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[First Newbie Post]

I retired a year ago, rolled my TIAA-CREF into an investment account, and thus had $1M to invest. That's an obvious time to buy some Motley Fool services, which are great for picking what to buy.

This year, though, (and for the rest of my life), the story is different. I have considerably more wealth than I did last year (+35%, because 2019 was so kind to investors), but I no longer have any "new" money (salary, or new rollovers) to invest. I need to pick some of my stocks to sell to have money to live on, and I presume I should "harvest" some of those gains and use them to buy some stocks on today's investing advice. (Even though The Fool says over and over that I ought to keep all these stocks 3-5 years).

How can I pick which of my stocks to sell in retirement?

One Geek answer would be "Study and Understand all your stocks, and pick the 'worst'". Are there simpler ways? The Fool gives nice listings of "Our top recommendations from this portfolio this month". What I really need is "Here is a list of all the stocks we've recommended in this portfolio that you might have. Here are the ones we are LEAST excited about this month that you might have: sell some of those that you have, to pay your mortgage and to reinvest".

Shouldn't this be as simple as sorting a spreadsheet bottom-to-top? (But only the top stocks are presented!)
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Hey, Uncle, congratulations on your retirement! The first guideline to be aware of is that you want to have 5-8 years of retirement income assets in cash or cash equivalent. This will protect you against market volatility, from short terms swings to longer term corrections and recessions. Beyond that, I recommend having an additional 8-10 years worth of assets in high yield, low volatility investments, such as bonds or dividend-paying equities. Beyond 10 years, a more aggressive growth focus can survive most market mood swings.

Once you have your larger retirement strategy set, it's time to figure out how to move out of some of your equities to build your cash and low volatility investment needs. As you noted, the TMF premium services don't offer a "sell" strategy, and in fact rarely offer Sell recommendations. Nor, as you noted, do they rank their many recommendations in order of conviction. That's not really the goal of the services. So I came up with my own strategy to figure out what to sell, and that's to create a Sell Watch List.

My suggestion would be to divide your companies into 4 groups. The first group is No Way In Sell Do I Part. These are the companies in which I have the highest conviction and would not want to sell even if the earth was coming to an end. The second group is It Would Really Bum Me Out To Sell. These are companies in which you have strong conviction but it wouldn't make you question your faith in all things Foolish if you did.

Then the third group is It's Not Like I'm Married To This Company, investments in which you have a positive conviction in their future potential but you wouldn't lose any sleep if they weren't in your portfolio. And finally the fourth group, What Was I Thinking?, includes those companies in which you have the least conviction or cannot remember what they do or why you opened positions in them.

Then, once you have your portfolio organized, you take the last group and rank each company in order of your own highest conviction to lowest conviction. Then you start liquidating from the bottom of the list. Easy peasy, right?

Fuskie
Who notes if you're wondering what "conviction" means, it's the depth of feeling (gut instinct) you have in a company's ability to achieve its growth potential and succeed as an investment over the long term...

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No. of Recommendations: 14
The first guideline to be aware of is that you want to have 5-8 years of retirement income assets in cash or cash equivalent.

Why present such a controversial and (in my opinion) downright ridiculous thing as your "first guideline". It encourages ignoring any further advice.

-IGU-
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"One Geek answer would be "Study and Understand all your stocks, and pick the 'worst'". Are there simpler ways? The Fool gives nice listings of "Our top recommendations from this portfolio this month". What I really need is "Here is a list of all the stocks we've recommended in this portfolio that you might have. Here are the ones we are LEAST excited about this month that you might have: sell some of those that you have, to pay your mortgage and to reinvest"."


First sit down and figure what your current income is from dividends on your stock. Depending what you own, it might be considerable. It might be part or all of what you need to live on.

Second, figure out how MUCH money you need to live on. Obviously, it is not as much as you were 'making' as you paid a bunch in taxes on your income for FICA 1, FICA 2, and fed and state income taxes (if any).

Third, you didn't mention whether your stocks were in an IRA or an individual account. There are tax consequences to buying/ selling lots of stocks.

