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For what it's worth, my financial advisor who has a lot of retired clients said that from his experience, people continue to invest pretty much the same as they did when they were working. Some who don't feel comfortable will reduce the amount of equities from when they were working, but in my numerous discussions with him over the years, no one has decided to put everything into just CDs.
I know a retired fellow who is 82 years of age, and continues to do all his own trading 100% of it in stock. No mutual funds, only stocks. Everything has to do with people's tolerances for risk, but you have to respect the math of the situation. Unless you have several million dollars to put in just CDs when you think about inflation, that isn't going to make a comfortable retirement for you because of the lack of growth.
I know everyone is looking for a safe harbor for retirement, but putting it all in just CDs I don't believe is a good plan. Yes, you can't time the market, but historically it's done well. Even if there is a down turn in your retirement, it is unlikely to cause you to run out of money unless you panic sell at the bottom of the market.
I would put it all in CDs because I would ever do an annuity, because to me, that's simply giving your money away to an insurance company in exchange for not being able to manage and control your funds.
many have pensions that they live on and their portfolio's are really fun money and legacy money . for them the pay check never did stop . they can invest like they are in their 20's since it really is not them they are investing for .
if you are investing to create a pay check for yourself then the question is how much of a draw do you need ? and for how long ?
there are minimum allocations you need to adhere to depending on your answers .
it may not be a question of what you want if your needs dictate other wise .
if your portfolio needs to provide at least 4% inflation adjusted you can't be in fixed income only . you need at least 40-60% equities for a 30 year retirement or odds of running out of money before you run out of time become to high
The only thing I keep in CDs is my emergency fund, 50% of my annual gross income.
The next fluid investment is bonds funds and bonds, about 3x my annual gross income.
The not-fluid-at-all stocks can sit there for years if there is a market dip.
I won't cash in the even-less-fluid real estate for at least 15 years.
I've already harvested the D. fir timber. Thank you, global warming and your hurricane children. Sandy turned trees into stocks. Unless the price for pine and cedar take a bump it's not much more than scenery. Commodities are alway chancy, but the trees put on about 4% volume a year
I have some metals, I'm not sure how much. I bought quite a bit of gold for my wife and myself back when it was about $175/oz. but I've never weighed it. Most of it belongs to my wife. I liked giving her jewelry, and she has a lot of it. I'm also a little eccentric, and have a small pirate's treasure chest full of rubies, emeralds, and a few old gold coins. The last time I weighed my silver I had about 70 lbs., a mix of sterling and coin silver.
We have been collecting art work for decades, and have numerous museum quality pieces that would bring good prices at auction.
Plenty of people never invest in stocks. They retire on their SS benefit and their CD's and they make it work. I personally don't think that's a good plan, but if someone is really scared of the stock market they would do well to steer clear.
People talk about the incredible bull market we've been experiencing, but that's only if you choose the bottom of the bear market as a starting point. Over twenty years the Dow30 has risen 6% annually. That plus dividends puts the total return around probably 8%, a very anemic return if one compares it to the bull we had in the 1980s/1990s.
Now finally we are seeing some earnings growth and the market is anticipating this. Even so, Dow30 trades at about 17x forward earnings, which is not excessive.
plus the volatility really hurt you if you were spending down . that is why the last 18 years saw 30/70 beat 100% equities and 60/40 if you were drawing 4% inflation adjusted . 30/70 had the largest balance because that sequence risk and higher volatility gets you in ways you don't think of ..
I have 5% of my assets valuation sitting in old I bonds that pay 4-5%. (Bought about 18 years ago). They will age out and stop earning at some point.
I have 20% of assets valuation in investment real estate
I have 3% of my assets in (stock market) bond funds
I have 70% of money in CD’s
I have 2% of my money in cash
I realize this is not bringing me a great return on my money but I totally can live on my SSI and pension. I have no debt, no mortgage. I’m just trying to protect my assets and keep myself alive for another 20 years or so if my mind stays sound. My income stream from investment real estate can provide me the luxuries I desire. I bought my present rental properties in 2010-12 and they have all at least doubled in value but I have no desire to liquidate them unless I needed the income. Otherwise, they will just be going to my beneficiaries.
Not a sophisticated division of assets, but I did lose quite a bit in the market 10 years ago and don’t want to go there again.
Here is how I look at it. CDs are a stable principal instrument. They preserve value in nominal dollars and add a little bit to the pile each year via accrued interest. So one can decide how long they want the pile of money to last and then make withdrawals accordingly.
