I'm thinking about cashing completely out of equites....

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harrington
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I'm thinking about cashing completely out of equites....

Post by harrington » Fri Oct 06, 2017 12:59 pm

I'm 56 years old and I have all the money I will ever need based on my lifestyle (boring). With the market overdue for a correction does it ever make sense to completely liqudate ones exposure to risk. I'm currently at a 50/50 mix. Thoughts?

Yankuba
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Re: I'm thinking about cashing completely out of equites....

Post by Yankuba » Fri Oct 06, 2017 1:04 pm

You can change your allocation but I would do it gradually and not all at once. I increase my bonds by 1.25% a year - manually.

You may live another 40 years and there may be really cool things to buy in the future (robots!). What seems like a lot of money today might not be a lot of money in 20 years.

alex_686
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Re: I'm thinking about cashing completely out of equites....

Post by alex_686 » Fri Oct 06, 2017 1:06 pm

The market is not overdue for a correction. Past performance does not any predictive value on when a correction is going to happen. So strike this. It is market timing, short and simple, and market timing is bad on such slim evidence is bad.

The fact that you have more then enough to retire may be a valid point. This move is extremely risk adverse. You may be forgoing a huge amount of money from the riskier stock market. You are picking up a huge risk exposure to inflation. Are you comfortable with that? If so go ahead and pull the trigger.

Personally, given the inflation risk I would keep some amount in equities. Maybe only 30% but something.

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Kenkat
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Re: I'm thinking about cashing completely out of equites....

Post by Kenkat » Fri Oct 06, 2017 1:11 pm

There is a school of thought that says you should invest all the money you need to live into something very safe and then with the rest, allocate it to a relatively high equity exposure as you are not really investing for yourself but your future heirs who are presumably younger than you and will benefit from higher equity exposure long term.

Studies have repeatedly shown that allocation changes made in reaction to feelings, gut instinct, valuation metrics, etc. typically don’t increase returns.

aristotelian
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Re: I'm thinking about cashing completely out of equites....

Post by aristotelian » Fri Oct 06, 2017 1:17 pm

Do you have an Investment Policy Statement that addresses what happens when you reach a particular age or threshold? You don't want to cash out in a market timing move and then miss out on gains, come back in at the wrong time, etc. Certainly moving a more conservative allocation can be justified based on age and reduced need to take risk.

My only concern would be whether going to cash or bonds might put you at risk of inflation. It might be good to keep some amount in equities just for diversification. 30/70 is often mentioned as a safe portfolio for a conservative investor. Also be aware of any possible tax consequences of a big move to liquidate stocks.
Last edited by aristotelian on Fri Oct 06, 2017 1:18 pm, edited 1 time in total.

Sidney
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Re: I'm thinking about cashing completely out of equites....

Post by Sidney » Fri Oct 06, 2017 1:17 pm

It would help to know what you mean specifically by "all the money I will ever need." Not the actual number but maybe expressed as a multiple of your expenses. Do you have 50 times your annual expenses -- 100 times .....

Certainly at some point one could cash out of equity and stick it all in Treasury notes and call it a day.
I always wanted to be a procrastinator.

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Re: I'm thinking about cashing completely out of equites....

Post by Grt2bOutdoors » Fri Oct 06, 2017 1:21 pm

When you have won the game, stop playing.
If you have most of it but not all of it - say 70-75% of it, then keeping 25-30% may be beneficial. Benjamin Graham - the most in equities is 75%, the least is 25% so you can keep up with inflation.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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BogleMelon
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Re: I'm thinking about cashing completely out of equites....

Post by BogleMelon » Fri Oct 06, 2017 1:23 pm

If you think that the market is overdue, then experts too would know that. If experts and the public know that, everyone would be selling and liquidating by now, and if that is happening, then the market wouldn't be at its historical highs because of the low demand!
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

open_circuit
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Re: I'm thinking about cashing completely out of equites....

Post by open_circuit » Fri Oct 06, 2017 1:24 pm

I just read an article describing this situation, this morning. You may find the article interesting, if you wish to reduce or eliminate equity exposure entirely.

http://jlcollinsnh.com/2017/09/09/sleep ... ent-model/

John Laurens
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Re: I'm thinking about cashing completely out of equites....

Post by John Laurens » Fri Oct 06, 2017 1:26 pm

Are you correct that the market is “overdue a correction”? If so, you should sell all equities and take a short position in equities with your cash. I realize I could be wrong about anything so I just maintain my AA according to my IPS.

Regards,
John

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Toons
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Re: I'm thinking about cashing completely out of equites....

Post by Toons » Fri Oct 06, 2017 1:28 pm

50/50?
If it were me I would set it and forget it ,
For Life :happy
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lack_ey
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Re: I'm thinking about cashing completely out of equites....

Post by lack_ey » Fri Oct 06, 2017 1:28 pm

I won't say never, but now wouldn't be the time.

Though really, you can never get rid of some kind of risk exposure. And 0% stocks is not what the least risky allocation would look like generally, especially with longer timeframes.

That said, irrespective of valuations and what you think might happen, some derisking and shifting to a more defensive allocation (for the long term) might make sense for your purposes.

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Pajamas
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Re: I'm thinking about cashing completely out of equites....

Post by Pajamas » Fri Oct 06, 2017 1:33 pm

If you have no need or desire to take on risk, then why take it?

Just be aware of all the risks. Over time, inflation is a significant risk.

PFInterest
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Re: I'm thinking about cashing completely out of equites....

Post by PFInterest » Fri Oct 06, 2017 1:39 pm

Good luck. Just realize it might not work out.

jebmke
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Re: I'm thinking about cashing completely out of equites....

Post by jebmke » Fri Oct 06, 2017 1:42 pm

PFInterest wrote:
Fri Oct 06, 2017 1:39 pm
Good luck. Just realize it might not work out.
That's true of any portfolio.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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parsi1
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Re: I'm thinking about cashing completely out of equites....

Post by parsi1 » Fri Oct 06, 2017 1:49 pm

Yankuba wrote:
Fri Oct 06, 2017 1:04 pm
You can change your allocation but I would do it gradually and not all at once. I increase my bonds by 1.25% a year - manually.

You may live another 40 years and there may be really cool things to buy in the future (robots!). What seems like a lot of money today might not be a lot of money in 20 years.
why not use a target retirement fund?

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galeno
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Re: I'm thinking about cashing completely out of equites....

Post by galeno » Fri Oct 06, 2017 1:53 pm

If you are worried that stocks values are too high why don't you go to a conservative posture of 55/45 (your age in FI)? Then when the bottom falls out of the stock market you can buy additional stocks.

And if these expensive equities keep climbing "the wall of worry" you'll participate in the upside.

Right now we're sitting at our conservative posture of 40/60. Our plan is to increase our equity AA by 5% for every 15% drop in stocks. These means if stocks drop by 60% our AA will be 60/40.

Then every time stocks increase by 30% we will reduce our equity allocation by 5%.

Good idea or bad idea?
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 2.8%. TER = 0.5%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

jimmyrules712
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Re: I'm thinking about cashing completely out of equites....

Post by jimmyrules712 » Fri Oct 06, 2017 1:54 pm

If you have what you need to retire then irregardless of what the market is doing I think it makes sense to decrease your stock allocation. Maybe go more to something like 75% bonds/cash and 25% stocks?

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nedsaid
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Re: I'm thinking about cashing completely out of equites....

Post by nedsaid » Fri Oct 06, 2017 2:01 pm

harrington wrote:
Fri Oct 06, 2017 12:59 pm
I'm 56 years old and I have all the money I will ever need based on my lifestyle (boring). With the market overdue for a correction does it ever make sense to completely liqudate ones exposure to risk. I'm currently at a 50/50 mix. Thoughts?
When do you plan to retire? Will you have pension income? When do you plan to take
Social Security?

