Increasing cash positions

[Mountain skier]

We are nearing retirement and decided the current market upheaval is too risky concerning our long term plans. We may decide to move to a more expensive area for retirement and therefore need a higher cash allotment to ensure the execution of our plans.

We are just now at AA 7/93.Was at AA 50/50 very recently. When we feel the market has stabilized we will go back to a minimum of an AA of 30/70.

Have any of you increased your cash position? What is your new AA? Are you close to retirement?

 

[Montecfo]

have not sold any equities. I retired last year.

Are you saying you sold 86% (43/50) of your stocks?

 

[statsman]

Already had too much cash to begin with. Had been in serious discussions with DW at the start of 2020 to move some into equities. Got sidetracked (thankfully!). All of our tax-deferred is in bond/TIPs funds, and we're not moving any of that to cash.

 

[Mountain skier]

Yes. In early March we sold most of our non-retirement equities and yesterday sold the majority our our IRA equities. I never thought we would do any allocation changes nearly this significant however these Covid 19 circumstances and the expected ramifications have made us reconsider to positions.

We will get in after the market stabilizes. We realize some missed upside opportunities will occur. But we feel comfortable with our decision. I know others have reduced equity exposure as well.

 

[pb4uski]

+1.... as I posted in another thread asking about investing strategy changes:

I have made a number of changes.

In December I drained our ~5% cash position, which was earning ~1.7% in an online svings account to pay off our 3.375% mortgage. Since our previous target had been 60/35/5... I set a new target at 65/35 which was derived as 60/(100-5) and 35/(100-5)... in other words, I wanted to adjust my AA so the mortgage prepayment ended up from that lower earning cash component. At the time that I did that, we were ~60/40 and the plan was to let the AA creep up over time to 65/35.

Over the last 12 months, I have found 3.0-3.5% credit union CD specials totally unresistable and have loaded up on them. It is very surprising to me because prior to these CDs I had only owned one CD in my life and that was the 3.0% 5-year PenFed special from Dec 2013. Prior to that I had viewed CDs as stodgy and never had any interest in them. Yesterday, I also found Navy Federal's taxable account 2.25% 17-month CDs and IRA 3.0% 37-month CDs irresitable as well. So when all is said and done, various CDs... mostly 3.0-3.5%... will end up as 48% of our portfolio and they have a blended APY of 3.13%. Unless inflation spikes... which I find hard to fathom at this juncture, that seems to be a good ballast position.

The recent volatility and our portfolio total drifting towards what it was when we retired in early 2011 spooked me a bit and I am currently out of equities for the first time in 40 years. While I still believe in equities in the long run, the uncertainty about how deep and long the recession that will result from the disuption of the economy from the COVID-19 contagion is so hard to assess I'm standing on the sidelines until the smoke clears a bit. I'm searching for less risky ways to participate in equities, like perhaps buying equity index leap calls, but at the end of the day it may a wild goose chase.

The good thing is that it will give me the opportunity to reposition things and somewhat of a fresh start once I decide the way forward.

 

[T-Minus]

No. Except for re-positioning assets to take advantage of TLH opportunities, I’m still following the plan. I will say that “the plan” (modified McClung “Living Off Your Money” plan) had me convert 10% of my stock gains to bonds in mid-Jan. In retrospect, this was a Good Thing, but in mid-Feb I thought I was missing out.

 

[RetireAge50]

Have not sold any stocks. We do have at least 5 years of cash which feels good for now. Once things recover we may go with 10 years cash. Not sure yet. We withdraw 3.5% per year so 10 years would be 35% cash and 65% stocks.

Note: By cash I mean CD’s, MM, etc.

 

[brokrken]

We are just now at AA 7/93.Was at AA 50/50 very recently. When we feel the market has stabilized we will go back to a minimum of an AA of 30/70.

Have any of you increased your cash position? What is your new AA? Are you close to retirement?

Not being critical, just trying to understand this strategy. So, you sold while the market is down a ton, but will buy back in when goes back up? If that's the case, why not just ride it out?

 

[2017ish]

Over the course of the first 2.5 years of retirement, I finally managed to get us to accept and embrace reducing to 65% equities in January of this year. No plans to add any more to cash or short term bonds, although I may not hold off until end of the year to rebalance....

 

[Animorph]

I moved 5% of our portfolio from stocks to bonds when the market was 20% down. Another 5% when it was 30% down. I still have 15% of the portfolio in bonds if the market continues down.

