Going All Cash in 401k

[Spock]

.... When the stock market decline, treasuries are the only asset class that rises. I am fully aware of this. Therefore I invest in 100% treasuries since this gain during the recession "should" offset any inflationary losses.

There is no rule or law that says T's will rise when stocks decline.

Quoting Gundlach in 2018:

Finally, Gundlach said that while not imminent he expects a recession in the next 2 years. Here, he made another interesting observation: he said that in the next recession we won’t see a bid for safety out of stocks and into bonds. In other words “we won’t see a bond market rally.”

 

[2177V]

Ah, I understand your flight to 'safety' now, especially if you have a desired use for your assets. Where are you thinking of buying a condo? I've lived on Maui and live on Oahu now, and am familiar with many Hawaii Island condos as well!

I am going to Waikiki for an entire month to look for property. Staying at an Airbnb place at the Island Colony on the 39th floor. I prefer my condo to be high because it gets noisy at the lower floors due to the Waikiki partying at night. I will send you a private email.

 

[2177V]

There is no rule or law that says T's will rise when stocks decline.

Quoting Gundlach in 2018:

Please click the following link and examine the orange line in the graph:
https://obliviousinvestor.com/what-happens-to-bonds-in-a-stock-market-crash/


Please view minute 19 of the following video:

Please review the 2008 performance VFITX at investor.vanguard.com:
https://investor.vanguard.com/mutual-funds/profile/performance/vfitx/cumulative-returns

You are correct that there is no law. However there is sufficient evidence that t-bills will "likely" rise during a bear market based on the above three links. This is because of the "flight to safety".

I am 100% treasuries and treasuries is an important component in my asset preservation strategy. I think "stock" during a bull market. I think "treasuries" in a bear market. When the bear market is over, I rotate back to stock because treasuries are a lousy investment during a bull market.

This is my personal financial plan and I will not impose my plan on anyone else. You can be critical of it but since this is my personal plan, i will dismiss it.

 

[jldavid47]

Are you concerned at all, about the article's statement: "a modest 3% annual inflation rate can slash the real or inflation-adjusted value of an investment by 50% in 24 years."? If you have a pension, SS, and other sources of regular income that make up most of your income, then losing 50% or more in 24 years (or less) may not matter much to you. It does to me, as I won't be 70 for another 17 years, and other than my investments, SS is my only other source of income.

You will only lose 50% of the purchasing power over today if you earn ZERO percent over those 24 years on the investments. That won't happen even if you stuff your money in zero-coupon T-bonds. Besides, you won't be in that mode for 24 years.


Not only that, capital preservation is most important when you have the most capital to preserve. It doesn't matter if you have "more" or if you would have more following a certain investment path. All that matters is that you have enough. If the OP has more than enough at his current level (plus modest appreciation in safe vehicles), then capital preservation is definitely called for. This has nothing to do with timing the market. It's a way to manage risks.

 

[HI Bill]

You will only lose 50% of the purchasing power over today if you earn ZERO percent over those 24 years on the investments. That won't happen even if you stuff your money in zero-coupon T-bonds. Besides, you won't be in that mode for 24 years....

Or if inflation rises above the rate you're earning on the treasuries....

But one poster has a short-term goal for some of his funds...buying a condo...so this makes sense to me...especially when real estate on Oahu is projected to be flat/decline slightly over the next year or so.

 

[2177V]

Or if inflation rises above the rate you're earning on the treasuries....

But one poster has a short-term goal for some of his funds...buying a condo...so this makes sense to me...especially when real estate on Oahu is projected to be flat/decline slightly over the next year or so.

Yep...That is my plan. Buy treasuries as a place holder and treasuries will keep my assets in a safe place. When I am ready, I will buy real estate in Hawaii with those assets.

I am 68 so my assets should make me happy. I enjoy surfing and watching the girls in bikinis....much more than having a large number in my investment portfolio. It is really about personal priorities.

 

[kgtest]

I enjoy surfing and watching the girls in bikinis....

Wait, you like watching the girls in bikini's also? You ole dirty...

I'll never forget one of the first times I plopped down on a beach in HI with the Mrs. I took the shirt off, and I kid you not about 5 minutes later the entire girls high school volleyball team came up and plopped down next to us in those Pokaloha bikinis. Didn't know what that was until that day, now I do

Edit to add, sorry, totally off topic.

