Going All Cash in 401k

[OldShooter]

Quote:

Originally Posted by LRDave The (perhaps irrational) fear that would drive me away from OP's approach is the fear that high inflation will sneak up on me. I've lived through 3 BIG market corrections and lived to tell about it - its the enemy I know. The inflation of the mid-late 70's at an age when I was first starting to pay attention scarred me. My parents were openly worried that they were falling behind faster than they could catch up.

Although I definitely don't think the OP should go to cash, TIPS are the solution to the inflation worry. Most of the fixed income portion of our AA is in TIPS. Yes, in times of low inflation their total return is less than bonds without protection but we consider the difference to be an insurance premium. Just like fire insurance on the house.

[Montecfo]

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Originally Posted by SoReadyToRetire I'm at an all-time high in my IRA and would like to sell all the mutual fund shares I own in it and just stay all in cash (left in my Fidelity IRA account, of course) while I decide on a less-agressive strategy and investigate a safer place to put my money. This would only be temporary. I'd just like to conserve what I have at the moment so I don't take another big dive the next time something crazy happens in the world (like I did last Fall when everything tanked). Thoughts on this approach? Makes sense, doesn't it?

In my opinion, the #1 rule if investing is:

Stay Fully Invested

[Montecfo]

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Originally Posted by NW-Bound To be fair, we need to look at what happens if a dirty market timer missed the worst 5 days, the worst 10 days, etc... I am curious to know. Does anyone have any data?

The 10 best days meme is not a good reason to stay invested in IMHO. If you missed the 10 worst days you probably drive your gain up a similar percent.

The reason to stay in is because the trajectory is up in the longterm but unpredictable in the short term.

[LOL!]

Quote:

Originally Posted by NW-Bound To be fair, we need to look at what happens if a dirty market timer missed the worst 5 days, the worst 10 days, etc... I am curious to know. Does anyone have any data?

Articles have been published about the worst days, too.

It is old, but there is this:
https://ritholtz.com/2010/09/missing...days-of-sp500/

https://awealthofcommonsense.com/2018/10/big-down-days/

But note that best days and worst days are often close in time to each other. Note that i did not state which one would come first.

[Animorph]

Although all cash may be excessive, going 50% cash/bonds, considering all accounts and bonds already in Puritan, while figuring out an exact AA would be within reason I think, given a sudden conservative bent. That might even cover going to all cash in one 401k while leaving the other invested in the funds.

I hate being out of the market, though I talked myself into 25% bonds. So all cash, or even 50% is not for me. I stayed 100% equities until about 8 years into retirement. There are pro's and cons for any AA. FIRECalc actually says 100% equities is not terrible, and the average ending balance is amazing. But 50/50 is equally defensible, and quite a bit more popular I'm sure.

[DINKFIRE]

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Originally Posted by Aerides eh. not really. I mean, by all means rebalance to an AA that is good for your plans, age, and risk appetite, but I don't think anyone would say going all cash makes sense. Sounds like an attempt at market timing. The problem is, you never know when to buy back in.

+1, diversify and hold on though the ups and downs, unless you need the cash in next 1-3 years.

[Al18]

Like other have mentioned, you may want to diversify into more than 2 funds, and keep 1-5 years in cash/CD/money market accounts. The Magellan and Puritan funds are good and have been around a few decades - nothing wrong with them. Puritan is not a growth fund - it's a balanced fund that has approximately 60% in stocks and the remainder in bonds according to Fidelity.

[SoReadyToRetire]

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Originally Posted by aja8888 (and I have a neat old BMW convertible!)

You mean like this one? :-) 2002 ...
FullViewInDrivewayTopDown.jpg

[OneLushBonus]

It's astronomically more important that you're properly allocated for your time horizon and risk tolerance, and it sounds like you're not if you have all of your money in aggressive growth IRAs. If you're close to retiring, it's all about allocation right now.

[WestUniversity]

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Originally Posted by Jerry1 Given that you are at that magical point where you could retire, then you should implement your retirement asset allocation. If your current balance with your retirement asset allocation could not withstand a significant correction, then you’re not really at your magic number.

Exactly. For example you could adjust your AA to say 50/50, or 40/60, or 30/70, which would lock in a lot of your current gains without pulling out entirely...

[stephenson]

SoReady,

I don’t think your plan is a good one.

Asset allocate to manage risk, but all cash is shortsighted in my opinion.

