What investments do most of you have in ER?

[ESRwannabe]

Disclaimer: I'm still working (I'm 40).

I have moved most of my taxable investments into CEFs. All of the CEFs I own are either a mixture of equity and fixed income, or strictly fixed income. In total equity is only 33%. On the fixed income side I have just about everything (munis, junk, agency, foreign, emerging market, corporate, preferred, convertibles, treasuries, bank loans, etc.). On the equity side, most of it is focused on the utility sector.

Right now I am working on maxing out an investment grade muni CEF. A full position for me is $50k total invested into it. That will take me another two or three months to finish up (around $41k into it right now). After that I'll have to look into around and see what's on sale.

401k is in Vanguard Total Bond Index
Roth IRA is in Vanguard junk bond fund.

Pension = 16 years vested and counting.

 

[pb4uski]

.....I should also note that she chewed through about $10k due to a hospital stay almost a year ago too - which was after the insurance paid. If she has one or two of those, she'll be dangerously close to $0.
I'd actually consider a decent Vanguard fund (like VFINX) that could kickoff more money than the sub 1% stuff she's getting now.

The deductible risk can be mitigated through a Medigap policy. My great aunt did not have did not have one when I first took over her finances... after a hospital stay that cost her about $3k and at the next open enrollment period we bought a Medigap policy that cost ~$250/month. IIRC she didn't pay anything for medical events after that... though she did pay a small amount for her prescription drugs that Part D didn't pay. So check to see that she has a Part D prescription drugs policy and a Medigap policy and that risk will be mitigated.

I helped BIL's mom a few years ago. She had a variable annuity that she wanted out of and lived paycheck to paycheck on SS. We surrendered the VA over two years so she could spread out the income to avoid paying taxes on the VA gain, and she put it in Wellesley. She has a monthly automatic redemption of about 10% of her SS which made her daily financial situation much more comfortable and meanwhile the balance is growing as a legacy to her children. She and her heirs are very happy with the situation.

You could do something like that absent the automatic redemption since she doesn't need the money... or if you want to be more conservative perhaps 40% Wellesley and 60% in CDs. Also, keep in mind that many times with CDs it is better to go with the longer term and higher rate and then just be prepared to pay the early withdrawal penalty if you need the money earlier.

 

[kgtest]

+1 on this. You also mentioned that she is skittish, so I don't think she would enjoy watching market corrections. My dad is 89 and has a good amount of cash (about 30% of his net worth) that is earning a paltry .50% but it's liquid and it gives him peace of mind.

My dad has the same problem. I am the executor, and we swap market stories... I keep telling him that he doesn't need so much cash,but he insists he's going to buy a boat, diesel to pull it and another investment property...he is just waiting for the right deals...and waiting....and waiting...

More for the grandkids.

 

[Starsky]

I work with Schwab, so I'm sure it's not the most risky thing in the world, but it's not unusual for investments to guarantee to protect the principal, CDs do it all the time. My rate is for 7-year investments over $100K for a start. It's not a slam dunk for me because of the W/D penalties, but for my mom and her exemption I can't find a more secure, liquid, interest bearing place to store her low-risk capital. I suspect that these are underwritten by large insurers that are expecting treasury rates to continue to rise. I'll find out for sure tomorrow.

Just FYI, as I suspected, this is an insurance company product, a fixed Bond annuity, very safe regardless of market conditions. This week it is paying 2.85%, next week it will probably drop a little. There are a lot of different issuers with different rates, this one happens to be American General Stable Growth 7-Year Annuity (It's an AIG product). Mom and I are in to the tune of $245K. You can withdraw up to 10% per year without penalty up to a certain total amount, so it does offer some mid-term liquidity if you need it.

 

[pb4uski]

Another choice would be a 84 month CD issued by Andrews Federal Credit Union. It pays 3%, is 100% insured by the NCUA (rather than state guaranty funds).

Also, if you need to get out more than 10% early, the early withdrawal penalty om the CD would likely be less than the surrender penalty on a SPDA and certain CDs allow partial withdrawals.

https://www.andrewsfcu.org/personal/checking-and-savings/share-certificates.html

 

[Sandy & Shirley]

Another symbol that you should consider is DNP, one of our favorites, we currently have 14% of our market holdings in DNP.

It is a select income fund which returns primarily dividends at a rate of 6.5 cents per month per share. That is 78 cents a year and the stock generally sells for $9 to $11 a share, ROR 7.09% to 8.67%.



The blue line is the average monthly closing price since 1987. Other than a temporary dip in 2008 it has been relatively stable. What happened in 2008 does not bother me since the income, the green line, remained constant and the price restabilized at its normal level.

The green line is the most important factor. There have been spikes, but they all point up, the baseline income has been 72 cents a year at the start then a solid 78 cents since 1997.

