Move all investment money into fixed income?
 

At what point should one change from being an investor to a "saver"?

I've been retired a number of years and have invested all my adult life. Luckily, we have enough non-investment money to live on.

I now wonder if I should gradually begin selling my ETFs, Mutuals, and stocks and move all the money into fixed income.

I know the outcome will be lower and stable, but I won't have to deal with the daily ups and downs.

I'm familiar with the 60/40 rule but wonder if I should go 0/100.

Obviously the higher the risk, the higher the return. Just remember, today's 5 yr T note rate in 3.96%, inflation is almost double that.

Wife and I living in UK retired 27 years ago. We decided to put all our investments into cash, and avoid the grind of the ups and downs of the S&S market.
We looked for tax free fixed rate government cash bonds, and Government Inflation proof tax free cash bonds.
Ultra conservative, and capital making no spectacular growth, but no spectacular falls either.
In fact with inflation rising all time in UK at present, we are doing very nicely thank you!
It worked for us.
Some folks love the daily market gamble, but we wanted no more of that.
Some even aim to be among the richest residents in the cemetery, but we definitely don't want that either!

Glad you put saver in quotes because that really isn't the definition of fixed income. You can put all your "non-investment" money in bonds, treasuries or CD's and it's still an investment. Nonetheless, changing from equities to bonds or the allocation of such is based off many variables, two being investment goals and risk tolerance. I would definitely re-allocate money to fixed income, so you "won't have to deal with the daily ups and downs." Maybe start with inverting that "60/40 rule", and put 60% in fixed income and 40% in equities.

Why should the OP remember that "today's 5 yr T note rate is 3.96%, inflation is almost double that"?

I have always maintained a 40 percent stock, 40 percent bond, and 20 percent cash portfolio. I intended to transfer to 100 percent bonds and CDs when I retired. But, I no longer think that is a good idea because of the Federal Reserve's tight control over interest rates. Their interest rate policy is to punish savers and reward borrowers. So, I have not changed my asset allocation since retiring and I don't intend to. If you can afford to live off of your non-investment income, I think it would be a mistake to go to 100 percent fixed income.

4.6 percent on six months Treasury today. All I need risk free,

The inflation rate is nonsense. Control your housing costs and taxes. The rest is insignificant if you have properly saved. Most people have limited time left.

I am a greedy penny pincher but the time has come to spend. Don’t have heirs come to your funeral in a Maserati

If you cash out all these longly held ETFs etc. you need to consider how much taxable income you will generate and will you pay more in taxes than any real risk of a downturn in the markets. If you don't need those invested funds now or in the predictable future they will be part of your estate and will pass to your heirs at the stepped up basis of their value on your date of death.

Unless.....they're held in tax deferred accounts

Taxes are always a major consideration. Run the numbers. Time is your most valuable asset late in life

Why not consult a fee based financial advisor you vet ahead of time who will sign on to act as a fiduciary? Some people experience extreme stress making big financial decisions, especially irrevocable ones such as selling securities which may bring about huge tax bills or significant losses. Frankly, before I make big decisions in areas with which I am unfamiliar, unknowledgeable or uncomfortable I try to consult one or more experts

Well if you have enough noninvestment income today to meet all of your expenses, then whatever path you take should work … i am in a similar situation …. I have been gradually downsizing my investments the last few years in favor of cash and short term treasuries. I sleep well knowing my downside risks are minimal.

I am also content to know that my money market accounts are now paying 3.8% and short term treasuries 4.6%. Sure the overall inflation rate is high … but my personal inflation rate is not.

I would have agreed with you 20 years ago, when I could live off of my money market and bond monthly interest checks. But I don't think the Federal Reserve will ever again let savers get a fair rate of return on their fixed rate income investments. They want to encourage more borrowing and less saving.

Because Jerome Powell, head of the Federal Reserve, has said that the goal is for interest rates to be more than the inflation rate.

There are more interest rate hikes to come.

If you decide to go fixed income, perhaps start moving just a portion of your funds, and add more later as interest rates increase.

"Jerome Powell, head of the Federal Reserve, has said that the goal is for interest rates to be more than the inflation rate." Please provide your source!

