💎Get our popular bond course bundle & save $80: www.diamondnestegg.com/home#_paa2isucf 💎Bond Beginners (our foundational-level bond course): www.diamondnestegg.com/bond-beginners 💎Bond Masters (our intermediate-level bond course): www.diamondnestegg.com/bond-masters 💎And join our super-supersaver membership for regular market updates & monthly live member Q&As th-cam.com/channels/nexoc6tvesvcCEzZhmI-Ag.htmljoin >>>>>>>>>> WATCH NEXT >> Our Bond Courses vs TH-cam Membership | Which Is Right For You: th-cam.com/video/H5h4Eyh0hjo/w-d-xo.html >> Bond Beginners Course Sneak Peak | I-Bonds vs TIPS: th-cam.com/video/uXPzbje1g2E/w-d-xo.html >> Bond Masters Course Sneak Peak | How To Build A Bond Ladder: th-cam.com/video/p90IDmXn19s/w-d-xo.html >>>>>>>>>> Here is the overview for Bond Beginners: 1. Bond Basics What A Bond Is & How A Bond Works Why Invest In Bonds New Issue vs Secondary Market Bonds Interest Rates & Bond Prices Current Yield & Yield To Maturity Always Remember This! Buying At Par, Above Par & Below Par Different Types Of Bonds Wrap-Up 2. The Risks Of Bond Investing Seven Key Bond Risks Credit Risk Interest Rate Risk Reinvestment Risk/Call Risk Inflation Risk Liquidity Risk Currency Risk & Country Risk Bond Risk Mitigation Strategies Wrap-Up 3. US Treasuries Overview What Are US Treasuries Why Invest In Treasuries Where Can You Buy Treasuries How Are Treasuries Taxed Wrap-Up 4. Treasury Bills What Are Treasury Bills (T-Bills) When Do T-Bill Auctions Happen Where Should You Buy At Auction Auto-Roll When Buying At Auction Where To Find Recent Auction Results High Rate vs Investment Rate Reopening Auctions Cash Management Bills (CMBs) Buying & Selling On Secondary Market Wrap-Up 5. Treasury Notes & Bonds What Are Treasury Notes & Bonds When Do Auctions Happen Buying Treasury Notes & Bonds Auction High Yield vs Interest Rate Floating Rate Notes (FRNs) Treasury Zeros (STRIPS) Wrap-Up 6. TIPS (Inflation-Protected) What Are TIPS When Do TIPS Auctions Happen Nominal vs Real Yields Negative Yields How Do You Adjust TIPS For Inflation Taxes On Phantom Income Secondary Market Liquidity Wrap-Up 7. I-Bonds (Inflation-Protected) What Are I-Bonds How Does I-Bond Interest Work I-Bonds vs TIPS The Annual I-Bond Limit Wrap-Up 8. Agency Bonds The Universe Of Bonds What Are Agency Bonds How Are Agency Bonds Taxed Treasuries vs Agencies Who Might Want To Consider Agencies Yield-To-Call & Yield-To-Worst Where Can You Buy Agency Bonds Wrap-Up 9. Municipal Bonds Our Bond Universe Gets More Complex What Are Municipal Bonds How Safe Are Munis How Are Munis Taxed The De Minimis Rule Social Security & Medicare Premiums Treasuries, Agencies & Munis Who Might Want To Consider Munis Wrap-Up 10. Corporate Bonds Our Bond Universe Is Complete What Are Corporate Bonds How Safe Are Corporates Corporate Bond Hierarchies Five Key Features Of Corporate Bonds How Are Corporates Taxed Treasuries vs Corporates, Etc. Who Might Want To Buy Corporates Wrap-Up >>>>>>>>>> Here is the overview for Bond Masters: 1. Stocks vs Bonds Historical Performance Are Bonds Really Less Volatile Why Invest In Bonds Accumulation vs Decumulation Allocation of Stocks vs Bonds Wrap-Up 2. Which Bonds Might Be Right For You Treasuries & Other Types of Bonds Nominal vs Real Yields Inflation vs Non-Inflation-Protected Taxable vs Tax-Advantaged Accounts Wrap-Up 3. Bond Ladders & Other Bond Strategies Normal vs Inverted Yield Curve What Is A Bond Ladder 5 Important Bond Laddering Questions Laddering When Rates Are Rising Laddering When Rates Are Falling Laddering When Rates Are Uncertain What Is A Bullet What Is A Barbell Wrap-Up 4. Holding to Maturity vs Selling Early Why Hold to Maturity When To Sell Early Before Maturity Tax Implications Of Selling Early Wrap-Up 5. Individual Bonds, Bond Funds, Etc. Why Buy Individual Bonds Why Buy Bond Funds Bond Fund Considerations Key Bond Fund Concepts CDs vs Treasuries Other High-Yield Investments Wrap-Up 6. Our B.E.S.T. Model Portfolios By Age Our B.E.S.T Model Portfolios By Age Model Portfolios In The Industry B.E.S.T Model Portfolio Difference How Much Do You Need To Retire? How I Use The Rules of 100, 110, & 120 B.E.S.T Model Portfolios (20s) B.E.S.T Model Portfolios (30s & 40s) B.E.S.T Model Portfolios (50s & 60s) B.E.S.T Model Portfolios (70s+) Wrap-Up 7. The Decumulation Phase What Is The Decumulation Phase? Bear Markets & Recessions What Can You Do In Bad/Bear Markets Decumulation Tax Considerations The 4% Rule The Bucket Strategy The Flooring Approach Jen’s Bucket Strategy With A Twist Wrap-Up >>>>>>>>>> Thanks for visiting our personal finance channel! 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Exactly. That sponge has to recommend something to pretend to earn his keep. $4m is 'forever money' if they don't play the equity market like a casino. I am tired of hearing from the $1m+ crowd. They should have 0 concerns unless they are being stolen from. 90+% of retirees have far less. Every online example should be about people who have less.
IMO, you are 100% correct! I'm assuming that the couple's portfolio is buy-and-hold, and not actively traded. Assuming a 1% average financial advisor fee, for a $4 million 60/40 portfolio held for 10 years, the FA's fees for this period, plus the lost opportunity cost-of-capital from these fees, can easily approach $525,000. If the couple feels that the $525,000 cost for an FA over a 10 year period is worth it to them, who am I to argue. Perhaps neither spouse feels capable of managing their portfolio and they don't have a trusted family member or friend who could help with this.
