Need to start generating income from cash

[thedaily]

I'm 48 and I've done well by saving not so well on doing something with the non-qualified cash. I have about 750K in cash and about 310K in 401K. The 401K is in the market. I don't have any children and not much in the way of bills since my house is paid off. I'm tired of my job and I want to move on but I can't do it on 1%. My goal is to generate 6% a year in cash. I live in AZ so I ultimately want to make 20K a year in dividend and/or interest. I could then qualify for ACA. Arizona it is higher (can't remember if it is 20K) and I won't qualify under the state since I have too much savings.

I was making and saving some decent money when the IR were 6% so I was making good money each month. I put my money in callable CDs and got an extra year before they were finally called. Then when the IR sank I figured I'd just ride it out well I wasn't expecting it to last this long. I'm seeing an end to me making good money at work but I've saved a bunch.

I tried a financial advisor and that was a horrible mistake. I just seem never to do well in the market either with the advisor nor myself as I seem to put money in the market and within a month the bottom falls out. Sure it comes back but seeing 20K evaporate from 100k in a matter months makes it hard to sleep at night as I'm not very good with risk. I even put my money in "low risk" investments.

I've been waiting for a "pullback" that hasn't materialized. I've got to get back to basics. I have 100K in Schwab just sitting. I'm ready to put the money somewhere. I will do it and take my chances. If it looks good, I'll put the rest of my money and just build the portfolio. Please give my some suggestions based on my goals and I will start implementing this week. I can't wait. I've been waiting for the pullback since the 14Ks.

Thanks

 

[mathjak107]

the question you ask really cannot be answered by anyone but you .

the first question is always what did you do wrong in your plan and why did you do it ?

if you didn't do well in a market that is higher than ever there had to be things you did on your own that caused this lack of success in investing.

if it is you got scared and bailed out at the wrong time our answers will be very different than if you have the pucker factor but failed from lack of guidance.

everyone now sees warren buffet buying at the lows and thinks next time they will stay the course too . only next time they find they don't have the pucker factor again knowing we fell 50% before and they bail and lose again.

 

[David1961]

I don't know anyplace where you can get 6% with "low risk" investments. I think you need to either lower your expectations of the return or take more risk.

 

[Walt34]

There are a number of threads on investment books. What has to happen is to change your expectations ("anchor point") of what is realistic and what is not.

Here is one such thread: http://www.early-retirement.org/forums/f30/investor-psychology-book-70323.html

 

[mpeirce]

If you decide to put money into equities, consider dollar cost averaging them in rather all at once.

If you want to put $600,00 into the market, move $50,000 each month and use it to buy your chosen assert allocation. Do this over the next 12 months.

Then if the market goes down while you are doing this you can pat yourself on the back and say "I'm still putting money into the market at these better prices" and if the market goes up "I'm glad I put some in at those better prices a few months ago".

 

[thedaily]

the question you ask really cannot be answered by anyone but you .

the first question is always what did you do wrong in your plan and why did you do it ?

if you didn't do well in a market that is higher than ever there had to be things you did on your own that caused this lack of success in investing.

if it is you got scared and bailed out at the wrong time our answers will be very different than if you have the pucker factor but failed from lack of guidance.

everyone now sees warren buffet buying at the lows and thinks next time they will stay the course too . only next time they find they don't have the pucker factor again knowing we fell 50% before and they bail and lose again.

The financial advisor didn't know what he was doing. He had I think zero bond funds and all equities with them most of them overlapping significantly then the dot com bubble popped. Then interest rates were doing so well so I took that smiled every month when I saw the money and slept at night.

When I realized that the rates were going to stay low for long. I decided to put my money into high paying dividend ETFs like PFF, REM, and a bond one and one other. Then the Greece scare hit within a month and I saw a 20% drop. Then I couldn't sleep at night so when it finally got close to even I bailed.

I've been lurking here for awhile. I see people say I'm living off my bonds funds. This is what I want to do. Maybe 6% is to high.

 

[thedaily]

If you decide to put money into equities, consider dollar cost averaging them in rather all at once.

If you want to put $600,00 into the market, move $50,000 each month and use it to buy your chosen assert allocation. Do this over the next 12 months.

