Close to retirement - locking in gains with each new market high

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gougou
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Re: Close to retirement - locking in gains with each new market high

Post by gougou »

I hold a bunch of stocks with high dividend yields (6% to 10+% yield with conservative payout ratios, mostly pipelines, oil & gas, iron ore miners, Chinese stocks etc). I plan to hold them for a long time but I'll reinvest the dividends into cash/bonds. So even though I'm currently 100% stocks, it will get to 92/8 in one year and 84/16 in two years if stock prices don't move and dividends don't get cut. Plus I'm still working so I'll make money in the next few years which will further increase my bond allocation.

I feel that by doing such I'm not missing out on the compounding returns of the stock market and still have a reasonably safe portfolio. And eventually when the market crashes (hopefully not too soon) I'll have the dry powder to pick up some cheap stocks.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
delamer
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Re: Close to retirement - locking in gains with each new market high

Post by delamer »

gougou wrote: Thu Jul 29, 2021 6:12 pm I hold a bunch of stocks with high dividend yields (6% to 10+% yield with conservative payout ratios, mostly pipelines, oil & gas, iron ore miners, Chinese stocks etc). I plan to hold them for a long time but I'll reinvest the dividends into cash/bonds. So even though I'm currently 100% stocks, it will get to 92/8 in one year and 84/16 in two years if stock prices don't move and dividends don't get cut. Plus I'm still working so I'll make money in the next few years which will further increase my bond allocation.

I feel that by doing such I'm not missing out on the compounding returns of the stock market and still have a reasonably safe portfolio. And eventually when the market crashes (hopefully not too soon) I'll have the dry powder to pick up some cheap stocks.
It’s very likely that stocks will never be cheaper than they are today.

Always remember that while you are waiting for that 20% crash, stocks may have gone up by 30%.
Last edited by delamer on Thu Jul 29, 2021 6:23 pm, edited 1 time in total.
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gmaynardkrebs
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Re: Close to retirement - locking in gains with each new market high

Post by gmaynardkrebs »

delamer wrote: Thu Jul 29, 2021 6:19 pm
gougou wrote: Thu Jul 29, 2021 6:12 pm I hold a bunch of stocks with high dividend yields (6% to 10+% yield with conservative payout ratios, mostly pipelines, oil & gas, iron ore miners, Chinese stocks etc). I plan to hold them for a long time but I'll reinvest the dividends into cash/bonds. So even though I'm currently 100% stocks, it will get to 92/8 in one year and 84/16 in two years if stock prices don't move and dividends don't get cut. Plus I'm still working so I'll make money in the next few years which will further increase my bond allocation.

I feel that by doing such I'm not missing out on the compounding returns of the stock market and still have a reasonably safe portfolio. And eventually when the market crashes (hopefully not too soon) I'll have the dry powder to pick up some cheap stocks.
It’s very like that stocks will never be cheaper than they are today…
Did you mean "like" or "likely?"
delamer
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Re: Close to retirement - locking in gains with each new market high

Post by delamer »

gmaynardkrebs wrote: Thu Jul 29, 2021 6:21 pm
delamer wrote: Thu Jul 29, 2021 6:19 pm
gougou wrote: Thu Jul 29, 2021 6:12 pm I hold a bunch of stocks with high dividend yields (6% to 10+% yield with conservative payout ratios, mostly pipelines, oil & gas, iron ore miners, Chinese stocks etc). I plan to hold them for a long time but I'll reinvest the dividends into cash/bonds. So even though I'm currently 100% stocks, it will get to 92/8 in one year and 84/16 in two years if stock prices don't move and dividends don't get cut. Plus I'm still working so I'll make money in the next few years which will further increase my bond allocation.

I feel that by doing such I'm not missing out on the compounding returns of the stock market and still have a reasonably safe portfolio. And eventually when the market crashes (hopefully not too soon) I'll have the dry powder to pick up some cheap stocks.
It’s very like that stocks will never be cheaper than they are today…
Did you mean "like" or "likely?"
Corrected!
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
gougou
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Re: Close to retirement - locking in gains with each new market high

Post by gougou »

delamer wrote: Thu Jul 29, 2021 6:19 pm
gougou wrote: Thu Jul 29, 2021 6:12 pm I hold a bunch of stocks with high dividend yields (6% to 10+% yield with conservative payout ratios, mostly pipelines, oil & gas, iron ore miners, Chinese stocks etc). I plan to hold them for a long time but I'll reinvest the dividends into cash/bonds. So even though I'm currently 100% stocks, it will get to 92/8 in one year and 84/16 in two years if stock prices don't move and dividends don't get cut. Plus I'm still working so I'll make money in the next few years which will further increase my bond allocation.

I feel that by doing such I'm not missing out on the compounding returns of the stock market and still have a reasonably safe portfolio. And eventually when the market crashes (hopefully not too soon) I'll have the dry powder to pick up some cheap stocks.
It’s very likely that stocks will never be cheaper than they are today.

Always remember that while you are waiting for that 20% crash, stocks may have gone up by 30%.
OK, but I'm 100% in stocks. I guess I could use some cheap margins (I can access some margin loan with <1% interest) but that's probably too much risk.

Or I could reinvest the dividends and my income into stocks and maintain a 100% stock portfolio as long as I believe those companies are cheap.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
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celia
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Re: Close to retirement - locking in gains with each new market high

Post by celia »

.
You are paying unnecessary taxes!
HomerJ wrote: Thu Jul 29, 2021 11:25 am For instance, imagine I have $1 million in stocks and $1 million in bonds/cash/CDs. 50/50 portfolio

Market goes up 10%, I sell the entire $100,000 gain in stocks and move it into the bonds/cash/CDs side of the portfolio, instead of just rebalancing back to 50/50.
When you sell, you can't just sell gains. You have to sell shares. Part of each share is principal and part of it is gains. (For example, if that $100K of shares consists of 1,000 shares of a mutual fund that originally cost you $40/share, $40K of the sale is principal and $60K is gains.) You should at least buy the "principal" back, but since shares now cost more, you won't get as many as what was sold. But that's ok since you'll still be keeping up with cost-of-living.

If you sell the shares with the smallest gain each time, you are leaving yourself open to being left with the shares with the largest gain (for the final $100K to sell).

Most of these taxes could be avoided by not selling and letting the heirs get a step-up in value on your date of death. Meanwhile, only sell what you need to support your remaining living expenses that aren't covered by other income streams (SS, pension, rentals,...)
bhsince87
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Re: Close to retirement - locking in gains with each new market high

Post by bhsince87 »

I did something similar before I retired. Transitioned from 90/10 to 55/45 over a 5-6 year period.

I don't see anything wrong with that. (Of course! :happy )

But I do think you may be missing the effect of capital gains taxes. If you are selling these stocks in a Roth or tax deferred account, then that's probably a non issue.

But if they are in taxable, it could have a huge impact.

