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Old 03-21-2011, 10:17 PM   #1
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My husband and I have a decent amount of cash and he's currently out of a job - looking but who knows. This is the situation - we've been burnt by the market. He was too invested in stocks and I freaked out when things started going south and we pulled out of the market at about DOW 7,000 and I don't want to go back in. Luckily he got a lot of cash when he was downsized after that. Everything else looks risky too - bonds, municipal bonds, real estate. If you took our nest egg and divided it by 30 - we probably would have enough to live. Should we invest it or just keep it in cash? I don't trust any financial planners either. I'm worried about inflation too.
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Old 03-21-2011, 11:02 PM   #2
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I don't trust any financial planners either
But you trust a bunch of total strangers on a chat board?

Without more info it is hard to suggest anything. Depending on your situation some combination of a TIPS ladder and an inflation adjusted single premium annuity might be appropriate. But this is just a guess.

One thing we know, the historical returns on cash are not good.
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Old 03-21-2011, 11:06 PM   #3
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If your cash is enough, that's great. Take 10% to 15% and stick it into one of the Vanguard every stock in the world or US funds. Maybe another 10% to 15% in TIPS or something like that. That's not too much risk.

At the bottom of the market I was borrowing money from my home equity line of credit and buying more equities. Risk is what you make of it.
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Old 03-21-2011, 11:07 PM   #4
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Wondering why everyone else thinks 3.5% is a good benchmark in these times.
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Old 03-21-2011, 11:20 PM   #5
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My husband and I have a decent amount of cash and he's currently out of a job - looking but who knows. This is the situation - we've been burnt by the market. He was too invested in stocks and I freaked out when things started going south and we pulled out of the market at about DOW 7,000 and I don't want to go back in. Luckily he got a lot of cash when he was downsized after that. Everything else looks risky too - bonds, municipal bonds, real estate. If you took our nest egg and divided it by 30 - we probably would have enough to live. Should we invest it or just keep it in cash? I don't trust any financial planners either. I'm worried about inflation too.
If I were you, I'd think asset allocation.

IMO, you should think about what % you feel comfortable in each, then shoot for that instead of thinking is it better now for stocks, bonds, cash?
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Old 03-21-2011, 11:28 PM   #6
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I think all the old rules just don't apply anymore. Everything went down in 2008. Stocks, bonds, international. Just don't know if it's worth the risk to be in anything but cash right now.
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Old 03-21-2011, 11:29 PM   #7
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The single premium annuity - husband says it's not a good time to buy an annuity because interest rates are so low. Also, you're at risk if the insurance company goes under. Who knows what's going to be around in 30 years?
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Old 03-21-2011, 11:35 PM   #8
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I have thought about doing the same thing for peace of mind. Dividing our cash by 30 years when we reach 65 -we could do that and be fine. But I imagine we will still keep a small percentage in equities.
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Old 03-21-2011, 11:44 PM   #9
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Wondering why everyone else thinks 3.5% is a good benchmark in these times.
I am not sure “everyone else” thinks any one thing, including that 3.5% is a good benchmark, whatever that might mean.

Probably best for you is to do nothing right now, Discover Bank pays over 1% on ordinary savings accounts. Put whatever you can into insured deposits paying over 1% and do some studying. Just because you panicked once doesn't necessarily mean you would panic again, but if you do go in again you will want to be better prepared cognitively and emotionally.

Ha
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Old 03-21-2011, 11:45 PM   #10
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There is no such thing as a risk free investment. All cash leaves you exposed to the risk of rising inflation.

If you are unwilling to take equity risk, at the very least get a slightly better return by investing in TIPS, short,medium and long term government issued bonds which you can hold to maturities that match your expected drawdown needs. CDs guaranteed by the Fed are also a possibility.

Given the time horizon, I'd worry about the long term effects of inflation with this sort of portfolio, but then I fear inflation more that I worry about market volatility.
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Old 03-22-2011, 01:56 AM   #11
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Hello amazon1 - have you thought about CD laddering ?

