Why invest conservatively?

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Mr. Potter
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Why invest conservatively?

Post by Mr. Potter »

I have been wrestling with this thought for weeks. I’m 61 yo and planning to retire soon. My pension plus my wife and my SS will be almost 3 times our monthly retirement expenses. I have been a super saver and investor since my early 20’s. Home, cars, kids college, etc all paid. Health Care subsidized by employer (250/month) I’m realizing now I way over did it with the savings. I’m thinking about taking around $500k out of the market and buy super safe investments (HYSA-Treasuries) for anything that comes up in retirement. Everything above that 100% in the TSM and let it rip. This money would basically be intended to pass on to my 4 adult children someday. I only rebalance or adjust my portfolio in early January as per my IPS so I have another month to ponder this move.

The main change would effectively be reduce fixed allocation and replace my bond holdings to ultra safe fixed investments that I might actually spend.

Does this sound ridiculous?
stan1
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Re: Why invest conservatively?

Post by stan1 »

Oak&Elm wrote: Wed Nov 23, 2022 3:32 pm I have been wrestling with this thought for weeks. I’m 61 yo and planning to retire soon. My pension plus my wife and my SS will be almost 3 times our monthly retirement expenses. I have been a super saver and investor since my early 20’s. Home, cars, kids college, etc all paid. Health Care subsidized by employer (250/month) I’m realizing now I way over did it with the savings. I’m thinking about taking around $500k out of the market and buy super safe investments (HYSA-Treasuries) for anything that comes up in retirement. Everything above that 100% in the TSM and let it rip. This money would basically be intended to pass on to my 4 adult children someday. I only rebalance or adjust my portfolio in early January as per my IPS so I have another month to ponder this move.

The main change would effectively be reduce fixed allocation and replace my bond holdings to ultra safe fixed investments that I might actually spend.

Does this sound ridiculous?
You are very fortunate to have a pension and SS that is 3x your annual expenses.

Make sure you've considered what happens if you pass before your wife and how that might impact her income.

Also how long term care will be paid for, if needed.

Otherwise, yes it sounds like you are investing for your heirs not yourselves. I'd also consider gifting money to your 4 children, in equal amounts, so they have the benefit of it now not just after you are gone.

You could spend the next month rewriting your IPS if you feel that matters. Otherwise, no reason to be a slave to it and if you have capital losses in your taxable accounts right now you should seize the opportunity now to make the asset allocation change you are thinking about. Also, you could choose to make the move more gradually over time if you wanted to.
dagsboro
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Re: Why invest conservatively?

Post by dagsboro »

You sound a bit like Charles Ellis who explains his investing philosophy on Wealthtrack and says he is staying invested for his grandchildren.
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Mr. Potter
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Re: Why invest conservatively?

Post by Mr. Potter »

Thanks stan1,
The numbers reflect me taking my reduced pension with the 100% spouse benefits. True, if I die early that eliminates one of the SS payments. I do not have long term care insurance, might look into it.
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Re: Why invest conservatively?

Post by Mr. Potter »

Well to be honest I feel a bit foolish, many on this forum probably have way too much saved for retirement, maybe spending / enjoying more when you’re younger is the way to go. For example, I have never purchased a new vehicle for myself, always looking for a bargain.
stan1
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Re: Why invest conservatively?

Post by stan1 »

Oak&Elm wrote: Wed Nov 23, 2022 3:44 pm Thanks stan1,
The numbers reflect me taking my reduced pension with the 100% spouse benefits. True, if I die early that eliminates one of the SS payments. I do not have long term care insurance, might look into it.
I can guarantee you won't like the cost of LTCI. If you have let's say over $1M you can self insure for both you and your wife. Remember your pension and SS income will help pay for any long term care needs so you just need to cover what's left. A house can also be sold to pay for LTCI. I think the case where LTCI makes the most sense is for people like you who have a lot of pension income to be able to afford the premiums but do not have substantial investments.

Also, people who have your level of pension income might be interested in a CCRC community since you can afford the monthly fees. You might want to think closely about that especially as you get into your 70s and early 80s and might have less desire to live by yourselves in a single family home.
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Mr. Potter
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Re: Why invest conservatively?

