Would you still invest if you didnt have to?

[Seattle]

I love this board!

Appears to be that way !! Just plugged 85K into tax caster with no other income and it's showing as zero tax. Perhaps it's because you are in the 0% bracket of "earned" income.

Wow. That's very interesting. Thanks for digging that up. Gives me some perspective.

And thanks to all for the posts. Very interesting - seems like I have sparked a good debate. That's why I love this board. Great stuff. I have read all the posts, some clarification about my situation:

1. Yes, not saying I would never be in the stock market again - keeping my powder dry by being able to live off my cash and not worry about the stock market at all UNTIL I see a good buying oppty. Today, I think it is a house of cards. Tomorrow - who knows, could come down to earth and represent something more stable - way way too much volatility in the market today for me. Why be in it if you don't have to?

2. I am now thinking more about more about 30% of my cash in the market when I see a good buying oppty - using the above $85K no taxes strategy of investing it all in Vanguard Total Stock Market. That post was very helpful. Maybe not immediately, but down the road after I see what Yellen and the Fed do over the course of the next 12 months.

3. I love the links to the "if you won the game why play" posts. It is exactly what I am thinking about. But many good posts on the other spectrum on this thread are changing the way I am looking at an all cash strategy. So thanks for that.

In closing - I think many people are in the market because they have to - because fixed returns return nothing and bonds are going to get hammered because of rising interest rates. If a 5 year CD was giving a 5% return, would you still be so inclined to invest in the stock market? ...

But thanks again for all the posts. Very interesting.

 

[daylatedollarshort]

In closing - I think many people are in the market because they have to - because fixed returns return nothing and bonds are going to get hammered because of rising interest rates. If a 5 year CD was giving a 5% return, would you still be so inclined to invest in the stock market? ...

It may be easier to think in terms of real rates. If CDs were paying 5% but inflation was 7% not such a good deal, unless you have some non-COLA kinds of expenses or debt for offset, but great if inflation was 1%.

 

[Sunset]

Qualified dividends have the same tax treatment as long term capital gains, 0% tax up to the top of the 15% tax bracket. You only start to pay taxes on them once your total income exceeds the top of the 15% tax bracket. The portion of it that exceeds.

Exactly !

 

[FireBug]

First, and again, congratulations on your financial position. A job well done. It’s funny how different we all are when looking at the needs of retirement. In my case, living in the SF bay area, married with heirs, my cash position would need to be VERY significant to meet the requirements of your original post. Others perhaps, living in a very cost effective area of the country and having a given profile of longevity and expenses may not really need what most of us on this forum would consider a ton of money to live out our days with a cash only portfolio. I don’t know where you are on that sliding scale so my remarks should be taken with that understanding.

Reading your OP, I get the sense that there is concern about inevitable market crashes. I think the answer to your post lies in an understanding or acceptance of what each and every one of us carries with us as our own personal bug-a-boo. To some, the big unknown (translation, fear) is health, to others its market volatility, with some its crime where they live or needy relatives. It’s always something. The important thing I believe is to temper those one-off fears with a dose of experience and common sense. I noticed that many of your market fears are related to catastrophic events (i.e. crashes and negative interest rates). Are you ready to ask yourself, “Do these concerns necessitate that I forego the rewards of my hard work?” Here I mention your comments, “better retirement (more travel, things I want to do in retirement, new cars etc.,)”

A successful retirement in my opinion is based on a two sided plan, both of which need to be followed. Pre-retirement are all those things you’ve seemed to have accomplished and that this site talks about daily, LBYM and saving. The flip side of post-retirement addresses asset protection and diversification. It may be that you are sacrificing some of the ‘post’ requirements and justifying your actions by convincing yourself that it’s now reward time. No more worries about market conditions, no more complex tax situations, no more financial monitoring required. I think reading the responses here have shown otherwise. That’s not to say you don’t have a point. Why not try to limit the hassles of management and fears. That is not difficult, but it’s a mindset. My recommendation would be to place a fair amount of monies in funds that are low risk and with allocations that you can deal with (40/60?) Most of these now days are set it and forget it. As others have stated, an all CD income is not necessarily a tax efficient way to go either. And when it comes to taxes, heck most programs download the 1099 info directly…easy peasy. And, I for one would be comfortable knowing that the most I could get hit with is a 15% tax on my LT cap gains. Your potential plan is not a stupid thing to consider but a wiser approach is within your grasp given your stated comment “I Know it’s radical”. Overall I wish I had your concern.

 

[Running_Man]

Have you played around with an inflation calculator lately Inflation Calculator: Bureau of Labor Statistics
Figure out what your grocery bill will be in 20 years and see if you have as much as you think. This works to talk yourself out of an annuity too.

