Author Topic: Advice please - I need to safely transition from fixed interest to equities  (Read 3370 times)

SMMcP

  • 5 O'Clock Shadow
  • *
  • Posts: 83
  • Location: Albuquerque, NM
I have way too much of my money in fixed interest accounts and want to gradually move some of it to equity funds.
Here is my situation:
I'll be 62 in a month and have just become "semi-retired" as I plan to work about 30 hours a month (Emergency Nurse, so will just pick up a few shifts)  This will be enough to earn about $15,000 per year which is what social security allows without losing benefits.  My monthy income includes social security at $1866/month and a tax free annuity at $1418/month.  My monthly budget is $3100/month which includes $600/month for travel so my monthly expenses are covered without using my investments.
I have a paid for house worth about $210,000 (paid $250,000 in 2007, ugh) and a paid for 2008 Camry Hybrid.  I have no debt of any kind.
My other assets amount to about $127,000 as follows:
$70,000 in a savings acct at 0.30% (I know, I know)
$41,000 in my 403b - all in fixed interest at 3%
$7,850 in individual equities
$2,150 in USAA precious metals fund
And for the good news, I just opened a Vanguard Acct with
$3,000 in Total Stock Market Index Fund and
$3,000 in REIT Index Fund.
I am too cautious to move alot into index funds at once (expecially with the market at a high) but am considering moving $2000/month over the next 3 years or so. I like the idea of dollar cost averaging or value averaging.  I also have access to some Vanguard Funds in my 403b and can still contribute to that.  I wish I had known about sites like this sooner, but I guess late is better than never. 
I ran things through Firecalc and even at my age it still looks like 75% equities is the best option.  With my family's longevity, I could likely live to my 90's.
I would appreciate hearing your thoughts.

smedleyb

  • Bristles
  • ***
  • Posts: 434
Like you said, move the money gradually.  Take 3-4 years and dollar cost average into your current funds.  Smooth out the process. 

But understand, there is nothing safe about buying stocks that have been juiced higher by governmental forces.  Hence my plea for caution.   

the fixer

  • Handlebar Stache
  • *****
  • Posts: 1035
  • Location: Seattle, WA
You could at least buy a TIPS index or Series I bonds. A Vanguard LifeStrategy Income fund is also a good, conservative option where the volatility of the stock portion is hidden from you.

I'm far too young to know much about what finances are like in your 60s, but it sounds to me like you've got it made with SS+annuity and no debt. What are your planned expenses that you need that money for? If you don't need a ton of return there's no point in taking the risk (but leaving it in cash is an automatic -2 or -3%, that's bad).

Richard3

  • Bristles
  • ***
  • Posts: 292
If the total stock market fund is a global one rather than a US only one and you don't like investing, then there's a strong case for most of your share investments to go in there.

You're unlikely to do better than the index and unless you deliberately pick defensive / low Beta shares you're unlikely to have less volatility than the index.




SMMcP

  • 5 O'Clock Shadow
  • *
  • Posts: 83
  • Location: Albuquerque, NM
You could at least buy a TIPS index or Series I bonds. A Vanguard LifeStrategy Income fund is also a good, conservative option where the volatility of the stock portion is hidden from you.

I'm far too young to know much about what finances are like in your 60s, but it sounds to me like you've got it made with SS+annuity and no debt. What are your planned expenses that you need that money for? If you don't need a ton of return there's no point in taking the risk (but leaving it in cash is an automatic -2 or -3%, that's bad).

Possible expenses in the future include - more travel, helping adult children once in awhile, being prepared for change such as inflation or health problems.  It just seems irresponsible to me to leave so much in cash long term. 

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5208
Is the 403 b in a stable value fund?  Those can be useful when the stock market is volatile.  You may want to consider how much better a stable value fund rate is over the savings account interest rate and keep some of the money there, compounding tax deferred.

If this is the money you want to move from fixed interest to equities, will you be rolling the money into an IRA?  Or will it be invested in Vanguard funds through the 403 b because you are still employed by your current employer?  Look at the performance of the funds offered in the 403 b.  Some may be good, some may not.  If you are not interested in becoming really knowledgeable about investing, look at the index funds.  Periodic investment of future contributions will dollar cost average you into the market, whichever funds you select.

My concern would be the money that is in the savings account.  In your shoes, I would think that $70k is way too much of my total portfolio to have in taxable accounts at the bank.  At the very least, I would use some of it to fully fund 2012 and 2013 IRA's.  Then invest the IRA money into equities over time.  It sounds like you qualify for a Roth.  You can leave the money in there to compound until you need it.  If the annuity is level, the IRA's will likely provide some inflation protection later on.  Then take whatever amount of the remaining money makes you comfortable and invest it into equities.  Keep funding IRA's as long as you are working and can afford to do so for more inflation protection.

skyrefuge

  • Handlebar Stache
  • *****
  • Posts: 1007
  • Location: Suburban Chicago, IL
I'd say don't sweat it too much no matter what you do. Yeah, it's always nice from an academic perspective to maximize your return at an acceptable risk level, but even if that entire $127k was to die in a fire right now, it wouldn't affect your current financial picture all that much.

Even when "invested well", at a 4% withdrawal rate, that $127k would give you $5080 year. That's a fairly inconsequential amount compared to $39k/year you're getting from SS+annunity.

So I'd say your initial idea sounds good. Your annuitized income (plus work income) gives you the luxury of being more "risky" with your stash than you're currently being, but there's also no real need to rush.

SMMcP

  • 5 O'Clock Shadow
  • *
  • Posts: 83
  • Location: Albuquerque, NM
Thanks everyone for the input.  I think I will just dollar cost average some of it into the market over the next several years.  Seems like the best approach to me.