Post by Mr. Potter »

Thanks stan1,
I actually do have a decent pile as well in investments. My parents both had LTCI and it never paid a dime. When you look at the requirements before making any payment I can see why. I think I’ll roll the dice and self insure .
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Re: Why invest conservatively?

Post by retiredjg »

Oak&Elm wrote: Wed Nov 23, 2022 3:32 pm Does this sound ridiculous?
No. This idea is not ridiculous, but it will not work for everybody.

If you set this up, do you think (backed by experience) or know that you will be totally unemotional about what happens to the 100% stock portfolio? Even in a 50% drop?

If yes, the idea is fine. If not, the idea is not fine and you should dial back. If you don't know, maybe start out at something more conservative and move up as you become more comfortable.

You have saved more than you need, but this should not be a burden or area of concern for you. Do not let "more money than we need" become a source of worry, apprehension, or argument. Invest in a way that you will be happy and totally comfortable with what you have, even it if is not 100% stock.
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Re: Why invest conservatively?

Post by Mr. Potter »

If you set this up, do you think (backed by experience) or know that you will be totally unemotional about what happens to the 100% stock portfolio? Even in a 50% drop?
It’s actually not a radical change, from where I am right now. This would shift about an additional 10% from bonds to stocks. If I can count on my fixed (CD’s, treasuries, Ibonds) all going up in value I’m ok with holding less fixed. Seeing bonds drop along with equities was an eye opener. Like many here have said,take your risk on the equity side.
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Re: Why invest conservatively?

Post by Marseille07 »

Oak&Elm wrote: Wed Nov 23, 2022 3:32 pm I have been wrestling with this thought for weeks. I’m 61 yo and planning to retire soon. My pension plus my wife and my SS will be almost 3 times our monthly retirement expenses. I have been a super saver and investor since my early 20’s. Home, cars, kids college, etc all paid. Health Care subsidized by employer (250/month) I’m realizing now I way over did it with the savings. I’m thinking about taking around $500k out of the market and buy super safe investments (HYSA-Treasuries) for anything that comes up in retirement. Everything above that 100% in the TSM and let it rip. This money would basically be intended to pass on to my 4 adult children someday. I only rebalance or adjust my portfolio in early January as per my IPS so I have another month to ponder this move.

The main change would effectively be reduce fixed allocation and replace my bond holdings to ultra safe fixed investments that I might actually spend.

Does this sound ridiculous?
It's not ridiculous, but I recommend tracking on a percentage basis rather than a fixed amount like $500K. This way, your safe investments amount automatically adjusts as your portfolio grows or shrinks.
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Re: Why invest conservatively?

Post by KlangFool »

Oak&Elm wrote: Wed Nov 23, 2022 3:32 pm I have been wrestling with this thought for weeks. I’m 61 yo and planning to retire soon. My pension plus my wife and my SS will be almost 3 times our monthly retirement expenses. I have been a super saver and investor since my early 20’s. Home, cars, kids college, etc all paid. Health Care subsidized by employer (250/month) I’m realizing now I way over did it with the savings. I’m thinking about taking around $500k out of the market and buy super safe investments (HYSA-Treasuries) for anything that comes up in retirement. Everything above that 100% in the TSM and let it rip. This money would basically be intended to pass on to my 4 adult children someday. I only rebalance or adjust my portfolio in early January as per my IPS so I have another month to ponder this move.

The main change would effectively be reduce fixed allocation and replace my bond holdings to ultra safe fixed investments that I might actually spend.

Does this sound ridiculous?
Oak&Elm,

1) What is your total portfolio size?

2) If you do not care that the 100% TSM drop 50% to 80% right before your kids inherit the money, go right ahead.

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Re: Why invest conservatively?

Post by Wiggums »

We felt differently about our portfolio after we retired so we reduced our AA a few years into early retirement. We started with 3 years of cash for Roth conversions, new roof, fence, HVAC, auto, vacation and for retirement unknowns. Most of the big ticket items are now behind is. We did not sell low during the downturn which was good considering stocks and bonds were low.

