Very Conservative 'Chicken' Portfolio

[audreyh1]

2000 - 2013 wasn’t no walk in the park either when you look at total return in real terms.

 

[RobbieB]

If you have fear of investing, don't invest.

I'm pretty happy that I've been ~80% equities since retirement. I've been blowing a lot of dough since I retired and I now have more than when I started.

That would not be true if 80% fixed.

This massive dough blowing should taper off in a year or 2 and maybe that will be a good time to increase the bonds.

Or not, just roll the dice!

 

[cyber888]

You can afford to be conservative because you have 43X annual spending, so you should be fine.

Hi, I am new here. I retired a few years ago @58. I have a very conservative portfolio with about 75% in 3.25% brokered CDs good for 3 more years, 10% in total stock, and 15% cash. NW minus Real Estate is 43X annual spend.

I can't get used to not having 'for-sure' income. I guess when my pension and SS kick in... I will be less nervous going back to ~40% equities. Are there people here doing like me? FOMO is building. I want to be told to shut up and just be happy.

 

[viking111]

Well, @JRon implicitly asks the important question #1: "What is the purpose of your large stash?" When Alice (in Wonderland) asked the Cat: "Would you tell me, please, which way I ought to go from here?" The answer was: "That depends a good deal on where you want to get to." If you have won the game and have no desire to leave an estate, that points to one investing strategy. If you want to leave a large estate for family and charity, that points to a different strategy.

Now, about that chicken ... My guess is that the chicken is confusing volatility with risk. That's very common. Here is a chart I use in my Adult-Ed investing class:

​

Note two things: First, equities are indeed more volatile than the alternatives. Second, they are quite reliably more profitable. A lot more profitable. Also, there has never been a drop from which the market hasn't recovered in a few years. Is this history predictive? It has been so far.

So, the investing problem for the chicken may be simply to invest so that she can ride out the dips but stay on the equity gravy train. How much? See question #1.

You have a good way of putting things in perspective. Volatility vs. Risk

 

[24601NoMore]

Hi, I am new here. I retired a few years ago @58. I have a very conservative portfolio with about 75% in 3.25% brokered CDs good for 3 more years, 10% in total stock, and 15% cash. NW minus Real Estate is 43X annual spend.

I can't get used to not having 'for-sure' income. I guess when my pension and SS kick in... I will be less nervous going back to ~40% equities. Are there people here doing like me? FOMO is building. I want to be told to shut up and just be happy.

Great thread. We're in a very similar position in terms of age, reliance on CD dividends for income and overall allocation to equities and cash - although I'm roughly double you at ~22% stocks. Dividends covered our expenses completely for the first two years (2019 and 2020) of my retirement, but many of my CDs are now maturing and that income stream is drying up. And with the Fed talking about keeping rates low until 2023 or 2024, my original plan of using cash dividends to fund a big part of expenses has taken an unexpected but real hit..

I've long believed in Bill Bernstein's adage of "when you've won the game, stop playing". Even at only 22% equities, last March - April was BRUTAL in terms of my psychological well being, as we had some pretty painful $$ value drops in the portfolio. And, even though the markets did come back quickly - I also believe that was very unusual and mostly due to crazy stimulus spending.

I "could" go all cash or lower my equity allocation further (say, to 10-15%), and wife and I talk about that a lot. At this point in my life, unless we get back to 80s style inflation, going all cash still gets us to end of life intact. And since my plan is built entirely around us funding our retirement vs leaving a big pile of assets for others, I've been tempted many times to just say the heck with the volatility and risk, and take my chips off the table.

Even at 22%, I'm nervous. Board rules don't allow me to expound on why, but I believe we're in for some very rocky economic times ahead - and the likelihood of a 40, 50% or higher crash is IMHO higher than it's been in a very long time. Other issues aside, even CAPE 10 is telling us that. So the risk/reward ratio is getting way out whack in my opinion..

Net, I TOTALLY get the whole "sleep better at night" aspect. It's often hard for those of us who think that way because there's so many posts from people with high (70, 80 or higher %) equity allocations..but it seems those folks have different goals than you or I do. We simply want our assets to last through end of life, and to do so with the minimum amount of risk and volatility possible. Nothing wrong with that, IMHO, and avoiding the all too natural desire to "run up the score" is hard to overcome at times..

Now, all we have to do is figure out where to put those maturing CDs and how to replace as much of that income as possible. That's a topic for another post

ETA - there have been multiple periods throughout US history where total equity returns have been negative for 10 years or longer. For that reason, it's often said "don't have ANY $$s in the market that you need in the next ten years". Ask yourself how you'd feel if whatever you have allocated to equities stayed "underwater" for 10 years or more. I know I'm personally at the point in my life where that would make me very, very uncomfortable..

 

[aja8888]

Now, all we have to do is figure out where to put those maturing CDs and how to replace as much of that income as possible. That's a topic for another post

At age 77 with a very sick DW, our equity allocation is about 20%. Our 3+% CD's expired last year and I have been buying preferred stocks that pay 4 - 7% and are pretty safe to replace the lost CD interest. I have about a dozen issues and monitor them frequently. There's a big thread here on us guys who do this.

I also sell covered calls and cash secured puts in small quantities on select stocks. That helps from the income side of it.

 

[Markola]

We’re all built differently and only time, mistakes and pain can reveal what type of investor we are. For myself, when I feel either FOMO or despair bubbling up about the stock market, I try to view it as a red flag reminder that it’s probably just the emotional herd talking, and part of me is unavoidably a member of the herd, after all. The Business Section of the newspaper seems to exist to trigger my investing emotions.

I guess we all have to get used to an allocation that lets us minimize anxiety, whether minimizing participation in the stock market, as the OP does; participating heavily and being willing to ride out the times the herd goes over the cliff; or something in the middle. I find that in my mid 50s I sleep best at 50/50.

Of course, the worst thing an investor can do is try to divine the tea leaves and dance in and out. I’ve done that, too, which is one of the several reasons I chose to put the bulk of our portfolio under Vanguard’s AUM plan, which keeps my proven itchy trigger fingers off the dashboard, preventing mistakes that can cost a lot more than the thirty basis points the service charges. That’s my way of building a chicken portfolio that works for me! [emoji239]

 

[24601NoMore]

At age 77 with a very sick DW, our equity allocation is about 20%. Our 3+% CD's expired last year and I have been buying preferred stocks that pay 4 - 7% and are pretty safe to replace the lost CD interest. I have about a dozen issues and monitor them frequently. There's a big thread here on us guys who do this.

I also sell covered calls and cash secured puts in small quantities on select stocks. That helps from the income side of it.

Would love to hear more about that. Could you plz post a link to your preferred stocks thread for those who are interested?

I did try to go the dividend paying (albeit, not preferred) stock route at one point and built up about a $50K portfolio just to test the waters..my purchases of O, CVX and to a lesser extent VZ have done OK. T has been reliable (so far) on divvys, but the stock price has gone pretty much nowhere for quite some time. Then there's Welltower (WELL) in the middle, who cut their divvy pretty hugely and who's stock price has been hurting for quite a while. Bringing up the rear is F (eliminated the dividend entirely - ugh). (Go figure..huge, ancient auto company..what could be safer than that? Wrong!)

One thing I did learn (painfully) is that dividends often come at the cost of total return. I did read many threads over the years downplaying dividends and advocating for a focus on TR and generally disagreed - until it happened to me with my little $50K dividend paying stock portfolio. Yep - most of those stocks have been red (vs green) for a long time, especially CTL (now LUMN)..tough to always look at those and see red TR numbers, dividends aside..

I still subscribe to M* Dividend Investor but candidly haven't read an issue for probably over a year now. Reminds me that I need to cancel that..it's $189/yr that I'm not currently using..

ETA - might be a dumb question, but what's the reason for Preferred vs. "Normal" stocks when it comes to dividend payers?

 

[harley]

One thing I did learn (painfully) is that dividends often come at the cost of total return. I did read many threads over the years downplaying dividends and advocating for a focus on TR and generally disagreed - until it happened to me with my little $50K dividend paying stock portfolio. Yep - most of those stocks have been red (vs green) for a long time, especially CTL (now LUMN)..tough to always look at those and see red TR numbers, dividends aside..

If I'm reading your comment correctly, you may not be understanding Total Return properly. Total Return is the stock price, but it also includes the dividends. So if the stock price is in the red, but the dividends put your return over cost basis in the green, the TR is green. With my few dividend paying stocks I don't care in the least if their price goes up, as long as the dividends keep rolling in. If the price goes up, that's better, but it's not the reason I own them. Now, if the stock price drops enough to counter the dividends, that's not good. And obviously dropping the dividend is the worst case. But they announce that ahead of time, and it's up to you to get out before you lose too much (hard to do).

 

[aja8888]

Would love to hear more about that. Could you plz post a link to your preferred stocks thread for those who are interested?


ETA - might be a dumb question, but what's the reason for Preferred vs. "Normal" stocks when it comes to dividend payers?

https://www.early-retirement.org/fo...the-bad-and-the-in-between-2021-a-107188.html

Lots of good reading here and in an earlier thread.

Preferreds are issued at a "par" price and kind of act as bonds with a call date. Mulligan here is the "go to" guy for preferred stock knowledge.

Cheers!

 

[24601NoMore]

If I'm reading your comment correctly, you may not be understanding Total Return properly. Total Return is the stock price, but it also includes the dividends. So if the stock price is in the red, but the dividends put your return over cost basis in the green, the TR is green. With my few dividend paying stocks I don't care in the least if their price goes up, as long as the dividends keep rolling in. If the price goes up, that's better, but it's not the reason I own them. Now, if the stock price drops enough to counter the dividends, that's not good. And obviously dropping the dividend is the worst case. But they announce that ahead of time, and it's up to you to get out before you lose too much (hard to do).

I'm clear on Total Return..guess my point was that certain stocks (eg: CTL/LUMN) have cratered to the point that even the dividends paid to date don't get me back to green..

ETA - the other thing I experienced which was for the most part unexpected was divvy cuts. Happened to me on Welltower, F (eliminated completely) and CTL (54% cut)..so, in those cases - double whammy of dropping share price AND reduced or eliminated dividends..

 

[Sunset]

(IMHO):

Chasing nice high dividend stocks, often leads to disappointment as the company cuts the div or cancels it. As soon as either one happens the price drops because people ditch the stock like a hot potato. This compounds the problem for the div chaser, as selling will often mean a loss.

I've done this now and then myself.
My recent one is T, for the 7% div. I have zero expectation that stock will go up, I just want it to stay the same and continue to pay 7%.

Currently, for some money that I am mostly interested in dividend generating, one thing I invest in is an ETF (big collection of stocks) SCHD. The div is ~3% which is better than a CD, and there is some safety in that should a couple of companies stop paying the div or even go bankrupt, the div will still continue only slightly affected, and the price will go down only a few percent.

 

[aja8888]

(IMHO):

Chasing nice high dividend stocks, often leads to disappointment as the company cuts the div or cancels it. As soon as either one happens the price drops because people ditch the stock like a hot potato. This compounds the problem for the div chaser, as selling will often mean a loss.

I've done this now and then myself.
My recent one is T, for the 7% div. I have zero expectation that stock will go up, I just want it to stay the same and continue to pay 7%.

Currently, for some money that I am mostly interested in dividend generating, one thing I invest in is an ETF (big collection of stocks) SCHD. The div is ~3% which is better than a CD, and there is some safety in that should a couple of companies stop paying the div or even go bankrupt, the div will still continue only slightly affected, and the price will go down only a few percent.

The nice feature with T is one can sell call and put options on it forever as it bounces between $27 and $34. That's what I have been doing for a year now.

 

[PussInBoots]

I'm clear on Total Return..guess my point was that certain stocks (eg: CTL/LUMN) have cratered to the point that even the dividends paid to date don't get me back to green..

ETA - the other thing I experienced which was for the most part unexpected was divvy cuts. Happened to me on Welltower, F (eliminated completely) and CTL (54% cut)..so, in those cases - double whammy of dropping share price AND reduced or eliminated dividends..

You bought "Value Traps". I see no such problems with broad based index funds. (Even less so with high quality Dividend oriented ETFS like SCHD)

Yea it may be a good idea to cancel that 189 USD/year subscription.

 

[Sunset]

The nice feature with T is one can sell call and put options on it forever as it bounces between $27 and $34. That's what I have been doing for a year now.

I didn't mention it in my previous post as it would just confuse the point I was trying to say.

I've sold covered calls on my T (just recently bought it).
While the option is not really much, I consider it just a bonus extra and if it goes, I might have to sell a Put.

 

[njhowie]

Hi, I am new here. I retired a few years ago @58. I have a very conservative portfolio with about 75% in 3.25% brokered CDs good for 3 more years, 10% in total stock, and 15% cash. NW minus Real Estate is 43X annual spend.

I can't get used to not having 'for-sure' income. I guess when my pension and SS kick in... I will be less nervous going back to ~40% equities. Are there people here doing like me? FOMO is building. I want to be told to shut up and just be happy.

I don't see that you have any issue at this time - there's nothing to do for another 3 years unless you are going to reallocate the remaining 25% to equities. Even if you did that, you wouldn't push the whole thing to equities or very aggressive equities, and so the additional income generated above what you're getting from the 10% total stock will likely not make that much of a difference, though you will certainly take on more risk.

Sit back, stick with what you have, and begin thinking about it again in 2.5 years. Who knows what CDs will be paying when yours are maturing and looking for reinvestment.

I'm at 1/99 (that's 99% in CDs and bonds) and I'm happy as a clam.

If you're comfortable with your AA and the numbers continue working out for your lifestyle, why rock the boat? FOMO is not a good state of mind - try to move away from that.

Bottom line, shut up and just be happy.

 

[24601NoMore]

(IMHO):

Chasing nice high dividend stocks, often leads to disappointment as the company cuts the div or cancels it. As soon as either one happens the price drops because people ditch the stock like a hot potato. This compounds the problem for the div chaser, as selling will often mean a loss.

