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Recent retiree -invest retirement $ at market top?
Old 06-23-2014, 12:47 PM   #1
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Recent retiree -invest retirement $ at market top?

Almost all of my retirement $ is in a MM acct because I can't get comfortable with investing in the current high stock market and low bond yields. My fear is that investing now would open the door to the worst-case scenario of "Sequence Of Returns", where a retiree's investments take a big hit in the first few years. I know I'm losing in the MM, but missing small gains isn't bothering me as much as big losses would. There is so much talk of an imminent 10%+ correction, but seems too many are waiting for that and any small down move gets bought.

Financial planners advised me to retire, based on their view that the trend in 2014 and beyond would be rising rates, which would eat into my retirement lump sum. Wrong so far, but maybe not for long -who knows.

Anyone wrestling with this and how the current market for stocks/bonds and the Fed Reserve tweaking look like a big trap? How do you make sense of what's going on -where do you find the best advice/assessment for this scenario? How are you dealing with it? The market marches slowly upward on very low volume, and seems to deflect any bad news. I wonder how much of the low volume is 401K auto-investments and share buybacks -any idea?

Maybe I should just start buying into this hype and begin DCA with very small increments. It just looks to me like a big trap with the jaws about to snap. Any help providing perspective, or recalibrating my psychology on this appreciated.
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Old 06-23-2014, 12:59 PM   #2
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Maybe I should just start buying into this hype and begin DCA with very small increments.
+1

Your dilemma is precisely why I gave up trying to time the market long ago. If I was smart/lucky enough to know when to pull my money out, I'd never figure out when to get back in. If/when the market falls, at what point do you feel comfortable investing again? And how do you know it isn't a false bottom or a head fake, waiting to play 'gotcha' once you buy?

Buy/hold/rebalance. In your situation DCA seems the best option available.
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Old 06-23-2014, 01:14 PM   #3
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What about using the approach that best protects your low or medium end expected retirement lifestyle. On an absolute basis, being out of the market would hurt you, but protecting against downside has value because a dollar lost can be worth more than a dollar gained (marginal utility of money - i.e. your first million is significantly more important than your tenth in terms of translating into comfortable retirement).

So my advice would depend in large part on how big your cushion is and what your fallback plans would be...DCFing into the market makes sense, but the speed/timing is still something that you can manipulate significantly based on what kind of cushion/fallback scenarios you have. The larger your cushion the slower you DCF in, the better your fallback (job alternatives if things go south), the more aggressive you can be///sliding scale between the two levers...
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Old 06-23-2014, 01:27 PM   #4
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How do you know it is the market top?
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Old 06-23-2014, 02:13 PM   #5
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Well, you shouldn't invest with money you need in the next 5-10 years, as an example. If you keep, let's split the difference, 7-8 years worth of cash, and then invest the rest, it won't matter if we are at the top or not, because you won't have to sell anything for years. If the market crashes tomorrow, it will likely rebound by then, and if it keeps going up and then crashes in 7 years, you'll have made 7 years worth of gains before it falls, in which case you will likely be ahead of where you are earning minimal money in a MM account.

Obviously there are different scenarios, but the point is - you don't know we are at a market top, as Katsmeow noted, and you don't know if/when a correction will happen, but you can plan for it and still be invested for the future.
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Old 06-23-2014, 04:25 PM   #6
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Agree with Kaudrey and katsmeow. . .

1-yes new market highs but not necessarily market top. The bull could keep running and you would miss out.

2-best advice on this I have heard is "buckets of money" based on time.
Keep one bucket for 0 to 4/5 years of expenses in mm, cds, short term bonds etc. 5+ years investing in the market to your desired AA makes sense. I think 10 years cash is excess, imho.
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Old 06-23-2014, 04:41 PM   #7
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I think an argument could be made that given the current economic treading water that we are not at a top, but that doesn't really matter.

Your current risk if future inflation. Decide an ultimate AA you want and how long you want to get there, make a schedule of how much will be invested in stocks each month or quarter to get from where you are now to where you want to be and stick to it.

For example, let's say you have $1m and want to get to 50/50 over 3 years. Then that means ~$14k a month. So the first month invest $14k. The next month invest whatever you need to to bring you balance to $28k. The next month invest whatever you need to to bring you balance to $42k. Repeat until you are 50/50. You'll invest more when prices are relatively low and less when prices are relatively high.
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Old 06-23-2014, 05:03 PM   #8
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Thanks for your replies-

I used the term "market top" with a backward-looking bias, to describe a concern with a market that marches forward at or near new highs on low volume, Fed fiddling, stock buybacks, etc. Looking forward, I don't know if this is the "top". I also know I shouldn't try to predict one, but I expect a correction by the end of 2014 (yes I could be wrong!). I'm wrong so far, and posted because of my frustration waiting for that correction and beginning to rethink this and consider going ahead with DCA even though this market feels like a big trap to me.

Once I buy, I'll hold/rebalance. There won't be any market timing.

I'm looking for retirement employment, and agree that would provide margin for leaning toward a conservative allocation. I'm 56 and retired based on very conservative numbers in the calcs and "100% success" projections. Regardless, I'm risk-averse and my cushion isn't large enough to make me carefree.

I agree with maintaining @7yr cash, at least until I see an opportunity to be fully invested and have annual stock dividends/bond yields = expenses.

Anyone have an answer for how much daily market volume is 401K auto-investments and share buybacks? Wondering because the low volume and rising against sometimes negative news sometimes gives me the impression buying is on auto-pilot, like 401k's.

