Analysis paralysis - meeting with a FA tomorrow

[Thomas3857]

Hi everyone -

I've been a hands off investor for likely too long and only recently have I sat down and taken a hard look at my AA and here's where I am:

In tax deferred accounts (IRA, SEPP, 401(k), etc.)

$1,200,000 - 50% stock funds / ETFs (36% US & 14% INTL)
- 28% cash
- 18% Bonds / Fixed Income
- 4% Alternatives -

In taxable accounts

$200,000 in index funds

Cash - not including the $300K plus sitting in my SEP

$1,100,000

$520K in real estate between rental and residence

No debts

55 w/income of approx. $275k - Looking to retire in next five (sooner I hope) years.

Risk tolerance - conservative (obviously looking at the amount of cash)

Moved my account to Schwab from a regional bank FA who likely had his best interest and not mine in mind when he constructed my portfolio.

Meeting with a Schwab FA tomorrow to discuss options.

Hate the ideal of putting 1m plus into this market with indexes at all-time highs but understand I need this cash to earn more than the 1/2 percent I'm getting now.

Been thinking about this for awhile but can't pull the trigger and my gut tells me doing nothing is not the answer.

Thoughts?

Thanks!

 

[pb4uski]

....Meeting with a Schwab FA tomorrow to discuss options.

...Thoughts?

You should have started this thread yesterday.

 

[Thomas3857]

You should have started this thread yesterday.

or three months ago! I'm not pulling in triggers tomorrow only getting some ideas. I'm anything but an impulse buyer.

 

[pb4uski]

Seriously, if I'm looking at your OP correctly you have about 20% in stocks?

($1,200*50%)/($1,200+$200+$1,100+$300+ 1/2 of $520)

That's a little low but not outrageously so. Note the graph below of success ratios at different AAs. The success ratios from 40/60 to 90/10 are all pretty similar (but the terminal values are very different... higher for higher equity AAs).

I too would be nervous about investing in stocks at these levels. I was 60% equities but bailed out last year and no regrets... I think the stock market is a bit crazy right now and I have no interest in investing at these valuation levels.

What I have got into recently is preferred stocks. Over the last year and a half I put together a portfolio of about 40 preferreds, mostly investment grade but some below investment grade with little call risk, that yield about 5.5%. You may want to see what they could recommend in that space. We have a preferred stock thread that you may want to check out. https://www.early-retirement.org/fo...the-bad-and-the-in-between-2021-a-107188.html

 

[Thomas3857]

Seriously, if I'm looking at your OP correctly you have about 20% in stocks?

($1,200*50%)/($1,200+$200+$1,100+$300+ 1/2 of $520)

That's a little low but not outrageously so. Note the graph below of success ratios at different AAs. The success ratios from 40/60 to 90/10 are all pretty similar (but the terminal values are very different... higher for higher equity AAs).

I too would be nervous about investing in stocks at these levels. I was 60% equities but bailed out last year and no regrets... I think the stock market is a bit crazy right now and I have no interest in investing at these valuation levels.

What I have got into recently is preferred stocks. Over the last year and a half I put together a portfolio of about 40 preferreds, mostly investment grade but some below investment grade with little call risk, that yield about 5.5%. You may want to see what they could recommend in that space. We have a preferred stock thread that you may want to check out. https://www.early-retirement.org/fo...the-bad-and-the-in-between-2021-a-107188.html

Thanks! I may have misrep the % of cash. Of my approx 2.5 m investable about 1/2 in cash.

 

[38Chevy454]

I would discuss with the advisor about risk tolerance and where you fit on the scale. Set an AA that fits your risk tolerance. Just invest at that AA and make periodic adjustments (my suggestion is 2x/year). My thoughts are wide diversified funds with low fees as your invested choices.

I would not be in such heavy cash myself. You are effectively losing money on that due to inflation.

Not that you asked, but rough numbers it seems you are pretty good shape for retirement? Do you need or want to work 5 more years?

 

[MRG]

How far is up? Where's the top? Anybody that tells you they know are either lying or ignorant.

There's about two ways to put your cash to work: big bang or dca. Pick your AA and method and go.

I feel I'm pretty conservative with my investments. I feel good with a 50/50 AA and enough cash equalivents for a few years. Most recessions will be long gone in that time.

 

[LOL!]

I cannot help you, but maybe reading Morgan Housel's "The Psychology of Money" would be helpful to you? It is a quick read, but I doubt you can get through it by the time you meet with the sales rep from Schwab unless you buy a digital version today.