Tax planning, in particular Roth conversions. With pensions and a delayed social security they can easily be in the 30+% bracket once the required minimum distributions start at 73-75.
Unless your advisor has more than 4M, don’t listen to them. Also think about retiring earlier than 70 or at least switch to part time. You need to enjoy life while your body is still young.
100% true. Life is short. Your body is capable of a lot less after 70 than before. Retire as early as is financially feasible as 1 day is not guaranteed, let alone 20 years.
I often have gotten calls from Fidelity advisors that am certain don't much money, just trying to make money from us. Am 67.9 years old in fixed income yeilding between 5 - 5.4%. I get these rates may go down but I'll deal with when that happens most likely later this year.
Very wise. I went PT with a Federal job at 55. Went negative with my annual and sick leave, and retired on my 62 B-day. Was granted SSA for a disabilty equal to age 66. Even with that , it took it's toll on me. I am very thankful neither one of us have to work now. There is no wisdom at all in working until something gives out. If you have the means to support yourself in modest comfort at an advanced age, why would you risk it ? My spouse and I live below our means and we still are able to save. We go on the presumption that at least one of us will live to be very old. Presumption is key. Luck. Annuities, Cd's and T-bills are a ticket out of the equity casino. Unless you crave living on the edge. The small number of people that I know with big time wealth tend to avoid risk. They have had enough risk in their lifetimes, have already traveled and experienced much in life. Just living is enough of a gamble. Live well, be healthy, but don't be excessive. It is just a philosophy of life.
My wife pushed me to divest from equities and we both sleep better now. I am 74 and she is 58 and we have more than enough retirement income to live well, still save and help kids if needed, house is paid for. We are 100% in CDs and treasures in our Vanguard accounts and it's perfect for us.
That approach works now with the interest environment but it won’t work when interest rates go down, so locking some long term CD’s might be a good idea.
I am 75 and retired so my investing rule is "Do not loose any money!" I invest in dividend paying stocks in the energy, commodities and food categories. And in treasuries where I vary between short and long term depending on whether I think interest rates are rising or falling. I try to hold for the long term like Warren Buffet does.
That type of advice raises the Caution Sign to me. I don't use a Financial Planner. The ones in the past I consulted, even though fee based or not, seemed to always tried to Push me into Stocks or at least keep my portfolio at a 65% stock - 35% Bond positions. In our 70s - the wife and I retired with small previous employer pensioons, and collecting Full Benefit SS since hitting 66 years old, we have shyed away from stocks - laddering T Bills for our 410Ks (which were rolled over into IRAs). But now those rates are startying to come down (still not equal to levels of Inflation) but I'm not certain of Gambling. Only stocks I would consider would be the Proctor & Gambles of this world - offering some dividends. Only atock we now own is in AT&T.
I completely agree with you. As the clients, their comfort level / risk tolerance is important. It doesn't seem like their are in danger of running out of funding. The advisor sounds like he isn't putting the clients' best interest first. He can explain what he sees and options they have, but shouldn't push unnecessarily. They are fine and comfortable with the plan, there is no need to change it.
A personal consideration. In my late sixties, I own 75% in equities and 25% in Tbills/Agencies bonds/money market. I sold my corporate bonds mutual fund two years ago because of the meager results. The worst financial crises never lasted more than two years, therefore you need two years worth of expenses to ride these storms. Maybe I am too aggressive but I have done well for the past 40 years...In any case, sleeping at night is also very important, so being conservative is a valuable strategy. Thanks, Jennifer, for bringing up this topic.
Hindsight is 20/20. Since 2010, the S&P 500 Index has obtained dramatic growth, which was far greater than its historical results. Personally, I doubt this steep increase will continue in the coming years. I retired in 2010 and my initial portfolio at that time was 75% equity/20% fixed/5% cash (retired at the age of 56). To-date, my portfolio's results are fairly good, and a far above inflation, but if I had invested 95% in equities in 2010, the results would have been far greater. For my "kids", who are now in their 30s and 40s, I advise them to put 100% in equities. They are working and don't live off of their investments. For those near are in retirement, a mixed of equities and fixed, allowing for their risk tolerance, is probably the best way to go. I tend to be an aggressive investor, but my wife isn't. As such, we compromised on a 60% equity/40% fixed split.
It seems to me that the difference between 60 and 65% is somewhat immaterial regarding "sleeping at night". I think she should consider going to a 50/50 allocation.
My wife and I decided to implement a 30/70 stock to bond split. On August 5, I slept like a baby. Regardless of who wins the election, I'll continue sleeping well. My wife is SUPER conservative and hates stocks. Our relationship has improved by me adopting her stock phobia (because she knew it was hard on me), but now I am glad I invested with her mental well-being weighted over advisors' badgering. I think advisors feel the need to recommend plans with higher yields rather than lower risk because one can quantify yield but not mental well-being. I turn the question around. Not how much safety is enough, but how much money is enough. If you have enough, why jeopardize it because someone else thinks you can make more? Someone who will not experience ANY of the downside of a risky decision gone bad. You have proven you know what you're doing. Don't stop listening to yourself now! And congratulations.
People expect stocks will rally over a series of interest rate cuts lasting until mid 2025 before leveling off. Who know? Too many external uncertainties like WW3 :)
Warren Buffet, aka Mr Buy-and-Hold Equity Investor Superstar recently sold 50% of his Apple stock. You can’t time the market exactly, but why buy in a gigantic bubble when the cognoscenti are dumping?
Warren Buffet has reduced his holdings due to Apple being massively overvalued thus reducing his risk exposure or as Warren has stated many times - rule #1 don't lose money and rule number #2 don't forget rule number #1!
I think Felicity went to the wrong "advisor." Roth conversion is a tax question because they would have to pay regular income tax on the year of conversion, as if it's salary from work. A CPA or Tax advisor would estimate their income tax for 2024 and add the appropriate dollar amount (from Traditional IRA) such that it does not push Felicity & husband up into the next higher tax bracket.
