Low-risk planning

[dixonge]

So after a big spreadsheet session yesterday I realized that we might actually start to accumulate some extra cash over the next decade or so, all from frugality and savings from pensions and SS. Rather than park that in a measly savings account, I would like to at least offset inflation, presuming that happens again.

Part of our strategy involves living in cheaper locales where the USD is not the legal tender. But I really hate the thought of cash building up and just sitting there doing not much of anything. On the other hand, I also hate the thought of cash disappearing. I've been researching CD's and bonds, and given the anemic yields it hardly seems worth the effort. Blue chip dividend yields look much better, but then I'm back in equities.

Are there other choices out there I may be overlooking?

 

[Senator]

Dividends stocks, peer to peer lending, CD ladders, TIPs, Muni bonds, REITs, MLPs, etc.

Higher returns are higher risk. Not much you can do. I recently heard of a low-beta / high dividend ETF. Mostly utilities. Maybe you can try a Utility ETF?

 

[sengsational]

Does your 401k have a stable value fund / guaranteed income fund?

 

[dixonge]

Does your 401k have a stable value fund / guaranteed income fund?

We have pensions and SS, that's it.

 

[Hamster]

You should probably read the active discussion in this area on preferred stocks.


Sent from my iPad using Early Retirement Forum

 

[nun]

We have pensions and SS, that's it.

If you are saving cash from pensions and SS you can afford to take some risk. A dividend stock mutual fund would offer some income and the chance for some capital growth.

 

[papadad111]

If you're living abroad perhaps you should take the dollars strength and use it to buy local currencies or securities denominated in non dollar currencies.

You should be buying at bargain prices now.

What locations / countries do you intend to live in ? Many countries allow offshore investment in local instruments - keep it simple. Time deposits or that local government / local corporate bonds are a good place to start.

You could do some natural hedging with current dollar strength and help offset future non dollar expenses by building a position in the local currency now.

 

[daylatedollarshort]

Rather than park that in a measly savings account, I would like to at least offset inflation, presuming that happens again.

In that category we personally have TIPS ladders (not funds), I-bonds, stable value (through our 401Ks), dividend stocks, Treasury bonds (bought some 30 years when rates were higher), utility stocks, and CD ladders.

 

[DrRoy]

For my non equity $ I have lately been scouting for 2-7 year corporate or municipal bonds in the A-BBB range. I am finding some at 2-3%.

 

[nun]

If you're living abroad perhaps you should take the dollars strength and use it to buy local currencies or securities denominated in non dollar currencies. You should be buying at bargain prices now. What locations / countries do you intend to live in ? Many countries allow offshore investment in local instruments - keep it simple. Time deposits or that local government / local corporate bonds are a good place to start. You could do some natural hedging with current dollar strength and help offset future non dollar expenses by building a position in the local currency now.

Careful with US reporting requirements for offshore accounts and PFIC regulations. This might be more trouble than it's worth and speculating using currency is risky which is exactly what the OP doesn't want.

 

[Ed_The_Gypsy]

If you're living abroad perhaps you should take the dollars strength and use it to buy local currencies or securities denominated in non dollar currencies.

You should be buying at bargain prices now.

What locations / countries do you intend to live in ? Many countries allow offshore investment in local instruments - keep it simple. Time deposits or that local government / local corporate bonds are a good place to start.

You could do some natural hedging with current dollar strength and help offset future non dollar expenses by building a position in the local currency now.

Hi, dixonge,

I remember your story and followed your blog off and on. Glad to see you back. Mexico is my Plan C these days. It once was Plan B and before that it was Plan A.

A problem is that many US mutual funds of foreign assets are 'hedged', I am told. Which I gather means that they are cushioned against currency fluctuations, which would be something you might be wanting to take advantage of these days, but I don't know how to do that.

Consider the attached comparison between Wellington (VWELX, 60/40 equities/bonds), Wellesley (VWINX, 40/60) and Vanguard's S&P 500 index fund (VFINX), which includes dividends reinvested. I have some Wellington, which I prefer over Wellesley. I will take the dips, which so far seem to last only about 2 years. But if you want some stability, VWINX may suit you better. I have not been real happy with the S&P 500 for a long time.

I am back to diversified mutual funds after a significantly unproductive adventure in individual equities (don't ask). I like index funds, but these two are managed but low cost and VWELX is hard to beat.

Nothing that grows is risk-free. VWELX and VWINX seem to have weathered bad times pretty well, however.

Best of luck.

Ed

 

[dixonge]

Hi, dixonge,

I remember your story and followed your blog off and on. Glad to see you back. Mexico is my Plan C these days. It once was Plan B and before that it was Plan A.

Well thanks for following! It's been pretty quiet as of late. I'm almost finished reorganizing all my photos and then I'll redo the blog, adding things. Rearranging furniture. At least there will be new things to read...

Consider the attached comparison between Wellington (VWELX, 60/40 equities/bonds), Wellesley (VWINX, 40/60) and Vanguard's S&P 500 index fund (VFINX), which includes dividends reinvested. I have some Wellington, which I prefer over Wellesley. I will take the dips, which so far seem to last only about 2 years. But if you want some stability, VWINX may suit you better. I have not been real happy with the S&P 500 for a long time.

I have written entire blog posts devoted solely to the S&P 500 index performance. Up until 2010 or so I could say that an investment in 1999 was 0% interest minus inflation, a poor choice. Of course that doesn't take into account several important factors: stocks that move in/out of the S&P 500, continuing reinvestment, dividends, etc.

Having said that, when I plug those funds into Google Finance I'm not getting anywhere *near* those returns for that time period. Not sure why...

I am back to diversified mutual funds after a significantly unproductive adventure in individual equities (don't ask). I like index funds, but these two are managed but low cost and VWELX is hard to beat.

Nothing that grows is risk-free. VWELX and VWINX seem to have weathered bad times pretty well, however.

Best of luck.

Ed

Much food for thought here - thanks!