Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Where to put cash if you don't trust the market....
Old 12-18-2006, 05:19 AM   #1
Dryer sheet wannabe
 
Join Date: Sep 2005
Posts: 12
Where to put cash if you don't trust the market....

I retired about 5 years ago at 54.

My portfolio is about 42% fixed, 35% equity funds, and 23% cash in CD’s. In 2 years, I’ll be taking my SS income.

The fixed portion provides about 120% of my living expenses. It consists of AAA insured and AMT free 30 year municipal bonds (not funds) which return 5% and non-publicly traded reits, which return about 7.5%.

The equity portion is designed to help make up for inflation on itself and the fixed portion.

My issue is that the CD’s mature in about 4 months, and I’m not sure where to put the cash.

The reasonable place is to put it in equities to help with the inflation protection, but I’m quite skittish about the economy and believe that a recession MAY be around the corner.

The solution I’m thinking of is to put it in VWALX and then use the income from that to purchase additional equities over the coming years.

The 2 financial planners I’ve talked to over the last 5 years think my general investment strategy is poor, primarily because it doesn’t maximize my estate at the end, but that’s not my goal.

HBH
HBH 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!

Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 06:25 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Re: Where to put cash if you don't trust the market....

I guess I would be atad leery of inflation potentially eating away the value of your income stream. Maybe put some of the CD money into TIPS or other inflation-indexed bonds? Alternatively, there is a wide variety of "structured products" that trade on the American Exchange that might fit the bill. Stuff like: in 2 years, you get $10 per share cash plus any increase in a stock index abve a certain point.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 07:16 AM   #3
Recycles dryer sheets
 
Join Date: Oct 2003
Posts: 452
Re: Where to put cash if you don't trust the market....

Or you could put it in a Vanguard MM acct: VMMXX
then transfer to equities or mutual funds later.
Or you could just re-up with new CDs for > 5% for whatever term suits you.
Personally, I don't see too much wrong with you being 65% fixed and 35% equity,
as I'm pretty conservative myself. I'm 60 BTW. If you were still working, the 35% in equities would be too conservative, but you're retired!!
If you get > 5% from fixed and about 8 or 9% from your equities, but are spending only about 4% swr, you're doing good in my book - that's beating inflation is it not?
.

renferme is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 07:19 AM   #4
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: 9,067
Re: Where to put cash if you don't trust the market....

Quote:
Originally Posted by HBH





The 2 financial planners I’ve talked to over the last 5 years think my general investment strategy is poor, primarily because it doesn’t maximize my estate at the end, but that’s not my goal.

HBH
Fire the Financial Planners. Follow Brewer's advice and maybe add a little to equities as you suggested. You will be fine.
__________________
Retired 3/31/2007@52
Investing style: Full time wuss.
Dawg52 is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 07:21 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Re: Where to put cash if you don't trust the market....

Quote:
Originally Posted by bennevis
If you get > 5% from fixed and about 8 or 9% from your equities, but are spending only about 4% swr, you're doing good in my book - that's beating inflation is it not?
.
It is now. But, hypothetically, what if we enter an inflationary period like 1966 to 1982? That 5% wn't seem too special. However, TIPS would keep you level with inflation if that happened. If you are going to have a lot of fixed income, a dollop (5 to 10%) of commodities might be a very good idea.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 07:40 AM   #6
Full time employment: Posting here.
 
Join Date: Oct 2002
Posts: 717
Re: Where to put cash if you don't trust the market....

Quote:
Originally Posted by brewer12345
... Alternatively, there is a wide variety of "structured products" that trade on the American Exchange that might fit the bill. Stuff like: in 2 years, you get $10 per share cash plus any increase in a stock index abve a certain point.
I periodically look at these products, which always sound good initially, but for some reason I always end up rejecting them. Brewer, are there any specific names you think might be the best of these products, that I might take a new look at?
__________________
Random Reinforcement is Highly Addictive.
riskadverse is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 07:42 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Re: Where to put cash if you don't trust the market....

Quote:
Originally Posted by riskaverse
I periodically look at these products, which always sound good initially, but for some reason I always end up rejecting them. Brewer, are there any specific names you think might be the best of these products, that I might take a new look at?
I'm not a huge fan of the in general. I only own one, basket Asian currency warrants, as a hedge. Most of the rest are either exposures I do no want or are easily duplicated elsewhere with a package of treasuries and options. But they do provide a handy place to go if you want to buy something that looks and smells like an equity indexed annuity without getting raped by a salesman.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 12:45 PM   #8
Recycles dryer sheets
 
Join Date: Oct 2003
Posts: 452
Re: Where to put cash if you don't trust the market....