So I just stopped buying stocks altogether in taxable, lt the current ones I own ride, and instead bought bonds and CDs.
Time is what we want most, but what we use worst. William Penn
Runyer
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Re: Close to retirement - locking in gains with each new market high

Post by Runyer »

I’m doing the same thing Homer! I’m buying TIAA Guaranteed and RE with my gains and have stopped contributing additional funds to my 403(b) and IRA to build cash. I’ve been doing so for the past year. I also feel like it provides SORR for when I retire in one year. I recognize if the market keeps going up, I’ve lost money, but to me it’s not enough to worry about!

I’m more focused on how NOT to lose money ( at least, too much money). Maybe it’s better to say preserve money just before or after retirement. I’m at 55%stocks and 45% bonds/TIAA/RE. I consider TIAA Guaranteed bonds(pays 3%+) and RE fixed income . I know RE isn’t guaranteed, and it is riskier than bonds, but it works for me.

Runyer
flyingaway
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Re: Close to retirement - locking in gains with each new market high

Post by flyingaway »

HomerJ wrote: Thu Jul 29, 2021 2:43 pm
flyingaway wrote: Thu Jul 29, 2021 1:55 pm At this insane stock valuation, you are doing the right thing. But, you must have saved more than 25X.
Heh, why do you say that?
A true Bpglehead with 16,937 posts does not retire with 25X. They usually retire with 100X.
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HomerJ
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Re: Close to retirement - locking in gains with each new market high

Post by HomerJ »

flyingaway wrote: Thu Jul 29, 2021 8:37 pm
HomerJ wrote: Thu Jul 29, 2021 2:43 pm
flyingaway wrote: Thu Jul 29, 2021 1:55 pm At this insane stock valuation, you are doing the right thing. But, you must have saved more than 25X.
Heh, why do you say that?
A true Bpglehead with 16,937 posts does not retire with 25X. They usually retire with 100X.
Heh... good point...

But I'm a 25x proponent. But here, I am, at 26x, maybe 27x, and still working... :(

I even posted that I would retire when SP500 hit 4000... But I never expected it to hit 4000 so fast, and here it is at 4400, and I'm still working.

Basically I can't convince my wife that we're really okay.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
tomsense76
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Re: Close to retirement - locking in gains with each new market high

Post by tomsense76 »

Will the returns be lower than just sticking with 50/50? Yes.

Could one achieve the same thing by splitting the difference and just holding 45/55? Sure.

While it may be fewer steps or more mathematically optimal to hold some fixed AA, I don't think this is wildly deviating off course. There is mathematically optimal, which gets a lot of attention here, and then there is behaviorally optimal, which seems to get less attention but is arguably more important. If this helps you stay in your seat and not go to cash in the next crash, great! That seems way more important.

Will it help with sequence of return risk? Am doubtful a 5% move (which is roughly what this is on average) would matter that much. The main thing with having more bonds is the need for more inflation protection (though am guessing you are already thinking about this). For a more in depth analysis, this blogpost seems relevant.
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
Starfish
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Re: Close to retirement - locking in gains with each new market high

Post by Starfish »

HomerJ wrote: Thu Jul 29, 2021 11:25 am So, I'm close to retirement, have made my number, and now I'm just locking in gains every few months lately, when the market hits new highs.

How do you call this...ummmm... I know, market timing!

I can tell you were it might go wrong: inflation could be more than you share of the market gains. So you think you lock the gains but you lock in some money that lose value.
Greg in Idaho
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Re: Close to retirement - locking in gains with each new market high

Post by Greg in Idaho »

HomerJ wrote: Thu Jul 29, 2021 8:52 pm
flyingaway wrote: Thu Jul 29, 2021 8:37 pm
HomerJ wrote: Thu Jul 29, 2021 2:43 pm
flyingaway wrote: Thu Jul 29, 2021 1:55 pm At this insane stock valuation, you are doing the right thing. But, you must have saved more than 25X.
Heh, why do you say that?
A true Bpglehead with 16,937 posts does not retire with 25X. They usually retire with 100X.
Heh... good point...

But I'm a 25x proponent. But here, I am, at 26x, maybe 27x, and still working... :(

I even posted that I would retire when SP500 hit 4000... But I never expected it to hit 4000 so fast, and here it is at 4400, and I'm still working.

Basically I can't convince my wife that we're really okay.
Same boat...but I'm at 33X plus

And I have a very similar mindset and approach based on all the posts of yours I've seen...hmmm...so what would be the word for how financially conservative my wife is?
EnjoyIt
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Re: Close to retirement - locking in gains with each new market high

Post by EnjoyIt »

HomerJ wrote: Thu Jul 29, 2021 11:25 am So, I'm close to retirement, have made my number, and now I'm just locking in gains every few months lately, when the market hits new highs.

I'm not just rebalancing back to my original AA, I'm building up a cushion of cash, but this slowly changes my AA.

So look at me, I'm not staying the course!

It's about risk management, not maximizing gains, or even maintaining an consistent Asset Allocation.

This will cost me in the long-run, since I will be missing out on compounding. In the short-run, I feel like it lowers my retirement sequence of return risk.

For instance, imagine I have $1 million in stocks and $1 million in bonds/cash/CDs. 50/50 portfolio

Market goes up 10%, I sell the entire $100,000 gain in stocks and move it into the bonds/cash/CDs side of the portfolio, instead of just rebalancing back to 50/50.

So now I have $1 million in stocks and $1.1 million in bonds (47/53)

If the market goes up another 10%, I still make another $100,000 on the stock side... It could have been $105,000 if I had rebalanced to 50/50, so I'm out $5000... which is a good chunk of money. If someone handed me $5000 today, I'd be pretty excited.

But I already hit my number, so I'm not too worried about missing out on compounded gains in the short-term. I still make another $100,000 if stocks keep going up... I'm not that worried about missing out on the extra $5000. I'd be pretty happy with the extra $100,000 (which I would then lock in again by selling the gains - so then I would be at 45/55)

Yes, over multiple years or multiple 10% gains, compounding that extra money adds up, so this method would be a terrible idea for an accumulator, but I won't do this very long.

Just until I retire in a year or two, at which point, I'll spend all those locked-in gains first, and slowly get back to 50/50... Or there will be a crash, I'll get back to 50/50 quickly

The point is, by locking in ALL the gains, I'm sitting pretty even if there is a large market crash. Because I've already cashed out the gains, and now have a pretty nice buffer on the cash side.

If the market drops 30%, I'd be out $300,000 in stocks, but I would have already locked in $200,000 in gains, so I'd still be in great shape for retirement. I can spend from the bond/cash/CDs side until stocks recover. And if the market doesn't crash, I still spend from the bonds side until I'm back to 50/50 (and then spend from whichever side has the most money each year going forward)

I guess I'm crazy conservative, but this sure lets me sleep at night...

Am I wrong in thinking this helps with Sequence of Return risk?

In my example above, locking in $200,000 in gains, instead of just $100,000 from normal rebalancing means I have an extra 1+ year of expenses already locked into cash.

Not because I think a big crash is coming, but because I'm retiring very soon, and that way I have a large buffer even if a crash happens the day after I retire.
Interesting you post this as I am in a similar situation but acting differently.