I'm an ex financial planner and a current CPA. All the advice here is valid. And, no two clients are the same. Risk tolerance is a major factor. Also, time horizon is another major factor, as in "when are you going to need the money." The shorter the time horizon, the less risk one should one take. If a client is young with many years of life left, then the more portfolio risk a person could take. Also, see if the "fee only" planner has any other compensation avenues... see if there are commissions paid from mutual fund companies to the planner... that could influence what a planner suggests. Treasury bonds can also be risky, especially long term bonds, like 30 yr Bonds. Spot market values can also fluctuate wildly... Remember when considering a 30 yr Treasury... "If rates are Low Just Say No. If rates are high.. Buy Buy Buy!!
And another one: “When the VIX is low, it’s time to go. When the VIX is high, it’s time to buy.” It saddens me to see so much fear of the stock market as it is a great wealth maker. My husband is 86 and we have 5years of RMD’s in a bond ladder, the rest in stocks. Our net worth is as high now as when he retired 17 years ago in spite of all of the yearly withdrawals. We could not have done that with CD’s.
The advisor is there to advise. He has done so. I will do what makes me sleep at night, period, and if the advisor is being condescending or pushy, unless he is a long-time advisor, I would look elsewhere.
My brother-in-law is paranoid about the Internet, so keeps his money in low-interest bank Cd's. For years, I encouraged him to get T-bills, which made him nervous. Finally I realized that the purpose of money is to make you feel comfortable, not nervous. I do what's best for me, he does what's best for him. Getting as much money as possible isn't always the right answer.
It’s a great case study of risk capacity vs risk tolerance. Felicity and husband appear to have capacity to safely accept some more investment risk (to potentially achieve more reward over the long term) but they lack tolerance to accept more risk, which is fine… it is their choice!
you are my go to for common sense investing and have saved me from a few decisions which would have made me sleepless - a financial adviser wanted me in annuities and bonds but I know me and my husband also are zero risk tolerant - watching your videos have clarified so much! of course we have to keep an eye on the interest rates for the future, but we have very realistic goals -
It'd be better if they had more equities on hand but I would definitely stay the course right now. I wouldn't sale any existing bonds just to buy advisor-directed specific company stocks. If anything they could move some money into some Index based ETFs. But not anytime soon.
I’m 67, work a very part time job. I still purchase stocks in taxable and only use the dividends. The stocks can grow in value. It annoys me that when we get the bond principle back it’s devalued by inflation. I plan not to touch the IRA and leave to my children. Blue chips pay quarterly and raise dividends. Qualified tax rate. Yes, it requires work and research. I enjoy it.
This scenario exactly happened to me. Also echoes the many related, similar, other types of financial discussions I had. The underlying problem is that the financial advisor and/or opinion-giver DOES NOT HAVE enough life experience. Could be simple lack of age (too young) or just lack of true empathy where they cannot imagine anyone giving up what they believe to be “the golden goose” of equities or an index fund. Often Bogleheads, they totally miss the point of retirement.
for taking risk, we always need to consider our ability and willingness, and we tend to over-estimate our willingness to accept risk. If the volatility last week or the market downturn in 2022 makes us uncomfortable, this means we are taking too much risk than we want to or capable to.
Having said that, equities and bonds took a beating in 2022, which is very unusual for bonds to go down that much, but that was expected when interest rates went from zero to 5 1/4. Take care
I am a widow, age 78. I am fine with my portfolio in T-bills, bonds, gold and some cypto. My concern is the devaluation of the USD over the next 10 years and inflation.
This advisor is not the right one for them. "Felicity" has good instincts, and is doing a great job and accomplishing something building her own bond ladders on her own to complement the other (pension etc.) so go with that. Don't let others bully you with their own leanings.
It appears to me that the Roth conversion question is a lot more salient and consequential to Felicity & Husband than a mere 5% difference in asset allocation. Make sure your advisor is well-versed on conversions, not only the tax and financial aspects, but the legal and emotional implications as well. Of course, Jen's comments on what to do with the advisor's asset allocation advice is spot-on. Why keep playing the game, if you've already won? Unless you enjoy playing, just. stop. Great video!
If the 2008 recession taught me anything, it's I'm not comfortable having that much in the stock market. I don't have a burning desire to be rich. Having enough to be comfortable in retirement is fine by me.
The only ones I hold to maturity are short-term TBills (1 month to 1 year). Right now, before interest rates drop another 100bps, I plan to buy 3-to-5 year bonds. If interest rates drop as much as I expect, I can sell the bonds later (before maturity) at a higher price. If I'm wrong, and interest rates rise from here, I can still hold until maturity. And a drop of 100bps in interest rates, if it happens, may cause stock to drop for fear of recession.
Dumb me - I locked up a 4.65 3 year bond this week when the rate cuts came. 5% of my portfolio Still waiting to load up on stocks when they are on fire sale. Buy when others are panicking
I'm 66 and have a relatively conservative allocation at 30% equity and 70% fixed income. With this large allocation to fixed income, I feel comfortable taking extra risk on the equity side owning high flyers such as the "mag 7" (less Meta and GOOG), GLP-1's (LLY and NVO) and retailers for the cost conscious (COST and WM), which increases my "bang for the buck"!
I do short term treasury.Pays better than fidelity money market. I am in 70s and my husband is 80. Home cars paid off. Children independent and doing well I strongly believe market will come down after election.Yellen is keeping it propped up I do some swing trading in IRA. All my treasury bills will mature in sept and oct.That time will be appropriate for investing.
The question at this point in your life is "What is the value of more money"? If that value is low, then IMO taking on higher risk is an unsatisfactory trade-off. You can still buy long treasuries for 4% +/-) that just keep on turning out money while you sleep well at night. They are vulnerable to interest rate changes so plan on holding until maturity infrates go against the portfolio.
I'm retired, have 50% of my portfolio in Bonds. I might drop it to 40 once the market shows more signs of stability. For now I'm sitting tight until well after the Nov election.
