My investing strategy is a mess...

[target2019]

Which I suspect may well be the solution.

Nevertheless I am trying to move her cash into secured deposit accounts (paying 1-2%) which at least keeps them ticking over (and with inflation in Europe at less than 1% we are at least keeping our heads above water).

We have friends in Germany, and have been asked about various investments available to them through a Schwab account they hold. They were very interested in Utilities. I helped them distinguish between various ETFs and Funds, but not sure of exact direction they went. Discussed Guggenheim Equal Weight Utilities ETF, SCHB, SCHD, Vanguard Total World. Explained overlap and diversification, but I think they may have just bought it all.

 

[OverThinkMuch]

Remind your wife if you want 100% cash, you both need to go back to work. You need a lot more money to get through retirement when you take no risk.

You might read up on the ravages of inflation together. Maybe she discovers an article, and you share a study of what happens with inflation over time. Inflation is very quiet, and very deadly to your spending power. Even 2% inflation over 35 years means prices double.

 

[Dan32]

I don't have anything strongly negative to say about your investment choices (and I'm not sure your wife does either). I suggest that her problem (even though she says it is risk) is that she doesn't understand the plan. If you haven't done it, I suggest laying out an asset allocation strategy and manage your investments to that strategy. If you lay out this strategy to your wife so that she is involved and understands the plan, she may agree (or mostly agree) with you. Once per year, the two of you could review your allocation strategy and move towards what works best for the 2 of you. Or once she understands the plan, she may decide that she has better things to do with her time than worry about money and will leave these matters up to her accountant (YMMV).

 

[athena53]

Here's a good graph to show the returns of various investments over a long time.

https://www.edwardjones.com/market-news-guidance/guidance/not-investing-risk.html

What I was looking for was a "placemat chart"- the one that shows colored bars representing various types of investments (small-cap stocks, bonds, etc.) ranked every year according ot their return for that year, with each year being one column. I know Edward Jones provides one but it may be only for clients.

The link nicely shows that yes, there will be bad times in the market, but in the long run you're much better off than staying in cash.

Some thoughts on diversifying: yeah, you're probably too diversified. I am, too, mostly in mutual funds, so at least someone (presumably) is watching over the assets and making wise decisions about buying and selling. Periodically I go through and figure out which are under-performing and (keeping in mind any tax consequences) sell those and double up on the better ones. I do have what I call my "sandbox"- a Fidelity account where I occasionally trade individual stocks. It's about 1/5 of our investments and so far it's doing well.

Your wife may feel better knowing that your investment in the more adventurous stuff is restricted to a small % of your portfolio. In the end, she may need the assurance of more cash-equivalents than most people have around, but maybe you could agree to just X years' spending worth of cash. That way she knows you won't have to liquidate at distress-sale prices in a down market.

Someone mentioned investing in real estate- personally that scares the heck out of me. I know that fortunes have been made that way but you really have to know what you're doing.

 

[harley]

Maybe I've read the OP wrong, but it seems to me like he is counting on spending $75K/year based on $2M in assets and counting on 1 or 3% nominal returns. I don't see how that can be sustainable for very long unless you have a very clear end of life plan involving mutual suicide or something. So I assume I'm missing something since so many people are saying he's OK.

As far as the investments, I was pretty scattered when I started out due to years of investing with a FA. Once he was shown the door I started (over the next decade) to consolidate my accounts. I've still got enough to make tracking it all an adventure, mostly due to trying to avoid creating taxable events, but it's getting better. My main goal is to have a clean, easy to manage plan for DW in case anything happens to me. I've gotten my death letter down to two pages, so I'm obviously making progress.

I agree with those above who have recommended putting together a written investment plan that you can go over with your DW, including showing her how "safety" is almost always the least safe option over time. My DW had/has no real interest in finances, but over the decade or so has learned enough to feel pretty comfortable with out discussions. The secret is to stop when her eyes start to glaze over. So make this a long term process and hopefully you'll end up on the same page.

 

[exnavynuke]

Maybe I've read the OP wrong, but it seems to me like he is counting on spending $75K/year based on $2M in assets and counting on 1 or 3% nominal returns. I don't see how that can be sustainable for very long unless you have a very clear end of life plan involving mutual suicide or something. So I assume I'm missing something since so many people are saying he's OK.

