Would you still invest if you didnt have to?

[eta2020]

I truthfully just don't trust the stock market in any way right now and I think everything is being manipulated.

What Cash pays (and value of cash) is manipulated significantly more then returns of equities.

Fed and World central banks pretty much decide such things And don't expect from then any help in next 10 years. By then your pile of cash will shrink by 20-30 percent courtesy of inflation.

Those guys will first worry about companies which employ people and only after that they will care about Grandpas CD rate.

 

[jabbahop]

Since you are talking about a CD ladder vs purely cash, you should be able to keep up with most inflation. The one risk I would worry about is that if some expenses (medical) are going up much more rapidly than CPI (and therefore CD rates) and you are a bigger consumer of that item.

I guess I would play around with some scenarios of negative real rates and see how much of a buffer you have. You have worked hard to get to retirement, if it helps you enjoy retirement, I say go for it with eyes open.


Sent from my iPad using Tapatalk

 

[jollystomper]

I would invest but just at a lower percentage. In fact, over the many years I moved from close to 90% equities to currently around 43%. Once I retire I may reduce that to around 35%. Given a current high salary and low expenses it is easy to cover losses losses through savings, so investment losses are not a great impact, but that will change after I retire.

I understand the market ups and downs, have invested through the 87 crash, early 90s recession, early 2000s bubble, and 2008 meltdown, so I'm used to it. I just look at "how much am I willing to lose and still be comfortable, and it is work the risk?" to determine my investment level. I'll certainly lower it over time but will always willing to take a risk and have some percentage invested.

 

[Dawg52]

We invest using more or less a liability matching strategy and do not have much in stocks:

https://www.bogleheads.org/wiki/Matching_strategy

For us actually in hindsight I would not have invested in stocks much if at all. I don't like the ups and downs. Well, the ups are okay. We made enough from our human capital and our run rate is low enough that I don't think we ever really needed to invest in stocks in order to be FI.

Bill Bernstein calls it the if you've won the game stop playing approach:
Bernstein Says Stop When You Win The Game | The White Coat Investor - Investing And Personal Finance Information For Physicians, Dentists, Residents, Students, And Other Highly-Educated Busy Professionals

I'm in Bernstein's camp. I did invest in stocks when I was young, somewhere around 80/20 up into my early 40's. Then gradually cut back as I reached retirement. I'm more like 20/80 now. I could invest more in stocks and still have enough in 'safe' stuff to take me to the house, but my current allocation is my sweet spot for sleeping well.

 

[traineeinvestor]

With a 40-50 year time horizon and inflation currently running around 3% officially* (and many of our personal expenses increasing at a higher rate), putting my assets in cash or short term debt instruments yielding less than the rate of inflation is deliberately choosing to lose money. I would need one humungous nest egg to accept this kind of investment proposition.

Over the longer term, I sleep much easier with exposed to market risk associated with equities and real estate.


* inflation is a bit higher out here in HK than in the US and inflation linked securities are not readily available.

 

[Car-Guy]

This question seems to come up from time to time in one way or another by a brave individual willing to ask.

Did a quick search.

Check out this link.

http://www.early-retirement.org/forums/f28/how-much-is-enough-for-game-over-won-79914.html

 

[Htown Harry]

First of all investing in a CD ladder is investing,

+1. I think a laddered portfolio of CD's would be accurately characterized as a high-quality, fixed-rate bond portfolio with maturity dates ranging from zero (true cash) to 10 years.

Here's an article that the OP might find interesting, using 100% TIPS:
Higher Safe Withdrawal Rates from a 100% Bond Portfolio? | Investing For A Living

Taxes would be a non-trivial issue with the TIPS approach. I understand an annual tax is due on any appreciation of the principal value.

 

[hesperus]

I don't like lazy money, and cash is lazy money.

 

[euro]

Inflation is the killer. If you can find a way to hedge inflation such as purchasing cost of living adjusted annuities, your plan will definitely work.

I agree- COLAed annuities! It's not what I'd do personally (for many of the reasons already mentioned), but it will achieve the OPs objectives. Well worth it if that's what lets them sleep best at night!

 

[Totoro]

Would you still invest if you didn't have to? If so, why?

Yes. But I would approach from a different angle: making the future happen by doing angel investment or capital allocation to improve society. Or charitable giving.

So the fundamental question is "why invest if you don't have to?" I just love the idea of pulling out cash every year to live comfortably and never having to look at the market again

You can invest and not look at the market. In fact, you'll probably do better than most that way. If you have plenty of buffer that'll work.

I don't get why you would lose sleep with equities, and not with CDs. The main enemy you are dealing with in your context is inflation. CDs don't give you that protection, especially if you are only invested in one currency.