Fourth, figure out what the cost basis of all your stocks are so you can see what 'gains' you have if you sell. Don't sell anything before a year is up to get the cap gains rate instead of full marginal rate income tax level.

Fifth, you didn't mention if you own any 'bond' like funds. Are you 100% stock?

Six, do you have an emergency fund? And how many months of living expenses in it?

Seven - do you have a spouse and any kids still in college or school that will take your resources?

Eight - do you have a pension or other income stream?

Nine - how far are you from full retirement age for SS?

Ten - do you know about the 4% Safe Withdrawal rate?


that's just the beginning.

t
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The first guideline to be aware of is that you want to have 5-8 years of retirement income assets in cash or cash equivalent.

I can understand holding 5-8 years of normal retirement living expenses in cash or cash equivalents but keeping 5-8 years worth of Social Security and pension benefits plus RMD withdrawal income in cash or cash equivalents strikes me as absurd and wasteful of one's retirement resources.

Even holding 5-8 years of normal retirement living expenses in cash or cash equivalents is somewhat questionable. Does one really need to maintain in cash or cash equivalents income from guarenteed sources such as Social Security and pension benefits?
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Most brokers have zero commissions on stock trades. You could trim back on positions in any number of ways without having to make decisions about individual holdings if this account is tax-deferred. For example, you could sell positions in proportion to the percentage represented by each stock.
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One Geek answer would be "Study and Understand all your stocks, and pick the 'worst'". Are there simpler ways?

Sure.

1. Put the names of all the stocks you own on a dart board. Throw the dart. Sell that one.
2. Ask your hairdresser or barber.
3. Use your gut feeling. (Added in recognition of an earlier post in the thread.)

Those are all much simpler. I have no idea if they will be successful, but they are certainly simpler.

--Peter
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One technique is to reassess all positions on a regular basis (every 6mo-1yr) and sell any which you would not buy today.

At an abstract level buying or selling decisions are independent of funding your retirement.
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Why wouldn’t you be investing in a broad market index fund post retirement? Individual stock picking with money you need to live on seems very risky.

Also makes “what to sell” a no brainer
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The first guideline to be aware of is that you want to have 5-8 years of retirement income assets in cash or cash equivalent. This will protect you against market volatility, from short terms swings to longer term corrections and recessions.

No you don't, and no it doesn't.

Just remember, every day is the first day of the rest of your life. There's nothing special -- financially, that is -- about the first year of your retirement that is any different from the 10th year.


To answer the original question:
Don't overthink it. Decide on your asset allocation and sell proportionally from each asset or asset class.

If you own a group of stocks that are "It's Not Like I'm Married To This Company" or "What Was I Thinking?" ..... Why do you even hold them? Sell them and put that money into an index fund.
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Why wouldn’t you be investing in a broad market index fund post retirement? Individual stock picking with money you need to live on seems very risky.
----------------------------------------
I respectfully disagree.

Individual stocks may be more or less risky than a broad market index.
And the broad market, e.g., the S&P 500 - only pays about 2% in dividends.

The broad market just had a very good year. The S&P was up about 28% last year; about 30% including dividends, as I recall.

My investments didn't do as well. Up about 18% for the year, about 22% including dividends.
My portfolio will never do as well as the market when the market is up. But I always beat the market when it has a down year.

My portfolio - totally a DIY project - is targeted at 70% stocks, 30% bonds. I own about 50 individual stocks. I think I only have 4 stocks that pay less than a 2% dividend, or what the S&P 500 average is. Most of the other 30% is in bonds and REITS that pay considerably more.

I own none of the FAANG stocks. I'm low on high tech, and high on financial, health, and food & beverage stocks. And I'll be glad to have a year like this every year.

Bill
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There's nothing special -- financially, that is -- about the first year of your retirement that is any different from the 10th year.

One difference is that you'll need ten fewer years of retirement income.