Felicity, The first thing to consider is the "size" the impact of the decision you are asked to make. Here is how to size your decision: (Expected return on stocks - expected return on bonds) * Change in portfolio allocation. Here is an example: future stock return 9% - bond return 4.75% = 4.25% times your change in allocation 5% = .21%. The potential impact of your decision (.21%) is smaller than the ability of you or your advisor to estimate future returns. Whatever you chose, the impact will be small, so make a choice and get a good nights sleep. Another approach is to phase in your decision: 60% this year to stocks, then 61% next year and so on until you reach the 65% allocation. Given the high multiples in the stock market currently, you may want to wait for a correction say greater than 15% then start increasing your allocation to stocks, that is if you ultimately want a higher allocation to stocks. If you don't then there is nothing you need to do. You should discuss these opinions with your financial advisor.
They seem to be comfortable with what they have now and I agree with it. 60/40 portfolio is a good approach, especially now that interest rates will be coming down as the price of bonds will go up and the yield will go down. Now if they will not need the money they have saved for the next 20 years, then I see why the advisor is telling them to invest more on equities and less on bonds, be careful with the advisor, as he might be trying to sell you his product which may have high fees. Historically tough, bonds tend to outperform for a 16 year period, but as always, performance is no guarantee of future results. In the end it’s their choice and can sleep well at night. Having a second opinion, is good advice. Take care.
1. When in doubt, wait; and while waiting do research, research and more research until a decision is more clear. 2. If Felicity is 60/40 stocks/bonds, then the advisor's suggestion is pretty small. Going to 65/35 really isn't a huge step, but I think he knew that and wanted to suggest something small that Felicity could stomache and he could still collect his fees. 3. The advisor basically confirmed Felicity's allocation is solid, not only by the stress test, but also by his minor tweaking suggestion. That amount of change is really in the "noise" category and confirms she isn't drastically out of whack. 4. Definitely learn Roth strategy inside and out. It's not rocket science and is critical to minimize the potential tax bomb in their future. Don't delay as Felicity may want to start doing conversions asap depending on the math.
I had a money manager that bought stock and bond mutual funds. The problem was the money manager’s only answer to bond funds going down was to buy equity mutual funds. He wouldn’t buy individual treasuries. But I agree everyone’s financial journey is different. For us we did not change our percentage of equities vs. bonds other than rebalancing…for us it’s based on our age and risk tolerance. Good luck. ❤️❤️❤️
Im 70 & have 80% of my savings in wealth preservation ( fixed income, CD's, bonds, ) . I have 20% in equities. Do not worry about the stock market. As a matter of fact, I bought some more equities during last weeks crash!
Yeah it really depends how much the pension is/how much she has in savings. However, I personally think both of those asset allocations are not foolish. Do whatever you are comfortable with as long as you feel informed.
those people in their 70's and 80's should not be in the stock market. A real bear market can wipe 20% of their savings from their net worth for years.
Well said, AK. At that age, wealth maintenance is more important than risking a big hit in hopes of adding to personal wealth. "A fool and his money are soon parted" is a well known phrase for a reason. And greed swallows people whole. Too much FOMO thanks to thr plethora of financial media on TV & the web.
The point is, if they don’t need that money for their expenses anyway, like really, really don’t, then their capital could earn them more money to gift to family or charity. It’s tough to know where that line is, though. Inflation rates, global instability, and insane increases in long term care costs all have the potential to unravel any financial forecast.
65% of $4M is $2,600,000. If the market dropped 30%, their portfolio would drop by $780,000. When you have a portfolio of $4M, along with a generous pension and two social security checks that start at age 70 (which will probably be a goodly amount) you should have a high tolerance for risk. I agree with the financial advisor, but if they feel uncomfortable with the recommendation they can do what they want.
My advisor wanted us to have an allocation of 85-15 stocks and bonds. We said no and wanted to keep our 70-30. I am 69 and my wife is 65. We both have generous pensions and social security.
Congratulations to the couple who have achieved that degree of financial freedom and enjoyment in their work. 1st. The advisor should have focused on the ROTH conversion strategy. 2nd. They have established the nest egg to provide them comfort, security AND options. 3rd. The answer to the shifting of 5% of their assets has to consider the bonds vs stock picks. It can be a good move if it doesn't affect your mental or physical well being. 4th. Consider the "bucket" strategy and get another opinion. 5th work on withdrawals to enhance other area's of your life... security=good family and friends relationships, good medical and health habits, etc. LASTLY, the advice given in the video is good.
If you don't need to change anything to succeed then do not change if you are not comfortable! If the financial advisor is trying to push their product, RUN! However, when the Fed begins an interest rate cutting cycle, equities become more attractive because they will perform better. You can always put a tiny amount into in equity index over time whether it be ETF or Mutual Fund. Perhaps allocate $1,000 per month into an S&P 500 index, which isn't very much at all, yet you should still get a better return.
We are in a very similar situation. We have always been conservative with our finances. Both retired and Monte Carlo 500 scenario stress test shows we have enough savings to last. Husband about to take SS at 70. Our financial advisor has recommended that we move from 60/40 to 70/30. We have declined because we don’t want any additional risk and sleep better with our conservative plan.
No one should do anything they aren't comfortable with. Peace of mind, especially as we get older is the most important. I love what Jen is saying here. At this point in their life,a good tax advisor/planner is critical to be part of their planning as taxes are going to play a bigger part going forward than 60/40 vs. 65/35.
Thank you so much Jenn. You actually answered a question I had. You do such a nice job showing us how to invest in fixed income and wasn't sure whether it was necessary to seek a fee based CFP but I see that you do recommend it.
Same here. I have my long-time equity holds that I'm fine on. Not dumping most of my money back into stocks because analysts, who make more money on trading stocks (surprise), say we should now go back to stocks. Then they pull the rug on the market 6 months from now after everyone has piled back in.
Age 65 plus, networth, enough to live comfortably without SS, portfolio mix 60 bonds, 30 equities, 10 liquid...have considered a 40:40:20 portfolio mix, but not seriously, I don't feel FOMO pressure and I don't need to...young brokers can be good, have skills, but seem short on repititions and wisdom IMHO. . You run a great show, thank you for what you do for the senior citizens community. Regards.
I think the question should not be how much safety do they need. The question should be how much risk do they need. In my opinion, they've already won the game.
