Author Topic: Conservative portfolio and conservative funds?  (Read 3940 times)

Bolshevik Artizan

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Conservative portfolio and conservative funds?
« on: March 15, 2015, 01:41:26 PM »
Hi all

I am considering investing the proceeds of a house sale for 12-18 months until we purchase a new home (around USD 800 000). My outlook for this money is very conservative; I'm not looking for a return much above 4% pa but I want low volatility. Can anyone recommend a portfolio structure and/or fund choices to help me achieve this goal?

Thanks

bolshevik

sol

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Re: Conservative portfolio and conservative funds?
« Reply #1 on: March 15, 2015, 01:55:15 PM »
If we could all get 4% with no volatility, our retirement planning would be WAAAAYYYY easier.  The whole point of the 4% SWR is to highlight that even with average market returns of 9% per year, you still can't count on getting even 4% of your principal back per year.

Market's go down, that's what makes it possible for them to go up.  If you want a sure thing, you're probably stuck with CDs or Treasuries (basically < 2% on anything shorter than 10 year). Sorry.

Indexer

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Re: Conservative portfolio and conservative funds?
« Reply #2 on: March 15, 2015, 02:13:12 PM »
Right now 4% with no volatility doesn't really exist, at least for anything over 5k.  If its only 5k you can look at a mangomoney savings account.  However here are some options.

CDs & money markets:  low returns(likely less than 1%).  No volatility.

Short term bond funds:  1-2%, some volatility.  A bad year might be a 5% loss.

Very conservative balanced fund.  Something 80% bonds, 20% stocks.  You might get 3-5% returns, BUT it will be more volatile.  A bad year scenario(like 2008) might result in a 10-11% fall in value.  I personally use VASIX, but there are plenty of other examples out there.

GGNoob

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Re: Conservative portfolio and conservative funds?
« Reply #3 on: March 15, 2015, 03:39:17 PM »
If you are okay with losing up to 10% of your house fund and possibly delaying buying your house, invest in a conservative balanced fund like the one listed below. Otherwise, stick to a savings account or CD.

Very conservative balanced fund.  Something 80% bonds, 20% stocks.  You might get 3-5% returns, BUT it will be more volatile.  A bad year scenario(like 2008) might result in a 10-11% fall in value.  I personally use VASIX, but there are plenty of other examples out there.

aj_yooper

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Re: Conservative portfolio and conservative funds?
« Reply #4 on: March 15, 2015, 03:49:58 PM »
$800,000 is a lot of money.  Advice above is on target. 

You could also consider municipal bonds through someone knowledgeable like Larry Swedroe, at:  http://thebamalliance.com/blog/tag/larry-swedroe/  I have no relationship with him or the firm, but I have read his books, including his book on bonds and general finance.  As always, buyer beware.

Bolshevik Artizan

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Re: Conservative portfolio and conservative funds?
« Reply #5 on: March 15, 2015, 06:18:59 PM »
OK thanks everyone. We have the house out to rent and we are going to keep it that way for another year, as we'll get a 3-4% yield from rent. It's been a learning experience, thank you. Bolshevik.

bugbaby

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Re: Conservative portfolio and conservative funds?
« Reply #6 on: March 15, 2015, 10:46:01 PM »
Could you also consider longer term investment, then take a mortgage for the purchase - considering the very low interest rates + interest tax deduction?

Scandium

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Re: Conservative portfolio and conservative funds?
« Reply #7 on: March 16, 2015, 07:30:09 AM »
Why exactly do you keep $800k for a house purchase? Unless you're buying a $4 million house and need it for the down payment, keep what you need for 20% down, invest the rest and get a mortgage when you buy. That will maximize your return, especially with todays low rates

Bolshevik Artizan

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Re: Conservative portfolio and conservative funds?
« Reply #8 on: March 16, 2015, 07:39:25 AM »
Hi Babybug and Scandium - thanks for your responses. I want to be debt free, so that's why I'm keeping the money for a house purchase. Probably we will buy at 650-$750K and the house will actually yield around $850K - the balance will go in to our investment pot, which is currently $370K + retirement funds of around $750K. The goal is to minimize our outgoings as we want to reduce the hours we spend in paid employment. Cheers - Bolshevik.

waltworks

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Re: Conservative portfolio and conservative funds?
« Reply #9 on: March 16, 2015, 09:40:59 AM »
In your position a mortgage is a slam dunk - it will be large enough to be tax deductible even if you've got nothing else to deduct, and with rates at ~4%, your investments should beat the living snot out of it over a 30 year time horizon.

If your goal is to minimize working time, your plan to eliminate all debt, at least in the case of this house, is the opposite of what you should be doing.

-W

skyrefuge

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Re: Conservative portfolio and conservative funds?
« Reply #10 on: March 16, 2015, 10:04:36 AM »
it will be large enough to be tax deductible even if you've got nothing else to deduct, and with rates at ~4%

Seems to be a whole lot of assumption in this thread that the OP is in the US. He is not, he is in Canada ("USD 800 000" and "4% pa" were the things-Americans-don't-say clues for me).

Just a reminder that other countries have different interest rate environments and mortgage policies. It looks like a 4% savings account rate is actually not that crazy in Australia at the moment, and Canada's rates, while not near that 4% level, are greater than in the US. The idea that a 4% rate doesn't exist just isn't true on a global basis. Of course that also doesn't mean that early retirement is super-easy in a place that offers 4% savings account rates, because it's unlikely for a 4% *real* rate to exist anywhere.

waltworks

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Re: Conservative portfolio and conservative funds?
« Reply #11 on: March 16, 2015, 10:22:47 AM »
Good catch, mea culpa.

-W

Bolshevik Artizan

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Re: Conservative portfolio and conservative funds?
« Reply #12 on: March 16, 2015, 11:21:51 AM »
Thanks Skyrefuge! Bolshevik