Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Transitioning part of portfolio into fixed income?
Old 11-13-2007, 06:44 AM   #1
Dryer sheet wannabe
 
Join Date: Nov 2007
Posts: 13
Transitioning part of portfolio into fixed income?

I'm hoping to get some input from investors on the best way to go from 100% security's to the fixed income market.
A summery of where I'm at:
I would like to retire in 4 years at age 55. I would be penalized if I tap into my union benefits before age 62 so I'll leave that alone until then. I've also got about 40.000 in an Roth IRA that I won't touch until I can do so without penalty.
The part that I would like advice on is currently held with Schwab. I've got a number of holdings but the lions share of it is split pretty close to 50/50 between the Schwab 1000 and QQQQ. I don't have any fixed income investments and would like to move into some. My plan (not etched in stone) is to be about 50/50 in Van Guard total market index and Van Guard total bond index when I actually am into retirement. (I'm looking at Van Guard for their low operating expenses).
I was hoping to get specific advice on how I should make the transition over the next 4 years. I know I'm over weighted in the tech sector and would guess that would be what I sell in order to go to bonds, but I don't know if I should sell the Q's in a lump sum or small increments (the same question with buying the bond fund, would it be considered a "sideways" move)?
Thanks,
Bob
__________________

__________________
Synergy 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 11-13-2007, 07:28 AM   #2
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: 7,432
I would be very nervous to be only 4 years away from retirement and have 100% in equities. What if the market tanks big time over the next year? Some keep a higher % in stocks because they have a hefty pension to balance it out. Maybe you have one to look forward to as well. If not, I would start a movement to bonds very soon.

BTW, good luck with your retirement plans.
__________________

__________________
Retired 3/31/2007@52
Full time wuss.......
Dawg52 is offline   Reply With Quote
Old 11-13-2007, 08:20 AM   #3
Thinks s/he gets paid by the post
grumpy's Avatar
 
Join Date: Jul 2004
Posts: 1,321
Quote:
Originally Posted by Synergy View Post
I've also got about 40.000 in an Roth IRA that I won't touch until I can do so without penalty.
Synergy,

The $'s in the Roth IRA that you contributed have already been taxed and can be withdrawn at any time with no tax or penalty.

Grumpy
__________________
grumpy is offline   Reply With Quote
Old 11-13-2007, 10:12 AM   #4
Thinks s/he gets paid by the post
jIMOh's Avatar
 
Join Date: Apr 2007
Location: Milford, OH
Posts: 2,085
Quote:
Originally Posted by Synergy View Post
I'm hoping to get some input from investors on the best way to go from 100% security's to the fixed income market.
A summery of where I'm at:
I would like to retire in 4 years at age 55. I would be penalized if I tap into my union benefits before age 62 so I'll leave that alone until then. I've also got about 40.000 in an Roth IRA that I won't touch until I can do so without penalty.
The part that I would like advice on is currently held with Schwab. I've got a number of holdings but the lions share of it is split pretty close to 50/50 between the Schwab 1000 and QQQQ. I don't have any fixed income investments and would like to move into some. My plan (not etched in stone) is to be about 50/50 in Van Guard total market index and Van Guard total bond index when I actually am into retirement. (I'm looking at Van Guard for their low operating expenses).
I was hoping to get specific advice on how I should make the transition over the next 4 years. I know I'm over weighted in the tech sector and would guess that would be what I sell in order to go to bonds, but I don't know if I should sell the Q's in a lump sum or small increments (the same question with buying the bond fund, would it be considered a "sideways" move)?
Thanks,
Bob
If you sold 50% of portfolio today and market went up 50% the next day, would you regret it?
If you did not sell anything today and market went down 50% tommorrow, what would you do?

Your risk tolerance has changed. You should sell some equities to rebalance.

In my case I am going from 100% equity to 80% over next 10 years. My method is I sell 1% of equities every 6 months. Small gradual changes in portfolio allocation.

In your case you have 48 months to reach retirement. You could sell 1% of equity positions per month. In 48 months you would have around 48% equities, depending on market performance.

You may want to consult a tax accountant, and do some tax loss selling (if you are sitting on any losses, sell those lots first).
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
jIMOh is offline   Reply With Quote
Old 11-13-2007, 11:04 AM   #5
Thinks s/he gets paid by the post
MooreBonds's Avatar
 
Join Date: Aug 2004
Location: St. Louis
Posts: 2,091
Did someone say more fixed income?

Question: How much in new contributions will you be adding to your portfolio over the next 4 years? How will that compare to the current portfolio stash?

If you're almost ready to FIRE, odds are the contributions won't be a huge proportion..but, if you allocate ALL of your new contributions in the next 4 years to fixed income/CDs/etc, AND start gradually selling off a small part of your portfolio, you may not have to end up selling off huge chunks as first thought.

Also, how much in 'reliable' dividends/interest does your portfolio yield each year (excluding capital gain distributions, one-time distributions and return of capital)? If that's somewhat close to 4%, and your next 4 years contributions can yield some more that will bring you even closer to 4%, then you're also in much better shape than at first glance.
__________________
Dryer sheets Schmyer sheets
MooreBonds is offline   Reply With Quote
Old 11-13-2007, 12:03 PM   #6
Full time employment: Posting here.
 
Join Date: Oct 2007
Location: Willamette Valley, Oregon
Posts: 831
Quote:
Originally Posted by Synergy View Post
........but I don't know if I should sell the Q's in a lump sum or small increments (the same question with buying the bond fund, would it be considered a "sideways" move)?
Thanks,
Bob
Whenever I make new investments or sell old one, I always "dollar cost average" my way in or out. Depending on the size of the position, I may make the move in 2 trades for smaller amounts, or 3 or 4 trades for larger positions. I space out the trades over time so I get a good "average" price.

Since you have 4 years, you can space your trades to take tax planning into account. Some of those four years may be better or worse years tax wise to take some profits for example. Or if you don't want to take that long to get rebalanced, you could still do some trades near year end, then other trades after new year start, if tax implications tell you not to do all trades in once tax year.
__________________
Dreams Worth Dreaming are Dreams Worth Planning For. I Spent a Career Planning for Early Retirement.
RetireeRobert is offline   Reply With Quote
Old 11-13-2007, 01:30 PM   #7
Recycles dryer sheets
 
Join Date: Jul 2006
Posts: 91
We are about 5 years away and reduced out equity to 55. We feel much better about that right now. We had about 30% before we made a plan. When we reblanced, we sold for cash rather than re-buying and got very close to the 45% fixed.

We are just in CDs/MM, not buying any bonds right now, though we do own some.
__________________
Callie is offline   Reply With Quote
Thanks everyone for your input!
Old 11-14-2007, 06:32 PM   #8
Dryer sheet wannabe
 
Join Date: Nov 2007
Posts: 13
Thanks everyone for your input!

I appreciate it.

All the best,
Bob
__________________
Synergy is offline   Reply With Quote
Old 11-14-2007, 07:41 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,616
Earlier this year, we went from about 90% equities to just 75% equities. On any day that the stock market went up (say like on 11/13) say 2%, we sold some equities and replaced them with fixed income. These dates were mid-June, mid-July. I think you can be unemotional about this. Simply write down a plan like this:

"When the DJIA or the S&P500 looks like it wil gain at least 2% by the end of the day, I will sell 5% of my total assets out of QQQQ and purchase a TIPS fund."

You will be surprised at how rare a 2% one-day gain is, but they do occur a few times a year. A 3% gain like yesterday is extremely rare, so don't set your criteria that high.
__________________
LOL! is offline   Reply With Quote
Old 11-15-2007, 02:58 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
We were 100% equity (awhile back) except for a cash emergency fund. Since we intend to ER at approximately the 5 year mark, I made a large reallocation to bonds. Moved approx 30% of the portfolio in a matter of several weeks. This was a long-term decision. Since equities were up... it seemed like a good time to do it. All of it was in tax deferred funds. For the next several years, I will rebalance taxable equities to keep them allocated between international, domestic, capitalizations, etc. I will add all new taxable money to the taxable fixed fund in short/mid-term fixed in preparation spending it. I will move more tax deferred equity into bonds if needed to meet my target. My target is 60/40. I am at about 68/32 right now. Over the next 4 years, I will be moving about 2% into fixed each year. If the stock market falls apart... I may wait until it recovers to move more money into fixed.
__________________
chinaco is offline   Reply With Quote
Old 11-16-2007, 12:09 AM   #11
Full time employment: Posting here.
 