I've done this now and then myself.
My recent one is T, for the 7% div. I have zero expectation that stock will go up, I just want it to stay the same and continue to pay 7%.

Currently, for some money that I am mostly interested in dividend generating, one thing I invest in is an ETF (big collection of stocks) SCHD. The div is ~3% which is better than a CD, and there is some safety in that should a couple of companies stop paying the div or even go bankrupt, the div will still continue only slightly affected, and the price will go down only a few percent.

Agreed. I also own T for the same reason and have the same expectations with regard to share price. Let's hope they continue to have the FCF to pay the dividend at current rates (or ideally if not as realistically, higher).

I also like SCHD and own it as well. Albeit, I bought a VERY small quantity of it just to dip my toe into the water. Got it at $54 and pennies back in Sept, and see it's trading at roughly $67 as of Friday. That's a heck of a return in < 6 months at 24+%..just wish I had more at prices below where it's currently trading..

 

[HI Bill]

At a 43X savings rate, the OP can afford to be happy. Until inflation rears its head, and exceeds the 3% CD rate....in this case, I see perceived safety along with actual risk.

 

[NW-Bound]

The nice feature with T is one can sell call and put options on it forever as it bounces between $27 and $34. That's what I have been doing for a year now.

I didn't mention it in my previous post as it would just confuse the point I was trying to say.

I've sold covered calls on my T (just recently bought it).
While the option is not really much, I consider it just a bonus extra and if it goes, I might have to sell a Put.

Eh, ya'll are doing what I have been doing for a few years. You are going to depress the premium on these options. I don't want more option sellers. I need more buyers. Buy, buy, buy...

Just kidding.

I used to sell covered calls and puts on just highly volatile stocks. Then, I started to look at my stalwart positions, and said to myself I could make some extra money even on these sleepers because they still fluctuated quite a bit. I don't have to collect several hundred dollars or a few $K for every contract that I sell. Even something less than $100, actually down to $50, I do not pass up. Heh heh heh...

When I do more than a dozen contracts a week on these boring stocks, these little gains add up. Heh heh heh...

 

[Blue_Bird]

OP here. Thanks for all the great insight everyone! It is nice to know I am not alone in my sentiments. I think I will just enjoy the lightness of being FI for now. In a few years things may be very different.

 

[P.S.]

We subscribe to the Conservative Chicken philosophy and are not even retired yet. When I was a kid, my mom counseled me- before spending any money, save twice as much, and set the extra aside -> in case you run over someone’s chicken on the road.

 

[audreyh1]

You can afford to be conservative because you have 43X annual spending, so you should be fine.

Yeah, that’s basically the whole point.

 

[JJpop]

I don't see that you have any issue at this time - there's nothing to do for another 3 years unless you are going to reallocate the remaining 25% to equities. Even if you did that, you wouldn't push the whole thing to equities or very aggressive equities, and so the additional income generated above what you're getting from the 10% total stock will likely not make that much of a difference, though you will certainly take on more risk.

Sit back, stick with what you have, and begin thinking about it again in 2.5 years. Who knows what CDs will be paying when yours are maturing and looking for reinvestment.

I'm at 1/99 (that's 99% in CDs and bonds) and I'm happy as a clam.

If you're comfortable with your AA and the numbers continue working out for your lifestyle, why rock the boat? FOMO is not a good state of mind - try to move away from that.

Bottom line, shut up and just be happy.

We have 0 stocks age 69 and 71. The problem is what to do with all the cd’s and bonds when they mature the next 2 to 4 years if interest rates are like now. We also have a couple GO muni’s that will probably be called early which will hurt,paying about 5 %.
The fed does a great job of saving all the stock holders but they never consider the retired people holding a ton of CD type investments.

 

[foxfirev5]

We have 0 stocks age 69 and 71. The problem is what to do with all the cd’s and bonds when they mature the next 2 to 4 years if interest rates are like now. We also have a couple GO muni’s that will probably be called early which will hurt,paying about 5 %.
The fed does a great job of saving all the stock holders but they never consider the retired people holding a ton of CD type investments.

Sorry to say but there is no such thing as a risk free investment. I would love to have a simple retirement living on CD interest like my DM thought she could. After all retirement is the finish line. And she worked for a stock broker. Now it's all unravelling.

Meanwhile my 45/55 at age 65 portfolio is keeping up. For now. We'll see how it works out. Funny thing is that my risk taking may be necessary to subsidize DM's risk free approach. I feel your pain. DW and I thought we had 30 years spending in 5 year CD ladders. Now it's at 25 years and falling as we gradually have transitioned into dividend stocks. Now that even looks too rich for further investment. There is no free lunch.

 

[GoodLife59]

If you’re financially secure and happy then no worries. I’m 60 and retired. My 65/35 stock/bonds mutual fund portfolio has averaged 9% annually for the past 10 years. That works for me.