Tempted to do a little profit taking

[SumDay]

How rigid are you with rebalancing? This is our first full year of retirement, and after making our January IRA withdrawal for this year's living expenses, I notice we've completely recooped that, and have gained enough to cover next year's expenses.

I'm tempted to sweep that into my cash bucket, you know, just in case...

 

[Dtail]

I have a 55/45 AA with a theoretical absolute 5% movement rebalance trigger and have kept to that range.
However I did take off 1% off the top earlier in the year to lock into a really good local CD.
So not so much that the market is too high, more so for a good lock in opportunity, while still keeping in my AA range.

 

[jimandthom]

We are in our 4th year of both of us being retired. It made sense for us, to periodically "take some profits", although we leave the $$ in the IRAs usually in the sweep account, sometimes in the S/T Federal account.

Because I am not collecting SS yet, and we are redoing this old house, the gains have been preserved and available when needed.

So during the year(s) I have been timing the market. If our total $$ were up 10K from the last time, we pull 1/2 or so out and put into the sweep account.

A couple of times a year after reviewing where we are on staying within the 12% tax bracket, we then rebalance back to our AA. This usually involves Roth conversions and sending $$ into a taxable investment account.

No idea on what we will do when the remodel is done and I start SS. My SS and small pension plus spouses federal pension, will pretty much cover all utilites, insurances, mortgage and still leave enough for most of our food and fun spending.

If taking $$ off the table helps you with sleeping at night--- go for it.

 

[RobLJ]

In late June (before a 3 week trip to Ireland), I took some gains after the portfolio hit all-time highs, despite withdrawals the last two years. We now have funded withdrawals for the next 2.5 years. I'll scrape more if the market goes up another 5%.
After the recent withdrawals, I'm down to 58.3% stock allocation, as opposed to the target of 60%. Normally, at 63% I will rebalance.

 

[joylesshusband]

...I'm tempted to sweep that into my cash bucket, you know, just in case...

This notion indicates that you do not trust your portfolio.
Why?
What do you feel you have to change in order to be able to fully trust it?

Your mention of a "bucket" puzzles me as well; how many buckets do you have, and what is their purpose?

 

[jollystomper]

I just did some profit taking with one of the few individual stocks I own. I sold a small percentage of my Microsoft shares, which I have owned since the mid 90s. Will likely "blow that dough" on something fun.

I am now slightly ahead of my target AA, but already have what is looking like "too much" cash set aside to weather any market downturns before we take SS, so other than starting Roth conversions I am letting things ride for now.

 

[DektolMan]

been 60/40 for years then after retiring in 2016 went to 55/45. After dow hit 27k I figured I have enough so went to 45/55 with 4 years in cash since we are not collecting SS yet. If the bull run ends and we have a correction I'd buy more equities that are on sale.


Another thing that scares me is a change in the White House as I think that would have an effect on the market. just my 2 cents!

 

[jimandthom]

This notion indicates that you do not trust your portfolio.
Why?
What do you feel you have to change in order to be able to fully trust it?

Your mention of a "bucket" puzzles me as well; how many buckets do you have, and what is their purpose?

Way I read the post, was that they have been fortunate with their portfolio and are of the mindset ----- its the "bird in the hand" concept.

After the first couple of years, now that we are both retired, its becoming easier to more clearly see what our expenses are and just what our $$ needs really are.

Doesn't mean not comfy with AA, just greater clarity and this is a great time to have a bit of extra fun.

 

[RobbieB]

I pulled 40 grand from the IRA, all equities.

 

[RobLJ]

As a bit of background, in 2021 my online gig income will run out, and I won't be able to withdraw from DW's IRAs (without penalty) until 2023. So while the market is up, I'm trying to build 2.5-3 years (2020, 2021 & 2022) of withdrawals without needing to sell in a large downturn. With dividends, I probably only require a little over 2 years of cash.

