Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
The market is calling - or is it?
Old 02-04-2009, 12:47 PM   #1
Dryer sheet aficionado
 
Join Date: Dec 2007
Posts: 43
Send a message via ICQ to ARB57
The market is calling - or is it?

As evidenced by my CD-laden portfolio, I am a conservative investor. I am, and have been, 98% in cash for quite some time (long before the market went south.) That said, with market values at current levels, I'm trying to figure out if I should pull some money out of CD's (incur the early withdrawl penalties) to get some money in the market. My average CD return is 5.7%.

I could actually get about 20% of my portfolio in the market without tapping my CD's, as I have about 20% in money market funds. It's hard not to be content with safe 5.7% returns, but, I'm more than a bit tempted by the capital appreciation opportunities in the market.

I'm currently working but anticipate retiring in 2 years or less. Should I try to get myself about 40% in stocks...or just be happy with where I am? I won't need to tap into that money for many (10+) years.

I know it's a personal decision...but I'm eager to know what YOU would do, if you were in similar circumstances.

Thanks.
__________________

__________________
ARB57 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-04-2009, 12:51 PM   #2
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
I wouldn't be eager to get out of a safe 5.7% CD.

Assuming it's money that you can afford to take a risk with, I would certainly look into buying stocks with money that comes from these CDs maturing, especially since yields on new CDs are so pitiful. But no, in this environment I'd be content to make my sure-thing 5.7% as long as I could milk it. I'd tap the money market funds before the CDs -- for one thing, money market yields are pathetic and for another, I'd hate to eat the early withdrawal penalties (especially when you have such high-yielding CDs).
__________________

__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 02-04-2009, 01:06 PM   #3
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,038
What Ziggy said... don't cash in the CDs. Use either new money or money from your MMF to invest in the market. Personally, in the early stages of retirement, my goal is to have about 30-40% of my portfolio in equities.
__________________
FIREd is online now   Reply With Quote
Old 02-04-2009, 01:13 PM   #4
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,315
You pick up yield as well as potential price appreciation by moving it from a MMF to a S&P 500 index fund. Unless it's money you will need near-term, you are being paid to wait for the market to recover.
__________________
FIRE'd@51 is offline   Reply With Quote
Old 02-04-2009, 01:15 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,408
Sooo - when are you going to croak? If you know exactly when you are going to die like I do at 84.6 then it simply becomes a matter of calculating what inflation will do beween now and then. You know 5.7% but not what Mr Stock Market may do except to guess based on history.

Now tongue in cheek wise - if 5.7% is the only number you know - why do you wish to own stocks?

heh heh heh - why is always more important than should.
__________________
unclemick is offline   Reply With Quote
Old 02-04-2009, 01:28 PM   #6
Moderator Emeritus
CuppaJoe's Avatar
 
Join Date: Jun 2007
Location: At The Cafe
Posts: 6,866
With 20% in MM, you could DCA up to that level. I would! But then I’ve always enjoyed the volatility of equities. If you take it slow getting in, maybe you’ll get a good sense of how you react to fluctuations. By the time you DCA 20% in, some of your CDs might be mature. Keep us posted.
__________________
CuppaJoe is offline   Reply With Quote
Old 02-04-2009, 01:33 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2007
Posts: 7,526
Long term you will be better off with some portion of your portfolio invested in equities (based on recent history of the last 100 years or so). 20% in equities probably won't increase your volatility a whole lot, but will increase your return (over the long term). In fact, I think portfolio models suggest that you can actually lower your volatility while increasing returns by going from 0% equities/100% bonds to 20% equities/80% bonds. Although if you are in CD's, the principal value doesn't fluctuate much at all (assuming you can redeem early and pay a small penalty), so not sure if the higher returns/lower volatility rule of thumb applies.

In any event, today is a much better day to buy stocks than 12 to 15 months ago. If it were me I and I was risk averse, I would be increasing my stock allocation to 20% to 40% over the next year or two assuming stocks continue to be equally attractively priced.

edited to add: I'm 100% equities, but young and still working. So big grain of salt.
__________________
FUEGO is offline   Reply With Quote
Old 02-04-2009, 01:42 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
I like 100% equities, so don't take my advice!