Let's say we want the money to last 30 years. In year one we pull 1/30th of the pile for spending. Then in year two we pull 1/29th of the pile, etc. That pile of money will last 30 years with pretty much zero uncertainty, but of course at the end of 30 years the account will be zero. Along the way we'll get little pay raises as the accrued interest accumulates. There is no guarantee that they will offset one's actual expense increases, but that's true of any raise while working as well.
The wrong way to look at it, IMO, is to think one is going to live off the CD interest and never touch the initial deposit. That's nonsensical and will not work in many cases.
I'm around a lot of 85+ home owners... several are at 100 and none have ever had a penny in stocks... it is all Certificates of Deposits that are laddered and at many institutions... they are the generation with first hand experience of the Great Depression...
None are worried about money, all enjoy life and enjoy the freedom from financial worry... a paid of million dollar home with $2500 property tax and no bills is their comfort.
My Grandmother was quite upset with me when I opened a brokerage account in 1985... still have it and the stocks I picked performed abysmally with some now delisted...
My shinning light is paid for income property...
One of my friends passed away at 99... a widow for decades and quite a riot... they called her Miracle Mary... in 1940 she and her husband were in a horrific auto accident... both pronounced dead... she woke up in the morgue... said an experience like this is life changing...
She and her husband bought an old Alameda Victorian with 4 units... the basement had been converted to 3 units... all during WWII to the day she died of a heart attack the income from those units provided her security... they paid $3100 for the place and her daughter sold it for almost 2 million...
Mary was one of the most outspoken person I know against stocks... said her family was well to do and lost it all when the market... her uncle killed himself...
Invest in income property was her advice to me a young impressionable kid who took care of her Model A Ford... she said take care of the property and it will take care of you and so it did for her for 70 years.
These are active women... only one man in the group... the women remind me very much a Betty White... spry with a quick wit and things to do...
Last edited by Ultrarunner; 09-18-2018 at 07:28 PM..
I think bonds are underrated. I made quite a good return in bonds with capital appreciation through rolling the yield curve. I continue to buy individual bonds -- treasuries and high grade corporate -- even in a rising interest environnment but have shortened the duration. Held to maturity you get your money back although there is a small risk of default mitigated by the grade of the bond. Even in a rising rate environment, there are opportunities to make money when the equities market tanks and there is a run on bonds. This is when I sell my treasuries for a capital gain. I favor bonds over CD's because they can be traded.
...One of my friends passed away at 99... a widow for decades and quite a riot... they called her Miracle Mary... in 1940 she and her husband were in a horrific auto accident... both pronounced dead... she woke up in the morgue... said an experience like this is life changing...
She and her husband bought an old Alameda Victorian with 4 units... the basement had been converted to 3 units... all during WWII to the day she died of a heart attack the income from those units provided her security... they paid $3100 for the place and her daughter sold it for almost 2 million...
Mary was one of the most outspoken person I know against stocks... said her family was well to do and lost it all when the market... her uncle killed himself...
Not to be incessantly repetitive and redundant, but real-estate being so highly local, the above anecdote is robust in some areas, and quite stretched in others. In my locale, a residential building with 7 units would probably sell for around $250K. Each unit might return $500/month… $3500 being a tidy monthly gross income (having to subtract maintenance, administrative expenses and so forth), but hardly enough for a life commensurate with the dignity and enjoyment expected by a grand dame of social-standing. Worse yet, as our town was more prosperous than Oakland in 1940, the building here would probably have cost quite a bit more than $3100 back then.
Stocks on the other hand know nothing about their owner’s zip code. A herdsman in Tanzania can open a Fidelity account, just as well as could an heiress on 5th Avenue (Manhattan). Our town could be collapsing under the twin threats of fentanyl overdoses and factories closing, but residents could still be doing OK, because of the S&P 500.
But, I greatly respect Ultrarunner’s overarching point, and that evidently being, that our attitudes towards money and investment, is greatly shaped by our upbringing. My parents were kids during what in the US was the Great Depression. They have no recollection of banks failing, but in the society in which they grew up, the threat was altogether different: tanks rolling in from the west, shelling your city and setting it ablaze… and before that, in an earlier time, the government coming in, decreeing that houses were too regal and too elegant, and need to be subdivided into communal apartments. The upshot is that real estate is never “real”; it’s physically there, but it’s always part of some country, some city… it’s never entirely yours. The only “real” asset is paradoxically a paper-asset, ideally tied to something overseas. But no asset is safe. For years, one could be a director of a major enterprise, drawing a healthy income; the next day, lined up against a stone wall in Lyubianka. It’s all situational, it’s all contingent… which means, that it’s never enough! No amount confers a comfortable retirement, because any amount could suddenly be gone. For the same reason, the volatility and fluctuation of stocks only makes them more natural, more transparent. Their rhythm comports the inherent rhythm of money itself.
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