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The market is calling - or is it?
02-04-2009, 11:47 AM
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#1
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Dryer sheet aficionado
Join Date: Dec 2007
Posts: 46
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The market is calling - or is it?
As evidenced by my CD-laden portfolio, I am a conservative investor. I am, and have been, 98% in cash for quite some time (long before the market went south.) That said, with market values at current levels, I'm trying to figure out if I should pull some money out of CD's (incur the early withdrawl penalties) to get some money in the market. My average CD return is 5.7%.
I could actually get about 20% of my portfolio in the market without tapping my CD's, as I have about 20% in money market funds. It's hard not to be content with safe 5.7% returns, but, I'm more than a bit tempted by the capital appreciation opportunities in the market.
I'm currently working but anticipate retiring in 2 years or less. Should I try to get myself about 40% in stocks...or just be happy with where I am? I won't need to tap into that money for many (10+) years.
I know it's a personal decision...but I'm eager to know what YOU would do, if you were in similar circumstances.
Thanks.
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02-04-2009, 11:51 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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I wouldn't be eager to get out of a safe 5.7% CD.
Assuming it's money that you can afford to take a risk with, I would certainly look into buying stocks with money that comes from these CDs maturing, especially since yields on new CDs are so pitiful. But no, in this environment I'd be content to make my sure-thing 5.7% as long as I could milk it. I'd tap the money market funds before the CDs -- for one thing, money market yields are pathetic and for another, I'd hate to eat the early withdrawal penalties (especially when you have such high-yielding CDs).
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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02-04-2009, 12:06 PM
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#3
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Moderator Emeritus
Join Date: May 2007
Posts: 12,894
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What Ziggy said... don't cash in the CDs. Use either new money or money from your MMF to invest in the market. Personally, in the early stages of retirement, my goal is to have about 30-40% of my portfolio in equities.
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02-04-2009, 12:13 PM
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#4
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Thinks s/he gets paid by the post
Join Date: Aug 2006
Posts: 2,433
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You pick up yield as well as potential price appreciation by moving it from a MMF to a S&P 500 index fund. Unless it's money you will need near-term, you are being paid to wait for the market to recover.
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02-04-2009, 12:15 PM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2003
Location: Kansas City
Posts: 7,968
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Sooo - when are you going to croak? If you know exactly when you are going to die like I do at 84.6 then it simply becomes a matter of calculating what inflation will do beween now and then. You know 5.7% but not what Mr Stock Market may do except to guess based on history.
Now tongue in cheek wise - if 5.7% is the only number you know - why do you wish to own stocks?
heh heh heh - why is always more important than should.
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02-04-2009, 12:28 PM
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#6
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Moderator Emeritus
Join Date: Jun 2007
Location: At The Cafe
Posts: 6,873
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With 20% in MM, you could DCA up to that level. I would! But then I’ve always enjoyed the volatility of equities. If you take it slow getting in, maybe you’ll get a good sense of how you react to fluctuations. By the time you DCA 20% in, some of your CDs might be mature. Keep us posted.
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02-04-2009, 12:33 PM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2007
Posts: 7,746
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Long term you will be better off with some portion of your portfolio invested in equities (based on recent history of the last 100 years or so). 20% in equities probably won't increase your volatility a whole lot, but will increase your return (over the long term). In fact, I think portfolio models suggest that you can actually lower your volatility while increasing returns by going from 0% equities/100% bonds to 20% equities/80% bonds. Although if you are in CD's, the principal value doesn't fluctuate much at all (assuming you can redeem early and pay a small penalty), so not sure if the higher returns/lower volatility rule of thumb applies.
In any event, today is a much better day to buy stocks than 12 to 15 months ago. If it were me I and I was risk averse, I would be increasing my stock allocation to 20% to 40% over the next year or two assuming stocks continue to be equally attractively priced.
edited to add: I'm 100% equities, but young and still working. So big grain of salt.
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02-04-2009, 12:42 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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I like 100% equities, so don't take my advice!
I don't think there is any rush, but DCA'ing into equities from the MM's sounds good. Maybe anytime it looks like the market for what you're buying is within about 10% of the last bottom. I'd be in no rush to cash out of 5.7% CD's.
I'd be in at least 15% equities for a little boost, 30% to 40% if you are comfortable with that and need more growth for a long retirement. Be sure to diversify large/small and US/foreign or go with a retirement or diversified balanced fund. If you can retire with just the fixed income, that's great!
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02-04-2009, 12:52 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2007
Posts: 7,746
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Look at it this way, too: If you had 80% in CD's and cash earning 5.7% and 20% in equities that lost 50%, you would still have 94.5% of your portfolio at the end of the year. Can you live with that sort of volatility? That represents worse markets than we saw even in 2008.
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02-04-2009, 12:58 PM
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#10
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Moderator Emeritus
Join Date: Jun 2007
Location: At The Cafe
Posts: 6,873
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Quote:
Originally Posted by FUEGO
....20% in equities probably won't increase your volatility a whole lot, but will increase your return (over the long term). In fact, I think portfolio models suggest that you can actually lower your volatility while increasing returns by going from 0% equities/100% bonds to 20% equities/80% bonds. ....
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Good point, Fuego. I wonder how many of us can just look at the bottom line instead of seeing the components separately.
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02-04-2009, 01:04 PM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2006
Location: Collin County, TX
Posts: 9,294
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How do your different scenarios with FireCalc look?
__________________
There's no need to complicate, our time is short..
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02-04-2009, 01:39 PM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2007
Posts: 7,746
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Quote:
Originally Posted by CuppaJoe
Good point, Fuego. I wonder how many of us can just look at the bottom line instead of seeing the components separately.
