Going All Cash in 401k

[RobbieB]

Listen to Ray, ignore Jim.

 

[NW-Bound]

And then, there's old trusty Warren Buffet who has poopoo'ed gold ownership over the years.

Warren has not said anything about changing that position regarding gold. And Warren does not care much about bonds either. He prefers 90% in stocks.

And Warren is worth around $90 billion.

 

[pb4uski]

I'll listen to Warren over that quack Jim Rogers anyday.

 

[triangle]

I try to understand the reasoning behind what these pundits are saying, not their crystal ball reading. Economic action across the world is simply too big and too complex for the smartest person in the world to predict the outcome.

But we can see that the growing national debt has been a bipartisan effort, essentially doubling over each of the past 3-4 administrations. There is no sign this trend will end soon, even though there are natural limits to such exponential growth. So higher taxes and/or higher inflation will be needed to service this debt in the future, hurting economic growth. Higher inflation would make it easier pay off these old debts which will should make harder assets and future revenue streams of publicly traded companies more valuable than cash IMO. But it is likely to make the stock market more volatile and hurt current bond holders too.

 

[UnrealizedPotential]

This topic comes up now and then. Should I sell now or hold on? Is the market going to crash or will the bull market last another 10 years? Of course nobody knows the answers to those questions. So for me, I decided a long time ago it was just a lot easier to set an asset allocation and forget it. But that's just me.

 

[NW-Bound]

^^^ That's the steadfastly held position of the late Bogle. If he were still alive, I am sure he would repeat: "Don't do anything".

Bogle was worth $80M. Not as rich as the previously mentioned pundits, but not too shabby either.

 

[joeea]

Jim Rogers has a net worth of $300M. How much net worth do you have?

Warren Buffet has a net worth of $84.3 Billion. How much net worth do you have?

People has missed the point that the USA debt was $11 trillion 10 years ago and it is now $22 trillion and still climbing. The USA is getting close to Greece, Italy and Japan. IMO, this is not sustainable.

I just reallocate my portfolio to be more conservative

Why did you wait so long? According to Jim you are very, very late. And why do you have anything at all in the stock market?

I already have tickets to go to Waikiki for an entire month and I want to have a good time surfing on a long board at age 68 without having too much of my money in the stock market. I will also be shopping for a vacation condo in Waikiki so I can covert some of my wealth into real estate. If the market do crash during my retirement, then I will be the one who has the last laugh.

Enjoy your vacation. Try to find ways to laugh every day, even if the market doesn't crash.

I'd rather be the first one to laugh, than the last one. In fact, I'm laughing right now.

 

[ncbill]

Just a small pile-on for Jim Rogers. Googling "Jim Rodgers Bear Market" results in 13 MILLION hits...

Anyway, I know a bear market is coming and as an Early Retiree I am nowhere near 100% equities. Changing your asset allocation based on your stage of life is appropriate. But I have no idea when a bear market is coming and don't pretend to, so I count on my AA to handle it.

vchan2177, your 25/75 AA is actually in on the very conservative end of the "normal" range for a 68-year old. But early retirees are at huge risk of inflation over the long term (which many predict is the result of the debt problem) and need equities for growth.

Doesn't Kitces recommend a 30/70 AA for those already in retirement?

Looks like vchan's close to being there already.

And if vchan wants real estate then they should rent & wait for the crash to get a better deal... pick up properties much cheaper given currently high real estate valuations.

 

[ERD50]

I look where the dog takes a pee.

If she heads to the left, I know stocks are good. If off to the right I should be more conservative and buy bonds.

I thought you had a "guy" to do that hard financial work for you! (and this is just light hearted teasing, in case it didn't come across that way!)


-ERD50

 

[ERD50]

Originally Posted by vchan2177 View Post
Jim Rogers and I share the same bearish views

How long have you two shared these views?

If vchan2177 followed him back in 2011 ( see link in post # 106), he would be out of the market, and into Euro currency.

Market has about doubled since then, Euro has dropped ~ 15%. Hmm, so even if the market does drop in half, and not recover, he would still be behind.

Some of the retirees on this forum experienced 2 big market drops, and if they held they are fine.

-ERD50

 

[NW-Bound]

Again, I thought Jim Rogers was worth more than $300M. Maybe he lost some money.

Rogers was cofounder of Quantum and Soros Funds back in 1973, along with Soros. Rogers left the funds in 1980.

Soros is still worth $8 billion.