As far as the investments, I was pretty scattered when I started out due to years of investing with a FA. Once he was shown the door I started (over the next decade) to consolidate my accounts. I've still got enough to make tracking it all an adventure, mostly due to trying to avoid creating taxable events, but it's getting better. My main goal is to have a clean, easy to manage plan for DW in case anything happens to me. I've gotten my death letter down to two pages, so I'm obviously making progress.

I agree with those above who have recommended putting together a written investment plan that you can go over with your DW, including showing her how "safety" is almost always the least safe option over time. My DW had/has no real interest in finances, but over the decade or so has learned enough to feel pretty comfortable with out discussions. The secret is to stop when her eyes start to glaze over. So make this a long term process and hopefully you'll end up on the same page.

He stated in the OP that his investments only need to last 8 years as they'll start drawing pensions at that time which will cover their needs. As such, even with a 0% ROR, they could pull over $200k/year and not exhaust their investments before they replace it with pension income.

Cap - Will the pensions cover your full lifestyle, or just your "needs"? If it's just covering your "needs", how much from your investments do you estimate will continue to be needed to cover your lifestyle?

 

[gcgang]

I don't think it even matters, given your very conservative needs. In 8 years, you don't even need a portfolio. If you had it all in cash, you'd be able to spend 250k a year, but your actual budget is only 75k.

If I were you, I'd let my wife have her 50% in cash, do whatever your heart desires with your half, and live happily ever after.

+1

Start with YOUR goals, objectives, not with Asset Allocation, Diversification, blah blah blah.

Sounds like your wife would be very upset with a nominal decline and your needs will be more than covered in eight years by your pensions.

Why subject yourself to risk? Do you want your wife to get upset? Does it matter whether you earn nothing or 10% on this money? How would you change your life if you did earn 10%?

I'd be looking at ways to spend more, and keep the savings in a lockbox.

 

[audreyh1]

One way I live with the risk/time tradeoff is by diversifying across time - across the time sensitivity of a given asset class. I have cash, short-term high quality bond funds, intermediate bond funds (also diversified across several bond asset classes), equity funds (also diversified across several equity asset classes - different caps, foreign, REIT, etc.)

So - if something bad happened - market self-off, interest rate jump, who knows what - at least part of my portfolio is available for any immediate need, and then various other sections will have time to recover - the short-term high quality should recover first, then the intermediate, then the equity, etc.

You should never need the entire portfolio all at once, so as long as you can wait out part of it, you can invest those portions in riskier asset classes that will beat inflation over the long run, even though you have to live with volatility in the short run.

If you need access to all your funds within a short time frame - <10 years, then you can only afford to invest in the shortest time sensitive investments such as cash, short-term high quality bond funds, and maybe, maybe a little bit of intermediate fixed income. If CDs are paying higher for a given time period it may not even be worth the risk of bond funds.

 

[ducky911]

Your 50% equity portion looks to risky for me. I think you should look into balancing your risk. I like low cost etf index funds with a bit of slice and dice and a bunch of wellesley....the only free lunch on wall street...has work out nicely for me and I sleep good.

 

[Cap_Scarlet]

He stated in the OP that his investments only need to last 8 years as they'll start drawing pensions at that time which will cover their needs. As such, even with a 0% ROR, they could pull over $200k/year and not exhaust their investments before they replace it with pension income.

Yes, that's right.

Cap - Will the pensions cover your full lifestyle, or just your "needs"? If it's just covering your "needs", how much from your investments do you estimate will continue to be needed to cover your lifestyle?

I think it will pretty much cover our full lifestyle costs although we've never actually consciously lived to a budget we do have a spreadsheet which shows what we think we will spend. Now that we have effectively adopted our retirement lifestyle we are tracking to make sure our assumptions are right.

We have "basic" lifestyle costs of around $45-50k and then an on top of $20-25 for travel and holidays. Our budget spending has an additional $25k buffer.

Our pension income is a combination of company pensions (c. 60k in today's money) social security (c. $20k) and various other odds and sods of pensions c. $10k plus we will have some investment income.

 

[Cap_Scarlet]

I suggest that her problem (even though she says it is risk) is that she doesn't understand the plan. If you haven't done it, I suggest laying out an asset allocation strategy and manage your investments to that strategy.

I think you are right - she probably does not understand the plan and I like the idea you have described about setting out the allocation strategy. I think it also makes sense to keep 3-5 years expenses in zero risk investments which would enable her to see we would have no issue riding out a temporary market blip.