Move to safer investments

[rworell]

Wife and I in June had 1.1 million invested. Stocks now down from then $200k should we hold still and forget about it or place in safer investments to minimize bigger losses if left alone. We are early retired and don’t put into our investment as we used to. We full time RV on a very low income of 40k until We’re 60yrs old in 6 yrs.
We work part time and have 100k in savings we pull from to get us there.
Your thoughts?

 

[Helen]

You have 2.5 years in savings - well done. Plus you have income from w@rking. Let it ride. If you pull the money out, you will have to figure out when to put it back in; that's the hard part.

 

[frayne]

I'd sit tight and see how things shake out. If anything, safer investments may actually be losers to inflation. Just my two cents.

 

[38Chevy454]

Just ride the wave, both down and back up in future. Selling now just locks in your losses. You have the savings and job income to get through this rough spell. So stay invested as you are with no changes is my recommendation.

 

[levindb]

Actually, it appears that most equities are on sale this month. Rather than thinking about potential losses, now is the time to think about potential gains.

Your asset allocation (stocks/bonds/cash) gives you the ability to rebalance every so often. In times like this, your stocks have diminished, and bonds/cash have increase in percentage...therefore, to rebalance, you would sell bonds and buy stocks.

That ties in nicely with the "buy low, sell high" mantra. If you HAD TO SELL your equities, that would be a different story, but you have protected yourself with your cash...so let it protect you.

 

[MRG]

Sit tight. Like someone pointed out your sitting on 2.5 years of covered expenses. Relax and enjoy your life.

 

[VanWinkle]

S&P is down about 12.27 X 1,100,000= 134,970 down. If you're down 200K, you may be invested in something with more risk than the S&P. You might consider either a less risky set of funds/stocks in the future, or adding the dreaded Bonds to your mix. I would do neither now due to locking in losses.
If you're 1.1M equities and 100K cash, you are over 90% equities.

VW

 

[Lsbcal]

Wife and I in June had 1.1 million invested. Stocks now down from then $200k should we hold still and forget about it or place in safer investments to minimize bigger losses if left alone. We are early retired and don’t put into our investment as we used to. We full time RV on a very low income of 40k until We’re 60yrs old in 6 yrs.
We work part time and have 100k in savings we pull from to get us there.
Your thoughts?

First, put your losses in percentage terms of your networth. This will be a bit less of an emotional bad feeling. Putting these things in dollar terms is instructive but makes it more scary I think.

Second, I cannot tell you what you must do. That is because no one here knows what the hell will happen next. FWIW, I am not selling or buying equities.

Third, realize that some of the worst markets have been in recessions. In my opinion we don't have those conditions at present. Unemployment is near record lows, the yield curve is sloped positively, business is very good despite the war news.

 

[daylatedollarshort]

This forum is heavily geared towards mutual funds and a Boglehead approach - "this is the way". But if you have enough assets, don't need gains from stocks to fund your retirement, and don't want to have a strategy that involves gut punches and white knuckling it through, there are alternatives. For a different take, you might want to look at a matching strategy - https://www.bogleheads.org/wiki/Matching_strategy.

Bobcat2 on Bogleheads has many great posts. It is more of a won the game, time to stop playing strategy so not as much upside potential but also much less angst and less downside. Right now it is harder to implement the strategy because real interest rates are so low, but the Fed has said they will be raising rates and TIPS yields should be positive again before too long. It you can get even a zero real return rate on TIPS, then your safe withdrawal rate over 30 years is 3.33%.

 

[Animorph]

If you move to safer investments, are you going to stay put after that and permanently accept your current losses?

If you move to safer investments, will you want to buy back your current investments after the markets have recovered and permanently accept your current losses?

If you move to safer investments, what will you do if you lose another 10%? Sell again?

Ideally you would already be in your safer investments now, avoiding the past market drop and ready to buy more aggressive investments at the market bottom. Kind of already screwed up the timing of buying the safer investments. Will you be better at timing the market bottom? Are you willing to move a significant percentage of your investments based on your market timings? If not, even if the timing works out in your favor your total portfolio gain over a down/up cycle may only be a low single digit percentage.

You know you should buy low and sell high. Selling now is sort of the opposite. What I do is let it ride (my base allocation is 75/25 stocks/bonds plus roughly 1 year of expenses in cash) until the market is 20% down. At that point I change my AA to 80/20, adding to my equities (buying low). If the market continues down I again shift my AA by 5 percentage points for each 5% the market drops (from the original peak). At 40% down I'm all equities and thinking about how I can shift to more aggressive equities. If I run out of cash I sell just enough of my best performing (least down) equities on a monthly basis to meet expenses. That's where I was in the 2008 recession.

I'm a lot looser on the market recovery timing. Ideally I don't return my AA to normal until the market has fully recovered. But I usually hang on a little longer if the recovery looks like it will continue.

All of that, while not too hard, buys something like an extra 5% portfolio gain over just holding on to your base AA the whole -40% down and back to a full recovery. Not super significant in the long run, but it's something, and something to do. I can see where simply doing nothing has its appeal. For those who don't want to fuss with it, sticking to your normal AA and rebalancing if you can stomach it will work just fine.

Of course that all assumes that the market will behave something like it has in the past...

 

[FREE866]

Really depends on what your goals are. Assuming you're in good health you have a few decades time horizon so you definitely have time on your side.



People conflate "retiring" with having to get "safer" with their investments and that is a huge mistake if you want or need growth from your portfolio.

 

[Lsbcal]

...

You know you should buy low and sell high. Selling now is sort of the opposite. What I do is let it ride (my base allocation is 75/25 stocks/bonds plus roughly 1 year of expenses in cash) until the market is 20% down. At that point I change my AA to 80/20, adding to my equities (buying low). If the market continues down I again shift my AA by 5 percentage points for each 5% the market drops (from the original peak). At 40% down I'm all equities and thinking about how I can shift to more aggressive equities. If I run out of cash I sell just enough of my best performing (least down) equities on a monthly basis to meet expenses. That's where I was in the 2008 recession.

I'm a lot looser on the market recovery timing. Ideally I don't return my AA to normal until the market has fully recovered. But I usually hang on a little longer if the recovery looks like it will continue.

All of that, while not too hard, buys something like an extra 5% portfolio gain over just holding on to your base AA the whole -40% down and back to a full recovery. Not super significant in the long run, but it's something, and something to do. I can see where simply doing nothing has its appeal. For those who don't want to fuss with it, sticking to your normal AA and rebalancing if you can stomach it will work just fine.

Of course that all assumes that the market will behave something like it has in the past...

But what do you do if the market turns into a 1930's one? If you only need, say 2% from your portfolio, then probably you are OK. Even if your total net worth is cut in half when you have moved to 100% equities. Or if you have a pension then that is a very different picture indeed.

I would find this emotionally a tough go. I'd rather have 30% in fixed income and then if my 70% stock portfolio is cut in half I would be at about 50/50 with plenty to support our current withdrawal rate percentage.

 

[gcgang]

Wait until the market drops more, your losses get bigger, and you are an emotional wreck, then sell. And let us know when that happens so we can add to equities.

 

[rworell]

Really depends on what your goals are. Assuming you're in good health you have a few decades time horizon so you definitely have time on your side.



People conflate "retiring" with having to get "safer" with their investments and that is a huge mistake if you want or need growth from your portfolio.

Great point! I’m 54yrs young, healthy, so I expect a long life. Thank you

 

[steelyman]

I think patience is a virtue if you can manage it. I’m not scheduled to make any withdrawals from my retirement portfolio until December (once a year). I’ll watch but not act.

 

[rworell]

Sit tight. Like someone pointed out your sitting on 2.5 years of covered expenses. Relax and enjoy your life.

Very good advice

 

[Ballhawker]

Thank you for posting this. Threads like this always remind me to be patient, to truly be an investor, not a trader. I retired at the market peak on 12/31/2022. Now I'm looking at my portfolio thinking, crap, what should I do? After reading through this thread I know exactly what to do, which is anything but looking at stock charts! Like Bogle said: "Don't do something, stand there!"

 

[GravitySucks]

I had the same 90/10 AA when I retired at 54. About the same size nest egg adjusting for inflation too. Moved to 80/20 on the Fido Advisors advice but when a correction rolled in I found that was not the right AA for me.
I waited it out and when the equities returned to their previous high I sold some equities and changed my AA to something that let me sleep well.
It's not easy waiting it out, but remember most corrections resolve in less than 6 months. You might rethink your risk tolerance and adjust your AA when the time is right.

 

[freedomatlast]

Don't even check your equity balances. Ride it out. You'll be glad you did in the long run.

 

[Midpack]

You would have been better off NOT selling when the '87, '00 and '09 downturns pummeled the market. It's a fools errand to think you can accurately time when to re-enter the market, most people miss most of the gains on the way up when they've sold off. Why do you believe "this time is different?" Patience has been rewarded time and time again...

There are millions of people who say they lost big time in the '08-'09 crash - they're the one who sold out of equities. There are millions of people who stayed the course and have done VERY well.

 

[Which Roger]

Your reaction to the drop is stock prices is telling you that your risk tolerance isn't as high as you thought it was. Going forward, adjust your asset allocation so you can ride out the downs and ups.

 

[cnocmmz]

First, put your losses in percentage terms of your networth. This will be a bit less of an emotional bad feeling. Putting these things in dollar terms is instructive but makes it more scary I think.

Second, I cannot tell you what you must do. That is because no one here knows what the hell will happen next. FWIW, I am not selling or buying equities.

Third, realize that some of the worst markets have been in recessions. In my opinion we don't have those conditions at present. Unemployment is near record lows, the yield curve is sloped positively, business is very good despite the war news.

At the end of every recession in our history the US stock market has come back stronger than previous. I say ride it out!

 

[The HalfBreed]

I agree with the above poster. Adjust your risk tolerance if needed.
If you Sell now, you lock in your losses, IMHO

 

[Iusta]

Absolutely stay put and do not sell. In the last hundred years of market history The average market downturn took 6 months to recover back to where it started before the recession. Do not sell and do not go to less risky assets. Stay the course. If you sell you lock in a loss. Don’t buy high and sell low. Do the opposite…next time the market is on fire….like 6 months from now, then you can think about going to less risky assets and reevaluate your risk appetite.

 

[foxfirev5]

FWIW. If this little bit of volatility made you nervous maybe you're in over your head with equities. However if you sell you may pay a higher price down the road. There is no such thing as a risk free investment.