 

[The Cosmic Avenger]

Again, I thought Jim Rogers was worth more than $300M. Maybe he lost some money.

Rogers was cofounder of Quantum and Soros Funds back in 1973, along with Soros. Rogers left the funds in 1980.

Soros is still worth $8 billion.

You know what they say:
What's the quickest way to become a millionaire?
Start with a billion dollars!

 

[NW-Bound]

Rogers' claim to fame was when his return was 4,200% between 1970 and 1980, while the S&P 500 only gained about 47%.

But prior to that, he was wiped out when he shorted the stock market in 1970.

Another claim to fame of his buddy Soros was when Soros shorted the British pound in 1992. Soros pocketed $1 billion in just a few days.

See: https://www.investopedia.com/ask/answers/08/george-soros-bank-of-england.asp.

These guys are really the dare devils of traders. I find them interesting, but do not see how I can follow their investment styles.

 

[2177V]

Just a small pile-on for Jim Rogers. Googling "Jim Rodgers Bear Market" results in 13 MILLION hits...

Anyway, I know a bear market is coming and as an Early Retiree I am nowhere near 100% equities. Changing your asset allocation based on your stage of life is appropriate. But I have no idea when a bear market is coming and don't pretend to, so I count on my AA to handle it.

vchan2177, your 25/75 AA is actually in on the very conservative end of the "normal" range for a 68-year old. But early retirees are at huge risk of inflation over the long term (which many predict is the result of the debt problem) and need equities for growth.

Everybody's financial situation is different. I have a federal pension (62% of salary), a California pension (27% of salary) and Social security (12% of salary) which all have a COLA adjustment every year. This means my IRA is not really needed for retirement income and therefore I was super aggressive during the last 10 years which I was rewarded from the bull market.

Now that I made enough money in my IRA and my retirement income exceeds my pre-retirement salary from my pensions alone, I decided to cash out my IRA slowly. This is because I get taxed so I ran several withdrawal situations on TurboTax to get the maximum yearly withdrawal amount with minimum tax consequences. I became very conservative simply because the higher federal debt alarms me and because a crash during withdrawing assets would be bad in my specific situation.

Portfolio models that you cite probably apply to people who are dependent on their IRA for "retirement income". Since my IRA is considered "disposable assets" and not retirement income, I went from super aggressive to super conservative. This is similar to gambling. I was "all-in" during the bull market and I will be nearly "all-out" during my withdrawals. I must have broken all the normal rules on AA simply because my situation is different.

I will be surfing in Hawaii next month and looking at the girls in bikinis and I rather not worry about the stock market while I am enjoying my retirement. 25% stock is a good number during my withdrawal phase since any stock market crash only affects 25% of my IRA assets.

I sincerely apoligize for mentioning Jim Rogers since I had no idea how many people hated this man for his incorrect predictions. I learned a good lesson from this.

 

[Dtail]

Everybody's financial situation is different. I have a federal pension (62% of salary), a California pension (27% of salary) and Social security (12% of salary) which all have a COLA adjustment every year. This means my IRA is not really needed for retirement income and therefore I was super aggressive during the last 10 years which I was rewarded from the bull market.

Now that I made enough money in my IRA and my retirement income exceeds my pre-retirement salary from my pensions alone, I decided to cash out my IRA slowly. This is because I get taxed so I ran several withdrawal situations on TurboTax to get the maximum yearly withdrawal amount with minimum tax consequences. I became very conservative simply because the higher federal debt alarms me and because a crash during withdrawing assets would be bad in my specific situation.

Portfolio models that you cite probably apply to people who are dependent on their IRA for "retirement income". Since my IRA is considered "disposable assets" and not retirement income, I went from super aggressive to super conservative. This is similar to gambling. I was "all-in" during the bull market and I will be nearly "all-out" during my withdrawals. I must have broken all the normal rules on AA simply because my situation is different.

I will be surfing in Hawaii next month and looking at the girls in bikinis and I rather not worry about the stock market while I am enjoying my retirement. 25% stock is a good number during my withdrawal phase since any stock market crash only affects 25% of my IRA assets.

I sincerely apoligize for mentioning Jim Rogers since I had no idea how many people hated this man for his incorrect predictions. I learned a good lesson from this.

You are fine.
There are many permabear forecasters out there and eventually they will be correct about a bear market.
Many of us just don't get alarmed by these false prophets on the markets, whether we hold 0% or 100% or anything in between in stocks.

