excess of 10% by the end of the year for a 60/40 portfolio, but I am concerned about the possible downside. It would disappoint me to miss out on 10% upside but it would kill me to hit new lows and languish there for years. Once I see the a path back to normal I think I would dollar cost average back into the market over a year or so.

Am I panicking or being prudent?
Market is up 35% in the last two months... Two months ago, did you think that was possible? (None of us did, I'm guessing). So don't say stuff like "I can't imagine the stock market going up 10% more". You should be able to imagine that. It may not happen, but there's no way you should be confident about predicting the future.

But there's nothing wrong with going more conservative as you enter retirement. Go to 50/50 or 40/60. But then stay there for a while.

Switching back "once I see a path back to normal" is a terrible idea. It doesn't work that way. You won't ever know when "things are normal". Some other crisis can appear at any time.

Going to mostly cash is a bad idea... Go a bit more conservative until you can sleep at night... But not almost all cash... That's too much of a reaction. If you are 40/60, and the market crashes again, you'll be fine... You'll have 15 years of expenses in bonds... You can wait for the stocks to recover with a conservative portfolio like that.
Last edited by HomerJ on Fri May 29, 2020 11:14 am, edited 1 time in total.
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Re: Am I panicking or being prudent?

Post by HomerJ »

7eight9 wrote: Fri May 29, 2020 9:59 am
bloom2708 wrote: Fri May 29, 2020 9:53 am +1 for 40/60 or 50/50.

Being all "out" of stocks is not a good place to be either. You need to keep up with inflation for a long retirement.
I'm not sure that any equities are needed historically to keep up with inflation.

Over 1926-2019 inclusive, Treasury bills earned an average (CAGR) of 3.29%/year, while inflation over the same time period averaged over 2.88%/year.
viewtopic.php?f=10&t=316029&p=5278293&h ... h#p5278293
Smaller periods in that large sample have had negative real returns for bonds.
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Re: Am I panicking or being prudent?

Post by 3funder »

40/60 - 60/40 sounds reasonable. I would stay within this range.
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Re: Am I panicking or being prudent?

Post by arcticpineapplecorp. »

GeoMetry wrote: Fri May 29, 2020 9:41 am I'm less than a year from retirement. I don't have a pension to speak of. My stock/Bond portfolio is around $2.2M which closely matches my savings goals for retirement. My portfolio is 60/40 stocks/bonds. I was intending to keep it invested that way in retirement. My portfolio is currently down only 1.5% from its all-time high in mid March. Today I am considering moving the vast majority of my portfolio to stable value. From where the market is today I can't imagine an up side in excess of 10% by the end of the year for a 60/40 portfolio, but I am concerned about the possible downside. It would disappoint me to miss out on 10% upside but it would kill me to hit new lows and languish there for years. Once I see the a path back to normal I think I would dollar cost average back into the market over a year or so.

Am I panicking or being prudent?
prudently panicking? new oxymoron?

I noticed some interesting things in what you wrote:

1. I find it interesting that you state a number you think could be the maximum upside of 10% for a 60/40 portfolio. Assuming bond stay the same, that'd be a 16.5% increase in stocks from here. How did you come to 16.5% being a maximum increase in stocks for the rest of the year?

2. I find it interesting that you don't state a number for the "possible downside". Why?

you can imagine with specificity a best case scenario but not a worst case scenario? Is it too frightening?

I think it's important to imagine what the downside might be. Why? So you see how the 60/40 reacts to that downside.

How much was your portfolio down (by $ and %) earlier in the year say 3/23/20 (the bottom so far)?

3. you say your "portfolio is currently down only 1.5% from its all-time high in mid March". The high was actually 2/19/20. source: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

The market did go up in mid march after it fell but then fell again through 3/23/20 before rising again. rise. fall. rise. fall. that's what the market does. but over time it's risen more than it's fallen.

4. languish for years? if that were to happen, you'd still have 40% of your money to draw from (the bonds). So the stocks would recover after a few years? Do you have enough in bonds (as KlangFool suggested) to last through a prolonged downturn? That's always the goal. Otherwise, "markets can stay irrational longer than you can stay solvent".

A 60/40 portfolio with $2.2 million has $880,000 in bonds. If you're taking 4% ($88,000) of the portfolio per year ($88,000 is 4% of $2.2 million), then don't you have 10 years in safe assets to draw from? Do you think stocks would take 10 years or longer to recover? If you have 10 years in bonds you're good, and you might have 20 years in stocks (the 4% SWR was over 30 years). So you'd still have plenty of assets in stocks. And even if the stocks lose value in the short term (or for prolonged period) so you think you have less than 20 years, you are still getting dividends (2% of $1,320,000 is $26,400 per year). So while you're using the $88,000 from bonds over 10 years, didn't you earn $264,000 in dividends on the stocks over that same 10 year period you were drawing down bonds? Wouldn't that either help your stocks recover sooner (if reinvested), or provide another 3 years of income after the 10 years of bonds run out? So don't you really have 13 years of safe moneys to pull from? Would that be enough?

