Crazy Not to Own Stocks?

[daylatedollarshort]

I have no idea about designer clothes. I've observed that it will probably go to someone else anyway. Someone here once posted that when your biggest concern is what class Mercedes your DIL will be driving - you've probably oversaved.

If by over saved you mean we don't have to worry about the stock market and the kids will likely get nice nest eggs, then I'm happy to be labeled an over saver. We are close with our kids. They live below their means and drive good value cars, we either bought or helped pick out and pay for. I don't really worry about them wasting our money, and am happy to give them a savings boost.

 

[24601NoMore]

With equities (MFs or ETFs), you can defer taxes rather than having taxable interest that you can't defer. Since you'll likely be leaving the bulk of your assets to your kids, IMHO, I'd definitely be at least 50% in equities. You're much more likely to double your investments in a decade, and leave your kids with more!

On the other hand, if being in the market really makes you nervous, you can let your kids decide what to do once they take control of the assets. The amount would likely be much smaller, but it sounds like they'll have plenty, either way! Great position to be in!

You can also defer interest income on cash investments if using a MYGA, as all dividends are only taxed in the year withdrawn.

I find MYGAs overly cumbersome (complex contracts that often take serious doing to go through) the dividend payment streams difficult to administer (as the forecast dividend amount rarely matches the expected payment amount - topic for another thread), and the insurance company websites about as "functional" & "modern" as something built in 1990, but in terms of manageability of taxable dividend income they can't be beat.

So, I wouldn't necessarily feel compelled to be in stocks just to manage taxable income, as there are other mechanisms to accomplish the same goal..

 

[aja8888]

If by over saved you mean we don't have to worry about the stock market and the kids will likely get nice nest eggs, then I'm happy to be labeled an over saver. We are close with our kids. They live below their means and drive good value cars, we either bought or helped pick out and pay for. I don't really worry about them wasting our money, and am happy to give them a savings boost.

The nice thing about being dead, if there is one, is that you won't know what the kids (or their spouses) did with what you left them!

 

[Midpack]

Like Bernstein said, 'if you've won the game, stop playing?' Most people need some equity exposure to combat inflation over a 20-30 year retirement. If you don't, crazy isn't on the table - it's whatever you're comfortable with for a projected residual then. There are no guarantees, only (good) odds.

Perennial discussion topic here. Some of us winners continue to play the game with the objective of benefiting our heirs.

Which is what the words in red were about.

 

[daylatedollarshort]

The nice thing about being dead, if there is one, is that you won't know what the kids (or their spouses) did with what you left them!

Right, I will die thinking our kids will continue to live below their means. We have considered a trust, but DH pointed out after about age 30, are they really going to turn into spendthrifts or marry one? And even if they do, we'll be dead and not know it so it will be their problem if they blow through the money.

 

[aja8888]

Right, I will die thinking our kids will continue to live below their means. We have considered a trust, but DH pointed out after about age 30, are they really going to turn into spendthrifts or marry one? And even if they do, we'll be dead and not know it so it will be their problem if they blow through the money.

Yes, all you can do as a parent is do the best you can given your resources and time. That's it.

 

[JJpop]

With equities (MFs or ETFs), you can defer taxes rather than having taxable interest that you can't defer. Since you'll likely be leaving the bulk of your assets to your kids, IMHO, I'd definitely be at least 50% in equities. You're much more likely to double your investments in a decade, and leave your kids with more!

On the other hand, if being in the market really makes you nervous, you can let your kids decide what to do once they take control of the assets. The amount would likely be much smaller, but it sounds like they'll have plenty, either way! Great position to be in!

Yea, like I said if stocks really go on sale I will be buying some.
I am really hoping we get some great CD/treasury yields in the next year, 5% and above.
I have a bunch of treasuries maturing in the next 4 to 10 months so it will be interesting.

 

[Major Tom]

We all have different views on this. Some folk, if they have enough money to be able to draw an income from guaranteed investments, will do that. If I had a large enough portfolio, I would invest entirely in a total market equity fund, with no bond component. My thinking on that, is if I had enough to be able to easily live on a 1 or 2% WR (i.e. dividends from the fund alone), I would have no need to worry about severe downturns, even if fully invested in stocks.

Whatever you do, it's important to invest in a way that allows you to sleep at night.

 

[Koolau]

We all have different views on this. Some folk, if they have enough money to be able to draw an income from guaranteed investments, will do that. If I had a large enough portfolio, I would invest entirely in a total market equity fund, with no bond component. My thinking on that, is if I had enough to be able to easily live on a 1 or 2% WR (i.e. dividends from the fund alone), I would have no need to worry about severe downturns, even if fully invested in stocks.

Whatever you do, it's important to invest in a way that allows you to sleep at night.

Sleeping is key. Otherwise one tends to make disadvantageous changes in their AA. I rarely think about my equities because I only have around 1/3. I'd survive without them. I sleep very well.