We hit 25x maybe 2-3 years ago in a 70/30 portfolio. We work part time and have yet to turn 50 years old. Instead of stopping, we mindfully have increased our expenses to match the growth that has occurred. Trying not to increase our fixed/mandatory spend, and instead buying experiences or one off items that don't necessarily need to be purchased or upgraded. Today, we are still at about 25x expenses but our discretionary spending has become a much larger percentage of our yearly spend. The 30% we have in bonds can comfortably support us for 15 years and would still cover some luxuries. This got me thinking that maybe 15 years is a good place to stop and the rest can be invested in equities allowing for more and more potential growth.

We have not acted on this thinking. We do not make course adjustment lightly. If/when we do, they are only a few degrees at a time and only after long deliberation.
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EnjoyIt
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Re: Close to retirement - locking in gains with each new market high

Post by EnjoyIt »

HomerJ wrote: Thu Jul 29, 2021 8:52 pm
flyingaway wrote: Thu Jul 29, 2021 8:37 pm
HomerJ wrote: Thu Jul 29, 2021 2:43 pm
flyingaway wrote: Thu Jul 29, 2021 1:55 pm At this insane stock valuation, you are doing the right thing. But, you must have saved more than 25X.
Heh, why do you say that?
A true Bpglehead with 16,937 posts does not retire with 25X. They usually retire with 100X.
Heh... good point...

But I'm a 25x proponent. But here, I am, at 26x, maybe 27x, and still working... :(

I even posted that I would retire when SP500 hit 4000... But I never expected it to hit 4000 so fast, and here it is at 4400, and I'm still working.

Basically I can't convince my wife that we're really okay.
One more year is a tough mistress to break up with. Before we hit 25x, we thought we would call it quits the minute we get there. Today, not so much.

EDIT: Where is TheTimeLord when you need him?
Last edited by EnjoyIt on Thu Jul 29, 2021 9:24 pm, edited 1 time in total.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
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tooluser
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Re: Close to retirement - locking in gains with each new market high

Post by tooluser »

HomerJ wrote: Thu Jul 29, 2021 11:44 am The brain is a dangerous thing... All kinds of weird mental accounting going on up there... :)
Struggling with this myself, as a retirement decision looms near.
When the head, heart, and gut are aligned, great things can happen.
Don't forget the compromise/middle road option. It can help minimize financial regrets. Not so good in some other aspects of life.
afan
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Re: Close to retirement - locking in gains with each new market high

Post by afan »

Get enough in cash and bonds to support ourselves through retirement if those assets, on average, match inflation. Anything above that in stocks to provide a margin for error on the inflation issue and legacy for heirs. As stocks keep going up, it does cause anxiety about the risk of the portfolio going down in a crash, but the logic remains.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
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Re: Close to retirement - locking in gains with each new market high

Post by flyingaway »

EnjoyIt wrote: Thu Jul 29, 2021 9:23 pm
HomerJ wrote: Thu Jul 29, 2021 8:52 pm
flyingaway wrote: Thu Jul 29, 2021 8:37 pm
HomerJ wrote: Thu Jul 29, 2021 2:43 pm
flyingaway wrote: Thu Jul 29, 2021 1:55 pm At this insane stock valuation, you are doing the right thing. But, you must have saved more than 25X.
Heh, why do you say that?
A true Bpglehead with 16,937 posts does not retire with 25X. They usually retire with 100X.
Heh... good point...

But I'm a 25x proponent. But here, I am, at 26x, maybe 27x, and still working... :(

I even posted that I would retire when SP500 hit 4000... But I never expected it to hit 4000 so fast, and here it is at 4400, and I'm still working.

Basically I can't convince my wife that we're really okay.
One more year is a tough mistress to break up with. Before we hit 25x, we thought we would call it quits the minute we get there. Today, not so much.

EDIT: Where is TheTimeLord when you need him?
I am scheduled to get out next year. I will see if I can do that. I think I have enough, but unexpected things do happen. The latest is that my son lost his job and moved back home, and he is not actively looking for a job.
runcyc
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Re: Close to retirement - locking in gains with each new market high

Post by runcyc »

Homer, my strategy as I neared retirement was similar to your's. I've been retired for three years now. Since retirement, I've been tapering the equity allocation, from equity of 60% to 36% now, close to market peaks as I took the gains, while putting the proceeds into cash and I-bonds. I will keep the equity allocation at a minimum of 35%. Years ago, I was putting in the then-limit into I-bonds, 30K annually, when interest rates were significantly higher, for many years. My outlook...if I have all I need, why take too much risk?
000
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Re: Close to retirement - locking in gains with each new market high

Post by 000 »

Have you considered the possibility that the stock gains could be phantom asset inflation?
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Re: Close to retirement - locking in gains with each new market high

Post by tomsense76 »

celia wrote: Thu Jul 29, 2021 6:53 pm You are paying unnecessary taxes!
Do we know that? It could be in a tax-advantaged account.

Agree this is suboptimal in taxable. Would just try to rebalance with new money in taxable then (and do any additional adjustment in tax-advantaged accounts).
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HomerJ
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Re: Close to retirement - locking in gains with each new market high

Post by HomerJ »

000 wrote: Thu Jul 29, 2021 10:10 pm Have you considered the possibility that the stock gains could be phantom asset inflation?
If that's true, then moving those gains from stocks to bonds/cash turns phantom asset inflation into real gains, right?
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HomerJ
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Re: Close to retirement - locking in gains with each new market high

Post by HomerJ »

tomsense76 wrote: Thu Jul 29, 2021 10:15 pm
celia wrote: Thu Jul 29, 2021 6:53 pm You are paying unnecessary taxes!
Do we know that? It could be in a tax-advantaged account.

Agree this is suboptimal in taxable. Would just try to rebalance with new money in taxable then (and do any additional adjustment in tax-advantaged accounts).
Doing everything in tax-deferred accounts.

I have a decent taxable account, mostly VTSAX that hasn't been touched in years (and I won't touch it until after I retire to minimize taxes), and we downsized our house recently, and all the extra equity from the old house is sitting in cash in taxable.

But I won't touch that taxable account until we actually retire.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
EnjoyIt
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Re: Close to retirement - locking in gains with each new market high

Post by EnjoyIt »

000 wrote: Thu Jul 29, 2021 10:10 pm Have you considered the possibility that the stock gains could be phantom asset inflation?
I have been contemplating that possibility as well. 5-6% inflation takes a big wack at those nice gains.
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Re: Close to retirement - locking in gains with each new market high

Post by cp73 »

Great job on reaching your numbers. Another way to look at this is you currently have changed your allocation from 50/50 to 48/52. Each year if stock gains continue the stock ratio will reduce. I suggest you now consider what allocation would you like your allocation to be or need to be going forward. And work your way to that allocation. Ive been retired for 5 years now. I started at 50/50 backed it down to 35/65 and now have it at 40/60 which i feel very comfortable with and is probably still more aggressive then I need to be. I am waiting for the next set back and then will start buying to get back to 50/50. At least thats my plan for today. Have fun with this....
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HomerJ
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Re: Close to retirement - locking in gains with each new market high

Post by HomerJ »

EnjoyIt wrote: Thu Jul 29, 2021 11:03 pm
000 wrote: Thu Jul 29, 2021 10:10 pm Have you considered the possibility that the stock gains could be phantom asset inflation?
I have been contemplating that possibility as well. 5-6% inflation takes a big wack at those nice gains.
Oh, you mean inflation inflation...

