Need advice: should we ride out fluctuations in the market

[Duppers]

now, in view of a pending recession? (We've lost quite a bit in an index fund over the last 2 months.)

Or transfer money to a money market fund?

Thanks!

- Retired & worried

[Canoe52]

1. We pulled out of the market the minute that orangeshitgibbon took office.

We assume it’s not a matter of IF he’ll crash the economy, but when.

[Duppers]

2. Where are you investing now?

[brush]

29. Money market funds, or you can do a cd ladder as rates are going up.

With all the volatility in the market with the constant swings it suggests a crash is coming so I've recently further developed the 3 mon,6 mon,9 mon, 1-year cd ladder strategy.

So far I've got cds maturing every month. I used the accured interest as income and re-invest the principle in another 6-month cd. The longer term the cd, the higher interest rate you get. My goal is to get up to a cd maturing every month with all of them being 1-year cds.

I'll do this until the market settles down. I'm not dreading what the market is going to do everyday as I'm not losing money when it goes down 5 or 600 points., plus I'm getting a check every month and my principle is safe.

[PoindexterOglethorpe]

31. What kind of rates are you getting on your cd's?

[brush]

32. My most recent rate was 2.2% but with the rates being raised it should be ihgher...

when I re-up next month. Who knows when the market will settle down so it's good for now as you get some income without watching the market drop everyday and losing.

[PoindexterOglethorpe]

33. That's my problem with cd's.

Their rates are terribly low. Below the inflation rate I believe.

I am very glad I bought a couple of annuities several years ago. I am turning them on this month and the return on them has been very good.

[progree]

34. Some of that "return" is return of principal?

Whereas the CD's 2.2% rate is the interest part only. The entire principal is available (without penalty) at the end of the term.

[PoindexterOglethorpe]

36. Oh, I know how cd's work.

That's still very little money, given that overall the market returns 10% per year. Not every year. Clearly not this year. But anyone who sold everything when Trump was elected has lost ground, because even with this current pullback the market is up since November, 2016.

No, I don't have everything in equities. I have a quite diversified portfolio, and I've been investing since the 1970s, so I've seen my share of ups and downs.

Something that has greatly bothered me here on DU is that the prediction of a terrible crash is almost a constant feature. I've never understood that.

As I've said above, I bought a couple of annuities several years back, and am now starting to collect on them. It was a smart decision to buy them, and the timing to collect is very good.

[progree]

38. I agree with you on equities vs. bonds and CDs. My problem is with comparing the yield of

annuities with that of a CD, as they aren't easily comparable. Very much apples and oranges.

[PoindexterOglethorpe]

39. That is very true. You can't really compare the two without

also looking carefully at you want from each, or either.

A bit more than six years ago my financial guy had a discussion with me about annuities. I don't know all the ins and outs of them, and I know that a lot of people are totally opposed to them. But they serve a purpose for at least some people. For me, the goal was to have a guaranteed stream of income, along with my (very small) pension and Social Security. Those three streams will just exactly cover my basic expenses: mortgage, utilities, groceries, gas for my car, basic entertainment, and so on. I still have another amount of money that I can use to enhance my standard of living, such as travel. I am not rich, but I am able to live comfortably, and especially with the recent decline in the stock market I'm feeling quite happy that the timing of when to start taking my annuities is working out so well.

[progree]

40. Yeah, I get Social Security too and income from a charitable gift annuity, so I know what you mean.

[brush]

35. My cd strategy is temporary until the market volatility eases.

I had two investment accounts and was watching them dwindle day by day with the market plunges so I had to figure out something where I wasn't losing and at least making something. I first moved into a money market fund then moved to cds.

The advantage of cds over annuities is you have control of your lump sum. Once committed to an annuity you can't access that money if you need more than what you get monthly, without a substantial penalty.