The bare minimum of stocks you want in a portfolio is 20%. A 20% stocks/80% bonds portfolio is actually less risky than a 100% bond portfolio. If you are pretty much done with working, probably a 30% stocks/70% bonds portfolio would fit the bill. Actually 50/50 is good for many retirees, pretty much if you will have pension income, you can be more aggressive.

But you haven't told us much, so it is hard to give advice.

The other thing to keep in mind is we don't know whether or not the stock market is overdue for a correction. It would seem so to me, but I just don't know.
A fool and his money are good for business.

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David Jay
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Re: I'm thinking about cashing completely out of equites....

Post by David Jay » Fri Oct 06, 2017 2:01 pm

Rick Ferri has called 30/70 (stocks/bonds) the "sweet spot" for retirees, with enough stock exposure to keep ahead of inflation while being relatively well insulated from market movements.

But I agree with others, no sudden moves. My personal IPS says I will not change my asset allocation by more than 5% a year. For the exact reason that I do not want to be making big moves based on perceived market conditions.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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galeno
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Re: I'm thinking about cashing completely out of equites....

Post by galeno » Fri Oct 06, 2017 2:17 pm

I love the Rick Ferri AA for retirees.

Currently we have 40% all world equity + 20% corp bonds + 20% US treasuries + 15% TIPS + 5% CASH. Both wife and I are 60 years old.

Our plan is to reduce equity over the next 10 years so when we're 70 our port will look the same except when we are at 30% equities we will have 10% of port in short term junk bonds.

So: 30% all world equity + 20% corp bonds + 20% US treasuries + 15% TIPS + 10% junk bonds + 5% CASH.

Then as we age from 70 we will slowly INCREASE our equity allocation until we die.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 2.8%. TER = 0.5%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

sjwoo
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Re: I'm thinking about cashing completely out of equites....

Post by sjwoo » Fri Oct 06, 2017 2:21 pm

If I had $5 million, and all I needed on a yearly basis was $50K, and had no heirs to think about, then I wouldn't be in the stock market at all. What would be the point? Put it into a high-yield savings account and be happy. Unless, of course, yields fall less than 1%...

I guess we gotta account for inflation. So find a 1.1% yield account and save that .1%! :)

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czeckers
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Re: I'm thinking about cashing completely out of equites....

Post by czeckers » Fri Oct 06, 2017 2:26 pm

If you look at returns of portfolios of varying percentages of stocks/bonds. Adding even a little bit of stock to an all bond portfolio reduces risk and improves returns. As a rule of thumb, ~20% stocks should be the bottom limit for stock allocation. Remember that bonds can lost money for a long time in a slowly rising interest rate environment. With the Fed dialing back it's portfolio, there is a possibility that bonds can face this scenario going forward.

No one can predict the future, but diversification is a good bet. I would strongly recommend keeping at least some stocks for diversification.
The Espresso portfolio: | | 16% LCV, 16% SCV, 16% EM, 8% Int'l Value, 8% Int'l Sm, 8% US REIT, 8% Int'l REIT, 20% Inter-term US Treas | | "A journey of a thousand miles begins with a single step."

snarlyjack
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Re: I'm thinking about cashing completely out of equites....

Post by snarlyjack » Fri Oct 06, 2017 2:27 pm

Hello Harrington,

Age 56 - Age 100 = 44 more years to go.
I think a 50/50 stock/bond mix is perfect.
If you sell out you will have a tax consequence.
I would hang tough for yourself, estate, children, gifting, etc.
Just don't pay any attention to it & go have a good time.
Whatever happens, happens...

harrington
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Re: I'm thinking about cashing completely out of equites....

