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Cash to start funding ladders in a downturn
Old 03-17-2023, 09:14 AM   #1
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Cash to start funding ladders in a downturn

Hi, all. I follow with envy those of you who have cash to snap up good treasury or CD rates when you see them. I get that many of you have things maturing that permit you to do that. But how do you start?

My situation: The vast majority of our assets are in tax-deferred accounts. We have recently stopped working (as much) so are doing aggressive Roth conversions, as those seem prudent to do while the market is lower than it was 15 months ago, and also before we hit IRMAA look back time. Also prudent to let that money grow tax free.

We are no longer earning real salaries, so no way to save that money and sock it away in CDs.

We do have some money in taxable accounts, but the market is down. My Vanguard account for example is up 12% over 10 years, but cumulative inflation over that time is over 20%. So it seems unwise to withdraw $100,000 to stick into CDs and/or treasuries while the market is down.

Iíd love to get ladders going in this higher-rate environment, but am having a hard time figuring out how to think about the strategy for getting started beyond selling stocks when they are low given our situation.

Any insights to share? I suspect some of you were smart and started your ladders before you stopped your higher-earning / work. But, as you may have heard, no time machines around to fix it for those of us who didnít.
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Old 03-17-2023, 09:18 AM   #2
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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).
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Old 03-17-2023, 09:37 AM   #3
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Originally Posted by HealthyFuture View Post
Hi, all. I follow with envy those of you who have cash to snap up good treasury or CD rates when you see them. I get that many of you have things maturing that permit you to do that. But how do you start?

My situation: The vast majority of our assets are in tax-deferred accounts. We have recently stopped working (as much) so are doing aggressive Roth conversions, as those seem prudent to do while the market is lower than it was 15 months ago, and also before we hit IRMAA look back time. Also prudent to let that money grow tax free.

We are no longer earning real salaries, so no way to save that money and sock it away in CDs.

We do have some money in taxable accounts, but the market is down. My Vanguard account for example is up 12% over 10 years, but cumulative inflation over that time is over 20%. So it seems unwise to withdraw $100,000 to stick into CDs and/or treasuries while the market is down.

Iíd love to get ladders going in this higher-rate environment, but am having a hard time figuring out how to think about the strategy for getting started beyond selling stocks when they are low given our situation.

Any insights to share? I suspect some of you were smart and started your ladders before you stopped your higher-earning / work. But, as you may have heard, no time machines around to fix it for those of us who didnít.
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.
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Old 03-17-2023, 09:40 AM   #4
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... We do have some money in taxable accounts, but the market is down. My Vanguard account for example is up 12% over 10 years, but cumulative inflation over that time is over 20%. So it seems unwise to withdraw $100,000 to stick into CDs and/or treasuries while the market is down. ...

Any insights to share? ...
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.
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Old 03-17-2023, 09:56 AM   #5
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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.

As far as bond ladders, I began building that when I retired, first so I would have maturing money each quarter in my taxable account for spending, so I would not need to sell equities at a bad time. My equities in that account are also lower beta dividend paying stocks. As an active investor, I regularly and tactically sell equities which frees funds for new equity or bond purchases.

In my tax deferred, I sold most of my fund portfolio at the beginning of 2020 in anticipation of higher rates and moved into floating rate funds and bonds. I have been building a ladder in my tax deferred from those funds.

There is no getting around that you will have to sell something. You could wait till equities rally, but then interest rates will almost certainly have fallen, triggering an equity rally.

Choices to make.
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Old 03-17-2023, 11:04 AM   #6
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I started building my ladders about 5 years prior to retirement. I followed Kitces bond tent or rising equity glide path strategy.
I used downturns to reduce or eliminate capital gains in my taxable account and put that money into a tax free ladder. Today that ladder alone funds our retirement needs without any pension or social security.
Know your numbers, what do I need to earn to make our plan work. Then judge if you can get that in fixed income. If so, lock it in - with a buffer and enjoy retirement.
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Old 03-17-2023, 11:48 AM   #7
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I view stocks/bonds/fixed income as a money making machine. Based on 12% increase in 10 years, your machine is broken, because most people’s machines would have made considerably more money than your machine. It’s magical thinking that your machine will somehow fix itself. You need to make changes. Sell some of your taxable investments now and start a CD ladder.
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Old 03-17-2023, 11:55 AM   #8
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Ultimately, this is about asset allocation.