[RxMan]

Everyone has their own risk tolerance so if it makes you feel better about protecting your money then by all means go to a fully cash position. Personally I wouldn’t want to do that especially in a low interest rate environment.

I’d add that too many people focus on stock prices or an index’s point value. Yes the Dow is approaching 27000 but the PE for the broader S&P Composite index right now is 21.1. Now I’m not trying to argue that an average PE of 21.1 is bargain territory for stocks but it’s certainly not heavily overvalued either. I would also argue that investors can find bargains in any market.

Stocks are making more money and that is being reflected in the stock prices. Sure a number of factors could alter that quickly but there’s always event risk when you are investing.

I think there are a lot of positive economic factors that are being at least partially reflected in stock prices. I’m staying invested at our comfortable AA and if a dip occurs I consider it a buying opportunity. Historical data suggests time in the market far outweighs trying to time the market in importance.

So many people on these forums worry about a significant downturn in the markets. There are portfolio strategies that allow you to remain invested while still being able to ride out these inevitable downturns. What is not discussed as much is that eventual recovery that can vault your portfolio to new heights.

The two greatest destroyers of wealth are not market crashes, scams, or political election outcomes. The two most efficient threats to wealth are taxes and inflation. If you want a boogeyman to fear in the world of finance those two are great choices.

[DrRoy]

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Given that you are at that magical point where you could retire, then you should implement your retirement asset allocation.

+1, and also take out maybe 2-3 years of spending $. I would not support going all cash.

[SoReadyToRetire]

I'm convinced after all your feedback that going all cash (which to me meant leaving it all in a money market fund) is not my best move at this point.

Thank you for the suggestions about a less risky asset allocation. I'll hang on while I do some research, and then move probably half my money into something more conservative.

I don't yet HAVE a planned retirement asset allocation--my plan to this point was just to grow what I have as much/fast as possible--but at this point I realize I should.

[OldShooter]

Quote:

Originally Posted by SoReadyToRetire ... Thank you for the suggestions about a less risky asset allocation. I'll hang on while I do some research, and then move probably half my money into something more conservative. ...

Not everyone here will agree with this, but I suggest that you avoid blended funds/funds that hold both fixed income and equities.

It is not that there aren't good blended funds, it's that they are virtually impossible to benchmark. If you have your favorite blended fund's proportions but held separately as a fixed income portfolio and an equity portfolio it is relatively easy to compare the equity portfolio's performance to a market index like the Russell 3000 or, better, to a total market index mutual fund like VTSMX. Alternatively, select a blended fund that invests its equity portion in a total market fund. Then you can sleep well, knowing statistically that you will beat almost all non-passive equity funds.

[targatom2019]

just retired last week at 50 and apparently I am in a black out period due to the IRA rollover from 401k. My goal is to get back into the market asap, set emergency funds to cover 2 years then just invest 60/40. I learned from the 2006-2009 recession where my portfolio got hammered but came back 300%. Today's high will be future low on the graph in 10 years.

[jjflyman]

Do what you feel comfortable with. Reading posts here tells me most members here are way more confident in the markets than I am. I slowly went 95% out of the market over the last year. I have run many scenarios and have concluded I don't need to be in the markets anymore. I have no desire to ride out the next bear market. If I make between 2-3% from now on, I am fine. And yes, I have factored in inflation.

[aja8888]

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Originally Posted by SoReadyToRetire You mean like this one? :-) 2002 ... Attachment 32067

Yep! Just like mine except for the Blue.

[aiken]

I can understand the OP's consternation. Let's face it folks, the market has been on a tremendous run and valuations are pretty pricey overall. I'm at 35% cash myself...my highest allocation ever. Can't see 100% cash allocation, but taking some off the table and waiting for better entry points isn't necessarily a bad strategy. The S&P is up 18% YTD...

[The Cosmic Avenger]

Quote:

Originally Posted by aiken I can understand the OP's consternation. Let's face it folks, the market has been on a tremendous run and valuations are pretty pricey overall. I'm at 35% cash myself...my highest allocation ever. Can't see 100% cash allocation, but taking some off the table and waiting for better entry points isn't necessarily a bad strategy. The S&P is up 18% YTD...

You had me up until the bold part. That part sounds like market timing, and we've already beaten that subject to death, so I'll just say: I think it's pretty well accepted by most of the people on this forum that rebalancing your AA is the safest way of selling high and buying low.