Going All Cash in 401k

[flintnational]

......But now I’m at that magical point where I could retire based on what I have now, according to Firecalc........

Did you run Firecalc using your new all cash asset allocation? When I did a quick run using 100% 1 year treasuries, I got a 30 year success rate of 0% (all failures). No 30 year historical period was successful with all cash.

I know you mentioned this is a short term strategy only, but your post sounded like you were waffling between changing your asset allocation and market timing. MT is muy mal. Changing your AA prior to Fire is okay. But, you should have an idea what that AA will be, test it in Firecalc, and make the change without going to cash (going to cash is a market timing move).

 

[Jerry1]

This article presents the reason I found most compelling for staying invested:
https://www.businessinsider.com/cost-of-missing-10-best-days-in-sp-500-2014-3

In summary:

For instance, if an investor stayed fully invested in the S&P 500 from 1993 to 2013, they would've had a 9.2% annualized return.

However, if trading resulted in them missing just the ten best days during that same period, then those annualized returns would collapse to 5.4%.

 

[The Cosmic Avenger]

I agree, there's no point in switching to cash before switching to your next AA. If you're anything like me, you'd wind up staying in cash for months second-guessing or trying to perfect that next strategy. If that sounds at all familiar, leave the money where it is and use your concern about the market to decide in the next few days on your AA for retirement, then implement it as soon as you're sure. I've learned to force myself to make the best decision I can, and then I sometimes do tweak it a few months later, but holding that first position is what helps to inform that second move. My philosophy now is to implement a strategy as soon as I decide on it, otherwise I wind up trying to time the market.

 

[Starsky]

This article presents the reason I found most compelling for staying invested:
https://www.businessinsider.com/cost-of-missing-10-best-days-in-sp-500-2014-3

In summary:

For instance, if an investor stayed fully invested in the S&P 500 from 1993 to 2013, they would've had a 9.2% annualized return.

However, if trading resulted in them missing just the ten best days during that same period, then those annualized returns would collapse to 5.4%.

I don't know. I look at this as a very poor use of statistics to make a point. I don't know what 10 days those were, but the article makes the unintended point that volatility is the secret to the market. I could propose a counter argument that if I could make all those returns over 20 years in only 10 days, then there is something terribly wrong with the market. I also wonder how many of those 10 days came right after a huge market selloff. On the opposite tip, most advisors hammer home the point that the market has a long-term positive trend - that timing is irrelevant, just get in - not that you could do it in just 10 days. It sounds very 'heads I win, tails you lose' to me. So who is correct?

In this market, I frankly see a lot more money to be made on the downside volatility of Trump's random policy pronouncements - we're at full employment plus. I don't think anyone can reasonably say that the market is undervalued at this time, and this 26K-27K sideways float in the Dow is probably a feature until there is more certainty in the govs economic policies. Frankly, I've made way more money this year staying mostly in cash and buying on the dips than hoping for a bull market.

[Sidebar Example of what I'm talking about: I love the BS announcement last month was that May was the best month for the Dow in years. That's only because the previous month was so shite. It barely beat it's old high - thanks to a sketchy announcement about interest rate cuts - and only for less than a day before retreating back below 27K.]

I see a huge difference between market timing and risk management. If you like your pile of cash as big as it is, then do what you feel you need to do to keep it that way. I ask myself what would need to occur to make the market move higher versus what would happen to make it move lower. Right now the 'lower' list is a lot longer than the higher one, but that could change. I don't expect much until we have a more steady hand at the helm.

I concur with your instincts about being into something very safe at this time. In retirement, risk takes on a much different flavor since any reduction in assets is much harder to recover from in the short term. You can't just power thru the dips dollar-cost-averaging in anticipation of some future bull market that will fix everything.

If you want to get out for a little while, just put your money into a money market fund until you're ready to get back in. A little positive return is better than none, and it might even beat the market over the next few months.

 

[pb4uski]

.
... Someone earlier in this thread asked what my PS says. What is PS?

It was IPS, Investment Policy Statement. As statement of your investment guidelines that is used to keep you on track and keep you from doing silly things.

https://www.bogleheads.org/wiki/Investment_policy_statement

 

[24601NoMore]

Have you looked at the approximate split percentage-wise between Magellan and Puritan across your and your husband's combined portfolios?

I haven't held either for years (although did own both at one time) and it appears Magellan is still 100% equity, where Puritan is ~30% fixed income (bonds). So, if you were theoretically split 50/50 between the two, you'd only have 15% bonds overall. And the question would then be if that's enough to help buffer any drop in equities..

Ultimately, you'd be better off (IMHO) determining if you're at an appropriate asset allocation (AA) for your ages..as it sounds like you're (like me) leaning to be more conservative at the moment, you could dial back the "typical" AA by 10 or even 20 percent. (Say you're 50'ish..that'd typically be 50/50 or so..you could do 40/60 or even if you're super conservative like me, 30/70).