 

[Hamlet]

You are correct that there is no law. However there is sufficient evidence that t-bills will "likely" rise during a bear market based on the above three links. This is because of the "flight to safety".

I am 100% treasuries and treasuries is an important component in my asset preservation strategy. I think "stock" during a bull market. I think "treasuries" in a bear market. When the bear market is over, I rotate back to stock because treasuries are a lousy investment during a bull market.

This is my personal financial plan and I will not impose my plan on anyone else. You can be critical of it but since this is my personal plan, i will dismiss it.

Does no one remember what happened to Treasuries in the 70s?

I think the 30-year Treasury is probably the most dangerous asset to own right now.

I’m not opposed to Treasuries, but if you are trying to reduce risk, I’d avoid the long durations.

Everyone has suddenly assumed that inflation is going down, but it’s not clear to me that that is a given.

 

[RobbieB]

Not to mention the latest trend in bonds is negative interest.

 

[pb4uski]

....However, in the USA, a large percentage of the USA national debt is owned by China and ironically Japan. This means most of the interest payment on the $22 trillion national debt is exiting USA. ...

China and Japan combined own about 10% of the $22T in debt.... whether or not a "large percentage" is debatable depending on what one considers a "large percentage" to be... but in any event nowhere near "most" of the interest is exiting the US if they only own 10% of the debt.

 

[2177V]

China and Japan combined own about 10% of the $22T in debt.... whether or not a "large percentage" is debatable depending on what one considers a "large percentage" to be... but in any event nowhere near "most" of the interest is exiting the US if they only own 10% of the debt.

It is all relative. It is my understanding that China has $1T of treasuries. Assuming 3& interest for LT treasuries, then the interest payment is about $30B per year. China's annual defense budget is about $180B in US dollars. $30B is enough to cover 16% of China's annual defense budget. At least when I buy treasuries, the interest goes to me as a US Citizen.

 

[pb4uski]

It is all relative. It is my understanding that China has $1T of treasuries. Assuming 3& interest for LT treasuries, then the interest payment is about $30B per year. China's annual defense budget is about $180B in US dollars. $30B is enough to cover 16% of China's annual defense budget. At least when I buy treasuries, the interest goes to me as a US Citizen.

And how is any of this relevant to your earlier erroneous statement that "most" of the interest paid on US debt is exiting the US?

Why can't you just admit that your statement was wrong?

 

[2177V]

Not to mention the latest trend in bonds is negative interest.

I want the interest to go down or even negative.

This is because I already purchased treasuries and I locked in a relative higher interest rate. Every time the FED cut interest rates or the treasury interest rates goes down, then the value of my higher interest paying treasuries goes up.

For example: If the treasuries interest rate goes to 0.1%, then other investors can either buy new treasuries that pays 0.1% from the US treasury department..... or buy treasuries from me which I have treasuries that are paying 2%. Naturally my 2% treasuries will sell at a higher value than I originally paid for it and therefore I make a profit.

This is why treasuries are the only asset class that increases during a recession while everything else decline in value. I will also take advantage of the "flight to quality", click the following link to understand this:

https://www.investopedia.com/terms/f/flighttoquality.asp

Note that the link states "when the interest rates goes up, then the value of bonds goes down". However, this situation happens when the fed raises interest rates when the economy is overheating but that situation is far in the future.

I will have rolled over my treasuries back to stock by then. The main point: People should think about being ahead of the curve and not behind it.

 

[samclem]

And how is any of this relevant to your earlier erroneous statement that "most" of the interest paid on US debt is exiting the US?

Why can't you just admit that your statement was wrong?

Foreign governments and investors own approx 40% of US public debt.

Can we move on to a subject of relevance?

 

[pb4uski]

Foreign governments and investors own approx 40% of US public debt.

Can we move on to a subject of relevance?

Why, your conceding to having posted false information isn't relevant?

I guess I never knew that 40% was "most"... I learn something new every day.

..... This means most of the interest payment on the $22 trillion national debt is exiting USA. ....

most
/mōst/
determiner & pronoun
1.
greatest in amount or degree.
"they've had the most success"
synonyms: nearly all, almost all, the greatest quantity/part/number, the majority, the bulk, the lion's share, the mass, the preponderance

 

[samclem]

Why, your conceding to having posted false information isn't relevant?

I guess I never knew that 40% was "most"... I learn something new every day.