If you feel like you “over saved”, there is no need to commit everything to equities. You can open a DAF, gift to children, grandchildren, etc. Creating a bigger portfolio in my own name would not be on the top of my list.
Last edited by Wiggums on Wed Nov 23, 2022 7:18 pm, edited 3 times in total.
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Re: Why invest conservatively?

Post by KlangFool »

Oak&Elm wrote: Wed Nov 23, 2022 3:48 pm Well to be honest I feel a bit foolish, many on this forum probably have way too much saved for retirement, maybe spending / enjoying more when you’re younger is the way to go. For example, I have never purchased a new vehicle for myself, always looking for a bargain.
Oak&Elm,

I disagreed.

1) I save 1 year of expense every year.

2) I only buy new car for the last 10+ years.

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Re: Why invest conservatively?

Post by carminered2019 »

OP, your plan sounds really good. I am a retiree at 54, I don't need to withdrawal from my portfolio, I keep 10x in safe assets(not bonds) and the rest in stocks for my daughter and grand kids one day.
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Re: Why invest conservatively?

Post by retiredjg »

Oak&Elm wrote: Wed Nov 23, 2022 6:42 pm
If you set this up, do you think (backed by experience) or know that you will be totally unemotional about what happens to the 100% stock portfolio? Even in a 50% drop?
It’s actually not a radical change, from where I am right now. This would shift about an additional 10% from bonds to stocks. If I can count on my fixed (CD’s, treasuries, Ibonds) all going up in value I’m ok with holding less fixed. Seeing bonds drop along with equities was an eye opener. Like many here have said,take your risk on the equity side.
At this point, you don't know how you will feel about your money once you are retired. And once you are older. Things and viewpoints do change, especially with age and or with issues (often medical) that you have little experience with so far.

My suggestion is to start at something more conservative when you retire and let things unfold as they will. Then make changes as you learn more.

It will hurt no one if you start conservative and move to 100% stocks with time. But starting at 100% stocks, only to find out it is not what you expected or that you feel differently from what you expected...could be harmful.

There is no reason to take unneeded risk. Your entire investment future does not have to be decided now. You don't need to wrestle with this now because you have plenty of time to make changes as you gain more experience with retirement.
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Re: Why invest conservatively?

Post by smitcat »

Oak&Elm wrote: Wed Nov 23, 2022 3:32 pm I have been wrestling with this thought for weeks. I’m 61 yo and planning to retire soon. My pension plus my wife and my SS will be almost 3 times our monthly retirement expenses. I have been a super saver and investor since my early 20’s. Home, cars, kids college, etc all paid. Health Care subsidized by employer (250/month) I’m realizing now I way over did it with the savings. I’m thinking about taking around $500k out of the market and buy super safe investments (HYSA-Treasuries) for anything that comes up in retirement. Everything above that 100% in the TSM and let it rip. This money would basically be intended to pass on to my 4 adult children someday. I only rebalance or adjust my portfolio in early January as per my IPS so I have another month to ponder this move.

The main change would effectively be reduce fixed allocation and replace my bond holdings to ultra safe fixed investments that I might actually spend.

Does this sound ridiculous?

Sounds similar but not the same as what we are doing now. A few more thoughts for your pondering...
- consider giving some of these funds to your children now over a period of time
- consider the types of funds and their relative value to your kids (taxes)
- consider where to hold the equities (TSM) before you pass them along to get the best results (step up/ Roth/ pretax)
- consider the issues of inheritance when one spouse passes and step ups dependent upon your state (community property or not)
Normchad
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Re: Why invest conservatively?

Post by Normchad »

Well, in your situation it honestly doesn’t make any difference what you do. 100% stocks would be fine. Setting your portfolio on fire would also be fine.

In terms of “need, ability, and willingness” to take risk, you certainly have the ability to do it. You also express a willingness to do it (although you are walling off 500K). You don’t have the “need” though. If you were a 60/40 investor, your heirs wouldn’t complain. On the other hand, what you say does make perfect sense.

How big is the rest of your portfolio. If it’s 2M plus the 500K, then you’re really looking at an 80/20 portfolio, which is perfectly reasonable in your situation too.

Congratulations on how well you’ve done, and how well you’ve prepared for retirement. Kudos to you.
Last edited by Normchad on Wed Nov 23, 2022 8:13 pm, edited 1 time in total.
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Re: Why invest conservatively?

