Investing money that will be needed in 10 years

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north2016
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Investing money that will be needed in 10 years

Post by north2016 »

I am considering 70:30, Total Stock and Total Bond Index funds and then rebalancing annually to gradually increase the bond percentage.

Does this sound reasonable?

Thanks for your opinions.
tenkuky
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Re: Investing money that will be needed in 10 years

Post by tenkuky »

Not enough information.
Taxable account or tax deferred?
Think about what impact the bond index will have re tax drag due to income, not to mention possible cap gains from your selling (unless you are doing tax loss harvesting).
Is your plan to be 100% bond index in 10 years, and if so, what do you mean "needed in 10 years"? Have liquid cash for a predetermined lumpy purpose?
Shouldn't you then be thinking having shorter term T-bills or CDs as you get closer to target date?
As you have seen recently, bonds can lose up to 10% of their value in a single year.
dbr
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Re: Investing money that will be needed in 10 years

Post by dbr »

I would also ask about "needed in ten years." The idea there is that the entire investment will be liquidated at the end of the tenth year and used for something.

If your meaning is that you are going to retire ten years from now and start some withdrawals for spending then the timeline from now is more like 40 years and 30 from the date of retirement, or whatever it is in your situation.

A lot of conversation about "when you need the money" has nothing to do with typical lifelong saving and then spending in retirement.

In point of fact if 70/30 looks good to you now it can well be that 70/30 is good for the duration. Some people like not to have as much volatility in their holdings when they are retired but choices of asset allocation hugely overlap in not yet predicted unknown outcome anyway.

A good graphic of the historic evolution of portfolios according to what year they were started is here: https://engaging-data.com/visualizing-4-rule/

You can play with the stock/bond allocation and with the spending (or enter a negative number for saving) and see what changes.

Unfortunately we don't know now where the traces for years that haven't happened yet are going to go.
dbr
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Re: Investing money that will be needed in 10 years

Post by dbr »

By the way, the best investment for money that really is needed in ten years would probably be a 10 year TIPS, maturing when you want the money. One of the dilemmas in setting a term like that is that the time span to the endpoint gets less and less every year.
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squirrel1963
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Re: Investing money that will be needed in 10 years

Post by squirrel1963 »

Is this money you need to spend in 10 years?
If so, 10 years is what I would call middle earth : too long for bonds but too short for stocks, lots of things can happen (both good and bad).

If you don't want to risk, buy a 10 yr treasury if the intended spending is in nominal dollars, otherwise buy a 10 yr TIPS if the intended spending is in real dollars.

If you are okay taking some risk, 70/30 seems a bit too risky though, personally I would probably pick 50/50, but it all depends on how much risk you are okay with.
| LMP | safe portfolio: TIPS ladder + I-bonds + Treasuries | risky portfolio: US stocks / US REIT / International stocks |
SantaClaraSurfer
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Re: Investing money that will be needed in 10 years

Post by SantaClaraSurfer »

Agreed that there are too many questions left unclear to give appropriate feedback.

For money we absolutely need in the near term (6 mos. to 2 years to 4 years), ex. college for 2 kids, we've been using:

Money Funds like SWKXX or SWVXX for the Ultra Short Term. These are exactly what they sound like, Money Market funds that you purchase in 1$ increments like bonds or a mutual fund.

We also use rolling short term Bond Ladders using Treasury Bills and Treasury Bonds via Schwab's "Build a Ladder" feature.

Both of these approaches feature very low risk to your initial capital (other than inflation.)
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Kevin M
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Re: Investing money that will be needed in 10 years

Post by Kevin M »

Larry Swedroe has a rule of thumb for % in equities vs. investment horizon as part of the ability to take risk consideration. See this article, for example: https://www.moneysense.ca/columns/ready ... take-risk/. His chart shows maximum equity at 70% for 10-year horizon.

Personally, I think this is way too risky for a 10-year investment horizon, so it depends on your willingness and need to take risk, as long as your ability. Investment horizon is only one aspect of ability to take risk; the linked article oversimplifies it.

Note that you would need to reduce your allocation to stocks each year to hold to the guideline, and would be at 0% stocks at 3 years left in the horizon. Sequence of returns could bite you here. If you have large negative returns in the first few years, you could have to sell stocks at a loss to rebalance into fixed income. Or, the losses could be enough to do the rebalancing for you.

As others have said, if you need a zero-risk investment for 10 years, a 10-year Treasury, nominal or TIPS, is a good choice, depending on whether the "need" in 10 years is in nominal dollars or real dollars.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
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whodidntante
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Re: Investing money that will be needed in 10 years

Post by whodidntante »

In my opinion, people overthink this crap. If you want to take risk to potentially earn a higher return, go ahead. A 70/30 allocation could lose a great deal in real terms over 10 years. As can 100/0, or 0/100, or anywhere in between. This is the basic reason why I don't use buckets that I think are reserved for this and that. I just have a portfolio, and it's plenty risky. That is just fine with me.
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Kevin M
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Re: Investing money that will be needed in 10 years

