My retirement savings are 70% invested in equities. The other 30% is invested in cash, earning little to no interest at all. I am looking for some alternative to cash that earns at least some return.Thanks in advance.
My retirement savings are 70% invested in equities. The other 30% is invested in cash, earning little to no interest at all. I am looking for some alternative to cash that earns at least some return.So you have no bonds or bond funds at all? I would recommend putting some percentage of your savings in something like TLT.http://us.ishares.com/product_info/fund/overview/TLT.htmRana
I am looking for some alternative to cash that earns at least some return.There is no such thing.Cash is cash. Cash is the most risk-free (except for inflation) asset there is. What is the purpose of that 30% allocation to cash? To be risk-free? Or to be something other than equities?What you need to do is pick a different asset allocation, and change that cash allocation to something different --- like maybe bonds. FWIW, what I have in my own portfolio for my non-equity allocation is a collection of preferred stocks, a few income-oriented CEFs, and ETY (Eaton Vance Tax-Managed Diversified Equity Income Fund). I don't own any bonds.
I am looking for some alternative to cash that earns at least some return.Since 1/23/12 I've had about 12% of my portfolio in WFC-PL, which earns a dividend of 6.85% at my purchase price of $1095. I've been lucky in that the price has never dipped more than 1% below that, and has generally remained well above it (now $1179). When I bought it I was willing to stick with it as long as its price didn't go below about one year's worth of dividends. As mungo has suggested, this might be a way to handle cash that most likely won't be needed for 3+ years. In addition, I have about 13% in a 7-year flexible retirement annuity with USAA at 3.49% interest. I have the option to withdraw 10% of the balance of this account annually without penalty. After the initial 7-year term there is no longer any penalty on withdrawals in any amount. I've been fairly satisfied with this arrangement, even though it's sometimes hard to accept the low return in comparison to what a raging bull market might have done with it. Then again, the principal is not at risk, and 3.49% is a dang site better than nothing.Tom
Of your fixed income part, I would recommend putting, some, but not all of it into preferred stocks.There is a newsletter, http://www.cdx3investor.com/s/pages/main.htmThat helps you pick the right ones.He also writes a book about preferred stocks, that you should read before getting his newsletter.http://www.amazon.com/Preferred-Stock-Investing-5th-Ed/dp/16...You can have a group membership of 4 people, and that saves on the cost by a large amount.I think many people here subscribe.Good luck.
The other 30% is invested in cash, earning little to no interest at all. I am looking for some alternative to cash that earns at least some return.What is the purpose of this 30%? Is that what you're going to be withdrawing from next year? 5 years? 30 years?You'll get better and more appropriate answers.JLC
some risk, but if willing to hold for the full term, treasuries.Mutual fund holding tax free bonds. Some principal risk unless willing to hold for the long haul
Rayvt, Any chance you would be willing to share the names of some of the preferred stocks and income-oriented CEFs in your portfolio. On my list of things to research.OT, I wonder if you are being too hard on the January effect. I totally get your point that you don't believe in indicators that lack plausible mechanisms. But a century ago, when this idea was put forth I believe its proponents argued that if the market falters during the most bullish month(s) of the year that had predictive value for the rest of the year. Elan pointed out that April is more predictive. That actually supports the century old hypothesis since April is a bullish month too. And how many investment ideas have worked somewhat for a century post discovery? Also, don't ask for a ref but I believe their are academic studies of the January effect working in foreign markets as well (although many of these are correlated with our market). Another plausable explanation is that many people and institutions rejigger their portfolios (including their allocation to stocks versus competing investments) on a yearly basis. You even see that lurking on this board. So every January you get to see the effects of individuals and institutions new investment strategies.
Also, don't ask for a ref but I believe their are academic studies of the January effect working in foreign markets as well (although many of these are correlated with our market).A reference is the book, “Investment Valuation” by Aswath Damodaran. Also, the January effect even works in foreign markets that have a different tax schedule than this country.