As far as straight cash, I sold mutual fund shares last year when our portfolio exceeded my target level. I try to sell for cash based on how the portfolio is doing rather than by the calendar. Month-to-month sales if I need cash before reaching a target level.

All very algorithmic and mechanical. I don't have to think a lot about it.

We just don't know what the market will do next. If it continues going down I'll be able to move my allocation a bit more towards stocks, ready for an upturn. If it goes up I have a little extra in stocks already to ride it up. Either way is fine.

 

[Livefree]

We sold a Rental in 2018 and with the market being high, we put the bulk of the funds in Credit Union CD's with different maturities yielding 3.0-3.25%. In fact, most of our Taxable Funds are in CD's, Money market, Ibonds, and a few growth stocks.



Our Retirement funds hold the bulk of the equities (43%) that we're leaving alone for now

 

[PatrickA5]

Yes! Currently 100% cash. Can't believe it, but can't really afford to have huge losses this late in the game. Started the year 40/60. Fairly early on moved to 13% stocks. Sold the rest close to the bottom. Down a little over 8% YTD, which is probably close to where I would be if I'd stayed put.

I'll probably get back into equities at some point, but can't see myself going higher than 30%. I'll just sit on the sidelines and see how this all plays out. I could be totally wrong (and probably am), but I think the odds of equities going significantly lower are better than equities going way up. With a wife getting ready to probably lose her job and no pensions to rely on, now is not the time to watch our savings crater.

 

[brokrken]

I moved 5% of our portfolio from stocks to bonds when the market was 20% down. Another 5% when it was 30% down. I still have 15% of the portfolio in bonds if the market continues down.

Do you mean you moved from bonds to stock? If not, I don't understand the last sentence.

 

[Mountain skier]

Not being critical, just trying to understand this strategy. So, you sold while the market is down a ton, but will buy back in when goes back up? If that's the case, why not just ride it out?

Hi. We could have one of two retirement situations: 1) a safe well funded more conservative/moderate retirement or 2) attempt fat-fire moving to a very expensive/posh area.

With the market dropping we figured we better ensure retirement type #1 and admit retirement type #2 most likely an unrealistic reach. Not worth risking/ negatively affecting our moderate retirement. Who knows how long the market will take to recover.

 

[targatom2019]

Yes! Currently 100% cash. Can't believe it, but can't really afford to have huge losses this late in the game. Started the year 40/60. Fairly early on moved to 13% stocks. Sold the rest close to the bottom. Down a little over 8% YTD, which is probably close to where I would be if I'd stayed put.

I'll probably get back into equities at some point, but can't see myself going higher than 30%. I'll just sit on the sidelines and see how this all plays out. I could be totally wrong (and probably am), but I think the odds of equities going significantly lower are better than equities going way up. With a wife getting ready to probably lose her job and no pensions to rely on, now is not the time to watch our savings crater.

You will be buying higher then today if you wait for the market to calm down.

 

[pb4uski]

You will be buying higher then today if you wait for the market to calm down.

And just how do you know this? Do you have one of those mythical crystal balls that I keep hearing about?

 

[Jerry1]

I'm pretty much out of the market. today, I had our FA move our two largest IRA's to cash. I understand this goes against all recommendations but I just can't get past the feeling that the bottom hasn't even come close yet. I don't want to be alarmist, but I seriously think we're in 1929 right now. I'm not willing to tuff out a 50% drop from here.

Just a few things that took me over the edge:
- How easily the gov't threw $2T at the problem compounding or national debt with little more than a few weeks of discussion.
- The unemployment rate, which I think will be higher than the depression, just maybe not for as long.
- There are companies that will either go under (stock to $0) or be bailed out and controlled by the gov't.
- First quarter earnings are going to be coming out in April. I think it will be brutal and I don't see the 2nd or 3rd quarter getting much better.

The optimist in me does see better times ahead so now my goal is to find products that are responsive to a few things. One - I think I'm going to need some inflation protection that provides some income. That may be as simple as cash. Not sure yet. Second - I'll be on the lookout for good companies or segments of certain industries to get back in with. For example, I don't see touching a travel/hospitality/restaurant stock any time soon but healthcare may still be strong. We'll see.

Right now, I came to basically the same conclusion and Mountain skier:

Hi. We could have one of two retirement situations: 1) a safe well funded more conservative/moderate retirement or 2) attempt fat-fire moving to a very expensive/posh area.

With the market dropping we figured we better ensure retirement type #1 and admit retirement type #2 most likely an unrealistic reach. Not worth risking/ negatively affecting our moderate retirement. Who knows how long the market will take to recover.

