IndependentlyPoor
Thinks s/he gets paid by the post
We FIREd in 2004 with a pretty conservative 40/40/20 equity/fixed/cash allocation (it is now 30/50/20 due to market declines and only partial rebalancing - more about that later). Our withdrawal rate exceeded our dividends and interest income by a little bit, but I didn't worry about it too much because equities were appreciating so fast that our net worth was rising at a comfortable pace.
Of course everything changed last year. Our portfolio value is down about 16% from its peak, but worse, our dividend and interest income has collapsed. We have dramatically cut back on expenses, but our withdrawals this year might still exceed our interest and dividend income.
Now I am beginning to think that we need to re-allocate to produce more dividend and interest income. Our cash holdings are entirely in money market funds, so they are earning almost nothing. I am content with 30% equities and would be happy with as little as 5% in cash, but the question is how to deploy that last 15% of our available capital?
Some details.
I am 55 and my partner is 50. A pension from mega-corp. provides about 30% of our current living expenses. We have tightened our belts so that a 3% withdrawal rate is sufficient for the rest. We own no real estate and have no debt. (Actually mega-corp. isn't so mega anymore and might go paws-up, taking our health insurance and pension with it, but that is a worry for another post.)
Our cash is in money market funds and the rest is almost all in index funds: basically total bond market and total stock market Index. (About 20% of our equities are in an international index fund and there is a little bit of BWX too, but let's keep things as simple as possible.) About 1/3 of our portfolio is in IRAs. The IRAs are entirely invested in target retirement funds and have been automatically rebalancing. The remaining 2/3 is in taxable accounts. I have been afflicted by investor paralysis and haven't rebalanced since January 2008.
Investor paralysis is pretty much par for the course for me. The reason we had so much cash in 2004 was from the sale of our house and I could never bring myself to put it into the market, despite the advice of financial planners. Meh. Stocks seemed over valued, I was worried about inflation, and money market funds were paying a pretty good return, so a lot of cash seemed acceptable if not optimal. Now, maybe not so much. We are spending principle now, and I don't like it.
What to do? I am considering a TIPS fund, but the current yield is low and its longish duration concerns me. Individual TIPS? CD ladder?
Of course everything changed last year. Our portfolio value is down about 16% from its peak, but worse, our dividend and interest income has collapsed. We have dramatically cut back on expenses, but our withdrawals this year might still exceed our interest and dividend income.
Now I am beginning to think that we need to re-allocate to produce more dividend and interest income. Our cash holdings are entirely in money market funds, so they are earning almost nothing. I am content with 30% equities and would be happy with as little as 5% in cash, but the question is how to deploy that last 15% of our available capital?
Some details.
I am 55 and my partner is 50. A pension from mega-corp. provides about 30% of our current living expenses. We have tightened our belts so that a 3% withdrawal rate is sufficient for the rest. We own no real estate and have no debt. (Actually mega-corp. isn't so mega anymore and might go paws-up, taking our health insurance and pension with it, but that is a worry for another post.)
Our cash is in money market funds and the rest is almost all in index funds: basically total bond market and total stock market Index. (About 20% of our equities are in an international index fund and there is a little bit of BWX too, but let's keep things as simple as possible.) About 1/3 of our portfolio is in IRAs. The IRAs are entirely invested in target retirement funds and have been automatically rebalancing. The remaining 2/3 is in taxable accounts. I have been afflicted by investor paralysis and haven't rebalanced since January 2008.
Investor paralysis is pretty much par for the course for me. The reason we had so much cash in 2004 was from the sale of our house and I could never bring myself to put it into the market, despite the advice of financial planners. Meh. Stocks seemed over valued, I was worried about inflation, and money market funds were paying a pretty good return, so a lot of cash seemed acceptable if not optimal. Now, maybe not so much. We are spending principle now, and I don't like it.
What to do? I am considering a TIPS fund, but the current yield is low and its longish duration concerns me. Individual TIPS? CD ladder?