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Should we invest it or just keep it in cash?
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Old 03-22-2011, 05:11 AM   #12
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Since 2008, the money that I put in then has more than doubled. I mainly invest in index funds, so it isn't great choices in finding the right fund that did it. Asset allocation is why I am turning reasonable profits.
The markets are getting overpriced so this is a tough time to buy into equity. The best deal seems to be Ally bank CDs.
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Old 03-22-2011, 06:13 AM   #13
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I think all the old rules just don't apply anymore. Everything went down in 2008. Stocks, bonds, international.
If you're not prepared for the paper value of your investments to go down, don't invest.

If you sold when the Dow hit 7,000, then either you've learned a valuable lesson since ("losses aren't real until you cash out"), or you've decided that you don't ever want any downside risk. That's a shame, but it's a legitimate viewpoint. If you're going to "freak out" when things head south then probably for your own well-being you shouldn't be "investing", just "saving".

However, there's not that much point in asking for advice if you're going to exclude anything which might ever go down, because those safe vehicles pay pretty much the same (lousy) rate, pretty much by definition. You'll need to plan for how to beat inflation over the long term if you a large percentage of your retirement income doesn't have a cost of living adjustment.
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Old 03-22-2011, 06:58 AM   #14
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I am not sure “everyone else” thinks any one thing, including that 3.5% is a good benchmark, whatever that might mean.

Probably best for you is to do nothing right now, Discover Bank pays over 1% on ordinary savings accounts. Put whatever you can into insured deposits paying over 1% and do some studying. Just because you panicked once doesn't necessarily mean you would panic again, but if you do go in again you will want to be better prepared cognitively and emotionally.

Ha
Sage advice from Ha as usual.

Right now you are operating from a basis of fear, confusion and lack of knowledge. That is a lousy place from which to make long term investment decisions. Park the cash and start reading. I would strongly encourage you to stick with mainstream authors, preferably textbooks used for CFP or Mfinance MBA classes. They are generally not that hard to read and you will avoid the kooky fringe stuff.

I would also encourage you to consider a few thought experiments:

- how long did the last few blowups last? Would you have been OK long term with a 50/50 portfolio of treasuries and stocks?

- look at the long term record of Vanguard Wellington and Wellesley funds. Would you have been OK if you bought those and just ignored the ups and downs?

- look at the Permanent portfolio fund. Would you have been OK invested in that long term?
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Old 03-22-2011, 07:27 AM   #15
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I second Ha's and Brewer's advice to play it safe and educate yourselves. But if you cannot come to a place where you are convinced you can select a reasonable AA and stick with it in circumstances like your last panic, you really should consider an SPIA or a set of CD or bond ladders as obgyn suggests.
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Old 03-22-2011, 08:47 AM   #16
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I freaked out when things started going south and we pulled out of the market at about DOW 7,000 and I don't want to go back in.
Damn ... that's the perfect storm.

Have you considered changing gears: use the cash to expand a hobby you love and start a business. Investment property is my bag ... and cash is king if you're looking a bank owned properties.

What do you enjoy? Plenty of TIME on his hands.
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Old 03-22-2011, 09:08 AM   #17
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Things did go back up in the last 2 years but why? A lot of it is manipulation - keeping interest rates artificially low propped up the stock market and probably real estate too. There are more people (including the government) who are debtors than people trying to live off of savings and the interests (no pun intended) of the big banks lie in low interest rates so that's what we have.

Just because things went up again doesn't mean they should have or will stay up. We're still in a recession, nothing's really getting better and now we have oil shocks and the Japan situation to worry about but the market is still staying up.

Unfortunately, we live in one of the only places in the country where real estate is also holding up and we're renting.

I think there was a reason I was avoiding TIPS too. I'll have to look into them. What's the return on TIPS now? Maybe I was afraid of deflation.

I also saw a very prominent economist about 6 months ago and he said that he thinks we need 0 interest and 5% inflation to get out of the recession. I said, "What about retirees?' and he shrugged. That's what I think "they" are trying to do now.
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Old 03-22-2011, 09:09 AM   #18
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Also, do you think it's worth worrying about not keeping more than the FDIC insured amount in any individual bank? Does anyone divide their money among banks because of that?
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Old 03-22-2011, 09:09 AM   #19
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Perhaps you should use a touch of your portfolio to get some valium as well.
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Old 03-22-2011, 09:10 AM   #20
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Also, do you think it's worth worrying about not keeping more than the FDIC insured amount in any individual bank? Does anyone divide their money among banks because of that?
I would not go above the FDIC insurance limit at any bank. Why take the risk?
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