Yeah, it's possible.. But I doubt it. Pandemic supply/demand issues has thrown a lot of stuff out of whack.

I'm not worrying about that until next year.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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Re: Close to retirement - locking in gains with each new market high

Post by gobel »

HomerJ wrote: Thu Jul 29, 2021 11:25 am The point is, by locking in ALL the gains, I'm sitting pretty even if there is a large market crash. Because I've already cashed out the gains, and now have a pretty nice buffer on the cash side.

If the market drops 30%, I'd be out $300,000 in stocks, but I would have already locked in $200,000 in gains, so I'd still be in great shape for retirement.
yes, this is safer, but do understand the actual math. You haven't "locked in" the last 200k of gains this way, instead it avoids a 30% loss on only the 200k you cashed out if it drops.

Another way to see this: if a 30% drop occurs today, you would be left with 700k + 200k = 900k. Instead if you had let it ride, it would have climbed to 1.21m before the drop, leaving 847k after a 30% drop. So you saved 53k by cashing out.
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Re: Close to retirement - locking in gains with each new market high

Post by chipperd »

HomerJ wrote: Thu Jul 29, 2021 11:25 am So, I'm close to retirement, have made my number, and now I'm just locking in gains every few months lately, when the market hits new highs.

I'm not just rebalancing back to my original AA, I'm building up a cushion of cash, but this slowly changes my AA.

So look at me, I'm not staying the course!

It's about risk management, not maximizing gains, or even maintaining an consistent Asset Allocation.

This will cost me in the long-run, since I will be missing out on compounding. In the short-run, I feel like it lowers my retirement sequence of return risk.

For instance, imagine I have $1 million in stocks and $1 million in bonds/cash/CDs. 50/50 portfolio

Market goes up 10%, I sell the entire $100,000 gain in stocks and move it into the bonds/cash/CDs side of the portfolio, instead of just rebalancing back to 50/50.

So now I have $1 million in stocks and $1.1 million in bonds (47/53)

If the market goes up another 10%, I still make another $100,000 on the stock side... It could have been $105,000 if I had rebalanced to 50/50, so I'm out $5000... which is a good chunk of money. If someone handed me $5000 today, I'd be pretty excited.

But I already hit my number, so I'm not too worried about missing out on compounded gains in the short-term. I still make another $100,000 if stocks keep going up... I'm not that worried about missing out on the extra $5000. I'd be pretty happy with the extra $100,000 (which I would then lock in again by selling the gains - so then I would be at 45/55)

Yes, over multiple years or multiple 10% gains, compounding that extra money adds up, so this method would be a terrible idea for an accumulator, but I won't do this very long.

Just until I retire in a year or two, at which point, I'll spend all those locked-in gains first, and slowly get back to 50/50... Or there will be a crash, I'll get back to 50/50 quickly

The point is, by locking in ALL the gains, I'm sitting pretty even if there is a large market crash. Because I've already cashed out the gains, and now have a pretty nice buffer on the cash side.

If the market drops 30%, I'd be out $300,000 in stocks, but I would have already locked in $200,000 in gains, so I'd still be in great shape for retirement. I can spend from the bond/cash/CDs side until stocks recover. And if the market doesn't crash, I still spend from the bonds side until I'm back to 50/50 (and then spend from whichever side has the most money each year going forward)

I guess I'm crazy conservative, but this sure lets me sleep at night...

Am I wrong in thinking this helps with Sequence of Return risk?

In my example above, locking in $200,000 in gains, instead of just $100,000 from normal rebalancing means I have an extra 1+ year of expenses already locked into cash.

Not because I think a big crash is coming, but because I'm retiring very soon, and that way I have a large buffer even if a crash happens the day after I retire.
I concur with your plan and is actually very similar to what I did when I realized I was FI and was going to wrap up work life (for the most part) in a few years after reaching my number. I was glad I did this prior to March, 2020.

I sold off stock gains here and there over a few years and put in cash (most in an account with a 2.5% floor yield and liquid, very fortunate to have access to this number) until I reached 6 years expenses, a number that let me sleep at night. This did become a bit like eating potato chips (just one more year) so I did a bit of research to reign myself in. Since the average bear market recovery since 1928 back to even is about 2.5 years (a time period I wouldn't want to draw down stocks to survive), I doubled that and added a bit for good measure/sleep factor. Source: https://awealthofcommonsense.com/2020/0 ... ar-market/

Since reaching 6 years expenses (after pension and p.t. work is factored in) in cash a year before moving to very p.t. work, I stopped selling off stock gains and just let it ride. I think the lowest stock percentage in the portfolio overall hit about 50%. Currently at 56% stock, 20% bond and 24% cash.

Probably conservative for some since I am age 54 and spouse at age 50, but we sleep well (as long as the thunder doesn't scare the dog).
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
wander
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Re: Close to retirement - locking in gains with each new market high

Post by wander »

Op, it sounds like a plan. But personally, if my AA is 50/50, I would just rebalance often and call it a day in my retirement as it is already conservative.
YRT70
Posts: 1289
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Re: Close to retirement - locking in gains with each new market high

Post by YRT70 »

Whitecap wrote: Thu Jul 29, 2021 5:32 pm
marcopolo wrote: Thu Jul 29, 2021 12:46 pm
HomerJ wrote: Thu Jul 29, 2021 11:25 am So, I'm close to retirement, have made my number, and now I'm just locking in gains every few months lately, when the market hits new highs.

I'm not just rebalancing back to my original AA, I'm building up a cushion of cash, but this slowly changes my AA.

So look at me, I'm not staying the course!

It's about risk management, not maximizing gains, or even maintaining an consistent Asset Allocation.

This will cost me in the long-run, since I will be missing out on compounding. In the short-run, I feel like it lowers my retirement sequence of return risk.

For instance, imagine I have $1 million in stocks and $1 million in bonds/cash/CDs. 50/50 portfolio

Market goes up 10%, I sell the entire $100,000 gain in stocks and move it into the bonds/cash/CDs side of the portfolio, instead of just rebalancing back to 50/50.

So now I have $1 million in stocks and $1.1 million in bonds (47/53)

If the market goes up another 10%, I still make another $100,000 on the stock side... It could have been $105,000 if I had rebalanced to 50/50, so I'm out $5000... which is a good chunk of money. If someone handed me $5000 today, I'd be pretty excited.

But I already hit my number, so I'm not too worried about missing out on compounded gains in the short-term. I still make another $100,000 if stocks keep going up... I'm not that worried about missing out on the extra $5000. I'd be pretty happy with the extra $100,000 (which I would then lock in again by selling the gains - so then I would be at 45/55)

Yes, over multiple years or multiple 10% gains, compounding that extra money adds up, so this method would be a terrible idea for an accumulator, but I won't do this very long.

