Ideas, suggestions on portfolio after retiring


Recycles dryer sheets
Jan 28, 2004
Hi everyone:

I would just like some ideas and responses as to what you would do to change your portfolio upon retiring with the following financial situation:

50 years old, single, no children or dependents.

Asssets: 1.5 mil in brokerage accounts, 500k in IRA, rental home equity of 500k, personal residence equity of 200k.

Current annual income: salary 55k, rental income 30k, pension with cola 20k. Have low-cost health insurance coverage that comes with pension.

I need 50k to 60k per year to live comfortably. Once I retire this year, my income will be the 30k rental income and 20k pension for a total of 50k. Therefore, only need a maximum of about 10k per year from my investment portfolio (unless more is needed for unforeseen (or planned) large expenses like home repair or remodel, long-term care insurance, etc.)

My current portfolio consists of 90% individual stocks and equity mutual funds (mostly large cap with a small percentage of small/mid-cap and foreign stock mutual funds) and 10% cash. I am sure this is quite risky for someone going into retirement. (Although I probably wouldn't have been able to build up my portfolio to where it is now if I was too conservative with my investments.)

However, with retirement, I would like to know what types of more conservative investments would be good now as I am concerned about preservation of capital. On the other hand, still wouldn't mind holding some equities as I still feel that over the long run, stocks will do better than bonds and other fixed income securities. I would like to leave some money to some relatives and special charities.

I realize everyone has different tolerance for risk, but just wanted to get some new ideas, attitudes, thoughts about this. Would appreciate any input. Thanks.

Wow, you're in great financial shape! Sorry if this is presumptuous of me, but if somebody with an income of $55K and expenses of $50K amassed a nest egg of $2.7M through investing, I'd want them to be my investment advisor!

You're in a position to take the absolutely safest bet and still have a hefty surplus, obviously. I'd put the whole kit and caboodle in TIPS. They'll give you income of $40K/year and the principal will be preserved on an inflation adjusted basis and guaranteed by the US Treasury.

I was able to accumulate the $$ due to luck and being frugal.  In 1986 I bought several hundred shares in a little known (at the time) stock MSFT. I later bought shares in other big-name tech stocks like CSCO and INTC and kept adding to my mutual funds.  (Like a lot of other people, I lost a lot during the tech bust between the years 2000 thru 2003 but slowly regained back value in some of these holding over the last year - I just kept holding onto almost everything because I didn't know the right time to get out.  Still don't know when to get out, so I think I'll just keep holding on to most of it for now- probably a dangerous thing, though.  To mitigate the vulnerablity, have added nothing but big cap blue chip stocks and mutual funds with some small cap funds and international funds thrown in for diversity with the approx. 500k I rec'd last year in a stock buyout of the company I work for.  My parents also got me interested in buying a couple of homes (when I was in my 20's) and the homes have escalated in value over the years.  So, a lot of this was not because I had any brains about financial matters but had quite a bit of luck and "outside help".  (It also helped that I save a lot and don't need a lot of fancy material things, although I have a decent home in a decent neighborhood and a nice but not new car.)  

Thanks for your input.  I will consider the TIPS you discussed.  
ah, gotta love those highly appreciated assets. if you're serious about charitable giving, look into charitable remainder trusts. they were practically invented for you -- avoid cap gains, get charitable deduction, get income, charity gets remainder at end of trust.
Really, you can afford to let your port do whatever you want, since your draw is minimal on the stock portion. I guess I would think about a couple of possibilities:

- I would probably move about 10% of portfolio from stocks to bonds. You would have a lot more stability and probably would get enough interest income to makeup your remaining income needs in retirement. That way you could pretty much do whatever you like with the equity port.

- If you have a ton of very volatile tech stocks, it might make sense to try to tamp down on the volatility now that you are retired. If you want to stay in the individual tech stocks, you coud put collars on some of the positions (i.e. buy out of the money puts on some of the tech stuff and pay for it by selling out of the money calls). If you are comfy doing some selling, it might make sense to sell down some tech positions and put the proceeds in utilities, high quality publicly traded LPs, and maybe something like WTR. All of these things have very low betas and throw off a good deal of tax preferenced dividends.

