Going All Cash in 401k

[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?

 

[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.

 

[copyright1997reloaded]

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 a bull market, your accounts will be at new highs many many times. That is by definition a bull market.

How do you know this is the top?

If the market goes up from here, how long will you wait until reinvesting the money. Will you be able to say to yourself "time to buy" with the market up 20% from here? 50%? 200%? Or will you wait (maybe forever) for the opportunity to buy back in?

If today (well Friday) is really the top, how will you know when it is safe to reinvest it? Down 2%? Down 5%? Down 35%? What is the magic number?

 

[copyright1997reloaded]

To further clarify, I am not telling you NOT to sell. You need to determine your appetite for risk and understand YOURSELF and what you will do WHEN the market goes down 20% or 30% or 40% or 50%. Because someday it will. ALL bull markets end badly. The question is when and from what level.

What is your equity position now? (That is, what is your asset allocation?)

 

[RobbieB]

Sell everything and buy gold. Makes sense doesn't it?

 

[aja8888]

I hear Bitcoin is poised for a run...

 

[USGrant1962]

Well, that is market timing and there is no evidence that market timing works. Markets are regularly at all time highs; that is why the long-term return on stocks is positive and no a reason to go all cash.

You just said you are at an all time high in your IRA, so why are you talking about last fall? It clearly did not damage your long-term performance.

Based on history (and we have nothing else on which to base expectations) I wouldn't disagree with anyone that chose an AA between 30/70 and 70/30, with whatever portion of FI in cash that they desire. But it is not clear from your post what your current AA is - a less aggressive strategy than what? Are you proposing selling bond funds too?

The real red flag in your post is "This would only be temporary..." What is your exact criteria for getting back into markets? Chances are, based on the long term upward trend of the markets, that your re-entry point will be higher than your exit point.

So I guess, no it does not make sense to me. But it is your money not mine.

 

[GrayHare]

This is where a chosen asset allocation comes in. If your stocks increase greatly in value, thereby exceeding the % asset allocation you chose to devote to them, you rebalance by selling some and buying a different asset class, one that's become below its target % in your allocation.

 

[pb4uski]

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?

What does your IPS say? That should be your guide.

FWIW, I know a few people who were spooked into cash in 2008 and never got back in.

 

[Souschef]

I rode out 2008 and retired in early 2009. I rolled mt 401K into an IRA.It is now worth over 5 times what it was in 2009. There is no way I would ever be in cash at 1%.interest

 

[triangle]

Look at a long term stock chart of the market. It generally goes up, making new highs all along the way. Going up nearly every year if you look at a long term moving average. Of course it dips along the way, but how much? 2%, 5%, 10%, 20%, ..., So when do you get back in? It is impossible to answer.

I would take out money you need to live on over the next 1-3 years depending on your needs and situation. Otherwise I think you may be misreading the stock charts. Because there will be another all time high in the future, it is just a matter of being patient.

 

[Bryan Barnfellow]

Think of market fluctuations like turbulence when flying. Do you bail out with your parachute when the plane encounters some rough weather? Or, do you fasten your seatbelt and wait it out so that you can get to your destination safely?

 

[marko]

"More money has been lost in trying to time a correction than has ever been lost in the correction itself" Peter Lynch--Fidelity

I've often told the story of my smarter-than-you neighbor who smugly announced that she "sold everything and went to cash" on the last day of Feb 2009.

Ten years later (and one of the greatest bull-runs in history) she is still waiting for a good time to re-enter the market.

 

[joeea]

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?

It makes no sense to me.

Just figure out what you really want and skip the temporary part.

 

[SoReadyToRetire]

Thanks for all the responses. Here’s the thing—all of my IRA money is in 2 funds, Fido Magellan and Fido Puritan. All of it. Those are pretty aggressive growth funds. And all my hubby’s money is in the same two.

I do understand about long-term investing, etc—I bought in 2008 instead of selling, and I knew last Fall that the market would come back eventually so hung on then too.

But now I’m at that magical point where I could retire based on what I have now, according to Firecalc. So I thought it’d be good to have a bird in the hand at this point, instead of leaving it alone, having us go to war again or something causing a stomach-turning plunge, and then having to wait anxiously for months or even years for my balance in that account to return to where it is now.

But I do see what you mean about it feeling like market timing ...

Someone earlier in this thread asked what my PS says. What is PS?

 

[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.

 

[Car-Guy]

You are probably not going to get many "responses" on this board from people who think this is a good idea. Just the way it is here. In my case I did it except it wasn't temporary. I often moved money around in my 401k during my working years. However, once I reached about 55, I decided I wanted to move to more of a capital preservation strategy. The fixed interest fund in my 401k has been paying consistently between 3 and 4% since then which adds about 50k a year to my balance, "virtually" guaranteed.

I haven't touched the fund since retirement and probably will not until forced to by RMD's in a few years. Some years (e.g. ~2008 thru 2011) I've been very happy with that decision, and other years, not so much. However, overall I been happy with the worry free growth of the account. If I didn't have other money to fund my retirement, I may have had a different investment POV.

 

[Dtail]

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.

+1

 

[bigcmagor]

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.

