KISS. Or just Stupid?

[Sparkie67]

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]

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]

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]

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]

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]

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]

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.

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]

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]

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]

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]

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]

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]

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.

 

[pb4uski]

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]

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]

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]

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]

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]

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]

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.

 

[pimpmyretirement]

Your post suggests you have little to no experience investing. Diving into the market with $950k could be an awfully expensive way to learn. You may want to practice with a smaller sum in the interim.

 

[Sparkie67]

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.

Thanks. Sounds so obvious when someone else says it

Your post suggests you have little to no experience investing. Diving into the market with $950k could be an awfully expensive way to learn. You may want to practice with a smaller sum in the interim.

I agree. I'll be taking most of next year to nut out what i want to do with the money in the long run. Not much diving in going on here to be honest - I'm struggling with putting it in the bank at this stage!

 

[Sarah in SC]

I think you should start with a DCA plan on a monthly basis, with smaller dollar amounts the first 6 months or so, then adding more as you gain confidence. Leave enough in your cash bucket to last for 3 years or so of living expenses so you can adjust to the lifestyle change without focusing on market conditions.
Good luck!

 

[DangerMouse]

I think your position is different from most on this board due to having medical available at little cost plus the Australian welfare system.

We are also Aussies (expats), and earlier this year we cashed out our holdings in the stock market in Australia and moved totally to cash. Whilst everyone says you have to be in the market, how many who are not actively managing their investments can say they have had a solid return of 7% for the past 5 or 10 years?

A couple of issues you might want to consider. If you are planning to spend time overseas you need to hook up with a bank who meets those needs. Basically the big 4 are useless, once they have your money good luck trying to deal with them whilst you are overseas. I would suggest you take a look at Citibank. They have one of the best offers at the moment for Term Deposits. Once you invest $100k with them, you get allocated a personal banker, plus they will work with you over the phone for transfers if you do the right paperwork. They also have worldwide Citigold banking centers that you can use when you are overseas.

Term Deposits, you could always stagger by different denominations and maturity dates. However, Term Deposits are totally different to the US based CD's as if you break at TD you lose big time on the interest, which is why I suggest you stagger denominations and maturity dates.

With the amount of cash you have you could go really aggressive in your superannuation funds within the stock market, so you have your toes dipped in. We have kept our retirement funds in the market to balance against our cash at 7%.

Re buying in the UK. What is your real motivation for doing so? Is it just because of the exchange rate or would you intend to live there long term? I think it is tough playing the exchange rate game and you could easily get burnt. If you are intending to spend time in the UK why not just rent? The real estate market in the UK seems horrendous at the moment with no sign of recovery. Even if you were intending to return to the UK full time to live I would suggest renting for a year to be sure that you do want to stay.

Obviously being a sparky there would be no problems re-entering the work force at any time.

 

[DangerMouse]

the other thing that you may want to look at is buying individual stocks rather than funds. Reason being the dividend imputation credits you can get. All the big 4 banks are generous in that area plus pay divvies of 5% or thereabouts.