Granted I didn't account for any assumption of inflation over those 13 years assuming you'd need a constant $88,000 per year, which may not be true.

5. "Once I see the a path back to normal I think I would dollar cost average back into the market over a year or so." Once there's a path back to normal, the market could recover quite quickly as everyone else sees a path back as well, and optimism returns, etc. So if you wait to get back in (over a year) aren't you potentially going to buy back shares at higher future prices that you sell now at lower prices? Is that a recipe for success?

just some thoughts. I agree with nix4me suggested. If 60/40 is too risky for you, just dial back to 50/50 or 40/60 which would reduce declines. Of course understand what the difference would look like (i.e., do the math to see what a 50/50 or 40/60 might lose based on different stock declines).

While 50/50 is a true "balanced" portfolio, balanced portfolios as advertised tend to range anywhere from 60/40 to 40/60.It's been said if you want a balanced portfolio go 50/50, but if you're afraid of inflation go 60/40 and if you're afraid of volatility go 40/60. That makes sense to to me.
Last edited by arcticpineapplecorp. on Fri May 29, 2020 10:24 am, edited 2 times in total.
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Re: Am I panicking or being prudent?

Post by bloom2708 »

7eight9 wrote: Fri May 29, 2020 9:59 am
bloom2708 wrote: Fri May 29, 2020 9:53 am +1 for 40/60 or 50/50.

Being all "out" of stocks is not a good place to be either. You need to keep up with inflation for a long retirement.
I'm not sure that any equities are needed historically to keep up with inflation.

Over 1926-2019 inclusive, Treasury bills earned an average (CAGR) of 3.29%/year, while inflation over the same time period averaged over 2.88%/year.
viewtopic.php?f=10&t=316029&p=5278293&h ... h#p5278293
If inflation comes in at .1% with treasury funds earning .3% perhaps. Tough to look back with bonds going from above 10%+ to under 1%. If you follow the history of the 10 year treasury, 30 year treasury or Prime Rate or some other rate, Dec 1980 seems to be the peak. Some crazy rates. 10 year Treasury at 14%.

Back testing has some pitfalls. More so on the bond side I think. I know my fixed side is not keeping up with inflation. Not sure when that changes. I guess deflation could assist.
Last edited by bloom2708 on Fri May 29, 2020 10:50 am, edited 1 time in total.
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Re: Am I panicking or being prudent?

Post by Watty »

GeoMetry wrote: Fri May 29, 2020 9:41 am My portfolio is 60/40 stocks/bonds.
For comparison the Vanguad 2020 target date fund has an asset allocation of about 50/50 so you are likely invested a bit aggressively right now if you will retire withing a year.

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Reducing your stock asset allocation to 50% or even 40% would be a reasonable choice. With 40% in stocks if the stock market declines 20% your investments would only go down by 8% but that would partially offset by dividends and your bonds could increase in value.

Some retirement plans have attractive stable value funds in them so they could be a reasonable choice to use for your fixed income asset allocation instead of a bond mutual fund. What does your stable value fund pay?

If you will have higher income needs in early retirement before you start Social Security and Medicare then you might also want set up a bit of a liability matching portfolio for those expenses.
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Re: Am I panicking or being prudent?

Post by nisiprius »

Image

Take these curves for what they're worth. Morningstar uses them as benchmarks for target-date funds, they use a similar methodology to target-date funds, and most actual target-date funds fall somewhere in between their "conservative" and "aggressive" curves.

I personally am close to the "conservative" curve.

Don't make any great big sudden moves. Don't take hugely consequential actions based on your mood, your impulse, or your macroeconomic predictions, or anybody else's.

If you are 60/40 at age 65, then according to these curves you are on the purple "aggressive" line. If you were planning to continue at 60/40 into retirement, that would be very aggressive.

I get the impression that you misjudged your risk tolerance, and you aren't really as aggressive as you thought, i.e. less risk-tolerant.

There is a widespread consensus that I agree with, that risk should be dialed back when approaching retirement. To me this is just something I can figure out by looking at myself. It can also come out of financial economics models that are based on the idea of declining human capital (less time to make up for losses with future savings).

One idea to consider, but only you can judge your risk tolerance and you must take responsibility for your financial life, is that perhaps the "moderate" (green curve) is more appropriate for you. That would suggest cutting back to about 40/60.

The point is, do it because of a change in your risk tolerance, not because of what you expect the market to do, and cut back with the idea of leaving it there, not with the idea of temporarily dodging a bullet and going right back to a higher allocation when you think it is over.
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Re: Am I panicking or being prudent?

Post by Triple digit golfer »

I think you're panicking, but maybe a shift to something a bit more conservative may be in order. Maybe 40/60 instead of 60/40.

Let's just assume your annual expenses are 4% or $88,000 per year.

So you start with $1.32 million in stocks and $880k in bonds per your original 60/40.

Uh oh! Market crashes 50% and stays there for five years. Now you have $660k in stocks and $880k in bonds. You can either rebalance into stocks, or if you're scared to, just spend from bonds until back at 60/40. At $88k a year for five years, you'd be back to 60/40 after five years without touching stocks. Don't you think the market would recover in five years? I think it's likely, but obviously no guarantees.

I would not go any below 30% in stocks. Personally, I think I'd be happy at 40% in retirement. 60/40 seems a little too risky for my liking.
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GeoMetry
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Re: Am I panicking or being prudent?

Post by GeoMetry »

Thank you all for the sage advice. You talked me off the ledge. I will give some thought to my risk tolerance. I don't know why every once in a while I forget that I can't time the markets.

BTW My age is 60 and I have 2 years worth of expenses in cash.
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Re: Am I panicking or being prudent?

Post by Rudedog »

You need equities for any type of growth and to overcome inflation. I'm at 50% equities and I haven't changed anything this year, except I've bought a bit more stock. 60% equities is a bit too high for me, but 52% or 53% is OK. Right now, I intend to keep my equities at 50% for many years.
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Re: Am I panicking or being prudent?

Post by staustin »

I'm with the good Dr. Bernstein on this subject.. If you're now close to retirement with the accumulation phase ending, you would be wise to alter your asset allocation accordingly. 25 times your annual cost in safe assets only (directly bought treasuries, cd's etc). Anything above that can be at risk in stocks and the like.
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Re: Am I panicking or being prudent?

Post by jrbdmb »

staustin wrote: Fri May 29, 2020 11:25 am I'm with the good Dr. Bernstein on this subject.. If you're now close to retirement with the accumulation phase ending, you would be wise to alter your asset allocation accordingly. 25 times your annual cost in safe assets only (directly bought treasuries, cd's etc). Anything above that can be at risk in stocks and the like.
Is there a link for this that i can look at? I am surprised that anyone would recommend an asset allocation with zero stocks - even conservative allocations I have seen have a floor of 25% equities to protect from inflation.
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Re: Am I panicking or being prudent?

Post by SouthernFIRE »

GeoMetry wrote: Fri May 29, 2020 11:02 am Thank you all for the sage advice. You talked me off the ledge. I will give some thought to my risk tolerance. I don't know why every once in a while I forget that I can't time the markets.

BTW My age is 60 and I have 2 years worth of expenses in cash.
My suggestion was going to be to move some number of years into cash and leaving the rest in the allocation you selected. I see that you already have two years in cash, which seems relatively safe. Maybe take that to 3 years if you feel like you have to do something, and sit tight otherwise. The move everything to stable value move is not a good one, as others have already noted.
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Re: Am I panicking or being prudent?

Post by tibbitts »

GeoMetry wrote: Fri May 29, 2020 9:41 am I'm less than a year from retirement. I don't have a pension to speak of. My stock/Bond portfolio is around $2.2M which closely matches my savings goals for retirement. My portfolio is 60/40 stocks/bonds. I was intending to keep it invested that way in retirement. My portfolio is currently down only 1.5% from its all-time high in mid March. Today I am considering moving the vast majority of my portfolio to stable value. From where the market is today I can't imagine an up side in excess of 10% by the end of the year for a 60/40 portfolio, but I am concerned about the possible downside. It would disappoint me to miss out on 10% upside but it would kill me to hit new lows and languish there for years. Once I see the a path back to normal I think I would dollar cost average back into the market over a year or so.

Am I panicking or being prudent?
Given your feelings, I would move to 100% stable value now, and don't reenter the market ever except at a lower level (both stocks and bonds) than we're at now. Once you do, never move out of the market again except at a higher level than you reenter at. Seems simple. You will have "enough."
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Re: Am I panicking or being prudent?

Post by ruralavalon »

GeoMetry wrote: Fri May 29, 2020 9:41 am I'm less than a year from retirement. I don't have a pension to speak of. My stock/Bond portfolio is around $2.2M which closely matches my savings goals for retirement. My portfolio is 60/40 stocks/bonds. I was intending to keep it invested that way in retirement. My portfolio is currently down only 1.5% from its all-time high in mid March.
We are age 74, I am retired 9+ years, I have no pension, our asset allocation is 50/50 stocks/bonds, we have no cash allocation. Our portfolio is down 2.11% year to date.

For what it is worth we are making no changes.

