How much of my money should I invest

Investing Strategies Retirement Investing
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Hello Everyone,
First time post. I’ve looked over the many posts in this section and don’t feel I’ve found a clear idea (if there is one) to my question:
I have been using the Motley Fool retirement portfolio as a guide to choosing stocks at my age (70). The one question I’m still trying to find the answer to is how much of my money should remain in cash and how much should be invested across the portfolio suggestions (or otherwise). I’ve heard in the past to look at your monthly budget and multiply it times 3 or 6 months and invest the remaining in the market. If anyone has any light they can shine on this or an article or two they can point me toward, it would be much appreciated. Thank you.

Thomas

2

Hello Everyone,
First time post. I’ve looked over the many posts in this section and don’t feel I’ve found a clear idea (if there is one) to my question:
I have been using the Motley Fool retirement portfolio as a guide to choosing stocks at my age (70). The one question I’m still trying to find the answer to is how much of my money should remain in cash and how much should be invested across the portfolio suggestions (or otherwise). I’ve heard in the past to look at your monthly budget and multiply it times 3 or 6 months and invest the remaining in the market. If anyone has any light they can shine on this or an article or two they can point me toward, it would be much appreciated. Thank you.

Thomas

Welcome Thomas

I am sure others will be along to provide advice. There is wealth of information on this board…

That 3 or 6 months of expenses is a cash reserve intended to carry you over a temporary crisis insulating you from having to withdraw from your portfolio in a down market. First, I think a dollar amount based on six months expenses is simplistic and way too little. You could experience a sudden financial need outside of and well above your regular monthly living expenses, think major medical issue or home destroyed in a fire, not just monthly groceries and utilities. Next, the market is perfectly capable of going bear and staying that way for several years. So a six month cushion based soley on monthly expense is insufficient.

Also a minimum cash reserve should take into effect other income you may have, pension, SS, something else. Not all your expenses have to come from your portfolio.

Some, myself included prefer to keep a percentage in cash, be it 10%, 15% or more which could be two or three years of living expenses.

Secondly, whatever you do put into the market, individual stocks are a risky way to go. The TMF recommendations don’t improve that picture in many peoples opinion. Many here use mutual funds, and especially index funds, for the bulk of their stock investments and then maybe allocate 10% or 20% to individual stocks. You may want to start with a broad index fund like the S&P500 and trickle your funds into specific stocks as time passes and you gain experience with stock selection.

Good Luck.

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Thomas writes:

First time post. I’ve looked over the many posts in this section and don’t feel I’ve found a clear idea (if there is one) to my question:
I have been using the Motley Fool retirement portfolio as a guide to choosing stocks at my age (70). The one question I’m still trying to find the answer to is how much of my money should remain in cash and how much should be invested across the portfolio suggestions (or otherwise). I’ve heard in the past to look at your monthly budget and multiply it times 3 or 6 months and invest the remaining in the market. If anyone has any light they can shine on this or an article or two they can point me toward, it would be much appreciated. Thank you.

Run far and fast on the equity side of your investments from a portfolio of individual stocks unless your core investment portfolio for equities is primarily already made up of index funds (US and International).

You didn’t provide enough information regarding what percentage of your retirement income needs to come from your investment portfolio. Assuming you have SS, do you also have a pension? How about real estate income? Royalties? Plenty of opinions on how large the emergency fund should be as well as the next layer of assets to cover your expenses in retirement.

Dive into the excellent annual guide from JP Morgan on retirement. You can find it here: https://am.jpmorgan.com/us/en/asset-management/adv/insights/…

BB

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I noticed that the JP Morgan retirement guide doesn’t cover the effect of fees, commissions, and trading costs on your retirement income. If you’re losing the 2% per year in client fees that Wall Street’s business model demands, you need to save twice as much for retirement.

intercst

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Run far and fast on the equity side of your investments from a portfolio of individual stocks unless your core investment portfolio for equities is primarily already made up of index funds (US and International).

You didn’t provide enough information…

He didn’t. We don’t really know his experience with stocks. If he’s a novice/newby, then I agree. Stick with index funds. If he’s more experienced, individual stocks can be fine. People like Saul (who I believe is over 70) have made it a hobby, and are doing quite well.

We also don’t know if he’s relying on SS, for example, or if he’s got a huge nest egg, or what.

That’s why I hesitated to reply to his question.

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The one question I’m still trying to find the answer to is how much of my money should remain in cash and how much should be invested across the portfolio suggestions (or otherwise).