30% cash as I am 58 yo and wish not to be 100% equities.
Thanks for the ref Mark. Unfolding is an interesting test of the Jan effect with most markets around the world down in Jan.
the January effect....its proponents argued that if the market falters during the most bullish month(s) of the year Logical fallacy -- assuming the conclusion.Here's the problem I have. #1 If you take the historical returns of each month and rank them, BY DEFINITION one month will be best, another will be 2nd best, etc. Even with completely random and noisy returns, one bucket will be the best by happenstance. I see the bit about Jan being superior as just finding a pattern in noise. And humans a really good at finding patterns. The ones who incorrectly failed to see the patterns in waves of tall grass became lion food. The ones who incorrectly saw a gust of wind as a lion just got extra exercise.#2: Predictive value? I call it thumb on the scale. At the end of January, 1/12th of the year has passed. 1/12th of the annual return is already baked in.#3: Any time an indicator has a sexy name, there's a strong possibility that yuo are being fooled by the name. That's why McDonalds drinks come in regular, large, and supersize, rather than small, medium, and large.#4: Who cares about the calendar year return? What does the calendar year have to do with anything?#5: The thing that matters is stock prices going up. We can measure that directly, no matter what the current month happens to be. So why not just use the direct measurement?#6: There are plenty of other timing indicators that don't have these issues. Moreover, they *also* don't have every shoe-shine boy & Money Magazine reader following them, so the trade isn't crowded. Things like Relative Strength/Trend Following, etc. look at price slopes directly and do it continually, regardless of the calendar month.#6b: "At the end of the day all indicators are a derivative of price and volume, so why get so fancy?" -- Brian Lund
30% cash as I am 58 yo and wish not to be 100% equities.Following assumptions: wish to decrease volatility and will start to withdraw from this account in 5-7 years.First, going into bonds/bond funds will not necessarily decrease your volatility. Some can go up and down almost as drastically as equities and equity funds. And you can lose capital just like stocks unless you hold a bond to maturity. So if its the volatility you are afraid of, then bonds are ruled out as well.So that leaves CDs and money markets. CDs barely get 2% even at 5 years. Money markets you might find a 1%. So not worth the time risk for the extra 1%.So what is a person to do?Personally, I'd look for dividend paying stocks that have at least a ten year history of INCREASING their dividend every year. Even better if picked from a 25 years list. You'll find many well known and widely held stocks like PG, JNJ, MCD. Yes the dividend yield might currently be around 2-3%, but in the 5-7 years I'm guessing you'll need to money the return on investment yield will be closer to 4-6%.I know that would put you back to 100% equities, but if yield is what you want, this is where you have to go.JLC
Any chance you would be willing to share the names of some of the preferred stocks and income-oriented CEFs in your portfolio.Note that these are just ones that I hold now. There is no guarantee that these are what I would buy now, if I didn't already own them.Preferreds:CHSP-PACMO-PECTUCWH-PDCWH-PDCWH-PEJPM-PCMSJPBI-PBTCO-PJTCO-PJFor preferreds, I read this guy: http://www.preferredstockinvesting.blogspot.com/ I bought his book and followed both it and his public postings for over a year, and then bought a group subscription.The book is only ~$20. 330 pages which could be condensed down to 10 pages. But those 10 pages are easily worth $100.In the free newsletter the names of the stocks are blanked out, but I was usually able to figure out the symbols by other hints (prices & dates) that weren't blanked out. They worked out well, so I got a paid subscription.http://quantumonline.com/ is another great source of data, but no recommendations. It is free, but I donate money to him once a year.CEF's:CHWCIIDPGEOSETYETOETVEVTJQCNCZUSAFor CEF's, I read this guy: http://seekingalpha.com/author/douglas-albo
the January effect.Sorry, one last thing I forget:#7: the January effect is not actionable.How would you use this indicator? I don't see how. So it seems to me to just be something for writers & talking heads to write & talk about.What could you do with this indicator?Wait until the end of January and then either stay in cash through December, or buy stocks? Q: Which stocks? The whole market -- SPY, VTI, etc.? Or individual stocks or sectors? AFAIK the Jan Effect studies have been on whole market, so we don't know if it says any predicion about individual stocks/sectors.So, at end of Dec ... Jan 1st is here. What do you do for Jan? Continue your current positioning? Go full-out into stocks?In a typical investing lifetime, you only have 30-35 January months -- and probably only the last 10 have a significant amount of money in your investment portfolio.The way you make money in the market is like a casino -- have an edge and crank it over and over agsin, so that the edge has the opportunity to work for you. That means hundreds or thousands of times, not just a handful of times.With only 30-35 opportunities (but realistically only the last 10-12 make any difference), there are just too few chances for your edge to play out.So:* Questionable indicator.* Not actionable.* The signals are too infrequent.
