Cash to start funding ladders in a downturn

[HealthyFuture]

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Originally Posted by jebmke What is in your VG account? I have a conservative allocation in mine (40/60) and it is up 70% over 10 years, even allowing for some withdrawals.

jebmke thanks for asking. I may unknowingly be misrepresenting. The example I gave of my small Vanguard brokerage account specifically has VFIAX (most of the account) and VTSAX (a minority). Both have .04% expense ratios. In my app, Vanguard reports for this fund that my “performance return” over 10 years is 12%. Perhaps performance return does not mean what I thought it does.

I will note that this account is a minor amount (comparatively) in the context of our tax-deferred assets. That company reports my last 10 year rate of return in the 9.5% range. So even though there is a lot more money there, it’s not like I’m seeing a marked difference between those two reporting approaches and my ‘results’ which represent an 80% stock allocation. What am I missing on this point?

[HealthyFuture]

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Originally Posted by Gumby When I retired four years ago, I put my mutual fund distributions on cash pay instead of reinvest. That has allowed me to raise money for buying bonds without selling stock. (our pensions and social security cover our living expenses).

Gumby, thank you. Our dividends for our taxable account are quite tiny but still a great idea to stop reinvesting those. But it sounds in general from replies that I just need to sell…and I’m sooooo in a Strange New World thinking about that because we’ve been saving for so long!

[HealthyFuture]

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Originally Posted by pb4uski What is in the past is in the past so there is no reason to let that hold you back. what is important is what you think will hapen from here on out so those past losses are not relevant to the decision. I've shifted from 60/40 to 100/0 0/100 over the last few years... most of it in one fell swoop. I think stocks are overpriced and that the outlook for the near future is at best uncertain... so I'm a bear. If I can get 5% in safe CDs, UST and GSE bonds then that will more than satisfy our income needs so there is no need to risk that money.. I no longer NEED stocks. Now if at some point stocks are more attractive then I'll reconsider them. So in my case, the shift to a ladder was done at the same time as a change in my AA significantly reducing my stock allocation.

pb4uski, thank you. You have done what I wish to do (though not quite that drastic). We have ‘won the game’ as they say, and I’d like to reduce our exposure significantly. (I would say we are about 60/40 currently; up until 2017 we were more 70/30.) I’m realizing that I’m experiencing a mini money mental crisis — I’ve saved so long I’m just unfamiliar with this concept of needing to spend my savings. I really like the idea of selling as a way to both shift AA and take advantage of the CD/treasury rates available right now.

[harley]

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Originally Posted by HealthyFuture Gumby, thank you. Our dividends for our taxable account are quite tiny but still a great idea to stop reinvesting those. But it sounds in general from replies that I just need to sell…and I’m sooooo in a Strange New World thinking about that because we’ve been saving for so long!

There's no need to rush, although I also think equities are overpriced. Even with the recent drop. But over your remaining investing lifetime you will probably have times when you are not comfortable with your high equity AA. Those would be good times to sell some, locking in any gains, and freeing up cash that can be invested in bonds/CDs. If it doesn't happen, that means you're happy with your AA, so drive on.

I had been 100% equities (not counting real estate) for most of my life, but a couple of years ago I was getting itchy about stock prices and sold enough to drop my AA down to about 50/50. Of course, then I had to watch as the market rose by another 40% while my cash was sitting there at basically nothing, so I was kicking myself. But now that I've had a chance to buy some CDs at decent rates, I'm feeling more satisfied with my decision.

The secret to doing this sort of selling/reinvestment is to determine the AA you want, and only sell enough to get there. Don't panic sell. Just sell when prices are high or when you are ready to adjust your AA. This isn't a sprint, it's a marathon. Good luck.

[HealthyFuture]

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Originally Posted by Montecfo When you switch from 100 pct equities to having an allocation to fixed income, as I think most people do in their working lives, you have to sell equities to reinvest in debt. There is no getting around that you will have to sell something.