Speaking about Financial Advisors...remember they are human and most (actually 68%) are average advisors. a few are above average and a few are below average. So it's likely that the advisor in this case is one of the 68%. Once one has enough money to meet all goals...then lowering the risk (or maintaining the current risk level in this case) is appropriate. Remember "Money Doesn't Grow on Fees".
A basic senior approach: Stick with a fixed income/capital preservation/conservative growth strategy. Also, focus on low management fees. The exact ratios depend on your risk tolerance which appears to be low.
Two concerns I must handle for my situation, and perhaps yours are: 1. How much money will I need in the future? I cannot use what I spend now to predict what I need when I am more elderly. Having seen my mother age till 102, living can cost more when you are elderly. I would make these funds non-negotiable - subject to the minimum risk. 2. What does the "stress testing" really prove? I cannot assume the advisor even knows what stress model is used, and how the software applies it. Investing is probabilistic, not deterministic. I generally need my own track record to trust the results that new advice stress model provide. If I felt the analysis was credible, and my finances were stable, I would apply any new approach or asset allocation to part of my portfolio, and monitor performance. I would invest the remainder of the portfolio more conservatively to compensate. You might be able to trust the model with back testing, but I am not sure I would risk my financial stability to rely on that.
Im also in that position except I have 2.5 million. Same scenario and I value my peace and mind during my retirement years. I'll stick to the first plan. I also currently receiving 55k in dividends.
We all have different risk tolerance AND different time lines. Significant equity positions work well for 25 year old investors, maybe not as well for a 75 year old retiree :)
This is not about optimal outcome, this is about the person’s tolerance for risk and their emotional response to adverse market events, only you know how much stress you will likely experience and what’s the price tag on that.
Curious why the adviser wants them to take more risk if it has already been determined that they have enough. Unless there is a satisfactory answer, I'd file a complaint against the adviser given their age and risk adverse nature which should have been clearly documented in their file. It appears clear that Felicity has already indicated no thank you but the adviser continues to push? Why?
Fidelity used to tell me that I should have more equity exposure. Probably still do. I just ignore it. My understanding of a fee-only financial planner is that they get a percentage of AUM so it sounds like the reason that the financial planner wants more risk is an attempt to get more fees.
The right mix is when you can sleep at night. For some of us it is having lots of cash and fixed income, for others it is more growth oriented investments. How much risk tolerance is individual. If the advisor’s advice makes you so uncomfortable you cannot sleep, don’t do it.
I have no idea for Felicity. I'm 80, haven't worked for over 15 years. My financial advisor is me. I'm 11th generation American I have lived longer than all the men on my fathers side except Charles who lived to 110. I've got enough money. I've taught my daughter my way of making money, she's doing OK. So my question for Felicity. is what do you need the money for? And how much?
Why not put it all in bonds, why take any risk if you are keeping ahead of inflation. Whatever happened to taking your age minus 100 to arrive at the equity/bond ratio?
If I overshoot my target by 65 or earlier, I'm putting all my excess investment capital in safe places like bond and CD ladders. The rest will probably be in 70/30 index fund/bond fund.
Seems to me that Felicity has doubts about her adviser's advice and that's why she reached out to Jen for her opinion. I agree with everything Jen said. Trust your own judgement, Felicity. It sounds like you have done fine so far. If you do decide to convert any of your retirement funds to a Roth, you should choose investments that suit your risk/reward profile and time horizon. Good luck!
High quality problem. At this point its what risk shall we mitigate most. With SS + Pension + 4M portfolio Felicity could build a high income. In the edge cases, stocks could crash, but we could also have hyperinflation and exposure to assets protects against that. In the end I like the Buffet quote about don't risk what you already have for what you don't need.
What are your annual expenses? How much of these expenses would not be covered by pension and social security annually? Multiply that amount by 25 (if in your sixties). That is how much you will need to pull from your portfolio during the 25 years of your retirement. Conservatively, keep 10 years of those expenses in fixed income and the rest in equities. Probably, Felicity and husband (with a pension, two Social Security checks) will not need more that $1M from their portfolio over the course of their retirement (unless their annual expenses are much greater than $150K). So their advisor is probably correct, but the advisor is a crappy communicator and as such is a bad advisor. In the end, Felicity and husband are allowed to not maximize the monies left to their heirs if that is not their priority, and the advisor should meet them where they are at.
I'm 67 and hold 775K in short-term T-Bills and 750K in Equities. I'm not inclined to do anything right now, as I think I have enough risk in the market.
@@SicilyJo - To be honest, I haven't thought that far ahead. But at my age, I cannot tolerate any more risk than what I have taken. I have been incredibly lucky in life to have made this amount. Whatever I do, I'll protect it as well as I can.
@@Dave-cf4xq Interesting, Dave's response was only about the 775K . Where your question was also about the 750K in equities and investing it Today in equities. I know my answer at 68, No not at today's all time highs. But I'm sure Dave got in when prices were lower which makes a difference.
A 5% deviation from what they are already comfortable with is fairly negligible. Sounds to me like they are fine on their pensions and future social security and don't need to worry about the extra risk. That said, the market is at or near all time highs now so it might be bad timing to add to sticks. Interest rates will be dropping which should boost their fixed income holdings.
It appears their savings are sufficient to not need a financial advisor at all! However, lot's of my friends need an advisor to give them the confidence to sleep at night. Assuming they want an advisor no matter what, with their portfolio, pension, etc., I would want someone who is a tax expert first and investment advisor second. Having said all that I don't think it's bad advice from the advisor at all. Did they talk about wanting to leave more money for the kids? Then that's solid advice! In the end though changing the mix 5% doesn't make much sense to me if it made the client uncomfortable. That's not the sort of shift that will make a massive difference, even over a relatively long time (20 years?).
It’s clear that for Felicity she should just keep her current portfolio at 60/40 and not get more aggressive since she is not comfortable. There is no right or wrong answer as it all depends on your risk tolerance. There is the subjective psychology of money (Felicity) and then there is the objective optimization of money (her advisor). You have to respect both and find a balance that works for you. Since Felicity has enough, she will be fine either way. I used to sleep better with mostly fixed income but now it keeps me up at night (due to opportunity cost) so I plan to get much more aggressive with low cost index fund (like 80/20) as I feel happier and more joyful to dream bigger and take on greater challenge. I plan to retire in 2 years.