Rayvt,I couldn't have put it better myself! This is a casino, you need to do this(trade) many times in order for the edge to work.Similarly, this is why I am skeptic when it comes to market timing. The signals are too infrequent. JHMO.DoesMIWork
Rayvt,Thanks for responding and sharing your ideas for cash substitutes. You are probably right that the January effect adds little that is actionable as compared to the timing indicators in use here like the variants of nh/nl. This year the January effect would have you investing in Egypt and Qatar. I would rather stay home although now might be a good time to visit the Pyramids. OT, my favorite catchy name is "bulletproof coffee" which is some diet fad I am not planning on trying either. While you are being so generous can you suggest a trend based market timing indicator that is at the same idiot like me level as the 5 out of eight day Mug nh/nl indicator. Thanks again.
can you suggest a trend based market timing indicator that is at the same idiot like me level as the 5 out of eight day Mug nh/nl indicator. From Roger Nusbaum:"No one rule is always correct. they all give false signals. I don't really think it matters which trigger is used as no single trigger can be the best for all times but they can be effective which is the priority as I see it. Here effective is simply defined as avoiding the full brunt of a large decline."Aside from my belief in its effectiveness, the 200 DMA is simple to explain and understand."From David E. Hultstrom""Simple is better, because simple is more robust.""Simple beats complicated."Personally, I use the 43 week Simple Moving Average of the S&P500 index (SPX). It's easy to compute, simple to understand, easy to get the data, both contemporary and historical.To me, NH-NL has some issues: a) you depend on somebody doing the counting, b) do you exclude anything, such as ETFs, CEFs, Preferreds, ETNs, etc. or limit yourself to only pure stocks? If you exclude things, how do you know that the people doing the counting did it accurately?My sell signal is 4 consecutive weeks of SPX being below the SMA. My buy signal is SPX above the SMA.
Re stock market effects that do not appear to make sense at this time.Alfred Wegener proposed the theory of continental drift in 1912. But it was not accepted at the time as the forces that move continents were not then known. We now understand that heat softened rock movements in the mantle move the continents around. With modern differential GPS equipment we can even measure the movement in real time. (The north Atlantic rate is about a centimeter per year!) The earlier theory of continental drift has been replaced by the more complete theory of plate tectonics as better research has been done. Likewise the "sell in May" and January effects seem to have long histories. That we do not understand the underlying mechanism is reason for more research, not ignoring the effect altogether.
Rayvt,Thanks for the excellent information. When you get a sell signal, do you sell your income-producing securities, too, or do you keep them separate and ride them out through ups and downs?Wayne
When you get a sell signal, do you sell your income-producing securities, too, or do you keep them separate and ride them out through ups and downs?My buy & sell signals are for equities, not income assets.Although, some of the income CEFs use options, and options are highly dependent on the price action of the stocks. So I'll probably sell those CEFs when I see a sell signal.One of the neat things the CDx3 guy talks about is the "self-funding portfolio". If you leave the dividends in the account, then after a while you have enough cash to buy 100 shares of a new preferred stock. If you do that, then price drops are *good* because you'll be buying more shares. 'course, that means you can't spend the dividends.
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |