Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (18) | Ignore Thread Prev | Next
Author: jjackel Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19224  
Subject: Re: Unplanned instant retirement Date: 12/29/1999 11:59 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Money market fund: 325K
Bonds (T-bills, corporate) 900K
Stocks and mutual funds: 1,200K (No taxes account)
Summer home with equity of 600K, in negative cash flow
of 22K/year.


You've done an excellent job of accumulating. You are in great shape if you don't live like a Trump. Way to go!

What portion of the money market fund and bonds do I move into equities

If it were me (and I can say this from the smug security of being 20 years behind where you are, so feel free to smack me), I would first figure out what I need each year, then subtract any retirement benefits I might be getting. Social Security is still down the road for you, but you should subtract it in your later years. I would try very hard to get my annual expense number (don't forget taxes) down to 5% of my investments + cash on hand.

Then I would take 3-5 years worth of cash (15-25% of my investable assets) and put it in the highest yielding, 100%-insured place I could find. Maybe that's a CD for most of it, and a good money market for the rest. I would keep a few month's worth of cash in a checking account (possibly a money market).

Everything other than that cash would be in stocks. Since I invest mechanically, I typically roll over my investments at least once a year. That gives me a chance to replenish my cash reserves out of (what I hope is) my fabulous returns. If I can average just 8%/year on the 75% of my assets that are in stocks, I make 6% of my assets per year on stocks, which easily covers the 5%/year I need for living expenses. You can't count on that every year, of course, but you hope to do at least that well over the 30+ years you have to worry about.

Summer home with equity of 600K, in negative cash flow
of 22K/year.


On 22K/year, you can take some pretty lavish vacations anywhere in the world. Plus, that $600k at 8%/year is $48k/year. Unless the real estate market is incredibly hot where your vacation house is, that place is costing you maybe $70k/year if you include the opportunity cost.

You may love the place and refuse to part with it, but the cold, calculating thing to do is sell it.

(Do I dollar cost average).

I don't think dollar cost averaging makes any sense for you. Dollar cost averaging is for people who have income but not wealth -- they can't invest the money now because they don't have it yet. If you believe

(a) The trend of the stock market is up over the long term,
(b) Over the long term, stocks do better than any other kind of assets (like bonds and real estate), and
(c) None one can time the market,

then, logically, you must believe that the sooner you get more money into stocks, the greater your likely return over the long term. Sure, you might get lucky and miss a dip, but you are more likely to miss a nice run up. If you want your money in stocks, do it and be done with it.

Jonathan
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (18) | Ignore Thread Prev | Next

Announcements

Post of the Day:
Berkshire Hathaway

Starting a Small Business
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement