Good thing we cleaned out our 529 for my son’s college expenses in mid November. Of course, this is making it tougher to save for the next son who enters college in a couple years…
Yep. If you’re not thinking long term, you should not be in the stock market.
Yeah, but it was a lot easier for me to shrug off dips in the market when the distance to my retirement was more easily measured in decades than years.
We are in the same position. We have money we’d like to get a steady annual return on and I am wondering where we will put it? We need to pull out a certain percentage every year for expenses so years where there’s no yield will hurt. Years where we get 5% would be great because we wouldn’t have to touch it.
Over 10 years or more the stock market probably evens out to a decent yield but would really like something steady.
Sadly it’s not really feasible to get a steady annualized return these days, with interest on CDs and the like still really low. What I’ve done is split my investments into three parts:
One: The bulk is in long term standard stock market index investments, in my case an S&P 500 index fund. The idea is that I won’t touch this for at least 10 years.
Two: A chunk that is enough to live on for 10-ish years, in bond mutual funds…lower risk than stocks, lower return long term. Every year or two I take a big chunk out of this to live on.
Three: Emergency backup, in low yield CDs (effectively no interest). Enough to live on for a year in case things completely go south and I need to go back to work or something. Also a health savings account in case of some kind of bad health news.
No plan is foolproof, of course, but the different layers of investment give me the ability to wait, watch, and react to long term trends without worrying about the everyday changes. So all the stock market gyrations and tariff news and so on don’t really have an impact on my investment strategy. Sure, I pay attention and it’s fun to talk about on the forums, but it’s not gonna change what I’m doing with my money.
This sounds like a somewhat odd methodology. While I understand the long-termism idea behind your approach to equities, the standard advice is to gradually reduce your equities allocation and increase your bond allocation as you get older, so you don’t get hit by a stock market collapse just as you retire. Your approach is going to gradually (possibly rapidly) increase your equities allocation instead.
Not sure why you’re taking anything out of the bond bucket at all, unless you’re already retired.
Yeah, I probably should have provided context…I’m semi-retired already. Not working on a regular basis, just occasional consulting gigs (and volunteer work but that’s unpaid). Think of it as a two-tiered retirement approach. Tier 1 right now, and what most people think of as real retirement is tier 2 in the future. So I have a use case for both current income, and saving for the future. But even if you’re just a few years away from full-on retirement you can think of it in similar terms, if you’re not happy with the return available from low-risk investments today.
Even so, I’d consider drawing down from the equities instead of (or at least as well as) the bonds. You’re reducing your upside, it’s true, but you should also be reducing your downside, which is more important at this stage of saving, as there’s less time to recover any losses through mean reversion.
No word yet on the exact charges for Meng, but word at the moment is that it’s for Huawei violating Iran sanctions.
This is a BFD because of the possibility of reprisals.
Yeah, if I were an exec for a big American company in China, I’d be getting out of there ASAP.
I’m also retired, though still well below social security eligibility (I’m 57).
What I’ve done is this:
10% of my assets are in a real estate property I rent out for income. It yields about 3.5 - 4% after expenses.
15% is in high interest savings accounts, yielding about 2%.
The rest is in Vanguard, split 65% between their Admiral bond index fund and 35% Admiral stock index funds. That portfolio yields about 4%.
I don’t touch the Vanguard stuff, all the returns get reinvested when I rebalance. I live on the income from the cash and property. The cash value is slowly declining as I spend more than I make, but at current pace it will last 10 years.
I guess I’m conservative when it comes to investing.
You are probably building up equity, too, I would guess. This might end up being your best investment. My GF wants to buy a 4-family and live in one unit and rent the other three. It worries me a bit because I am not good at home repairs. It would also take a big chunk of the retirement money.
OTOH it would pay for our place and hopefully build up equity. She could sell it at some point and make some money.
Someone should start a retirement investment topic.
I’m close to retirement (planning to retire in January of 2021) so I’ve got a lot at stake here too.
One thing people who’ve only started investing recently maybe don’t understand is that it’s not at all uncommon for the stock market to decline 10 or 20% in a quarter. It’s not unusual but it hasn’t occurred much since the recovery after 2008. The market has been unusually quiet and mostly advancing since then, which makes us lazy and fat!
Here’s an analysis of price movements from seeking alpha:
And the bottom lines:
- 57% of quarters have a price at least 10% below the 4 quarter trailing high (average 2.27 times per year)
- 18% of quarters have a price at least 20% below the 4 quarter trailing high (average 0.73 times per year)
So I feel to a large extent people getting all freaked out about the recent price movements is a bit overblown (that said, if your investment allocations keep you up at night, fix them!). Stocks fluctuate. And yeah, we might have a big downturn… you could argue that we’re due for one. But I maintain still that nobody knows really when that’s going to happen, and to pull your money out of the market because you think a crash is coming is… probably not the best course of action, given historical records.
As for allocation of funds, I’m more or less following the recommendation laid out in Michael Kitces’ “bond tent” stragegy: https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/
For those who don’t want to reatd the article, it recommends that you move more and more of your portfolio to bonds as you approach retirement - when you retire you should have something like 70% of your portfolio in bonds. This protects you from market fluctuations right as you retire. But as you retire, you gradually move your mix back towards equities, and in the end you will end up with like 30% in bonds and 70% in equities (because one big issue retirees have is being too conservative with their investing after they retire, which can lead to them running out of money before they die).
Yes, and it helps that it is mortgage-free and was a new build when I bought it, so maintenance costs have been low.
It also helps to be debt-free. I’ve basically kept 10 years living expenses in cash at the best rates I can get, so that I don’t have to touch the retirement money until I’m 68. By then we’ll have some SS income, so maybe not even then. We live well enough, but don’t spend a lot on everyday living. What we do spend is on travel, which is the way we want it.
That’s our plan. We don’t seem to buy much anymore. I’d say going out to dinner is our biggest luxury expense. We will be happy living in a smaller place. I think the GF is going to enroll in some kind of educational program for two years in Italy, so that will be our first stop. After that I don’t know.
In a better world, there is a lamppost desígnated for Jamie.
And Trump will look at a chart like that and respond in one of two says:
“Ohh, look at the pretty colors!”
or
“WTF do I care? I won’t be in office by the time it matters.”
“That darned Obama!”