- Dunno how happy you are with your rental properties, but you probably have enough equity that you could sell the properties, do a tax free exchange, and buy up to $2 million worth of a single larger property. If you bought, say, an apartment complex, you could pretty easily afford to have someone do the caretaking full time, and the right property would probably flow at least as much cash ay you have now.

Could I interest you in meeting my 41 year old daughter?


Thank you for all the ideas you posted. I like the idea of putting some of the portfolio in bonds and whittling down some of the more volatile stocks.

I am happy with my single-family rental homes. The idea of purchasing a multi-unit rental property is nice, but my father (who is 85, had a stroke, and is now in a nursing home) owns a small hotel and a 4-plex that will eventually come under the control and ownership of my 3 siblings and myself. So, don't think I want to get involved in any more apartment-like properties.

I will be considering the other ideas you posted as well.

Thanks again!.


I chuckled to myself when I read your post about taking an "interest" in your 41 year old daughter. I don't think it will work as I am heterosexual and I am sure your daughter is, too. (hehe)

Anyway, enjoyed your cute and funny post!

Heh, it's amazing how gender assumptions can throw you off. I just assumed you were a very polite and articulate male. Of course, I should have realized there is no such thing :)
Some other investment ideas off the top of my head, some gleaned from other conversations here, some from my own portfolio:

TIPS, as mentioned, provide a nice buffer from inflation. Not a lot of return premium over inflation, but with a large enough portfolio you dont need it. You can buy them directly through treasurydirect or via a fund such as vanguards tips fund.

Energy and commodities. Energy resources are getting shorter every day, in the medium to long haul prices are going to go up substantially and bring profitability along with them. Exploration and drilling/mining will become more economically feasible. Vanguards Energy fund is a top returner. Commodities also offer diversification and inflation hedging. There are several funds that have done well and specialize in commodities. I think Oppenheimer and Putnam have a couple of the leaders here. I dont own either of those, but i'm dipping into the energy fund.

Merger funds. These make their money off of merger arbitrage. I've owned MERFX for years. One downside is when the economy goes to hell in a basket, like the last 3 years, companies stop buying each other, so its more synchronized with the stock market than some other diversity investments, but as long as some sector is still doing well, there is arbitrage to be had. The fund has had a nice annual return for a long time, because regardless of good stocks or bad, good performance or bad, there is a spread to be made on these deals and as long as they're happening, that money is there.

Convertible securities. Bond/stock hybrids that work and pay like a corporate bond and can usually be converted to the companies stock if you desire. Nice way to "almost buy" a companies stock that might be struggling, get paid at a premium/risk thats just below a high yield bond, and if the company recovers, you can convert to the stock and pick up that extra return. Can be bought individually or through a fund like Vanguards Convertible Securities. I have owned this fund in the past and will be buying some in the next 3-6 months.

I think these should give you some varied options in diversification away from high flying stocks.
Hello TH. Re. your other investment ideas, far be it from
me to tell anyone what to do with their money, but most
of this stuff is far too complex for me to worry about.
My former life was quite complex and my ER life is now quite simple.
I would like for it to continue that way.

John Galt
Whats so complicated?

Energy companies pump gas and oil out of the ground. Virtually all of the worlds economies hinge on its availability and use. Usage increases year on year. Supply is limited and being reduced daily. Increasing demand of a reducing resource that cant easily be replaced by anything else = revenue + profit = good investment opportunity. 12% return on investment annually over the past 20 years, and beats the pants off the s&p500 over 1, 3, 5, and 10 year periods.

Arbitrage. When one company buys another, the stock of the buyer usually falls and the stock of the bought company often rises. There's a margin to be made and it only bites you if the deal doesnt go through. Buying it in a fund leaves someone else to do the math on who might buy who and what the odds are the deal will go through. Returns 8% like clockwork.