I have one but I didn't want to commit my whole portfolio to non-liquidity. When things settle down, and we have to remember trump is in office (when repugs get in the market inevitably crashes), once this volatility is over I'll be able to get back into equities and not have all of my portfolio locked in annuities.

[PoindexterOglethorpe]

37. Not all of my portfolio is in the annuities.

I do know a lot better than that. It is money that made sense to put into annuities. From the beginning I was looking for the payout to reach a specific number, and it has, so now I'm collecting. Meanwhile, there is still a bucket of money that remains invested diversely, from which I can also take income, or tap if I need a larger amount for any reason.

It's not fun watching the value of anything drop, I know.

[3Hotdogs]

3. Two things to consider.

It is difficult to time the market. That is what you (and everyone else) are wanting to do.

A sound strategy has always been to invest the same amount of money, month after month. It buys more numbers of securities in down markets, less in up markets. But the "down" purchases grow, along with the "up market" purchases.

[Duppers]

5. That's what we've been doing for the last 40yrs.

With a huge crashing coming, times are different now. It's all a gamble on the *when*. And I'm not at all optimistic about the next 10yrs.

We're in our 70s and this money is our savings that we'll need to live halfway comfortably and pay for care.

[3Hotdogs]

7. Take the money out. You will sleep better at night.

[Duppers]

11. Thank you! 🙏

[marylandblue]

4. If you are retired, most of your money should not be in the stock market.

You don't know what will happen, but if the stock market does go down, it may not recover for many years. That means when you need the money, you may be force to sell at the bottom of the market.

Bonds or money markets are safer. You'd probably do better on long term treasury bonds or a bond fund than money markets.

[Duppers]

6. Thanks! Right now its half and half.

I should have mentioned that. I'm sorry I didn't.

[marylandblue]

8. There are some rules of thumb for allocation

Here are some of them:
https://www.investopedia.com/articles/investing/062714/100-minus-your-age-outdated.asp

Your brokerage may have an asset allocation calculator or offer a fund that follows a rule. You choose a fund based on how long you expect to live, and the fund automatically reallocates the asset mix for you.

[Canoe52]

9. Agree with the previous post, after retirement one should be out of anything risky anyway.

Last edited Wed Dec 5, 2018, 05:59 PM - Edit history (1)

So we went with money market.

Actually with the current economic climate we are thinking of going 50-50
Half in the bank, half in mattresses!

[Duppers]

12. I like the way you think. 😉😄 nt

[empedocles]

26. Short term treasury bills are where the world's wealthy put money for safety.

[Even when interest rates are negative, which is rare. The idea is return OF investment].

[empedocles]

23. bonds, the old safety group, may get volatile, and even risky.

[progree]

24. True, so far this year, bond funds haven't been any safe haven -- VBMFX down 1.9% YTD

To take one example, the Vanguard Total Bond Index Fund thru Friday's (12/14) close, Down 1.9% YTD
http://performance.morningstar.com/fund/performance-return.action?t=VBMFX

I don't have that but I have VICSX (an intermediate term corporate bond fund) Down 2.41% YTD
and Fidelity Minnesota Municipal FIMIX Down 0.10% YTD

YTD = Year To Date

Long-term ones have done even worse (rising interest rates makes old bonds less valuable)

[empedocles]

25. US Treasury Bond yields from about '72 to '81, went from 5% to 15%

where bond holders lost over half their value.

Could it happen again? - sure

[Buying long bond futures in '82 was an opportunity I ruefully missed. Got stopped out early].

[progree]

28. Good point. I remember some of that - back in like 1981 the financial seminar teacher

was telling us about people stuck with 3% long-term bonds. (Well, not really stuck in them - they could have sold them for a huge loss)

Meanwhile we had like 13% inflation in the recent headlines. Back then, of course equities were "dead" (The Dow 30 bottomed out at 777 in August 1982 after having been close to 1,000 in like 1968 and again in 1972 if I remember the exact years correctly).