From 1800 to 1900 in the United States the cost of living increase was hardly even a factor, but after 1913 inflation has been more of an issue: However throughout all of that time the Permanent Portfolio as advocated by Harry Browne would have worked out as a good investment.

 

[papadad111]

Exactly !

Have we found a flaw jn tax caster then? It's an app by turbotax

I plug in zero income but 85 k in dividends which is surely above the 15% bracket. I get 0 tax liability from tax caster.

I was surprised at the answer too.

 

[athena53]

Have we found a flaw jn tax caster then? It's an app by turbotax

I plug in zero income but 85 k in dividends which is surely above the 15% bracket. I get 0 tax liability from tax caster.

I was surprised at the answer too.

DH and I were at about that level in 2015; zero wage income, no IRA withdrawals, $34K SS plus $10K pension, the rest capital gains and dividends. We owed no taxes to the Feds according to TurboTax. (Yeah, I KNOW I should have done a Roth conversion. I may this year.) I'm still half-expecting the Feds to send us a bill and tell us we were wrong.

But back to the OT- I enjoy investing. I always have. Since I started recording new money added into the savings starting in 2003, we've accumulated $1.1 million over and above what we put in. Or, to put it another way, if we'd kept it all under the mattress for 13 years, we'd have $1.1 million less.

DH is 15 years older so he's likely to go first. Most likely I'll die with money still left in the pot but that's OK. DS says he doesn't want my money but with one grandchild and another on the way, any legacy can help with education expenses for grandchildren and great-grandchildren or add to DS's and DDIL's retirement savings.

 

[eytonxav]

If it were me, I would keep at least 20% invested in equities and real estate for inflation purposes and potential upsides. Wouldn't you be able to sleep well with an allocation like that?

 

[audreyh1]

Have we found a flaw jn tax caster then? It's an app by turbotax

I plug in zero income but 85 k in dividends which is surely above the 15% bracket. I get 0 tax liability from tax caster.

I was surprised at the answer too.

Subtract the standard deduction and exemptions, then compare to the tax table 15% bracket.

$75,300+$12,600+$4050x2 = $96,000 for married filing jointly.

So you can make up to $20,700 in ordinary income and the rest qualified divs/cap gains, and still not pay any taxes.

 

[plsprius]

I think the OP's plan makes complete sense, particularly if they are of a certain age (maybe >55?). It's a rational choice under the stated conditions, especially with relatively high equity and bond valuations.

Most people can't intellectually/emotionally change their investment biases away from the way the money was made (e.g., the long bull market from 1982 onward--in both equities AND bonds). For many the thought of paying taxes on realized gains is too painful to contemplate. Agh! In the OP's case, however, if the funds are in cash then the taxes have already been paid...and there is still "enough."

But, times change (both personally, and in the markets). And, when/if times change again, you can always adjust.

So, if you have enough for your expected life + a buffer, park it in laddered intermediate term CDs (say <=5 years), collect the interest, and find something better to with your time. The CDs will provide enough inflation protection, if needed, as their rates will rise if inflation does. I suppose TIPS would also make sense. Social Security also provides some modest inflation protection.

Thanks to the earlier poster for the link and the reminder to what Bernstein said on this topic: http://whitecoatinvestor.com/bernste...-win-the-game/

A lot of people had won the game before the [2008] crisis happened: They had pretty much saved enough for retirement, and they were continuing to take risk by investing in equities.

Afterward, many of them sold either at or near the bottom and never bought back into it. And those people have irretrievably damaged themselves.

I began to understand this point 10 or 15 years ago, but now I’m convinced: When you’ve won the game, why keep playing it?

How risky stocks are to a given investor depends upon which part of the life cycle he or she is in. For a younger investor, stocks aren’t as risky as they seem. For the middle-aged, they’re pretty risky. And for a retired person, they can be nuclear-level toxic.

 

[imoldernu]

Our timeline is comparatively short, so we won't change the plan we've had since 1989. No "investments" as in the stock market 'cept for a few stocks from an old profit sharing plan.
Ever since we retired much of our "nest egg" has been in CD's (when they were paying from 8% 50 12%), and later, in the early 2000's in IBonds when the base rates were 1.6% to 3.6%. Still many years to go. Incidentally... back in those days each person could invest up to $30,000 in one year. A tiny annuity opened in the 1990's pays a 4% dividend.

While we have nowhere near the amount that many forum members have accumulated, we feel safe, and comfortable. It's much easier to look ahead 5 or 10 years than 30 or 40 years.

So far, between CD's, IBonds and Social Security, we don't feel that inflation has hurt us that much.

Still affected by the experience of a fellow retiree who saw his net worth drop buy half in the last recession. Though his portfolio recovered nicely, I have never found an appetite for watching stocks... particularly at this age. Maybe some vestigial memories of the 1930's and '40's... and knowing about DW's grandfather who lost a significant fortune back in 1931.