Quote:
Originally Posted by brewer12345
It is now. But, hypothetically, what if we enter an inflationary period like 1966 to 1982? That 5% wn't seem too special. However, TIPS would keep you level with inflation if that happened. If you are going to have a lot of fixed income, a dollop (5 to 10%) of commodities might be a very good idea.
Of course it's now! Hypothetically, if we enter an inflationary period, he can easily move from MM to equities. TIPs don't pay enough.
renferme is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 12:46 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Re: Where to put cash if you don't trust the market....

Quote:
Originally Posted by bennevis
Of course it's now! Hypothetically, if we enter an inflationary period, he can easily move from MM to equities. TIPs don't pay enough.
Yeah, and you can move the money from equities to MM right before a market crash! It will be great!
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 12:50 PM   #10
Recycles dryer sheets
 
Join Date: Oct 2003
Posts: 452
Re: Where to put cash if you don't trust the market....

Quote:
Originally Posted by brewer12345
Yeah, and you can move the money from equities to MM right before a market crash! It will be great!
That's exactly what I did in 2000 and missed 95% of the crash !
.
If we enter an inflationary cycle, the Fed. will be letting us know by raising rates.
When that happens, MM rates will be going up and CDs up also. If in laddered CDs,
just keep renewing at the higher rate.
renferme is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 01:09 PM   #11
Recycles dryer sheets
 
Join Date: Dec 2006
Posts: 63
Re: Where to put cash if you don't trust the market....

Quote:
Originally Posted by brewer12345
I'm not a huge fan of the in general. I only own one, basket Asian currency warrants, as a hedge. Most of the rest are either exposures I do no want or are easily duplicated elsewhere with a package of treasuries and options. But they do provide a handy place to go if you want to buy something that looks and smells like an equity indexed annuity without getting raped by a salesman.
Hi Brewer

How do you buy a basket of Asian currency warrants? I've been reading PIMCO and TROWE PRICE websites recently...experts with each firm believe that the dollar will depreciate relative to the Yen in coming years and I agree. So I've been wondering how to position myself to take advantage of that but don't quite know how, short of buying into vpacx or something like that.....I already own quite a bit of LSGLX (loomis sayles global bond) so could up my stake in that too, but your idea sounds much more targeted and hence intriguing.

Thanks for any help you can give
Winnie
winnie is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 01:13 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Re: Where to put cash if you don't trust the market....

Quote:
Originally Posted by bennevis
If we enter an inflationary cycle, the Fed. will be letting us know by raising rates.
Generally the inflationary cat is out of the monetary bag by the time the Fed starts raising. So what did you do as the Fed raised rates recently? Buy more CDs? Worked OK this time, but you would have gotten destroyed in the '66 to '82 period. Not worth the risk, IMO.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 01:15 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Re: Where to put cash if you don't trust the market....

Quote:
Originally Posted by winnie
Hi Brewer

How do you buy a basket of Asian currency warrants? I've been reading PIMCO and TROWE PRICE websites recently...experts with each firm believe that the dollar will depreciate relative to the Yen in coming years and I agree. So I've been wondering how to position myself to take advantage of that but don't quite know how, short of buying into vpacx or something like that.....I already own quite a bit of LSGLX (loomis sayles global bond) so could up my stake in that too, but your idea sounds much more targeted and hence intriguing.

Thanks for any help you can give
Winnie
This is the security own. But be careful: a little goes a long way due to its inherent leverage, and like all options/warrants it turns into a pumpkin at the expiry date (Feb. '08 in this case).
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 01:29 PM   #14
Recycles dryer sheets
 
Join Date: Dec 2006
Posts: 63
Re: Where to put cash if you don't trust the market....

OK -- found them, thanks. Not quite what I was looking for....prefer something more long term since i'm not at all confident in calling the timing of currency shifts -- just think I can make an educated guess on their general direction over a longer period....

thanks
Winnie
winnie is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 01:42 PM   #15
Recycles dryer sheets
 
Join Date: Oct 2003
Posts: 452
Re: Where to put cash if you don't trust the market....

Quote:
Originally Posted by brewer12345
Generally the inflationary cat is out of the monetary bag by the time the Fed starts raising. So what did you do as the Fed raised rates recently? Buy more CDs? Worked OK this time, but you would have gotten destroyed in the '66 to '82 period. Not worth the risk, IMO.
Brewer: I'm retired, so I keep a certain % in equities and a certain % in fixed income stuff. I don't have excess money laying around to buy more CDs; but as they mature, I decide at that time what to do with the money while still maintaining the proper ratio of stocks to non-stocks. In the 66 to 82 period, I was in college and the early (mostly non saving years) years of working.
During the big inflationary years (the 70's Jimmy Carter era), my Dad retired and had all of his money in CDs paying greater than 10% - that was a good deal for him.
When CD rates went down, he continued to invest in CD's - not a good deal for him, as he took home less money and inflation destroyed his buying power.
Fortunately, his life style was frugal and his Soc. Sec. plus a little CD money was enough for him and my mother.
I guess the point might be (if I haven't forgotten it by now), is that 5% from CDs and 8 or 9% from stocks might provide an overall rate of return of near 7%.
At a SWR of 4%, that allows for about a net increase in wealth of 3%.
When inflation increases, maybe MAYBE adjustments have to be made, but maybe not, as the SWR allows for living decently for 30 years or so. Some years, you may "lose" money as inflation cuts it away and other years you may "gain" money as stocks might do better than the "normal" 8 to 9%. And hopefully, FIRECALC is accurate when you plug in the numbers.
renferme is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 01:53 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Re: Where to put cash if you don't trust the market....

