Crazy Not to Own Stocks?

[teej1985]

Inflation isn't necessarily the issue for retirees unless you are on fixed income but have expenses subject to inflation. The current problem is real rates are so low. If inflation was 10% and bonds were paying 15% it wouldn't be bad for those living on portfolio income.

In our case Social Security and TIPS are inflation adjusted, we have a low fixed rate mortgage, and our property tax is capped. Before too long we will both be on Medicare. I modeled high inflation in a spreadsheet before we retired and we come out ahead, so I'm not too worried, just plan to buy more TIPS and I bonds. Eventually solar panels, heat pump, xeriscaping, rain barrels, gray water system, etc. should get rid of most of the utility bills. We only buy one tank of gas every other month. We have cheap cell phone and cable plans. There just aren't that many expenses left for us to be subject to high inflation.

Do you live in an urban area? Do you not leave home often? Do you have an extremely large gas tank?

How are you only getting gas once every 2 months?

 

[OldShooter]

I understand. I was just curious.
We bought 30K worth of I bonds in 2001 and they have tripled in value with their 3% fixed rate. Unfortunately all of our others are zero or close to zero fixed rate.

I was not as smart as you back in the early 2000s. I don't think I even knew I Bonds existed. Congrats.

 

[Beststash]

I was able to retire at 52 as a single earner (married) in a middle mgmt job because of stocks (now 72). Mostly 75/25 during my work life and until I started SS at 62 then went to 50/50.

Having lived through the 87, 00, and 08 bust, in hindsight I wish I had just bought a SP500 index instead of individual stocks. Although I made a lot of $$ it would have been less stressful.

In this present situation I actually wish I was out of the market - I got greedy and bought heavy into tech at exactly the wrong time. In kind of reminds me of '00 and some of my stuff never came back. I worry that my age and previous health issues might be a negative factor going forward....but too late to second guess now.

Peace ☮

 

[daylatedollarshort]

Do you live in an urban area? Do you not leave home often? Do you have an extremely large gas tank?

How are you only getting gas once every 2 months?

We are retired and live on the edge of an urban area, near a state park and multiple regional parks, shopping, gardens, a restaurant and theater district, hospital and doctors' offices, and near a commuter train station. Most everything we need is a few miles away or less. Sometimes we car pool with friends. We go some place most days, either errands or fun, it just usually isn't too far. Or we can take the train places. We have midsize cars. We just don't need to drive too much these days.

Actually it would be pretty easy not to even drive at all here, between ride sharing services and public transportation. One of our kids lives in a different urban area and buys one tank of gas a year.

 

[Chuckanut]

Yeah, I look at inflation - especially "run away" inflation - as the one potential black swan I feel least prepared for. Sure, there could be an asteroid strike or Yellowstone eruption. I'm talking about stuff I thought I had essentially under control. I'm still okay, but I see how inflation could 1) get a lot worse or 2) last a lot longer than anticipated. That could derail even solid FIRE plans but YMMV.

I haven’t noticed an Deficient Hawk near my bird feeders in years.

 

[aja8888]

We are retired and live on the edge of an urban area, near a state park and multiple regional parks, shopping, gardens, a restaurant and theater district, hospital and doctors' offices, and near a commuter train station. Most everything we need is a few miles away or less. Sometimes we car pool with friends. We go some place most days, either errands or fun, it just usually isn't too far. Or we can take the train places. We have midsize cars. We just don't need to drive too much these days.

Actually it would be pretty easy not to even drive at all here, between ride sharing services and public transportation. One of our kids lives in a different urban area and buys one tank of gas a year.

If you are not diving much at all, why not sell the cars and rent one when needed? (especially your son!) Think of how much money you can save (Insurance, gas, maintenance, yearly tags, etc).

Heck, I don't go anywhere far and put 1,000 miles a month on our car on average.

 

[daylatedollarshort]

If you are not diving much at all, why not sell the cars and rent one when needed? (especially your son!) Think of how much money you can save (Insurance, gas, maintenance, yearly tags, etc).

Heck, I don't go anywhere far and put 1,000 miles a month on our car on average.

We do drive somewhere almost every day, it is just that most places we go probably average 4 mile round trips. At 25 miles to the gallon, that is only about a gallon of gas a week.

The kid in an urban area has thought about giving up the car but for trips like driving a sick pet to the vet, it comes in handy and avoids backseat vomit in some poor, unsuspecting Lyft driver's car. Or for out of town weekend trips. It is an older car so it doesn't really cost much to keep around.

 

[JJpop]

I was not as smart as you back in the early 2000s. I don't think I even knew I Bonds existed. Congrats.

If I was smart I would have bought more when the fixed rate was 3pct or so.

 

[Koolau]

Do you live in an urban area? Do you not leave home often? Do you have an extremely large gas tank?

How are you only getting gas once every 2 months?

This happened to us during Covid. Since Covid is now over (heh, heh:cool smiley We go through the better part of a tank/month (maybe 10 gallons.) It does make a difference that we live on a 600 square mile island, but just think of Honolulu as Cincinnati or Nashville or Indianapolis. We make a couple of trips/week for food/docs/church/dinner. YMMV

 

[Koolau]

If you are not diving much at all, why not sell the cars and rent one when needed? (especially your son!) Think of how much money you can save (Insurance, gas, maintenance, yearly tags, etc).

Heck, I don't go anywhere far and put 1,000 miles a month on our car on average.

We did get rid of one of our cars. It saved quite a bit (no issue of depreciation on a '99, of course.) Insurance and tags were at least $1000/year.

