Placed New IRA Account all in Money Market Funds

[Healthy Lifestyle]

My 2 cents worth. You're OK being 100% in high-yield money market for the moment. But eventually (maybe month, maybe years) the MM will starting paying crap and best to have a plan before that happens. There's no rush but I would slowly move some of it into stocks.

I am keeping a close eye on what the FED is doing and believe they will push us into a recession possibly by the end of this year.

I would like to have my asset allocation plan in place before the FED starts lowering interest rates or earlier than that.

Thankful for all of your opinions, as it has caused me to think outside the box.

 

[snappytom]

I am in a situation like yours having recently retired and rolled my (not roth) 401K to an IRA. The 401k was about 40% equities but all went to cash (4.5% MM) during the rollover. I am building a CD ladder with no maturities longer than 12 months, but am not yet looking at getting back in to equities. We already have significant equity exposure outside of this IRA so I am in no hurry to plow more money in at this age.

Basically chasing small % increases with CD's at this point and I do feel the need to develop a longer term plan for this account. That plan will include stocks but also rely on low risk fixed income that allows me to sleep soundly at night.

 

[rkser]

I usually ran 70-80% stock AA, but have lowered to roughly 60% since Jan 2022. And I sell OTM covered calls on the ETFs and individual stocks that I hold. Individual stocks inside the S&P 500 often have much higher volatility than the S&P. Holding individual stocks lets you see the crazy sector rotation, which I try to take advantage of via selling options (I do not buy options, and only sell them).

The remaining 40% of portfolio is in I bonds, a stable value fund, and also a short-term Treasury fund. I sell OTM cash-covered puts, and that boosts up the yield on my cash.

I have very little bonds. Thought about putting in the time to follow them, but I already spend plenty of time on my option selling effort and that makes good money already, so do not have time for bond investing.

The above is not for everyone, as it is quite active investing though not as much as day trading. It's more like week or at most month trading as my option expiries are that short.

PS. Taken together, although I choose the strike prices of the OTM options to avoid assignments (30% chance or lower), when the market goes crazy the options force me to buy low/sell high. Overall, it helps the return. However, you must be able to conquer greed/fear to do this.

How busy/active does one need to be learning/playing the Options game.

I am a retired 66yr old, with majority of savings in taxable accounts, I have been a buy & hold investor.

I do not know anything about or play the Options, would it be worth it for me to learn & play options ? How much time in a day does it take in front of computer ?

Thanks for any info about Options.

 

[Dash man]

How busy/active does one need to be learning/playing the Options game.



I am a retired 66yr old, with majority of savings in taxable accounts, I have been a buy & hold investor.



I do not know anything about or play the Options, would it be worth it for me to learn & play options ? How much time in a day does it take in front of computer ?



Thanks for any info about Options.

Learning about options is not difficult for buying and selling basic calls and puts. Lots of info on YouTube. I only trade options in my Roth IRA so I don’t have to worry about taxes, though it’s really not that difficult if you import your 1099 data into your tax software. I typically sell out of the money covered calls and cash covered puts, which are the safest ways to trade options.

 

[rkser]

I too can start with our Roth accounts to keep it simple, an acquaintance had mentioned he makes about 3% extra on his savings, I will be happy to get that gain. How involved is it ?

Where do I look for learning more ?, any particular channel I look for on YouTube

Thanks for your help & info

 

[rkser]

I do not want to hijack this thread, I will start another asking for info & help.

Thanks again

 

[Dash man]

I do not want to hijack this thread, I will start another asking for info & help.



Thanks again

Just search on “Options trading for beginners” in YouTube and Google.

 

[rkser]

Yes, got it

 

[NW-Bound]

To keep it in the same vein as the OP's question regarding putting all his money in safe MM funds paying 4.5%, I will repeat what is commonly known. That is, you can either have it "safe" and watch your money slowly losing its value by erosion from inflation, or take a bit of risk in order to out-run inflation.

How much risk? Ah, there's the rub. The higher the risk, the higher the potential reward, with the stress on the word "potential". With something like Tesla stock shares, you can double your money in a few months, or lose 1/2 of it in the same amount of time. Too risky for me.

I am risk averse, so take smaller risks for a smaller reward. Something like a few extra percent each year from option selling is plenty good for me. And this is on top of what I gain from the market long-term (yes, I believe in the market), and on top of the interest I get from the fixed income portion.

Although I don't want to take too much risk, the option premium I have been collecting is already way more than what I spend. A nice thing about option selling is you choose the level of risk you want to take.

Lower risk means lower reward but a higher certainty of actually getting it, compared to the chance of doubling your money buying "hot" stocks. It's not hard to get an extra 3 to 5% each year, on either your stocks or your cash with selling covered options.

 

[rkser]

NW,

How much time does one need daily to trade options on ?
How involved is it ?

Thanks

 

[Healthy Lifestyle]

I am in a situation like yours having recently retired and rolled my (not roth) 401K to an IRA. The 401k was about 40% equities but all went to cash (4.5% MM) during the rollover. I am building a CD ladder with no maturities longer than 12 months, but am not yet looking at getting back in to equities. We already have significant equity exposure outside of this IRA so I am in no hurry to plow more money in at this age.