Then if the market goes down while you are doing this you can pat yourself on the back and say "I'm still putting money into the market at these better prices" and if the market goes up "I'm glad I put some in at those better prices a few months ago".

This is good advice. I may not have bought all at once but I did but within a month. I rushed to get money in the market. I think that was part of my problem.

 

[mathjak107]

for now you missed the boat for living off bond funds unless you need very little.

that isn't to say you can't use a conservative mix. i use a mix of a balanced fund , a total bond fund, short term bonds and a special situation high yield junk bond fund .

while the potential for loss is there the volatility in the scheme of things is quite low.

 

[bamsphd]

I will do it and take my chances. If it looks good, I'll put the rest of my money and just build the portfolio.

What does "If it looks good" mean to you? Say you invested $100,000 of that $750k cash in a broad index fund today. Then "the market" makes a record move. Does it "look good" and make you want to invest the rest of your money if:

1. Your $100,000 is now worth $150,000?
2. Your $100,000 is now worth $50,000?

If you answered number one, then DO NOT INVEST MORE IN THE MARKET until you spend some time studying investing. The idea is to buy low and sell high, not to buy high and sell low!

You might find the book "Value Averaging" by Michael E. Edleson is a good starting place.

 

[thedaily]

What does "If it looks good" mean to you? Say you invested $100,000 of that $750k cash in a broad index fund today. Then "the market" makes a record move. Does it "look good" and make you want to invest the rest of your money if:

1. Your $100,000 is now worth $150,000?
2. Your $100,000 is now worth $50,000?

If you answered number one, then DO NOT INVEST MORE IN THE MARKET until you spend some time studying investing. The idea is to buy low and sell high, not to buy high and sell low!

You might find the book "Value Averaging" by Michael E. Edleson is a good starting place.

1. I'd probably think the market is getting to high and I would get concerned and I may pull out.
2. I wouldn't sleep well at night.

The psychology behind all this is interesting. The 401K doesn't bother me. Why. Because I get an automatic gain by the match and since I started this a long time ago. I bought way down. If I would've done the same with my own money, I would be smiling now. This all came about by picking a crappy FA. And now due to waiting, I think I missed the boat and the market is too high.

 

[Animorph]

Dollar cost average into the market. You might even do it over a couple of years. I agree the market looks high.

Buy a balanced fund like Vanguard Wellesley. It holds bonds and stocks in one fund, so it doesn't move around as much and is easier to stick with. I'm not sure what will be available to you at Schwab. OAKBX is a good balanced fund that I use and is available quite a few places. DODBX is another. Though neither is a super low-cost index fund.

 

[mpeirce]

Remember that at 48 you are still a long term investor - you have decades to go! If you are waiting for an opportunity to enter the market, you may wait a very long time (or not - it's unknowable).

You say "I'm not very good with risk." Just investing in bonds isn't going to do it at current rates.

You also say "My goal is to generate 6% a year in cash. I live in AZ so I ultimately want to make 20K a year in dividend and/or interest." I'm going to ignore the cash part of this and just take away the 20K in dividends/interest part. Correct my mistake...


So here's one idea:

Become a "I'll never touch my principal" investor.

Put all you money into Vanguard Wellington. It's a well managed, well respected balanced fund. It yields about 2.5% right now, so it'll generate about $25K per year for you.

Swear to yourself that in up or down markets, you will not bail out. Just ignore the market, collect your dividends and construct your budget to live on that amount.

What do you think?

 

[Katsmeow]

Sure it comes back but seeing 20K evaporate from 100k in a matter months makes it hard to sleep at night as I'm not very good with risk. I even put my money in "low risk" investments.

It seems to me that you don't have any problem with risk. You aren't very good with volatility. It is, after all, very risky to have a considerable amount of money in cash since that exposes you to inflation risk. I would consider it risky in the extreme at your age to have so much money in cash.

Therefore, it seems to me that what you want is something that is less volatile. The problem with many people who say that don't want risk is that they don't invest in equities because they can't tolerate the volatility. The result is that they end up in cash and have a great deal of inflation risk. That inflation risk can be very deadly but because it isn't as volatile some are lulled into thinking the inflation risk isn't there.

