Is this the no brainer I think it is?

[doneat54]

I have held FZROX since May 2022. It has returned 5.2% since then.


FZILX since May 2022. It has returned 2.8% since then.

FJRLX since summer 2018. It has returned 0.2%


Each fund represents roughly 13% of the total portfolio.


Over 5 years expenses is available in cash right now.



We are both retired and 2023 is the first year we have lived off the portfolio alone.

Annual expenses are around 6.3% of portfolio but when SS kicks in in 6 more years, it will cover half of that. Travel and dining expenses also are dialed back in 9 more years, and the retirement model shows the overall portfolio staying flat until ages 93/95 for DW and I.


Morgan Stanley is offering a 1 yr CD for 5.65% right now.


I am thinking of selling off at least the ILX and ROX tomorrow and buying a 1 yr CD with the proceeds. Maybe selling off the RLX as well, but I am a bit more optimistic about the Bond markets (finally) heading north than I am the other two.


Seems like a no brainer to me (??). Overall portfolio AA is around 38/62 (I think, haven't calculated it in a while) and we are fairly conservative/low risk investors at this stage.


Thoughts?

 

[teej1985]

Your observation is the result of domestic having outperformed International. You expect that to be the case forever?

 

[Exchme]

I would not go performance chasing. You should have an investment plan and a reason for what you own.

Bonds have been hurt by the government trying to prevent a depression and bread lines during the pandemic. They succeeded, but at the cost of printing money that caused a big bout of inflation. Just because your plan didn't account for a global pandemic doesn't mean you need to dump your plan. Portfolio Visualizer says the return of FJRLX is actually 1.2%/year (a total of 7%) since 2018. While nothing to write home about, maybe you forgot about about the dividends you've collected.

International stocks haven't been easy to own for several years. Presumably you bought these to provide some diversification in case the US markets go south for an extended period of time, perhaps like Japan in the 1980's. Is there some reason you think the US is immune to extended bad markets?

 

[DrRoy]

I would sell them and just put into a money market for now. Total flexibility.

 

[pjigar]

Two things:

1. Don't chase returns, been there done that.
2. Pick your asset allocation and stick with it through thick and thin. The whole idea of asset allocation is to smooth out bumps/valleys (at an expense of returns). If you want highest returns then you have to expect biggest bumps and valleys. There is no free lunch. Remember that the single best thing you can do for your portfolio is "NOTHING".

PS: I want highest returns (and I can stomach the large paper losses) so all our non-RE portfolio is in 100 stocks. No bonds for us.

 

[target2019]

And after 1 year, what then?

 

[COcheesehead]

You really need a longer term strategy. Fixed income is very attractive right now and has value longer term if played correctly. Buying a single CD isn’t the answer. Liability matching with a longer ladder of non callables would be a great play right now. Put some of that cash pile to work and sell the short term bond fund. You could easily make 20%-30% more on your money and still have liquidity and cashflow.

 

[DJRR]

And after 1 year, what then?

+1.

You have 5 years cash, why get more? I would probably use the current high rate environment to create a 6 year non callable fixed income ladder to bridge you to social security. If you need more cash to set this up then sell something. This is conservative and helps you lock in today's rates for the term you need.

 

[OldShooter]

Warren Buffett: "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell." ... "Lethargy, bordering on sloth should remain the cornerstone of an investment style."

 

[pb4uski]

... Morgan Stanley is offering a 1 yr CD for 5.65% right now.


I am thinking of selling off at least the ILX and ROX tomorrow and buying a 1 yr CD with the proceeds. Maybe selling off the RLX as well, but I am a bit more optimistic about the Bond markets (finally) heading north than I am the other two.


Seems like a no brainer to me (??). Overall portfolio AA is around 38/62 (I think, haven't calculated it in a while) and we are fairly conservative/low risk investors at this stage.


Thoughts?

Insufficient information but from what you wrote it sounds like you have "won the game" and have a well funded retirement, so well funded that either all bonds or all stocks would be ok. You can test that out with FIRECalc.

I'm from Missouri on international equities. After many years of underperformance, I jettisoned them many years ago and have no regrets at all. Besides, you get some international operations exposure with a domestic equity fund. I think your best course would be to go with ~25% stocks and ~65% in a rolling bond ladder instead of a bond fund or ETF and 10% in cash in a ~5% money market fund.

I think you are probably on the right track but I would not plunk the whole shooting match in a 1 year CD.

You could start off with a 5-year ladder to take advantage of the inverted yield curve and when the yield curve normalizes then extend the ladder as maturities occur.

 

[doneat54]

Thanks for all the (diverse!) perspectives.


I am not a frequent buyer/seller of anything. I probably make a trade of some sort every 3-4 years or so.


I am drawn not just from the return rate of these CDs, but the stability and lack of risk. I see it as a 1 year opportunity to "ride a different wave", and have no issues tying up the capital for a year.


"What then?" is a good question, I have given it some thought and figure I'd just look at the market landscape and either re-invest in some equities, or, if the CD market is still hot, re-invest in that.


I am also going to do some research into CD Ladders.

 

[teej1985]

You really need a longer term strategy. Fixed income is very attractive right now and has value longer term if played correctly. Buying a single CD isn’t the answer. Liability matching with a longer ladder of non callables would be a great play right now. Put some of that cash pile to work and sell the short term bond fund. You could easily make 20%-30% more on your money and still have liquidity and cashflow.

How are you deciding which bonds to buy? I've basically been 100% stock for the past few years, but feel like it would be prudent to start to adding bonds as I'm less than 4 years from FIRE.

 

[COcheesehead]

How are you deciding which bonds to buy? I've basically been 100% stock for the past few years, but feel like it would be prudent to start to adding bonds as I'm less than 4 years from FIRE.

Right bond in the right account first. Taxable vs tax free.
Then what best fits my goal which is income vs capital appreciation within the parameters of quality, duration and to a lessor degree industry/sector.

 

[pb4uski]

... I am drawn not just from the return rate of these CDs, but the stability and lack of risk. I see it as a 1 year opportunity to "ride a different wave", and have no issues tying up the capital for a year.


"What then?" is a good question, I have given it some thought and figure I'd just look at the market landscape and either re-invest in some equities, or, if the CD market is still hot, re-invest in that.


I am also going to do some research into CD Ladders.

The problem with a 1-year at 5.5% is what if at maturity rates have dropped to 4%... or 3%? While I doubt that will happen, if you have a 5 or 10 year ladder then changes in interest rates will impact your overall yield gradually as bonds mature and are reinvested in the longest rung of the ladder.

Your overall yield is lower given the current inverted yield curve but it is more locked in. On Schwab right now a 5-year ladder yields 5.12% vs 5.50% for a 1-year.

 

[VanWinkle]

Warren Buffett: "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell." ... "Lethargy, bordering on sloth should remain the cornerstone of an investment style."

+100