TIPS may do so, equities too, REITs, ..

 

[Totoro]

I agree- COLAed annuities! It's not what I'd do personally (for many of the reasons already mentioned), but it will achieve the OPs objectives. Well worth it if that's what lets them sleep best at night!

I wouldn't do that at all in this situation.

Instead of losing sleep over the stock market or inflation you should now lose sleep over counterparty risk.

Not to mention bad deals you'll get at a young age, with high overhead costs.

 

[MichaelB]

History has not been especially kind to those that put all their eggs into one basket, especially when that basket is fixed income. The same holds true for poker players. The best way to reduce risk in a portfolio is not by increasing fixed income or indexing, it is through diversification.

 

[calmloki]

....

If you do have many millions then invest in VTI and you can live off the dividends and pay no FED income tax, and does not matter if stocks go up or down.
Example: 4 million * 2.08 Div yield = $83,200 tax free per year (actually will increase each year on avg.)

Really? We have rental and interest income that gets taxed, but are you saying dividends aren't taxed if you have no other income?

 

[dunkelblau]

I have worked very hard to accumulate a large amount of cash and I do not want to subject it to manipulation and significant loss which I think is a significant possibility...why do it when you don't have to?

So, that is the reason for my post - just came from utter frustration. I even think the conservative 50/50 portfolio is going to be in for a significant surprise by the combination of rising interest rates and stock market manipulation...but that's just me...maybe I just need a really good correction so I can have a better buy in price lol...

Keeping the powder dry for the time being and sleeping pretty good at night...

But thanks to all for the insight. I really need to digest and think about the comments because a lot of very good advice. Really appreciate it.

I'm in a similar situation with annual WR<0.5% and unlike many here I have no issues with gradual depletion, so if inflation stays flat, it should last the next three decades even at today's CD rates. But I still invest mostly in small cap stocks, and I continue to work full time. For me life would be boring without the stimulus from watching the market action in between the proverbial fighting fires on the work front. I guess I'm a shopaholic but not into stuff or experiences, I like to buy shares. It's a kind of virtual garden but where all the work is in the selection. My biggest shortfall is in harvest timing...

I wonder whether the utter frustration you mentioned suggests that you don't actually intend to stay out of the stock market for the rest of your life? And your use of the term "dry powder" sounds like you really want in, but at a lower price than today? Would a repeat of the 2008/2009 correction make the stock market more trustworthy at the bottom? If what I'm suggesting is involved, then you're committing one of the cardinal sins on this board -- namely 'market timing' and doing this in a binary manner (as opposed to fractionally via 'asset allocation') will likely make your returns an outlier, for better or worse. Most retirees don't care about top returns but are strongly averse to hitting bottom-- so they tilt towards the middle. An undiversified all cash portfolio implies a lot of faith in greenbacks.

As far as trust goes, my own experience in rising living expenses over time doesn't match the headline inflation numbers-- and it's definitely not lifestyle creep. I'm not claiming manipulation, just that my basket is probably different than most, or whatever. If we ignore historical views, how can we be sure we have enough going forward to walk away from investment returns? Or our W2 wages for that matter? Having CDs as sole breadwinner sounds less secure to me.

 

[euro]

I wouldn't do that at all in this situation.

Instead of losing sleep over the stock market or inflation you should now lose sleep over counterparty risk.

Not to mention bad deals you'll get at a young age, with high overhead costs.

True, but you can mitigate that risk by using several providers.
If you truly have enough cash and you don't worry about leaving anything to your heirs, then it won't matter if you get a "bad deal" - s long as that deal guarantees to cover your needs.

 

[Closet_Gamer]

FIRE'd a few months ago. Ran a lot of numbers...

I believe I have enough cash today to live very comfortably for the rest of my life without ever having to invest a dime in the market or bonds. Simply do a CD ladder and forget about the market and all the headaches/risk it especially today with possible negative interest rates, massive debt, high PEs, etc.

I don't have any heirs or a need to leave anything when I am gone so I am free of that...

So the fundamental question is "why invest if you don't have to?" I just love the idea of pulling out cash every year to live comfortably and never having to look at the market again - plus paying very little to no taxes for the rest of my life is pretty appealing after how much I have paid in the past...

I know it's radical, but I'm very curious to see if any of you have done the same thing and just lived off your cash without investing in the market....

I very much realize I am leaving a ton of cash on the table by not investing, and I could be using that extra investment cash for even a better retirement (more travel, things I want to do in retirement, new cars etc.,) but honestly, the peace of mind of not having to worry about the market more then makes up for what I could have...or am I looking at this wrong? Friends of mine who I talked to about this always bring up the unseen risk (medical costs skyrocket, I live to 100 and run out of money and have to eat dog food, inflation runs rampant etc.) but I honestly feel the market(s) are even more risky then that...