Of course if one has a large enough portfolio to not care about inflation risk then people can ignore inflation risk. But, how large does that portfolio need to be?

A possibility for some who can't tolerate a lot of volatility is to get some sort of a blended fund that is less volatile. Maybe a Wellesley or a Wellington or even one of the target type funds.

 

[Sirka]

Become a "I'll never touch my principal" investor.

Put all you money into Vanguard Wellington. It's a well managed, well respected balanced fund. It yields about 2.5% right now, so it'll generate about $25K per year for you.

Swear to yourself that in up or down markets, you will not bail out. Just ignore the market, collect your dividends and construct your budget to live on that amount.

I think this is a great plan and already use it as the end game; When I am out (and done )my DW will slowly sell off stocks and move into balanced fund like Wellington or Janus Balanced Fund (JABAX). She can ignore the markets after that.

 

[thedaily]

Remember that at 48 you are still a long term investor - you have decades to go! If you are waiting for an opportunity to enter the market, you may wait a very long time (or not - it's unknowable).

You say "I'm not very good with risk." Just investing in bonds isn't going to do it at current rates.

You also say "My goal is to generate 6% a year in cash. I live in AZ so I ultimately want to make 20K a year in dividend and/or interest." I'm going to ignore the cash part of this and just take away the 20K in dividends/interest part. Correct my mistake...


So here's one idea:

Become a "I'll never touch my principal" investor.

Put all you money into Vanguard Wellington. It's a well managed, well respected balanced fund. It yields about 2.5% right now, so it'll generate about $25K per year for you.

Swear to yourself that in up or down markets, you will not bail out. Just ignore the market, collect your dividends and construct your budget to live on that amount.

What do you think?

Thanks, I will look into Wellington.

Actually, this statement is correct. "My goal is to generate 6% a year in cash. I live in AZ so I ultimately want to make 20K a year in dividend and/or interest." I'm in a job that I'm unhappy. I really don't want to stay in the industry. I feel I have enough money and very low expenses to do what I want but I can't do it at <1%, 6% yes. I would need to get in ACA and if I don't make enough money in a year (e.g., some form of dividends/interest) I won't qualify. Maybe I missed the boat and I'll have to wait for it to come back.

 

[thedaily]

It seems to me that you don't have any problem with risk. You aren't very good with volatility. It is, after all, very risky to have a considerable amount of money in cash since that exposes you to inflation risk. I would consider it risky in the extreme at your age to have so much money in cash.

Therefore, it seems to me that what you want is something that is less volatile. The problem with many people who say that don't want risk is that they don't invest in equities because they can't tolerate the volatility. The result is that they end up in cash and have a great deal of inflation risk. That inflation risk can be very deadly but because it isn't as volatile some are lulled into thinking the inflation risk isn't there.

Of course if one has a large enough portfolio to not care about inflation risk then people can ignore inflation risk. But, how large does that portfolio need to be?

A possibility for some who can't tolerate a lot of volatility is to get some sort of a blended fund that is less volatile. Maybe a Wellesley or a Wellington or even one of the target type funds.

My problem is when the volatility hits. Say I drop in 100K and then it goes to 120K then a correction back to 105K no problem. Say I drop in 100K and then it goes to 80k, problem. I can log into my account and see this. Inflation isn't something you can touch and feel so to speak.

 

[rayvt]

My problem is when the volatility hits. Say I drop in 100K and then it goes to 120K then a correction back to 105K no problem. Say I drop in 100K and then it goes to 80k, problem.

Then you have a real problem, which is the first thing you need to address. The problem is that you are emotionally not able to handle the volatility which is an integral part of investing.

"Over the last 100 years the stock market has experienced on average a 5% correction three times per year, a 10% correction once per year and a 20% correction once every three and a half years."

Here are some quotes to help you along.

"Following the path of least emotional discomfort is a road to failure."

"over the full market cycle, investing to achieve short-term comfort costs a fortune." -- John Hussman

“You need long-term strategies to reach long-term goals, and paying
attention to short-term fluctuations in the stock market is one of
the most destructive things you can do for your long-term financial
health.” -- Jim O’Shaughnessy

"Most investors do poorly, but it’s not because good investment methodologies are secret. It’s because they do not have the will to stay with a winning strategy during a period when it is under duress."