The biggest inconvenience is when we need to have one car worked on, there is no way (short of an expensive cab ride ) to avoid waiting hours at a shop. YMMV

 

[seattledan]

When I'm close to retirement, I will put the money I need in a safe investment but the money I think will be left for my child will be 100% stocks as she will have time to ride out any rough downturns

 

[imnontrad]

You need to consider the scenario when one spouse dies, leaving the surviving spouse with a lot less income.

 

[seattledan]

Perhaps it wasn't obvious but yes any money that's not needed

 

[OldShooter]

Perhaps it wasn't obvious but yes any money that's not needed

One of life's little mysteries to me is the idea that as we get older we should be moving more and more to 100% fixed income. Agreed, for money that's likely to be needed, a fixed income bias is good. But the more normal case, at least in this group, is that we will be leaving an estate.

When we retire, our accuracy in predicting what will likely to be needed is poor, simply because we (statistically) have a long time of life uncertainty ahead of us. So we have to overshoot. But as we age, the time ahead of us becomes shorter and shorter, so the uncertainty of what we will need is diminishing too. As this happens, we can be moving money from the safer fixed-income tranche into the equity tranche that will become our estate. Taken to the extreme, we should be 100% equities when we are on our death bed. NOT 100% fixed.

 

[seattledan]

That's a great approach. I think for me, I have a goal of saving $3.6 million. I'm expecting to need $2million and that'll be in conservative investments. The rest I would put 100% in equities. Even if I end up needing $2.2 million, I'll still have enough to draw from.

 

[almost there]

0% stocks since turning 51. And am somehow OK!
10 yrs later.
Sleep like a rock every night.
Your call.

 

[daylatedollarshort]

We cut our stocks after 2008 and after reading about the theory of diminishing marginal utility. More money from stocks wouldn't make us a lot happier but big losses at our ages would make me very upset. Like there goes the life savings.

 

[almost there]

We cut our stocks after 2008 and after reading about the theory of diminishing marginal utility. More money from stocks wouldn't make us a lot happier but big losses at our ages would make me very upset. Like there goes the life savings.

Nailed it. Once I figured out I would never run out of money. Swinging for the fence was all of a sudden, 100% un important.

 

[daylatedollarshort]

Nailed it. Once I figured out I would never run out of money. Swinging for the fence was all of a sudden, 100% un important.

Yes, I changed my perspective when I read the book Against the Gods: The Remarkable Story of Risk and the author went over the diminishing utility concept. DH had a bit of FOMO during the stock bull run, but he is very over that now. We do keep some stocks, just not enough where if we lost half I would break down in tears. I don't want any retirement plan that involves "white knuckling it through the down turns". I gave up white water rafting and canoeing years ago and I don't want to white knuckle anything any more, especially my investments.

 

[seattledan]

It all depends on the individual's situation. If you're in a situation where you cannot afford a downturn then being heavy in stocks does not makes sense. If you're in a situation where you have more than you'll ever need in your lifetime, what's the value of keeping that extra money you won't need in an account that won't grow very much? Why not invest the money you don't need, maximize the earnings and pass it to either your heir or to charity?

 

[daylatedollarshort]

It all depends on the individual's situation. If you're in a situation where you cannot afford a downturn then being heavy in stocks does not makes sense. If you're in a situation where you have more than you'll ever need in your lifetime, what's the value of keeping that extra money you won't need in an account that won't grow very much? Why not invest the money you don't need, maximize the earnings and pass it to either your heir or to charity?

Well, this year TIPS are returning around 9 - 10%, depending on the real yield, compared to -17% YTD loss for the S&P. So there's that.

 

[youbet]

Nailed it. Once I figured out I would never run out of money. Swinging for the fence was all of a sudden, 100% un important.

There's a lot of space between "swinging for the fence" and a 100% cash/fixed portfolio. Why are you choosing such an extreme AA? History shows a more diversified approach has less risk over the long run and over various marco-economic and political scenarios.

 

[seattledan]

Well, this year TIPS are returning around 9 - 10%, depending on the real yield, compared to -17% YTD loss for the S&P. So there's that.

Taking what happened in one year to say that's the best investment decision is pretty inaccurate.

 

[daylatedollarshort]

Taking what happened in one year to say that's the best investment decision is pretty inaccurate.

I didn't say it was the best investment decision in the universe. I posted that it is what works for us. We don't need the return from stocks, don't enjoy white knuckling it through losses, so why take on more risk than we need to. The returns from stocks are not guaranteed and based on studies their returns may not exceed bonds for 20 - 40 years (the long run), which could be longer than my remaining lifespan. TIPS at a 1.33% real yield allow for a 4% safe withdrawal rate over 30 years with the safety of Treasuries. For us that is more than good enough. Our kids will likely get nice inheritances under our current plan.

 

[ImThinkin2019]

+1 to everyone sharing their experience and thoughts here.

Retired a year ago at 64.

Many years ago we decided to support our retirement by keeping enough $$ in fixed income, and put the balance in a growth, mostly equity, portfolio. That's intended to go to our kids.

We did this because we've lived through bull markets, crashes, and close-to-decade-long sideways markets. We did not want to have our retirement be dependent on how the stock market performed.

This lets us sleep at night. It's especially comforting during periods like we're going through this year.

We were influenced by equity allocation studies which showed a mix of stocks and fixed income provided moderated risk and reasonable performance over long periods. If I remember correctly they mostly said somewhere between 30% and 70% stocks is about a safe level. (This is off the top of my head, so don't crucify me if mistaken.) Right now we're at 36% equity...

For the last 10 years prior to this year, our approach appeared overly conservative. But this year it looks better. We'll see what happens over time.

We're very fortunate because due to our careers, our SS and pensions cover almost all of our income needs. So our fixed income portfolio only has to provide a little income.