Another difference is in your social security; that is, if I retire at age 61 and plan on taking SS at 67, I have six years of income that *won't* be assisted by SS. In ten years, at age 71, I will have surely started SS.
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The first guideline to be aware of is that you want to have 5-8 years of retirement income assets in cash or cash equivalent.

I can understand holding 5-8 years of normal retirement living expenses in cash or cash equivalents but keeping 5-8 years worth of Social Security and pension benefits plus RMD withdrawal income in cash or cash equivalents strikes me as absurd and wasteful of one's retirement resources.


I took that advice to mean that x years of retirement income should be in cash, such that the retirement income needs from a portfolio were what was left after other sources, like SS, pension, annuities, etc.

If you're taking a 4% withdrawal from a 70/30 portfolio, 7.5 years are in cash/bonds, right (30/4)?
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How can I pick which of my stocks to sell in retirement?

Let me propose this:
Analyze what your portfolio *should* look like for the upcoming period (year, half-year, whatever), and sell assets to cause your portfolio to fall more in line with your desired balance.
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"I retired a year ago, rolled my TIAA-CREF into an investment account, and thus had $1M to invest. That's an obvious time to buy some Motley Fool services, which are great for picking what to buy."

*******************************************************************************

Nope.
Although folks appear to use that thought process - some with more success than others.

The idea that brought me to TMF was that I was capable of investing on my own.
I could select mutual funds, stocks, bonds - any and all investment vehicles -
and decide what were suitable investments for myself. That there was sufficient time to
investigate what my options were and what risks I felt comfortable taking.
When buying any particular investment, I had reasons behind buying - frequently for me
that involved developing a dividend-paying base of funds & companies for retirement. My approach
was to develop an income cash flow that had a potential to grow that flow. I also considered
bonds & bond funds of various sorts as I could over time. Another portion of my investments were
intended to put aside funds to supplement the family education expenses - which included CD
ladders (at the time the interest rates allowed this approach to work better than today) and
several short term holdings that were intended to be sold as needed to pay tuition costs.
We started an emergency fund early on to have a cash buffer since the industry I was employed
by was cyclical and we figured we needed to have money available if a crisis hit the family.

Sometimes I appear to have selected wisely - sometimes I chose terribly wrong - but overall
we reached a point where my family could survive layoffs and even my retirement.

But to your question - how to decide what to sell?
Retirement is a cash-flow investment period. You need to consider what you are
comfortable using to generate income. Some of your current holdings may provide
cash dividends which are being reinvested - switch them to paying directly into one of your
cash holding accounts. Same with mutual funds or ETFs. Holdings that do not generate a
cash flow by themselves or which you do not feel comfortable retaining can be sold over time.
Your cash flow needs will drive how much and how frequently you sell. You figure that
you may eventually need to sell investments you count as "core holdings". DW and I have gone
through our list of holdings and identified selections which we identify as "core" - which
we intend to hold throughout retirement. We plan to follow the companies and need to
reconsider as situations change - changes in company management/ownership/market/dividend
growth prospects and earnings prospects can push us to change our "core" list.
We also have a list of holdings that we follow that we consider "hold until
certain conditions arise" - basically cyclical situations, speculative investments,
momentum plays - these were bought with certain ideas in mind - and are to be sold
in total or in part when/if those conditions occur.

So you sell based on why you bought in the first place.

Howie52
Or you could try a dart board.
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This year, though, (and for the rest of my life), the story is different. I have considerably more wealth than I did last year (+35%, because 2019 was so kind to investors), but I no longer have any "new" money (salary, or new rollovers) to invest. I need to pick some of my stocks to sell to have money to live on, and I presume I should "harvest" some of those gains and use them to buy some stocks on today's investing advice. (Even though The Fool says over and over that I ought to keep all these stocks 3-5 years).

How can I pick which of my stocks to sell in retirement?


The most effective (and obvious) strategy is to sell investments that are fully valued (or even overvalued). If you have a reasonably diversified portfolio valuations will fluctuate. You will at times have investments that are undervalued (don't sell these) and those that are highly valued (sell these).