+1

I need to do the same thing. Like the OP, I decided in March 2017 that the market was overvalued and ripe for a sell off and went to cash with my 401k balance which is 40% of my portfolio. The market is up 25% since then and there's only been one opportunity (last December) to reinvest at a lower price point than when I got out.

In my case, the scars from the beating I took during the financial crisis have been hard to overcome. Jerry's advice about implementing the retirement asset allocation (and committing to rebalancing) is my plan for dealing with the anxiety. Now I just need to decide when to do it.

 

[karen1972]

If you want to do this I would suggest you set a time limit on the investigation and re-allocation. ie so say you think it will take a month to do the investigation. Then in 1 month you will put the money back to work, period, and not get stuck in the oh, the market is up, maybe I should wait for a pullback.

I personally would do the investigation and just do the re-allocation without going to cash...last fall we had a 20% correction, it just happened VERY quickly, thus there is no reason to not think the market is posed to continue to grow or at least just stay sideways.

 

[atmsmshr]

By comparison,

Once I hit the 'magic number' and about one year before retirement, we went from 100% stock in 401k and put an amount equal to 9 years of annual SS at FRA for DW and I in a mix of MM and short term Treasuries. Did the same for another fixed income bucket equal to non-cola pension amount until age 65. This is now the safe income floor for us - no matter what happens in the markets short of a financial meltdown. It also means that I am comfortable with spending down a chunk of the portfolio to be FIRE.

The remainder I have split between utility stock and bond/MM accounts with some cash in checking. This split is to help with tax strategy and guard against inflation.

Keeping a similar AA in the last 'bucket' going forward means that we will have a rising equity glide path while intentionally spending down the fixed income buckets.

Foolproof strategy? No - risky until adjusting to my personal AA. I was lucky no crash occurred in the years just prior to retirement. Vanguard and Fidelity suggest gradually moving to a more conservative AA in the 'risky' years prior to and just after retirement to minimize SORR. However, this approach got us to FIRE, and allowed me to sleep at night while still having upside potential in the future.

YMMV

Atom

 

[SumDay]

Implement a bucket strategy, put X number of years worth of expenses in your cash bucket, and let the other two buckets keep working for you.

 

[SoReadyToRetire]

Well, that is market timing and there is no evidence that market timing works. Markets are regularly at all time highs; that is why the long-term return on stocks is positive and no a reason to go all cash.

You just said you are at an all time high in your IRA, so why are you talking about last fall? It clearly did not damage your long-term performance.

Based on history (and we have nothing else on which to base expectations) I wouldn't disagree with anyone that chose an AA between 30/70 and 70/30, with whatever portion of FI in cash that they desire. But it is not clear from your post what your current AA is - a less aggressive strategy than what? Are you proposing selling bond funds too?

The real red flag in your post is "This would only be temporary..." What is your exact criteria for getting back into markets? Chances are, based on the long term upward trend of the markets, that your re-entry point will be higher than your exit point.

So I guess, no it does not make sense to me. But it is your money not mine.

I mentioned last fall because my balance plunged and I lived with regret for the next several months, wishing I had listened to myself when I thought I shouldn't be so risky this close to retirement. I don't want to have to go through that again if I don't have to. And we KNOW another plunge will happen eventually.

I own no bond funds. *All* money in this account is in just 2 funds--Fidelity Magellan and Puritan. That's why I said I feel I should go to all cash until I figure out a smarter way to go. I need something income producing, for one thing ...

 

[marko]

That's why I said I feel I should go to all cash until I figure out a smarter way to go. I need something income producing, for one thing ...

I'd figure out a smarter way to go--and income producing--first and then go directly into those vehicles, rather than cash first. YMMV

 

[ERD50]

Thanks for all the responses. Here’s the thing—all of my IRA money is in 2 funds, Fido Magellan and Fido Puritan. All of it. Those are pretty aggressive growth funds. And all my hubby’s money is in the same two.

I do understand about long-term investing, etc—I bought in 2008 instead of selling, and I knew last Fall that the market would come back eventually so hung on then too.

But now I’m at that magical point where I could retire based on what I have now, according to Firecalc. So I thought it’d be good to have a bird in the hand at this point, instead of leaving it alone, having us go to war again or something causing a stomach-turning plunge, and then having to wait anxiously for months or even years for my balance in that account to return to where it is now.

But I do see what you mean about it feeling like market timing ...

Someone earlier in this thread asked what my PS says. What is PS?

PS = Personal Statement? I think they mean a written guide, so you have a reference point when you start thinking of changes.

"But now I’m at that magical point where I could retire based on what I have now, according to Firecalc. " - Are you sure? FIRECalc assumes you will stay at a 75/25AA - going all cash will reduce the portfolio success.

You said earlier you need 'income'. You also said this is in an IRA. So anything you withdraw is income, it makes no diff if that is from divs/interest, or cap gains, or selling or anything.

But yes, if your overall AA is out of whack, get it to something you are comfortable with, and that at least has some historical record of succeeding. Then stick with it - that's what history tells us.

Oh, and since there is no tax hit for selling in an IRA, why not get out of those managed funds and into something like VTI for eq, BND for fixed?

-ERD50