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Not sure what to do at 48
Old 12-02-2013, 05:43 PM   #1
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Not sure what to do at 48

Hello All,

I've always been a big saver and I've always lived below my means but not to the extreme. Most of my wealth building occurred when interest rates where high so I was happy with the 6% I was receiving as I made about 60K extra on my savings. I also lucked out on a house that I sold and made 100K before the housing crashed. I moved in with my GF and luckily she has the same lifestyle as me.

All of a sudden interest rates plunged and I figured I'd just ride it out as I thought it wouldn't last this long. I told the GF to pay the house off so she/we haven't had a house payment for years. I still make about 500 bucks a month in interest. I pay 360 bucks total a month for the HOA and part of the property taxes. We also paid both of our cars off so I don't have a car payment. I figure my expenses are about 750-1K a month tops. I have about 800k pretty much all in cash. I have a 401K worth 300K in MFs. No kids.

I'm at the point where I'm tired of my job. I'd like to give it up but I need to make more than .7 or so percent but I'm adverse to any risk. I've put money in the market before but I seem to have bad timing for the most part so after I got even I bailed. The market feels a bit high. I can't decide should I move money into the market or should I just ride out the low interest rates.
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Old 12-02-2013, 05:46 PM   #2
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You are focused on the risk of the investments you have not acquired... and are now realizing the counter to other investments (interest rate risk and inflation risk).

A portfolio of 25% equities and 75% bonds/cash has less risk than the portfolio you currently have with a higher expected return- its called the efficient frontier.
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Old 12-02-2013, 06:04 PM   #3
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I'm no FA, but history suggests all cash portfolios have the HIGHEST risk over medium to long term (i.e. always losing purchasing power to inflation). Most every investing simulation program or analysis I've seen suggests that roughly 40-60% in well-diversified equities offers the best risk-adjusted returns over the long haul.

BTW- If you really dislike your j#b at only 48, why not explore other career options? You seem to have the youth & financial cushion to pursue something that interests you even if it doesn't provide an immediate pay check.
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Old 12-02-2013, 06:18 PM   #4
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If you don't like risk, I am puzzled by your decision to have most of your investments in cash. Losing money through inflation is still losing money. Bear in mind that if interest rates were to suddenly be 6% that would very likely reflect a situation where inflation was much higher than currently so your money would still be losing to inflation.

I would suggest that you are not adverse to risk. Rather, you are adverse to volatility even though your current strategy is risky.

If you can't stand the volatility of pure equity funds then you might consider some sort of balanced fund that is not so volatile.
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Old 12-02-2013, 06:25 PM   #5
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You're right it's volatility I'm adverse to. I put about 100K in the market awhile back in supposedly safe investments and with in 3 months it was worth about 80K. A bit tough to stomach.
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Old 12-02-2013, 06:45 PM   #6
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If you do not like losing money in the market, you might want to read articles by Zvi Bodie -

Zvi Bodie Public Relations | Boston University

His ideas work better when interest rates are higher than they are now. It is obviously harder to live off interest rates and keep up with inflation with rates so low, though the lower your expenses relative to your nest egg the easier it gets.

Longer term TIPS are indexed to inflation and yield ~1.5% real return right now.

Do you have a stable value fund in your 401K? Some SV rates haven't been that bad considering how low inflation has been.
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Old 12-02-2013, 06:46 PM   #7
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You have two risks. Volatility and inflation. Avoiding one increases the other. I'm far more worried about inflation risk than I am about volatility risk.

Then again, I have a MBA and 30 years of investing experience.
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Old 12-02-2013, 06:51 PM   #8
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You're right it's volatility I'm adverse to. I put about 100K in the market awhile back in supposedly safe investments and with in 3 months it was worth about 80K. A bit tough to stomach.
A few years ago my equity funds dropped over 40%. That was hard to stomach. On the other hand, my S&P fund now is currently up over 30% for this year. The key, of course, is not to sell when that 100k goes down to 80k but to simply hold on.

If you can't stand to hold on, then you might look at a balanced fund to smooth out the volatility some.

