My wake up call - last night

[whatnot]

Our AA is 70/30. DH is 59 & I am 55. Our plan is to retire 4/1/18.
I have been meaning to move our AA to 60/40 due to retirement date that is 16.7 mos away. But I have procrastinated because I have enjoyed the returns on the 70%. Currently:
$2.1 mil in 401k's & IRAs (70/30)
+$150k cash
I have a fixed fund that offers a flat 3.5%. So today I shifted stock funds to this fixed fund (aka my "bond"). So now we are 60/40.
Thankfully, the stock market did not take a dive like I thought when the futures took a big dip last night. But I do feel like I was given a hall pass. IF the stock market had tumbled, I would have been kicking myself for my procrastination.

I feel that at our age and our retirement date in 16.7 months, the 60/40 is a more realistic AA. Last night was a big wake up call that my risk tolerance has decreased.

In addition, DH will have a pension of $45k, SS @ 62 of 20k, Me SS @ 67 of 30k.

In summary, I don't think I am market timing but adjusting my AA to what I think is appropriate in our circumstance. I am open to comments and thanks for listening.

 

[pb4uski]

I wish I had a fixed fund that paid 3.5% (no interest rate risk I assume). That's pretty sweet.

FWIW, IMO you are now 56/37/7 rather than 60/40.

 

[Al in Ohio]

Expect up to 10 months of volatility after an election. You should have made your change 3-5 months ago. I went from 65/35 to 50/50 at that time because of this. We are all human, thats why we would be very lucky to only average 1-2 pts below the market throughout our lifetime. But: If you are really 56 equites now as stated above , I'd say you are set as you are.

 

[Looking4Ward]

My AA is also 70/30 but I'm going to stick with it. I have a feeling a lot of money will be moving out of bonds and into equities.

Or not.

 

[whatnot]

pb4uski - yes thanks for the clarification on total portfolio - i was just looking at retirement funds. Looks even more conservative!
Cash
$25k @ 3.5% at CU
$25k CD @ 1.74% (3 yr)
$100k @ 1% at Ally (need to look at CD's !)

The fixed fund is a flat guaranteed 3.5% - no risk.

 

[LOL!]

I think your shift was a great idea. I don't think you give up much by going from 70/30 to 60/40. Here are the average annual returns of three Vanguard target retirement funds with allocations close to those numbers:
1-yr 3-yr Ticker (date through 10/31/2016, so be careful about the numbers)
3.86 4.72 VTWNX 2020 (now 57/43)
3.79 4.84 VTTVX 2025 (now 65/35)
3.65 4.89 VTHRX 2030 (now 73/27)

 

[Earl E Retyre]

If your CU 3.5% fixed fund is available to others, please let me know what credit union it is.

I think that last night was a good mental exercise of risk tolerance for lots of people. When I saw futures go down 750 points and -5% I imagined some scenarios where the market continued to quickly drop -10%, -20% even -30%. And I quickly did the math to see how much of my NW I would lose. My stomach did not churn at all. In the past, my stomach would have dropped like I was on a roller coaster. I did not even think of selling. And, if anything, I started contemplating if I had the guts to buy into the market if it fell 10-30%. Point is that I recognized that I am perfectly comfortable with my current level of equity risk (which is a relatively low % compared to most on this forum but still a lot of $$ to me).

I am pleasantly surprised and shocked that the market is up > 250 points on day 1 after the surprising election results.

 

[eta2020]

I disregard who gets elected just as I disregard Brexit or North Korea Nukes tests.

It has 0 effect on long term planing. Stay the course.

 

[NW-Bound]

If the market goes down a lot, I look at it as an opportunity to buy.

Woke up a bit earlier than normal, made my morning tea while waiting for the market to open. It didn't do a whole lot at first, so after an hour, I got up and did something else. Checked back later and found I had a nice gain for today. Will it last? Who knows?

If the market goes down, I try to buy. If it goes up, I look to sell. When it just flips/flops, I do nothing.

