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Old 05-22-2012, 08:48 PM   #1
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money advice

Hi, I am 45 years old male, I have around $750000 cash,
and $5800 monthly pension. My monthly spending today are
around $3000. I own my condo (no mortgage). No kids.(there is no one to leave money so I can spend it all). after 65 years old my pension will be around $2000(today's money).
After reading The Work Less, Live More by Robert Clyatt
I have following plan:
buy investment property in Los Angeles area for my cash ($650000 no mortgage) it will generate $40000 net in the year, put $40000 in the year to the portfolio as it was suggested in the book. and have a $100000 in a CD as a emergency reserve.
Do you think it is a sensible idea?

Or should I just build portfolio like it was suggested in the book?

The goal is to have inflation adjusted money for next 45years.
Thank you.
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Old 05-22-2012, 09:04 PM   #2
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Have you been a landlord before? What makes you want to buy into the job of property manager instead of investing your money in something like stocks and bonds? Why so much cash?
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Old 05-22-2012, 09:47 PM   #3
Confused about dryer sheets
 
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1. I have owned appt building before (2002 - 2004), but this time I am going to hire management company.
2. I have an illusion that even if something bad happens people need place to live, but stock market and bond is a paper. For example during default in former USSR in 1990
money, bonds, stocks, become paper and never recovered, but real estaste recovered in 3 years.

3."Why so much cash?" What do you mean?

Thank you.
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Old 05-22-2012, 11:33 PM   #4
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Quote:
3."Why so much cash?" What do you mean?
I would expect that such a large sum would be invested, not held in cash. Since you haven't got it invested, is there a reason that might influence how you do deploy it. For instance, you seem concerned that stock markets might fall like 1990 USSR. Knowing your attitude and risk tolerance might influence suggestions.
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Old 05-23-2012, 12:28 AM   #5
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I had a properties in my home country that I decided to sell and bring money in to US.
Generally speaking I am really risk averse, but I am disabled currently, and I need somehow
make them last a lifetime, so I have to invest it somewhere. (I have pension and SSDA as well).
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Old 05-23-2012, 07:15 AM   #6
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Buying a large amount of property in one area creates an inadequately diversified investment. You have it made based on your numbers and could increase your spending if you wanted to. Why do you want the headaches of owning individual physical properties? I'd suggest you look at a diversified portfolio and look at it no more than once per year.

Have you run your numbers through FireCalc to see how they work out?
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Old 05-23-2012, 07:36 AM   #7
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why not buy appts, put a lot down, mortgage it for 15 years so it will be paid for when your pension goes down. Take the rest, invest it safely for your age, probably in a balanced fund for the next 20 years and you'll probably end up with a bundle.

Result? live now on pension, have apartments paid for when you need that income, enjoy 20 years of growth in your investments and most important, you're diversified.

I think you need to find someone who can sit down with you, put options in front of you and help you make a good decision. Good luck!!!!
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Old 05-23-2012, 11:34 AM   #8
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I really liked what 2B, and jerome len wrote. Thank you.
To 2B about diversified portfolio: is this book Work Less, Live More: The Way to Semi-Retirement by Robert Clyatt . (Since people mentioned this book on this site many time, I assume you know it if not tell me) I need a stricked plan since I don't have a experience investing in stock market.
to jerome len: since appts are more than 5 units it is considered commercial property I have to pay 5 - 6% mortgage ( may be less for 15 years). Will my investments in stock market bring me more?
and notice, that in my original plan, I when buy appt building for cash proceeds from building fully goes to stock market.(this is my diversification) plus I don't invest lump sum in to market at one time, but do it in $40000 chunks a year.

You write: "I think you need to find someone who can sit down with you, put options in front of you and help you make a good decision."

I tried couple of financial advisers didn't work out, they have their interest.

Thank you again.
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Old 05-23-2012, 12:37 PM   #9
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Quote:
Originally Posted by moganesi View Post
I really liked what 2B, and jerome len wrote. Thank you.
To 2B about diversified portfolio: is this book Work Less, Live More: The Way to Semi-Retirement by Robert Clyatt . (Since people mentioned this book on this site many time, I assume you know it if not tell me) I need a stricked plan since I don't have a experience investing in stock market.

I tried couple of financial advisers didn't work out, they have their interest.
I've read the Work Less book several years ago. It's key approadch from my perspecitive is the variable withdrawl rate based on portfolio performance. It reflects the reality that if someone sees their portfolio tanking they will make adjustments to their withdrawls. No rational person will blindly continue spending their original SWR if it is obvious that they are in a a failing situation.

I don't remember anything advocating real estate investments as a core holding. I certainly could be wrong.

My concern with loading up on real estate in one area is that it puts you at the mercy of the market in that area. I think we've all been convinced that real estate doesn't always go up. Rents will ultimately follow sell prices. Some areas and sometimes whole cities become less desireable and the value of real estate falls.

I would personally never go all real estate for a retirement portfolio. If I did I would be assured that it had holdings in highly diversified geographic areas. I don't think you can effectively do this with the amount of money you have.
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Old 05-23-2012, 12:59 PM   #10
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to B2: No he doesn't advocate real estate investments as a core holding. I meant as a market investment strategy. Just book was written in 2007, and I am not sure how this portfolio performed during 2008 recession. If you can recommend another book, which in your opinion has more sound investment advice it would be great.
All your concerns about real estate are valid, it worries me too.
Thank you.
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Old 05-23-2012, 01:44 PM   #11
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No one really knows what any investment will do over the years; that's why diversifying into real estate and stocks/bonds protects you in case property takes a dive and/or the stock market. I noticed you're from California; I vacation there and have seen a lot of vacant buildings.......so it could be a great time to get into real estate.
Trying to answer a couple more questions; I can't tell you that you'll earn more than 5 or 6% with financial investments. Looking back over the past 50 years, it most likely will do so but there is no crystal ball.

On advisors.....yes, many people are looking for your money......the key is finding someone you can trust.....for me its my father in law, my wife, and a couple of savvy friends. I also have had the same lawyer for over 20 years, and have built trust. You have to search out individuals that you can trust. It is smart to invest in 40k chunks so you average in to the market........and, you have to decide the size of your investments in RE and financial investments......I got the idea, originally that most of your money would be in real estate and/or cash.

I too have a combination of commercial real estate and financial investments. If I had the answer as to which would do better, I'd put it all there BUT since there is no crystal ball, I remain diversified. One more thought......if you seek financing for your appartments, a Bank could be a good resource......try to borrow the maximum....if they'll lend that amount it says they believe you're making a good investment. Then, borrow less.....what you feel comfortable paying off before you retire.

You are asking great questions that only have answers in shades of grey that are formed by you after gathering info from individuals you trust. I'm not in California, don't know the market, really can't help much more but happy to share my experience via this blog......good luck to you.
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Old 05-23-2012, 01:47 PM   #12
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I recommend you read William Bernstein's Investor Manifesto...

It will give you a good idea on portfolio strategy and other things.

Just for information I have 60% of my assets in individual CDs or US bonds. THe remaining 40% is in equities -- 24% Large US Cap, 4% Small US Cap, 8% Foreign Developed Market Index and 4% Emerging Markets. Bernstein has a more complicated allocation strategy but I strive for a simple approach. From what I've seen, it doesn't change total return very much if at all.
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Old 05-23-2012, 01:57 PM   #13
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You guys are very nice people. Thank you for sharing your thoughts and experiences.
Michael.
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