Not sure what “good investing” means. Beating the equity market’s performance on my entire assets, I feel I’ve got that covered okay. At least the past few years. Who knows about the future? No one.
No guarantees on how much the market will drop and when. Investing 100% in equities, should you need some of that money in a relatively short time frame, 5-8 years or so, isn’t prudent, IMO. There are bulls and bears but also pigs.
Like I said before, it isn’t a market timing strategy as much as a asset allocation strategy. I don’t care for bonds right now so a cash/equities barbell is an option.
Sequence of returns risk is something that can surprise those who think that every correction is overcome in a year or two. Ask a Japanese Investor.
A 50% drop in equities would be tough for recent retirees, but welcomed by those in early accumulation. We are late in our accumulation, so a bit agnostic.
Detour: Anyone have Long Term Care insurance? I’m interested in comparing notes. We purchased ours about 10 years ago (when in our 50’s). Decent plan compared to what is available today. The sales pitch at the time was that the company had NEVER had a price increase (good company, well-rated, long history). Well, it has increased 15%/year each year for the past 3-4 years. Just so happen to coincide when we turned 60. Supposedly it is against the law to increase based on age or health, and rather must increase equally for all, but it just so happened to coincide when we turned 60. We’re going to keep it, but are given the choice to maintain the premium, and reduce the expected monthly benefit. Haven’t decided yet.
I am assuming you and your spouse are wise, educated (in investing) and therefore “good” investors, @doschicos. Diversified with accessible liquid investments. How long will the 4 yrs of cash stay in an account with a negligible interest rate? Just seems if a chunk of that was invested in drivel or mutual funds, if it goes up, say 10% and then drops 8% and you sell to pull out the cash, assuming you use a low fee brokerage firm, you are still ahead of the game. Maybe I am missing something.
I don’t have it because I don’t think it works, generally speaking.
Google the topic and search under the “news” category. There are a number of articles recently about the topic, mostly related to GE having to take some large charges against policies that they have reinsured (written by others). I believe there will be a lot of policies that don’t pay. Not sure which ones those will be. In any case, doing some reading will help with your decisions.
@jym626 , we have something like 25 years of residual expenses in fixed income. It will probably lose money, at least in inflation adjusted terms. We are grateful that we can do that, because we are up 2 goals with 1 minute left in the game, why be so silly as to pull the goalie to see if we can be up by 3 goals at the end of the game? Sorry for the sports analogy
“If it goes up, say 10% and then drops 8% and you sell to pull out the cash, assuming you use a low fee brokerage firm, you are still ahead of the game. Maybe I am missing something.”
In your scenario, you’re not missing something. However, if equities drop 50%, and take 5 or 10 years to recover, well, that’s a very different outcome.
To add: We happen to be kinda cash heavy at the moment as DH is looking for where he wants to invest it. It’s earning almost nothin, like my online savings account, which also probably has too much sitting in it (if we really needed to tighten our belts, we could probably live off what is in the online savings account for many months, assuming no big purchases, remodels, etc). The money that DH has perked in the investment account is just a temporary park. He will put (invest) most of it somewhere, probably leaving a little cash if he wants to have it available. With the. stopgaps put into the system now to prevent a huge one day market crash, its unlikely one would have to worry about that.
@kjofkw@dadx is right-- we were just talking about this last night, because our long term care policy is with Genworth, which was the premium when we bought it. We will be looking at what the premiums are likely to do.
There were threads on LTC here previously. Do a search on cc for them.
There is a difference between keeping enough cash on hand because one feels they may need to spend the money and depend on it to be there…and just sitting it out for years waiting for the optimal situation to invest, based upon whomever is in power.
It drives me crazy to have too much cash sitting there doing nothing, which we certainly have had over the years. We keep thinking, “The market has to plummet, we’ll invest it then”. And then when the market takes a big dip, we’re too worried to invest it. We finally got mostly in, but my parents have been doing that for decades. Completely fearful and paralyzed, no matter what we suggest.
There are CDs and bonds that folks can buy to stash funds as an alternative than just equities/stock market.
We do not have 4 years of cash sitting around tho we have some cash in CDs. H gets a pension plus we have one of his retirement accounts in government bonds so it’s guaranteed (TSP g fund). We sleep well at night, which seems to be the main point.
I don’t know about the sleeping well at night. I’m not worried about money, but my work schedule has totally messed up my sleep schedule, and my usual 8 hours is down to 6.
Of course, perhaps if I had mounds of money built up, maybe I wouldn’t have a work schedule. B-)
No pensions here, and the four years cash was never in the market and never will be; it’s our living expenses for the next four years. Our investment portfolio is adequate to last us the rest of our lives, we just don’t want to touch it before 65. We’ve always had at least two years living expenses in cash just because that is how we sleep at night. It doesn’t please our broker, but we don’t listen to everything she says. We both have LTC.
@busdriver11, at least you’re not worried that you won’t have funds if the market suddenly dips or tanks a bit, as it has been known to do. Yes, scheduling can play havoc on circadian rythums and sleep—hope things improve on that front. Sleepy pilots can be dangerous.
True, HImom. But thank God for coffee! I’m not generally sleepy when I fly though, my problem is that my body has started to get used to 6 hours lately, when I know I need 8. Gotta stop napping with the dog.
I’m definitely not worried if the market dips or even crashes. I’m more annoyed when the market goes up and we’re not fully invested. If there was money I needed fairly soon, I would not have it in the market. We do look at our HELOC as an emergency fund. Not using it now, but it is there at a low interest rate should we need it.
I’d say we have about 60% in equities (not including our home). The number is much lower than we would have planned, however much of our net worth is in rental properties that have appreciated. And we’re not willing to get rid of those, even though they’re a little bit of work.
I guess it depends on what you’re including in net worth—investable assets or the equity of real estate as well. Also, do you also calculate a value for present day value of any pension.
John Bogle has as a rule of thumb to have your 100 or 110 minus your age in equities in a low cost no load broad index fund.
That’s for his retirement account. For non-retirement account he has 80% in equity and 20% in fixed income. I don’t think he has much in real estate investment. He may include real estate investment in equity holdings.