GeoMetry wrote: Fri May 29, 2020 9:41 amToday I am considering moving the vast majority of my portfolio to stable value. From where the market is today I can't imagine an up side in excess of 10% by the end of the year for a 60/40 portfolio, but I am concerned about the possible downside. It would disappoint me to miss out on 10% upside but it would kill me to hit new lows and languish there for years. Once I see the a path back to normal I think I would dollar cost average back into the market over a year or so.

Am I panicking or being prudent?
In my opinion switching to 100% or "vast majority" cash (stable value) even temporarily is a very bad idea. Don't sell low and then buy back into the market when prices are higher.

In my opinion a 60/40 asset allocation in or near retirement is within the range of what is reasonable, and it is reasonable to reduce the stock allocation when nearing or entering retirement.

But if panicked you should reevaluate your target asset allocation. You could consider something more conservative like Vanguard Target Retirement Income Fund (VTINX) with a 30/70 stock/bond allocation.

P!ease see this article: Rick Ferri, Forbes (2/6/2015) "The Center of Gravity for Retirees".

For what it it is is worth we did change our asset allocation during the 2007-09 real estate crash, so I fully understand the panic you are feeling. We then switched from 65/35 to our current allocation of 50/50, and have stayed there ever since.

What is your estimated annual retirement living expense? What will your Social Security benefits total annually? What is the annual benefit from that "don't have a pension to speak of"? What is your age? Asset allocation is a very personal decision you must make based on your own ability, willingness, and need to take risk.
Last edited by ruralavalon on Fri May 29, 2020 1:15 pm, edited 1 time in total.
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Re: Am I panicking or being prudent?

Post by randomguy »

jrbdmb wrote: Fri May 29, 2020 11:40 am
staustin wrote: Fri May 29, 2020 11:25 am I'm with the good Dr. Bernstein on this subject.. If you're now close to retirement with the accumulation phase ending, you would be wise to alter your asset allocation accordingly. 25 times your annual cost in safe assets only (directly bought treasuries, cd's etc). Anything above that can be at risk in stocks and the like.
Is there a link for this that i can look at? I am surprised that anyone would recommend an asset allocation with zero stocks - even conservative allocations I have seen have a floor of 25% equities to protect from inflation.
Most of the people suggesting allocations like that actually have 2 accounts. They do something like 25x of living expenses in bonds then they invest the reset of the money (the stuff for trips, eating out, visiting the grandkids,...) say 60/40.

I will also say a lot of the people recommending the conservative portfolio's feel like they are way overreacting to 2000-2 and 2007-9. They know people who were 100% stocks(often individual stocks for even more risk taking) during those times who panic sold and their take away is go to the other extreme. I can't imagine how stressful it would be to have 25x in bonds as a 65 year old, knowing that as I approach 90 I would be going broke. How would you like being 85 and knowing you and your wife were down to 5 years of living expenses?
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Re: Am I panicking or being prudent?

Post by pkcrafter »

Geo, what will your initial withdrawal rate be?

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Re: Am I panicking or being prudent?

Post by Clever_Username »

nisiprius wrote: Fri May 29, 2020 10:23 am Image

Take these curves for what they're worth. Morningstar uses them as benchmarks for target-date funds, they use a similar methodology to target-date funds, and most actual target-date funds fall somewhere in between their "conservative" and "aggressive" curves.

I personally am close to the "conservative" curve.
Huh, I am underneath the conservative curve (age in bonds, age < 40). That's not something I've noticed before.
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Re: Am I panicking or being prudent?

Post by TomatoTomahto »

jrbdmb wrote: Fri May 29, 2020 11:40 am
staustin wrote: Fri May 29, 2020 11:25 am I'm with the good Dr. Bernstein on this subject.. If you're now close to retirement with the accumulation phase ending, you would be wise to alter your asset allocation accordingly. 25 times your annual cost in safe assets only (directly bought treasuries, cd's etc). Anything above that can be at risk in stocks and the like.
Is there a link for this that i can look at? I am surprised that anyone would recommend an asset allocation with zero stocks - even conservative allocations I have seen have a floor of 25% equities to protect from inflation.
There are a number of threads that discuss this. Search for LMP or Liability Matching Portfolio. These range from strict Bernstein portfolios to more homegrown ones (I call mine a “quasi-LMP”).

I don’t think anyone suggests having no equities, as the style is intended for “those who have won the game.” As an example, I very non-scientifically decided that $3M in fixed income was sufficient, because the number felt right, and I don’t restrict the fixed income to TIPS (it’s actually a dog’s breakfast of fixed income funds). The $3M has grown a bit over time. The rest and all new money goes to equities, although I have not rushed to invest all new money since the beginning of the year (panicked? perhaps, but I haven’t sold any equities other than to TLH and add to international).
Okay, I get it; I won't be political or controversial. The Earth is flat.
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Re: Am I panicking or being prudent?

