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Article in this morning's Los Angeles Times business section about the dismal results of the CalPERS portfolio over the past year - less than one percent! CalPERS is the largest public pension fund in the United States. So if that's all the result these highly paid professionals can get, it sure makes you wonder.
They could just invest in the SP500 and may come out ahead.
We have about 1 year income in the bank and our portfolio is a mix of index funds and bonds. I am retired and wife is still working. Bank pays 1%. I am actually currently even drawing on savings from 401k even though I am not 59 yet. I was hit with an early (by my standards) retirement and no desire to try to find another professional position. Retirement income is pension and unemployment at the moment with a 3% draw on my 401k.
Not to worry, Tier 1, Calper. Your retirement is backed by the full faith and credit and taxpayers of California.
It's not "my" retirement. I am not a member of CalPERS. The subject of the thread is basically investment returns and I thought that CalPERS result was interesting, in a disturbing sort of way.
Most of my money is in real estate. I have no problem with putting it into mutual funds but my returns with RE is better with less risk. I'm getting a minimum of 8% usable income from all my properties, can raise rent to keep up with inflation, do minimal work to manage the properties and have very low risk of losing any money.
So I have absolutely no motivation to invest in anything else. I will probably keep buying up properties with all my money unless something changes. And heck no, I would never keep all my money in cash. Your literally losing money every year from letting it sit in the bank from inflation. For example, if you let $1 million sit in the bank for just 10 years (2006-2016) you lose $164K over that time period!! And keep in mind that 2006-2016 has been a period of historically low inflation. Imagine the amount someone would lose in a normal inflation cycle.
Quote:
Originally Posted by Listener2307
No.
But there are a great many retired people who wish they had thought that way. I know several.
Consider:
You are 65.
You will die on your 100th birthday.
You get 1% on you money.
That means for every $100,000, you can draw 2,550 per year until you die on your 100th birthday. On top of that, you can give yourself a $50 raise every year.
Your last year - when you are 99 - you will draw $4,250 and you will die with 2,125.20 in the bank.
This whole fear of "losing money" every year because it is in cash is just nuts. Ranks right up there with "I can't spend the principle", which is nuts, too. It's your money and the only people that will "lose" anything are your heirs. Well, all those money managers are going to lose, too.
But you'll sleep well.
You must not have done any research into long term effects of inflation if you think this way. In a normal inflation cycle even if you didn't spend a single penny that $100K would be worth $22.53K by the time your 95. Here's another way to look at it: Based on your strategy someone can draw $4,050/yr per $100K on their 95th Bday. If they had $1 million in the bank (which the majority won't) they will be able to draw $40,500 on that 95th Bday. Which will be the equivalent of only $9,124! Even the most frugal person would shudder in horror imagining how they could live on $9K/yr at 95 years of age. The "keep it in the bank" strategy is one of the worst ways to hold on to your money that's meant to last you a lifetime.
Last edited by griffon652; 07-20-2016 at 08:19 AM..
Now I understand if your life savings is $50,000 you would not want to put any of it at risk. And I am totally on board with having 6 months to a year of living expenses in cash. But cash is a losing investment after taxes and inflation and hearing so many people doing this is really disappointing.
They could just invest in the SP500 and may come out ahead.
Depends upon when you die.
For right now, no one will argue much with you. But there have been periods of history when being in the S&P 500 cost people dearly - and right at the time when they could least afford it.
Younger people can recover; older people may not have enough time.
For example: In 2000 lots of people sounded just like you. SPX was 1550. But by 2003 it was 800, and in those three years a lot of retirees were forced to sell at ever cheaper prices. It was 2007 before the S&P returned to 2000 levels. That was 7 long years - and then it crashed again and DID NOT RETURN TO 2000 LEVELS UNTIL 2013!
Retiring "comfortably" at age 60 in 2000 proved to be a disaster because they could not draw Social Security yet and the famous "2% for the S&P" evaporated.
People tend to look at recent history and ignore the fact - and it is a fact - that retirees may have no way to make up for losses. If the S&P takes a dive and they need the money to live of off, then they may wish they had more money in cash.
We know people who took a pay-out instead of the company pension. Every one of them is broke because they put their pay-out money into the market and had to draw it down during market down turns.
Now I understand if your life savings is $50,000 you would not want to put any of it at risk. And I am totally on board with having 6 months to a year of living expenses in cash. But cash is a losing investment after taxes and inflation and hearing so many people doing this is really disappointing.
Now I understand if your life savings is $50,000 you would not want to put any of it at risk. And I am totally on board with having 6 months to a year of living expenses in cash. But cash is a losing investment after taxes and inflation and hearing so many people doing this is really disappointing.
The poll question is "money for upcoming expenses". That answer is going to be cash for most people.
I'd point out that an awful lot of pension funds have been snapping up long term treasury bonds to lock in the last 5 years of stock market gains. If you're near-100% funded, the last thing you want is to get back in trouble with a 40% market correction.
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