Just until I retire in a year or two, at which point, I'll spend all those locked-in gains first, and slowly get back to 50/50... Or there will be a crash, I'll get back to 50/50 quickly

The point is, by locking in ALL the gains, I'm sitting pretty even if there is a large market crash. Because I've already cashed out the gains, and now have a pretty nice buffer on the cash side.

If the market drops 30%, I'd be out $300,000 in stocks, but I would have already locked in $200,000 in gains, so I'd still be in great shape for retirement. I can spend from the bond/cash/CDs side until stocks recover. And if the market doesn't crash, I still spend from the bonds side until I'm back to 50/50 (and then spend from whichever side has the most money each year going forward)

I guess I'm crazy conservative, but this sure lets me sleep at night...

Am I wrong in thinking this helps with Sequence of Return risk?

In my example above, locking in $200,000 in gains, instead of just $100,000 from normal rebalancing means I have an extra 1+ year of expenses already locked into cash.

Not because I think a big crash is coming, but because I'm retiring very soon, and that way I have a large buffer even if a crash happens the day after I retire.
What you are describing is essentially Kitces' "bond tent".
Initially, there was some belief that it helped with SORR. But, I believe there has been further research that shows it really does not make much difference. I don't think it really hurts either. So, if it helps you be more comfortable as you approach retirement, why not.
Marcopolo,

Could you post that research for me. I enjoyed that Kitces article about Bond Tents. In his article he spoke that more research was needed on the subject. I’m happy to hear that some more has been done. Could you post that for me for my education?

Thank you sir,
Whitecap
Michael Kitces and Wade Pfau both believe that a bond tent can help. But as mentioned by Marcopolo it's controversial. If you want to hear Kitces talk about it: https://rationalreminder.ca/podcast/112 (transcript is there too).
jebmke
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Re: Close to retirement - locking in gains with each new market high

Post by jebmke »

EnjoyIt wrote: Thu Jul 29, 2021 9:23 pm One more year is a tough mistress to break up with.
I solved this by not having “a number”
Stay hydrated; don't sweat the small stuff
bradpevans
Posts: 801
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Re: Close to retirement - locking in gains with each new market high

Post by bradpevans »

Starfish wrote: Thu Jul 29, 2021 9:02 pm
HomerJ wrote: Thu Jul 29, 2021 11:25 am So, I'm close to retirement, have made my number, and now I'm just locking in gains every few months lately, when the market hits new highs.

How do you call this...ummmm... I know, market timing!

I can tell you were it might go wrong: inflation could be more than you share of the market gains. So you think you lock the gains but you lock in some money that lose value.
^^ this was my initial reaction as well. The title could also be read as "missing out on gains with each new high" since its the equity market rising and the equity allocation shrinking.
rockAction
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Re: Close to retirement - locking in gains with each new market high

Post by rockAction »

I'm sure rationally you probably know it won't make much difference either way, and barely moves the SORR needle. Personally, for me it was liberating to chuck all the mental accounting stuff and simply stick to an AA that best fits my needs and risk tolerance. It is simpler and reduces the tendency to tinker. I now see mental accounting as more of a distraction than anything, and removes focus from the things that can really make a difference (ability to adjust spending, having enough FI to withstand a prolonged bear market, sticking to a plan, etc).

At 25X, I wouldn't go below 50/50, even heading into retirement. You chose 50/50 for a reason (probably 100 reasons), so I'd recommend staying there and reminding yourself that 50/50 is the ride you signed up for, and that will only change if there is an extremely compelling reason to do so. Just my two cents.
40% VT | 20% Global SCV | 20% LTPZ | 10% I-Bonds | 10% Cash
UpperNwGuy
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Re: Close to retirement - locking in gains with each new market high

Post by UpperNwGuy »

Why are so many folk taking issue with OP's travel budget? If the same amount were going to housing, everyone would skip right over it. Let each person make their own life choices. I've been retired for eight years and have chosen to live in a smallish apartment specifically to free up money for lots of travel. The year before the pandemic I made three two-week trips to Europe and several domestic trips to visit family, I support OP's desire to travel. The time to travel is now when you're in your 60s and 70s. It gets harder physically after that. Don't let those early years of retirement go to waste.
EnjoyIt
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Re: Close to retirement - locking in gains with each new market high

Post by EnjoyIt »

jebmke wrote: Fri Jul 30, 2021 6:46 am
EnjoyIt wrote: Thu Jul 29, 2021 9:23 pm One more year is a tough mistress to break up with.
I solved this by not having “a number”
Was it age? Was it your boss telling you your retired? Was it someone who just bought your business and I formed you that you are done?
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
CraigTester
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Re: Close to retirement - locking in gains with each new market high

Post by CraigTester »

HomerJ wrote: Thu Jul 29, 2021 3:10 pm
CraigTester wrote: Thu Jul 29, 2021 2:31 pm And then, very importantly, what do you think the chances are that at some point over the next 25 years, you won’t get the opportunity to buy back into the S&P500 at a significantly better valuation?
"Nobody knows nothing" :happy

I have no idea what the chances are. 1996 has the highest valuations in 70 years at the time. S&P 500 was around 600.

Its been 25 years, and there was never a chance to buy back in at a lower price.

Someone waiting 25 years for a S&P crash to go below 600 is pretty sad today at 4400.
P.S. congrats on hitting your number
Thanks!
Well, I didn’t actually think you’d like this idea presented in the midst of a never ending bull market, but since you are doing a little market timing (I mean, derisking), thought there might be hope for you….

As for 1996, if you look at “real” prices, instead of nominal, you’ll find better prices were offered again in 2008 and 2009.

But more importantly, better “valuations” presented themselves in abundance…

Also more importantly, what if instead of 1996, you happened to be retiring in 2000? You would have had 14 years to find a better real price…and a lot longer than that to find a better valuation….

Probably shouldn’t even mention 1929…but you would have had until 1982 to get in at a better “real” price…

If you’re genuinely seeking a sanity check on your plan, is it possible that your wife intuitively perceives the risk involved in retiring based on math performed at a moment in time when valuations are at their 99.5 percentile?

P.S. If I at least made you think, even for a moment, outside the bubble of this forum, my work is done...

Craig Tester
Whitecap
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Re: Close to retirement - locking in gains with each new market high

Post by Whitecap »

YRT70 wrote: Fri Jul 30, 2021 6:28 am
Whitecap wrote: Thu Jul 29, 2021 5:32 pm
marcopolo wrote: Thu Jul 29, 2021 12:46 pm
HomerJ wrote: Thu Jul 29, 2021 11:25 am So, I'm close to retirement, have made my number, and now I'm just locking in gains every few months lately, when the market hits new highs.

I'm not just rebalancing back to my original AA, I'm building up a cushion of cash, but this slowly changes my AA.

So look at me, I'm not staying the course!

It's about risk management, not maximizing gains, or even maintaining an consistent Asset Allocation.