 

[dirtbiker]

You are fine.
There are many permabear forecasters out there and eventually they will be correct about a bear market.
Many of us just don't get alarmed by these false prophets on the markets, whether we hold 0% or 100% or anything in between in stocks.

I keep wanting to keep my new contributions as cash, as I feel there will be a market correction soon. It just feels like there has to be... But I'm resisting this urge, since I felt the same way a couple of years ago, and keep adding to my positions. Though I'm not super happy to have just bought more BRK.B at $214 a few days ago. Today it's at $206. Grrr. But I'll never notice a few years from now, and is a good argument not to track the stock markets every day.

 

[Dtail]

I keep wanting to keep my new contributions as cash, as I feel there will be a market correction soon. It just feels like there has to be... But I'm resisting this urge and keep adding to my positions. Though I'm not super happy to have just bought more BRK.B at $214 a few days ago. Today it's at $206. Grrr. But I'll never notice a few years from now, and is a good argument not to track the stock markets every day.

Something perhaps to keep mind. If one resisted the urge to go all cash in let's say 2016 (random sample year), when the bear market does come, one should also calculate the extra market gains from 2016 onward combined with your bear market loss.
You will probably come out ahead.
Some folks just look at their losses at the moment.

 

[NW-Bound]

I sincerely apoligize for mentioning Jim Rogers since I had no idea how many people hated this man for his incorrect predictions. I learned a good lesson from this.

I am one who does not hate Rogers. In fact, I kind of like some of the things he says, which often have some truths in it. But the problem is that things in life never unfold exactly as one expects.

Rogers apparently is right often enough, because he started from zero and still had a lot of money. But one cannot follow what these guys say verbatim, because they have the knack in trading to get themselves out of trouble.

Here's a story told by Taleb (author of the Black Swan book) about Soros. In one encounter with Soros, Taleb and Soros had a disagreement on the movement of a certain market or commodity. Taleb proved to be right on this occasion. Some time later, Taleb asked Soros how the latter did, and Soros said he made good money. Not possible, Taleb said because Soros bet on the wrong side. Soros said that it was true, but he quickly recognized his mistake and took the other side.

And Soros is worth $8 billion, so he has to be more often right than wrong.

Back to Rogers, he is a really interesting character to have made not one but two continuous multi-year road trips around the world. I read about his exploits in the following books. His observation about different cultures was insightful. It was during his travel through China that he made observation about how hard the Chinese worked, and that made him bet that China would become an economic powerhouse.

 

[joeea]

Everybody's financial situation is different. I have a federal pension (62% of salary), a California pension (27% of salary) and Social security (12% of salary) which all have a COLA adjustment every year. This means my IRA is not really needed for retirement income and therefore I was super aggressive during the last 10 years which I was rewarded from the bull market.

Terrific!

I became very conservative simply because the higher federal debt alarms me and because a crash during withdrawing assets would be bad in my specific situation.

It makes perfect sense to become very conservative in your situation. But that has absolutely nothing to do with the federal debt.

I will be surfing in Hawaii next month and looking at the girls in bikinis and I rather not worry about the stock market while I am enjoying my retirement. 25% stock is a good number during my withdrawal phase since any stock market crash only affects 25% of my IRA assets.

There's probably no reason for you to have anything in the stock market at all, and certainly no reason for you to worry.

Assuming you can live on "101% of salary" during retirement, and assuming you don't care about leaving a big legacy, you are good to go. Have fun.

 

[dirtbiker]

Something perhaps to keep mind. If one resisted the urge to go all cash in let's say 2016 (random sample year), when the bear market does come, one should also calculate the extra market gains from 2016 onward combined with your bear market loss.
You will probably come out ahead.
Some folks just look at their losses at the moment.

I agree with this 100% and is why I keep plugging along. If only I could see into the future, even a few days, I'd be a day-trading god... But since I don't possess this ability, I don't try to.

 

[Theo]

Something to think about: When the SHTF in terms of too much debt, how will the US Treasury and Federal reserve handle it? Hint: The US Debt is denominated in US Currency, so they can pay it off. This is unlike Greece or most other countries whose debt is denominated in US $ or some other non-home currency. This is THE major difference.

If/When the US debt becomes unsustainable, the debt would be paid causing a massive increase in the money supply and likely a large dose of inflation.

Given that, how will your CD's, short term bonds, and cash look? Answer: Your buying power (in terms of goods and services and especially goods from other countries) will be negatively impacted.