Quote:
Originally Posted by winnie
OK -- found them, thanks. Not quite what I was looking for....prefer something more long term since i'm not at all confident in calling the timing of currency shifts -- just think I can make an educated guess on their general direction over a longer period....

thanks
Winnie
OK, instead take a look at BEGBX. It is a non-USD bond fund.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 01:57 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Re: Where to put cash if you don't trust the market....

Quote:
Originally Posted by bennevis
Brewer: I'm retired, so I keep a certain % in equities and a certain % in fixed income stuff. I don't have excess money laying around to buy more CDs; but as they mature, I decide at that time what to do with the money while still maintaining the proper ratio of stocks to non-stocks. In the 66 to 82 period, I was in college and the early (mostly non saving years) years of working.
During the big inflationary years (the 70's Jimmy Carter era), my Dad retired and had all of his money in CDs paying greater than 10% - that was a good deal for him.
When CD rates went down, he continued to invest in CD's - not a good deal for him, as he took home less money and inflation destroyed his buying power.
Fortunately, his life style was frugal and his Soc. Sec. plus a little CD money was enough for him and my mother.
I guess the point might be (if I haven't forgotten it by now), is that 5% from CDs and 8 or 9% from stocks might provide an overall rate of return of near 7%.
At a SWR of 4%, that allows for about a net increase in wealth of 3%.
When inflation increases, maybe MAYBE adjustments have to be made, but maybe not, as the SWR allows for living decently for 30 years or so. Some years, you may "lose" money as inflation cuts it away and other years you may "gain" money as stocks might do better than the "normal" 8 to 9%. And hopefully, FIRECALC is accurate when you plug in the numbers.
I think you are fooling yourself. Inflation is a much bigger threat to retirement money than market crashes. But like they say, you can lead a horse to water...
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 02:08 PM   #18
Moderator Emeritus
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
Re: Where to put cash if you don't trust the market....

How many years of expenses is it appropriate to inflation-proof with TIPS and the like, at least historically?

Wouldn't it depend on how much cushion you have in your nest egg?
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 02:12 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Re: Where to put cash if you don't trust the market....

Quote:
Originally Posted by Rich_in_Tampa
How many years of expenses is it appropriate to inflation-proof with TIPS and the like, at least historically?

Wouldn't it depend on how much cushion you have in your nest egg?
I don't think of it in those terms. I think you want a portfolio that is protected in cases of high inflation, specifically that your portfolio's purchasing value is maintained and increased. As such, I think a 10% weighting to inflation-indexed bonds/CDs and a 5% allocation to commodities should be a floor.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Re: Where to put cash if you don't trust the market....
Old 12-18-2006, 02:17 PM   #20
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,855
Re: Where to put cash if you don't trust the market....

Quote:
Originally Posted by Rich_in_Tampa
How many years of expenses is it appropriate to inflation-proof with TIPS and the like, at least historically?
When I read Brewer's inflation comment, I took it to mean that decades of inflation erosion is a much bigger threat to portfolio survival than 40% volatility or a puny little 15-year bear market.

If inflation spikes like it did in the 1970s then I won't be buying CDs or TIPS or bonds. I'll be sniffing around for those single-digit P/Es and 40-cent dollar bills.

Besides with everything that's coupled to the ECI or the CPI these days, if inflation spikes the Fed is going to have a real powerful motivation to jump all over it. With all the analysis tools and data-collection systems I'm cautiously optimistic that between the Fed and Congress there'll be a bunch of people keeping inflation within tighter control than we've ever seen before.
__________________
*

Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
Author of the book written on E-R.org: "The Military Guide to Financial Independence and Retirement."

I don't spend much time here— please send a PM.
Nords is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
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
Bond Allocation Tiger FIRE and Money 19 05-09-2007 02:23 PM
Where to put $15k in the market today Gumby FIRE and Money 14 03-24-2007 12:45 PM
3-5 years cash in taxable or IRA? donheff FIRE and Money 10 03-12-2007 06:18 PM
Future of stock market jimhcom FIRE and Money 45 07-13-2005 03:19 PM
Put some spending cash in CDs or in I bonds? Nords FIRE and Money 60 03-15-2005 04:37 AM

» Quick Links

 
All times are GMT -6. The time now is 01:34 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.