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Long term investment direction
Old 07-16-2017, 07:02 AM   #1
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Long term investment direction

I have been retired for 2 years. My pension and dividends from investments meet my annual income needs. The only major expenses I expect in the future are extravagant vacations and new car purchases. I have a sizeable investment portfolio whose principle I am not touching.

Here is my question...
Does it make sense to gradually move my portfolio to more conservative investments as traditional investment advice suggests (move to bonds etc as I get older). Or is it okay to stay aggressive since I don't foresee needing most of the money?
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Old 07-16-2017, 07:07 AM   #2
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A few questions Raymond; how long before SS kicks in? What is your health insurance situation? If they equities market took a 30% hit, could you live with that or wold you get nervous and sell? Most people become more conservative with their AA as they get older.
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Old 07-16-2017, 07:40 AM   #3
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Good questions Bigdawg. I am 55 so 7 years till I can take early SS. I have retiree healthcare thru megacorp. I have come to pay little attention to the swings in the market and do not invest emotionally so I would not panic and sell with a 30% drop in the market.

I know most people get more conservative with their AA as they age, but if I will not need most of the money, then why should I?
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Old 07-16-2017, 08:17 AM   #4
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Good questions Bigdawg. I am 55 so 7 years till I can take early SS. I have retiree healthcare thru megacorp. I have come to pay little attention to the swings in the market and do not invest emotionally so I would not panic and sell with a 30% drop in the market.
Would you sell with a 50% drop in the market? 55%? 60%?

None of these are out of the question. We experienced greater than 50% drop in 2008-2009. And the PE 10 where the drop halted was not as low as PE10 has been at other times in my investing life. Here's a good thought experiment-The S&P lost 86.1% between 1929 and 1932. No wonder people jumped out of windows! If this happened today, our political system might not survive.

IMO, the question should be is there any drop that might lead me to sell? If so, I should sell enough now so that I can answer that question with a no. This is not a "let it ride", go for broke plan, but it is a safer one.

I know that realistically, few manage money this way, but it does actually make better sense than assuming some arbitrary limits on what might happen.

It cannot be denied that equity index investments with lower basis are more likely to lead to profit and larger profit, than the same indexes held at higher prices.

I am re-reading a Brazilian novel written 50 or so years ago called Dona Flor and Her Two Husbands. One of these gentlemen is a gambler, and it really brings to mind the warring feelings that many of us investors may experience but may not mark. Also recently bought a 99 cent Kindle edition of Dostoevsky's The Gambler. If someone has been an investor for long time, he may know that the same feelings that live in gamblers often enough are also present in investors, especially when markets are high and apparently going higher.

Ha
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Long term investment direction
Old 07-16-2017, 08:47 AM   #5
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Long term investment direction

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I have been retired for 2 years. My pension and dividends from investments meet my annual income needs. ?

Why then would you worry about the portfolios value? As long as the dividend stream is stable who cares? Further at 55 you'll be retired a long time.. I'd be inclined to stick with equities.

My plan: keep enough in safe cash like investments for a couple years. If the market takes a big hit I'll live off the cash investments plus the reduced dividend stream...

My only concern for you is inflation.
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Old 07-16-2017, 08:54 AM   #6
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... Here is my question...
Does it make sense to gradually move my portfolio to more conservative investments as traditional investment advice suggests (move to bonds etc as I get older). Or is it okay to stay aggressive since I don't foresee needing most of the money?
I think you are not asking the right question.

You say that you will not need the majority of the money. If that is the case, then what is the purpose of the money? After all, if you don't know where you are going then any [investment] road will get you there. Is the purpose to maximally enrich your heirs? To endow a teaching seat at a university? To give to charity? To church?

Once that question is answered, then the question you ask here comes into play. For example, if it's headed for an endowment or for trusts for your kids, an aggressive equity strategy might be best. In doing this, you risk that the market will be down significantly when your estate is probated but if the assets are going into a long-term vehicle like an endowment or trust that is probably OK. Alternatively, if you expect your heirs to spend the money relatively quickly, then a more conservative approach might be in order.

We are, actually, pretty much in the same boat. We probably have about three times the assets that we will need during our lifetimes, so we are struggling with the "What is this money for?" question. Once that is answered, our investment strategy will be clearer. Not clear, of course, but clearer.

HTH
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What is this money for?
Old 07-16-2017, 09:11 AM   #7
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What is this money for?

Similar situation as well. In our case, the money is for LTC self-insurance, possible assistance for aging in-laws with few assets, inflation insurance, and longevity insurance. If two or more of those happen, it's going to be tight. If none of that happens, the kids will get it all. We are 70% equity and real estate.
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Old 07-16-2017, 09:13 AM   #8
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Similar situation as well. In our case, the money is for LTC self-insurance, possible assistance for aging in-laws with few assets, inflation insurance, and longevity insurance. If two or more of those happen, it's going to be tight. If none of that happens, the kids will get it all. We are 70% equity and real estate.
Perfect! Knowing the purpose makes the investment decisions much easier, at least IMO.
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Old 07-16-2017, 09:18 AM   #9
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Good input everyone, thanks.

