For the first time ever I sold all my stocks

[jerryo]

My DW and I are also trying to figure out what to do about investments in these uncertain times! We're both semi-retired, 70/early 60s, and more than meet our basic expenses (and some indulgences) through indexed pensions and social security. At a 4% withdrawal rate, our savings (and occasional consulting) would yield nearly as much again.

Given our pension/social security income, we've kept our investments (mostly in IRAs & 401ks) fairly aggressive...about 65% equities, 20% bonds and 15% cash (with enough cash for about 2-3 years of expenses). Our only unusual risk factor is that about half of our pension/annuity income comes from international sources and, while these are fairly secure (think InterAmerican Development Bank), we might not have much recourse in a pinch.....

I'm thinking though, that with in the present circumstances, now might be a good time to "cut bait" and rebalance to no more than 30-40% equities. Not sure, though whther that makes sense or what to do vis a vis bond funds versus cash. Any advice?

 

[Fermion]

I also don't want to own oil and gas, retail, commercial real estate, restaurants, leisure and entertainment, travel, airlines etc...

Technology and biotech are the way to go.

 

[misanman]

Everyone has to make decisions they can be comfortable with, but we are sticking with our strategy. We have a 10 year bond fund ladder for emergencies and/or LTC and we'll keep rolling it over unless we need it. Ten years will take us to age 84 so feel pretty good about that.

A friend got really concerned a few weeks ago when the market was plummeting and sold out of everything. Now that market has been up some FOMO has taken over and he is buying back in. I hope it works out for him but it doesn't seem like a reasonable strategy to me.

 

[clobber]

I believe the key to being successful (at least) in the muni bond market is to own the individual bonds, and not the bond funds. When you own the bonds, everything is set the day you purchase. With the fund, you have no guarantee or control of anything. It does require work to do the research and many folks are not up to the task. However, if you are looking to excel in fixed income, where you view it as a losing proposition at this time, it's not going to happen by being "passive" about it.

I'm hoping you (and others) will dive into my new thread Focused Bond, Bond Mutual Fund, And Bond ETF Questions

 

[Fermion]

My brother called me a couple days after the market had really crashed and said he had cashed out his 401K before it was all gone in a collapse. He cashed it out when it was down some 30% or so and he totally missed this recovery.

I just sort of listened, but was sighing internally.

 

[COcheesehead]

I'm hoping you (and others) will dive into my new thread Focused Bond, Bond Mutual Fund, And Bond ETF Questions

NJHowie is a good one to listen to for bond advice.

 

[pacergal]

harllee--
Good for you to do what is best for you and your plan.

 

[calmloki]

I'm slow and tend to just do what I've been doing. Rental real estate has worked out for us for 35 years, so we still deal with the tenants. Have a number of vacancies and our rental income is down about 25% this month - compared to businesses that are totally shut down we feel very fortunate. Savings account interest keeps falling, but at least we have money in the bank. Had a big loan pay off and we are about to lend about half of it to fund a young couple buying and fixing a foreclosure home. High risk, but we feel good about the people. Between 2-25 and 3-16 we bumped our stock holdings up by about 21%. Those shares are up, but overall we are still substantially down from our February high plus that infusion - have more shares though! Much to be said for having no debt, a limited time left on earth, modest needs and enough to be secure.

 

[Sunset]

From Forbes (https://www.forbes.com/sites/janetn...mer-retirements/?ss=retirement#4abf93ad3474):

"3. Panic Will Doom Some Boomers’ Wealth

"The current market dive is scary, for sure. The stomach churning volatility that’s typical of a bear market has been so severe this time that the drops have triggered multiple automatic trading halts. Eventually, the bear market will end, but not all Boomers will be there to ride the recovery. During the 2008 market crash, about 5% of those 55 or older dumped all the stock in their 401(k)s and then missed the 2009 rebound, a 2011 study of 425,000 workers’ 401(ks) showed.

"The problem with 'going to cash' in a crash is that you lock in your losses. Maybe your plan is to jump right back in after the market bottoms? Good luck with that. When markets do turn back up, they do so quickly. As financial planner Kristin McKenna explains here, six of the 10 best daily gains in the S&P 500 between January 2000 and December 2019 occurred within two weeks of the worst 10 days. Had you missed all of those 10 best days, your average annualized total return on the S&P 500 for those two decades would have been 2.44% compared to 6.06% had you stayed fully invested and ridden the roller coaster down and back up."

Selling when the market was down 30% or so is probably bad most times. Although certainly during the Great Depression it would have been good to do before it finished down 95%.
Of course getting back in is vastly important.