 

[RetireBy90]

I wouldn’t make any sudden moves. Come to an AA that meets your needs and you are comfortable with. You need to understand that there will be up years and down years. If you are not comfortable with establishing and maintaining an AA I would educate myself before any actions. This is a great place to get several different ideas on what AA is OK and what works for you.
Use tomorrow as a starting point. Having a FA isn’t a bad thing but you must be in charge and make the decisions. I always am in a position that I can ditch any advisor and either go it alone or find another.

 

[Thomas3857]

I would discuss with the advisor about risk tolerance and where you fit on the scale. Set an AA that fits your risk tolerance. Just invest at that AA and make periodic adjustments (my suggestion is 2x/year). My thoughts are wide diversified funds with low fees as your invested choices.

I would not be in such heavy cash myself. You are effectively losing money on that due to inflation.

Not that you asked, but rough numbers it seems you are pretty good shape for retirement? Do you need or want to work 5 more years?

The numbers on Firecalc say I can pull the trigger but I've got one still in college and trying to get her set up first. Counting the days!

 

[disneysteve]

if I'm looking at your OP correctly you have about 20% in stocks?

Wait, isn't it more like 30%?


It's 1/2 of the $1.2M so 600K plus the 200K in index funds (assuming they are stock funds) so total of 800K in stocks out of $2.5M. That's 32%.

 

[Ready]

That is a lot of money to have in cash. I have some friends who pulled out of the market a few years ago because they thought the market was about to crash. They have missed several years of gains and still have no idea when to get back in.

I can’t tell you what to do with all of that cash because I don’t have a crystal ball to predict what direction the market is heading. What I do know is the FA you will be meeting with does not have a crystal ball either. So even if he gives you advice that sounds decisive, he is working with the same information that all of us have. You have to be the one to make the final decision based on your comfort level with risk.

My recommendation would be to take some time to read a book about investment theory before you make any decisions on what to invest in and whether to use an advisor. The more you know the more comfortable you will be with whatever decision you make.

 

[Markola]

Hate the ideal of putting 1m plus into this market with indexes at all-time highs but understand I need this cash to earn more than the 1/2 percent I'm getting now.

Don’t worry. The FA is going to advise you based on your risk tolerance, which is obviously “conservative.” I doubt they will suggest you pile more into the stock market above your current 50% allocation. Rather, I bet they’ll suggest you put the cash to work, probably on the bond side.

 

[Thomas3857]

To follow up and as expected FA suggested a conservative approach and simply rebalance the existing portfolio with a 50/40/10 AA which I will likely do but I'm going to keep a good chunk of the cash on the sidelines because I think this bubble is about to pop. Thanks for everyone's input. It helped quite a bit.

 

[FREE866]

You didn't mention your time frame and that really is the most important factor when considering an appropriate asset allocation. That, as well as cash flow needs and your own tolerance for volatility.



That said, historically speaking ,shying way from heavy stock exposure for fear of "investing at all time highs" can really hurt you over years and decades. The numbers prove that. People tend to "do what feels comfortable" , but that doesn't equate to it being the right investment decision.

 

[WhenIsItTime]

First, congrats on having savings and strong compensation. Now the tough love... Time in the market beats trying to time the market. What have you missed out on with that much cash on sidelines. How long you planning to live? If more than 5 years, I think it is reasonable to suggest you should get to 50% stock market.

Look at historical crashes. They recover on average within 3 years. The last one recovered in 6 months. Hence, if you don’t need money within 5 years why not put it to work and invest it.

 

[Oz investor]

Hi everyone -

I've been a hands off investor for likely too long and only recently have I sat down and taken a hard look at my AA and here's where I am:

In tax deferred accounts (IRA, SEPP, 401(k), etc.)

$1,200,000 - 50% stock funds / ETFs (36% US & 14% INTL)
- 28% cash
- 18% Bonds / Fixed Income
- 4% Alternatives -

In taxable accounts

$200,000 in index funds

Cash - not including the $300K plus sitting in my SEP

$1,100,000

$520K in real estate between rental and residence

No debts

55 w/income of approx. $275k - Looking to retire in next five (sooner I hope) years.

Risk tolerance - conservative (obviously looking at the amount of cash)

Moved my account to Schwab from a regional bank FA who likely had his best interest and not mine in mind when he constructed my portfolio.

Meeting with a Schwab FA tomorrow to discuss options.