I'm not conceding anything. I think in your haste to score points you've gotten identities confused.

 

[pb4uski]

You're right... I thought that vchan posted that.... at least I am willing to admit my error.

 

[ESRwannabe]

I'm coming very late to this thread and have not read many posts in it. So maybe I am saying something that has already been posted. If so, my bad.

Anyway, my strategy is to invest for dividend income (i.e. dividend growth) and to maintain a global portfolio. I do this by using Vanguard's High Div Yield ETFs for US and Foreign stocks split 50/50.

The past couple of years I have been re-balancing from US into Foreign stocks. Currently the US etf VYM has a P/E of 17.94, a P/B of 2.43 and a div yield of 3.15%. On the foreign side using etf VYMI we have P/E of 11.64, P/B of 1.21 and div yield of 4.45%.

So, I am glad that all of my contributions and re-balancing has been going into Foreign stocks, which are not overpriced at all. They have very good prices.

After friday's drop and the re-balancing I had done just a few days before then, I am finally at a point where the market value on my VYM shares is less than VYMI. So, I am now faced with a conundrum. Do I make my next conribution to VYM to maintain the 50/50 ratio, or do I deviate from it and continue putting it all into VYMI.

I am perfectly ok with holding VYM at a P/E of 17.94. I consider that to be a fully priced in level. Definitely not cheap, but not outrageously overpriced either. A fine level to simply hold at. However, not sure its a good idea to buy more at that level.

I am definitely not considering going all Treasury bonds. There are lots of stocks on sale right now, they just aren't located in broad US indexes. You have to start cherry picking individual companies in the US or look at foreign indexes.

 

[2177V]

You're right... I thought that vchan posted that.... at least I am willing to admit my error.

OK. i re-read some of my previous statement and my statement of "most" of the interest payment leaving the USA is incorrect. However, "some" of the interest payments are leaving the USA is the correct statement....which is higher than I feel comfortable with.

This thread is about SoReadytoRetire's plan to go 100% cash and then perhaps invest in a less aggressive security.

I suggest treasury bonds as that less aggressive security for SoReadytoRetire for the following reasons:

1. A treasury bond holder has two options of redeeming the bonds. (1) The bond holder can wait until the maturity date of 2 yrs, 5 yrs, etc (2) The bond holder can sell it before the maturity date on the secondary market.

2. If the bond holder elect option (1), the bond holder gets the interest payments and the entire principle back at the maturity date from the federal government. The only risk is when the US treasury department default on the treasury bonds.

3. If the bond holder elect option (2), the bond holder can get the bond price based on the current federal interest. If the bond is 2% and the federal interest rate is 3%, then the bond holder takes a loss because who wants to buy a 2% bond when an investor can buy a 3% bond from the US treasury? However, if the bond is 2% and the interest is 1%, the bond holder can now sell the 2% bond at a profit.

I reallocated my 60/40 portfolio last month to 100% treasuries because I knew the fed was going to cut interest rates...which they did. The best time to buy treasury bonds is when the fed is planning to cut interest rates. The worst time to buy treasury bonds is when the fed is planning to raise interest rates.

This is why some investors are buying treasury bonds causing the yield to invert. I suggest reviewing the current 2019 1st and 2nd quarterly performances and 2007/2008/2009 bear market performances of VFITX and VFITX at investor.vanguard.com to get a better understanding of what is happening with the treasury bond market.

As a long term investment, treasury is probably not the way to go. However, as a short term investment in today's environment of the Fed cutting interest rates, then this is an opportunity to make money in the short term. Whether SoReadytoRetire wants to buy treasuries is really up to him.

 

[copyright1997reloaded]

I reallocated my 60/40 portfolio last month to 100% treasuries because I knew the fed was going to cut interest rates...which they did.

Here's the part that you don't seem to get: You had no special magical insight. The interest rate cut was already priced in prior to the rate cut.

You have stated repeatedly why you went fixed, for an upcoming known big money purchase. I have no issue with that, in fact I would (and have) recommend to anyone with an upcoming real estate purchase to have it ready to go in cash/short term safe fixed instruments.

SoReady's situation is not the same, and he/she was discussing the merits of going all cash "while I decide on a less-agressive strategy" and then also stated "This would only be temporary". This is different, and is not a good strategy.

Note: For all I know Monday could be a complete wipe out like in 1987. But even looking back at that drop (22.61% in one day), the right decision was to remain invested with a reasonable asset allocation.