This will cost me in the long-run, since I will be missing out on compounding. In the short-run, I feel like it lowers my retirement sequence of return risk.

For instance, imagine I have $1 million in stocks and $1 million in bonds/cash/CDs. 50/50 portfolio

Market goes up 10%, I sell the entire $100,000 gain in stocks and move it into the bonds/cash/CDs side of the portfolio, instead of just rebalancing back to 50/50.

So now I have $1 million in stocks and $1.1 million in bonds (47/53)

If the market goes up another 10%, I still make another $100,000 on the stock side... It could have been $105,000 if I had rebalanced to 50/50, so I'm out $5000... which is a good chunk of money. If someone handed me $5000 today, I'd be pretty excited.

But I already hit my number, so I'm not too worried about missing out on compounded gains in the short-term. I still make another $100,000 if stocks keep going up... I'm not that worried about missing out on the extra $5000. I'd be pretty happy with the extra $100,000 (which I would then lock in again by selling the gains - so then I would be at 45/55)

Yes, over multiple years or multiple 10% gains, compounding that extra money adds up, so this method would be a terrible idea for an accumulator, but I won't do this very long.

Just until I retire in a year or two, at which point, I'll spend all those locked-in gains first, and slowly get back to 50/50... Or there will be a crash, I'll get back to 50/50 quickly

The point is, by locking in ALL the gains, I'm sitting pretty even if there is a large market crash. Because I've already cashed out the gains, and now have a pretty nice buffer on the cash side.

If the market drops 30%, I'd be out $300,000 in stocks, but I would have already locked in $200,000 in gains, so I'd still be in great shape for retirement. I can spend from the bond/cash/CDs side until stocks recover. And if the market doesn't crash, I still spend from the bonds side until I'm back to 50/50 (and then spend from whichever side has the most money each year going forward)

I guess I'm crazy conservative, but this sure lets me sleep at night...

Am I wrong in thinking this helps with Sequence of Return risk?

In my example above, locking in $200,000 in gains, instead of just $100,000 from normal rebalancing means I have an extra 1+ year of expenses already locked into cash.

Not because I think a big crash is coming, but because I'm retiring very soon, and that way I have a large buffer even if a crash happens the day after I retire.
What you are describing is essentially Kitces' "bond tent".
Initially, there was some belief that it helped with SORR. But, I believe there has been further research that shows it really does not make much difference. I don't think it really hurts either. So, if it helps you be more comfortable as you approach retirement, why not.
Marcopolo,

Could you post that research for me. I enjoyed that Kitces article about Bond Tents. In his article he spoke that more research was needed on the subject. I’m happy to hear that some more has been done. Could you post that for me for my education?

Thank you sir,
Whitecap
Michael Kitces and Wade Pfau both believe that a bond tent can help. But as mentioned by Marcopolo it's controversial. If you want to hear Kitces talk about it: https://rationalreminder.ca/podcast/112 (transcript is there too).
YRT70,

Thank you. This is helpful.

Warm regards,
Whitecap
Whitecap
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Re: Close to retirement - locking in gains with each new market high

Post by Whitecap »

marcopolo wrote: Thu Jul 29, 2021 6:11 pm
Whitecap wrote: Thu Jul 29, 2021 5:32 pm
marcopolo wrote: Thu Jul 29, 2021 12:46 pm
HomerJ wrote: Thu Jul 29, 2021 11:25 am So, I'm close to retirement, have made my number, and now I'm just locking in gains every few months lately, when the market hits new highs.

I'm not just rebalancing back to my original AA, I'm building up a cushion of cash, but this slowly changes my AA.

So look at me, I'm not staying the course!

It's about risk management, not maximizing gains, or even maintaining an consistent Asset Allocation.

This will cost me in the long-run, since I will be missing out on compounding. In the short-run, I feel like it lowers my retirement sequence of return risk.

For instance, imagine I have $1 million in stocks and $1 million in bonds/cash/CDs. 50/50 portfolio

Market goes up 10%, I sell the entire $100,000 gain in stocks and move it into the bonds/cash/CDs side of the portfolio, instead of just rebalancing back to 50/50.

So now I have $1 million in stocks and $1.1 million in bonds (47/53)

If the market goes up another 10%, I still make another $100,000 on the stock side... It could have been $105,000 if I had rebalanced to 50/50, so I'm out $5000... which is a good chunk of money. If someone handed me $5000 today, I'd be pretty excited.

But I already hit my number, so I'm not too worried about missing out on compounded gains in the short-term. I still make another $100,000 if stocks keep going up... I'm not that worried about missing out on the extra $5000. I'd be pretty happy with the extra $100,000 (which I would then lock in again by selling the gains - so then I would be at 45/55)

Yes, over multiple years or multiple 10% gains, compounding that extra money adds up, so this method would be a terrible idea for an accumulator, but I won't do this very long.

Just until I retire in a year or two, at which point, I'll spend all those locked-in gains first, and slowly get back to 50/50... Or there will be a crash, I'll get back to 50/50 quickly

The point is, by locking in ALL the gains, I'm sitting pretty even if there is a large market crash. Because I've already cashed out the gains, and now have a pretty nice buffer on the cash side.

If the market drops 30%, I'd be out $300,000 in stocks, but I would have already locked in $200,000 in gains, so I'd still be in great shape for retirement. I can spend from the bond/cash/CDs side until stocks recover. And if the market doesn't crash, I still spend from the bonds side until I'm back to 50/50 (and then spend from whichever side has the most money each year going forward)

I guess I'm crazy conservative, but this sure lets me sleep at night...

Am I wrong in thinking this helps with Sequence of Return risk?

In my example above, locking in $200,000 in gains, instead of just $100,000 from normal rebalancing means I have an extra 1+ year of expenses already locked into cash.

Not because I think a big crash is coming, but because I'm retiring very soon, and that way I have a large buffer even if a crash happens the day after I retire.
What you are describing is essentially Kitces' "bond tent".
Initially, there was some belief that it helped with SORR. But, I believe there has been further research that shows it really does not make much difference. I don't think it really hurts either. So, if it helps you be more comfortable as you approach retirement, why not.

Marcopolo,

Could you post that research for me. I enjoyed that Kitces article about Bond Tents. In his article he spoke that more research was needed on the subject. I’m happy to hear that some more has been done. Could you post that for me for my education?

Thank you sir,
Whitecap
Here is a thread that discussed it, with links to studies that show somewhat mixed results from it.

viewtopic.php?t=317628

Here is another analysis showing mixed results:
https://www.fiphysician.com/what-is-the ... etirement/
Marcopolo,

Thank you. This helps a lot. I will digest all these articles and try to figure out what to do when I hit ten years prior to retirement. (A year from now). Kitces speaks of “The size effect” and SORR starting about ten years prior and ten years after retirement. I hit that mark in one year. I’m trying to figure out what strategy I should employ. Time to read up on this. Thanks for all the information.