Looking at 2008 again, the market crashed but the income stream remained constant so you would not be force to sell low.

 

[bingybear]

Another symbol that you should consider is DNP, one of our favorites, we currently have 14% of our market holdings in DNP.

On the DNP income site they note MLPs under risk considerations. Looking at past performance/distributions it looks like it has significant ROC now and then. How does it document its financial tax documents for taxes? Is it all 1099-DIV? Have there ever been K-1? Is this typically considered suitable for an Roth or TIRA? (usually things that kick out UBTI are not considered appropriate - some would disagree).
The symbol is misfortunate - Do Not Populate.

edit -- what % of dividends are typically Qualified? do not count ROC (non taxable dividends) in this calculation)

 

[Car-Guy]

I'm just curious if you hold a portion say 10%-30% of your retirement accounts in higher risk investments

It varies but I do invest in what I consider higher risk investments (almost exclusively in various single dividend paying stocks) but the vast majority of my retirement funds are in fixed income investments. Of course many here would say fixed income investments are higher risk because of their low returns and difficulty in keeping up with inflation. Depends on your POV and "need" for higher returns.

 

[scrabbler1]

I go with the 100 minus my age formula. Makes the math very easy.

I do keep $$$ as chicken money for emergencies and don't count that as part of investments.

I have been subscribing to the "age in bonds" principle for my IRA the last 8 years since I ERed. In my taxable accounts, however, I have an AA which generates enough income from mostly bond funds to cover my bills with a cushion left over. I also have a (bond) slush fund as a second-tier EF.

 

[Sandy & Shirley]

On the DNP income site they note MLPs under risk considerations. Looking at past performance/distributions it looks like it has significant ROC now and then. How does it document its financial tax documents for taxes? Is it all 1099-DIV? Have there ever been K-1? Is this typically considered suitable for an Roth or TIRA? (usually things that kick out UBTI are not considered appropriate - some would disagree).
The symbol is misfortunate - Do Not Populate.

edit -- what % of dividends are typically Qualified? do not count ROC (non taxable dividends) in this calculation)

Sorry that we do not have any of that information, we have all of our DNP holdings in our TIRAs so all of the tax “stuff” are handled by Fidelity. Our goal was to find a source of “solid” income and growth. A lot of bonds are 3% to 5% ROR, from its history this seems to be a fairly solid 7.5% ROR. At this point we are not looking for the dividends as deferred taxation, just tax free growth in the TIRA.

 

[kcowan]

Both my Dad and MIL had all their money in FI. I talked to them both about what they were losing on average by doing so. They said it did not matter. That is what they were good at doing.

I took over MILs portfolio and got rid of some overhead but kept her in exactly the same investment strategy because I said I would. Never regretted it. Had MIL or Dad run out of money, we were good for it.

Sometimes you just have to accept the inevitable. OTOH the suggestions to improve fixed returns are great!

 

[myself]

If nothing else, maybe shift her savings into something like Discover bank paying 0.85%. I've been happy with them and TIAA-CREF.

https://www.discover.com/online-banking/

There are other higher yield accounts out there that beat .3% easily.

Thanks. I've considered that too. I already use CapitalOne360 and have for years now, and their rates are 0.75% -> 1% (or more for CDs).
Unfortunately she has 1 other stipulation that there has to be more than 2 people listed on the account - and currently Capital One 360 only allows joint accounts to have 2 people listed on it. I'm not sure if Discover would have the same requirement. Most banks allow for 2, 3, 4, etc people listed on the account.

 

[myself]

DW and I are feeling very nervous about the market, so we have about 20% in bonds and slightly less in cash. Needless to say, I'm not digging it.

I just had a very interesting meeting with my broker who turned me on to a type of bond investment that pays in the mid-to-high 2% range (it varies by bond and investment amount) for a 7-year bond, is guaranteed to never lose any of the initial investment for any reason, and can be withdrawn at any time in the 7-year period with a declining penalty on the interest as you get closer to maturity.

The kicker is that there is a penalty waiver that allows for penalty-free withdrawals at any time if the holder becomes incapacitated or requires daily assistance with a certain number of activities of daily living. Since I handle affairs for my elderly mom who is in in a memory care facility, she already qualifies for the waiver, so it kind of acts as a long-term CD. For the near term, I'm strongly considering putting her bond assets into this fund at 2.75% after rebalancing her stock and ETF assets to a more comfortable level. It looks like a no-brainer.

I will be going back tomorrow to sign some papers and will be getting more information. I am also considering holding my own cash and bonds there for a while for security sake.

Across all of my wife's and my investment/retirement accounts [because we're nervous about the current market] we try to keep about 15% in cash, 20% in bonds and the rest in ETF's and 3 stocks (mostly Domestic ETFs). About half of the stock is company stock from our careers and the other half is in Google shares.