 

[jollystomper]

...With that in mind, the watchword of investment that I've always heard is diversification. So, while I'm on the low end of equity investments, compared to most here (30+%) I think it's valuable to have some exposure to equities - just for diversity. I don't think it's crazy to avoid equities - especially when, as in your case, you can survive without them. But I'd still want some equities even if I had a lot more non-equity investments than I need to cover my expenses.

Keep in mind that diversity is designed to not only grow your assets but also preserve your assets. Right now, it's difficult to keep up with inflation in cash or cash-like investments. Having some equities gives you another opportunity to keep up with inflation though it's not guaranteed.

I'm no expert and do not consider myself a good investor. I was a good saver which it appear you are as well. You have to do what makes you feel good about your investments so YMMV.

+1 MMMY (My Mileage Matches Yours )

I have about the same percent of my assets in equities. For our generous retirement lifestyle I do not need anymore. That is our choice. If one does not need the market at all, fine with that. My memory may serve me wrong, but I recall during the 1992 Presidential campaign, Ross Perot's financial disclosure had almost all of his hundreds of millions of dollars in government bonds. If I had what we had, I would not need stocks .

I also agree that for us, the cornerstone of our FI was being good savers, not good investors.

While the point about investing for your heirs in valid, I look at what our children will get just from the non-stock assets DW and I have... if they complain that "you should invest more to get us more", then I know it is time to rewrite our wills .

 

[youbet]

Perennial discussion topic here. Some of us winners continue to play the game with the objective of benefiting our heirs.

Or we continue playing because the definition of "won the game" is so vague. For example, if our current inflation levels continue for several years, will the "won the game" crowd, who has already gone uber-conservative, still feel like the win is still on the record?

 

[Koolau]

Or we continue playing because the definition of "won the game" is so vague. For example, if our current inflation levels continue for several years, will the "won the game" crowd, who has already gone uber-conservative, still feel like the win is still on the record?

Well, I guess that depends on how bad inflation gets. True "run-away inflation" will mess up most of our plans. By the way, while most of us believe equities are a good idea to help deal with inflation in the long run, the historical record suggests that much higher inflation suppresses equities. Certainly, equities are no guarantee that inflation will be covered. In my case, I'm just trying to cover the bases (aka diversity.) YMMV

 

[youbet]

Well, I guess that depends on how bad inflation gets.

Well, the example I used was that inflation stays the way it is for several years. So, this time next year, things in general cost 8% to 10% more than now. And so on and so on for a few years. I know our budget increasing by today's yoy price increase rates would get quite painful after a few years.

By the way, while most of us believe equities are a good idea to help deal with inflation in the long run, the historical record suggests that much higher inflation suppresses equities. Certainly, equities are no guarantee that inflation will be covered. In my case, I'm just trying to cover the bases (aka diversity.) YMMV

No single investment category can be sure to protect against inflation. But I'm going with a diversified portfolio that includes a chunk of equities. Count me out of the "won the game" crowd, even though by a static measurement today my family is in great shape.

BTW, who are you referring to when you say "most of us?"

 

[Koolau]

Well, the example I used was that inflation stays the way it is for several years. So, this time next year, things in general cost 8% to 10% more than now. And so on and so on for a few years. I know our budget increasing by today's yoy price increase rates would get quite painful after a few years. No single investment category can be sure to protect against inflation. But I'm going with a diversified portfolio that includes a chunk of equities.

Yep, me too.

 

[JJpop]

Or we continue playing because the definition of "won the game" is so vague. For example, if our current inflation levels continue for several years, will the "won the game" crowd, who has already gone uber-conservative, still feel like the win is still on the record?

SS has some inflation protection and I believe it prudent to own a decent amount of I bonds and or TIPS.

If you truly won the game inflation would have to be nuts and you would have to own no IBonds/TIPS and have a small SS payment to end up losing the game, even then it is tough to imagine if you made the right call to begin with.

Now I am also talking about older folks not someone who retired at 42.

I do not believe you have won the game unless it is pretty much overwhelming in your favor.
In other words, do not be over confident or quick to claim the win.

 

[youbet]

I do not believe you have won the game unless it is pretty much overwhelming in your favor.
In other words, do not be over confident or quick to claim the win.

+1

 

[Koolau]

SS has some inflation protection and I believe it prudent to own a decent amount of I bonds and or TIPS.

If you truly won the game inflation would have to be nuts and you would have to own no IBonds/TIPS and have a small SS payment to end up losing the game, even then it is tough to imagine if you made the right call to begin with.

Now I am also talking about older folks not someone who retired at 42.

I do not believe you have won the game unless it is pretty much overwhelming in your favor.
In other words, do not be over confident or quick to claim the win.

Time horizon is important in the decision of whether you have "won" or are still playing. I started with 30 years in my plan but now, at 75, I've dropped that to 24 (hoping to live to 99!) Heh, heh, just getting older helps you win, I guess. Well, I'll believe it if you will.

 

[daylatedollarshort]

Or we continue playing because the definition of "won the game" is so vague. For example, if our current inflation levels continue for several years, will the "won the game" crowd, who has already gone uber-conservative, still feel like the win is still on the record?