Post by White Coat Investor »

GeoMetry wrote: Fri May 29, 2020 9:41 am Once I see the a path back to normal I think I would dollar cost average back into the market over a year or so.
Is that what your written investing plan says you should do? Because without one of those, you basically need a functioning crystal ball. I don't have one and I doubt you do either. For instance, did you predict this 37% rally from the March lows? If not, why do you think you now know what the future holds?
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Re: Am I panicking or being prudent?

Post by staustin »

jrbdmb wrote: Fri May 29, 2020 11:40 am
staustin wrote: Fri May 29, 2020 11:25 am I'm with the good Dr. Bernstein on this subject.. If you're now close to retirement with the accumulation phase ending, you would be wise to alter your asset allocation accordingly. 25 times your annual cost in safe assets only (directly bought treasuries, cd's etc). Anything above that can be at risk in stocks and the like.
Is there a link for this that i can look at? I am surprised that anyone would recommend an asset allocation with zero stocks - even conservative allocations I have seen have a floor of 25% equities to protect from inflation.
Buy Dr. William Bernstein's Book, The Ages of the Investor. The strategy is discussed in it. It's outstanding and highly recommended. Dr. Bernstein contends that once the game is won by accumulating enough safe assets to retire, it makes little sense to continue 'playing the game', at least with your 25X safe amount. Amounts above that # can be placed at risk if you so choose. I'm firmly in this camp now. I wouldn't sleep well at night knowing my accumulated pot to retire on could be subject to 40% declines for a decade or longer.
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Re: Am I panicking or being prudent?

Post by retired@50 »

GeoMetry wrote: Fri May 29, 2020 9:41 am ...
Today I am considering moving the vast majority of my portfolio to stable value.
...
Am I panicking or being prudent?
The statement above sounds like panic to me. I'd suggest a more modest move, while continuing to hold at least 40% stock.

Regards,
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Re: Am I panicking or being prudent?

Post by HomerJ »

tibbitts wrote: Fri May 29, 2020 11:59 am
GeoMetry wrote: Fri May 29, 2020 9:41 am I'm less than a year from retirement. I don't have a pension to speak of. My stock/Bond portfolio is around $2.2M which closely matches my savings goals for retirement. My portfolio is 60/40 stocks/bonds. I was intending to keep it invested that way in retirement. My portfolio is currently down only 1.5% from its all-time high in mid March. Today I am considering moving the vast majority of my portfolio to stable value. From where the market is today I can't imagine an up side in excess of 10% by the end of the year for a 60/40 portfolio, but I am concerned about the possible downside. It would disappoint me to miss out on 10% upside but it would kill me to hit new lows and languish there for years. Once I see the a path back to normal I think I would dollar cost average back into the market over a year or so.

Am I panicking or being prudent?
Given your feelings, I would move to 100% stable value now, and don't reenter the market ever except at a lower level (both stocks and bonds) than we're at now. Once you do, never move out of the market again except at a higher level than you reenter at. Seems simple. You will have "enough."
This could be terrible advice. He may not have "enough".

Plus what you wrote is not specific enough to be actionable. Don't reenter the market except at a lower level? What if it drops 1%?

Should he then get back in? Then what if it goes back up 1%? Get out at higher level?

This isn't much of a plan. 100% cash? And it certainly isn't "simple".
Last edited by HomerJ on Fri May 29, 2020 5:08 pm, edited 1 time in total.
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Re: Am I panicking or being prudent?

Post by siamond »

OP, yes, you panicked. It is entirely understandable after witnessing a 30% drop unfolding in just a few weeks. But you didn't act on your emotions, which is a great sign. Instead, you shared on this forum, which is another good sign. I'll be honest, after this crazy sudden drop, I was itchy as well. Then I calmed down. Not that I believe one second that the recent rebound will hold, but I simply had time to breathe and put things in perspective.

I would urge you to not overreact one way or another. Emotions are normal. If you move your AA to say 40/60, do you really believe that you'll be significantly less emotional next time a big drop occurs? The point is not to avoid emotions, it's only to have ways to keep them out of the decision-making way.

Hopefully, you have an IPS, and hopefully in there, you have a statement saying that you should not make impactful decisions without mulling it over for at least 3 months, or something like that. And I can attest, it's amazing how helpful such 'mulling over' period can be.

If you don't have such an IPS mechanism, I'd suggest to keep things simple, mark your calendar to rethink your AA and not make a decision (which might be a non-decision) until the end of the year...
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Re: Am I panicking or being prudent?

Post by cashboy »

GeoMetry wrote: Fri May 29, 2020 11:02 am Thank you all for the sage advice. You talked me off the ledge. I will give some thought to my risk tolerance. I don't know why every once in a while I forget that I can't time the markets.