"They want to encourage more borrowing and less saving" Uh, the Fed is doing the exact opposite when they raise interest rates. Have you seen the mortgage rates recently? Does that sound like the Fed is encouraging people to borrow against a house? This more importantly, plays through to the corporate environment. Higher rates=less borrowing=slower growth=freezing hiring= less money in the hands of everyone = reduction of inflation and possible recession.

"Volcker slammed the brakes on the economy by raising interest rates to 20% " From: Memories of the 1970s haunt the Fed, pushing its aggressive rate moves : NPR

Anyone else remember those days?

My parents loved the rates they got on CDs back then.

Actually inflation started in the mid 1960s, guns and butter times. I started working at the USPTO as a patent examiner in the summer of 1966. If I recall correctly the Federal employees pay scale was increased three times in about one year. I remember I got maybe a 3% raise but the price of my afternoon ice cream snack in the cafeteria went up 30%.

I remember them well. My wife borrowed money at 21.5 percent to build a veterinary clinic in 1980. Fortunately, there were a lot of sick dogs and cats to pay the interest.

There is another option for regular taxable accounts. Right now it is very easy to purchase treasuries that were issued in the last few years that have a bond coupon interest of only 0 to 0.5%
These bonds offer a yield to maturity of 4.0 to 4.7% depending on the maturity date. So if you purchase 0.50% bond maturing in 2027 (5 years) … you have a small yearly taxable interest of $5.00 per $1000 bond. But when it matures in 2027 you will have a long term capital gain $156 per $1000 bond (This is how you get your yield to maturity of 4.03% on this bond).. So almost all of the yield is tax deferred until the bond matures… And in this case most of the income is taxed at the lower long term capital gains rate.

This is based on todays price of a US Treasury 10/31/2027 note with a 0.5% interest rate. The cost to buy one $1000 bond is only $844 based on todays market price on Fidelity.

I understand the concept of buying at a discount and paying capital gains rates. But, looking at the CDs available at Fidelity, you can buy a 2 year CD that pays 4.85 percent interest and then see what interest rates do in 2 years. I can't see committing money for 5 years at a lower interest rate, when interest rates are rising.

You don't even have to go out 2 years on a CD. 3 month CD is 4.01%, 6 month is 4.55%.
Tbills are 4.39% on 3 months and 4.57% on a 6 month.

The stock market is going lower in the beginning of CY23, interest rates may or may not go higher from here. as inflation has peaked, or is near its peak, but the federal reserve has not finished yet.

Taxes should not be as much of a consideration to sell stock -> taxes are a by product of success, the more success, the more taxes you will pay, and that sure beats taking a tax loss. . .. .Loss of gains is now on what you should be focused, given retirement and only the lottery will significantly change your income to invest more. Indexes or highly diversified portfolios are a bit different. . I sold a large portion of my stocks over two years ago, very near the peak as the divergences were showing cracks, and I have been 20% -25% equities and 60% bonds and 20+ percent cash ever since.

What is going to happen is that inflation is going to drop very quickly, as the recession and calculation base effects occur. Bond will also be bought very quickly as well, so i would encourage some shift, but that is just me, because I m patiently waiting for 3,000 3,200 on the SP500 to go back in, and trying to find a bottom to trade the long bond, and find zombie companies to continue to short on the way down. You can search on some of my posts

With treasuries, you don't have to wait for the maturity to sell, you can sell them anytime as the price rises and you get capital gains versus interest, and you can move that money back to equities if you like. .

good luck. . .

trader guy

"The stock market is going lower in the beginning of CY23" Agree and I'll stick my neck out and say 15%.

"3,000 3,200 on the SP500" Ouch! 20-25% more?

"20% -25% equities and 60% bonds and 20+ percent cash ever since". Are those corporate bonds or short term treasuries? I am actually fairly close to your allocation but your bond and cash buckets are just 1,3 and 6 month tbills for me.

It’s all about cash flow. Figure out what you need and plan accordingly. If you can’t sleep at night it’s not the right strategy

Bonds are a bond fund through the 401K in Vanguard, not sure duration, the remaining Equities are the SPX. cash is money market. . . I have to do some portfolio analysis for multiple accounts soon, just for the big picture as i have been working way too many hours since june and don't have time to perform any analysis

The yield curve peaks at 1 year and then sharply inverts out to 10 years. A ten year treasury bond currently yields less than a one month note. If you truly believe inflation has peaked, and the Fed is done raising rates, (which I don’t) then an increased allocation to bonds would be appropriate. However, don’t kid yourself that longer term bonds are a stable investment. The longer the maturity of a bond, the longer it’s duration. Duration is a measure of a bonds price sensitivity to changes in interest rates (when rates go up, prices go down, and vice versa). With a yield of only 3.8% on a ten year UST, interest rates would only have to go up by less than a half of one percent for the price decline of the bond to totally whipe out the bond yield. Be careful out there.