Better question is why assume more risk than is necessary? If stress test shows they have enough, no need to assume greater risk. The FA doesn’t seem to understand this basic concept. Need a new FA.
Stock market recessions/stagnations can last 10-12 years. It is a good idea to have enough bonds and treasury bills to cover the expenses that period of time that are not covered by SS and pensions. If their expenses (in addition to SS and pensions) are $120k/year or less, the safe amount that needs to be in bonds is around $1.4M which is exactly 35% of $4 million. Unless they spend more than that, the advisor's suggestion makes sense, in my opinion.
Good advice Jen. My only additional thought is... isn't the difference between 60% and 65% stocks somewhat splitting hairs, given all the uncertainty in financial planning? If the advisor were saying to go from 40% to 60%, I'd understand the potential concern. Regardless, if Felicity and her husband think 60% is the right number... it's the right number.
I suggest the working spouse continue to buy equities regularly with every paycheck, with any extra new monthly saving that paycheck generates, but keep your fixed assets as is, since having those makes you comfortable
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Here is the overview for Bond Beginners:
1. Bond Basics
What A Bond Is & How A Bond Works
Why Invest In Bonds
New Issue vs Secondary Market Bonds
Interest Rates & Bond Prices
Current Yield & Yield To Maturity
Always Remember This!
Buying At Par, Above Par & Below Par
Different Types Of Bonds
Wrap-Up
2. The Risks Of Bond Investing
Seven Key Bond Risks
Credit Risk
Interest Rate Risk
Reinvestment Risk/Call Risk
Inflation Risk
Liquidity Risk
Currency Risk & Country Risk
Bond Risk Mitigation Strategies
Wrap-Up
3. US Treasuries Overview
What Are US Treasuries
Why Invest In Treasuries
Where Can You Buy Treasuries
How Are Treasuries Taxed
Wrap-Up
4. Treasury Bills
What Are Treasury Bills (T-Bills)
When Do T-Bill Auctions Happen
Where Should You Buy At Auction
Auto-Roll When Buying At Auction
Where To Find Recent Auction Results
High Rate vs Investment Rate
Reopening Auctions
Cash Management Bills (CMBs)
Buying & Selling On Secondary Market
Wrap-Up
5. Treasury Notes & Bonds
What Are Treasury Notes & Bonds
When Do Auctions Happen
Buying Treasury Notes & Bonds
Auction High Yield vs Interest Rate
Floating Rate Notes (FRNs)
Treasury Zeros (STRIPS)
Wrap-Up
6. TIPS (Inflation-Protected)
What Are TIPS
When Do TIPS Auctions Happen
Nominal vs Real Yields
Negative Yields
How Do You Adjust TIPS For Inflation
Taxes On Phantom Income
Secondary Market Liquidity
Wrap-Up
7. I-Bonds (Inflation-Protected)
What Are I-Bonds
How Does I-Bond Interest Work
I-Bonds vs TIPS
The Annual I-Bond Limit
Wrap-Up
8. Agency Bonds
The Universe Of Bonds
What Are Agency Bonds
How Are Agency Bonds Taxed
Treasuries vs Agencies
Who Might Want To Consider Agencies
Yield-To-Call & Yield-To-Worst
Where Can You Buy Agency Bonds
Wrap-Up
9. Municipal Bonds
Our Bond Universe Gets More Complex
What Are Municipal Bonds
How Safe Are Munis
How Are Munis Taxed
The De Minimis Rule
Social Security & Medicare Premiums
Treasuries, Agencies & Munis
Who Might Want To Consider Munis
Wrap-Up
10. Corporate Bonds
Our Bond Universe Is Complete
What Are Corporate Bonds
How Safe Are Corporates
Corporate Bond Hierarchies
Five Key Features Of Corporate Bonds
How Are Corporates Taxed
Treasuries vs Corporates, Etc.
Who Might Want To Buy Corporates
Wrap-Up
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Here is the overview for Bond Masters:
1. Stocks vs Bonds
Historical Performance
Are Bonds Really Less Volatile
Why Invest In Bonds
Accumulation vs Decumulation
Allocation of Stocks vs Bonds
Wrap-Up
2. Which Bonds Might Be Right For You
Treasuries & Other Types of Bonds
Nominal vs Real Yields
Inflation vs Non-Inflation-Protected
Taxable vs Tax-Advantaged Accounts
Wrap-Up
3. Bond Ladders & Other Bond Strategies
Normal vs Inverted Yield Curve
What Is A Bond Ladder
5 Important Bond Laddering Questions
Laddering When Rates Are Rising
Laddering When Rates Are Falling
Laddering When Rates Are Uncertain
What Is A Bullet
What Is A Barbell
Wrap-Up
4. Holding to Maturity vs Selling Early
Why Hold to Maturity
When To Sell Early Before Maturity
Tax Implications Of Selling Early
Wrap-Up
5. Individual Bonds, Bond Funds, Etc.
Why Buy Individual Bonds
Why Buy Bond Funds
Bond Fund Considerations
Key Bond Fund Concepts
CDs vs Treasuries
Other High-Yield Investments
Wrap-Up
6. Our B.E.S.T. Model Portfolios By Age
Our B.E.S.T Model Portfolios By Age
Model Portfolios In The Industry
B.E.S.T Model Portfolio Difference
How Much Do You Need To Retire?
How I Use The Rules of 100, 110, & 120
B.E.S.T Model Portfolios (20s)
B.E.S.T Model Portfolios (30s & 40s)
B.E.S.T Model Portfolios (50s & 60s)
B.E.S.T Model Portfolios (70s+)
Wrap-Up
7. The Decumulation Phase
What Is The Decumulation Phase?
Bear Markets & Recessions
What Can You Do In Bad/Bear Markets
Decumulation Tax Considerations
The 4% Rule
The Bucket Strategy
The Flooring Approach
Jen’s Bucket Strategy With A Twist
Wrap-Up
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With 4 million at 5% bond pays 200 k a year before their pension and SS . Why do they need an advisor again? 😂
The advisor needs _them_ not the other way around.