Business Week - The Death Of Equities (August 13, 1979 cover story. The Dow was around 800 back then).
https://web.archive.org/web/20090313020927/http://www.businessweek.com/investor/content/mar2009/pi20090310_263462.htm

[lastlib]

14. With the inversion of the treasury yield curve, short-term bonds would be safer.....

A decent rule of thumb would be (120 minus your age) as your percentage of assets in stocks/equity funds. Some investment in equity for growth will help to ensure that you don't outlive your money. Like all rules of thumb, take it with a grain of salt, and be prepared to adjust to circumstances (Donald J. tRump and his propensity to wreck everything he touches (like the economy) being a circumstance). I wouldn't blame anybody for jumping ship completely under this lunatic.

[Major Nikon]

22. That's conventional wisdom, but comes with some caveats

If you retire at an advanced age, you generally need a more predictable level of income over a shorter period of time. So it makes sense to divest from more volatile investments because you may not have time to recover from short term losses.

If you retire early with 20 or more years of life expectancy, then you are pretty much guaranteeing less income over time if you divest too early from more volatile investments that have higher average yields.

The problem is that those long term bond investments used to be a pretty good bet (at least as far as yield goes) when inflation was wildly unpredictable. Now you're lucky to get 1/3rd of the long term return compared to stocks.

This could certainly change. If dipshits like Trump get their way, we could easily return to the fucked up monetary management that Nixon ushered in and gave us many years of runaway inflation and depressed markets that heavily favored "safe" investments like long term bonds.

[CountAllVotes]

27. +1,000 !!

I was told this years ago by my bank.

They said to me, "If you are over 40+ years old or are in poor health, you should avoid the stock market."

I've pretty much stuck with this advice.

I'm not rich but I never lose. Never.

[IphengeniaBlumgarten]

10. That probably depends on when you expect to need the money.

I agree that Trump's unsteadiness will eventually do damage to the markets -- just look at his on-again-off-again antics with tariffs in the last few days. On the other hand, the markets are up substantially since he took office. (I admit I considered reducing my holdings when he was elected, but am now glad I did not, as everything has gone up enough that I feel I could weather a big drop with equanimity.)

Jumping in and out of investments can result in taxable events and commissions, which cut into your gains. But if you expect to need the money in the next year or two, you maybe should sell and put the money in something less volatile. Bonds are not particularly good at a time when interest rates are expected to go higher, like over the next few months.

Also consider that, when the market does correct, it is a very good time to buy. This might be another reason for moving some of your investments to cash.

[A HERETIC I AM]

19. Progree is right.

I was wrong

[progree]

20. Actually I think we were both right to some extent, and both wrong to some extent

I was going to save it -- I loved your list of about 15 factors to consider (health, income, risk tolerance, tax situation, etc.)

[progree]

16. Whatever you do, don't read any books or articles on finances or investing

because the authors cannot know your specific situation, and you have no ability to apply what you read to your own personal situation.
{sarcasm}.

Paying someone to give you the standard much-worn allocation advice, like your equity percentage should be 110 minus your age, is what will help you the most. {sarcasm}

(Not paying someone and instead having some white-shoe type working on commission or earning fees from what (s)he sells is even worse).

As for myself, FWIW, I am retired, and my life expectancy is about 18 years, and no market downturn has lasted that long. More like 2-7 years on average. So I'm mostly in equities. Simulations by many authors over the years in the AAII Journal and elsewhere have shown that portfolios heavy in equities last longer than those mostly in bonds or cash. In these simulations, the standard withdrawing of 4% of one's portfolio in the first year of retirement, and increasing that dollar amount each year thereafter by the rate of inflation, is tested. A variety of scenarios are tested -- lower/higher withdrawal rates, lower/higher inflation rates, lower/higher average returns, etc.

One recent book that you shouldn't read because the author doesn't know you is "Investing at Level 3" by James Cloonan. Rather than yet another tiresome book parroting conventional wisdom, he actually looks at the data. (That said, past performance does not guarantee future results).

