Selling Stock Funds Now is OK?

[retiringby50]

So... we met with the financial planner on Monday, who looked at our asset allocation:

Current
Domestic stock: 65%
Foreign stock: 20%
Bonds: 9%
Short-term: 2%
Other 6%

Proposed
Domestic: 45%
Foreign Stock: 19%
Bonds: 31%
Short-term: 5%
Other: 0%

Of course, I was probably thinking I was still in my early 20's when I set up the AA in my various plans but apparently it's time to act my age (51).

She suggested that I sell some of the domestic stock and do a bond ladder. BUT with the market the way it is, it's hard to move money to snail-pace bonds. About 2 years ago, I moved $120K into bonds because I was supposed to. I think it's now $123K That probably could have been $140K by now.

However, in the spirit of following the rules and knowing that I, of all people, can't time the market, do I just take the plunge? She thinks I should do it now (sell high?), but I'm wondering whether I should leave it for a while to "earn" the money I'd be losing when I go to bonds. Thoughts? Thank you!

 

[UnrealizedPotential]

It's impossible for me to have an opinion about how much you should have in the market in Stocks/Bonds without knowing you or your situation in a more detailed way. What I will say is many investors have been burned chasing returns. The problem is no one knows what the market will do at any given time. The stock market can be a scary place.

You have to realize stock prices could suffer a correction or be down for years. It's true that it could stay high for years without going down big, but most likely it would trade sideways if that happened. I don't think it will. The market tends to go down a lot faster than it goes up. You need a plan for that. How much risk are you willing to take in order to get a possible return you can live with that still lets you sleep at night?

I am not sure anyone can answer that for you. I have about 36% in bonds, about 40% stocks, and some Reits, and cash. I can live with this. No I am not going to be getting the best returns every year but I'm not trying to. I am just trying to get some market return and survive if the market goes down big.

I was fully exposed in stocks in 2008/2009 and my portfolio went down 55%. That is not a joke. The risk is real whether one can see it or not. Yes I recovered but it took a few years. Since then I have a much deeper respect that the market can go down as well as up regardless of the current trends in the market.

 

[target2019]

Why move US Equity down 20, but Int'l only 1?

 

[DrRoy]

It's impossible for me to have an opinion about how much you should have in the market in Stocks/Bonds without knowing you or your situation in a more detailed way. What I will say is many investors have been burned chasing returns. The problem is no one knows what the market will do at any given time. The stock market can be a scary place.

You have to realize stock prices could suffer a correction or be down for years. It's true that it could stay high for years without going down big, but most likely it would trade sideways if that happened. The market tends to go down a lot faster than it goes up. You need a plan for that. How much risk are you willing to take in order to get a possible return you can live with that still lets you sleep at night?

I am not sure anyone can answer that for you. No I am not going to be getting the best returns every year but I'm not trying to. I am just trying to get some market return and survive if the market goes down big.

I was fully exposed in stocks in 2008/2009 and my portfolio went down 55%. That is not a joke. The risk is real whether one can see it or not. Yes I recovered but it took a few years. Since then I have a much deeper respect that the market can go down as well as up regardless of the current trends in the market.

I agree very much with this. At your age I started reducing my AA from your level to about 60% last year when I RE'd at 57. I will reduce it further, slowly, if the market keeps rising, to a floor of 55%. If you are close to FI and/or RE, you do not want to put that at risk. I do think that your advisor's suggestion is a bit much all at once. Maybe bring the equity AA down 5% per year to a lower level.

 

[flintnational]

The short answer is the recommended AA is fine if this is suitable for you.

The long answer would need to review your goals, risk tolerance and the need for portfolio stability vs. growth. If you do not need the money in the next ten years and you can handle the volatility, higher stock allocations are fine. OTOH, if you will need this money for your retirement over the short term, or you are concerned about volatility, you need a significant bond allocation. I fall into the group that does not believe you should dogmatically follow an AA based on age. Age should only be one of many factors that determines your AA.

 

[KenZ71]

In a similar situation myself. About to setup stop loss orders to reduce my positions if current price drops more than 2 or 3% from prior close.

In my mind this will give most upside and less downside.

 

[cooch96]

The short answer is the recommended AA is fine if this is suitable for you.