All that theory aside, right now the market is down depending on where you look about 15% from it's record high. Back when it was a record high I really didn't want to buy anything as it was overpriced.

Now, the pricing at 15% off the record high looks more normal and healthy, if life were normal for the next year or two.

My feeling is, that it's OK to sell some stock now as the price is too high for the type of life we will experience for the next year or two.
Folks that discount the pandemic effect would probably consider the market fairly priced now.
Still a fine time to sell.

 

[harllee]

OP here-- regarding the suggestion of municipal bonds--a big chunk of my cash is in an IRA--munis would not be appropriate in an IRA would it?

Regarding the statement someone made that I locked in my losses--as of last Friday I did not have any losses in my equity holdings --they were almost to their all time high--that is why decided now was a good time to sell. I think what I did was lock in my gains.

 

[Willers]

To get back to your original question, I significantly increased FI holdings at the end of last year 50% to 70% and I've been using:
- CD's (2-5 year), in the 2-3% range
- savings accounts at ~1.5%
- intermediate bond funds.

Up until 2-3 years ago I mainly used individual bonds for many of the reasons mentioned above and did quite well, but DW told me that she wanted nothing to do with a complex portfolio if I die so I moved out of them and into funds. If that is not an issue I think there can be some real bargains in individual bonds at the right times. Pricing, as mentioned, can get screwy.

PS - If you made the right choice for you and have enough without being in stocks, ignore all of the naysayers and enjoy sleeping well!

 

[njhowie]

OP here-- regarding the suggestion of municipal bonds--a big chunk of my cash is in an IRA--munis would not be appropriate in an IRA would it?

1. Plenty of taxable munis available. My IRA has about 40% of portfolio value in taxable munis.

2. Last month, during the big selloff, I did actually pick up a couple of high quality tax free munis in my IRA because they were yielding better than taxable equivalents at that moment.

 

[PatrickA5]

Regarding the statement someone made that I locked in my losses--as of last Friday I did not have any losses in my equity holdings --they were almost to their all time high--that is why decided now was a good time to sell. I think what I did was lock in my gains.

Exactly. For some reason, people can't seem to comprehend the notion of locking in gains. I may have sold my equities when it was down 9% YTD, but I actually locked in gains - some of which were several hundred percent. In order to lock in a loss you would have had to sell for less than you paid. The only true loss I would have had would have been my early January IRA contribution.

 

[brewer12345]

1. Plenty of taxable munis available. My IRA has about 40% of portfolio value in taxable munis.

2. Last month, during the big selloff, I did actually pick up a couple of high quality tax free munis in my IRA because they were yielding better than taxable equivalents at that moment.

I also have tax free munis in an IRA simply because they had attractive risk adjusted returns even ignoring the tax shelter.

 

[LOL!]

I for one would like to encourage anybody that has gone to either extreme (0% equities or 100% equities) with their portfolios to report in because it really helps me to "read" some of the psychology of market participants. Thanks!

 

[Lsbcal]

Not moving, as this took 3 pages to mention C.

Changing one's mind in the face of epic challenges doesn't imply never having a plan, and having weathered many storms in the past OP is far from the only one going "this is different" and making a decision about maybe taking some chips off the table.

I've also made some changes recently, but clearly sharing them here brings out some very odd judgmental responses, from folks that have zero stake in my decisions.
...

+1

It's a market and that means there will be bulls and bears. I dislike arguments but that should be expected in forums I guess. I hope others will avoid the snarky comments.

My thoughts:
If you are later in life and have done well in the last 10 years, so what if you sit out some possible gains over the next year.

I doubt whether inflation will hit over the next year. So hiding out in short term Treasuries or MM funds is a very low risk approach.

I notice that Vanguard Value Fund (large caps) is yielding about 3% now. At some point leadership is likely to change from large cap growth. Perhaps after this recession plays out?

 

[audreyh1]

I’m also not comfortable with how the US stock market has been aggressively protected and seems stuck in high CAPE10 land, although it might still see another downdraft this year in spite of all the propping up.

But my reaction is that I don’t need access to half my portfolio for the next 10 years or so, so I’m comfortable letting it ride. 60 and 64. We have a huge cushion. Knock on wood!

 

[TheHobbit]

I did the best I could, I used this S&P 500 chart.
https://www.macrotrends.net/2324/sp-500-historical-chart-data

Maybe someone with better google and graphics skills can do better.