Post by Kevin M »

whodidntante wrote: Fri Aug 05, 2022 7:30 pm In my opinion, people overthink this crap. If you want to take risk to potentially earn a higher return, go ahead. A 70/30 allocation could lose a great deal in real terms over 10 years. As can 100/0, or 0/100, or anywhere in between. This is the basic reason why I don't use buckets that I think are reserved for this and that. I just have a portfolio, and it's plenty risky. That is just fine with me.
You would not lose anything in real terms with 0/100 if the 100% was a 10-year TIPS; you would actually earn a positive real return. The 7/15/2032 TIPS yield today was 0.36% real.
If I make a calculation error, #Cruncher probably will let me know.
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whodidntante
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Re: Investing money that will be needed in 10 years

Post by whodidntante »

Kevin M wrote: Fri Aug 05, 2022 7:34 pm
whodidntante wrote: Fri Aug 05, 2022 7:30 pm In my opinion, people overthink this crap. If you want to take risk to potentially earn a higher return, go ahead. A 70/30 allocation could lose a great deal in real terms over 10 years. As can 100/0, or 0/100, or anywhere in between. This is the basic reason why I don't use buckets that I think are reserved for this and that. I just have a portfolio, and it's plenty risky. That is just fine with me.
You would not lose anything in real terms with 0/100 if the 100% was a 10-year TIPS; you would actually earn a positive real return. The 7/15/2032 TIPS yield today was 0.36% real.
I stand corrected.
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vineviz
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Re: Investing money that will be needed in 10 years

Post by vineviz »

Kevin M wrote: Fri Aug 05, 2022 7:27 pm Personally, I think this is way too risky for a 10-year investment horizon, so it depends on your willingness and need to take risk, as long as your ability. Investment horizon is only one aspect of ability to take risk; the linked article oversimplifies it.
I agree. If the 10 year goal is important and inflexible, 70% equity is overly aggressive IMHO.

Kevin M wrote: Fri Aug 05, 2022 7:27 pm
As others have said, if you need a zero-risk investment for 10 years, a 10-year Treasury, nominal or TIPS, is a good choice, depending on whether the "need" in 10 years is in nominal dollars or real dollars.
Another good possibility is a target maturity fund such as
iShares® iBonds® Dec 2032 Term Corporate ETF (IBDX).
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Laurizas
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Re: Investing money that will be needed in 10 years

Post by Laurizas »

Investing for Short-Term Goals Like A House, Business Enterprise, or College
https://www.mindfullyinvesting.com/inve ... r-college/
iim7V7IM7
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Re: Investing money that will be needed in 10 years

Post by iim7V7IM7 »

That table only reflects one’s ability to take risk, which in many cases is trumped by one’s willingness or need to take risk. Larry articulates the multiple dimensions of investment risk beautifully.
Kevin M wrote: Fri Aug 05, 2022 7:27 pm Larry Swedroe has a rule of thumb for % in equities vs. investment horizon as part of the ability to take risk consideration. See this article, for example: https://www.moneysense.ca/columns/ready ... take-risk/. His chart shows maximum equity at 70% for 10-year horizon.

Personally, I think this is way too risky for a 10-year investment horizon, so it depends on your willingness and need to take risk, as long as your ability. Investment horizon is only one aspect of ability to take risk; the linked article oversimplifies it.

Note that you would need to reduce your allocation to stocks each year to hold to the guideline, and would be at 0% stocks at 3 years left in the horizon. Sequence of returns could bite you here. If you have large negative returns in the first few years, you could have to sell stocks at a loss to rebalance into fixed income. Or, the losses could be enough to do the rebalancing for you.

As others have said, if you need a zero-risk investment for 10 years, a 10-year Treasury, nominal or TIPS, is a good choice, depending on whether the "need" in 10 years is in nominal dollars or real dollars.

Kevin
dbr
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Re: Investing money that will be needed in 10 years

Post by dbr »

I don't think the OP has come back to explain whether all the money is needed for something ten years from now or if ten years is a point where one might retire and start withdrawing from rather than contributing to the portfolio. For others reading there is a big difference between the two as retirement withdrawals are spaced out over a long time. If one wants to get technical about it a kind of definition for the duration of the retirement situation is that the money is "needed" halfway between 10 years from now and maybe 40 years from now, which would be 25 years out. Again on a rough technical basis that would indicate bonds on average at a duration of 25 years, which would be an investment in long bonds.

My actual advice, if someone wanted it, would be to just hold bonds in an intermediate term bond fund for the duration and not worry about it. A person can get more involved in fine tuning bonds if they want.
the_wiki
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Re: Investing money that will be needed in 10 years

Post by the_wiki »

For me this would depend on a lot of factors. Do I already have all the money saved and just need to preserve its value for 10 years? Am I still actively saving toward the goal? How rigid is the date and will I need to take all the money out at once? Too many factors and variables to answer really.

But, in general terms, 10 years is a long time and I'd probably invest 60/40 ratio or so.
carminered2019
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Re: Investing money that will be needed in 10 years

Post by carminered2019 »

If you have no debt, high saving rate and a good job then just put 1X in saving and the rest in equities. Assuming you are still in an accumulation phase.
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