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All or mostly stocks in retirement?
Old 01-14-2013, 09:53 AM   #1
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All or mostly stocks in retirement?

Just curious if any of you have either all or mostly stocks in your portfolios while you are either very close to retirement or in retirement.

Dave Ramsey suggests this...he is against bonds or CDs. Pretty much he says stocks within mutual funds and then real estate if you're into that, but no bonds, no CDs.

I'm also against CDs for now as they give too little, but I have bonds in my portfolio (about 13% now at age 46), and I have told myself I will increase that percentage as I get closer to retirement and then in retirement, probably to the tune of 30-40% ultimately. I'm not tied to that strategy though, and I'd like to know if any of you have a much lower percentage of bonds in your retirement portfolio.

I will admit to greatly enjoying the stock market returns since the big drop in 2008. Imagining myself in retirement, if I could have greatly dropped my Withdrawal Rate (lived mostly on SS for example) during such a bad time, I could have weathered the big drop and enjoyed the big gains on the other side.

Ramsey is the only one I hear say to be 100% in stocks or real estate in retirement.
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Old 01-14-2013, 09:57 AM   #2
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Dave Ramsey suggests this...he is against bonds or CDs. Pretty much he says stocks within mutual funds and then real estate if you're into that, but no bonds, no CDs.
Ramsey is great when it comes to advice on getting out of debt and staying out.

He's missing several screws when it comes to investing advice. Example: he stands by his belief you can get 12% returns on stocks. While that may have been true in the past (and we can hope for that in the future), many believe the returns over the next decade or so will be closer to 8% - maybe less.
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Old 01-14-2013, 10:25 AM   #3
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Ramsey is great when it comes to advice on getting out of debt and staying out.

He's missing several screws when it comes to investing advice. Example: he stands by his belief you can get 12% returns on stocks. While that may have been true in the past (and we can hope for that in the future), many believe the returns over the next decade or so will be closer to 8% - maybe less.
I completely agree. On his radio show he will even say "12-14%" annual return, and he recommends a withdrawal rate of 8% in retirement. I think that's all WAY too optimistic.

I do enjoy most of his common-sense attitude about money, but the lack of bonds in a retirement portfolio isn't one I have yet adopted (though I'm open to that PERHAPS), and I also use credit cards which he says we should all never use. I pay the balance off in full each month, but he says we feel the pain of a purchase more if we use cash. That's not true for me. I feel the pain of a purchase no matter how I pay for it. He's also 100% against taking student loans out for college, but I will be ok with small loans for my kids if it means getting into a better college...I may even help them pay those loans back, but it's nice to get the money and not have to pay it back until after they graduate. I had a small debt in loans when I graduated from college ($7,500), and I slowly paid that back and it wasn't a big deal...would have been tough at the time to come up with that money to pay while IN school though.

So, you're against all stocks in retirement then?
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Old 01-14-2013, 10:49 AM   #4
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While I'm not wild on bonds, I'd never go all equity in retirement unless I was so loaded that a 50% portfolio hit would not change my lifestyle. But then if I was that loaded, why take the risk of a 1930's type scenario?

You might check out some recent threads on AA including this one:
Diary of an investing madman...
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Old 01-14-2013, 11:05 AM   #5
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I would think it might be OK to be near 100% in stocks if you first hold one year of living expenses aside. Then it would be most important, since you are all-in on stocks, to diversify within that stated strategy. If your portfolio is large enough to support owning dividend paying stocks, and if you are able to live off the dividend payouts, then you would be more inclined to ride out a rough market cycle of 2 or 3 years. Playing defense is one of the keys...identify defensive dividend paying stocks (consumer staples for example), and take a good look at non-financial preferred stocks that pay a nice quarterly dividend and have a good Moody's or S&P rating.
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Old 01-14-2013, 11:14 AM   #6
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Threads lke this, and the Forex thread, and Alex and his sidekick over there only happen and always happen after a long period of basically good market performance.

This may not mean that performance is about to get bad, but that is something worth thinking about.

Ha
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Old 01-14-2013, 11:14 AM   #7
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I'm "all" stocks. Actually widely diversified mutual funds. I've been retired a little over 5 years, though DW has waited until this year. We pulled maybe 20%-25% of our spending from our portfolio in the past 5 years.