Post by harrington » Fri Oct 06, 2017 2:36 pm

open_circuit wrote:
Fri Oct 06, 2017 1:24 pm
I just read an article describing this situation, this morning. You may find the article interesting, if you wish to reduce or eliminate equity exposure entirely.

http://jlcollinsnh.com/2017/09/09/sleep ... ent-model/
great read...

harrington
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Re: I'm thinking about cashing completely out of equites....

Post by harrington » Fri Oct 06, 2017 2:52 pm

nedsaid wrote:
Fri Oct 06, 2017 2:01 pm
harrington wrote:
Fri Oct 06, 2017 12:59 pm
I'm 56 years old and I have all the money I will ever need based on my lifestyle (boring). With the market overdue for a correction does it ever make sense to completely liqudate ones exposure to risk. I'm currently at a 50/50 mix. Thoughts?
When do you plan to retire? Will you have pension income? When do you plan to take
Social Security?


The bare minimum of stocks you want in a portfolio is 20%. A 20% stocks/80% bonds portfolio is actually less risky than a 100% bond portfolio. If you are pretty much done with working, probably a 30% stocks/70% bonds portfolio would fit the bill. Actually 50/50 is good for many retirees, pretty much if you will have pension income, you can be more aggressive.

But you haven't told us much, so it is hard to give advice.

The other thing to keep in mind is we don't know whether or not the stock market is overdue for a correction. It would seem so to me, but I just don't know.
Sorry I left that out......I already retired at 49. I'm currently living on about $1200 a month from a pension.

harrington
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Re: I'm thinking about cashing completely out of equites....

Post by harrington » Fri Oct 06, 2017 2:56 pm

snarlyjack wrote:
Fri Oct 06, 2017 2:27 pm
Hello Harrington,

Age 56 - Age 100 = 44 more years to go.
I think a 50/50 stock/bond mix is perfect.
If you sell out you will have a tax consequence.
I would hang tough for yourself, estate, children, gifting, etc.
Just don't pay any attention to it & go have a good time.
Whatever happens, happens...
:sharebeer

Dottie57
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Re: I'm thinking about cashing completely out of equites....

Post by Dottie57 » Fri Oct 06, 2017 2:59 pm

harrington wrote:
Fri Oct 06, 2017 12:59 pm
I'm 56 years old and I have all the money I will ever need based on my lifestyle (boring). With the market overdue for a correction does it ever make sense to completely liqudate ones exposure to risk. I'm currently at a 50/50 mix. Thoughts?
Don't cash out entirely. Keep 10 years of expenses in cash or near cash. Then how about a 50/50 allocation?

MotoTrojan
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Re: I'm thinking about cashing completely out of equites....

Post by MotoTrojan » Fri Oct 06, 2017 3:06 pm

galeno wrote:
Fri Oct 06, 2017 1:53 pm
If you are worried that stocks values are too high why don't you go to a conservative posture of 55/45 (your age in FI)? Then when the bottom falls out of the stock market you can buy additional stocks.

And if these expensive equities keep climbing "the wall of worry" you'll participate in the upside.

Right now we're sitting at our conservative posture of 40/60. Our plan is to increase our equity AA by 5% for every 15% drop in stocks. These means if stocks drop by 60% our AA will be 60/40.

Then every time stocks increase by 30% we will reduce our equity allocation by 5%.

Good idea or bad idea?
I disagree entirely with this, but if you were going to do something like this, 30% increases and 15% decreases from today's arbitrary value is a poor implementation. Using a metric such as Cape-Shiller PE10 would make more sense, so you'd at-least be adjusting relative to historical precedence, and most importantly, earnings.

For example, stocks could go up 30%, but earnings could go up 53% (a 15% reduction in P/E). In that instance, do you increase or decrease your AA by 5%?

Also a less extreme version of this could be a fixed equity %, but shifting assets between parts of the world, or asset classes (small vs. large, value vs. growth), towards the "cheaper" ones.