" investing is emotionally hard. You have to be willing to take short-term pain in the interests of long-term gain. No strategy works every month or year. Returns from valid strategies are most often lumpy. The markets are almost always lumpy." -- David Merkel alephblog.com

"Successful investing is emotionally difficult. It often requires waiting for long-term results when your portfolio was recently pummeled, recommending an investment when others think it is a dog, investing when volatility is high and, in general, looking and acting different from the crowd. To be a successful investor, you must make a conscious decision to redirect your natural impulses and focus on careful and thoughtful analysis."

"Fear is a stronger emotion than hope, which is why bear markets are always swifter than bull markets. The secret of making money in stocks is not to get scared out of them. Never bet on the end of the world, It only happens once." -- John Templeton

"More Money Has Been Lost Avoiding Risk Than at the Point of a Gun
Until you realize taking a beating is a normal part of long-term investing, you’ll hurt the overall performance of your portfolio.
Staying with your strategy during a pullback is difficult, and it never gets any easier."

"Long-term investment returns typically emerge as the delayed payment for adhering to a sound discipline even when it is uncomfortable to do so. Short-term investment returns are often easier to find, but they tend to be advances on a loan that will eventually be repaid with interest." -- John Hussman

"A feature of many winning investment strategies: the arbitrage involved is behavioral, not financial. Good returns derived from uncomfortable strategies do not get arbitraged away, because very few people will actually do it. In other words, if you look at your portfolio and get a warm, fuzzy feeling, you’re probably doing it wrong."

 

[calmloki]

About 1 1/2 years ago I pulled everything out of the market and left it in Vanguard Prime money market, where it sat and made pretty much $0. During the course of last year I watched the market bouncing around and waited for it's big drop so I could buy on sale. Instead, the market kept trending up and by the end of the year was up about 30%. This year I've been plunking in about 2% of the Prime account into the market each week. Classic case of buy high, but I am not a good example of what to do, though going in gradually has been less painful than making a single big buy. I will say that the total stock market shares have done better than more volatile and higher expense other shares.

Consider something else - maybe you aren't a stock market kind of person. I do well renting property and loaning money on property - way better than I do in the market. Maybe you have something you are good at that would work well for you. We don't all have to take the same path.

 

[mathjak107]

actually you are a very classic case when you don't have the pucker factor for equities or are overly invested.

folks get burned all the time trying to buy low and sell high. typically it ends up being buy low and sell lower.

that buy low and sell high mantra has lost more money for folks than anything else.

folks thought low was when we fell 2000 points only by the time we fell another 4000 most bailed and lost money.

so what makes money? actually buy high and sell higher.

an object in motion stays in motion until it hits something that reverses it.

a trend is no different. trying to buy low in a down turn has zero margin for a drop. you lose money stsrting with the next tick down.


but the odds of being that guy on the end of an uptrend are the opposite , you have great odds of making money .


this is a little secreat the public just just not know . the saying the trend is your friend is a very true one.

 

[frank2009]

Some suggestions to look at:
-Vanguard Wellesley
-Vanguard Wellington
-Vanguard Retirement Income
-Vanguard Managed Payout fund (a different type of fund that may work for you; just understand what it is and is not)

 

[thedaily]

About 1 1/2 years ago I pulled everything out of the market and left it in Vanguard Prime money market, where it sat and made pretty much $0. During the course of last year I watched the market bouncing around and waited for it's big drop so I could buy on sale. Instead, the market kept trending up and by the end of the year was up about 30%. This year I've been plunking in about 2% of the Prime account into the market each week. Classic case of buy high, but I am not a good example of what to do, though going in gradually has been less painful than making a single big buy. I will say that the total stock market shares have done better than more volatile and higher expense other shares.

Consider something else - maybe you aren't a stock market kind of person. I do well renting property and loaning money on property - way better than I do in the market. Maybe you have something you are good at that would work well for you. We don't all have to take the same path.