We haven't supported the tax system since 1990.

 

[daylatedollarshort]

Most people can't intellectually/emotionally change their investment biases away from the way the money was made (e.g., the long bull market from 1982 onward--in both equities AND bonds). .....Thanks to the earlier poster for the link and the reminder to what Bernstein said on this topic: http://whitecoatinvestor.com/bernste...-win-the-game/

You are welcome for the link. We don't have a zillion dollar portfolio, but DH and I talked about it and we decided we have a nice life and house in the Bay Area on what we do have (bought the house a long time ago). Plus we have some hobby businesses we could easily ramp up if we needed extra money.

Our retirement goal is to simply not screw up the life we have, and to borrow a phrase from Warren Buffet on the Long Term Capital geniuses, not "make money they didn’t have and didn’t need, they risked what they did have and did need, and that’s foolish. "

Here is another related link that changed my thinking by the Triumph of the Optimists: 101 Years of Global investing authors:

Irrational Optimism
Irrational Optimism by Elroy Dimson, Paul Marsh, Mike Staunton :: SSRN

"[FONT=Myriad Roman, Arial, Helvetica, Sans-serif;]Although the probable rewards from equity investment are attractive, stocks did not and cannot offer a guaranteed superior performance over the investment horizon of most investors. Furthermore, their prospective returns are lower than many investors project, whereas their risk is higher than many investors appreciate. Investors who assume that favorable equity returns can be relied on in the long term or that stocks are safe so long as they are held for 20 years are optimists. Their optimism is irrational."


[/FONT]

 

[Rickt]

Seattle:

Congratulation doing a great job building your wealth!

I can understand your need to not take any risk at all. I suggest you buy laddered TIPS from the http://www.treasurydirect.com. You will be taking no risk as along as you hold them till maturity date and will have inflation protected returns as well.

Best Wishes,
Rick

 

[jkern]

I actually differ a little bit from the rest. If my stash was sufficient, I would have no problem investing the whole portfolio in CD ladders. I believe that sequence of return risk is huge, both in accumulation and withdrawal.

 

[samclem]

Banks can only pay x% on their CDs if they can get x+% somewhere else. Ultimately and over time, the CD rates can't exceed the rates the bank is earning on the investments the banks have put the money into.

CDs can certainly reduce volatility. Volatility is not a significant issue, in an objective sense, to a retiree with a 40 year time horizon and a portfolio large enough to get them past a bad initial sequence of returns.

As the issue clarifies itself, it appears Seattle is seeking to time the equity markets (buy in when stocks are cheaper), and just intends to use CDs as a place to hold money that will eventually go into equities. Okay, maybe that will work, but just getting in or out based on gut intuition, what the Fed might do, etc does not have a good record of success. There is some evidence that, over the long term, valuation-based approaches can improved overall yields at the same level of risk, but this "timing" can be "wrong" for extended periods of time. I wouldn't use it for "all in or all out" allocation decisions, but using it to vary allocations within a range you are comfortable with could turn out well, if backtesting is any guide. More here: Using Schiller PE to Time the Market.

 

[Mulligan]

I actually differ a little bit from the rest. If my stash was sufficient, I would have no problem investing the whole portfolio in CD ladders. I believe that sequence of return risk is huge, both in accumulation and withdrawal.

Well, you have another in your camp... We all are guilty of injecting our individual situations and philosophies, while backed up with some type of math to support the situation. Everything all sounds good "by the numbers" or "historical terms" until a good minor 10-15% correction punches some in the mouth. It gets harder for some to rely on those historical terms when they emotionally feel it is going to drop another 15% still. And yes, I know many just roll with the punches...But that is not the type of person who questions even being in the market in the first place.
If you have plenty of money and already distrust the market, trust your instincts and stick to the conservative plan. To some, having money is all about security knowing they have enough to live on comfortably the rest of their lives....Not a race to the end to see who has the most, or concerns for leaving unearned money on the table.


Sent from my iPad using Tapatalk

 

[pb4uski]

Have we found a flaw jn tax caster then? It's an app by turbotax

I plug in zero income but 85 k in dividends which is surely above the 15% bracket. I get 0 tax liability from tax caster.

I was surprised at the answer too.

No, the flaw was not adding deductions and exemptions to the top of the 15% tax bracket which is based on taxable income (after deductions and exemptions).

 

[pb4uski]

.....Bill Bernstein calls it the if you've won the game stop playing approach:
Bernstein Says Stop When You Win The Game | The White Coat Investor - Investing And Personal Finance Information For Physicians, Dentists, Residents, Students, And Other Highly-Educated Busy Professionals

Why do so many people listen to this quack?

 

[samclem]

Why do so many people listen to this quack?