WhiteMaxima
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Re: I'm thinking about cashing completely out of equites....

Post by WhiteMaxima » Fri Oct 06, 2017 3:15 pm

I moved 50% into cash. Would forgo 10% potential gain instead of 20~ 30 % potential loss. Once the music stops, everyone rush out. You know ETFs, index fund, at panic, all will be dumped. I am now sitting down and worry free. I still have 50% there, so if market continous, I will still get 50% of the return. If market crushes, I might get at certain point. I don't see recession in the near term, But I do see a potential sell off anytime soon.

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Taylor Larimore
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Re: I'm thinking about cashing completely out of equites....

Post by Taylor Larimore » Fri Oct 06, 2017 4:00 pm

harrington wrote:
Fri Oct 06, 2017 12:59 pm
I'm 56 years old and I have all the money I will ever need based on my lifestyle (boring). With the market overdue for a correction does it ever make sense to completely liqudate ones exposure to risk. I'm currently at a 50/50 mix. Thoughts?
harrington:

During the next bad bear market you can expect your portfolio to decline about 25% (1/2 your stock allocation). Can you handle this (not knowing how much lower it might go) without selling? If so, I'd probably stick with your 50% stock/50% bond mix.

My own solution is to put whatever I cannot afford to lose in Vanguard Total Bond Market whose worst annual decline was -2.66% The rest of my portfolio is in a broad-market stock index fund. This portfolio lets me sleep like a baby.

Best wishes
Taylor
Last edited by Taylor Larimore on Sat Oct 07, 2017 6:50 am, edited 2 times in total.
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adamthesmythe
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Re: I'm thinking about cashing completely out of equites....

Post by adamthesmythe » Fri Oct 06, 2017 4:31 pm

harrington wrote:
Fri Oct 06, 2017 12:59 pm
I'm 56 years old and I have all the money I will ever need based on my lifestyle (boring). With the market overdue for a correction does it ever make sense to completely liqudate ones exposure to risk. I'm currently at a 50/50 mix. Thoughts?
Thing is, you can liquidate your exposure to market risk but you accentuate your exposure to inflation risk.

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CaliJim
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Re: I'm thinking about cashing completely out of equites....

Post by CaliJim » Fri Oct 06, 2017 5:48 pm

Many good points made by folks who have already replied.
adamthesmythe wrote:
Fri Oct 06, 2017 4:31 pm
Thing is, you can liquidate your exposure to market risk but you accentuate your exposure to inflation risk.
+1 Equities help A LOT with inflation risk over longer periods of time.

A wise investor once said:

* minimum equity allocation = 20%
* (and max = 80%
-calijim- | | For more info, click this

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TheTimeLord
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Re: I'm thinking about cashing completely out of equites....

Post by TheTimeLord » Fri Oct 06, 2017 6:02 pm

BogleMelon wrote:
Fri Oct 06, 2017 1:23 pm
If you think that the market is overdue, then experts too would know that. If experts and the public know that, everyone would be selling and liquidating by now, and if that is happening, then the market wouldn't be at its historical highs because of the low demand!
Just because something is overdue doesn't mean people expect it to happen. Overdue is relative to historical norms, expectations are based on current conditions. I believe it is fair to say that we are overdue for either a Correction or Bear market, but with the current economic data and recent IMF statements I would say neither is currently expected.

https://www.cnbc.com/2015/08/24/8-thing ... rkets.html
Tim Mullaney, Special to CNBC.com
Published 12:58 PM ET Mon, 24 Aug 2015 Updated 1:14 PM ET Mon, 24 Aug 2015

1. What is a bear market?

The usual definition is that a bear market happens when stocks decline at least 20 percent from their peaks. A correction is when stocks fall 10 percent. Since a recent high of 2132.82 on July 20, the Standard & Poor's 500-stock index is now down 10.1 percent—barely a correction, and a long way from a bull market.