One thing about holding individual equities and sectored funds is that there's always something going up or down more than the market, which you do not see when owning an index. It's interesting to watch, and to try to understand it. And occasionally, I make some good money.

I cannot fight market volatility, so I try to make use of it. Gotta conquer greed and fear.

 

[Russman]

Wait or jump in

Hi all,

Was asked this question by my daughter last night.
She had a small amount of cash sitting idle..to invest (not money she needs, as she already has other savings set aside).
She wanted to put some more money into VDIGX and VGHCX
(Vanguard Dividend and Vanguard Healthcare) and was anticpating investing after the market dropped, which we thought was going to occur this week, after Trump's announcement.

To our surprise, it only dropped in the after hours on Tuesday, but market was up today, overall. In fact, healthcare climbed significantly today.

Should I tell her to wait until we see a market drop of at least 5% (who knows when that will happen ?)...or just jump in and be done with it.
I know the market is expected to be extremely volatile over the next few weeks, if not months.

She's not trying to make quick bucks, so it'll be long term investment.
Would just feel better buying on the dip.

Thanks

 

[LOL!]

I suggest that she not play with her money and not be emoitional about it.

Thus, I recommend that she not buy either of those funds, but instead come up with a long-term plan centered around the typical "own-the-entire-market" in the form of broad market index funds. This is especially true in a taxable account.

Invest some now, say half, and invest the rest on a monthly schedule over the next 5-10 months.


BTW, we just saw a market drop of 5% before the election, so this speaks to waiting. People get too fearful about drops when the market drops. Thus, they can't seem to follow a "invest when it drops" plan.

 

[donheff]

I am comfortable at 70/30 and will stay put but I think you made a good decision. You felt the regret as you watched the futures tumble - that confirmed what you had already intuited about your risk tolerance. At 60/40 you will probably lose sleep during a correction but you will at least be reassured that you are where you consciously chose to be.

 

[whatnot]

To Earl E Retyre - It is Navy Army CCU - earn 3.5% on the 1st $25k, then .50 > $25k. Must be a resident of 1 of 8 South Texas Counties. 1 account per HH.
To donheff - your comments express exactly my thought process.
Thanks for the comments, I just needed to vent!

 

[audreyh1]

That's right - I forgot about the Navy Army CCU. We have branches in our county.

A friend invested with them. But with the 25K limit (pays 3.5% up to $25,000 and 0.5% above that), and some other hoops -

• Make 10 NavyArmy debit card purchases each month
• Set up one monthly Direct Deposit or authorize one monthly ACH payment from your account
• Enroll and receive Electronic Statements (valid e-mail address is required).
• One Liberty Checking account per household

Checking Accounts « Navy Army CCU

I wasn't willing to go through the trouble of doing 10 debit card purchases each month. You really have to pay attention!

Basically - are you willing to make sure you make 10 debit card purchases a month to each $875 over a year time frame? I use rewards credit cards to make my purchases, so forgoing those would reduce that amount. I don't think I could keep it up and it sure would be a hassle to track.

Deposit Rates « Navy Army CCU

 

[kgtest]

Basically - are you willing to make sure you make 10 debit card purchases a month to each $875 over a year time frame? I use rewards credit cards to make my purchases, so forgoing those would reduce that amount. I don't think I could keep it up and it sure would be a hassle to track.

Deposit Rates « Navy Army CCU

Put your bills on auto-pay or Buy 10 gift cards at 10 separate registers.

Trash
Phone
Internet
Netflix
Gas
Entertainment
Grocery store
Costco
Movie out once a month, spend once on the ticket, once at the concession and bam you got 10 purchases a month. Won't mingle as well with rewards cards though.

as I type this out I'm thinking, yeah that would be a hassle...but for that's how they reward people by putting in the effort.

 

[audreyh1]

Put your bills on auto-pay or Buy 10 gift cards at 10 separate registers.