The cash/bond part of your portfolio should be expected to underperform the stock (and REIT, if used) portion over the long term. Its purpose is to reduce volatility over the short term. The immediate need is for current expenses, and just after that is to reduce the bad effect of volatility for the next few years of withdrawal needs. That is, if the stock market goes down, the money you need to “sell low” to withdraw and live on won’t be around for the eventual return of market growth.

So, to guess how much of your portfolio should be in cash or bonds, you’d need to know how much of your annual needs are met by your pension plus social security plus other non-stock income. Another part of that calculation is your temperament. Some people could monetarily hold an 80/20 stock/bond allocation through a bad drawdown (like 2000-2003 or 2008-2009), but can’t do it psychologically. It doesn’t do any good to have a mathematically ideal plan that you can’t stick to in real life.

You’d also need to consider just what part of the stock market you’re invested in. I have good confidence that my S&P500 index fund and my US Total Market fund will recover after a 40% or even 50% drawdown (and they have done so a couple times). You can’t have the same assurance with individual stocks. (Example: GE stock…once ~4% of the S&P500 Index, and held up as an example of a well-run company, look at its ten year performance.)

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I noticed that the JP Morgan retirement guide doesn’t cover the effect of fees, commissions, and trading costs on your retirement income. If you’re losing the 2% per year in client fees that Wall Street’s business model demands, you need to save twice as much for retirement.

intercst

LOL!

My intent was to point out the excellent information within their annual guide for a DIY investor. I was not intending to encourage anyone to pay an AUM fee by hiring a firm to manage their money. The guide has practical information for everyone, no need to be a client of JP Morgan.

BB

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You can’t really answer this as a percentage, because it’s different if you have $300,000 or $10 million.

As a general rule (and with exceptions) the “3 to 6 months cash” advice is to get you past personal issues: you lose your job, your house burns down, your uninsured car goes into a lake, you have a medical issue and have big deductibles or uncovered expenses, and so on. That’s 3-6 months at a minimum and most everybody should have that.

If you have a lot of money, then I’d counsel to have a couple of years’ worth in some sort of liquid form. If/when the market tanks, sometimes it bounces back quickly (2020), and sometimes it climbs out of the hole more slowly (2008) and occasionally not at all (1929) at least for a retiree’s lifetime.

The idea is to prevent you from having to liquidate stocks to cover expenses while the stocks are possibly underwater, so you’ve invested $10,000 to get $5,000 back to pay the mortgage. Some stocks are less vulnerable to downturns (utilities, etc.) and some are wildly volatile (meme stocks, some tech) and a lot are in between.

There are other things that are liquid, like silver & gold, but they too are subject to swings. And there’s real estate, which usually doesn’t go down, but depending on the market, what you bought and where, and general conditions sometimes does - but real estate is never liquid, unless you buy a REIT which is very very much like a stock.

Do you have $300,000? Then have 6 months cash and hope for the best. Do you have $10 million? Then keep a few or several hundred thousand out to cover the NetJet fees and the servants, and find something good to invest in with the rest.

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". If anyone has any light they can shine on this or an article or two they can point me toward, it would be much appreciated. Thank you.

Thomas "

First of all, be aware that no 2 people will ever answer the same way - as every has different views
of their own wants and needs plus no two people really see risk, returns, or investments in quite
the same ways. But there are some links which may point the way to answering your own question:

https://www.kiplinger.com/article/retirement/t047-c032-s014-…

https://goodlifehomeloans.com/resources/what-is-the-average-…

https://www.cnbc.com/2016/08/10/elders-and-equities-how-much…

https://www.thebalance.com/how-much-cash-should-i-keep-in-my…

https://www.financialsamurai.com/the-proper-asset-allocation…

https://dqydj.com/retiree-net-worth-retiree-wealth-america/

Personally, I look at cash needs from 2 sides - an emergency fund for one thing is critical because
it allows you to both have a stash of cash which can be accessed for when things go wrong -
when the car dies, when appliances need repair/replacement, when the hot water heater becomes
a sieve, when the roof caves in. The question of how much is needed in an emergency fund then
becomes “what do you want to include as well as how much does stuff cost in your area?” - but you
figure that covering a new car plus something on the side to cover other expense - say insurance
premiums, real estate taxes, property taxes - intermittent expenses that take more than a small
bite out of monthly budgets.

Cash also stands as an opportunity - an investment waiting to happen or a potential property
investment waiting to be needed (e.g. if you need to buy a place for “assisted living” arrangements
or in-home nursing. You might have insurance that may cover such things - you may not. Look
at what those things may run in your area - or in an area you think might be the spot of your
future.

Anyway - good luck and good planning.

Howie52

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