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-   -   KISS. Or just Stupid? (http://www.early-retirement.org/forums/f28/kiss-or-just-stupid-55758.html)

Sparkie67 04-18-2011 06:30 PM

KISS. Or just Stupid?
 
Hello. I’m a bit of a lurker, and due to all the excellent input from the members of this forum, I have read some of the reading list, many ‘links’ to articles, and have become much more determined in my desire to look after my own finances.

I (and DW) have decided to become less reliant on the rat race, and are in the process of moving to a fulltime RV type of existence, which will include some part time / casual work. We have sold both of our properties. By September, our cash worth will be $950K (Aussie; slightly more in USD). This will literally be in cash. No other investment other than work pensions which total approx $150k and are not included in our calculations.

We want our first year of freedom to be reversible. So if we can’t do the travel thing we can access our capital and re-buy a property (possibly in the UK to make use of a good exchange rate / low prices.) So for the first 12 months or so, I am shy about putting the money into ETF’s / portfolio due to the short term issues of needing the capital back / market volatility.

So to the KISS bit. I covered this in my ‘Hi I am’ thread, but now its real, I’m getting nervy and would love some sort of 'reassurance' as to our plans. I can put the money in the bank for 12 months, fixed currently at 5.8%. I will keep $50k or so in an ‘unfixed’ account for expenses (currently paying 6.5% variable) which will allow for our spending plus contingency money. At 4% WR (which covers tax, medicare, and spending), I am only leaving approx 1.8% for inflation which I am prepared to do for one year.

At the end of year 1, I will have more money than when I started, and will re-look at ‘proper’ investments. The other option is to put the lot into a 5 yr fixed deposit (currently 7%). This doesn’t allow for the option of getting my cash back within 5 years, but at least its safe, and gives me a WR of 4% (assuming no work which is unlikely) with 3% inflation. All accounts are Govt guaranteed. I expect work will reduce our WR to nearer 3%.

It just feels wrong, at 43 and 47 yrs of age to be putting everything in cash. Am I going to missing out on the start of a world boom in the next 1-5 years? Hence am I being stupid?

haha 04-18-2011 06:39 PM

Quote:

Originally Posted by Sparkie67 (Post 1061288)
It just feels wrong, at 43 and 47 yrs of age to be putting everything in cash. Am I going to missing out on the start of a world boom in the next 1-5 years? Hence am I being stupid?

I am sure that you know that no one can know the answer to this. Hence the usual instructions to have a litle of this, and a little of that, and a little of the other. :)

Ha

Sparkie67 04-18-2011 06:50 PM

Quote:

Originally Posted by haha (Post 1061290)
I am sure that you know that no one can know the answer to this. Hence the usual instructions to have a litle of this, and a little of that, and a little of the other. :)

Ha

I know. I guess i'm just trying to weigh up short term needs vs possibly reduced gains vs safety. Like everyone else :).

I've just never had a large sum of money before and a bit apprehensive as to the right thing to do. I suppose sticking it in the bank at least buys me time to get my confidence up if nothing else!

Animorph 04-18-2011 06:50 PM

If you may truely need the bulk of it after just one year, your plan sounds good to me. I'm normally 100% equities and in retirement (though DW isn't quite yet), but one year is too risky for anything beyond cash and short term bonds. If it really feels bad to do that, try 15% equities so that you don't feel like you're missing everything.

On the other hand, if you only need half of it back in a year and will invest the other half after that, then I'd be happy investing that half now.

73ss454 04-18-2011 06:52 PM

Trying to time the market usually doesn't work out. What makes you think next year will be better than this year?

Sarah in SC 04-18-2011 06:52 PM

You can always set up a DCA type thing (dollar cost averaging) where you put money back into the market at intervals so you don't torture yourself with whether it is a good time to get back in.

I agree, it feels wrong to put everything in cash at ages 43 and 47.