Fed Chair Jerome Powell signaled officials will likely take interest rates even higher than the 4.5-4.75 percent they initially projected in September, but might take smaller steps to get there. That could mean rate hikes worth a slower half a percentage point — and eventually a quarter point.Nov 3, 2022 Bank Rate.

Related to all this is, how long do you hold after you buy? And when do you cash in your stock gains? After 10%? 20%?

I'm thinking of targeting my IRA oil/energy holdings first as they have basically doubled and I wonder if they might begin to tail off. I don't want to lose those gains.

This is from the transcript of Powell's speech on 9/21/22 and questions answered after the speech:

CHAIR POWELL. Well, so, again, we believe that we need to raise our policy stance overall to a level that is restrictive—and by that I mean, is meaningfully, putting meaningful downward pressure on inflation. That’s what we need to see in the stance of policy. We also
September 21, 2022 Chair Powell’s Press Conference FINAL
Page 10 of 21
know that there are long and variable lags, particularly as they relate to inflation. So it’s a challenging assessment. So, what do you look at? You look at broader financial conditions, as you know; you look at where rates are, real and nominal in some cases; you look at credit spreads; you look at financial conditions indexes.
We also, I would think—and you see this in the—this is something we talked about today in the meeting and talk about in all of our meetings. And you see this, I think, in the Committee forecast. You want to be at a place where real rates are positive across the entire yield curve.

"real rates are positive across the entire yield curve" means that the interest rate minus the inflation rate is a positive number.

why don't you ask a financial professional instead of all the yahoos on here?

About two weeks ago I increased my allocation to fixed income by purchasing two-year Treasuries paying 4.7%. My thinking was, do I sell equities and their upside (and downside) chances in exchange for a U.S. Treasury bond with NO downside risk but an annual payment of 4.7%? With the strong prospect of a recession facing us in ‘23, probably with more stock market downside, it was an easy decision.

I’m still allocated about 1/3 to equities, all blue chip companies, some paying 2-3% dividends. When the recession is over and our economy and the stock market begins to rebound, I’ll reallocate back to equities. Will I miss the rebound? Sure, but limiting further losses by owning Treasuries paying a reasonable dividend is worth it. I’ll make sure to keep a portion of the portfolio in very short maturities or cash, to be able to roll over into even higher paying bonds or to begin buying stocks when the economic recovery becomes apparent.

As far as the inflation rate being higher than the bond yield, the higher inflation rate only becomes applicable when you actually spend the money. Until then it’s purely a risk-reward investment consideration.

Actually, the 60/40 rule changes over time. I believe it’s something like 100 minus your age. So when you are 100 you will be in all bonds! Personally, I’m in a similar boat as you so I’m not going to change what has worked for me all my life other than factoring in tax implications.

Sounds like market timing. It never worked for me.
FYI: you can also sell CDs purchased through Fidelity on the open market. I will need to check if the proceeds are are taxed as cap gains.

If your non-investment income covers all the bills, why are you even considering doing this? Leave it alone. How many times have we seen the market go through ups and downs? Stop worrying. Turn off the Bloomberg channel. The market will come back. Always has, always will. And the biggest losers will be those that went to fixed income for a little "peace of mind".

The inflation rate is nonsense? What do you mean?

I remember a few months ago that I mentioned buying gold as an inflation and investment method. Immediately I was hammered about crypto being being better than gold. Well I have gold in my hands. I can touch it and enjoy watching the gold market. Wonder how that crypto investor feels right now.

If you have invested for years I am wondering why you would come to this site for EXCELLENT financial advice? Plus if you have to pay taxes when selling when the market is so LOW - what since does that make - remember - buy low and sell high!!! Time for you to make a decision!

But isn’t it true you can only invest $10k per person per year from ira’s to treasury products??

I bonds have a low limit but treasury bills have much higher limits. I purchased in excess of $200 K treasury bills on one auction day.

Because I can tell the difference between the yahoos and those that know what they are talking about.