2. How often do corrections and bear markets happen?

From 1900 through 2013, there were 123 corrections (about one per year) and 32 bear markets (one every 3.5 years), according to Ned Davis Research.

3. How long do they last?

In the average correction, the market fully recovered its value within an average of 10 months, according to Azzad Asset Management. The average bear market lasts for 15 months, with stocks declining 32 percent. The most recent bear market lasted 17 months, from October 2007 to March 2009, and shaved 54 percent off of the Dow Jones Industrial Average.
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WhyNotUs
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Re: I'm thinking about cashing completely out of equites....

Post by WhyNotUs » Fri Oct 06, 2017 6:19 pm

harrington wrote:
Fri Oct 06, 2017 12:59 pm
I'm 56 years old and I have all the money I will ever need based on my lifestyle (boring). With the market overdue for a correction does it ever make sense to completely liqudate ones exposure to risk. I'm currently at a 50/50 mix. Thoughts?
The math based on history does not support it, but it is your money so you can do as you please. In the past, cd ladder could have offered a decent alternative.

You did not mention what you would do instead of 50/50 so the consequences are unclear. With VTSAX offering a 1.85% yield and VBTLX offering 2.48%, it would not appeal to be but YMMV.

If you just don't want to think about the market, then Taylor offers a very wise approach.
I own the next hot stock- VTSAX

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Re: I'm thinking about cashing completely out of equites....

Post by Levett » Fri Oct 06, 2017 6:23 pm

"to completely liquidate ones exposure to risk"

There are many kinds of "risk," and some can't be simply "liquidated."

Good luck.

Lev

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Re: I'm thinking about cashing completely out of equites....

Post by AlohaJoe » Fri Oct 06, 2017 6:41 pm

harrington wrote:
Fri Oct 06, 2017 12:59 pm
With the market overdue for a correction
There were corrections in 2016 and 2011. Why do you think we're overdue for another one?

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Re: I'm thinking about cashing completely out of equites....

Post by GerryL » Fri Oct 06, 2017 8:39 pm

To paraphrase: I'm >56 years old and I have all the money I will ever need based on my lifestyle (boring).

I have a 60/40 AA. (Actually more like 65/35 when my taxable account is included.) No thought of cashing out. If my net worth continues to rise, that's more money I can give to charity. If the market tanks, it won't affect my lifestyle.

A stock market correction is not the only risk investors face.

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Re: I'm thinking about cashing completely out of equites....

Post by Sandtrap » Fri Oct 06, 2017 10:43 pm

open_circuit wrote:
Fri Oct 06, 2017 1:24 pm
I just read an article describing this situation, this morning. You may find the article interesting, if you wish to reduce or eliminate equity exposure entirely.

http://jlcollinsnh.com/2017/09/09/sleep ... ent-model/
Excellent article.
Thanks
:D
Not a financial expert - just a retired businessman hacking out of a sand trap -- again.

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Re: I'm thinking about cashing completely out of equites....

Post by Call_Me_Op » Sat Oct 07, 2017 6:59 am

harrington wrote:
Fri Oct 06, 2017 12:59 pm
I'm 56 years old and I have all the money I will ever need based on my lifestyle (boring). With the market overdue for a correction does it ever make sense to completely liqudate ones exposure to risk. I'm currently at a 50/50 mix. Thoughts?
I don't think that make sense unless you have at least 100X expenses. If less than that, I would keep 20%-30% in equities.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: I'm thinking about cashing completely out of equites....

Post by Longdog » Sat Oct 07, 2017 7:21 am

Kenkat wrote:
Fri Oct 06, 2017 1:11 pm
Studies have repeatedly shown that allocation changes made in reaction to feelings, gut instinct, valuation metrics, etc. typically don’t increase returns.
I have no doubt that is true, but the OP is not seeking increased returns. He is essentially saying, "I have more than enough for the rest of my life. I don't need any more and am questioning whether I even want to take any more equity risk because it's not going to do anything for me." The risk the OP is taking is inflation risk. Maybe the OP has more than enough even taking into account inflation.
Steve

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TheTimeLord
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Re: I'm thinking about cashing completely out of equites....