BTW My age is 60 and I have 2 years worth of expenses in cash.
lots of good advice in this thread.

as mentioned, if you don't have an IPS create one - it will help during bad times to have something to guide you (and keep you from getting on the ledge). item #1 in boldface can be: don't try and time the market

my advice is to try dialing equities down to 50/50 and see how that feels. i did that and that AA allowed me to weather this past dip with some degree of confidence (and no panic).

good luck!

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Re: Am I panicking or being prudent?

Post by bigskyguy »

nisiprius wrote: Fri May 29, 2020 10:23 am Image

Take these curves for what they're worth. Morningstar uses them as benchmarks for target-date funds, they use a similar methodology to target-date funds, and most actual target-date funds fall somewhere in between their "conservative" and "aggressive" curves.

I personally am close to the "conservative" curve.

Don't make any great big sudden moves. Don't take hugely consequential actions based on your mood, your impulse, or your macroeconomic predictions, or anybody else's.

If you are 60/40 at age 65, then according to these curves you are on the purple "aggressive" line. If you were planning to continue at 60/40 into retirement, that would be very aggressive.

I get the impression that you misjudged your risk tolerance, and you aren't really as aggressive as you thought, i.e. less risk-tolerant.

There is a widespread consensus that I agree with, that risk should be dialed back when approaching retirement. To me this is just something I can figure out by looking at myself. It can also come out of financial economics models that are based on the idea of declining human capital (less time to make up for losses with future savings).

One idea to consider, but only you can judge your risk tolerance and you must take responsibility for your financial life, is that perhaps the "moderate" (green curve) is more appropriate for you. That would suggest cutting back to about 40/60.

The point is, do it because of a change in your risk tolerance, not because of what you expect the market to do, and cut back with the idea of leaving it there, not with the idea of temporarily dodging a bullet and going right back to a higher allocation when you think it is over.
The logic of this approach I find nearly unassailable. I personally find visual aids like this quite helpful in decision making. Additionally, though, let me suggest a slight addendum. Once you set your mark on where you think your "risk tolerance" might put you, recall that we are hard wired to sense more pain from loss than joy from gain. In other words, what your intellect tells you is the correct positioning for your portfolio, calibrate a bit for what the psyche will most certainly throw your way at some time, like now. Said another way, we naturally feel more discomfort than our intellect would suggest is logical.
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Re: Am I panicking or being prudent?

Post by michaeljc70 »

You are panicking. You really cannot imagine a 10% upside? Did you imagine a 25% increase from the lows just a couple months ago?

What does this stable value fund earn? My guess is not much above inflation.
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Re: Am I panicking or being prudent?

Post by CoAndy »

What about moving half your portfolio to cash and keeping the other half invested at 60/40?
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Re: Am I panicking or being prudent?

Post by ruralavalon »

GeoMetry wrote: Fri May 29, 2020 11:02 am Thank you all for the sage advice. You talked me off the ledge. I will give some thought to my risk tolerance. I don't know why every once in a while I forget that I can't time the markets.

BTW My age is 60 and I have 2 years worth of expenses in cash.
I just now saw this second post.

I am glad you didn't jump :) .
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Re: Am I panicking or being prudent?

Post by Elysium »

GeoMetry wrote: Fri May 29, 2020 9:41 am I'm less than a year from retirement. I don't have a pension to speak of. My stock/Bond portfolio is around $2.2M which closely matches my savings goals for retirement. My portfolio is 60/40 stocks/bonds. I was intending to keep it invested that way in retirement. My portfolio is currently down only 1.5% from its all-time high in mid March. Today I am considering moving the vast majority of my portfolio to stable value. From where the market is today I can't imagine an up side in excess of 10% by the end of the year for a 60/40 portfolio, but I am concerned about the possible downside. It would disappoint me to miss out on 10% upside but it would kill me to hit new lows and languish there for years. Once I see the a path back to normal I think I would dollar cost average back into the market over a year or so.

Am I panicking or being prudent?
I have highlighted the most important consideration to arrive at a correct path. You have a number that matches your goals, you have no need to take risk. There is no reason for you to be 60% in equities unless you like to aim for more than what you need, and enjoy risk taking. Since it is clear you aren't enjoying risk when it shows up, and since you have no need to take any risk, you should de-risk the portfolio.

Here is what I suggest:
Take the entire amount and split between 80% bonds and 20% stocks
80% bonds split between TIPS, TBM, and Short Term Bonds
(you may use 30% Vanguard TIPS, 30% Vanguard TBM Index, and 20% Vanguard Short Term Bond Index)
20% stocks split between 15% Total Stock Index and 5% Total Intl Index.

