Is it ever ok to be 80-100% out of stock market?

[Car-Guy]

I was in a very similar boat when I retired 10 years ago. Anticipated spend rates was a little more and I was a few years older than you. I created two buckets. Bucket one was my base that I never wanted to fall below and that I felt I could easily live on the rest of my life, if needed. That was invested in fixed income assets and still is. Bucket two was for everything else... Speculation investing/trading, hobbies, travels, base living expenses, etc. 10+ years later and it's working well for me but YMMV.

From my POV, once you have won the game, why risk it.

 

[luckydude]

RE treated me well too, but everything I read and see says that market is about to follow everything else downward too.

There has been a huge amount of froth in virtually every asset class, and RE is no exception, so correction is expected (and in fact welcomed to "normalize" the market). Froth aside, the underlying value should still hold up well in an inflationary environment and serve as an inflation hedge, as long as one is not exposed to risks of higher rates due to leverage.

 

[Earl E Retyre]

I was in a very similar boat when I retired 10 years ago.

Just to make sure I understand your point ... when you first retired you were a Boat-Guy and now you are a Car-Guy ...

 

[Car-Guy]

Just to make sure I understand your point ... when you first retired you were a Boat-Guy and now you are a Car-Guy ...

So you were/are a Funny-Guy... Actually I do have a boat but I don't use it very often. Every time I put it in the water, seems something needs to be fixed either before, during or after each use.

 

[pb4uski]

So I know all about historical returns of the stock market over prolonged periods of time but also very familiar with turbulent times like we are experiencing now.

So question is there ever a point where it is ok to not try to maximize your nest egg but rather protect and preserve if you've met your financial goals?

So my scenario
- 56 years old
- $6M investable cash (40% IRA 60% non IRA)
- $100K a year living expenses
- Still fully employed (plan for next 4-5 years)

So if I can buy a 5 year US Treasury for 3.5% yield that would give me $210K interest which is well above annual living cost. But since I plan on working next 4-5 years that will just get added to nest egg for now.

So is there value in assuming stock market risk? I know that if you do invest in the market in balanced approach my nest egg will grow more but do I need more? Do I need to expose myself to that volatility?

I view the goal is not to die with as much money as possible but rather reach a point where you've been guaranteed to win the game.

Thoughts? I know a controversial approach.

For example, if you are 56 and have $6M investable assets (IRA and non IRA) and my living expenses are $100K per year and I can invest in US Treasury that gets me 3.5% = $210K per year. Is there a need to expose yourself to stock market risk? The $210K allows for inflation erosion and then SS kicks in down the road as well.

In your situation it is totally appropriate since you don't care to die with as much money as possible... you can invest $2m in a 20-year ladder of TIPS ($100k per rung) and the rest in a ladder of US Tresuries if you wish to and it will generate much more than you plan to spend.

 

[pb4uski]

Everything I'ver ever read over on bogleheads forums indicates 30% minimum in equities as an inflation hedge....

But the OP's retirement is way overfunded so there is no need for any equities at all. The 30% is probably for a 3.5-4.0% WR and not a 1.7% WR.

 

[Dtail]

But the OP's retirement is way overfunded so there is no need for any equities at all. The 30% is probably for a 3.5-4.0% WR and not a 1.7% WR.

+1

 

[RetMD21]

Thoughts? I know a controversial approach.

Inflation and longevity seem be your risks. Your portfolio volatility would be limited with 30% equities. OTOH you see to be over funded so probably any approach will work.

 

[Phroig]

Half your stash will generate the income you need to cover your living expenses, so you could take a bit of risk with a portion of the other half. An equity allocation of 25-30% will give you plenty of inflation protection.

 

[F.I.R.E User]

What about 100% bonds?

 

[ERhoosier]

Many forget that after income taxes, TIPS actually lose purchasing power to inflation. Taxes are due either annually (on the imputed increase in bond value), or in retirement (tax-deferred accounts) when cashed & funds withdrawn.
And equities have a mixed record during prolonged periods of inflation.
I know of no risk-free investment which would meet/beat inflation net of taxes (except perhaps Social Security as the rules are now). Best the typical investor can do is try to minimize their purchasing power losses at reasonable level of risk.
That said, agree with others who have pointed out that OP has a nice cushion (using current expenses) regardless of what the markets future holds.

 

[daylatedollarshort]

Many forget that after income taxes, TIPS actually lose purchasing power to inflation. Taxes are due either annually (on the imputed increase in bond value), or in retirement (tax-deferred accounts) when cashed & funds withdrawn.

I don't know of anyone who doesn't understand how much in taxes they have to pay each year on their investments. Certainly not a lot of people on this forum.

 

[Dash man]

Many forget that after income taxes, TIPS actually lose purchasing power to inflation. Taxes are due either annually (on the imputed increase in bond value), or in retirement (tax-deferred accounts) when cashed & funds withdrawn.
And equities have a mixed record during prolonged periods of inflation.
I know of no risk-free investment which would meet/beat inflation net of taxes (except perhaps Social Security as the rules are now). Best the typical investor can do is try to minimize their purchasing power losses at reasonable level of risk.
That said, agree with others who have pointed out that OP has a nice cushion (using current expenses) regardless of what the markets future holds.

