Everyone has a financial goal.
When you reach it, shouldn’t you take your foot off the gas?
Just curious to hear everyone’s thoughts about this.
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Absolutely. I am within 5% or so of hitting a number by which I can move almost entirely out of equities, included leveraged equities, and put my retirement savings in bonds or other less risky investments. I have five more years of employment and if I can earn roughly 5% on my current savings and continue to add to them for the next five years, I will have more than achieved my goal.
Another 20% five years from now is simply not worth the risk to me at this point.
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This is all about when to sell. Taking profits and diversification can be good. But much depends on your portfolio and risk tolerance.
If you are loaded up on the likes of bitcoin, yes I would diversify. If you own mostly blue chips, maybe not.
Most of us are somewhere in between, Make your own choices.
Personally I’m into make hay when the sun shines. Stay invested when things are doing well, scale back when you run into hard times.
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I’m 30 years into the 4% rule for retirement withdrawals. I currently have an annual withdrawal rate of 0.2% of assets and I’m waiting another 15 months to start drawing Social Security at age 70.
I really can’t see holding more than 10 years’ worth of living expenses in fixed income securities. (That’s now a 98% stock, 2% cash & bonds asset allocation for me.)
If you’re retiring on a 4% withdrawal from a 60% stock, 40% fixed income portfolio, you already have 10 year’s worth of spending “safer” investments. Do you really need more?
Note: I have a fairly large, long-term position in BRK. If I take Berkshire’s current $325 Billion cash position on a $1 Trillion market cap as “my cash” (i.e., 33% of my BRK shares are actually cash not stock.) That’s several times my personal allocation to fixed income.
intercst
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This. Hitting your number is just identifying when to transition to a different game.
Of course losing your number in a “crash” is very painful. So can be ok to secure some of those gains in something less volatile. But keeping up with inflation probably means investing as much as you can tolerate in equities. I would trim the most speculative, take profits and move to less glamorous but solid equities with a history of growth at least as well as inflation.
Yes, to quote that famous investor, uh, me:
It’s the difference between trying to get rich and trying to stay rich. It’s a different mindset. At first t seems strange and then it becomes quite comforting.
One of the best financial mindset changes I made was to stop focusing on attempting to maximize my net worth and instead focus on reaching specific goals.
For instance, my two oldest children are now in college. As it turned out, after scholarships, the money in the 529 plans I had been investing for them throughout their lives ended up being in the ballpark of “enough” to cover four years’ worth of their expected costs at their chosen colleges. So rather than keep that money in stock funds, it now sits in CD ladders where a rung matures just before each semester’s bill is due.
Could I potentially have ended up with “more” by keeping the money in stock funds? Maybe, if the market cooperates. But the market might not cooperate. In addition, I can guarantee you that I absolutely appreciate being able to write those electronic checks without having to worry about temporary volatility at the wrong time causing permanent losses or forcing them to take out student loans… When all is said and done, for that pot of money and targeted goal, “I won the game, so I stopped playing.”
An unexpected side effect of making that mindset shift is that it actually helps me be more comfortable taking on risk with money that is earmarked for longer term and/or lower priority goals.
For instance, the furnace and water heater are nearing the end of their expected lifespans. Those are high priority, likely near term goals, so I’m building up cash to replace them (and could tap the emergency fund if they died before the allocated cash balance is sufficient). On the flip side, converting the house to solar panels is more of an aspirational goal than a must-do one. If another major goal ends up over-funded or the high-risk part of the portfolio provides an unexpected windfall, those solar panels might get funded. But if they don’t, or if it takes longer to get there than hoped, it’s nowhere near as big an immediate problem as freezing in the winter because there’s no heat would be.
Net - I find the answer to the question to be “yes, it’s okay to stop playing once you’ve won the game, but chances are that there are more games you’ll want to play. So part of winning will likely be figuring out a path that lets you keep playing those new games without jeopardizing the ones you’ve already ‘won’.”
Regards,
-Chuck
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RMD in a few years going to cause a huge tax bill???
Or is everything already rolled into a Roth?
“If you’re retiring on a 4% withdrawal from a 60% stock, 40% fixed income portfolio, you already have 10 year’s worth of spending “safer” investments”
And during inflationary times, fixed loses purchasing power, and if the fixed income is in funds, the principal gets slammed as Fed rate cuts rise in an effort to fight inflation.
Nobody knows what the future holds, but high inflation is not a zero-chance possibility. Politics aside, we have a guy taking control of the Country who managed to bankrupt 3 casinos, and has made many poor “investments” of his own. This guy has been quoted as saying he loves debt, and no one handles debt better than I do. His 1st go around showed that to be nothing but arrogant boasting. So I’m not expecting a smooth, steady hand type environment for the forseeable future. Gonna be volatile, so definitely have cash-like funds in place, but might not be a good time to bail out of stocks.
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Chuck,
The best investment you could have made would have been getting your kids started in Fencing at age 3. Then you could have snuck them in Stanford on a full athletic scholarship. LOL.
You did good. You clearly got your nest egg set up and are thinking about getting your kids a great financial start in their adulthood without student debt.