Thanks, I'm kind of wanting to do that, but she doesn't seem keen on the idea of remotely putting money into the market. :-(

 

[myself]

.

You can boost her return easily and totally risk free:
https://www.ally.com/bank/online-savings-account/

And you could do even a little better by buying a bunch of $5K CDs for terms like 18 months, 3 yrs. Remembering to keep say $20K in the 1% savings account for the next hospital visit.

I agree, that at her age and nervousness of the market, any investment would be viewed as risky by her.

If any stock consideration was done, I would literally limit it to $10K total and only put it in broadbased funds or ETF's, and personally I prefer VTI to VFINX as VTI is more broad based and lower fees.

Excellent thoughts there Sunset! :thumbsup:

 

[myself]

+1 on this. You also mentioned that she is skittish, so I don't think she would enjoy watching market corrections. My dad is 89 and has a good amount of cash (about 30% of his net worth) that is earning a paltry .50% but it's liquid and it gives him peace of mind. Now that I in the process of taking over as his financial fiduciary, I will probably move a big chunk of that into Ally or a CD that at least returns more than .5%!

For me (as a FIRE'd individual), my investments reside in: TSP (L2030 and C Funds/ 11% of assets), Vanguard (all in VWELX/ 32% of assets) and rental property (28% of assets). I recognize that I am heavy on real estate (primary home and rental apprise of 57% of assets) but that is from the rapid rise in home values. I looked into selling the rental, but I am not in favor of paying the capital gains and the rental income is netting me 10.5% on the money, so for now I am keeping it. I should also note that I have a very generous pension that more than pays for our day-to-day expenses.

I do see that the safety of the fixed rate is very beneficial. My biggest issue was more because her basic total net worth isn't so much that if she did have more than 2 hospital visits that she would have anything left afterward. And not knowing what she would do if there was a third event leading to the hospital.
Granted that's not as likely, but it can be very real.

 

[myself]

A lot of GREAT suggestions on this Board. I sort of subscribe to the theory that the percentage of Equities should be 100 minus your age s/b the percent of equities that you are in. Unfortunately, this advice isn't for everyone as some folks have pensions, paid off houses, and other extraneous factors.

Based on the information that you have shared - I would guess that the money in her accounts is really for emergencies only and that her small pension and SS will cover her day to day expenses.

I might encourage her to "pay" for her final arrangement expenses in advance and move the remaining funds into a Credit Union (or similar) where the Money Market rates can be closer to 1%.

That money s/b considered money to live on (and particularly emergencies) as opposed to moving it towards risk.

Michael

I suppose that is true. I didn't mention that those savings earlier don't include additional money that is set aside for her final expenses, including paid for plot.

 

[myself]

Another symbol that you should consider is DNP, one of our favorites, we currently have 14% of our market holdings in DNP.

It is a select income fund which returns primarily dividends at a rate of 6.5 cents per month per share. That is 78 cents a year and the stock generally sells for $9 to $11 a share, ROR 7.09% to 8.67%.



The blue line is the average monthly closing price since 1987. Other than a temporary dip in 2008 it has been relatively stable. What happened in 2008 does not bother me since the income, the green line, remained constant and the price restabilized at its normal level.

The green line is the most important factor. There have been spikes, but they all point up, the baseline income has been 72 cents a year at the start then a solid 78 cents since 1997.

Looking at 2008 again, the market crashed but the income stream remained constant so you would not be force to sell low.

That's an interesting stock PapaGeek.
She might be more comfortable with something like that, but I doubt that she'll go for it anyway.

 

[myself]

Thank you one and all for ALL of your bits of input. They will be taken to heart and useful for both her and myself some time in the future.

 

[Hermit]

Thanks, I'm kind of wanting to do that, but she doesn't seem keen on the idea of remotely putting money into the market. :-(

That's because she is a smart lady! At her age, with the amount of money she has, and with her health issues, the most you should be doing is possibly moving to a higher interest paying institution as many have suggested. She shouldn't be in the market and does not want to be in the market. Whatever small addition you might gain won't be worth the risk.

Spend your time understanding what will happen if she needs an extensive hospital stay or some other kind of medical emergency. Figure out what will happen if she does run out of her savings.

 

[ESRwannabe]

"Another symbol that you should consider is DNP, one of our favorites, we currently have 14% of our market holdings in DNP."

DNP is a good one. Its on my watchlist to buy the next time everything crashes. Right now it has a 7% premium and I only buy at a discount to NAV.

The CEFs I currently own are:

PIMCO Income Opportunity (PKO)
John Hancock Premium Dividend (PDT)
Reaves Utility Income (UTG)
DoubleLine Income Solutions (DSL)
John Hancock Tax-Advantaged Dividend Income (HTD)
Nuveen Municipal Credit Income (NZF)