Sparkie67 04-18-2011 07:00 PM

Quote:

Originally Posted by Animorph (Post 1061297)
If it really feels bad to do that, try 15% equities so that you don't feel like you're missing everything. On the other hand, if you only need half of it back in a year and will invest the other half after that, then I'd be happy investing that half now.

Quote:

Originally Posted by Sarah in SC (Post 1061300)
You can always set up a DCA type thing (dollar cost averaging) where you put money back into the market at intervals so you don't torture yourself with whether it is a good time to get back in.

I agree, it feels wrong to put everything in cash at ages 43 and 47.

Thank you. I think these ideas may be the solution. Having not 'invested' before, I think i'll need to bite it and see, bit at a time. Whether I do that in the first year, or after that i'm not sure. My gut thoughts are that changing lifestyle is hard enough without the worry of money in the very short term.

Independent 04-18-2011 07:01 PM

I'm wondering if you would really spend the entire $950 a year from now? That would buy a lot of house in my neighborhood.

Maybe you could trim your "worst case" cash needs to something below $950k and go long term with the rest.

Sparkie67 04-18-2011 07:04 PM

Quote:

Originally Posted by 73ss454 (Post 1061299)
Trying to time the market usually doesn't work out. What makes you think next year will be better than this year?

Nothing really. I don't want to time the market as such, more time my entry into it, based on my headspace/circumstances rather than the market. The market talk in Oz is totally conflicted - some say the boom will continue here; as many say it won't. I don't really know enough to pick sides :)

Sparkie67 04-18-2011 07:10 PM

Quote:

Originally Posted by Independent (Post 1061309)
I'm wondering if you would really spend the entire $950 a year from now? That would buy a lot of house in my neighborhood.

Maybe you could trim your "worst case" cash needs to something below $950k and go long term with the rest.

I think you are right. As long as the housing 'bubble' doesn't keep going. It's leveled off a bit now, but it grew approx 30% in the last 18 months alone. But we are both open to a move to a cheaper location / country so i'm sure we can trim a few $100k's of that. Thanks

73ss454 04-18-2011 07:42 PM

Quote:

Originally Posted by Sparkie67 (Post 1061311)
Nothing really. I don't want to time the market as such, more time my entry into it, based on my headspace/circumstances rather than the market. The market talk in Oz is totally conflicted - some say the boom will continue here; as many say it won't. I don't really know enough to pick sides :)

If you're smart you won't pick a side. No one knows what is going to happen with the market. If anyone did they'd be real rich real quick.;)

GregLee 04-18-2011 08:01 PM

Quote:

Originally Posted by 73ss454 (Post 1061337)
If anyone did they'd be real rich real quick.;)

It seems that some do get real rich real quick. Why don't they tell us exactly how they did it?

73ss454 04-18-2011 08:04 PM

Quote:

Originally Posted by GregLee (Post 1061349)
It seems that some do get real rich real quick. Why don't they tell us exactly how they did it?


Because it would come with a jail term.:rolleyes:

pb4uski 04-18-2011 08:08 PM

While I would agree that all cash at your ages doesn't make a lot of sense, what you are really talking about is to be in cash for a year or so until you know how your RV adventure sorts out and then redeploy the cash into a more permanent portfolio. 5.8% government guraranteed souds pretty good to me, and the extra 1.2% doesn't seem worth tying up the funds for 5 years in your circumstances. Enjoy your RV adventure!!! Best of luck.

Sparkie67 04-18-2011 08:19 PM

Quote:

Originally Posted by pb4uski (Post 1061356)
While I would agree that all cash at your ages doesn't make a lot of sense, what you are really talking about is to be in cash for a year or so until you know how your RV adventure sorts out and then redeploy the cash into a more permanent portfolio. 5.8% government guraranteed souds pretty good to me, and the extra 1.2% doesn't seem worth tying up the funds for 5 years in your circumstances. Enjoy your RV adventure!!! Best of luck.