Another choice if you want to stay in cash it to work much longer and amass a large enough nest egg that even if it does lose half of its value due to inflation you would still have enough money.
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Old 12-02-2013, 07:10 PM   #9
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Unfortunately, both times I put a significant amount of money in the market in "safe" investments, I had zero up and all down. Literally a correction within weeks. Up then down is okay but all down not such a good feeling.
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Old 12-02-2013, 07:12 PM   #10
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Here is another article you may find of interest on stocks, alternatives and the sequence of returns risk -

How to avoid sequence-of-return risk - Robert Powell's Retirement Portfolio - MarketWatch
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Old 12-02-2013, 07:17 PM   #11
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Originally Posted by daylatedollarshort View Post
Here is another article you may find of interest on stocks, alternatives and the sequence of returns risk -
Is there a good excerpt you can post?
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Old 12-02-2013, 07:21 PM   #12
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People who keep most of their money in cash may be less tolerant of risk, but I think the main reason they like cash is that they don't like to give up control over what happens to their money. Now in theory we could argue they still are giving up control because they can't control inflation. But that is very slow and hard to track in the short term. Nobody is going to lose 30% of their portfolio in one year due to inflation. But losing 30% in value of your equities can happen and will continue to happen from time to time as we have a bear market. It's the price we have to pay to yield higher long term returns.

I suppose with PenFed's CD rates up to 3% you could try to put your money there and at least have a guaranteed 3% return. If you are in a very low tax bracket this strategy may work. If you end up paying a good chunk of it in Federal and State taxes, this doesn't work so well.
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Old 12-02-2013, 07:29 PM   #13
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Is there a good excerpt you can post?
"Sequence-of-returns risk is a function of volatility. So, Pfau wrote, spending could be kept constant if your portfolio is de-risked. In other words, you can reduce the sequence-of-returns risk by reducing the risk of the portfolio. In other words, said Bernstein, “own less stocks.”

“To really get constant spending, one should be looking to hold fixed-income assets to maturity or use risk-pooling assets such as annuities,” Pfau wrote. “The inefficiencies of a constant spending strategy using volatile assets may be explained because of the added sequence-of-returns risk which offers no reward to investors.”
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Old 12-02-2013, 08:21 PM   #14
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Unfortunately, both times I put a significant amount of money in the market in "safe" investments, I had zero up and all down. Literally a correction within weeks. Up then down is okay but all down not such a good feeling.
"Money in the market in "safe" investments" is an oxymoron. Whoever told you otherwise misled you.

Nevertheless, as others have pointed out, the only way to retire with a sustainable cash-based portfolio is to save a lot more than the rest of us, or work almost until you die.
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Old 12-02-2013, 08:44 PM   #15
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"Money in the market in "safe" investments" is an oxymoron. Whoever told you otherwise misled you.

Nevertheless, as others have pointed out, the only way to retire with a sustainable cash-based portfolio is to save a lot more than the rest of us, or work almost until you die.
I should have said "low risk" per the Schwab rate bar.
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Old 12-02-2013, 09:24 PM   #16
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Nevertheless, as others have pointed out, the only way to retire with a sustainable cash-based portfolio is to save a lot more than the rest of us, or work almost until you die.
Another way is to have low expenses. Thedaily's expenses are $750 - $1K a month, or up to $12K a year. If I read his post correctly he has a $1.1M portfolio (800 cash + 300 mutual funds).

TIPS interest at 1.5% would be $16.5K while keeping an inflation adjusted principal.

I didn't see his age in his posts, but add in SS benefits at 65, maybe a pension down the line, part time work or a low stress job income and he is in a pretty good spot financially. Maximum SS benefits in the U.S. at 65 are $2,533 a month, or over $60K a year for a household of two.
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Old 12-02-2013, 09:31 PM   #17
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I didn't see his age in his posts
It's in the thread title
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Old 12-03-2013, 12:05 AM   #18
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It's in the thread title
Doh! I forgot it was in the title.
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Old 12-03-2013, 02:44 AM   #19
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I'm about the same age as you (47) and with a potential 50 year retirement period ahead of us DW, I worry a lot more about inflation than I do about market volatility.

In my rather simplistic view of the investing universe, you can chose which risks you are going to take with your investments but you cannot chose not to take any risk (inflation linked government guaranteed bonds which are not subject to tax being about as close as you can get to risk free).
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Old 12-03-2013, 05:20 AM   #20
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Unfortunately, both times I put a significant amount of money in the market in "safe" investments, I had zero up and all down. Literally a correction within weeks. Up then down is okay but all down not such a good feeling.
thedaily -- You're right, it goes down sometimes. Hang in there.
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