The advice against going "all" cash up-thread is good. You may catch the top (or not), but getting back in is next to impossible..and you're likely to be in cash for a LONG time possibly missing any potential upswing. It'd be far better IMHO to determine a more appropriate AA than it sounds like you have and take the opportunity to "sell high" when equity markets are soaring, and pick up some additional fixed income (bond funds) to get to a more appropriate AA for your age and retirement horizon.

There are some who say "don't have any $$ you need within 10 years in the market". If you have a bucket strategy in place (cash for 1-2 year needs, bonds for 2-10 year needs and equity for 10+ year needs), that's also an approach that has a lot of advocates.

Hope that helps..

 

[OldShooter]

 

[aja8888]

I mentioned last fall because my balance plunged and I lived with regret for the next several months, wishing I had listened to myself when I thought I shouldn't be so risky this close to retirement. I don't want to have to go through that again if I don't have to. And we KNOW another plunge will happen eventually.

I own no bond funds. *All* money in this account is in just 2 funds--Fidelity Magellan and Puritan. That's why I said I feel I should go to all cash until I figure out a smarter way to go. I need something income producing, for one thing ...

FWIW, I am almost 76, in good health, and DW is almost 74 and in poor health. Last year, I rebalanced to 27/73 from 70/30. In the current IRA, equities are split between SCHD, VTSAX, and a few long held preferred stocks. I also have some VMMXX @ 2.3%.

Our families do not have a good record of longevity, therefore, we are hedging for a lesser retirement period.

The 73 side (mostly taxable) is a mix of Ally savings cash & CD's (averaging about 2.5%), PenFed CD's @ 2.8% (2 year) and a municipal bond fund (VWITX) averaging 1.8% (tax free).

My goal is to stay in the market, but at a comfortable equity level and make about 4% total return on the mix we have. So far, so good. I don't want the downside exposure of a long term market readjustment but will tolerate some volatility. I the event there is a negative market swoon, and I feel that there may be a "buying opportunity", I can rebalance a bit higher without taking excessive risk. I would buy more of the fund and ETF I currently have.

BTW, kids are gone, house is paid for, we have Medicare and good supplements, no other debt.

(and I have a neat old BMW convertible!)

 

[NW-Bound]

This article presents the reason I found most compelling for staying invested:
https://www.businessinsider.com/cost-of-missing-10-best-days-in-sp-500-2014-3

In summary:

For instance, if an investor stayed fully invested in the S&P 500 from 1993 to 2013, they would've had a 9.2% annualized return.

However, if trading resulted in them missing just the ten best days during that same period, then those annualized returns would collapse to 5.4%.

To be fair, we need to look at what happens if a dirty market timer missed the worst 5 days, the worst 10 days, etc...

I am curious to know. Does anyone have any data?

 

[Spock]

I mentioned last fall because my balance plunged and I lived with regret for the next several months, wishing I had listened to myself when I thought I shouldn't be so risky this close to retirement. I don't want to have to go through that again if I don't have to. ...

^This is your answer right here.
If market turbulence makes you air sick, you've got too much in the market.

For me, 2018 was great as my highly conservative allocation ended up being one of the higher year end performers when the market flew into the late 2018 air pocket... Its all about what lets you sleep at night.

I'm the odd duck on this board in that I am mostly in cash (CDs and a Stable Value Fund in the 401K). I've got about as much in gold as I have in stocks. But before you go there:
a) as others have suggested, make sure you've run firecalc or whatever tool with the higher cash balance (lower projected returns) vs. the tool default asset allocation returns.
b) factor in inflation, especially health care/LTC
c) allot for some surprise expenditures/income hits... replace a car, a HVAC, a SS haircut, etc.

If after doing that you're still comfortable with the lower returns of a conservative AA, there is nothing wrong with "if you've won the game, quit playing" and move to a more conservative allocation.

As far as going to cash temporarily on the way to a different asset mix, you gotta ask why... Waiting for a crash first? Crashes now days are flash crashes... the printing presses fire up and the market is up again before you fully absorb it was down... (until that one time it doesn't but then you'll wish you had rice and beans vs. cash)
Just round the corner to whatever you want your long term AA to be and shuffle the piles until you're there.

 

[LOL!]

The OP is not 100% equities because Fidelity Puritan is a balanced fund with about 35% bonds. Without knowing the percentages of their portfolio (both husband and wife) in their portfolio the readers cannot tell much about the idea of selling. I personally don't see a problem with going to a lower allocation of equities and staying there because the OP seems to be near retirement.

I would not go to cash with the idea of getting back in.

So create a good plan and not one based on fear.

 

[LOL!]

Also since these accounts appear to held at Fidelity, figuring out the asset allocation should be as easy as clicking on the Analysis tab that is near the top of one's display when one logs into one's Fidelity account. One might have to add manually husband's funds and amounts, but it would take less than a couple of minutes to do that.