Post by TheTimeLord » Sat Oct 07, 2017 7:55 am

Call_Me_Op wrote:
Sat Oct 07, 2017 6:59 am
harrington wrote:
Fri Oct 06, 2017 12:59 pm
I'm 56 years old and I have all the money I will ever need based on my lifestyle (boring). With the market overdue for a correction does it ever make sense to completely liqudate ones exposure to risk. I'm currently at a 50/50 mix. Thoughts?
I don't think that make sense unless you have at least 100X expenses. If less than that, I would keep 20%-30% in equities.
Okay, I get why someone would say 40x or 50x but 100x seems like overkill of overkill for someone in their mid-50s.
Run, You Clever Boy!

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Re: I'm thinking about cashing completely out of equites....

Post by alex_686 » Sat Oct 07, 2017 8:01 am

TheTimeLord wrote:
Sat Oct 07, 2017 7:55 am
Call_Me_Op wrote:
Sat Oct 07, 2017 6:59 am
harrington wrote:
Fri Oct 06, 2017 12:59 pm
I'm 56 years old and I have all the money I will ever need based on my lifestyle (boring). With the market overdue for a correction does it ever make sense to completely liqudate ones exposure to risk. I'm currently at a 50/50 mix. Thoughts?
I don't think that make sense unless you have at least 100X expenses. If less than that, I would keep 20%-30% in equities.
Okay, I get why someone would say 40x or 50x but 100x seems like overkill of overkill for someone in their mid-50s.
To cash out completely one should go 100% tips. The yield there is not great. But of course it depends. We don't know how much the OP has nor his goals. So we are throwing darts blindly. But 100x feels like it is in the ball park.

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TheTimeLord
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Re: I'm thinking about cashing completely out of equites....

Post by TheTimeLord » Sat Oct 07, 2017 8:14 am

Longdog wrote:
Sat Oct 07, 2017 7:21 am
Kenkat wrote:
Fri Oct 06, 2017 1:11 pm
Studies have repeatedly shown that allocation changes made in reaction to feelings, gut instinct, valuation metrics, etc. typically don’t increase returns.
I have no doubt that is true, but the OP is not seeking increased returns. He is essentially saying, "I have more than enough for the rest of my life. I don't need any more and am questioning whether I even want to take any more equity risk because it's not going to do anything for me." The risk the OP is taking is inflation risk. Maybe the OP has more than enough even taking into account inflation.
I agree and the OP is asking the right question. While I don't believe going 0/100 is the answer I would recommend, the instinct to re-evaluate at this point nearing retirement and feeling he has enough is a sound one imho. Personally my recommendation is exotic and over complicated but here is my suggestion.

(1) Take 10 years worth of expenses and set them aside in very safe fixed income investments likely to keep pace with inflation (personally I would avoid having more than 25% in bond funds, prefer CD ladders, I Bonds or individual TIPS matched to specific years). Since I believe the OP is still work this should be enough to either (a) get him/her to SS where expenses funded by their portfolio should drop or (b) ride out even a prolonged market downturn with touching equities or stopping reinvestment of dividends and capital gains.

(2) Then take the remainder of their portfolio and invest it 50/50 in a simple 3 fund model.

(3) Since I believe they are still working I am also going to assume they are still contributing to their savings. I believe they should invest all new contributions at a very aggressive AA somewhere between 70/30 and 100/0 because they don't need the money as I understand it but might need some inflation/longevity protection. This should give them a mildly rising glide path.

(4) Withdrawals should be from equity gains first supplemented if need be from the funds in the 10 year buffer. If there are no gains from equities then the withdrawal comes entirely from the 10 year buffer.