Post by nisiprius »

Some people have increasing relative risk aversion. As their wealth increases, they say "Why keep playing after you've won the game?" They become more conservative.

Some people have decreasing relative risk aversion. As their wealth increases, they say "Now I have enough to be OK whatever happens, I can afford to take risks." They become more aggressive.

Know thyself. Figure out which category you are in, stick to your guns, and don't apologize to anyone.

There is no objective right or wrong here.

(But do coordinate with your wife!)
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Re: Why invest conservatively?

Post by Archie Bunker »

Oak&Elm wrote: Wed Nov 23, 2022 3:48 pm Well to be honest I feel a bit foolish, many on this forum probably have way too much saved for retirement, maybe spending / enjoying more when you’re younger is the way to go. For example, I have never purchased a new vehicle for myself, always looking for a bargain.
If anyone has found the perfect balance....they havent told us!

I follow your rationale though.....weve gotta live today as its all weve got....but assume tomorrow will be here as well.

Ive actually just joined the board and have learned a TON from the great folks here, but I have also learned that thinking about this stuff too much lowers my quality of life🤪. All the more reason to put things on cruise control as so
many folks here suggest.
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Re: Why invest conservatively?

Post by HeelaMonster »

Oak&Elm wrote: Wed Nov 23, 2022 3:48 pm Well to be honest I feel a bit foolish, many on this forum probably have way too much saved for retirement, maybe spending / enjoying more when you’re younger is the way to go. For example, I have never purchased a new vehicle for myself, always looking for a bargain.
Well, unless you really deprived yourself and family (or perhaps even if you did...), I hope you can enjoy the position you're in now and the freedom it gives you heading into retirement. I'm in a very similar position, but feeling grateful to be there, and not a bit foolish.

FYI, I just raised some of the same question(s) about investing conservatively, and am finding the responses to be helpful in thinking through pros & cons: viewtopic.php?t=390956
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Nate79
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Re: Why invest conservatively?

Post by Nate79 »

Spend more, enjoy life, have fun and maybe gift some now to your kids.
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Re: Why invest conservatively?

Post by 1moreyr »

Oak&Elm wrote: Wed Nov 23, 2022 3:48 pm Well to be honest I feel a bit foolish, many on this forum probably have way too much saved for retirement, maybe spending / enjoying more when you’re younger is the way to go. For example, I have never purchased a new vehicle for myself, always looking for a bargain.
Maybe you should buy a new car? live a little. I am retired and always wanted a Jeep but considerred them too expensive, not as reliable as others etc..... Now my wife and I both have one. Or do something with your money you never thought you would.

Do you gift to your children regularly? I retired and gave my kids $10K each the first year. It's nice to do while you are alive to enjoy doing it. (my kids have been on their own for a while and I am careful to not become a source of regular income). You don't have to wait until you're dead for them and their children to enjoy it.

Why get conservative in retirement? Since I retired, I have realized that all the money I have ..... is well.............all the money I have. I have a small pension and when SS kicks in it will cover expenses. Not as good as you, but still isn't enough to get me to forget I am in the decumulation years.

I also found the book "Die with Zero" an interesting read. Granted as a rich investment banker (or whatever he is) his situation is different but the ideas still had some great takeaways for perspective.
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Re: Why invest conservatively?

Post by Mr. Potter »

How big is the rest of your portfolio. If it’s 2M plus the 500K, then you’re really looking at an 80/20 portfolio, which is perfectly reasonable in your situation too.
Normchad,
You must be looking at my accounts, this is pretty close with the current market drop. For the record right before my dad passed 10 years ago he gifted each of my 4 kids $12k which was the max limit at the time. Let’s just say it was not well spent. We do pass out substantial bucks each Christmas to help our kids but not enough to enable them. We want them to be self sufficient, it’s somewhat complicated.
Maybe I’ll just kinda split the difference and move to 75/25 allocation and keep that 25% super safe.

Anyhow, thanks to everyone for their wisdom, I love that a guy can think out loud on this forum before actually making a move.
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Re: Why invest conservatively?