Thank you. This is what I needed to hear. It has seemed like a chicken and egg situation, but I now see this is what needs to happen even if the market is ‘down.’ It’s not that we can’t afford to sell while the market is down, I just know you all on the forum talk about not ‘having to sell’ while the market is down. (I’m not so sure I think the market is ‘down’ given its not terribly far off where it was two years ago, but I also know I’m a novice and am trying to avoid making stupid mistakes.)

[HealthyFuture]

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Originally Posted by COcheesehead I used downturns to reduce or eliminate capital gains in my taxable account and put that money into a tax free ladder.

I don’t yet understand the tax implications well enough to do this, but I will put that in my “to learn” list as I suspect it’s not a single forum reply that will teach me.

I juuuust started to build a treasury ladder in the last 30 days to take advantage of the no state tax angle as our state tax is significant.

[HealthyFuture]

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Originally Posted by W2R Before I retired, most of my income came from just one source, a salary that I could save and use in any way I wanted. After I retired, my income started coming to me from not just one but a number of excellent sources such as dividends, mini-pension, social security, RMD's, and so on. My AGI has gone up, not down. I don't really understand why being retired means people suddenly have no income and can't possibly save anything any more. But a lot of people do agree with you about that! Honestly I just don't get it. I'm sure I am missing something.

W2R, let me better explain. At this time we do not receive social security, and we do not (and will never have) pensions. Also not yet old enough for RMDs (I am about 20 years away!) So I merely meant that the only way for us to get income is to take money out of our retirement accounts or sell stocks as we have no ‘new’ money coming adding to our net worth.

I think of withdrawing less from retirement funds in a given year as “not spending it” rather than “saving it.” Still being mindful of what we spend!

[HealthyFuture]

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Originally Posted by simple girl What is your asset allocation? Do you have any allocation to bonds? If you have bond funds in your IRA you could consider selling them and changing to a CD ladder (you can purchase brokered CD's within an IRA at several institutions). Deciding to do that depends on whether you think bond funds will recover faster than what you can make with a ladder...YMMV.

Thank you simplegirl. I will go learn if I can buy brokered CDs in our 403/457 accounts. If so, this will be a great addition to the series of actions I’m seeing suggested here.

[HealthyFuture]

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Originally Posted by SnowballCamper The peace of mind from making your own treasury/CD ladder where you can manage maturities to meet income needs will likely give the most psychological benefit. Good luck!

This is exactly why I’ve been anxious to get started with this. We bought $60K of iBonds in October (seemed so great then! Now can’t gift $20K until Jan 2024, when I’d love to stick that money elsewhere! Lots of learning!) And then I stuck $50K in a one-year CD last month (4.3% seemed amazing given I hadn’t learned to buy treasuries yet). And then I began putting $10K into various treasury bond terms. I have some additional cash in a money market to deploy, but it seems like it would be super to stick a ton o’ money in these instruments at this time to get ladders aggressively started.

[HealthyFuture]

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Originally Posted by harley There's no need to rush, although I also think equities are overpriced. Even with the recent drop. But over your remaining investing lifetime you will probably have times when you are not comfortable with your high equity AA. Those would be good times to sell some, locking in any gains, and freeing up cash that can be invested in bonds/CDs. If it doesn't happen, that means you're happy with your AA, so drive on. I had been 100% equities (not counting real estate) for most of my life, but a couple of years ago I was getting itchy about stock prices and sold enough to drop my AA down to about 50/50. Of course, then I had to watch as the market rose by another 40% while my cash was sitting there at basically nothing, so I was kicking myself. But now that I've had a chance to buy some CDs at decent rates, I'm feeling more satisfied with my decision. The secret to doing this sort of selling/reinvestment is to determine the AA you want, and only sell enough to get there. Don't panic sell. Just sell when prices are high or when you are ready to adjust your AA. This isn't a sprint, it's a marathon. Good luck.

Thanks, harley. Promise I won’t panic sell! It will feel like a major achievement when I permit myself to actually sell *something*— fortunately I am incapable of panic-anything with my money. I have analysis paralysis and think if I just learn more about X, all will become perfectly clear. But I am realizing this is a learn some, do some, then repeat situation (until I have my approach and ladders dialed in, then I’ll just go take the dog for a hike.)