The long answer would need to review your goals, risk tolerance and the need for portfolio stability vs. growth. If you do not need the money in the next ten years and you can handle the volatility, higher stock allocations are fine. OTOH, if you will need this money for your retirement over the short term, or you are concerned about volatility, you need a significant bond allocation. I fall into the group that does not believe you should dogmatically follow an AA based on age. Age should only be one of many factors that determines your AA.

+1

 

[joeea]

However, in the spirit of following the rules and knowing that I, of all people, can't time the market, do I just take the plunge? She thinks I should do it now (sell high?), but I'm wondering whether I should leave it for a while to "earn" the money I'd be losing when I go to bonds. Thoughts? Thank you!

You need to ask yourself if you trust the financial planner you hired more than you trust your crystal ball.

 

[donheff]

You have to figure out whether the AA fits your goals. As to the thread title question: yes, selling now is OK assuming you are in broad based funds that are at or near their highs. I would just watch the markets and put in a set of fund exchanges that would execute at COB (late in the day when it is clear that no big correction is occurring that day). My view is the opportunity is good right now. Why wait and chance a downturn. Others would probably recommend some sort of reverse dollar cost averaging to spread out the move and possibly catch a few more dollars on the current upward trend..

 

[LOL!]

The percentage of equities you had yesterday is quite high for a 51 year old, but if that's what you wanted, it was fine. I think the advice to go to a lower percentage is good advice and I suggest you follow it.

You will not be selling at the market highs if you sell today since the stock market is going down. Yesterday was the market high. Yes, tomorrow may be another market high and there will certainly be market highs in the future. But today will not be one of them.

Personally, I would not do a bond ladder because bond markups are so high that one gets taken to the cleaners. I would just use a low-expense-ratio bond mutual fund. I think the rules are changing so that markups and hidden fees will have to be shown to bond buyers, but that is not the case now.

 

[VanWinkle]

Why move US Equity down 20, but Int'l only 1?

Most of the pundits say that International stocks will out perform the US market over the next 10 years based on current valuation of the markets.

 

[VanWinkle]

"Personally, I would not do a bond ladder because bond markups are so high that one gets taken to the cleaners. I would just use a low-expense-ratio bond mutual fund. I think the rules are changing so that markups and hidden fees will have to be shown to bond buyers, but that is not the case now."

+1 to this from LOL. I have experience with bond ladders from a trust under the control of Merrill Lynch and the mark-ups are eating up any real gains in the bonds. Would be much better off with Intermediate bond fund, but then I am not the trustee.

 

[43210]

Personally, I would not do a bond ladder because bond markups are so high that one gets taken to the cleaners. I would just use a low-expense-ratio bond mutual fund. I think the rules are changing so that markups and hidden fees will have to be shown to bond buyers, but that is not the case now.

This makes me suspect the adviser's motives. OP I would seriously consider ditching the adviser.

As far as the AA decision, that is for you to decide, not some adviser.

 

[joeea]

You will not be selling at the market highs if you sell today since the stock market is going down. Yesterday was the market high. Yes, tomorrow may be another market high and there will certainly be market highs in the future. But today will not be one of them.

You already know what the market is going to do today?
Have you bet the house on it?

 

[VanWinkle]

This makes me suspect the adviser's motives. OP I would seriously consider ditching the adviser.

As far as the AA decision, that is for you to decide, not some adviser.

This is standard fare for the financial industry. You would end up firing every one of them.

Just be proactive and advise you would prefer a short term high quality bond fund at this time.

It is standard for the adviser to help establish the Asset Allocation.

 

[LOL!]

You already know what the market is going to do today?
Have you bet the house on it?

I cannot bet the house without creating more taxes than I will lose today. Plus, my stock market will open lower before I can do anything about it.

Anybody can look at what the stock markets and futures markets are doing around the world at any time. There is no magic here.

 

[wyecrabber1]

I'm less than 6 months from retiring. My AA is 65/25/10; stocks, bonds and cash. My DW and my SS and pensions cover 90+ of our expenses which have a sizable amount of discretionary expenses that can be trimmed in a downturn. Our SWR is less than 2%. We have enough funds in our cash bucket so we ride 7+ years without tapping our investments. House is paid for. Healthcare is covered through employer and I can take it with me at cost.

Yes, there is some exposure with the higher stock allocation and more volatility -- but, with low withdrawal rate and our modest lifestyle -- our largest challenge is denying ourselves and not spending the fruits of our labor.