Exactly. That sponge has to recommend something to pretend to earn his keep. $4m is 'forever money' if they don't play the equity market like a casino.
I am tired of hearing from the $1m+ crowd. They should have 0 concerns unless they are being stolen from.
90+% of retirees have far less. Every online example should be about people who have less.
IMO, you are 100% correct! I'm assuming that the couple's portfolio is buy-and-hold, and not actively traded. Assuming a 1% average financial advisor fee, for a $4 million 60/40 portfolio held for 10 years, the FA's fees for this period, plus the lost opportunity cost-of-capital from these fees, can easily approach $525,000. If the couple feels that the $525,000 cost for an FA over a 10 year period is worth it to them, who am I to argue. Perhaps neither spouse feels capable of managing their portfolio and they don't have a trusted family member or friend who could help with this.
Tax planning, in particular Roth conversions. With pensions and a delayed social security they can easily be in the 30+% bracket once the required minimum distributions start at 73-75.
@@vchap01 I've got 50 million in my ira. Should i buy a used car? I'm afraid of spending too much in retirement and will end up homeless
Unless your advisor has more than 4M, don’t listen to them.
Also think about retiring earlier than 70 or at least switch to part time. You need to enjoy life while your body is still young.
100% true. Life is short. Your body is capable of a lot less after 70 than before. Retire as early as is financially feasible as 1 day is not guaranteed, let alone 20 years.
Yes. Find the sweet spot: The day you have enough, and are young enough to enjoy life. Don't work a day in a corporate job beyond that.
I often have gotten calls from Fidelity advisors that am certain don't much money, just trying to make money from us. Am 67.9 years old in fixed income yeilding between 5 - 5.4%. I get these rates may go down but I'll deal with when that happens most likely later this year.
Very wise. I went PT with a Federal job at 55. Went negative with my annual and sick leave, and retired on my 62 B-day. Was granted SSA for a disabilty equal to age 66. Even with that , it took it's toll on me. I am very thankful neither one of us have to work now. There is no wisdom at all in working until something gives out. If you have the means to support yourself in modest comfort at an advanced age, why would you risk it ? My spouse and I live below our means and we still are able to save. We go on the presumption that at least one of us will live to be very old. Presumption is key. Luck. Annuities, Cd's and T-bills are a ticket out of the equity casino. Unless you crave living on the edge. The small number of people that I know with big time wealth tend to avoid risk. They have had enough risk in their lifetimes, have already traveled and experienced much in life. Just living is enough of a gamble. Live well, be healthy, but don't be excessive. It is just a philosophy of life.
My wife pushed me to divest from equities and we both sleep better now. I am 74 and she is 58 and we have more than enough retirement income to live well, still save and help kids if needed, house is paid for. We are 100% in CDs and treasures in our Vanguard accounts and it's perfect for us.
That approach works now with the interest environment but it won’t work when interest rates go down, so locking some long term CD’s might be a good idea.
Ditto and we are happy
@edv1261 you are correct and we did ladder out to 5 years on the cds
Same here!
Nice to retire at 58. Congrats!
Stay with what you are comfortable with. A bird in the hand is better than 2 in the bush! Definitely not worth the stress and worry!
The question is are stocks safe at these levels. Treasuries will never take your money and not give it back.
I am 75 and retired so my investing rule is "Do not loose any money!"
I invest in dividend paying stocks in the energy, commodities and food categories.
And in treasuries where I vary between short and long term depending on whether I think interest rates are rising or falling.
I try to hold for the long term like Warren Buffet does.
What stocks do you own?
Wise move if you lost 20 or 30+% you may not be around long enough just to get back to even. I am 72 and monttly cash flow is king for me.
Mine too. Same rule.
Totally agree with Jen! Don't allow anyone to push you into making decisions with your money that you don't feel comfortable with.
That type of advice raises the Caution Sign to me. I don't use a Financial Planner. The ones in the past I consulted, even though fee based or not, seemed to always tried to Push me into Stocks or at least keep my portfolio at a 65% stock - 35% Bond positions. In our 70s - the wife and I retired with small previous employer pensioons, and collecting Full Benefit SS since hitting 66 years old, we have shyed away from stocks - laddering T Bills for our 410Ks (which were rolled over into IRAs). But now those rates are startying to come down (still not equal to levels of Inflation) but I'm not certain of Gambling. Only stocks I would consider would be the Proctor & Gambles of this world - offering some dividends. Only atock we now own is in AT&T.
Financial Advisors make money off of you, it’s free money to them no matter if you make money or not.
I completely agree with you. As the clients, their comfort level / risk tolerance is important. It doesn't seem like their are in danger of running out of funding. The advisor sounds like he isn't putting the clients' best interest first. He can explain what he sees and options they have, but shouldn't push unnecessarily. They are fine and comfortable with the plan, there is no need to change it.
A personal consideration. In my late sixties, I own 75% in equities and 25% in Tbills/Agencies bonds/money market. I sold my corporate bonds mutual fund two years ago because of the meager results. The worst financial crises never lasted more than two years, therefore you need two years worth of expenses to ride these storms. Maybe I am too aggressive but I have done well for the past 40 years...In any case, sleeping at night is also very important, so being conservative is a valuable strategy. Thanks, Jennifer, for bringing up this topic.
Which broker do you use for investing?
Hindsight is 20/20. Since 2010, the S&P 500 Index has obtained dramatic growth, which was far greater than its historical results. Personally, I doubt this steep increase will continue in the coming years. I retired in 2010 and my initial portfolio at that time was 75% equity/20% fixed/5% cash (retired at the age of 56). To-date, my portfolio's results are fairly good, and a far above inflation, but if I had invested 95% in equities in 2010, the results would have been far greater. For my "kids", who are now in their 30s and 40s, I advise them to put 100% in equities. They are working and don't live off of their investments. For those near are in retirement, a mixed of equities and fixed, allowing for their risk tolerance, is probably the best way to go. I tend to be an aggressive investor, but my wife isn't. As such, we compromised on a 60% equity/40% fixed split.
My take is that if you already won the (financial) game, then stop playing.
the game never stops, and if you force it to stop, hope you have plenty, because inflation robs you of spending power every year.