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I don't know. I know it can be hard when specific funds or accounts may lose 60% of their value.
I look at the bottom line when I compare quarterly results of my overall portfolio which spans multiple brokerages, multiple 401k's, roth and traditional IRA's and after tax accounts. Sure, that IRA that only holds emerging markets was down 60%. But it is a small percentage of my overall holdings.
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02-04-2009, 02:44 PM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2003
Location: Kansas City
Posts: 7,968
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Ok folks - don't say I didn't give you folks a chance - I mean I'm not the only one who can say it:
Pssst Wellelsey. SEC yield 5.50%. That and a warn hand grenade gets you close to 5.7%.
Yeah down a tad.
heh heh heh - but it's the principle of the thing. .
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02-04-2009, 03:19 PM
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#14
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Thinks s/he gets paid by the post
Join Date: Sep 2006
Posts: 2,842
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Quote:
I'm currently working but anticipate retiring in 2 years or less. Should I try to get myself about 40% in stocks...or just be happy with where I am? I won't need to tap into that money for many (10+) years.
I know it's a personal decision...but I'm eager to know what YOU would do, if you were in similar circumstances.
Thanks.
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If I was in your shoes right now as you suggested I would increase my stock allocation by 1 percent per month. I would also be very comfortable partnering with major corporation to share in their results through dividends and valuing the holdings by the cash flow generated.
Coca Cola, Johnson and Johnson, Procter and Gamble, McDonalds would get me through the next 4 months. From there I would be adding slightly higher risk stocks like Chesapeake Energy, Energy Transfer Partners, Mesa Labs unless the outlook changed significantly for them. This is what I actually I have done over the last 14 months to bring my stock holdings from zero in Oct 2007 to 14 percent today. Will continue at one percent per month to twenty five percent stocks and evaluate overall stock market at that point.
__________________
But then what do I really know?
https://www.early-retirement.org/forums/f44/why-i-believe-we-are-about-to-embark-on-a-historic-bull-market-run-101268.html
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02-04-2009, 03:20 PM
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#15
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 9,067
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Quote:
Originally Posted by CuppaJoe
With 20% in MM, you could DCA up to that level. I would! But then I’ve always enjoyed the volatility of equities. If you take it slow getting in, maybe you’ll get a good sense of how you react to fluctuations. By the time you DCA 20% in, some of your CDs might be mature. Keep us posted.
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We are complete opposites. I've never enjoyed the volatility. I wish I was in this guy's shoes. I would stay put.
__________________
Retired 3/31/2007@52
Investing style: Full time wuss.
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02-04-2009, 03:24 PM
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#16
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Thinks s/he gets paid by the post
Join Date: Aug 2006
Posts: 2,433
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Quote:
Originally Posted by unclemick
Pssst Wellelsey. SEC yield 5.50%. That and a warn hand grenade gets you close to 5.7%.
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But a better after-tax yield than all CD's I'll bet.
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02-04-2009, 03:38 PM
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#17
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Recycles dryer sheets
Join Date: Jan 2009
Posts: 170
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Could this be a sign of a bottom?
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02-04-2009, 03:41 PM
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#18
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Recycles dryer sheets
Join Date: Jan 2009
Posts: 170
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Wellesley was down 13.3% last year and close to 5% this year. The 5.5% yield does not provide much comfort to me.
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02-04-2009, 04:09 PM
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#19
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2003
Location: Kansas City
Posts: 7,968
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Quote:
Originally Posted by Gpond
Wellesley was down 13.3% last year and close to 5% this year. The 5.5% yield does not provide much comfort to me.
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Yeah you rite! Waaaaay too boring - glad I bought Target Retirement 2015 instead.
Now there's a swinger.
heh heh heh - It's called Market fluctuation. After forty plus years since 1966 the ups are fun and the downs suck - but like the weather - it is what it is - and will be with us as long as there are equity capital markets.
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02-04-2009, 04:12 PM
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#20
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Thinks s/he gets paid by the post
Join Date: Jun 2006
Location: Central, Ohio, USA
Posts: 2,635
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Quote:
Originally Posted by ARB57
As evidenced by my CD-laden portfolio, I am a conservative investor. I am, and have been, 98% in cash for quite some time (long before the market went south.) That said, with market values at current levels, I'm trying to figure out if I should pull some money out of CD's (incur the early withdrawl penalties) to get some money in the market. My average CD return is 5.7%.
I could actually get about 20% of my portfolio in the market without tapping my CD's, as I have about 20% in money market funds. It's hard not to be content with safe 5.7% returns, but, I'm more than a bit tempted by the capital appreciation opportunities in the market.
I'm currently working but anticipate retiring in 2 years or less. Should I try to get myself about 40% in stocks...or just be happy with where I am? I won't need to tap into that money for many (10+) years.
I know it's a personal decision...but I'm eager to know what YOU would do, if you were in similar circumstances.
Thanks.
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So if you let the interest/dividends on the 5.7% CD's go back into the CD's each month you are, to the extent of the interest/dividends, purchasing another sum part of each CD at 5.7%. IMHO if this money in not needed to live on - 5.7% is fine. If you have any DEBT, on which you, are paying interest above 5.7% you should pay it down IMO. A lot depends on your expenses and how you can meet them through Pension/Retired Pay, and/or other sources. You say you are 2 years from retirement but either you did not state your age or I missed. Where are you in relation to SS benefits. Really, it all depends!
BTW, I am sure you realize, 10 years at 5.7% (as long as you can maintain that rate) will give you 57% of growth, and, if they are all in FDIC/NCUA insured financial institutions a SAFE return of principal.
BTW Welcome to the Board.
__________________
Vietnam Veteran, CW4 USA, Retired 1979
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