Now you need to work on getting a fund for their down payments. Especially if they want to live in beautiful California. ( or please tell me you will write an article that your first batch of NFLX held for 20 years has this covered)
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This is indeed true, and the many SWR studies have included this fact. There have been studies of 60/40 (the original “best” assumption), 80/20, 100/0, 60/TIPS, 80/TIPS, etc. All sorts of studies with all sorts of results over all sorts of periods.
Planning a 30+ year retirement based on a 4-year political window isn’t really prudent. Too many things change over 30 years, some for the worse and some for the better [retirement-wise]. It’s kind of like saying that valuation is “too high right now” so I will invest only in fixed income (aka “hocomania”).
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TIPS are a protection, so long as you hold them to term.
https://www.wsj.com/finance/investing/tips-inflation-protected-securities-4f7db9c5
Really? Everyone? I’ve never been a particularly goal oriented person. That’s just how I am. I tend more to have a direction in which I’m going, not a destination I am heading for. One of my personal peculiarities.
(Of course, for some the financial goal is just more, More, MORE, MORE!!!)
Being retired, with time on my hands, this is one of the ways I keep my mind occupied with something that interests me. So far it has paid well too. If I were required to articulate a goal I guess it would be in stages. First, don’t run short while I’m alive, or be a financial burden to anyone. Second, do so in comfort. Third, pass enough to help the next generation(s) get along.
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“TIPS are a protection, so long as you hold them to term.”
Couldn’t read your link.
I am confused about TIPS. Quick search shows:
" Here are some recent rates for Treasury Inflation-Protected Securities (TIPS):
- 10 Year TIPS Yield: 2.06% yield
- 5 Year TIPS Yield: 1.88% yield
- 10 Year TIPS/Treasury Breakeven Rate: 2.33%"
Pretty sure that Treasuries and CD’s are yielding more than that. So for example, are the 5-year TIPS rate the shown 1.88% + whatever the current inflation rate is ? Or, if you buy a 5 year TIPS, your initial yield from 1st day of owning it is actually 1.88% ?
A quick search shows that TIPS rates are adjusted every 6 months. Current 5 year Treasury rate is 4.13%. If inflation hits, good chance FED will raise rates, so the Treasury rates will go up also, along with the TIPS rate ( but of course that owned 5 year Treasury remains fixed ). Seems like owning 6 month T-notes until their yield is less than the rate offered on TIPS is a better play.
Gonna take a while for 1.88% to catch up to 4.13%, or am I missing something ?? ( wouldn’t be the 1st time, lol ).
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I’ve been doing large Roth conversions since I turned age 65 to trim the size of my IRA. But I’ll still likely jump a tax bracket when the RMDs start at age 73.
At age 40 I started SEPP withdrawals from my IRA (since I knew RMDs could be a problem with 3 decades of compounding) and left my taxable account intact. Now the taxable account is 3 times the size of the IRA, but I manage it (the taxable account) to reduce interest and dividend income (BRK is your friend), so it’s not really a tax problem for me. RMDs not so much.
intercst
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Love the “hocomania” reference.
intercst
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“When you reach [your financial goal(s), shouldn’t you take your foot off the gas?”
There’s no “should” about it. Accepting risk or not, financial or otherwise, is a matter of choice (or a matter of necessity), depending on one’s circumstances, opportunities, and inclinations.
In my case, from having accepting a lot of market risk for a lot of years and having been fortunate enough to get away with it, I was able to achieve a Current Ratio of 4x, which I consider to be an adequate safety buffer against what the future might bring.
These days, I’m still accepting the same degree of market risk, because that’s just the nature of the investing/trading game, but I’ve decreased the size of the bets I make, because I don’t need --and don’t want-- any more money than I already have.
So, why play? For the same reason others have given. I want to hang onto what I’ve got and --to quote a sports metaphor-- “The best defense is a good offense”. Hence, I’m in the markets daily, buying and selling.
Could I walk away from the game if I chose and take my accounts to cash? Sure, but why do so when engaging markets has become so much easier than it used to be? In that sense, what used to be a second job --building wealth for retirement-- has become just a hobby.
Charlie
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10 years back we had a goal, by end of 2024 we wanted to have x; today we are 3x, you don’t have to get rich twice mindset has set me back seriously. Just like 60/40 portfolio, you have to stay aggressive on some parts of your investments. After all, life expectancy is going up, cost of medicine, healthcare are going up, much more than I originally imagined.
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When the markets go down, everything goes down. For ex: in April $AAPL was $165 stock and today it is $225, but reached $237 in July. Now, is there anything that stops it going back to $165? Nothing significantly changed for Apple to gain so much, it is just the multiples expansion and those multiples can shrink.
So assuming blue chips will not go down is incorrect. Actually, I am anticipating a downturn in 2025, but my biggest problem is tax.
The below is performance of one of my account. Except 401(K) most of my accounts had similar performance. This is not normal, I am not that smart, I didn’t even buy NVDA, I have 30+ stocks in my portfolio and Bitcoin ETF’s are only 3%.
The reason I am saying this is because the entire market rallied. The greatest investor of our time, possibly so far in the history, WEB is sitting on $300 B+ cash. WEB said Apple is going to be a permanent position like Amex or Coke, yet he actively sold a big chunk. He may keep quiet not want to scare the people or it could be simply Berkshire related decision. But I cannot shake the feeling we need to take profits.
I am oscillating between FOMO, and skepticism & fear.
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