Do you not like your overall AA in the face of these yields? Then first change up the AA and then focus on deploying the money.

For example, I finally threw in the towel on my REIT indices. I had been chasing yield but the whole thing was just not good. That freed up some AA room and I moved it into Fixed Income. Presto...cash to invest in higher yield, secured instruments.

I also gave up on SCHP...more cash to move into fixed income.

Both of these were "I learned my lesson" changes to AA combined with an explicit desire to pick up some of these nice, guaranteed yields. My biggest error was letting the cash sit for a bit.
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Old 03-17-2023, 12:09 PM   #9
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I've shifted from 60/40 to 100/0 over the last few years... .
From reading your other posts, I thought you switched from 60/40 to 0/100. Did I misunderstand or is this just a typo?
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Old 03-17-2023, 12:13 PM   #10
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From reading your other posts, I thought you switched from 60/40 to 0/100. Did I misunderstand or is this just a typo?
Typo. My bad. Fixed the prior post.
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Old 03-17-2023, 12:16 PM   #11
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He moved to 100% fixed income for sure. Maybe he only had 40% equities before?
No, I was 60/40 before.
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Old 03-17-2023, 12:19 PM   #12
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Funny, now that I think about it I seem to recall a very conservative poster many years ago that was 100% CDs and was roundly villified for being so conservative... obgyn65. I never had a problem with his AA as long as he recognized the inflation risk that might result in but others were much more harsh. He last posted in June 2015.
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Old 03-17-2023, 12:33 PM   #13
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We are no longer earning real salaries, so no way to save that money and sock it away in CDs.
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.
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Old 03-17-2023, 12:37 PM   #14
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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
I completely agree with you. Although I had at most 20% in equities, I sold everything in June 22 and invest everything for income. I no longer need stocks either and love it.

Always keep some cash in case there is capitulation but haven't seen that yet. But if not, plenty of locked in income for the next 5 years. Obviously my risk is inflation stays elevated or dramatically increases. A risk I'm willing to take.
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Old 03-17-2023, 12:39 PM   #15
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I don't really understand why being retired means people suddenly have no income and can't possibly save anything any more.
Exactly. As long as you LBYM in retirement just as you did during your working years, there is still extra income to save and invest.

Probably the easiest way to raise cash in this case is to turn off auto-reinvestment on your existing holdings. When dividends and capital gains are paid out, use that money to build your fixed income holdings.
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Old 03-17-2023, 01:54 PM   #16
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Exactly. As long as you LBYM in retirement just as you did during your working years, there is still extra income to save and invest.



Probably the easiest way to raise cash in this case is to turn off auto-reinvestment on your existing holdings. When dividends and capital gains are paid out, use that money to build your fixed income holdings.
Sure but that is a really slow roll. OP was asking about current high interest rates. Also, they are probably spending divs since not working.
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Old 03-17-2023, 02:00 PM   #17
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Sure but that is a really slow roll. OP was asking about current high interest rates. Also, they are probably spending divs since not working.
True. For that you need to sell stuff.
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Old 03-17-2023, 02:17 PM   #18
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My situation: The vast majority of our assets are in tax-deferred accounts.
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I’d love to get ladders going in this higher-rate environment, but am having a hard time figuring out how to think about the strategy for getting started beyond selling stocks when they are low given our situation.
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.
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Old 03-17-2023, 05:27 PM   #19
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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.
This...but it has it's own risks..e.g. inflation will be higher than whatever rates you can currently find. IMHO interest rates will have to go higher than inflation before inflation comes down to the Fed's target. In the meantime stocks will be gyrating with lots of volatility. 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!
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Old 03-17-2023, 05:43 PM   #20
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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!
Yep. That's what it came down to for us. Hence, YMMV. Depends on your risk tolerance and also what you might have otherwise in your portfolio (like pensions or SS expectations) which will affect your decision. No one can make that decision for you, but they can pose questions which help you deliberate upon what is best for your personal situation.
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