Convertible securities? Heck, they're corporate bonds and you understand those, right? Only difference is the smart funds buy the convertibles of companies that are going through a tough period, and if they come out of the tough period you may be able to instantly convert the bond into shares of the company stock at a low price. Otherwise just keep taking the interest payments and call it even.

Energy income only stops if we find an alternate source to replace oil and gas, and then it'll take 20-40 years for the world to convert. Pretty safe bet there.

Mergers only stop if the economy screeches to a halt, the stock market drops like a rock, and business overall in every sector is bad.

Convertibles keep paying the money no matter what.

But if they're too complex and scary, dont buy them! :)
I would be inclined to put 3-4 yrs of the extra cash needed to cover living expenses as needed into a short term corp. fund and keep on doing what you've been doing.

With your margin of safety portfolio volitility may not be that scary. If you get some ideas to further diversify from these posts - so much the better. And if you enjoy picking individual stocks - keep it up.
Arbitrage.  When one company buys another, the stock of the buyer usually falls and the stock of the bought company often rises.  There's a margin to be made and it only bites you if the deal doesnt go through.  Buying it in a fund leaves someone else to do the math on who might buy who and what the odds are the deal will go through.  Returns 8% like clockwork.
Unless the clock stops working. Ever hear of LTCM?
Oh lord. Choose any investment option. Someone will pull an example where somebody else was a criminal and made it bad.

The LTCM story is pretty interesting, I think. They lost $4.5 billion in a 5 week period on supposedly "sure bets" including merger arbitrage. If you get the chance, pick up the book "When Genius Failed." The only real take-home messages are to stay away from leverage and realize that improbable events become inevitable over time, but it's an exciting story as far as financial non-fiction goes.
I also recommend When Genius Failed. Another important lesson from the book is about hubris. Two options giants, both nobel prize winners, were involved along with a lot of quants (elite university math PhDs). Even when the house of cards was falling, these guys (at least the quants) wouldn't acknowledge a problem. That "black swan," or perfect storm, events occur more often than expected (the fat tails of the bell curve) is also a good lesson for the FIRE people.
I like the idea of putting some of the portfolio in bonds and whittling down some of the more volatile stocks. <snip>

The idea of purchasing a multi-unit rental property is nice, but my father (who is 85, had a stroke, and is now in a nursing home) owns a small hotel and a 4-plex that will eventually come under the control and ownership of my 3 siblings and myself.

Dear Toe,

Sorry to heart about your father. I hope he makes a good recovery

It is pleasant to have the chance to offer suggestions to someone who really has no financial problem. I would add a couple of things to what has been said. Number one, get yourself an experienced and trustworthy insurance agent. Be sure you have no substantial exposures. You are in the lucky position of being able to play a defensive game, so exploit that advantage.

Second, if you sell some stock, get a good accountant and keep a sharp eye open to AMT in your tax position. You don't want to lose any of the benefit of the new cap on CG tax.

And lastly, I would think long and hard about buying any bonds in size, other than TIPs or short term governments. The natural buyers for long term non-indexed bonds are pension funds, as they are mostly benchmarked to their fixed pension obligations. As individuals, we want real return, not nominal. So, IMO, non-indexed long term bonds are apt to be overpriced, relative to the inflation and interest rate risk built into them.

Now I would like to ask a question of you. Could you tell me a little about the small hotel? Can these be viable businesses? My dad ran a bar and a small apartment building that he ran as a "weekly hotel". He did have daily (and at times hourly) guests, but mostly it was sem-permanent older men with some pension and some drinking habit, who didn't want housekeeping responsibilities. I think today in most places his operation would be economically non-viable or illegal in various ways. I was pretty young, so my only experience in it was cleanup, painting, etc. I really never saw the books. Probably no one did.

I am interested though, and have wondered about the possibilities.

Any comments you might offer would be appreciated. You could use this forum, or message me if you don't think there would be much general interest.

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