Join Date: Jan 2007
Location: Thousand Oaks
Posts: 839
Quote:
Originally Posted by RetireeRobert View Post
Whenever I make new investments or sell old one, I always "dollar cost average" my way in or out. Depending on the size of the position, I may make the move in 2 trades for smaller amounts, or 3 or 4 trades for larger positions. I space out the trades over time so I get a good "average" price.

Since you have 4 years, you can space your trades to take tax planning into account. Some of those four years may be better or worse years tax wise to take some profits for example. Or if you don't want to take that long to get rebalanced, you could still do some trades near year end, then other trades after new year start, if tax implications tell you not to do all trades in once tax year.
isn't dollar cost averaging supposed to be a bad idea when drawing down ?
__________________
mh is offline   Reply With Quote
Old 11-16-2007, 12:17 AM   #12
Full time employment: Posting here.
 
Join Date: Oct 2007
Location: Willamette Valley, Oregon
Posts: 831
Quote:
Originally Posted by mh View Post
isn't dollar cost averaging supposed to be a bad idea when drawing down ?
I am not drawing down, and neither was the thread initiator (assuming by "drawing down" you mean in retirement and withdrawing assets).

Just in general, I am not sure why dollar cost averaging would be bad then either.

Anyone?
__________________
Dreams Worth Dreaming are Dreams Worth Planning For. I Spent a Career Planning for Early Retirement.
RetireeRobert is offline   Reply With Quote
Old 11-16-2007, 09:58 AM   #13
Thinks s/he gets paid by the post
jIMOh's Avatar
 
Join Date: Apr 2007
Location: Milford, OH
Posts: 2,085
DCA is just one technique

If market is going up, DCA on way in was bad idea, DCA on way out is good idea.
If market is going down, DCA will help on way in, it will hurt more on way out.

If you do not know what market will do, I would suggest holding more fixed income or cash to remove some of the doubt.
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
jIMOh is offline   Reply With Quote
Old 11-16-2007, 02:13 PM   #14
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: 7,432
Quote:
Originally Posted by jIMOh View Post

If you do not know what market will do, I would suggest holding more fixed income or cash to remove some of the doubt.
That pretty much applies to everyone then.
__________________
Retired 3/31/2007@52
Full time wuss.......
Dawg52 is offline   Reply With Quote
Old 11-16-2007, 02:54 PM   #15
Recycles dryer sheets
In-control's Avatar
 
Join Date: Mar 2007
Posts: 319
What I did was establish 3-4 years of living expenses in Ladderd CD's/MM etc. Expecting to Draw on yr 1 while building the next yr 4. I then divided the remainder of my portfolio(80%) in half and do 40% equities and 40% bonds.

I am FIRE in January and feel comfortable with this model - as it mitigates risk while providing just enough yield to meet my budget needs.

Good luck
__________________
Just Trekking thru!
In-control is offline   Reply With Quote
Old 11-16-2007, 04:06 PM   #16
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
Quote:
Originally Posted by grumpy View Post
Synergy,

The $'s in the Roth IRA that you contributed have already been taxed and can be withdrawn at any time with no tax or penalty.

Grumpy
This is only true if the Roth was funded with contributions. If it was funded with a roll-over of a regular IRA and your under 59.5 I believe you must wait 5 years or until 59.5 which ever is sooner to avoid the penalty.
__________________
I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said Alan Greenspan
Bikerdude is offline   Reply With Quote
Old 11-16-2007, 05:17 PM   #17
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
I'm an equity junky and had been way over in my equity allocation even though I'm also on the short track to retirement. Earlier this year, I decided I needed to be 40% in fixed income and was, at the time, at 5%. I decided what my "best" asset allocation should be and decided it was 40% fixed, 30% US large cap, 10% US small cap, 20% foreign. Once the decision was made, I just did it.