Post by Outer Marker »

Oak&Elm wrote: Wed Nov 23, 2022 3:48 pm Well to be honest I feel a bit foolish, many on this forum probably have way too much saved for retirement, maybe spending / enjoying more when you’re younger is the way to go. For example, I have never purchased a new vehicle for myself, always looking for a bargain.
At 61 you still have a lot of runway ahead of you! It's fine to loosen the purse strings and live it up a bit now that you've met your goals. Go buy the new car and take a great trip. But no need to go into "revenge spending" mode for things you didn't do along the way. Who cares if you didn't buy a Porche in your 30's. I've realized in my mid 50's I'm likely to be okay no matter what and focus as much on current enjoyment as saving. I still max out my 401K, Roth, etc. but basically spend the rest of my disposable income. You could easily blow through $2M without much effort, but it probably won't bring you much more enjoyment than loosening the purse strings a bit and enjoying the new car and a few splurges here and there. A second home might be nice and creates a durable asset you can enjoy without destroying wealth.
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Re: Why invest conservatively?

Post by Marseille07 »

Oak&Elm wrote: Thu Nov 24, 2022 6:32 am Maybe I’ll just kinda split the difference and move to 75/25 allocation and keep that 25% super safe.
That's...what I suggested above when I mentioned to convert the 500K into a percentage AA and maintain that. It's a good approach.
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Re: Why invest conservatively?

Post by mrspock »

Average stay in long term care is a few years (3.7 years for women 2.2 for men), cost is maybe 90-200k/yr (Nebraska vs SF bay). If OP has millions or lives in a LCOL area with maybe a million or so. Why on earth would they buy insurance for this?

Doesn’t make any sense. Insurance is to buffet against events which would devastate you financially. This doesn’t come close to that bar, even more so since you aren’t around at the end of this stage of life.

Numerous podcasts cover this topic in depth.
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Re: Why invest conservatively?

Post by MtnTravel »

Nate79 wrote: Wed Nov 23, 2022 10:36 pm Spend more, enjoy life, have fun and maybe gift some now to your kids.
Agree with this 1000%. If there are any trips you've wanted to take, or places you wanted to go, do it now while you are still healthy and able!

Maybe even consider taking the kids/grandkids along too. These experiences will be remembered much longer than anything else.
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Re: Why invest conservatively?

Post by Elle_N »

Regarding assets you have sort of earmarked to leave to your children:
If things are this rosy financially, I would be looking at setting up a revocable trust, so as to bypass probate. Consider naming grandchildren as the ultimate beneficiaries (with them having to be at least 35 years old before they see a cent?). Also I would keep an eye on the estate tax limit (currently, $12.06 million). The latter motivates some to spend more or maybe give more away.
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Re: Why invest conservatively?

Post by HomerJ »

Oak&Elm wrote: Wed Nov 23, 2022 3:32 pm I have been wrestling with this thought for weeks. I’m 61 yo and planning to retire soon. My pension plus my wife and my SS will be almost 3 times our monthly retirement expenses. I have been a super saver and investor since my early 20’s. Home, cars, kids college, etc all paid. Health Care subsidized by employer (250/month) I’m realizing now I way over did it with the savings. I’m thinking about taking around $500k out of the market and buy super safe investments (HYSA-Treasuries) for anything that comes up in retirement. Everything above that 100% in the TSM and let it rip. This money would basically be intended to pass on to my 4 adult children someday. I only rebalance or adjust my portfolio in early January as per my IPS so I have another month to ponder this move.

The main change would effectively be reduce fixed allocation and replace my bond holdings to ultra safe fixed investments that I might actually spend.

Does this sound ridiculous?
If your pension and your SS is THREE times your expenses, then you can do whatever you want with your savings.
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Re: Why invest conservatively?

Post by HomerJ »

MtnTravel wrote: Thu Nov 24, 2022 2:50 pm
Nate79 wrote: Wed Nov 23, 2022 10:36 pm Spend more, enjoy life, have fun and maybe gift some now to your kids.
Agree with this 1000%. If there are any trips you've wanted to take, or places you wanted to go, do it now while you are still healthy and able!

Maybe even consider taking the kids/grandkids along too. These experiences will be remembered much longer than anything else.
Good advice.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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