Would you still invest if you didn't have to? If so, why?

Thoughts?

All cash? No.

All TIPS? Perhaps.

More likely: a very conservative portfolio that covered my basic needs with a smaller fraction in a moderate portfolio that provided flexibility and a level of inflation protection.

 

[Hermit]

I'm sure the banking industry will be happy to take your money, invest it in the market and give you a paltry, but steady, portion back. The banking industry is so tightly tied to the stock market, that if a bank is going to go belly up, it usually happens when the stock market crashes so I don't see how you are lowering your risk all that much. As has been said, the only way I sleep good is a balanced portfolio, In your case, a small percentage in stocks and a small percentage in bonds would be appropriate.

 

[papadad111]

Really? We have rental and interest income that gets taxed, but are you saying dividends aren't taxed if you have no other income?

Appears to be that way !! Just plugged 85K into tax caster with no other income and it's showing as zero tax. Perhaps it's because you are in the 0% bracket of "earned" income.

 

[daylatedollarshort]

I have run our numbers on all short term investments and whatever is one up from that setting in the retirement calculators and both results showed we would be more than fine. Plus I have my own spreadsheets based on TIPS ladders or equivalent real interest rates. For us, whether we have stocks or bonds doesn't matter for taxes on the RMDs for our retirement accounts.

It was kind of interesting because the FA who did our first plan kept telling us we needed stocks for growth. But his own planner showed we didn't, so it was kind of a weird planning session. We were also told about the needing 80% of gross, but we'd already looked at the Consumer Expenditure Survey and knew most retiree households weren't spending 80% of one of our pre-retirement salaries, let alone two, so we weren't really buying that either.

We're okay with a 0 - 1% real return from our portfolio and no worries over sequence of returns risk in our old age. I learned a lot about my personal risk tolerance after reading Against the Gods and the law of diminishing marginal utility.

On a proverbial million dollars for retirement divided by 40 years, even at a zero real return one could have a safe withdrawal rate of $25K / 2.5%. A TIPS ladder currently would have a higher real yield than zero, so depending on your blended TIPS yields a $1M portfolio could have a SWR of maybe 3% or so with a TIPS ladder or equivalent real yields.

 

[rodi]

I distrust all investments equally - including cash.

Cash - in CD's... if spread among institutions... is backed by the fed gov't in the form of FDIC insurance. So you still have some risk - but the gov't backs it.

Why not have some TIPS bonds - also backed by the gov't but guaranteed to go up commensurate with inflation.

And I'd want at least some stocks. If you're super conservative (which it sounds like you are) - stick to large cap dividend paying stocks... 20-30% minimum.

Annuities - they're insurance... consider a SPIA with a COLA rider... for a portion of your investments... You have enough money to set an income floor with a fixed income annuity.

Spread it around - diversify.

 

[kcowan]

I have a good friend who is in the same boat. His wife died two years ago and they have no children, no nieces and nephews. He has an infrequent relationship with a woman who is also wealthy and lives 100 miles away. I have talked to him about charities and university endowments but he has no interest.

(Me I have 2 kids, 5 grandkids and several charities so I will maintain my blue chip dividend-paying portfolio at 50% mix.)

But I think you should decide what is right for you.

 

[Which Roger]

If you have a big enough nest egg that an all-cash portfolio can last 30+ years, then I would say that your asset allocation doesn't really matter. An all-cash portfolio can only survive that long with a very low withdrawal rate, but in that case an all-stock portfolio, or anything in between, would also survive.

 

[eta2020]

I'm sure the banking industry will be happy to take your money, invest it in the market and give you a paltry, but steady, portion back. The banking industry is so tightly tied to the stock market, that if a bank is going to go belly up, it usually happens when the stock market crashes so I don't see how you are lowering your risk all that much. As has been said, the only way I sleep good is a balanced portfolio, In your case, a small percentage in stocks and a small percentage in bonds would be appropriate.

They are regulated. Although these regulations don't forbid banks from investing in stock, they do limit how much banks can invest.

But they will be very happy to pay you around 2% 5 Year CD rate and lend money to Home buyers at 4-5%.

And should something go wrong Fed will save them plus save stock market.

 

[audreyh1]

Really? We have rental and interest income that gets taxed, but are you saying dividends aren't taxed if you have no other income?

Qualified dividends have the same tax treatment as long term capital gains, 0% tax up to the top of the 15% tax bracket. You only start to pay taxes on them once your total income exceeds the top of the 15% tax bracket. The portion of it that exceeds.

 

[eta2020]

To me financial situation where one has enough and does not have to to look at where is market again is:

Enough equities so that dividend yield is all one needs plus 3 years of dividends in cash.