That should be more than enough to meet your spending needs without the risk of large drawdowns. It will protect against inflation risks, meet SWR needs, and likely provide a real return of 2% under most circumstances. Jack Bogle has often said the "enemy of a good plan is the pursuit of the perfect plan".
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Re: Am I panicking or being prudent?

Post by tibbitts »

HomerJ wrote: Fri May 29, 2020 2:29 pm
tibbitts wrote: Fri May 29, 2020 11:59 am
GeoMetry wrote: Fri May 29, 2020 9:41 am I'm less than a year from retirement. I don't have a pension to speak of. My stock/Bond portfolio is around $2.2M which closely matches my savings goals for retirement. My portfolio is 60/40 stocks/bonds. I was intending to keep it invested that way in retirement. My portfolio is currently down only 1.5% from its all-time high in mid March. Today I am considering moving the vast majority of my portfolio to stable value. From where the market is today I can't imagine an up side in excess of 10% by the end of the year for a 60/40 portfolio, but I am concerned about the possible downside. It would disappoint me to miss out on 10% upside but it would kill me to hit new lows and languish there for years. Once I see the a path back to normal I think I would dollar cost average back into the market over a year or so.

Am I panicking or being prudent?
Given your feelings, I would move to 100% stable value now, and don't reenter the market ever except at a lower level (both stocks and bonds) than we're at now. Once you do, never move out of the market again except at a higher level than you reenter at. Seems simple. You will have "enough."
This could be terrible advice. He may not have "enough".

Plus what you wrote is not specific enough to be actionable. Don't reenter the market except at a lower level? What if it drops 1%?

Should he then get back in? Then what if it goes back up 1%? Get out at higher level?

This isn't much of a plan. 100% cash? And it certainly isn't "simple".
You are suggesting 2.2M at a normal retirement age is not enough for a basic existence for one person? We'd have to experience extremely high inflation in excess of how the stable value fund(s) would adjust - and most do adjust to interest rates to some extent - for 2.2M to fail at, say, a 2.5% SWR. Although I don't know, I'm guessing that's in addition to social security at some point not too far down the road. I'd also set a Plan B baseline asset level where the OP exists the market no matter what. Let's say $2M. Still enough to live on from stable value returns for a 35yr retirement.

You and I wouldn't follow that path because we don't believe in our ability to "see a path back to normal", or otherwise time the market. If the OP is going to market time, and given that fact (a fact that is not subjet to dispute), there have to be guidelines to prevent repeated cycles of buying high and selling low, and that's what I'm providing. Others may have better guidelines.
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Re: Am I panicking or being prudent?

Post by michaeljc70 »

Elysium wrote: Fri May 29, 2020 4:58 pm
GeoMetry wrote: Fri May 29, 2020 9:41 am I'm less than a year from retirement. I don't have a pension to speak of. My stock/Bond portfolio is around $2.2M which closely matches my savings goals for retirement. My portfolio is 60/40 stocks/bonds. I was intending to keep it invested that way in retirement. My portfolio is currently down only 1.5% from its all-time high in mid March. Today I am considering moving the vast majority of my portfolio to stable value. From where the market is today I can't imagine an up side in excess of 10% by the end of the year for a 60/40 portfolio, but I am concerned about the possible downside. It would disappoint me to miss out on 10% upside but it would kill me to hit new lows and languish there for years. Once I see the a path back to normal I think I would dollar cost average back into the market over a year or so.

Am I panicking or being prudent?
I have highlighted the most important consideration to arrive at a correct path. You have a number that matches your goals, you have no need to take risk. There is no reason for you to be 60% in equities unless you like to aim for more than what you need, and enjoy risk taking. Since it is clear you aren't enjoying risk when it shows up, and since you have no need to take any risk, you should de-risk the portfolio.

Here is what I suggest:
Take the entire amount and split between 80% bonds and 20% stocks
80% bonds split between TIPS, TBM, and Short Term Bonds
(you may use 30% Vanguard TIPS, 30% Vanguard TBM Index, and 20% Vanguard Short Term Bond Index)
20% stocks split between 15% Total Stock Index and 5% Total Intl Index.

That should be more than enough to meet your spending needs without the risk of large drawdowns. It will protect against inflation risks, meet SWR needs, and likely provide a real return of 2% under most circumstances. Jack Bogle has often said the "enemy of a good plan is the pursuit of the perfect plan".
How do you know they have no need to take risks? I didn't see their annual expenses, but maybe I missed it. Inflation is a risk if you invest in low interest rate products.
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Re: Am I panicking or being prudent?

Post by Candor »

It is understandable after the shock of losing so much in such a short period of time and so close to retirement that you would now want to protect it since it's almost back to where you started before this downturn. It sure "feels" like there is more downside risk right now than upside opportunity but you can't let your imagination get the better of you. Being prudent would be to reassess your risk tolerance and move to a more conservative aa if warranted but to move nearly all to a stable value fund in the hopes of moving back into the market when thing are "normal" seems to be something your future self will likely regret.
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Re: Am I panicking or being prudent?