Of course this requires that you understand the value of your investments; and to be frank if you don't know this you should probably just invest in ETFs, at which point the decision is simple - you just sell your ETFs while maintaining your asset mix according to your long term plan. Over time you will likely (due to random fluctuation) sell some at good times, and some at less attractive times - things will average out.

A slightly more aggressive approach would be to have credit available for the rare situations where the market is clearly in a panic; yet you require some cash to live on. In these cases having sufficient credit to last say 9 to 12 months would allow you to avoid these.

tecmo
...
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The first guideline to be aware of is that you want to have 5-8 years of retirement income assets in cash or cash equivalent.

Has this been modeled out? ie: over say a 20 year period is the opportunity cost of being out of the market less than the impact of having to sell at low valuations on occasion? 8 years of cash could be a large portion of the portfolio... (and 8 year bear markets are very rare).

tecmo
...
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The first guideline to be aware of is that you want to have 5-8 years of retirement income assets in cash or cash equivalent.

If you're taking a 4% withdrawal from a 70/30 portfolio, 7.5 years are in cash/bonds, right (30/4)?

The thing is - is 'cash' or 'cash equivalent' is not the same as 'bonds'. By definition, cash has no chance for capital appreciation, while bonds do appreciate when rates drop. Bonds also have a higher rate of return than cash. So, by putting around 30% (7.5 years) of your portfolio in 'cash' (as was the recommendation), you are going to be getting a lower return than the Trinity Study was based on - which means that you are increasing your risk of running out of money if you use the withdrawal rate recommended by the Trinity Study.

Additionally, 71% of the years, http://sabercapitalmgt.com/the-stock-market-a-look-at-the-la... the stock market increases. So you're going to have to sell stocks to keep your 70/30 balance - leaving the cash sitting there and not touching it for 7 out of every 10 years. If instead, you build a bond ladder (or a bond target year ETF ladder), 7 out of every 10 years, you will just be able to move the bond money to a new target year. For the 30% of years when the stock market drops, so you don't move the bond money to a new target year, you will rebuild that target year using stock gains during the other 70% of years.

AJ
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When you say "bond ladder", are you referring to T-bills or bond funds or individual issues?

1poorguy
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When you say "bond ladder", are you referring to T-bills or bond funds or individual issues?

Any or all. You could buy a ladder of T-bills/notes; a ladder of target date ETF bond funds; a ladder of individual bonds; or some combination of the 3.

AJ
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The first guideline to be aware of is that you want to have 5-8 years of retirement income assets in cash or cash equivalent.

I'm not sure where this came from but I have 2-3 years at most.

That post smacks of trying to sell something but it would be interesting to see any data backing each suggestion.
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The first guideline to be aware of is that you want to have 5-8 years of retirement income assets in cash or cash equivalent.

Has this been modeled out?


Yes. Model in spreadsheet downloadable here: https://www.dropbox.com/s/xf4ma5blug27aws/SPY_Withdraw_by_Ca...


ie: over say a 20 year period is the opportunity cost of being out of the market less than the impact of having to sell at low valuations on occasion?

Why doesn't the cash bucket method work?

The primary reason is that the asset allocation isn't really 60% stocks, 40% bonds, (annually rebalanced) plus a cash bucket with 5 years of withdrawals. It's actually 50% stocks, 33% bonds, and 17% cash (haphazardly rebalanced annually). (The weightings are 60/40/20, which is 50%/33%/17%.)

For example, 1975 start, value on Jan 2000:
60/40 = $1163K
60/40+cashB = $852K
50/33/17 = $861K

The secondary reason is that it replenishes the cash bucket by taking money from stocks as soon as stocks have recovered, so there is less invested in stocks for the rest of the run up.

Another reason is that your investment portfolio is smaller by the amount of cash. With a 20% cash bucket, what was a 4% withdrawal is now actually 5% of the stock+bond portfolio. A 4% SWR has a 95% survival rate, but the survival rate for 5% SWR is only 65%.

=================================================================

Simple rebalancing between stocks and bonds is all that is needed. It automatically does what the cash-bucket method is trying to accomplish.
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