Much appreciated,
Whitecap
59Gibson
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Re: Close to retirement - locking in gains with each new market high

Post by 59Gibson »

CraigTester wrote: Fri Jul 30, 2021 8:02 am
HomerJ wrote: Thu Jul 29, 2021 3:10 pm
CraigTester wrote: Thu Jul 29, 2021 2:31 pm And then, very importantly, what do you think the chances are that at some point over the next 25 years, you won’t get the opportunity to buy back into the S&P500 at a significantly better valuation?
"Nobody knows nothing" :happy

I have no idea what the chances are. 1996 has the highest valuations in 70 years at the time. S&P 500 was around 600.

Its been 25 years, and there was never a chance to buy back in at a lower price.

Someone waiting 25 years for a S&P crash to go below 600 is pretty sad today at 4400.
P.S. congrats on hitting your number
Thanks!
Well, I didn’t actually think you’d like this idea presented in the midst of a never ending bull market, but since you are doing a little market timing (I mean, derisking), thought there might be hope for you….

As for 1996, if you look at “real” prices, instead of nominal, you’ll find better prices were offered again in 2008 and 2009.

But more importantly, better “valuations” presented themselves in abundance…

Also more importantly, what if instead of 1996, you happened to be retiring in 2000? You would have had 14 years to find a better real price…and a lot longer than that to find a better valuation….

Probably shouldn’t even mention 1929…but you would have had until 1982 to get in at a better “real” price…

If you’re genuinely seeking a sanity check on your plan, is it possible that your wife intuitively perceives the risk involved in retiring based on math performed at a moment in time when valuations are at their 99.5 percentile?

P.S. If I at least made you think, even for a moment, outside the bubble of this forum, my work is done...

Craig Tester
What # do you think would be safe for the OP to retire w/ current valuations? 30X, 40X, 50X, 65X? Curious
delamer
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Re: Close to retirement - locking in gains with each new market high

Post by delamer »

UpperNwGuy wrote: Fri Jul 30, 2021 7:47 am Why are so many folk taking issue with OP's travel budget? If the same amount were going to housing, everyone would skip right over it. Let each person make their own life choices. I've been retired for eight years and have chosen to live in a smallish apartment specifically to free up money for lots of travel. The year before the pandemic I made three two-week trips to Europe and several domestic trips to visit family, I support OP's desire to travel. The time to travel is now when you're in your 60s and 70s. It gets harder physically after that. Don't let those early years of retirement go to waste.
Speaking for myself, I wasn’t taking issue with his travel budget.

I was pointing out that there is an important difference (using your situation as an example) between not being able to pay your apartment rent and having to cancel one of your Europe trips, due to a stock market crash. Apartment rent is a necessity; a Europe trip is a nicety.

Now if you’d be willing to move to an even smaller, less expensive apartment in order to preserve your travel funds, that’s your choice. Then make more of your travel expenses a necessity and make more of your apartment rent a nicety, in terms of budget.

Keeping a lot more of your portfolio in cash equivalents in order to pay for 15 years of niceties is a questionable financial choice.
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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goingup
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Re: Close to retirement - locking in gains with each new market high

Post by goingup »

HomerJ-
Always enjoy your posts and perspectives.

I think we all have different approaches to looming retirement. Last year (year 2 of retirement) we took the proceeds of a house sale and put 90% in short/intermediate bonds. This was to try to get back to 60/40. It's tough to tamp down those buoyant equities. :wink:

So I get what you're doing. I do think of you as the agnostic 50/50 guy, though. Do you have end goal in mind? Seems like you'd want to return to being a boring Bogleheads stoic. :beer
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Re: Close to retirement - locking in gains with each new market high

Post by jebmke »

EnjoyIt wrote: Fri Jul 30, 2021 7:53 am
jebmke wrote: Fri Jul 30, 2021 6:46 am
EnjoyIt wrote: Thu Jul 29, 2021 9:23 pm One more year is a tough mistress to break up with.
I solved this by not having “a number”
Was it age? Was it your boss telling you your retired? Was it someone who just bought your business and I formed you that you are done?
I reached a point where I had done everything I wanted to do. I changed jobs (same company) fairly often -- every 3 years or so. I reached a point where the next move would have been largely a re-run. The only move left was the top spot and I had no real desire to do that job. I also finished some things I set out to do 10-years earlier. The time was right. The company didn't want me to leave -- I ended up doing some consulting for them for a couple of years after I retired.
Stay hydrated; don't sweat the small stuff
CraigTester
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Re: Close to retirement - locking in gains with each new market high

Post by CraigTester »

59Gibson wrote: Fri Jul 30, 2021 8:35 am
CraigTester wrote: Fri Jul 30, 2021 8:02 am
HomerJ wrote: Thu Jul 29, 2021 3:10 pm
CraigTester wrote: Thu Jul 29, 2021 2:31 pm And then, very importantly, what do you think the chances are that at some point over the next 25 years, you won’t get the opportunity to buy back into the S&P500 at a significantly better valuation?
"Nobody knows nothing" :happy

I have no idea what the chances are. 1996 has the highest valuations in 70 years at the time. S&P 500 was around 600.

Its been 25 years, and there was never a chance to buy back in at a lower price.

Someone waiting 25 years for a S&P crash to go below 600 is pretty sad today at 4400.
P.S. congrats on hitting your number
Thanks!
Well, I didn’t actually think you’d like this idea presented in the midst of a never ending bull market, but since you are doing a little market timing (I mean, derisking), thought there might be hope for you….

As for 1996, if you look at “real” prices, instead of nominal, you’ll find better prices were offered again in 2008 and 2009.

But more importantly, better “valuations” presented themselves in abundance…

Also more importantly, what if instead of 1996, you happened to be retiring in 2000? You would have had 14 years to find a better real price…and a lot longer than that to find a better valuation….

Probably shouldn’t even mention 1929…but you would have had until 1982 to get in at a better “real” price…

If you’re genuinely seeking a sanity check on your plan, is it possible that your wife intuitively perceives the risk involved in retiring based on math performed at a moment in time when valuations are at their 99.5 percentile?

P.S. If I at least made you think, even for a moment, outside the bubble of this forum, my work is done...

Craig Tester
What # do you think would be safe for the OP to retire w/ current valuations? 30X, 40X, 50X, 65X? Curious
33X

At this level he could absorb a 50% drop in half his portfolio, the day after he retires, and 4% of what's left would still meet his stated annual spending desires.

Note that this is obviously not how Bengen's research was performed. But Homer has posted on this topic 16,000 times.

So no matter how many times he utters "Nobody know nuttin", I assume he would be anxiety ridden if he became a "candidate" (through much of his and his wife's retirement), for becoming Bengen's next "least common denominator".

Craig Tester
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HomerJ
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Re: Close to retirement - locking in gains with each new market high

Post by HomerJ »

gobel wrote: Fri Jul 30, 2021 12:10 am
HomerJ wrote: Thu Jul 29, 2021 11:25 am The point is, by locking in ALL the gains, I'm sitting pretty even if there is a large market crash. Because I've already cashed out the gains, and now have a pretty nice buffer on the cash side.