Yes, the risk of doing living expense withdrawals while stocks are down is scary. On the other hand, more likely one would be withdrawing while stocks are high, but nobody talks about that. That said, even Cloonan advises having some allocation to fixed income and cash-like investments for living expenses in market downturns. (Interestingly, that's a form of market timing, but nobody seems to notice that).

My rants and rave --
https://www.democraticunderground.com/?com=view_post&forum=1014&pid=2212402
https://www.democraticunderground.com/?com=view_post&forum=1121&pid=1306

[Duppers]

17. Thank you so much!!

Bookmarking for reading later today. (Gotta go.)

[PoindexterOglethorpe]

21. I want to repeat what Progree says in the threads he linked to:

The market sets new highs, but it never sets new lows.

I am 70 years old. Back in 2012 I purchased two annuities. Two days ago I filled out the paperwork to start taking the income from them.

Annuities all too often get a bad rap. I'm no expert on them, but I have a financial guy I trust. I am feeling nervous about the possibility of a serious drop in the market, and taking those annuities locks in that income.

That money, plus my tiny pension, plus my Social Security covers my basic living expenses: mortgage (yes I'm still paying a mortgage at my age because of a divorce 10 years ago and it's manageable), utilities (gas, electric, water/sewer, cell phone, internet and landline), groceries, and other day-to-day expenses.

Meanwhile, there is still money that is staying invested in the market, and is available to tap if I need it.

Having all of your money in cash is rarely, if ever, a good idea. Over time inflation will destroy its value. I well recall the inflation that started in the mid-60s and lasted for 20 years. The last 20 years has seen relatively low inflation, but it's still there. Here's a link to a chart for inflation in this country since 1929. https://www.thebalance.com/u-s-inflation-rate-history-by-year-and-forecast-3306093 You'll need to scroll down a bit, but I think you'll find it informative.

[Croney]

30. My husband retires in 12 days.

We've done the spreadsheet with Fidelity and he's all set up to receive an income not too much less than he was getting, until we're both 90. Social Security starts next month too.

My modest pension has never been in stocks, I couldn't handle the worry. His money is a mix of I'm-not-sure-what, but I know a percentage is in stocks.

We're just going to go ahead with the plan, and hope a rebound comes; otherwise we'll just have to die sooner. (mostly kidding)

[PoindexterOglethorpe]

41. Why are you assuming a pending recession?

Think very carefully.

Yes, we have all lost money in the past two or seven or whatever months. But keep in mind that the market goes up and it goes down. Over time, it returns 10% a year. Not every year. Sometimes more, sometimes less. Some years it goes down. But while the market periodically posts new highs, it never posts new lows.

Think about that.

New highs. Never new lows. Stay invested for the long term.

[IronLionZion]

42. Consider a simple 3 or 4 fund portfolio

Total US Stock Market
Total US Bond Market
Total International or non-US Stock Market (If you want diversification)
Money Market

Those 4 investment categories should be good enough for anyone at any age who wants to keep things simple and low cost.

And since you're retired, when the stock market is down you can withdraw money from the bond or money market side. When the stock market is up, you can withdraw money from the stock side.

Only you can decide what the best asset allocation would be for your acceptable risk level and situation. Look at your expenses and life expectancy and other factors. You'd probably be getting some money from Social Security, you might have your home paid off, you might be on Medicare, etc.

Here's one example that is working for many retirees:
Total US Stock Market 40%
Total US Bond Market 30%
Total International or non-US Stock Market (If you want diversification) 20%
Money Market 10%

Here's one if you're on the All American plan:
Total US Stock Market 55%
Total US Bond Market 35%
Money Market 10%

The longer your timeline, the more stocks you should have. Shorter timeline, you need more in bonds and money market. There is some peace of mind that comes with simplicity. If you don't look at the market's ups and downs each day, you might live longer.