Thank you for the good wishes. I think what you say is right and everyone who has replied is essentially saying the same thing I think. That is, for a year or so its probably okay. Long term its not sensible. If I'm unsure, do a little bit of 'investing' now, while preserving a 'bail out' amount that i can get back guaranteed. Then, jump in, bit by bit if necessary.

nun 04-18-2011 08:58 PM

I think your plan sounds good. I'd stay away from the 5 years saving plan as it locks up your money and you state that you might need it to buy a house once the RV thing is done. That plan would also make me lean towards safe investments to protect the principal that you need to pay for the house. Also you have Govt guaranteed interest that is more than enough to cover your expenses, that sounds like the way to go. You also have plenty of time to worry about investments. Stick it in the saving account, live of the interest and enjoy your RV.

Sparkie67 04-18-2011 09:16 PM

Quote:

Originally Posted by nun (Post 1061382)
I think your plan sounds good. I'd stay away from the 5 years saving plan as it locks up your money and you state that you might need it to buy a house once the RV thing is done. That plan would also make me lean towards safe investments to protect the principal that you need to pay for the house. Also you have Govt guaranteed interest that is more than enough to cover your expenses, that sounds like the way to go. You also have plenty of time to worry about investments. Stick it in the saving account, live of the interest and enjoy your RV.

Thanks for the input. We're hoping the RV thing will be a go for many years, but I'll obviously have a better idea about that in a year or so. :).

traineeinvestor 04-19-2011 12:28 AM

If you have a short term need, then high quality/government guaranteed short term investments with fixed payouts like bank deposits, CDs etc is the safe course. The rates you quote are pretty good compared to what is available in a lot of other places.

In the longer term, it would be a good way to lose a lot of the real value of your savings to inflation, but that's a different question.

Even with shorter term investments, you still face:

1. a currency issue - you hold AUD (?) and may wish to invest in GBP in a year's time - which currency are you going to hold? What will happen to your plans if the exchange rates move against you?

2. a property price issue - what happens to your plans if property prices in your chosen market appreciate during the period when you are on the sidelines?

I'm not making any predictions here, but would the combined effect of a weaker AUD/GBP FX rate and a rise in UK house prices have the potential to affect your plans?

Good luck with the ER and enjoy the experience.

Sparkie67 04-19-2011 01:41 AM

Quote:

Originally Posted by traineeinvestor (Post 1061417)
1. a currency issue - you hold AUD (?) and may wish to invest in GBP in a year's time - which currency are you going to hold? What will happen to your plans if the exchange rates move against you?

2. a property price issue - what happens to your plans if property prices in your chosen market appreciate during the period when you are on the sidelines?

I'm not making any predictions here, but would the combined effect of a weaker AUD/GBP FX rate and a rise in UK house prices have the potential to affect your plans?

Good luck with the ER and enjoy the experience.

Thanks for taking the time to reply. Currently the exchange rate is at about 65 pence to the AUD; historically it is about 45 pence/AUD. This may change but i don't there would be too much movement. Its better for me I think to hold the cash as AUD to gain an income in the short term.

House prices, especially in the UK are unlikely to be doing much any time soon. Whilst I am concerned of the changes re currency / property, I think it is a lesser concern for me in the short term than not having a 'safe' income for 12 months.

I may edge my bets and buy a cheap property in the UK (hold some cash in my UK sterling account or 6.5% variable AUD account for this purpose) before the year's up. I guess I can always part mortgage it / rent it to free up the cash again / provide income. Too many options! An Aussie house would require fulltime work to provide an income given their prices - something I'm keen to avoid:)

donheff 04-19-2011 06:55 AM

I too like the 1 year plan. Those rates are good. You can dip your toes into the RV world. If you like it you can start diversifying next year with a bit more principal than you have today and drive off into the sunset. If you don't like it you can evaluate your UK buying opportunities, go back to work, whatever.


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