I think we feel the same way. At 14K, I was thinking it's going to have to pull back and now it's way up. I remember thinking it'll make it to 16K and it hit 16k. Now I'm sitting here thinking the same thing how can the market possibly hit 20K.

I need to trickle my money in. That probably would have definitely dampened the pullback for me.

I looked into buying in Tulsa. Had a friend do it. He got in on the bottom. When I started looking, prices rose and I crunched the numbers and it didn't seem to work. I'm an engineer by schooling even though I don't works as one. I tend to analyze and re-analyze everything.

 

[LV_Travel]

Investment Words of wisdom that are key to success

Then you have a real problem, which is the first thing you need to address. The problem is that you are emotionally not able to handle the volatility which is an integral part of investing.

"Over the last 100 years the stock market has experienced on average a 5% correction three times per year, a 10% correction once per year and a 20% correction once every three and a half years."

Here are some quotes to help you along.

"Following the path of least emotional discomfort is a road to failure."

"over the full market cycle, investing to achieve short-term comfort costs a fortune." -- John Hussman

“You need long-term strategies to reach long-term goals, and paying
attention to short-term fluctuations in the stock market is one of
the most destructive things you can do for your long-term financial
health.” -- Jim O’Shaughnessy

"Most investors do poorly, but it’s not because good investment methodologies are secret. It’s because they do not have the will to stay with a winning strategy during a period when it is under duress."


" investing is emotionally hard. You have to be willing to take short-term pain in the interests of long-term gain. No strategy works every month or year. Returns from valid strategies are most often lumpy. The markets are almost always lumpy." -- David Merkel alephblog.com

"Successful investing is emotionally difficult. It often requires waiting for long-term results when your portfolio was recently pummeled, recommending an investment when others think it is a dog, investing when volatility is high and, in general, looking and acting different from the crowd. To be a successful investor, you must make a conscious decision to redirect your natural impulses and focus on careful and thoughtful analysis."

"Fear is a stronger emotion than hope, which is why bear markets are always swifter than bull markets. The secret of making money in stocks is not to get scared out of them. Never bet on the end of the world, It only happens once." -- John Templeton

"More Money Has Been Lost Avoiding Risk Than at the Point of a Gun
Until you realize taking a beating is a normal part of long-term investing, you’ll hurt the overall performance of your portfolio.
Staying with your strategy during a pullback is difficult, and it never gets any easier."

"Long-term investment returns typically emerge as the delayed payment for adhering to a sound discipline even when it is uncomfortable to do so. Short-term investment returns are often easier to find, but they tend to be advances on a loan that will eventually be repaid with interest." -- John Hussman

"A feature of many winning investment strategies: the arbitrage involved is behavioral, not financial. Good returns derived from uncomfortable strategies do not get arbitraged away, because very few people will actually do it. In other words, if you look at your portfolio and get a warm, fuzzy feeling, you’re probably doing it wrong."

 

[REWahoo]

+1 to what LV_Travel said.

Thedaily, I suspect your user name gives a clue to why you aren't finding success in the market. Investing is a long-term process - think decades, not days.

 

[elisap]

OP, I used to have the ALOT of fear like you. I've made money and sold and lost some money. I took a breather and have been getting back in once I figured out part of it was to learn how to manage my emotions both fear and that genius feeling we get when we are doing good. I remember the day the stock market dropped 1000 points. If it had been a year or two ago I would have been sell, sell, sell but instead I remained calm and did my own thing all day. I also realized it was a buying opportunity and shortly after bought instead. I've also learned that this validity can be buying opportunities as long as I try to figure out why a stock dropped and don't end up buying on a down trend. That's not to say I still don't have fear, I suspect I always will but I've learned you don't lose unless you sell on the downside or know when it's time to sell the lemon.

I remember a saying, (not exact) but it says that if you are not feeling uncomfortable then you're not progressing.

Thanks to everyone for your post, I have a lot to learn and I'm still learning to manage and it helps to read posts from people with more experience and how they stay in control.

 

[jetpack]

You state you have 750k cash to invest in something safe. You say you want 20k interest. That is 2.67%

The answer is CD's. The CD's I bought this year average about 3%. Look into brokered CDs if you're not getting the rate you want locally.