Post by xxsocraticxx »

maybe you need to shift the mind set to the bucket strategy? So something like:

Bucket 1: Cash - say 3 - 5 years expenses
Bucket 2: Bonds - money you won't need for 5 years
Bucket 3: Stocks - money you won't need for 10 years.

As the years go buy, you are shifting from bucket 3 to 2 to 1

So this way, you keep all your stock exposure knowing that you won't need them for another 10 years.
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Re: Am I panicking or being prudent?

Post by Sandtrap »

When you realize that you have more to lose than to gain by taking undue risk, then take less risk.

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Re: Am I panicking or being prudent?

Post by 2020 ButClassic »

You are scared of two extremes and there is probably 50% chance your fears may be realized.

I would move slightly toward the conservative side as many have suggested. You'll likely still be wrong with 50% likelihood but it won't impact you financially, and especially mentally, as much.
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Re: Am I panicking or being prudent?

Post by GerryL »

GeoMetry wrote: Fri May 29, 2020 11:02 am Thank you all for the sage advice. You talked me off the ledge. I will give some thought to my risk tolerance. I don't know why every once in a while I forget that I can't time the markets.

BTW My age is 60 and I have 2 years worth of expenses in cash.
Have you had anyone run a financial plan for you yet?
A few years before I planned to retire, I had a Vanguard CFP run a plan based on an annual expense target that I provided and a 60/40 AA. I was gobsmacked by the results. WORST case scenario: I would die at age 100 with just about as much money as I started retirement with.

I really wasn't aiming to grow my money throughout retirement. Once I was a couple of years in, I had them run my plan again, but this time with a spending target that was about 60% higher. Worst case scenario still left my estate with plenty to pass along.

Although there are no guarantees in life, this information has allowed me to stop worrying about how the economy is doing. Market up? Market down? Who cares? I can focus on my health and how I live my life.
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Re: Am I panicking or being prudent?

Post by Elysium »

michaeljc70 wrote: Fri May 29, 2020 6:29 pm
Elysium wrote: Fri May 29, 2020 4:58 pm
GeoMetry wrote: Fri May 29, 2020 9:41 am I'm less than a year from retirement. I don't have a pension to speak of. My stock/Bond portfolio is around $2.2M which closely matches my savings goals for retirement. My portfolio is 60/40 stocks/bonds. I was intending to keep it invested that way in retirement. My portfolio is currently down only 1.5% from its all-time high in mid March. Today I am considering moving the vast majority of my portfolio to stable value. From where the market is today I can't imagine an up side in excess of 10% by the end of the year for a 60/40 portfolio, but I am concerned about the possible downside. It would disappoint me to miss out on 10% upside but it would kill me to hit new lows and languish there for years. Once I see the a path back to normal I think I would dollar cost average back into the market over a year or so.

Am I panicking or being prudent?
I have highlighted the most important consideration to arrive at a correct path. You have a number that matches your goals, you have no need to take risk. There is no reason for you to be 60% in equities unless you like to aim for more than what you need, and enjoy risk taking. Since it is clear you aren't enjoying risk when it shows up, and since you have no need to take any risk, you should de-risk the portfolio.

Here is what I suggest:
Take the entire amount and split between 80% bonds and 20% stocks
80% bonds split between TIPS, TBM, and Short Term Bonds
(you may use 30% Vanguard TIPS, 30% Vanguard TBM Index, and 20% Vanguard Short Term Bond Index)
20% stocks split between 15% Total Stock Index and 5% Total Intl Index.

That should be more than enough to meet your spending needs without the risk of large drawdowns. It will protect against inflation risks, meet SWR needs, and likely provide a real return of 2% under most circumstances. Jack Bogle has often said the "enemy of a good plan is the pursuit of the perfect plan".
How do you know they have no need to take risks? I didn't see their annual expenses, but maybe I missed it. Inflation is a risk if you invest in low interest rate products.

"Matches my savings goals for retirement" is good enough for me to assume they have met their goals and no longer need to take risk. Some people like to maximize returns even after they have reached their savings targets, and that's fine, there are alternate strategies such as LMP that one may follow in such cases for the risk free part and then take risk with rest for maximizing growth. Inflation risk is addressed by investing in TIPS, Short Term Bonds, and a 20% allocation of stocks. 70% of the portfolio suggested above protects against inflation, 30% in TBM has a low risk to inflation.
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Re: Am I panicking or being prudent?

Post by finite_difference »

In my opinion, panicking.

Moving from 60/40 to 50/50 or 40/60 or even 30/70 would be prudent if it’s a one time move.
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