HaHa: Never say never, but since I am living off the dividends, the principle value doesn't matter as much. I know that long term, equities are the way to go and that they will recover. Since I hope to not need the money, I hope the portfolio goes to my kids which is even a longer term.

Rayinpenn: I am not worried about the portfolio's value. I would like to keep it aggressive to grow for my kids inheritance. Inflation is definitely a concern and may cause me to dig into the principle. Since I am only 2 years into retirement, the amount of money I need may change.

Oldshooter: Yes, I was not clear about my long term hopes for the money. Leaving it to my heirs is the goal. They are adults and make a decent living so there is no short term need. I am hoping to jumpstart their early retirement with the assets I leave.
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Old 07-16-2017, 09:30 AM   #10
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I was not clear about my long term hopes for the money. Leaving it to my heirs is the goal. .
Indeed your further explanation completely changes your question.

Your AA should support the timeframe and intended use of your investments from volatility, growth and tax angles. When you just said that you didn't need the money (at least beyond the dividends), it didn't give anybody a clue.......
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Old 07-16-2017, 09:30 AM   #11
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... Oldshooter: Yes, I was not clear about my long term hopes for the money. Leaving it to my heirs is the goal. They are adults and make a decent living so there is no short term need. I am hoping to jumpstart their early retirement with the assets I leave.
Well, in that case you may want to do a couple of things: Educate them on your investing philosophy and consult with them on how "their" share of your assets should be invested.

For our kids (we expect each to get about 1/3 of the money) we are setting up professionally managed trusts. Neither child is equipped by inclination or training to be a money manager and one in particular would be quite likely to blow the money quickly. So the trustees are told that the money is for their long-term support but that it is not our intention that they no longer have to work. There is some standard language to this effect that the attorneys use, but I don't remember it offhand. IIRC the residual goes to charity if they die.
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Old 07-16-2017, 10:10 AM   #12
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Some good suggestions OldShooter.
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Old 07-16-2017, 01:42 PM   #13
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Some good suggestions OldShooter.
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Old 07-16-2017, 10:38 PM   #14
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I have been retired for 2 years. My pension and dividends from investments meet my annual income needs. The only major expenses I expect in the future are extravagant vacations and new car purchases. I have a sizeable investment portfolio whose principle I am not touching.

Here is my question...
Does it make sense to gradually move my portfolio to more conservative investments as traditional investment advice suggests (move to bonds etc as I get older). Or is it okay to stay aggressive since I don't foresee needing most of the money?
There are two schools of thought on this and no one right answer.

One extreme is that since you have plenty and a downturn woudl not impact your lifestyle that you can swing for the fences and invest aggressively... even as much as 100% equities.

The other extreme is that since you have "won the game" that there is no need to invest aggressively since you will not be relying on growth from those funds.

And obviously all sorts of in-betweens.

Since in your case the funds will go to the heirs, I would lean toward investing in an AA appropriate for someone of their age, which would be significant in equities. My mom is in a similar situation... her income exceeds her needs and she doesn't touch her retirement assets... we invest it ~ 65/35 which is a sensible AA for her children whose ages range from 52-61.
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Old 07-17-2017, 04:01 AM   #15
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You should do what you are comfortable with, after making sure that you have allowed for many years of potential inflation. Your expenses may be covered now, but what about in 30 years?
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Old 07-17-2017, 05:14 AM   #16
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Google "rising equity glide path"

I retired 4 years ago. My income is covered by a small pension and rent. As I don't need to touch my investments for income I have simply stopped rebalancing and have drifted up form 60% equities to around 70% equities. I'm ok with a high equity percentage in retirement.
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Old 07-17-2017, 11:36 AM   #17
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Very good discussion here!
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Old 07-17-2017, 02:11 PM   #18
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To OP:
It depends on your risk tolerance and financial goals.
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Old 07-17-2017, 06:05 PM   #19
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My mom is in a similar situation... her income exceeds her needs and she doesn't touch her retirement assets... we invest it ~ 65/35 which is a sensible AA for her children whose ages range from 52-61.
MIL was 100% FI when I took it over. I moved some of the bonds to convertible debentures but otherwise stayed super conservative. DW said Why don't you invest more aggressively? and I said because I made a commitment to MIL.

It is a conundrum because obviously DW is much younger. I have had the conversation with my kids and they are on board with equities. When they talked about their positive experience with LEAPs, I knew where they would come from.
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Old 07-19-2017, 12:11 PM   #20
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I have been retired for 2 years. My pension and dividends from investments meet my annual income needs. The only major expenses I expect in the future are extravagant vacations and new car purchases. I have a sizeable investment portfolio whose principle I am not touching.

Here is my question...
Does it make sense to gradually move my portfolio to more conservative investments as traditional investment advice suggests (move to bonds etc as I get older). Or is it okay to stay aggressive since I don't foresee needing most of the money?
I guess I would look at your AA now as if it were actually your heirs' AA. What would you advise THEM to do with THEIR money? Just a thought so YMMV.
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