Starting Over

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Topic Author
MeginVA
Posts: 5
Joined: Thu Jul 01, 2021 7:09 am

Starting Over

Post by MeginVA »

Hi Everyone,

New poster, although I have read and reread Bogle advice for years. We panicked and moved most of our investments into cash a while ago. I know, I know. We need to rectify this. Our situation:

Emergency fund and kid college funds well-stocked
House, 400k remaining on mortgage, house worth 1.8, plan is to pay it off quickly for peace of mind
No other debt
1.7 in investments, some stocks, but mostly cash (see above)
We save about 20% of our HHI

Ages 49 and 57, hope is to retire in 8-10 years. How would you proceed please? Thanks
lakpr
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Re: Starting Over

Post by lakpr »

MeginVA wrote: Sun Jul 25, 2021 10:58 am Hi Everyone,

New poster, although I have read and reread Bogle advice for years. We panicked and moved most of our investments into cash a while ago. I know, I know. We need to rectify this. Our situation:

Emergency fund and kid college funds well-stocked
House, 400k remaining on mortgage, house worth 1.8, plan is to pay it off quickly for peace of mind
No other debt
1.7 in investments, some stocks, but mostly cash (see above)
We save about 20% of our HHI

Ages 49 and 57, hope is to retire in 8-10 years. How would you proceed please? Thanks
MeginVA,

Welcome to the forum.

Normally we ask the newcomers to ask their questions in this preferred format: Asking Portfolio Questions

But based on the limited information you gave above, I suggest reinvesting everything back into the market, first thing on Monday, in a 50:50 ratio. It sounds like you get spooked at the slightest drop in the market, and then regret your move if the market goes up ... a 50:50 allocation is the perfect medicine for this ailment. With a 50:50 allocation, you are ALWAYS half right!

The 50% allocation to stocks should be invested in a broad market index fund, not individual stocks. Vanguard Total Stock Market Index fund (VTSAX) or Vanguard S&P 500 Index fund (VFIAX).

The 50% allocation to bonds can be either completely invested in Vanguard Total Bond Market Index (VBTLX), or Vanguard Intermediate Term Bond Index (VBILX), or a further 50:50 split. The latter bond fund does not include mortgage backed securities, which caused the 2008 meltdown if you remember. So if you are gunshy about holding MBS in your portfolio (I know I am), then prefer VBILX.
Mike Scott
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Re: Starting Over

Post by Mike Scott »

Might you be a candidate for a low cost financial advisor such as Vanguard PAS and let them manage it?
Topic Author
MeginVA
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Re: Starting Over

Post by MeginVA »

All of my cash is with Vanguard so that could work. What does PAS mean, please? Thank you!
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Stinky
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Re: Starting Over

Post by Stinky »

lakpr wrote: Sun Jul 25, 2021 11:16 am
But based on the limited information you gave above, I suggest reinvesting everything back into the market, first thing on Monday, in a 50:50 ratio. It sounds like you get spooked at the slightest drop in the market, and then regret your move if the market goes up ... a 50:50 allocation is the perfect medicine for this ailment. With a 50:50 allocation, you are ALWAYS half right!

The 50% allocation to stocks should be invested in a broad market index fund, not individual stocks. Vanguard Total Stock Market Index fund (VTSAX) or Vanguard S&P 500 Index fund (VFIAX).

The 50% allocation to bonds can be either completely invested in Vanguard Total Bond Market Index (VBTLX), or Vanguard Intermediate Term Bond Index (VBILX), or a further 50:50 split. The latter bond fund does not include mortgage backed securities, which caused the 2008 meltdown if you remember. So if you are gunshy about holding MBS in your portfolio (I know I am), then prefer VBILX.
Welcome to the Forum!

I agree with lakpr's advice (above). Of course, additional information might nudge the answer, but 50/50 would be a good starting place.