I don't think there is any rush, but DCA'ing into equities from the MM's sounds good. Maybe anytime it looks like the market for what you're buying is within about 10% of the last bottom. I'd be in no rush to cash out of 5.7% CD's.

I'd be in at least 15% equities for a little boost, 30% to 40% if you are comfortable with that and need more growth for a long retirement. Be sure to diversify large/small and US/foreign or go with a retirement or diversified balanced fund. If you can retire with just the fixed income, that's great!
__________________
Animorph is offline   Reply With Quote
Old 02-04-2009, 01:52 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2007
Posts: 7,526
Look at it this way, too: If you had 80% in CD's and cash earning 5.7% and 20% in equities that lost 50%, you would still have 94.5% of your portfolio at the end of the year. Can you live with that sort of volatility? That represents worse markets than we saw even in 2008.
__________________
FUEGO is offline   Reply With Quote
Old 02-04-2009, 01:58 PM   #10
Moderator Emeritus
CuppaJoe's Avatar
 
Join Date: Jun 2007
Location: At The Cafe
Posts: 6,866
Quote:
Originally Posted by FUEGO View Post
....20% in equities probably won't increase your volatility a whole lot, but will increase your return (over the long term). In fact, I think portfolio models suggest that you can actually lower your volatility while increasing returns by going from 0% equities/100% bonds to 20% equities/80% bonds. ....
Good point, Fuego. I wonder how many of us can just look at the bottom line instead of seeing the components separately.
__________________
CuppaJoe is offline   Reply With Quote
Old 02-04-2009, 02:04 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
bbbamI's Avatar
 
Join Date: Dec 2006
Location: Dallas 'burb
Posts: 9,039
How do your different scenarios with FireCalc look?
__________________
There's no need to complicate, our time is short..
bbbamI is offline   Reply With Quote
Old 02-04-2009, 02:39 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2007
Posts: 7,526
Quote:
Originally Posted by CuppaJoe View Post
Good point, Fuego. I wonder how many of us can just look at the bottom line instead of seeing the components separately.
I don't know. I know it can be hard when specific funds or accounts may lose 60% of their value.

I look at the bottom line when I compare quarterly results of my overall portfolio which spans multiple brokerages, multiple 401k's, roth and traditional IRA's and after tax accounts. Sure, that IRA that only holds emerging markets was down 60%. But it is a small percentage of my overall holdings.
__________________
FUEGO is offline   Reply With Quote
Old 02-04-2009, 03:44 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,408
Ok folks - don't say I didn't give you folks a chance - I mean I'm not the only one who can say it:

Pssst Wellelsey. SEC yield 5.50%. That and a warn hand grenade gets you close to 5.7%.

Yeah down a tad.

heh heh heh - but it's the principle of the thing. .
__________________
unclemick is offline   Reply With Quote
Old 02-04-2009, 04:19 PM   #14
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 1,689
Quote:
I'm currently working but anticipate retiring in 2 years or less. Should I try to get myself about 40% in stocks...or just be happy with where I am? I won't need to tap into that money for many (10+) years.

I know it's a personal decision...but I'm eager to know what YOU would do, if you were in similar circumstances.

Thanks.
If I was in your shoes right now as you suggested I would increase my stock allocation by 1 percent per month. I would also be very comfortable partnering with major corporation to share in their results through dividends and valuing the holdings by the cash flow generated.

Coca Cola, Johnson and Johnson, Procter and Gamble, McDonalds would get me through the next 4 months. From there I would be adding slightly higher risk stocks like Chesapeake Energy, Energy Transfer Partners, Mesa Labs unless the outlook changed significantly for them. This is what I actually I have done over the last 14 months to bring my stock holdings from zero in Oct 2007 to 14 percent today. Will continue at one percent per month to twenty five percent stocks and evaluate overall stock market at that point.
__________________
Running_Man is offline   Reply With Quote
Old 02-04-2009, 04:20 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Dawg52's Avatar
 