That looks about right, and it doesn't look like a useful metrics to my eyes. Schiller has been hocking his dooms day predictions based on this stat for years, even back in 2011-2012 -- about the best time you could imagine timing the market -- he was saying the market is overvalued and due for correction.

The problem is he can only say it's overvalued vs the historical average, this metric provides no context. What are interest rates? Is there an industrial shift or revolution afoot? (industrial, microprocessor, internet, green, electric car, self driving etc.) What is the political climate? What is the rate of earnings growth? What is current tax policy environment for corporations? What are the alternatives available to investors?

There are just way too many factors that go into valuations for this to be useful.

 

[OldShooter]

... I have always held the position that equities are not suitable for retirees. ...

I have always held the position that telling someone else how to behave is almost certainly doomed to failure and almost certainly arrogant besides.

FWIW at 72YO we were 75/25 before the excitement and are probably 65/35 now. (I haven't bothered to check.) With that AA and our financial situation, continuance of our current lifestyle is at near-zero risk. We sleep well.

Nobody knows nuthin' about the future. The OP may regret h[-]is[/-]er decision sometime in the future or she may not. Regardless, it is h[-]is[/-]er decision and she appears to be fine with it.

 

[harllee]

OP here--by the way I am a "she" not a "he" but I guess it does not matter. Back on the issue of municipal bonds in my IRA--I don't have much experience with municipal bonds. One concern I have is that some cities may have to file bankruptcy--how do you tell which munis are safest?

 

[kevink]

Thanks for sharing your decision and the process behind it harlee. I'm a little younger but have had the same thoughts. Unfortunately our nest egg is too small and our time horizon too long (we hope/think!) to abandon stocks altogether but we're keeping our exposure modest.

I read a lot about the bond market and IMHO munis and corporates are well worth avoiding entirely. We're early on in this pandemic, whole industries are in the process of being wiped out, tax revenues for municipalities and states are falling off a cliff, unemployment (already at Great Depression levels) is very likely to get worse before it gets better.

Personally I stick to Treasuries - mostly intermediate but with 20% in short-term Treasuries and a goodly slug of 6 and 12 month NCUA-insured CDs paying 1-1.20% at our local credit union.

Not that it'd be of any interest to you necessarily but there are a few defensive "won the game" allocations that aren't 100% cash. My 82 year old MIL is in a version of the Larry Swedroe Portfolio (30% stocks, the rest intermediate Treasuries and a Treasury MM fund) but she's got enough income from SS and pensions plus a paid-for house and LTC insurance so her investments are half for "just in case" needs and half for legacy. As others have said in this thread everyone's situation is unique and that's why blanket rules about % in bonds, market timing and so on aren't helpful.

More on the Larry Porfolio and the others that have proven most robust during recessions here:

https://portfoliocharts.com/2019/08/20/the-top-4-portfolios-to-recession-proof-your-investments/

 

[njhowie]

OP here--by the way I am a "she" not a "he" but I guess it does not matter. Back on the issue of municipal bonds in my IRA--I don't have much experience with municipal bonds. One concern I have is that some cities may have to file bankruptcy--how do you tell which munis are safest?

First, it's good to read this report from Moody's. They update it every few years, but the thrust is primarily that defaults in the muni space are extremely rare. Stick to investment grade, and you would be hard pressed to be able to pick one that will default. Carefully review Exhibit 23 on Page 23:

https://www.atlasca.com/wp-content/uploads/2019/02/Moodys-default-study-1970-2017.pdf

So, the first reference point is going to be the Moody's/S&P ratings. If you are looking at AAA rated bonds, it's highly improbable that the municipality would be filing for bankruptcy protection. By the same reasoning, without doing any further research, you're going to want to stay away from anything near or below the cutoff for investment grade (Baa3/BBB-). Moody's, S&P, and Fitch have been fairly aggressive in lowering municipal bond ratings over the past few weeks.

Next, you're going to want to understand exactly what is funding/backing that municipal bond? Is it a General Obligation bond backed by full faith and credit of the municipality, with unlimited ad-valorem tax authorization? Is it a moral obligation bond that depends on annual appropriation, which is not necessary required? Is it a revenue bond which has absolutely nothing to do with the tax authority (e.g. a water system revenue bond, where covenants require setting rates to provide a mandated debt coverage ratio)? Is the municipal bond issue insured? Are reserve funds required? Is there some other entity on the hook to step in and provide funding should the municipality default? Many possible parameters come in to play here, and so you need to be very aware of the terms of the bonds you are considering. All of these details are addressed in the official statements, which are available at https://emma.msrb.org