Trash
Phone
Internet
Netflix
Gas
Entertainment
Grocery store
Costco
Movie out once a month, spend once on the ticket, once at the concession and bam you got 10 purchases a month. Won't mingle as well with rewards cards though.

as I type this out I'm thinking, yeah that would be a hassle...but for that's how they reward people by putting in the effort.

Too much trouble - I'll keep using my rewards credit cards.

 

[brett]

We have moved to about 55 percent equities. Real rates of returns over the last four years have been good.

Sequence of returns over the past four years has had a very positive impact on our longer term financial goals and our exposure to risk. We might feel differently next year but this is where we have landed at present.

 

[Lsbcal]

Too much trouble - I'll keep using my rewards credit cards.

For 3.5% on 25k, I'd do it. But I just dropped our similar Credit Union card because they only pay 1.6% on up to 10k. Also agree with Audrey to keep it simple.

To get debits one can go to the grocery store and make a few transactions through the auto-checkout machine. Maybe 2 per trip. Then one can go the gas station and pump 2 separate transactions for modest amounts. Then set up an automatic transfer from one institution to the other for your ACH requirement.

Anyway, I'm happy with my CC rewards cards. I keep cash way low at present rates and draw from our short term bonds, maybe 5k at a time. Over the years I think this works out. At least until better guaranteed short term rates return to the banks.

 

[VFK57]

We can only guess what the Feds action in December or next year would be. Yet if they act like they talk and raise in December, stocks and bonds may go down. Bill Gross warns about bond market tanking for the past year. I agree with pb4uski that 3.5% fixed income is very good as of now. My 401K SV gives about 1.8% currently.

 

[DrRoy]

Should I tell her to wait until we see a market drop of at least 5% (who knows when that will happen ?)...or just jump in and be done with it.
I know the market is expected to be extremely volatile over the next few weeks, if not months.

She's not trying to make quick bucks, so it'll be long term investment.
Would just feel better buying on the dip.

Thanks

This is just another version of market timing, which I would suggest does not work. If you don't feel comfortable just going all at once, then break up the amount and buy in allotments over a period of weeks or months.

 

[sakowitzm]

Didn't see this brought up, so I thought I would raise it. Given the ages of the OP and spouse, they can very reasonably expect to live another 25-30 years. So is 60/40 really appropriate? Yes, one has to stay w/in one's risk tolerance, and surely the looming idea of having to draw on the funds in about 18 months is a concern.

Would it perhaps not be better to move a year or so of living expenses to cash, and then go 90/10? So as to (at least partially) assuage the fear of sequence of returns risk? Or, if the OP could stomach staying employed a little longer, that could also play a role.

Thoughts

(PS - if 60/40 is what it takes to sleep well at night, then certainly that is the right answer for OP. But in the general case.... ?)

 

[NW-Bound]

90/10 after 1 year of cash? History has shown declining periods of stocks as long as 10 years. How does one know if it will not repeat?

 

[whatnot]

Back again. Thanks for the comments.
The 10 debit transactions needed at our CU to qualify for 3.5% is not an issue. We both are working and that is a couple of lunches a week. We put the low dollar items here in order to maximize miles on our credit cards. And our paychecks are ACH. So very easy to get 3.5% on 1st $25k in our checking account.
Re: AA. It was my understanding that the closer to retirement - the more conservative our AA should be. We had been fairly aggressive to date and had only been at 70/30 for a couple of years (prev 80/20).
Of the $ 820k (40% bond/fixed) is $327k in the 3.5% fixed fund in my 403b. In addition, we have $156k cash. Our budgeted spend in retirement is $120k a year, but can easily scale that back to $90k. So in down market, the plan is $100k spend, Pension $45K, DH SS $20K, so $35k needed from investments. We can pull our minimum needs of $35k for 25 years from the fixed/bond portion if need be.
That being said, I don't believe I am market timing. The new AA is more conservative due to our age and retirement date of 17 months.