What I am saying here is that hiding in fixed/cash/CD's will likely not be a safe place if the massive US debt goes critical.

This is correct in many respects. US is a monetary sovereign, as is Japan. Italy and Greece are more akin to Puerto Rico and Illinois who cannot print their own currency.

One counterintuitive thing about federal government deficits/surpluses and interest rates. When the federal government runs surpluses, which it almost never does thankfully, it removes savings and bank reserves from the banking system which reduces demand for government debt, putting upward pressure on rates.

Conversely, when it runs larger deficits like today, bank reserves explode and demand for government debt skyrockets making rates fall. This is also one of the reasons the Fed started paying interest of bank reserves, there are such large reserves in the banking system that if the Fed didn't intervene, the fed funds rate would go too low per their policy.

With regard to Japan, their problem is demographics, not debt and deficits. Their central bank currently owns about half of all outstanding Japanese government debt and may wind up with 100% some day, so who is the government really indebted to? What I said above regarding deficits and interest rates holds for Japan as well.

 

[2177V]

I am one who does not hate Rogers. In fact, I kind of like some of the things he says, which often have some truths in it. But the problem is that things in life never unfold exactly as one expects.

Rogers apparently is right often enough, because he started from zero and still had a lot of money. But one cannot follow what these guys say verbatim, because they have the knack in trading to get themselves out of trouble.

Back to Rogers, he is a really interesting character to have made not one but two continuous multi-year road trips around the world. I read about his exploits in the following books. His observation about different cultures was insightful. It was during his travel through China that he made observation about how hard the Chinese worked, and that made him bet that China would become an economic powerhouse.

Jim Rogers's two daughters are very well known in China. Here is an amazing video of his two daughters singing a Tang Dynasty poem in perfect mandarin. The chinese audience was amazed. Their daughters have now been offered movies roles in chinese fiilms and they are only 10 and 15 years old! I was also amazed at their total confidence in their language skills during the post singing interview. This interview could not be rehearsed. Yes, perhaps Jim Rodgers may be a bad predictor of a bear market.... but I agree that he is an interesting person.

 

[copyright1997reloaded]

Here's a story told by Taleb (author of the Black Swan book) about Soros. In one encounter with Soros, Taleb and Soros had a disagreement on the movement of a certain market or commodity. Taleb proved to be right on this occasion. Some time later, Taleb asked Soros how the latter did, and Soros said he made good money. Not possible, Taleb said because Soros bet on the wrong side. Soros said that it was true, but he quickly recognized his mistake and took the other side.

And Soros is worth $8 billion, so he has to be more often right than wrong.

+1, and emphasis on something that many, many people do not do. That is, if you have a rationale/thesis that you make an investment decision on, it is critical that you review that thesis if it fails to materialize and if your thesis is proven wrong, address it as soon as possible.

In my own life, I started to get negative in terms of investing in the early nineties, e.g. 1992. But, I quickly realized that the world was not coming to an end in 1993 and reversed my investment course, and started moving up my equity asset allocation and investing most of my savings each month in equities. It is only by reversing course that I was able to catch the 1993-2000 boom.

 

[HI Bill]

According to the real-time US National Debt Clock https://www.usdebtclock.org/

The average personal debt per US citizen is ~$60K, and the national debt is about $68.4K. What I think is the most important metric is the percentage that the national debt represents relative to the GDP. For now, we're at 78% (the IMF says 108%?), and this is forecast to rise to 96% by 2028. For comparison, Greece's national debt was 176% of its GDP in 2017. Japan sits at 236% in 2017.

I've always said we'll hit the wall, but at this point, it looks like it's a ways out.

 

[2177V]

Terrific!

There's probably no reason for you to have anything in the stock market at all, and certainly no reason for you to worry.

Assuming you can live on "101% of salary" during retirement, and assuming you don't care about leaving a big legacy, you are good to go. Have fun.

The 101% of salary maintains my standard of living prior to retirement. However, my IRA disposable assets increases my standard of living beyond what I had before.

Prior to my retirement, there is no way I could afford three overseas trips per year for 1 entire month each trip. Now that I have been spoiled....I do get worried about losing what I am enjoying now.

It is this mindset which caused me to move into a capital preservation strategy rather than a riskier money making strategy. I still have 25% of my disposable assets in the stock market but I am satisfied to know that 75% is protected for my piece of mind.