I think the main risk, other than avoiding buying high and selling low, is having to withdraw when stocks are way down. I try to avoid that by selling some shares when my portfolio is doing better than expected/required. For example, if the market exceeds your projections for the start of the next year, go ahead and raise the cash for that year's expenses early. I save that in cash and then use it for expenses, or reinvest the excess during a bear market. I'm about 15% cash right now. Ideally, I want zero cash during average markets, rising cash during hot markets, and a good cash balance during market dips.
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Old 01-14-2013, 11:45 AM   #8
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Lots of variables to consider. One is the amount of non-stock income. Maybe I have SS plus a COLA'd pension that will cover my "normal" spending. If so, I can say that my financial assets are mad money or an eventual gift to someone. In that case, I could argue for 100% stocks.
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Old 01-14-2013, 11:46 AM   #9
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Lots of variables to consider. One is the amount of non-stock income. Maybe I have SS plus a COLA'd pension that will cover my "normal" spending. If so, I can say that my financial assets are mad money or an eventual gift to someone. In that case, I could argue for 100% stocks.
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Old 01-14-2013, 12:05 PM   #10
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We are almost all stocks.
Have been retired for just over 7 years now. Good diversification is very important.
Our dividends pay our living expenses, plus a little so we mainly rebalance by stock purchases. Although we occasionally rebalance by selling.
We also keep a year of living expenses so we won't be forced to sell in a down market. Worked well for us through the recession.

Everyone's circumstances are different though and you should carefully investigate any investing plan you consider.
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Old 01-14-2013, 12:36 PM   #11
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Something to consider is how you react during a severe downturn in the market. When you are working and it happens, you can ride it out with the thought that it'll be okay because you have time to make it back. But when retired...are you the panic type? I found out a lot about myself during the last big dip. It scared me. Fortunately I didn't dump things...but it made me realize that I'm more comfortable with a less risky portfolio.

So it's a mix for me with 65% stocks, 15% international and the rest bonds.
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Old 01-14-2013, 12:56 PM   #12
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Something to consider is how you react during a severe downturn in the market. When you are working and it happens, you can ride it out with the thought that it'll be okay because you have time to make it back. But when retired...are you the panic type? I found out a lot about myself during the last big dip. It scared me. Fortunately I didn't dump things...but it made me realize that I'm more comfortable with a less risky portfolio.
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So it's a mix for me with 65% stocks, 15% international and the rest bonds.
If I understand you, your allocation is nevertheless 80% equity, 65% US and 15% international. You didn't say anything about the maturities or duration of your fixed income, but this could still be a portfolio that you might expect to bounce around quite a bit.
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Old 01-14-2013, 01:15 PM   #13
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Threads lke this, and the Forex thread, and Alex and his sidekick over there only happen and always happen after a long period of basically good market performance.

This may not mean that performance is about to get bad, but that is something worth thinking about.

Ha
I can see why that might be, but my motivation to ask the question isn't due to just recent market uptick. I've been investing for a long time, and the 13% bonds I have now is the highest percentage I've ever had. When I look at my average annual return since I started investing of ~11%, even with the DOT com bust in there and even with the Great Recession, then it makes me wonder if just sticking with a high percentage of stocks is a better idea. I'm not for sure going to do that, but I'm leaving it open to still have a high percentage of stocks (85% or more) in retirement.
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Old 01-14-2013, 01:24 PM   #14
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Depending on your circumstances you can "potentially" go 100% stock. For example, if your yearly expenses is 30k but you have 10 million in stocks, then you don't really need to freak out if the market drops by 60%, like in early and late 2000's. Off course this is pretty unrealistic.

People like Ramsey and Suzie Orman who keeps telling viewers/listeners about these stupid investment advise because there are no consequences if things blow up. Susie keeps telling people to buy ETFs paying 6% but she has never been specific about which ETFs and risks associated. But her personal net worth is tied up in muni's and continues to keep getting paid tens of millions from CNBC and advertisers. This weekend she just said you can get 4% from munis. What? Was she referring munis from another country because the 30 year munis are averaging less than 3% right now.

You should educate yourself before listening and following these talking heads on television.
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Old 01-14-2013, 01:26 PM   #15
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Something to consider is how you react during a severe downturn in the market. When you are working and it happens, you can ride it out with the thought that it'll be okay because you have time to make it back. But when retired...are you the panic type? I found out a lot about myself during the last big dip. It scared me. Fortunately I didn't dump things...but it made me realize that I'm more comfortable with a less risky portfolio.