Thanks again, and any further comments/perspective appreciated.
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Old 06-23-2014, 05:13 PM   #9
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Just a sympathy post. I am retired and have $500 a month come out of my pension check into an index fund, and then focus on stuffing the rest of my savings for the year into maxing out IBond limit and HSA so I don't put it in the market. I agree fully with all above posters but I still would not be happy if I was trying to unwind all MM money into the market now. Instead I focus on nibbling on the edges. Just had 2 CDs about to roll over for 0.7% for 3 years. I am gonna put them in the 10 year 3.35% CD when the money clears. And just found a place to park my increasing HSA stash that pays 3X the ridiculously low rate I am now receiving. Just trying to stack my nickels a little higher than last year.


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Old 06-23-2014, 05:28 PM   #10
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Normally I take a withdrawal from my IRA every September to pay School taxes. I don't know if it's the market top, but this week I decided to make my withdrawal early. Siphon a little off the top while the market is up and put it into my money market account until it's time to pay my tax bill. If it goes up I don't lose much and if it goes down I'm OK till next year.
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Old 06-23-2014, 11:46 PM   #11
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I raised my cash level to about 33% of my portfolio just before retirement in 2007. That would have been enough to carry us through a bad downturn. Turns out DW still wanted to work longer and we were able to reinvest during 2008 and 2009.

You might consider investing 50% with maybe a one year DCA or even a lump sum. You can add another 25% if the market drops, or during next year. Spend from the remaining 25% until you reach your target AA. Then proceed normally according to your plan.
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Old 06-24-2014, 12:00 AM   #12
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Originally Posted by NameTaken2 View Post
Almost all of my retirement $ is in a MM acct because I can't get comfortable with investing in the current high stock market and low bond yields. My fear is that investing now would open the door to the worst-case scenario of "Sequence Of Returns", where a retiree's investments take a big hit in the first few years. I know I'm losing in the MM, but missing small gains isn't bothering me as much as big losses would. There is so much talk of an imminent 10%+ correction, but seems too many are waiting for that and any small down move gets bought.

Financial planners advised me to retire, based on their view that the trend in 2014 and beyond would be rising rates, which would eat into my retirement lump sum. Wrong so far, but maybe not for long -who knows.

Anyone wrestling with this and how the current market for stocks/bonds and the Fed Reserve tweaking look like a big trap? How do you make sense of what's going on -where do you find the best advice/assessment for this scenario? How are you dealing with it? The market marches slowly upward on very low volume, and seems to deflect any bad news. I wonder how much of the low volume is 401K auto-investments and share buybacks -any idea?

Maybe I should just start buying into this hype and begin DCA with very small increments. It just looks to me like a big trap with the jaws about to snap. Any help providing perspective, or recalibrating my psychology on this appreciated.

You should not have put yourself in this situation unless you are a proven market timing guru. If you are, please let me know what the secret is. If not, good luck to you. However you come out of this, make sure you don't end up in similar situation later (all in stock, all in mm, etc.).

My philosophy is, diversify, re-balance, invest in long term, relax & enjoy.
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Old 06-24-2014, 12:11 AM   #13
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People who post questions about this dilemma have usually gotten themselves into the position they are in by fear that the market was going to drop or drop more. Now that it hasn't done what they feared, they fear it will eventually do it. And sure enough it will, but maybe not until another big leg up and they are in an even worse position.

No one can accurately know that there's a big correction soon or not so soon, so any prognostication to change your investing behavior based on prophecy is just a guess. History has proven a small number of guesses are right, but you cannot know in advance which ones. So better not to base your actions on a guess. At this point your best strategy is to try to get back in gradually, so if the market moves against you you can avoid a big psychological backlash, but if the market keeps rising at least you are starting to get back in. It will be neither optimal nor the worst you can do. So at least get off the sidelines.
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Old 06-24-2014, 01:01 AM   #14
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My decision to wait for a correction is market timing: guilty as charged. The original intent was to invest by the end of 2014 if the correction didn't occur. I posted because I reconsidered this. I will start to DCA into this market that I don't believe in, because it's The Right Thing To Do.

You'll know when I'm invested, because stocks will drop 20% shortly thereafter.
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Old 06-24-2014, 01:19 AM   #15
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You might consider DCAing and branching out into a variety of mostly low volatility investments - some stocks, TIPS, CD ladders, stable value funds if you have them in 401Ks, I bonds, etc.

I would buy short term CDS over MM as you can at least earn a little interest and get FDIC protection.
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Old 06-24-2014, 05:49 AM   #16
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This may be helpful: What To Do Now that you have missed the huge run-up:
Missed the big market rally? Here’s what to do now. | The Big Picture
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Old 06-24-2014, 06:55 AM   #17
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This may be helpful: What To Do Now that you have missed the huge run-up:
Missed the big market rally? Here’s what to do now. | The Big Picture
This sums it up very nicely I think.
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Old 06-24-2014, 07:03 AM   #18
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This sums it up very nicely I think.
Yes, that article is very good advice.
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Old 06-24-2014, 10:57 AM   #19
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Ritholtz's article is one year old. The stock market is only up 26% since a year ago. It's amusing to read the comments to the article one year later.
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Old 06-24-2014, 11:50 AM   #20
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Suppose there was a 10% correction. If your portfolio was 50:50 equities:fixed income, then your portfolio might only go down 5%. You should realize that the stock market is already up more than 5% in 2014 alone. A 5% change is really normal and to be expected.

If you are worried about such normal losses, then the only choice is to stay out of stocks, but you will have to have a lot more assets to fund a long-term retirement in that case.

Or you can embrace losses because they let you buy stocks on sale. I look forward to losses for just that reason: index funds go on sale.
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