 

[43210]

You need to ask yourself if you trust the financial planner you hired more than you trust your crystal ball.

Crazy comparison.

How about, compare adviser's crystal ball to OP's crystal ball. (It's a tie. They don't have one. That's why you have an asset allocation to cover the possible range of outcomes.)

Compare adviser's interest in OP's financial well-being to OP's interest in OP's financial well-being.

As far as comparing financial knowledge, there's plenty of very good, and free, knowledge out there.

As Bogle said about paying advisers "You get (to keep) what you don't pay for".

 

[donheff]

The market appears to be flattening out today. May turn out to be a good exit day. Lets face it, despite the generally positive outlook for 2018, all it would take would be something like a brief delay in raising the debt ceiling to precipitate a massive fall off. Those sorts of events are no longer even black swans. More like whitish-gray swans.

 

[joeea]

I cannot bet the house without creating more taxes than I will lose today. Plus, my stock market will open lower before I can do anything about it.

Anybody can look at what the stock markets and futures markets are doing around the world at any time. There is no magic here.

The magic appears to be in assuming that stock market futures predict daily stock market outcome. Good luck with that game.

 

[joeea]

Crazy comparison.

How about, compare adviser's crystal ball to OP's crystal ball. (It's a tie. They don't have one. That's why you have an asset allocation to cover the possible range of outcomes.)

Compare adviser's interest in OP's financial well-being to OP's interest in OP's financial well-being.

As far as comparing financial knowledge, there's plenty of very good, and free, knowledge out there.

As Bogle said about paying advisers "You get (to keep) what you don't pay for".

You appear to be arguing against hiring a financial planner. Interesting, but not relevant to what the OP actually already did.

I'm fairly sure you don't really believe the OP's financial planner uses a crystal ball. So you must be arguing that the OP should ignore the professional advice they already received and go with some free advice that is "out there".

Okay. Not what I'd recommend. Still, if you wanted to be helpful you could point out the source of the free advice that you particularly trust (since it's not hard to find many sources of advice that come to opposite conclusions).

 

[43210]

Could you explain what you mean by this?

You need to ask yourself if you trust the financial planner you hired more than you trust your crystal ball.

I find it to be a pretty bizarre comparison.

 

[joeea]

Could you explain what you mean by this?I find it to be a pretty bizarre comparison.

The OP wrote:

"She (the adviser) thinks I should do it now (sell high?), but I'm wondering whether I should leave it for a while to "earn" the money I'd be losing when I go to bonds."

So you have the professional advice you sought (and presumably paid for) on one hand.
And you have a prediction about what the market will be doing "for a while" on the other hand. A predication being made by the same person who sought out the professional advice.

I'm not sure which part you don't understand?

 

[retiringby50]

I was fully exposed in stocks in 2008/2009 and my portfolio went down 55%. That is not a joke. The risk is real whether one can see it or not. Yes I recovered but it took a few years. Since then I have a much deeper respect that the market can go down as well as up regardless of the current trends in the market.

Yikes! OK, trying to avoid that

You need to ask yourself if you trust the financial planner you hired more than you trust your crystal ball.

Also good point. I was asking more to see what y'all think.

This makes me suspect the adviser's motives. OP I would seriously consider ditching the adviser.

Just be proactive and advise you would prefer a short term high quality bond fund at this time.

Thanks. Good points. I will bring that up with her... if nothing else, at least she'll know I'm researching her advice.

This financial planner is free for now through Fidelity. I think her role is to give some general advice, then hook me into transfer the rest of my money to Fidelity, and sell me their fee-based services. We haven't gotten that far yet, so I don't know how much this will cost me yet. I'm interested enough to hear more.

 

[VanWinkle]

Yikes! OK, trying to avoid that



Also good point. I was asking more to see what y'all think.





Thanks. Good points. I will bring that up with her... if nothing else, at least she'll know I'm researching her advice.

This financial planner is free for now through Fidelity. I think her role is to give some general advice, then hook me into transfer the rest of my money to Fidelity, and sell me their fee-based services. We haven't gotten that far yet, so I don't know how much this will cost me yet. I'm interested enough to hear more.

At least you know how the game is played!! That is one step up on a lot of people. Good Luck on your future success.