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 7,437
Quote:
Originally Posted by CuppaJoe View Post
With 20% in MM, you could DCA up to that level. I would! But then Iíve always enjoyed the volatility of equities. If you take it slow getting in, maybe youíll get a good sense of how you react to fluctuations. By the time you DCA 20% in, some of your CDs might be mature. Keep us posted.
We are complete opposites. I've never enjoyed the volatility. I wish I was in this guy's shoes. I would stay put.
__________________
Retired 3/31/2007@52
Full time wuss.......
Dawg52 is offline   Reply With Quote
Old 02-04-2009, 04:24 PM   #16
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,315
Quote:
Originally Posted by unclemick View Post
Pssst Wellelsey. SEC yield 5.50%. That and a warn hand grenade gets you close to 5.7%.
But a better after-tax yield than all CD's I'll bet.
__________________
FIRE'd@51 is offline   Reply With Quote
Old 02-04-2009, 04:38 PM   #17
Recycles dryer sheets
 
Join Date: Jan 2009
Posts: 170
Could this be a sign of a bottom?

__________________
Gpond is offline   Reply With Quote
Old 02-04-2009, 04:41 PM   #18
Recycles dryer sheets
 
Join Date: Jan 2009
Posts: 170
Quote:
Originally Posted by FIRE'd@51 View Post
But a better after-tax yield than all CD's I'll bet.
Wellesley was down 13.3% last year and close to 5% this year. The 5.5% yield does not provide much comfort to me.
__________________
Gpond is offline   Reply With Quote
Old 02-04-2009, 05:09 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,408
Quote:
Originally Posted by Gpond View Post
Wellesley was down 13.3% last year and close to 5% this year. The 5.5% yield does not provide much comfort to me.
Yeah you rite! Waaaaay too boring - glad I bought Target Retirement 2015 instead.

Now there's a swinger.

heh heh heh - It's called Market fluctuation. After forty plus years since 1966 the ups are fun and the downs suck - but like the weather - it is what it is - and will be with us as long as there are equity capital markets.
__________________
unclemick is offline   Reply With Quote
Old 02-04-2009, 05:12 PM   #20
Thinks s/he gets paid by the post
OAG's Avatar
 
Join Date: Jun 2006
Location: Central, Ohio, USA
Posts: 2,598
Quote:
Originally Posted by ARB57 View Post
As evidenced by my CD-laden portfolio, I am a conservative investor. I am, and have been, 98% in cash for quite some time (long before the market went south.) That said, with market values at current levels, I'm trying to figure out if I should pull some money out of CD's (incur the early withdrawl penalties) to get some money in the market. My average CD return is 5.7%.

I could actually get about 20% of my portfolio in the market without tapping my CD's, as I have about 20% in money market funds. It's hard not to be content with safe 5.7% returns, but, I'm more than a bit tempted by the capital appreciation opportunities in the market.

I'm currently working but anticipate retiring in 2 years or less. Should I try to get myself about 40% in stocks...or just be happy with where I am? I won't need to tap into that money for many (10+) years.

I know it's a personal decision...but I'm eager to know what YOU would do, if you were in similar circumstances.

Thanks.
So if you let the interest/dividends on the 5.7% CD's go back into the CD's each month you are, to the extent of the interest/dividends, purchasing another sum part of each CD at 5.7%. IMHO if this money in not needed to live on - 5.7% is fine. If you have any DEBT, on which you, are paying interest above 5.7% you should pay it down IMO. A lot depends on your expenses and how you can meet them through Pension/Retired Pay, and/or other sources. You say you are 2 years from retirement but either you did not state your age or I missed. Where are you in relation to SS benefits. Really, it all depends!

BTW, I am sure you realize, 10 years at 5.7% (as long as you can maintain that rate) will give you 57% of growth, and, if they are all in FDIC/NCUA insured financial institutions a SAFE return of principal.

BTW Welcome to the Board.
__________________

__________________
Vietnam Veteran, CW4 USA, Retired 1979
OAG is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Calling the bottom! cute fuzzy bunny FIRE and Money 328 11-19-2008 05:45 PM
Who's calling me? calmloki Other topics 17 07-08-2007 09:39 AM
calling all RV'rs Kitty Life after FIRE 54 03-25-2007 08:35 PM
Calling PollyAnna haha FIRE and Money 13 09-25-2004 09:43 PM

 

 
All times are GMT -6. The time now is 09:44 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.