I wouldn’t buy TIPS anywhere but in a Roth IRA. I haven’t, but if I do, that’s where I’d do it.

 

[dheb]

Those that think holding a mortgage is cheap money, ask yourself how is that working out for you today?

It's working out great. Last year I took out a 30 year mortgage at 2.99%. Mortgage payment is $1076/month on a 2000sf house on 1.5 acres, and the principal & interest portion never rises for the remaining 29 years, no matter what inflation does. It's a great inflation hedge, and I can afford the monthly payment easily.

 

[dheb]

I think Kitces says 10 years out and 10 years into. It is essentially SORR and it is hard to recover from. A 20% drop takes 5 years out of your plan according to Kitces. [/url]

This would have worked out terribly for me in the past ten years, as I would have participated less each year in the bull market over the past decade. My retirement plan at the start of this year (when my investments were at a high) has me living to 102 (just in case) and "FIRECalc found that 0 cycles failed, for a success rate of 100.0%." Now that the market is down 20%, if I start with my lowered investment value and keep my spending the same as before, I get the same result - "FIRECalc found that 0 cycles failed, for a success rate of 100.0%." So, I'm not sure that the '20% drop takes 5 years out of your plan' is valid if you've planned carefully.

 

[tenant13]

I love stocks. The market up/down makes life more interesting. It gives me something to think about, instead of watching TV all day.

That's how I look at it: the game is not just there to lose or win. Playing it is just as much fun.

Whatever you do about your money is in my opinion way less important than whatever you are planning to do with your time.

We are all different and you don't seem to even be on the fence as to your retirement horizon but I would take a breather, sit dow and think it all through. A lot of people here suggested testing the waters with temporary "mini-retirement": taking time off and doing whatever you are planning to do while retired.

You are selling your most valuable asset that once gone, cannot be recovered.

 

[pletal]

So I know all about historical returns of the stock market over prolonged periods of time but also very familiar with turbulent times like we are experiencing now.

So question is there ever a point where it is ok to not try to maximize your nest egg but rather protect and preserve if you've met your financial goals?

So my scenario
- 56 years old
- $6M investable cash (40% IRA 60% non IRA)
- $100K a year living expenses
- Still fully employed (plan for next 4-5 years)

So if I can buy a 5 year US Treasury for 3.5% yield that would give me
$210K interest which is well above annual living cost. But since I plan on working next 4-5 years that will just get added to nest egg for now.

So is there value in assuming stock market risk? I know that if you do invest in the market in balanced approach my nest egg will grow more but do I need more? Do I need to expose myself to that volatility?

I view the goal is not to die with as much money as possible but rather reach a point where you've been guaranteed to win the game.

Thoughts? I know a controversial approach.

For example, if you are 56 and have $6M investable assets (IRA and non IRA) and my living expenses are $100K per year and I can invest in US Treasury that gets me 3.5% = $210K per year. Is there a need to expose yourself to stock market risk? The $210K allows for inflation erosion and then SS kicks in down the road as well.

I’m a couple years older and don’t have much on the market at all. Been buying up MYGA and a few CD’s here and there. Getting over $250K a year in income from those, so why bother if you don’t need any more than you are getting. Don’t have the stomach for it, truthfully

 

[retired1]

with $100K income need, you are good w/out investing any more.

Few points

1. Good Health insurance. Good health is the most important commodity for us 55+ so get good health insurance.

2. Good auto insurance. Bad accidents can wipe out savings.

3. Umbrella insurance

4. Lawsuits can break the bank. I've heard Annuities $ is owned by insurance company and lawsuits can't touch them so not bad idea.

 

[Rianne]

with $100K income need, you are good w/out investing any more.

Few points

1. Good Health insurance. Good health is the most important commodity for us 55+ so get good health insurance.

2. Good auto insurance. Bad accidents can wipe out savings.

3. Umbrella insurance

4. Lawsuits can break the bank. I've heard Annuities $ is owned by insurance company and lawsuits can't touch them so not bad idea.

Good protection advice.

https://www.investopedia.com/articl...ender,extent reasonably necessary for support.

 

[jazz4cash]

It's working out great. Last year I took out a 30 year mortgage at 2.99%.

+1
I feel the same way. My current mortgage company just called for their “annual review”. Their 30 yr is now 4.99% and somehow they thought it would be better for me to refi. I guess if you sold stock before they dropped and paid off your mortgage you’d feel pretty smart right now, but I’m pretty comfortable with stocks for the long run.

 

[aliang0902]

very interesting. mark here and read later...

 

[COcheesehead]

This would have worked out terribly for me in the past ten years, as I would have participated less each year in the bull market over the past decade. My retirement plan at the start of this year (when my investments were at a high) has me living to 102 (just in case) and "FIRECalc found that 0 cycles failed, for a success rate of 100.0%." Now that the market is down 20%, if I start with my lowered investment value and keep my spending the same as before, I get the same result - "FIRECalc found that 0 cycles failed, for a success rate of 100.0%." So, I'm not sure that the '20% drop takes 5 years out of your plan' is valid if you've planned carefully.

Wow you are the exception.

20% loss/ 4% WR = 5 years. FYI
Worked great for me retiring in 2020. Also zero Firecalc failures. 41 years of expenses on hand with a mid six figure budget.

By the way the strategy is meant to maximize success, not maximize return. FYI