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If you have accumulated 25x your annual expenses, now what?

Do you sell your entire stock portfolio and go with a low cost index fund/bond allocation of 60%/40$ and raise cash every 3 months?

or do you stay fully invested in Stock Advisor and Rule Breaker picks?
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Do you sell your entire stock portfolio and go with a low cost index fund/bond allocation of 60%/40$ and raise cash every 3 months?

or do you stay fully invested in Stock Advisor and Rule Breaker picks? - darrell


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There is huge range of option that lie between the either/or you postulate.

Part of it depends on your age and how soon you want retire. If you are in your forties and plan on working for a while, then you can afford and should take more risk than if you plan on retiring now or in the next year or two.

All that said, here are some things to think about.

You shouldn't be in 100% individual stocks. You don't need to get rid of all of them but over the next few quarters, you should trim some of those holding and put those dollars into 2 to 4 low cost broad based large cap index funds. Transition 50% of your funds this way. You don't say that these are in taxable accounts so selling that many stocks may produce large unacceptable cap gains taxes for you.

The other 50% you could split, leave most of that (say 75%) of in your favorite individual stocks you already have in your portfolio. And put the remaining 25% of this half into a money market, so you have some dry powder to take advantage of any buying opportunities that arise.

You should avoid bonds right now because rates are so low, they don't pay much and rates are inevitably going to rise (the Fed has signaled three rate increased for 2022). Bond prices will certainly fall whenever that happen, either in 2022 or later.

This is a suggestion for a broad frame work to work within. Don't rush, take baby steps and assess/adjust along the way as your results and risk tolerance guide your decision making.

This board doesn't get much action. You may want to post your questions on the Retirement Investing board. It is a lot more active with a lot of savvy people who readily provide advice.

Here is a link

https://boards.fool.com/retirement-investing-100154.aspx?mid...

Good Luck.
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If you have accumulated 25x your annual expenses, now what?

Do you sell your entire stock portfolio and go with a low cost index fund/bond allocation of 60%/40$ and raise cash every 3 months?

or do you stay fully invested in Stock Advisor and Rule Breaker picks?
-- dq

Most likely, it was growth that got you to that point. For myself, I stick with growth and outperform the market.

Although I understand that many people are happy to do less.

Rob
Rule Breaker Home Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
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Darrellquock,

We accumulated 25x our expenses about 8 years ago and I kept on doing the same thing that got us there. We are close to 50x right now.

I don't understand why so many investors think the "low cost index fund/bond allocation" is subservient to individual stocks. My low cost balanced index fund returned 20%, 20%, and 25% after living expenses ($70-90K/yr) for the past 3 years. Yeah - alot may have done better, but alot have done far worse.

I think investing is like playing football or basketball. If you have the lead going into the 4th quarter, keep on doing what you have been doing.

I don't have the tolerance to deal with individual stocks, so I work with low cost index funds. It has worked great. I plan to leave the dance with the "girl" I brought. :)

Just my thoughts!
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A wise man once told me that there is no need to get rich twice in a lifetime....hehe

If you do it well, once is more than suffice... :)
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I think investing is like playing football or basketball. If you have the lead going into the 4th quarter, keep on doing what you have been doing.

In football, if you have a big lead near the end, you run the ball a lot to run out the clock even if you got your lead via the passing game.

In investing, *keeping* your money can often be different than making a lot of money. When building your portfolio, volatility works for you. When you buy every paycheck in a 401k (or do the equivalent in another account), sometimes you buy high and sometimes low, but you buy more shares low, which is why "Dollar Cost Averaging" works. E.g., if you invest $120 every check, you buy three shares when the share price is $40 but four shares when the share price is $30 and six shares when it shrinks to $20...works great as long as the investment doesn't go to zero, which is why lots of us buy broad market index funds and not a handful of individual stocks.

That math benefits "the market" when you are a net seller in retirement. Or, another way to look at it is when you have to sell assets to live off of, they aren't there when the market comes back to gain from the subsequent performance.

When building a portfolio, you usually have some other "levers" to adjust. For me, it was to hold a >90% stock portfolio, and if the market was down when I wanted to retire, just continue to work for another year or two. (Massive layoffs in 2008-2011 showed that wasn't actually a given.) But, for someone who had to withdraw from a portfolio for living expenses, they "sold low" and that money is gone.

So, a retiree should have a portfolio that results in the best chance of surviving a market draw down just before or just after pulling the trigger on retiring, not the portfolio that would generate the best return for someone who isn't withdrawing (and is, in fact, adding to the portfolio).

Of course, this doesn't obligate anyone to go by what I say. And it sure is possible for the stock market to just keep going up, but my concern was not running out of money due to retiring too early. By retiring at age 60, I also have a non-steady income need:
-Buy my own health insurance for five years until Medicare
-Pay 100% of my own expenses until age 67 (or possibly 70) due to delaying Social Security

So, I have more of a 60/40 allocation now because of the desire to dampen overall volatility and because I need a lot more of my own money prior to taking SS.
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When you buy every paycheck in a 401k (or do the equivalent in another account), sometimes you buy high and sometimes low, but you buy more shares low, which is why "Dollar Cost Averaging" works.

When you put part of every paycheck into a 401K, you are NOT "dollar cost averaging". You are investing as much as you can as soon as you can.

"Dollar cost averaging" is when you have a big pool of funds and divide it into equal-size pieces, which you put into the market at regular intervals. It's market timing while blindfolded.

Look at it this way. You have $120K to invest in stocks/stock-funds/whatever, and you are NOT going to actually look at the market to see what's going on and attempt to time it intelligently. Invest all at once, or in 12 pieces of $10K each?

If you invest all at once: on the average over time, the market has gone up, so the intelligent thing to do is invest it now, not wait.

If you divide it in 12 pieces, pick up the first piece. On the average over time, the market has gone up, so the intelligent thing to do is invest it now, not wait. Now pick up the second piece. On the average over time, the market has gone up, so the intelligent thing to do is invest it now, not wait. Now the third piece... and it turns out the intelligent thing to do is to invest the whole $120K now.

(Dollar-cost averaging DOES lower risk as well as return... until the whole wad is invested. From there on you just have fewer shares and the same risk.)
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We take a different approach to retirement savings.

We invest most (but not all) our accumulated savings in individual stocks of companies with long dividend growth histories and use the monthly dividend totals as our 3rd source of household income, after Pensions and Social Security. The stocks we hold do appreciate, but that has no bearing on our household income.

BruceM
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If you retire early, you probably want to get health insurance from the exchanges. In which case you DON'T want dividend-paying stocks. That is "ordinary income", and will affect the subsidy you can get at healthcare.gov.

Cap gains are generally taxed lower than ordinary income, too.

1poorguy
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If you retire early, you probably want to get health insurance from the exchanges. In which case you DON'T want dividend-paying stocks. That is "ordinary income", and will affect the subsidy you can get at healthcare.gov.

Cap gains are generally taxed lower than ordinary income, too.


Capital gains will affect your subsidy with the healthcare exchanges also.
As far as the MAGI used to figure your subsidy: Interest, Cap gains, Dividends, Earned income, 401(k) distributions, and Traditional IRA distributions are all treated the same. Roth conversions will also be treated as MAGI income. You just have to monitor your MAGI through the year and make sure you are in good shape. I'm aiming for around $64k for a family of 2 this year.

There is no one size fits all, but a certain amount of taxable dividend income in retirement is probably okay. And I believe, as long as you've held a stock for a while, the dividends are Qualified, and Qualified dividends are treated the same as cap gains.
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If you retire early, you probably want to get health insurance from the exchanges. In which case you DON'T want dividend-paying stocks. That is "ordinary income", and will affect the subsidy you can get at healthcare.gov.

Cap gains are generally taxed lower than ordinary income, too.


Actually, a lot of dividends are qualified dividends, which are taxed at capital gains rates. That said, all income, including capital gains, will impact your ability to qualify for ACA subsidies.

AJ
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That said, all income, including capital gains, will impact your ability to qualify for ACA subsidies.

True. But you can sell newer shares that have less capital gain. I have ESPP shares that are over 25 years old. I have sold a few back when we specified lots, so I can continue to specify lots. If I sell $10K worth of shares, and specify new shares, I still get $10K, but the cap gain may only by $2K. Compared to my older shares that might be a gain of $9500. (I didn't sit down and do the math precisely, but I'm in the ballpark.)

1poorguy
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