Inflation isn't necessarily the issue for retirees unless you are on fixed income but have expenses subject to inflation. The current problem is real rates are so low. If inflation was 10% and bonds were paying 15% it wouldn't be bad for those living on portfolio income.

In our case Social Security and TIPS are inflation adjusted, we have a low fixed rate mortgage, and our property tax is capped. Before too long we will both be on Medicare. I modeled high inflation in a spreadsheet before we retired and we come out ahead, so I'm not too worried, just plan to buy more TIPS and I bonds. Eventually solar panels, heat pump, xeriscaping, rain barrels, gray water system, etc. should get rid of most of the utility bills. We only buy one tank of gas every other month. We have cheap cell phone and cable plans. There just aren't that many expenses left for us to be subject to high inflation.

 

[Midpack]

Inflation isn't necessarily the issue for retirees unless you are on fixed income but have expenses subject to inflation. The current problem is real rates are so low. If inflation was 10% and bonds were paying 15% it wouldn't be bad for those living on portfolio income.

Inflation is only one potential fly in the retirement planning ointment. You could live much longer than expected. You could take on some very large unplanned expenses (major health issue/disability, bailing out family), geopolitical market meltdown, dementia, etc. But all any of us can do is plan and hedge using safety factors that allow us to sleep at night.

 

[Koolau]

Yeah, I look at inflation - especially "run away" inflation - as the one potential black swan I feel least prepared for. Sure, there could be an asteroid strike or Yellowstone eruption. I'm talking about stuff I thought I had essentially under control. I'm still okay, but I see how inflation could 1) get a lot worse or 2) last a lot longer than anticipated. That could derail even solid FIRE plans but YMMV.

 

[OldShooter]

Yeah, I look at inflation - especially "run away" inflation - as the one potential black swan I feel least prepared for. Sure, there could be an asteroid strike or Yellowstone eruption. I'm talking about stuff I thought I had essentially under control. I'm still okay, but I see how inflation could 1) get a lot worse or 2) last a lot longer than anticipated. That could derail even solid FIRE plans but YMMV.

Maybe this is a humble brag (sorry!) but one of IMO the good investment decisions I made was reaching @Koolau's conclusion in 2007 and buying vary serious six figures worth of the 2s of 26 TIPS. These were the longest duration and lowest coupon available at the time. Since then we have simply been holding them, accepting their lower yield vs plain govvies as the premium we were/are paying for inflation insurance. Obviously/in hindsight we bought too early but we remain happy with the decision.

 

[JJpop]

Maybe this is a humble brag (sorry!) but one of IMO the good investment decisions I made was reaching @Koolau's conclusion in 2007 and buying vary serious six figures worth of the 2s of 26 TIPS. These were the longest duration and lowest coupon available at the time. Since then we have simply been holding them, accepting their lower yield vs plain govvies as the premium we were/are paying for inflation insurance. Obviously/in hindsight we bought too early but we remain happy with the decision.

Just curious but can you tell us what your return pct has been on those TIPS over 15 years?

 

[daylatedollarshort]

Inflation is only one potential fly in the retirement planning ointment. You could live much longer than expected. You could take on some very large unplanned expenses (major health issue/disability, bailing out family), geopolitical market meltdown, dementia, etc. But all any of us can do is plan and hedge using safety factors that allow us to sleep at night.

On the longevity front, we come out ahead if we live longer because our expenses include mortgage interest, which will eventually go to zero. And we are saving money each year, even with the mortgage, so the longer we live the more our portfolio grows. Sure we could have an asteroid strike and that would change things. I don't have a bunker, root cellar and a stash of ammo. But I feel like we've planned very carefully for most of the financial impacting events that could happen, like earthquakes, long term care for 10 years or living to 120.

Our expenses subject to high inflation are significantly less than our TIPS and SS income, which are inflation adjusted, so we come out ahead with continued high inflation.

 

[OldShooter]

Just curious but can you tell us what your return pct has been on those TIPS over 15 years?

I haven't ever thought to figure it. We've been getting that 2% coupon in the inflated/nominal value for all these years. Since we're holding to maturity I have enjoyed the market value increases as a spectator sport. When rates went to zero in 2008, the bond value was up over 50%. We looked like geniuses.

But again, we hold the TIPS as insurance -- not really as an investment. So return is of little interest. It's not like there is some alternative TIPS somewhere that we could compare to.

 

[JJpop]

I haven't ever thought to figure it. We've been getting that 2% coupon in the inflated/nominal value for all these years. Since we're holding to maturity I have enjoyed the market value increases as a spectator sport. When rates went to zero in 2008, the bond value was up over 50%. We looked like geniuses.

But again, we hold the TIPS as insurance -- not really as an investment. So return is of little interest. It's not like there is some alternative TIPS somewhere that we could compare to.

I understand. I was just curious.
We bought 30K worth of I bonds in 2001 and they have tripled in value with their 3% fixed rate. Unfortunately all of our others are zero or close to zero fixed rate.