Disclosure: I did some updates to my tracking spreadsheet. I had sold off some things in May/June/Early July in order to transfer a couple IRA's to a 457 plan and also to slightly reduce my asset allocation given the big first half run up. As of today I am approximately 60% equities, 39% cash/fixed, 1% other (precious metals).

 

[2177V]

Here's the part that you don't seem to get: You had no special magical insight. The interest rate cut was already priced in prior to the rate cut.

You have stated repeatedly why you went fixed, for an upcoming known big money purchase. I have no issue with that, in fact I would (and have) recommend to anyone with an upcoming real estate purchase to have it ready to go in cash/short term safe fixed instruments.

SoReady's situation is not the same, and he/she was discussing the merits of going all cash "while I decide on a less-agressive strategy" and then also stated "This would only be temporary". This is different, and is not a good strategy.

Note: For all I know Monday could be a complete wipe out like in 1987. But even looking back at that drop (22.61% in one day), the right decision was to remain invested with a reasonable asset allocation.

Disclosure: I did some updates to my tracking spreadsheet. I had sold off some things in May/June/Early July in order to transfer a couple IRA's to a 457 plan and also to slightly reduce my asset allocation given the big first half run up. As of today I am approximately 60% equities, 39% cash/fixed, 1% other (precious metals).

"Remain invested" as you stated is a good strategy for the long term so therefore I agree...but only if your objective is long term and focused on equity appreciation.

You also stated that you would go "cash/short term safe fixed instruments". If you agree that treasuries are "short term safe fixed instruments" then we are in agreement.

You stated "The interest rate cut was already priced in prior to the rate cut." That statement appears to apply to equities and not to treasuries. This is because after I re-allocated from a 60/40 portfolio to 100% treasuries, the value of my treasuries spiked upwards on 31 July...which is the date the Fed cut interest rates 25 basic points. You should look at VFIUX value chart in the last 30 days to determine what happened on 31 July.

Please note that my Asset preservation portfolio means this is a portfolio that is designed to prevent loss...and making money is not the primary objective. Your portfolio is designed with a different financial objective than my financial objective.

It really depends on your objective. I also do not know what the objective of "SoReadytoRetire" and I do not want to speculate. The purpose of my previous comment is to give "SoReadytoRetire" an option to buy treasuries by explaining a little bit about treasuries.

 

[gayl]

You should ask yourself...why are investors buying treasuries which is causing the yield inversion?

I agree with you on 1)... I disagree with you on 2) as explained below.

I got treasuries last month BEFORE the FED cut rates. This means I already made some money since my treasurie's interest rates that I locked in are higher than it is today. The more cuts the FED makes, then the more valuable my treasuries become...because of my relatively higher interest rate.

IMO...Some people do not understand that during a bull market, you should think "stock". During a bear market you should think "treasuries". This is because treasuries are the only asset class that rises during a bear market.
Examine the orange line in the following link:
https://obliviousinvestor.com/what-happens-to-bonds-in-a-stock-market-crash/

I like my position. My assets are safer than stock in the current climate of uncertainty and yet I am making money. When the recession do occur in 12 to 24 months, I have the option of returning to a 60/40 portfolio and make even more money on the recovery.

Everybody makes money during a bull market. However, only certain investors knows how to make money during a bear market.

Yes. I can't time the market. Lose every time I try. I personally do better with balanced portfolio not giving into the chatter of the day especially when I factor in the REAL dollar value of my portfolio. Currently a little cash heavy for my tastes (21.69% vs 20%)

 

[targatom2019]

I'm at an all-time high in my IRA and would like to sell all the mutual fund shares I own in it and just stay all in cash (left in my Fidelity IRA account, of course) while I decide on a less-agressive strategy and investigate a safer place to put my money.

This would only be temporary. I'd just like to conserve what I have at the moment so I don't take another big dive the next time something crazy happens in the world (like I did last Fall when everything tanked).

Thoughts on this approach? Makes sense, doesn't it?

don't know about you but my profolio just hit new high and I ignore all the noises.

 

[samclem]

don't know about you but my profolio just hit new high . . .

Piece of cake. Anyone with an all-cash portfolio hits a new high every day (at least in nominal dollars).

 

[Al18]

Even with a 50/50 Asset allocation, I'm up 12% for this year. I don't think I'd be happy with just under 3% if I want all CD's.