Basically chasing small % increases with CD's at this point and I do feel the need to develop a longer term plan for this account. That plan will include stocks but also rely on low risk fixed income that allows me to sleep soundly at night.

SnappyTom, thanks for your input!
We are in a similar situation as we continue on from the accumulation phase to now what is the decumulation/protection phase. I prefer to keep it simple stupid, as I try to follow the Boglehead approach. I never had an interest in options since I know a family member who lost too much money options trading.

 

[Lsbcal]

Hoping to hear opinions good and bad based on my latest decision considering market conditions. The Fed will continue increasing interest rates throughout the year which will lower bond fund prices, but increase bond yields, what to do?

I recently retired (66) and rolled over my 401K to an IRA account at Merrill Edge. I am married and wife (64) still working.
I am also planning to delay SSI until age 70.

My entire Tax deferred cash account (large) was recently placed in Merrill Edge MMF's yielding ~4.5% at the moment.
Do you think this was the right decision at my age, or should I have stayed with a 2-3 fund 55/45 portfolio?

Look forward to any and all thoughts.

Thanks!

If you intend to put some bonds in the tax deferred area, I think TIPS are a good way to go now. Yes they could go higher but if held to maturity you get a guaranteed real return and after that there would be reinvestment risk. They are now paying close to historical real rates of return of nominal bonds. The 5yr TIPS is at 1.7%. You can create a ladder too.

 

[NW-Bound]

NW,

How much time does one need daily to trade options on ?
How involved is it ?

Thanks

I saw your question just now.

It depends on how many trades you want to make, your style of trading, and the size of your stash or rather how much equity and cash you want to put on the line to back up your covered options. It's like asking how much time a guy spends on his gardening activities.

The accounts I use for active trading are low 7-figures. I tend to make many small bets, and usually sell more than a dozen contracts each trading day on the average. I spend anywhere from 1 to 3 hours each day. For this effort, I collect on the average $200K to $300K each year.

This year, I have collected $50K YTD. Although I started to dabble in this since 2000, I only started being more active 4 years ago, ever since the transaction for option trading dropped down to 35c per contract for my Merrill Edge accounts. The cost was $29.95/contract or so at Schwab back in 2000. Even at $7/contract later on, I could not trade very much at all.

Quicken shows me that for the last 4 years, I have collected more than $1M in option premium.


PS. Running Man started a thread on this subject of covered option selling: https://www.early-retirement.org/forums/f44/selling-covered-calls-and-naked-puts-109853.html.

 

[DangerDad]

>>I recently retired (66) and rolled over my 401K to an IRA account at Merrill Edge.<<

I suspect that the 401k (now in Merrill Edge IRA) did not represent all of your investable assets..?

Therefore, in order to weigh in on your decision I’d want to know about your overall asset allocation (stocks/equity : bonds: cash equivalent) before and after the move you made into money market fund.

Then we can have a conversation re recommended asset allocation for a 66 y/o retired person. Of corse you’ll get a wide range of rec’s regarding asset allocation for your situation.

Assuming you’re in good health you could easily expect a 20+ year retirement—therefore I think zero equity would be a big mistake. Furthermore, if you sold all the equity in your 401k to bulk up on cash equivalent (MMF) and then you’re thinking of moving back into equity some time in the future, this is basically market timing which is generally frowned upon.

Best of luck.

 

[meleana]

Hoping to hear opinions good and bad based on my latest decision considering market conditions. The Fed will continue increasing interest rates throughout the year which will lower bond fund prices, but increase bond yields, what to do?

I recently retired (66) and rolled over my 401K to an IRA account at Merrill Edge. I am married and wife (64) still working.
I am also planning to delay SSI until age 70.

My entire Tax deferred cash account (large) was recently placed in Merrill Edge MMF's yielding ~4.5% at the moment.
Do you think this was the right decision at my age, or should I have stayed with a 2-3 fund 55/45 portfolio?

Look forward to any and all thoughts.

Thanks!

Yes. My husband did that with a lump sum pension a few years ago and waited to see what he’d want to invest it in. Now in a couple of bond etfs. He retired in 2019 and he actually has left his 401k were it’s the employer because it’s in a stable value fund with just 10 percent in company stock.

He does have some traditional Ira money in bond funds and Roth money in stock funds.

 

[Doc0]

I bought treasuries with my wad. worst that can happen is I hold em to maturity and I get paid. TIPS are great till the recesson happens. If your MM stays at 4.5% that's pretty good but if the FED cuts, that 4.5 isn't going to hold. I didn't buy any CD's given what's going on with banks.

 

[target2019]

I am keeping a close eye on what the FED is doing and believe they will push us into a recession possibly by the end of this year.

I would like to have my asset allocation plan in place before the FED starts lowering interest rates or earlier than that.

Thankful for all of your opinions, as it has caused me to think outside the box.

Watching the FED can help, but I wouldn't bank on it!


I did similar to what you've done, and went all to MMF initially, but also made starting positions in stock allocation.

2-3 years later I am getting close to desired allocation of 60/40 equity to fixed.

I believe more strongly in AA than I do in FED.

If you wait for perfect timing it may never come.