 

[PatrickA5]

You will be buying higher then today if you wait for the market to calm down.

You could be right. You could also be wrong. The market could "calm down" much lower than it is today.

Apparently, you know the answer. So, if you don't mind, could you tell me what date I need to start buying back a little? Thanks.

 

[Freedom56]

I actually bought a lot of bonds during the plunge. Bonds are recovering slowly primarily due to the news of government corporate bond buying. I am watching things closely and plan to unload the lower coupon notes trading above par to raise more cash. I currently have 81% bonds/CDs and 19% cash/MM. I don't see a quick recovery to this problem and will likely get worse as testing is still deficient coupled with people ignoring stay at home orders.

 

[brokrken]

And just how do you know this? Do you have one of those mythical crystal balls that I keep hearing about?

OP says, "When we feel the market has stabilized we will go back to a minimum of an AA of 30/70." How will OP know when this is. I would assume once it starts heading north, at which point, he/she will be buying higher.

My only point is that if you plan to buy back in, why not just wait it out. Timing the market rarely works out well. There have been plenty of articles written about the global financial crisis and how much money you would have lost if you only missed the best 5 or 10 days of the recovery.

If OP said, "i'm out for good. I can't handle this stress and volatility" I would have a different opinion

 

[targatom2019]

And just how do you know this? Do you have one of those mythical crystal balls that I keep hearing about?

Do you really think institutional investors with billion of dollars would get in when the market is calm or when there is blood on the streets ?

 

[Mountain skier]

I understand Brokrken's opinion which is: "My only point is that if you plan to buy back in, why not just wait it out. Timing the market rarely works out well. There have been plenty of articles written about the global financial crisis and how much money you would have lost if you only missed the best 5 or 10 days of the recovery."

I have long thought this way. But my wife and I face retirement in May one of three scenarios would occur: 1) lose a lot of $ in the market this year thereby risking near-term retirement ; 2) a safe well funded more conservative/moderate retirement; or 3) attempt fat-fire moving to a very expensive/posh area.

With the market dropping we figured we better ensure retirement type #2 and admit retirement type #3 most likely an unrealistic reach at this point. #1 situation- potentially having to continue working because we lost too much $ is to horrible to think about.

Still could get back into the market. Who knows, it may work out well. Otherwise eventually getting back in to market helps hedge against inflation- hopefully. But I realize we will probably miss biggest gains. We rather miss the biggest gains but not have to work any longer vs potentially losing a lot, with potentially a slow market recovery, and having to work or forever or have a skinny retirement.

Hopefully this point of view makes sense.

 

[PatrickA5]

Makes perfect sense. At least to me. Good luck!

 

[capjak]

I can't predict for the OP what the correct AA is for their retirement.

I hope it works out for you.

Once I went into retirement I wanted an AA that allowed me minimal adjustments (i.e. wanted to sleep well at night). I thought 40/60 was that AA.

I have been somewhat concerned about the bond portion as it was a little rocky until the Fed stated it would also buy corporate bonds back as well if needed. So that has stabilized that market, somewhat. I believe that is why several have moved to cash as well.

 

[pb4uski]

I'm pretty much out of the market. ... I understand this goes against all recommendations but I just can't get past the feeling that the bottom hasn't even come close yet. I don't want to be alarmist, but I seriously think we're in 1929 right now. I'm not willing to tuff out a 50% drop from here.

Just a few things that took me over the edge:
- How easily the gov't threw $2T at the problem compounding or national debt with little more than a few weeks of discussion.
- The unemployment rate, which I think will be higher than the depression, just maybe not for as long.
- There are companies that will either go under (stock to $0) or be bailed out and controlled by the gov't.
- First quarter earnings are going to be coming out in April. I think it will be brutal and I don't see the 2nd or 3rd quarter getting much better.

The optimist in me does see better times ahead so now my goal is to find products that are responsive to a few things. One - I think I'm going to need some inflation protection that provides some income. That may be as simple as cash. Not sure yet. Second - I'll be on the lookout for good companies or segments of certain industries to get back in with. For example, I don't see touching a travel/hospitality/restaurant stock any time soon but healthcare may still be strong. We'll see.

Right now, I came to basically the same conclusion and Mountain skier:

+1 that is right where I am right now... there is too much smoke in the air to see anything clearly... the prospect of 100,000 - 240,000 deaths in the US with the interventions is truly stunning.

I do believe in American business and will get back in once the smoke clears.... but perhaps not direct equity investment for a while... likely investments with more limited downside like LEAPS calls.