A couple of additional questions for MeginVA -
--- When you were invested in the market, do you recall what your targeted mix of equities and fixed income was?
--- When did you move into this cash-heavy position? Do you recall what you were thinking at the time that you did it?
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
lakpr
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Re: Starting Over

Post by lakpr »

MeginVA wrote: Sun Jul 25, 2021 11:23 am All of my cash is with Vanguard so that could work. What does PAS mean, please? Thank you!
personal advisory services. They charge you 0.3% of the assets under management as annual fees, I believe levied quarterly.

https://investor.vanguard.com/advice/fi ... r-services

I want to also add here: if any of that $1.7 million is in taxable accounts, use that to pay off the mortgage completely. You did say you were going to do this, but having cash yielding 0.5% while you are bleeding 2.5% or higher in mortgage does not make sense.
Dottie57
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Re: Starting Over

Post by Dottie57 »

lakpr wrote: Sun Jul 25, 2021 11:27 am
MeginVA wrote: Sun Jul 25, 2021 11:23 am All of my cash is with Vanguard so that could work. What does PAS mean, please? Thank you!
personal advisory services. They charge you 0.3% of the assets under management as annual fees, I believe levied quarterly.

https://investor.vanguard.com/advice/fi ... r-services

I want to also add here: if any of that $1.7 million is in taxable accounts, use that to pay off the mortgage completely. You did say you were going to do this, but having cash yielding 0.5% while you are bleeding 2.5% or higher in mortgage does not make sense.
Very good advice .

I also agree with the advice to go 50/50. Or 60/40. Something that you won’t bail on when market goes down.
Robot Monster
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Re: Starting Over

Post by Robot Monster »

Of possible interest,

Vanguard Retirement Nest Egg Calculator
link
Topic Author
MeginVA
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Re: Starting Over

Post by MeginVA »

Unfortunately, I don’t recall our mix.

We pulled out because we were concerned the market was going to correct in a big way.
Topic Author
MeginVA
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Re: Starting Over

Post by MeginVA »

Unfortunately, I don’t recall our mix.

We pulled out because we were concerned the market was going to correct in a big way.

I really appreciate the advice everyone: thank you!
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retiredjg
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Re: Starting Over

Post by retiredjg »

I agree with the above suggestion - having Vanguard's Personal Advisory Service may be just the ticket for you. At least for a few to several years.

The absolute worst thing you can do is pull your money out of the market during a downturn. You didn't do that, but you did do the next worse thing... "awhile ago". You know. Yes, you know. By doing that, you have lost some significant growth for your portfolio and you are ready to fix it.

Paying Vanguard the .3% to manage your money will cost you much less than the kind of behavioral mistakes you are prone to make. As you get more accustomed to investing, maybe you can take back over the reins. However, I would suggest that you not do that until you have gone through a significant market downturn that lasts a year or two. Maybe two such events.

Some people actually need a money manager/advisor to keep them from making mistakes like this.

I would not suggest anyone other than Vanguard because most other advisory services have a conflict of interest in how they manage your money.
retiringwhen
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Re: Starting Over

Post by retiringwhen »

the PAS / Low-cost Advisor route is a good idea here.

Alternatively, you may be suited to buy one of the Vanguard LifeStrategy Funds (probably Conservative Growth or Moderate Growth) and trying to keep you hands off the wheel. It is working well in my family for one worry-wart who is always fretting the market since they cannot see the individual stock/bond movements.

Regardless, getting back in the market soonest (while being realistic about your AA and the real risks in the market) is an imperative.
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Toons
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Re: Starting Over

Post by Toons »

Take a deep breath,maybe ten.
Relax
Give yourself some time to digest the situation.
I firmly believe you will arrive at the correct decision for you
And your family.
Looks like you have done a fine job of that already,
Kneejerk moves are not necessary :wink:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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bertilak
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Re: Starting Over

Post by bertilak »

I think the above suggestions are worth considering. I think primarily the first two were mentioned:
  1. Put everything into one of Vanguard's LifeStrategy funds. See https://investor.vanguard.com/mutual-fu ... trategy/#/. That page offers four different LifeStrategy funds and gives guidance on which to choose, to match your personal situation.
  2. Use Vanguard's Personal Advisor Service (PAS). See https://investor.vanguard.com/wealth-ma ... t/services. They will be more hand-holding. You may want to use them for a year and then decide if you want to go it on your own -- a reasonable expectation, but fine either way,
  3. A third possibility is to go with the popular Three Fund Portfolio. See https://www.bogleheads.org/wiki/Three-fund_portfolio and a dedicated forum topic concerning it: viewtopic.php?f=10&t=88005. This is where you may want to come back here for further, more detailed, guidance.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Vanguard User
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Re: Starting Over

Post by Vanguard User »

MeginVA wrote: Sun Jul 25, 2021 10:58 am Hi Everyone,

New poster, although I have read and reread Bogle advice for years. We panicked and moved most of our investments into cash a while ago. I know, I know. We need to rectify this. Our situation:

Emergency fund and kid college funds well-stocked
House, 400k remaining on mortgage, house worth 1.8, plan is to pay it off quickly for peace of mind
No other debt
1.7 in investments, some stocks, but mostly cash (see above)
We save about 20% of our HHI

Ages 49 and 57, hope is to retire in 8-10 years. How would you proceed please? Thanks
You could have taken advantage of DCA in a down market.
Topic Author
MeginVA
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Joined: Thu Jul 01, 2021 7:09 am

Re: Starting Over

Post by MeginVA »

I don’t know what DCA is
lakpr
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Re: Starting Over

Post by lakpr »

MeginVA wrote: Sun Jul 25, 2021 5:37 pm I don’t know what DCA is
Dollar Cost Averaging. Putting in a fixed dollar amount into the market at a selected frequency, once a week or once every two weeks, regardless of what the market is doing at that moment, up or down. Just like how you contribute to a 401k.
mkc
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Re: Starting Over

Post by mkc »

MeginVA wrote: Sun Jul 25, 2021 3:46 pm Unfortunately, I don’t recall our mix.

We pulled out because we were concerned the market was going to correct in a big way.
If 2021, have you set aside any needed funds for capital gains taxes as a result of selling off the investments? Or was this all in tax-deferred (IRAs, etc.)? (assuming if it was 2020 that you pulled out, you've paid the taxes on any gains with your 2020 tax return).
MishkaWorries
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Re: Starting Over

Post by MishkaWorries »

retiringwhen wrote: Sun Jul 25, 2021 4:40 pm the PAS / Low-cost Advisor route is a good idea here.

Alternatively, you may be suited to buy one of the Vanguard LifeStrategy Funds (probably Conservative Growth or Moderate Growth) and trying to keep you hands off the wheel. It is working well in my family for one worry-wart who is always fretting the market since they cannot see the individual stock/bond movements.

Regardless, getting back in the market soonest (while being realistic about your AA and the real risks in the market) is an imperative.
I agree with the Vanguard LifeStrategy Conservative (VSCGX), Wellesley fund (VWINX) or even a conservative target date fund. I think the one fund approach is best for skittish investors. Vanguard's personal advice doesn't prevent panic selling it just sucks money away.

My wife is very risk adverse and she loves her Wellesley fund. When the market tanks she looks at her fund and just shrugs.

I'd advise OP to take the cash from the taxable account and pay off the mortgage. That is a guaranteed 2.5% per year return. Keep an emergency fund of 6-12 months in a high yield savings account. Now you should be feeling pretty comfortable.

Then take any cash in a tax advantaged account and any money in a taxable account and get the money in the market in a single fund. If you are concerned with dumping everything all at once, make a plane to dollar cost average over 6-12 months.
We plan. G-d laughs.
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welderwannabe
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Re: Starting Over

Post by welderwannabe »

You'll get a bunch of different advice.

Since, by your own admission, you paniced and wen't to cash I would suggest you keep a nice cash allocation so you're less likely to panic next time.

I keep 10% in cash (about 170K give or take from the info you provided).

Put the rest into a 60/40 balanced fund. I would suggest Vanguard LifeStrategy Moderate Growth Fund (VSMGX), since it has US & International stocks, as well as US & International bonds. It is a one stop shop.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.
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Watty
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Re: Starting Over

Post by Watty »

MeginVA wrote: Sun Jul 25, 2021 10:58 am ....kid college funds well-stocked
House, 400k remaining on mortgage.....

.....1.7 in investments, some stocks, but mostly cash (see above)
......
How would you proceed please?
If the cash is in a taxable account then I would go on and pay off the mortgage and then fully fund the college fund if "well-stocked" does not mean fully funded.

There are all sorts of opinions and arguments about paying off a mortgage or not but to me it is pretty much is the same question as, "I have a paid off house, should I take out a mortgage to invest the money?". Most people would not even think of doing that.

You of course should be maxing out all your possible taxable accounts and also look into if you can do a mega backdoor Roth.

https://www.bogleheads.org/wiki/Mega-backdoor_Roth
delamer
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Re: Starting Over

Post by delamer »

You should be able to do an estimate of your retirement expenses at this point.

With that, you can determine what your income needs are. The income will come from your withdrawals from investments plus any pensions/Social Security/annuities.

That will help you hone in on the amount you need to target for savings at your expected retirement date.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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