So it's a mix for me with 65% stocks, 15% international and the rest bonds.
I'm not really the panic type, but only because I plan so that I don't have to panic. I will not retire until I am completely debt free including owning my home outright. I currently have a 6-month emergency fund in cash, but I might up that to 12 months before retiring...that would be a good idea. With no debt and a 12-month emergency fund, as well as Social Security there just 2 years after I plan to retire, I think I could retire at age 60 and keep 85-90% in stocks.
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Old 01-14-2013, 01:34 PM   #16
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Depending on your circumstances you can "potentially" go 100% stock. For example, if your yearly expenses is 30k but you have 10 million in stocks, then you don't really need to freak out if the market drops by 60%, like in early and late 2000's. Off course this is pretty unrealistic.

People like Ramsey and Suzie Orman who keeps telling viewers/listeners about these stupid investment advise because there are no consequences if things blow up. Susie keeps telling people to buy ETFs paying 6% but she has never been specific about which ETFs and risks associated. But her personal net worth is tied up in muni's and continues to keep getting paid tens of millions from CNBC and advertisers. This weekend she just said you can get 4% from munis. What? Was she referring munis from another country because the 30 year munis are averaging less than 3% right now.

You should educate yourself before listening and following these talking heads on television.
No worries. I'm not planning to follow any person's plan to the letter without checking things out...this is why I don't buy everything Ramsey says hook, line, and sinker. If I did, I'd be 100% in stocks right now, but I'm not. I would also never use a credit card, but I have two. I also watch Suzie Orman's show sometimes, but I don't follow her advice to the letter either...for one thing, she says 10% international stocks is the way to go, but I prefer about 25% of my stocks to be international stocks. Also, she's big on getting a great FICO score (she draws a paycheck from FICO), but that is not something that concerns me much at all. Finally, she pretty much never tells anyone that they can retire early. She values working and envisions everyone working to age 67 minimum if not longer even when they have more assets than I will have at age 60.
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Old 01-14-2013, 01:38 PM   #17
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I'm not really the panic type, but only because I plan so that I don't have to panic. I will not retire until I am completely debt free including owning my home outright. I currently have a 6-month emergency fund in cash, but I might up that to 12 months before retiring...that would be a good idea. With no debt and a 12-month emergency fund, as well as Social Security there just 2 years after I plan to retire, I think I could retire at age 60 and keep 85-90% in stocks.
You really don't have to convince anyone here. The great thing about being an individual investor is that you are totally in charge.

I'd just say to look at the 1930's markets and convince yourself that being retired with your plan is what you want. Definitely you should run your plan through FIRECalc. Have you done this?
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Old 01-14-2013, 01:43 PM   #18
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I currently have a 6-month emergency fund in cash, but I might up that to 12 months before retiring...that would be a good idea.
Many of us who are retired consider our entire portfolio to be an "emergency fund" and don't have a separate category with that label. OTOH if you mean "cash" available without selling equities, breaking a CD, etc., then I would agree having a year on hand is better than only having 6 months.
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Old 01-14-2013, 01:54 PM   #19
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Many of us who are retired consider our entire portfolio to be an "emergency fund" and don't have a separate category with that label. OTOH if you mean "cash" available without selling equities, breaking a CD, etc., then I would agree having a year on hand is better than only having 6 months.
Good point. As I'm still working, I consider my non-retirement fund extra cash to be an "emergency fund". When I do retire, I may not consider it that anymore...it will just be a cash fund I have that doesn't require drawing down investment accounts.
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Old 01-14-2013, 02:10 PM   #20
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I would think it might be OK to be near 100% in stocks if you first hold one year of living expenses aside. Then it would be most important, since you are all-in on stocks, to diversify within that stated strategy. If your portfolio is large enough to support owning dividend paying stocks, and if you are able to live off the dividend payouts, then you would be more inclined to ride out a rough market cycle of 2 or 3 years. Playing defense is one of the keys...identify defensive dividend paying stocks (consumer staples for example), and take a good look at non-financial preferred stocks that pay a nice quarterly dividend and have a good Moody's or S&P rating.
I can see your situation working for a lot of people. I will be 100% debt free and own my home outright before retiring, and I will likely have a 12-month's of expenses fund also (I have a 6-month one right now and can easily see that being 12 months in just 13+ more years when I want to retire). I am also well-diversified, and this past year my dividends were more than ever before...shockingly more (so much so I created a thread). I can see being very frugal the first couple years in retirement and living on dividends and maybe a small percentage draw until I am able to start collecting Social Security just a couples years later, which I may or may not due depending on our circumstance then.
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