 

[48Fire]

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?

I did the same before I ER'd. People can call it market timing if they want. It was more of a personal choice to allocate to an extremely conservative level at that point in our lives. I saw too many co-workers get slammed by the dot-com crash, and reset their retirement by 5 - 10 years. No regrets here Do what you want.

 

[kgtest]

This article presents the reason I found most compelling for staying invested:
https://www.businessinsider.com/cost-of-missing-10-best-days-in-sp-500-2014-3

In summary:

For instance, if an investor stayed fully invested in the S&P 500 from 1993 to 2013, they would've had a 9.2% annualized return.

However, if trading resulted in them missing just the ten best days during that same period, then those annualized returns would collapse to 5.4%.

+1 Do you really want to wake up and go is today the day? Then before bed say to yourself "is tomorrow the day". I mean, honestly if we knew...would we be telling lol?

 

[LRDave]

The (perhaps irrational) fear that would drive me away from OP's approach is the fear that high inflation will sneak up on me. I've lived through 3 BIG market corrections and lived to tell about it - its the enemy I know.

The inflation of the mid-late 70's at an age when I was first starting to pay attention scarred me. My parents were openly worried that they were falling behind faster than they could catch up.

 

[OldShooter]

The (perhaps irrational) fear that would drive me away from OP's approach is the fear that high inflation will sneak up on me. I've lived through 3 BIG market corrections and lived to tell about it - its the enemy I know.

The inflation of the mid-late 70's at an age when I was first starting to pay attention scarred me. My parents were openly worried that they were falling behind faster than they could catch up.

Although I definitely don't think the OP should go to cash, TIPS are the solution to the inflation worry. Most of the fixed income portion of our AA is in TIPS. Yes, in times of low inflation their total return is less than bonds without protection but we consider the difference to be an insurance premium. Just like fire insurance on the house.

 

[Montecfo]

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?

In my opinion, the #1 rule if investing is:

Stay Fully Invested

 

[Montecfo]

To be fair, we need to look at what happens if a dirty market timer missed the worst 5 days, the worst 10 days, etc...

I am curious to know. Does anyone have any data?

The 10 best days meme is not a good reason to stay invested in IMHO. If you missed the 10 worst days you probably drive your gain up a similar percent.

The reason to stay in is because the trajectory is up in the longterm but unpredictable in the short term.

 

[LOL!]

To be fair, we need to look at what happens if a dirty market timer missed the worst 5 days, the worst 10 days, etc...

I am curious to know. Does anyone have any data?

Articles have been published about the worst days, too.

It is old, but there is this:
https://ritholtz.com/2010/09/missing-best-worst-days-of-sp500/

https://awealthofcommonsense.com/2018/10/big-down-days/

But note that best days and worst days are often close in time to each other. Note that i did not state which one would come first.

 

[Animorph]

Although all cash may be excessive, going 50% cash/bonds, considering all accounts and bonds already in Puritan, while figuring out an exact AA would be within reason I think, given a sudden conservative bent. That might even cover going to all cash in one 401k while leaving the other invested in the funds.

I hate being out of the market, though I talked myself into 25% bonds. So all cash, or even 50% is not for me. I stayed 100% equities until about 8 years into retirement. There are pro's and cons for any AA. FIRECalc actually says 100% equities is not terrible, and the average ending balance is amazing. But 50/50 is equally defensible, and quite a bit more popular I'm sure.

 

[DINKFIRE]

eh. not really. I mean, by all means rebalance to an AA that is good for your plans, age, and risk appetite, but I don't think anyone would say going all cash makes sense.

Sounds like an attempt at market timing. The problem is, you never know when to buy back in.

+1, diversify and hold on though the ups and downs, unless you need the cash in next 1-3 years.

 

[Al18]

Like other have mentioned, you may want to diversify into more than 2 funds, and keep 1-5 years in cash/CD/money market accounts. The Magellan and Puritan funds are good and have been around a few decades - nothing wrong with them. Puritan is not a growth fund - it's a balanced fund that has approximately 60% in stocks and the remainder in bonds according to Fidelity.

 

[SoReadyToRetire]

(and I have a neat old BMW convertible!)

You mean like this one? 2002 ...

 

[OneLushBonus]

It's astronomically more important that you're properly allocated for your time horizon and risk tolerance, and it sounds like you're not if you have all of your money in aggressive growth IRAs. If you're close to retiring, it's all about allocation right now.

 

[WestUniversity]

Given that you are at that magical point where you could retire, then you should implement your retirement asset allocation. If your current balance with your retirement asset allocation could not withstand a significant correction, then you’re not really at your magic number.

Exactly. For example you could adjust your AA to say 50/50, or 40/60, or 30/70, which would lock in a lot of your current gains without pulling out entirely...