Now, beyond all of that, if you're going to make a more educated determination of potential for bankruptcy, you're going to need to get your hands dirty and dig in to the annual audited financials, which are also available on https://emma.msrb.org . As when you analyze a company for possibly investing in the stock, you're going to want to review the balance sheets and net position, focusing on the debt coverage ratio. Then, over to the income statements - are revenues and profit increasing (rising net position) over time, or is the municipality and local economy on the decline? One point on the financials - generally, they file them a year after the books are closed on their fiscal year. Very different from public corporations which generally file within 4 to 6 weeks after the end of quarter. So, when you review the financial statements, you will have to go to other sources to extrapolate the economic conditions which followed end of the most recent prior fiscal year filed. This may entail going to the municipality's website, googling, and reviewing news.

In general, although there is renewed discussion of the potential for municipalities to file for bankruptcy protection en masse, the likelihood is actually quite low. If the municipality already had a borderline investment grade rating, maybe it's possible. However, even in that case, it's doubtful that it would happen any time near-term. There would first be downgrades and other red flags. Also, understand, like the federal government, most municipalities are in a position where they can borrow additional funds. The Federal Reserve has indicated they will also be buying municipal bonds directly from issuers to provide liquidity. Further, interest rates are still near all-time lows - it is still a very good environment for borrowing at low rates, and calling higher rate municipal bonds which are outstanding.

The municipal bond market goes through these gyrations and questions every so often, and it's always proven to be resilient and concerns blown way out of proportion. Again, refer to the Moody's report from 1970 through 2016 - there's been quite a few economic cycles during that period.

 

[youbet]

OP here, wow I did not mean to start a war. I just thought it was worth mentioning that someone who was an investor for 40 years was getting out of the market.

Like "when to take SS" and "pay off the mortgage or not," "should I get completely out of equities?" is a question we'll arm wrestle over with no completely right or wrong answer for anyone. The important thing I attached to your post/announcement (although you did not explicitly say) was that this was a decision that applies to you and not necessarily to others even if their situation seems outwardly similar.

My situation is different than most--I feel I have won the game. DH gets SS and a pension and I get half his SS and we can live on that (especially now that we are spending little money). At age 70 (in 1.5 years) I will receive $3,000 a month in SS so we will be in the lap of luxury.

My situation is similar, we've already won the game, at least if we continue our humble lifestyle. But, I look at that fact as a reason why we can take the risk of continuing to have significant (for us, we're 72) equity exposure. It's just points of view.

We are not big spenders and have no debt and no one depending on an inheritance from us.

We're not big spenders either, for sure. But we would like to leave our son and his family a meaningful inheritance. They're definitely not depending on it. But due to some health issues with one of the grand kids, I'm thinking ER will be tough for them to achieve. So, we'd really enjoy helping with that. I look at our equity allocation as something for them meant to be a big help in achieving FIRE in 15 years or so.

So, everyone's story is different. I don't see any problem at all with your decision. Nor do I see any problem with mine. This even though our situations might look similar from the outside.

I think people disagreeing with your actions are really saying that they disagree that is what they should do. They don't know what is the best direction for you. But they're not wrong for doing something different for themselves than what you are doing for yourself.

 

[Brat]

All our investment $ is in IRAs. I bailed all but a small Wellington investment in a Roth before the market tanked so preserved almost all of our capital. I have been dribbling in large-cap growth, CUG since then, two tech ETFs and a health care ETF which hold equities I like. I also purchased some Kimberly Clarke and Verizon which have been languishing. The health care ETF is similarly languishing. Our only fixed income investment is FUAMX, an intermediate treasury fund that has been profitable.

DH's and I are 83 and 79. As I look at our assets allocation I think large-cap growth belongs in our Roths.

Because there are no RMDs this year I moved some of my husband's IRA $ to his Roth up to our tax rate sweet spot. As others have mentioned tax rates are likely to go up in a couple years.

Our core accounts are earning nothing. FGOVX is performing similarly to FUAMX so may buy some of that. I love health care firms but they are rarely really profitable so I may sell that as well as Kimberly Clark and Verison. When 'winners' languish in the market in recent weeks 'optimism' it is time to get real.

Looking at an asset allocation that is large-cap growth, technology, and gov fixed income.

 

[Rianne]

We're not touching our VG portfolio for at least 5 years. We'll stay the course, keep the 50/45/5 and rely on outside I bonds and cash, then CD in 2023. By that time pension will kick in. SS will be when we reach 70. I'm grateful we have a few baskets to fall back on. I do believe there could be restructuring of the stock market system.