Hate the ideal of putting 1m plus into this market with indexes at all-time highs but understand I need this cash to earn more than the 1/2 percent I'm getting now.

Been thinking about this for awhile but can't pull the trigger and my gut tells me doing nothing is not the answer.

Thoughts?

Thanks!

while i am not sitting on as much cash as you are , i have the same ( gut ) feeling , HOWEVER there is an old paradigm about ' sell in May , and go away , come back on St. Leger Day '

so May selling MIGHT present you with some cheaper entry prices , but goodness me , there is a LOT of stuff currently over-valued ( if you compare it to investment current investment returns )

how about WATCHFULLY waiting , i am doing so very carefully , i see a lot of debt commitments out there and lenders MIGHT get very nervous , and that MIGHT present a good opportunity for you ( could be in real estate stocks or corporate debt )

good luck

 

[RetireBy90]

What I have finally got into my think skull is that to time the market is really hard even for the professionals. Certainly the market is not cheap right now but how long will the bull market last and when will X happen isn't something we can know.

I would suggest if you need to move more of your funds out of cash to either bonds or stocks then you can move in one shot or you can dollar cost average. something like move 1/4 every quarter and you can get it done in a year or you can do 1/10 each month. Good luck with managing your funds,

 

[Markola]

What I have finally got into my think skull is that to time the market is really hard even for the professionals.,

Me too but even more so. “Hard” to do implies there is some skill involved that can be learned if only one works diligently at it. However, academic study after study shows that monkeys throwing darts do better than the vast majority of professionals. The vast majority of active fund managers underperform their indices every year, and virtually none out perform over 5+ years. Buffett challenged a hedge fund manager to beat the S&P 500 over ten years, and easily won the bet. The best performing accounts at Fidelity, etc. are owned by people who either forgot about them or DIED.

How much proof do we need that market timing is a fool’s errand?

 

[LOL!]

... The best performing accounts at Fidelity, etc. are owned by people who either forgot about them or DIED.

That's an old myth that we really need to stop perpetuating or at least change to something factual such as:

"An old joke is that the best performing accounts at Fidelity, etc. are owned by people who either forgot about them or DIED."

 

[Markola]

That's an old myth that we really need to stop perpetuating or at least change to something factual such as:



"An old joke is that the best performing accounts at Fidelity, etc. are owned by people who either forgot about them or DIED."

Hmmm, there are approximately one million citations on the Internet of that Fidelity study but it appears you are right that no such study exists, so your amendment is a good one.

 

[Bullwinkle]

adjusting AA suddenly

I too would be nervous about investing in stocks at these levels. I was 60% equities but bailed out last year and no regrets... I think the stock market is a bit crazy right now and I have no interest in investing at these valuation levels.

Sorry to hijack a bit, but I've been wondering about this for a while, and it's a small question. And I don't know how to split into a separate thread!

Anyway, when people say they "bailed" I assume that means sold a bunch of the equities for something more conservative. People make it sound like something done quickly, but I looked into doing that and to move the AA a significant amount that's going to look like a huge income that year and 20%+ tax rate on the capital gains. I would have to move gradually over several years if I don't want that. I know everyone's different but... do they just accept the inefficiency as the cost of "sleep at night"? Or I suppose they could be doing the adjustment in an IRA? Though if you're young there's little point since you won't get that money anyway until well after whatever it is the market might do in the short term.

Or... and I guess this is more likely considering where I am, perhaps most people saying that are retired and have no normal income, at which point they can absorb a lot more capital gain with low taxes.

So it seems that AA adjustment in the conservative -> risky direction can likely be done freely, but the other way must be done gradually... am I missing something?

I guess this is the opposite problem from the OP!

 

[RetireBy90]

I don’t know about others, but any AA rebalancing I do is in an IRA.

 

[disneysteve]

I think many people have a lot of their money in retirement accounts so they can make changes with no tax consequences.

I wouldn’t sell off stocks in a taxable account unless absolutely necessary.

 

[mystang52]

Hate the ideal of putting 1m plus into this market with indexes at all-time highs but understand I need this cash to earn more than the 1/2 percent I'm getting now.

Been thinking about this for awhile but can't pull the trigger and my gut tells me doing nothing is not the answer.

Thoughts?

Thanks!

Your intro has an almost apologetic tone, but from my perspective it sure looks like you have done well for yourself, so nothing to feel bad about. IF you ultimately decide to change course to a more aggressive strategy, remember it doesn't have to be an all or nothing approach. You can ease into a different allocation by simple dollar cost averaging.