(5) Given the OP's situation it seems unlikely they would ever need to rebalance to manage risk.

I believe this should provide some protection against a near term collapse and sequence of return risk in the first 5 years of retirement while balancing their long term need for equities to protect against inflation and longevity(funny we protect against longevity). Definitely not you standard BH fare and not likely to maximize gains but I think this accomplishes what the OP wants without totally giving up the opportunity for some market returns. Thoughts, comments?
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Spyder59
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Re: I'm thinking about cashing completely out of equites....

Post by Spyder59 » Sat Oct 07, 2017 10:33 am

A voice from the past supporting a very conservative portfolio is Zvi Bodie, an economist at Boston University. He has a Website at zvibodie.com and has written two personal investing books: Risk Less and Prosper and Worry-Free Investing.

Essentially, he asserts that equity investing in much riskier than most people believe, and that increased time in the market actually increasing your portfolio risk. He is a proponent of Treasury I Bonds and TIPS for the money that you need for retirement, and only use equities for money in excess of retirement and other essential needs.

While much criticism could be levied against this approach based upon the extraordinary market returns since 2009, I think he offers an alternative viewpoint that is useful if you are worried about current market levels. In sum, he suggests that you "save" for your retirement and other essential life needs, and "invest" only for money that you could live without if lost. Obviously, depending on your sequence of returns, his approach would often result in requiring a larger nut and/or less spending.

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Re: I'm thinking about cashing completely out of equites....

Post by bberris » Sat Oct 07, 2017 10:41 am

John Laurens wrote:
Fri Oct 06, 2017 1:26 pm
Are you correct that the market is “overdue a correction”? If so, you should sell all equities and take a short position in equities with your cash. I realize I could be wrong about anything so I just maintain my AA according to my IPS.

Regards,
John
That would be increasing his risk. OP wants to remove the risk since he says he has enough.

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whodidntante
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Re: I'm thinking about cashing completely out of equites....

Post by whodidntante » Sat Oct 07, 2017 11:21 am

You didn't supply enough information to have a real discussion about this. Let us know what you decided to do, and how it works out. Good luck.

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TheTimeLord
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Re: I'm thinking about cashing completely out of equites....

Post by TheTimeLord » Sat Oct 07, 2017 11:26 am

open_circuit wrote:
Fri Oct 06, 2017 1:24 pm
I just read an article describing this situation, this morning. You may find the article interesting, if you wish to reduce or eliminate equity exposure entirely.

http://jlcollinsnh.com/2017/09/09/sleep ... ent-model/
He lost me with his example of 2 married 50 year-olds that have a $2 million portfolio and spend a pre-tax $40,000/year. Since I am not a unicorn this example doesn't seem applicable.
John Dough is 50 years old and so is his wife Jane;
their “burn rate” annual household spending averages $40,000 per year; and
their net worth is $2 million.
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Re: I'm thinking about cashing completely out of equites....

Post by oldcomputerguy » Sat Oct 07, 2017 11:30 am

Traditional wisdom is to keep at least 20% in equities to provide growth to stay ahead of inflation. That being said, traditional wisdom also says “if you have won the game, stop playing.” I wouldn’t pull completely out of equities, but if you have what you’ll need to meet expenses, there is no reason to carry excessive risk.
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Re: I'm thinking about cashing completely out of equites....

Post by dumbbunny » Sat Oct 07, 2017 11:35 am

harrington wrote:
Fri Oct 06, 2017 12:59 pm
I'm 56 years old and I have all the money I will ever need based on my lifestyle (boring). With the market overdue for a correction does it ever make sense to completely liqudate ones exposure to risk. I'm currently at a 50/50 mix. Thoughts?
Run a test scenario in cfiresim.com and see what the results are. Good luck.
“It’s the curse of old men to realize that in the end we control nothing." "Homeland" episode, "Gerontion"

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