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Too much in cash?
Old 12-11-2010, 01:05 PM   #1
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Too much in cash?

Newly retired at age 65.
Currently 25% money market, 40% bonds, and 35% equities all in IRA all VG funds.
Would like to reduce cash to around 10%. How should the" excess" cash be invested.
I understand "your age in bonds", but bonds are currently dropping in value and stocks are rising. (perhaps long term).
The pundits seem to believe that the past ten year favorable bond market will not continue.
That is the market seems to favor Wellington over Wellesley- solely as an example.

So short term treasuries, stocks, corporate bond, Wellignton, Wellesley, or ?

Comments and suggestions please.
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Old 12-11-2010, 01:09 PM   #2
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If you do not want to do straight equities or other non-bond investmens, I would put it in CDs. Shop around and find the highest possible rates with the lowest possible early withdrawal penalties. Ally bank and Pen Fed credit union are popular around here.
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Old 12-11-2010, 02:34 PM   #3
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It looks like you've had a solid asset allocation. If the 25% in money market is Vanguard Prime MM I can see why your looking to make an adjustment. I agree with Brewer that CD's would be a safe route. Ladder the maturities and you can phase in any future rate increases - if that happens. You don't mention the bond funds you hold, but the duration would be a consideration. If your holding and not selling, short to intermediate term funds might be OK.
As far as the Wellington vs Wellesley choice -who knows. I hold Wellington and my wife holds Wellesley our Roth IRA's. I would stick to my allocation and make to best selections within that allocation.
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Old 12-11-2010, 02:42 PM   #4
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I noticed at my regret that the cd's at penfed dropped (first of month) a little.
But if there truly is a climb in interest rates doesn't that mean that the cd rates should also rise too? If I'm right cd's and bond yield should improve. Right?
Steve
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Old 12-11-2010, 02:54 PM   #5
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I noticed at my regret that the cd's at penfed dropped (first of month) a little.
But if there truly is a climb in interest rates doesn't that mean that the cd rates should also rise too? If I'm right cd's and bond yield should improve. Right?
Steve
I would think the CD rates would climb to followthe recent rise in treasuries. However this recent quick rise just brings us back to where we were a few months ago. CD rates weren't much higher then. Supply and demand. The banks aren't loaning money so there's not much need to pay us much for our CD's
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Old 12-11-2010, 02:54 PM   #6
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At age 65 and an allocation of 35% in equities, I wouldn't be in a hurry to start increasing your equity allocation just because the equity markets have had close on 2 years of gains and "the word" is that the bond market is going down.

From where do you derive your income? If it is mainly your portfolio then how many months income does your cash savings provide?

I also suggest that you look to other places for your cash such as CD's.
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Old 12-11-2010, 06:00 PM   #7
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target of 10% cash would be two years expenses. Balance from SS and small pension.

Maybe just a simple question:

If investing now in a balanced fund would you think 40%/60% stocks/bonds or 60%/40% would be better or, forget the balanced fund and go to 100% stock fund?
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Old 12-11-2010, 09:38 PM   #8
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Quote:
Originally Posted by swodo View Post
target of 10% cash would be two years expenses. Balance from SS and small pension.

Maybe just a simple question:

If investing now in a balanced fund would you think 40%/60% stocks/bonds or 60%/40% would be better or, forget the balanced fund and go to 100% stock fund?
I'm 10 years younger than you and keep 5 years withdrawal in cash and have an allocation of 35/50/15, so I'm more conservative in my approach. (70% of my income needs currently comes from a non-COLA pension).

I personally wouldn't go to a zero cash position as you suggest, and certainly I would not go to 100% equities while I am withdrawing. But that is just me.
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Old 12-12-2010, 07:15 AM   #9
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My opinion is that everyone should be at least 50% allocated to equities. So to answer your question on Wellington/Wellesley I would go Wellington.

I think "age in bonds" was sound in the 50's and 60's. Now that people are spending more years in retirement due to early (sometimes forced) retirement and longer life spans I think a bit more equities are warranted.

I am 55, retired for 4 months. My AA is 60% equities 40% fixed income. Equities are 30% foreign and 70% domestic. Domestic 65%/28%/7% LC/MC/SC, in other words market allocation with no Fama/French type tilting toward SC and/or value.

Caveat: I have a non-cola pension. So I need my portfolio to not only keep up with inflation but also make up for the lack of cola on my pension. So a rule of thumb like "age in bonds" obviously is only a rule of thumb and individual circumstances must be considered.
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Old 12-12-2010, 07:44 AM   #10
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Caveat: I have a non-cola pension. So I need my portfolio to not only keep up with inflation but also make up for the lack of cola on my pension. So a rule of thumb like "age in bonds" obviously is only a rule of thumb and individual circumstances must be considered.[/QUOTE]

A good example of the wide range of individual circumstances. A pension would certainly be a factor in your AA. If large enough to cover your basic expenses you could take more risk with equities or perhaps you wouldn't need to take much risk. That's why a basic plan is so important
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