 

[jimandthom]

As a bit of background, in 2021 my online gig income will run out, and I won't be able to withdraw from DW's IRAs (without penalty) until 2023. So while the market is up, I'm trying to build 2.5-3 years (2020, 2021 & 2022) of withdrawals without needing to sell in a large downturn. With dividends, I probably only require a little over 2 years of cash.

Makes perfect sense. You didn't get to Fire without planning ahead. Seems that planning in Fire makes perfect sense also.

Tending to believe that some of the investment mantras, read here and elsewhere(although less here than Bogleheads) are a tad rigid and lack full understanding of life.

We don't count our taxable in determining AA. That is set aside for remodel and gifting/transferring to local U, or just some kind of misc. purchase. Last year was around 3K for new kayaks and stuff.

 

[HI Bill]

Tending to believe that some of the investment mantras...are a tad rigid and lack full understanding of life.

+1
If you understand what FIRECALC does, you also need to understand what it doesn't do well. Other than adding limited income, or spending, it doesn't really do well with helping you plan for different phases of your life. Your 'funding gap' plan sounds reasonable to me, especially, if you don't need/want to continue to grow your entire portfolio. That said, if you've properly planned, most here would maintain that you should stick to your AA.

 

[HI Bill]

...I won't be able to withdraw from DW's IRAs (without penalty) until 2023. So while the market is up, I'm trying to build 2.5-3 years (2020, 2021 & 2022) of withdrawals without needing to sell in a large downturn. With dividends, I probably only require a little over 2 years of cash.

You could start taking SEPPs (substantially equal periodic payments) under IRS Rule 72t. But they have to continue for at least 5 years, and are based on the concept of RMDs and therefore have restrictive distributions, and severe penalties if you mess up the distributions.

 

[jimandthom]

+1
If you understand what FIRECALC does, you also need to understand what it doesn't do well. Other than adding limited income, or spending, it doesn't really do well with helping you plan for different phases of your life. Your 'funding gap' plan sounds reasonable to me, especially, if you don't need/want to continue to grow your entire portfolio. That said, if you've properly planned, most here would maintain that you should stick to your AA.

The highlighted is what some of the mantras seem to forget about.

We do stick to an AA mostly because everything I've read suggests that somewhere around 50/50 is a reasonable sweet spot. We are essentially 55/45.

Since we have no kids/heirs, the local U and 1 or 2 more organizations will get our stuff.

Guessing that a year or 2 after I've turned on SS and pension and we've re- learned our cash flow and cash needs AA may change a bit to hopefully provide more for the charitable beqests.

 

[joylesshusband]

"bird in the hand" concept

Then there's the "AA" concept, and the two contradict each other.
What is the point of proclaiming that one's following the AA concept when one's following a different "bird in the hand" concept?
What's the point of having a set AA at all then?

Please, understand that I don't need answers to these questions, but the OP surely does. This is why I raise them.

 

[joeea]

I'm tempted to sweep that into my cash bucket, you know, just in case...

What is it that you are imagining will happen in the next few months, such that would be better to have cash rather than have your money working for you?

My crystal ball is hazy today...

 

[Dash man]

What is it that you are imagining will happen in the next few months, such that would be better to have cash rather than have your money working for you?



My crystal ball is hazy today...

I think he’s just concerned that he doesn’t know what he doesn’t know.

 

[joeea]

I think he’s just concerned that he doesn’t know what he doesn’t know.

Is not knowing what you don't know something to be concerned about?

That concerns me!

 

[foxfirev5]

Nobody ever went broke by taking a little profit.

 

[audreyh1]

How rigid are you with rebalancing? This is our first full year of retirement, and after making our January IRA withdrawal for this year's living expenses, I notice we've completely recooped that, and have gained enough to cover next year's expenses.

I'm tempted to sweep that into my cash bucket, you know, just in case...

Most of my annual income is met by taking mutual fund distributions in cash, which are accumulated within the account to be withdrawn Jan 2 of the next year. So, in a sense, this can be taking profits if the market is up and equity funds are paying big distributions. In reality, most of the distributions are paid in Dec, so it's a pretty small window for "profit taking".