If the market drops 30%, I'd be out $300,000 in stocks, but I would have already locked in $200,000 in gains, so I'd still be in great shape for retirement.
yes, this is safer, but do understand the actual math. You haven't "locked in" the last 200k of gains this way, instead it avoids a 30% loss on only the 200k you cashed out if it drops.

Another way to see this: if a 30% drop occurs today, you would be left with 700k + 200k = 900k. Instead if you had let it ride, it would have climbed to 1.21m before the drop, leaving 847k after a 30% drop. So you saved 53k by cashing out.
Good point... You are correct.

But again, it's all a mental exercise. Because if it dropped 30%, I'd be worried about it dropping 50%.

So when I say I "locked in" the $200k in gains, it means I don't have to "worry" about that $200k losing a lot in value.

You're right that I wouldn't really lose the entire 200k even if I left it in stocks (and we all expect that stocks would recover someday, and I'll get the money back someday plus more than leaving it in bonds/cash, but who knows for sure?).
Last edited by HomerJ on Fri Jul 30, 2021 10:35 am, edited 1 time in total.
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HomerJ
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Re: Close to retirement - locking in gains with each new market high

Post by HomerJ »

rockAction wrote: Fri Jul 30, 2021 7:02 am I'm sure rationally you probably know it won't make much difference either way, and barely moves the SORR needle. Personally, for me it was liberating to chuck all the mental accounting stuff and simply stick to an AA that best fits my needs and risk tolerance. It is simpler and reduces the tendency to tinker. I now see mental accounting as more of a distraction than anything, and removes focus from the things that can really make a difference (ability to adjust spending, having enough FI to withstand a prolonged bear market, sticking to a plan, etc).

At 25X, I wouldn't go below 50/50, even heading into retirement. You chose 50/50 for a reason (probably 100 reasons), so I'd recommend staying there and reminding yourself that 50/50 is the ride you signed up for, and that will only change if there is an extremely compelling reason to do so. Just my two cents.
That's good advice :)
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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HomerJ
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Re: Close to retirement - locking in gains with each new market high

Post by HomerJ »

goingup wrote: Fri Jul 30, 2021 9:58 am HomerJ-
Always enjoy your posts and perspectives.

I think we all have different approaches to looming retirement. Last year (year 2 of retirement) we took the proceeds of a house sale and put 90% in short/intermediate bonds. This was to try to get back to 60/40. It's tough to tamp down those buoyant equities. :wink:

So I get what you're doing. I do think of you as the agnostic 50/50 guy, though. Do you have end goal in mind? Seems like you'd want to return to being a boring Bogleheads stoic. :beer
Yeah, after I retire, I'll pay all bills using cash/CD/bonds money up until I get back to 50/50.

So I'll drop off 50/50 for this year or two before retirement, then slowly get back to 50/50, and then stick there all through retirement.

The plan after I'm back to 50/50, is that every year in retirement, I'd pull from the side that has more money. If stocks went up that year, I'd pull from stocks. If stocks dropped, I'd pull from bonds.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
rr2
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Re: Close to retirement - locking in gains with each new market high

Post by rr2 »

HomerJ,

Very interesting thread. Thanks for starting it.

I've not been paying much attention to my asset allocation recently. I peeked and it was off significantly (60% stock target is almost 70% now). This is as expected given the current market. Now I have brought it back in line, maybe a teensy bit below. I have a ways to go (5+ years) to retirement but it doesn't hurt to rebalance back. It's been years since I did it last.

Good luck!
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gmaynardkrebs
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Re: Close to retirement - locking in gains with each new market high

Post by gmaynardkrebs »

HomerJ wrote: Fri Jul 30, 2021 10:34 am
goingup wrote: Fri Jul 30, 2021 9:58 am HomerJ-
Always enjoy your posts and perspectives.

I think we all have different approaches to looming retirement. Last year (year 2 of retirement) we took the proceeds of a house sale and put 90% in short/intermediate bonds. This was to try to get back to 60/40. It's tough to tamp down those buoyant equities. :wink:

So I get what you're doing. I do think of you as the agnostic 50/50 guy, though. Do you have end goal in mind? Seems like you'd want to return to being a boring Bogleheads stoic. :beer
Yeah, after I retire, I'll pay all bills using cash/CD/bonds money up until I get back to 50/50.

So I'll drop off 50/50 for this year or two before retirement, then slowly get back to 50/50, and then stick there all through retirement.

The plan after I'm back to 50/50, is that every year in retirement, I'd pull from the side that has more money. If stocks went up that year, I'd pull from stocks. If stocks dropped, I'd pull from bonds.
Are any of your bonds TIPS or Ibonds? I think that over time, stocks are probably pretty decent inflation protection, but short term? Probably not. If we have stagflation, both nominal bonds and stocks could see significant declines, which could put you in a bit of a conundrum. Thus, the case for TIPS, which would probably be the cleanest dirty shirt in stagflation. Of course, SSec would help the stagflation problem a lot, assuming you and the missus have a decent monthly amount, and can live on SSec for a good while if you have to.
EnjoyIt
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Re: Close to retirement - locking in gains with each new market high

Post by EnjoyIt »

jebmke wrote: Fri Jul 30, 2021 10:04 am
EnjoyIt wrote: Fri Jul 30, 2021 7:53 am
jebmke wrote: Fri Jul 30, 2021 6:46 am
EnjoyIt wrote: Thu Jul 29, 2021 9:23 pm One more year is a tough mistress to break up with.
I solved this by not having “a number”
Was it age? Was it your boss telling you your retired? Was it someone who just bought your business and I formed you that you are done?
I reached a point where I had done everything I wanted to do. I changed jobs (same company) fairly often -- every 3 years or so. I reached a point where the next move would have been largely a re-run. The only move left was the top spot and I had no real desire to do that job. I also finished some things I set out to do 10-years earlier. The time was right. The company didn't want me to leave -- I ended up doing some consulting for them for a couple of years after I retired.
I guess on more year is harder than you mentioned.

We are part time. Let’s see how long that lasts.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
Charon
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Re: Close to retirement - locking in gains with each new market high

Post by Charon »

Wanderingwheelz wrote: Thu Jul 29, 2021 3:31 pm People are living past 100 as a matter of course these days.
[citation needed]

I don't see a centenarian analysis for the 2020 Census yet, but the 2010 Census found 0.0173% of the U.S. population was 100 or over (a slightly decrease from the 2000 Census, where that number was 0.0179%). While that number is estimated to have risen recently, the 2019 estimate was still only 0.03% ( https://www2.census.gov/programs-survey ... asexn.xlsx ).

Social Security actuarial tables get to 25% probability of death in a given year by the late 90s ( https://www.ssa.gov/oact/STATS/table4c6.html ). The large majority of those 100 or over are 100 or 101 ( https://www.census.gov/library/publicat ... sr-03.html ).

You can reduce longevity risk by delaying getting SS and/or by annuitizing some money. (The VPW approach recommends annuitizing at age 80; https://www.bogleheads.org/wiki/Variabl ... withdrawal) But if you're planning on living to over 100, you're planning for something on the tail of the distribution.
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