The market has made all sorts of gyrations since then. I really don't know whether I'd have been better off with more equities but I needed to be where I needed to be. My advice is to just do it. Do it now!
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Old 11-16-2007, 06:51 PM   #18
Recycles dryer sheets
bamsphd's Avatar
 
Join Date: Nov 2005
Posts: 337
Quote:
Originally Posted by RetireeRobert View Post
I am not drawing down, and neither was the thread initiator (assuming by "drawing down" you mean in retirement and withdrawing assets).

Just in general, I am not sure why dollar cost averaging would be bad then either.

Anyone?
If you are invested in A and B, and you use dollar cost averaging to move money from A to B, then you are "drawing down" your position in A.

An advantage of dollar cost averaging into a volatile investment like a stock is that while on the high days you get fewer shares, on the down days you get more shares, and in the end your portfolio's average share price is lower than the average of the prices when you made your purchases.

To keep it simple, suppose you invested $3,000 in three $1,000 investments. To simplify the math, suppose the stock price was $1000/share, $1/share, then $500/share. So you purchased 1 share, 1000 shares, and then 2 shares. Your portfolio now consists of 1,003 shares at an average cost basis of $3000/1003 = $2.99/share. However the "average" price was ($1000 + $1 + $500)/3 = $500.33/share. So you made a killing!

Unfortunately, when you sell a fixed dollar amount out of a portfolio, the reverse happens. You sell more shares when the price is low, and fewer when the price is high. Say you had slowly accumulated 1,003 shares and you sold them in three blocks of $1000 at the same prices as above. That means you sold them at an average of $2.99/share despite an average market price of $500.33/share. So you got fleeced!

In reality, most of us invest in far less volatile investments than my example above, so usually the dollar cost averaging effects are relatively minor.

You can somewhat avoid these affects by buying with fixed dollar amounts to benefit from dollar cost averaging, while selling fixed share amounts (or fixed percentages) to at least avoid the worst negative affects.

Unfortunately, that does not work as well when transferring assets from A to B. The best I can suggest is if A is more volatile than B, transfer based on fixed percentages of A. If A is less volatile than B, transfer based on fixed dollar amounts.
__________________
bamsphd is offline   Reply With Quote
Old 11-16-2007, 07:29 PM   #19
Full time employment: Posting here.
 
Join Date: Oct 2007
Location: Willamette Valley, Oregon
Posts: 831
Quote:
Originally Posted by bamsphd View Post
If you are invested in A and B, and you use dollar cost averaging to move money from A to B, then you are "drawing down" your position in A............
But the poster's question to which I replied was: "Isn't dollar cost averaging supposed to be a bad idea WHEN drawing down?"

Now you say, dollar cost averaging IS drawing down.

I think the three of us are all on different wavelengths. If the first poster could clarify what they meant by "drawing down", maybe we all can get back in sync? Or maybe I had one too many hot buttered rums today.
__________________
Dreams Worth Dreaming are Dreams Worth Planning For. I Spent a Career Planning for Early Retirement.
RetireeRobert is offline   Reply With Quote
Old 11-17-2007, 12:04 AM   #20
Full time employment: Posting here.
 
Join Date: Jan 2007
Location: Thousand Oaks
Posts: 839
Quote:
Originally Posted by RetireeRobert View Post
But the poster's question to which I replied was: "Isn't dollar cost averaging supposed to be a bad idea WHEN drawing down?"

Now you say, dollar cost averaging IS drawing down.

I think the three of us are all on different wavelengths. If the first poster could clarify what they meant by "drawing down", maybe we all can get back in sync? Or maybe I had one too many hot buttered rums today.
i was on the 'wavelength' as described by bamsphd. i realize now
i did not express that well. sorry about that..
__________________

__________________
mh 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
Choice for fixed income portion of portfolio Bart523 FIRE and Money 15 08-23-2006 06:07 PM
Is this ok as Fixed Income pat of portfolio nun FIRE and Money 13 04-27-2006 01:47 PM
Fixed Income / Dividend Portfolio ferco FIRE and Money 4 06-18-2005 12:47 PM
Fixed Income Portfolio Help DFW_M5 FIRE and Money 4 01-12-2004 03:53 PM
Building Higher Yield Fixed Income Portfolio DFW_M5 FIRE and Money 1 11-08-2003 01:01 PM

 

 
All times are GMT -6. The time now is 12:36 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.