I rebalance after withdrawal in Jan unless there has been a huge change during the year. This is rare.

I often feel like "locking in" profits when things are running high. But I don't actually do it. Years retired has shown me my annual rebalancing system works reasonably well.

Actually - I already feel like I'm "locking in profits" whenever I withdraw funds in Jan after a good market year, as my income is based on % of portfolio value every Dec 31. Then I pretty much ignore the portfolio until Oct - Nov when I start looking at expected distributions.

 

[CardsFan]

To answer the original question:

How rigid are you with rebalancing?

My answer is: not very rigid. Target is 55/45, but anything between 60/40 and 50/50 is OK.

When I retired we were about 60/40. At that time I changed to have all Div/int/cap gains paid in cash. In the after tax account, we spend it. In the IRA's, we buy CD's. (one exception, as we convert more to Roth, those funds are re-invested)

For additional spending I sell either stocks or bonds in the after tax account. Lately, its mostly bonds that are near par with little tax impact.

So, I guess my philosophy is to skim some of the cream (div/cap gains) while stocks are going up. If we hit a pull back, then I will probably start re-investing, at least in the tIRA.

 

[Jerry1]

Nobody ever went broke by taking a little profit.

I don’t know about that. If you think in terms of the 4% rule, which is similar to how FireCalc views the world, there is an implied asset mix (asset allocation). Of course taking profits seems reasonable given that we’ve had a great market. However, also implied in the models is that there are good years and bad years. If you take profits, aren’t you eventually going to hinder the performance of your portfolio? Looked at it another way, I’m not sure where these profits go when you take them, but are you going to put them back in the years the market goes sour?

I think this “taking profits” concept is understandable in that I understand the feeling, but I think it has the potential to cause problems down the road. Taking the profit means you’re either spending more in the good years or it means you’re adjusting your AA. If you’re just essentially rebalancing, probably not too risky. If I recall, the 4% rule was successful with a pretty wide range of an Equity percentage in the AA. If you’re spending more, I think that could be risky.

 

[foxfirev5]

I don’t know about that. If you think in terms of the 4% rule, which is similar to how FireCalc views the world, there is an implied asset mix (asset allocation). Of course taking profits seems reasonable given that we’ve had a great market. However, also implied in the models is that there are good years and bad years. If you take profits, aren’t you eventually going to hinder the performance of your portfolio? Looked at it another way, I’m not sure where these profits go when you take them, but are you going to put them back in the years the market goes sour?

I think this “taking profits” concept is understandable in that I understand the feeling, but I think it has the potential to cause problems down the road. Taking the profit means you’re either spending more in the good years or it means you’re adjusting your AA. If you’re just essentially rebalancing, probably not too risky. If I recall, the 4% rule was successful with a pretty wide range of an Equity percentage in the AA. If you’re spending more, I think that could be risky.

I agree. Being old school I sometimes over look the fact that some people live beyond their means and can not comprehend a very simple approach.

 

[jimandthom]

To answer the original question:


My answer is: not very rigid. Target is 55/45, but anything between 60/40 and 50/50 is OK.

When I retired we were about 60/40. At that time I changed to have all Div/int/cap gains paid in cash. In the after tax account, we spend it. In the IRA's, we buy CD's. (one exception, as we convert more to Roth, those funds are re-invested)

For additional spending I sell either stocks or bonds in the after tax account. Lately, its mostly bonds that are near par with little tax impact.

So, I guess my philosophy is to skim some of the cream (div/cap gains) while stocks are going up. If we hit a pull back, then I will probably start re-investing, at least in the tIRA.

We don't have any hard and fast rules. AA within a wide range, keep our taxes in the 12% bracket.

We've been considering increasing our donation to the U. Might as well do so while the market is up. Not going to actually sell, just do a direct charitable transfer.

But its the same thing---- taking profits to accomplish what we feel is important.

 

[Dawg52]

If taking $$ off the table helps you with sleeping at night--- go for it.

Agree. Plus it's not like he's cashing out of all stocks.