IMO, he used to make a lot of sense and published useful books and articles. Then, in the 2008 meltdown, his clients got scared and many sold out near the bottom, causing him to believe that his basic assumptions (not about asset classes or investing, but about people being willing to stay the course) were not valid. So, now, he's taking the course which causes him the least grief: tell people to save up an awful lot, invest anything that you need for living expenses in things that will probably barely keep up with inflation but probably won't go down, and just live on it. By setting the expected growth bar very low and reducing volatility (and resulting investor angst), it will greatly improve his life by reducing the whining. Sure, folks might need to work a decade or more longer, but that's no skin off his nose. In fact, it's more AUM.

 

[medved]

I am presently taking more investment risk than I think I need to. I would not elect to be 100% cash, as the OP posits, but I agree with his general point -- "why keep playing the game after you have won it?" (His idea of buying stocks when the market goes down sort of undercuts the point, though).

For me, the issue with dialing back risk is how much capital gains tax I want to pay, to achieve that. I can invest new dollars in fixed income (CDs, treasuries, very high quality bonds, etc.), and I can invest stock dividends in fixed income, and I can move my tax deferred accounts to fixed income --- but beyond that I would be paying a high rate of capital gains tax for the privilege of reducing equity exposure. Not sure I am willing to do that. I would guess my situation is not all that unusual.

 

[daylatedollarshort]

I think the point of advice from people like Zvi Bodie and post-2008 Bill Bernstein is to invest in safe assets for essential expenses and then if your safety net and risk tolerance allows, invest in riskier assets for the wants like round the world cruises or a new sports car, but don't invest the retirement money you can't afford to lose in risky assets.

 

[Car-Guy]

I actually differ a little bit from the rest. If my stash was sufficient, I would have no problem investing the whole portfolio in CD ladders.

You may be different than most who have "responded" to this thread, but there are a good number of us on this board that generally agree with the concept.

Example, for me, I have a one bucket of money allocated for fixed assets (e.g. CD's) that I'm comfortable will last me for the rest of my life with a cushion and in my current lifestyle. Another bucket #2 is for playing the market. Some long term "investments" in equities and some for swing trading. If I lost all of bucket #2, I would not be happy, but bucket #1 is all we really need to live like we want.

 

[samclem]

I think the point of advice from people like Zvi Bodie and post-2008 Bill Bernstein is to invest in safe assets for essential expenses and then if your safety net and risk tolerance allows, invest in riskier assets for the wants like round the world cruises or a new sports car, but don't invest the retirement money you can't afford to lose in risky assets.

That would make the most sense if "risk" meant "flushed down the toilet and never seen again." But the "risk" in equities is volatility, which just means it bounces around a lot. That's something that can be managed in many ways that don't require an investor to barely break even with inflation (which is the more important "risk" an early retiree faces).

BB knows the truth (he wrote about it well and frequently pre-2008-nothing fundamentally changed that year to negate a century of data), but now his interests are best served if investors would just save more, bury their money in the back yard, and stop pestering him when the markets burp.

 

[daylatedollarshort]

That would make the most sense if "risk" meant "flushed down the toilet and never seen again." But the "risk" in equities is volatility, which just means it bounces around a lot. That's something that can be managed in many ways that don't require an investor to barely break even with inflation (which is the more important "risk" an early retiree faces).

BB knows the truth (he wrote about it well and frequently pre-2008-nothing fundamentally changed that year to negate a century of data), but now his interests are best served if investors would just save more, bury their money in the back yard, and stop pestering him when the markets burp.

This kind of advice is not unique to BB. Zvi Bodie and others may not be in the majority of financial pundits but they are out there:

How to avoid sequence of returns risk
http://www.marketwatch.com/story/how-to-avoid-sequence-of-return-risk-2013-09-28

If it doesn't suit your portfolio or investing style, that is fine. YMMV. I think the only "truth" is not every investor needs to invest in stocks or even bonds to retire comfortably, which was the OPs question. BTW - BB doesn't suggest avoiding stocks for every client (from the article in the previous link):

"Bernstein defines a risk-free portfolio as one adequate for a basic retirement—a so-called liability-matching portfolio. With a liability-matching portfolio, you earmark certain assets to pay for your basic retirement expenses, or liabilities. “Anything in excess of that can be invested in risky assets,” said Bernstein. “For some folks, that’s going to mean a 100% fixed-income portfolio, and for wealthier clients, something far more aggressive.”

 

[MBSC]

Would you still invest if you didn't have to? If so, why?

I don't have to invest in equities. I keep 25% there because my taxable account qualified dividends are taxed at 0% instead of the ordinary income rate. The fixed income assets would cover expenses if the equities went to zero.

My fixed income side is mostly 401k Stable Value Fund. I could invest the remainder in a CD ladder but currently use a combination MYGA/'AA' rated corporate bond ladder.