They are in the wealth preservation stage! I wouldn't do it this late into my life!
It seems to me that the difference between 60 and 65% is somewhat immaterial regarding "sleeping at night". I think she should consider going to a 50/50 allocation.
Depends on the total portfolio value. 5% could be alot of money.
@@Jp421JPthey said it’s 4 million, so just 200k. Not a lot
My wife and I decided to implement a 30/70 stock to bond split. On August 5, I slept like a baby. Regardless of who wins the election, I'll continue sleeping well. My wife is SUPER conservative and hates stocks. Our relationship has improved by me adopting her stock phobia (because she knew it was hard on me), but now I am glad I invested with her mental well-being weighted over advisors' badgering. I think advisors feel the need to recommend plans with higher yields rather than lower risk because one can quantify yield but not mental well-being. I turn the question around. Not how much safety is enough, but how much money is enough. If you have enough, why jeopardize it because someone else thinks you can make more? Someone who will not experience ANY of the downside of a risky decision gone bad. You have proven you know what you're doing. Don't stop listening to yourself now! And congratulations.
why not milk the treasury bills interest income until it goes to 2.0% or less......you can always buy stock when it crashes.
nothing beats monthly tbills
And the money market yield basically times the market for you. Buy stocks when yields are low. If you want duration buy treasury bills.
People expect stocks will rally over a series of interest rate cuts lasting until mid 2025 before leveling off. Who know? Too many external uncertainties like WW3 :)
@@MrDhucky10Well I'm getting 5.28% on my vanguard sweepfund the last 12+ months. I think that beats tbills?
Warren Buffet, aka Mr Buy-and-Hold Equity Investor Superstar recently sold 50% of his Apple stock. You can’t time the market exactly, but why buy in a gigantic bubble when the cognoscenti are dumping?
Buffet is timing the market
@@gregh7457 exactly. It just shows that we are in an unusual time, near a top.
Warren Buffet has reduced his holdings due to Apple being massively overvalued thus reducing his risk exposure or as Warren has stated many times - rule #1 don't lose money and rule number #2 don't forget rule number #1!
I think Felicity went to the wrong "advisor." Roth conversion is a tax question because they would have to pay regular income tax on the year of conversion, as if it's salary from work. A CPA or Tax advisor would estimate their income tax for 2024 and add the appropriate dollar amount (from Traditional IRA) such that it does not push Felicity & husband up into the next higher tax bracket.
I'm an ex financial planner and a current CPA. All the advice here is valid. And, no two clients are the same. Risk tolerance is a major factor. Also, time horizon is another major factor, as in "when are you going to need the money." The shorter the time horizon, the less risk one should one take. If a client is young with many years of life left, then the more portfolio risk a person could take. Also, see if the "fee only" planner has any other compensation avenues... see if there are commissions paid from mutual fund companies to the planner... that could influence what a planner suggests. Treasury bonds can also be risky, especially long term bonds, like 30 yr Bonds. Spot market values can also fluctuate wildly... Remember when considering a 30 yr Treasury... "If rates are Low Just Say No. If rates are high.. Buy Buy Buy!!
And another one: “When the VIX is low, it’s time to go. When the VIX is high, it’s time to buy.” It saddens me to see so much fear of the stock market as it is a great wealth maker. My husband is 86 and we have 5years of RMD’s in a bond ladder, the rest in stocks. Our net worth is as high now as when he retired 17 years ago in spite of all of the yearly withdrawals. We could not have done that with CD’s.
Not a chance. 80% of my portfolio is Tbills, 10% stocks, 10% cash.
Sleeping well at night cannot be underrated.
The advisor is there to advise. He has done so. I will do what makes me sleep at night, period, and if the advisor is being condescending or pushy, unless he is a long-time advisor, I would look elsewhere.
My brother-in-law is paranoid about the Internet, so keeps his money in low-interest bank Cd's. For years, I encouraged him to get T-bills, which made him nervous. Finally I realized that the purpose of money is to make you feel comfortable, not nervous. I do what's best for me, he does what's best for him. Getting as much money as possible isn't always the right answer.
Maybe the question should be how much RISK do they need? From the sounds of it they have done great, and should do what they are comfortable with.
It’s a great case study of risk capacity vs risk tolerance. Felicity and husband appear to have capacity to safely accept some more investment risk (to potentially achieve more reward over the long term) but they lack tolerance to accept more risk, which is fine… it is their choice!
you are my go to for common sense investing and have saved me from a few decisions which would have made me sleepless - a financial adviser wanted me in annuities and bonds but I know me and my husband also are zero risk tolerant - watching your videos have clarified so much! of course we have to keep an eye on the interest rates for the future, but we have very realistic goals -
It'd be better if they had more equities on hand but I would definitely stay the course right now. I wouldn't sale any existing bonds just to buy advisor-directed specific company stocks. If anything they could move some money into some Index based ETFs. But not anytime soon.
I’m 67, work a very part time job. I still purchase stocks in taxable and only use the dividends. The stocks can grow in value. It annoys me that when we get the bond principle back it’s devalued by inflation. I plan not to touch the IRA and leave to my children. Blue chips pay quarterly and raise dividends. Qualified tax rate. Yes, it requires work and research. I enjoy it.
you might need to be aware of required minimum distribution (RMDs) in your IRA account, and plan accordingly
@@yuanguo6649 I know I’ll have to take that out but I have 4+ years.
This scenario exactly happened to me. Also echoes the many related, similar, other types of financial discussions I had. The underlying problem is that the financial advisor and/or opinion-giver DOES NOT HAVE enough life experience. Could be simple lack of age (too young) or just lack of true empathy where they cannot imagine anyone giving up what they believe to be “the golden goose” of equities or an index fund. Often Bogleheads, they totally miss the point of retirement.
Bought One year T-bills last week for our IRA's .... 4.35%. Have one stock that is doing fantastic.
You might consider buying DIVO 😉
@@eugenegarrett1156 expense ratio 0.56?
for taking risk, we always need to consider our ability and willingness, and we tend to over-estimate our willingness to accept risk. If the volatility last week or the market downturn in 2022 makes us uncomfortable, this means we are taking too much risk than we want to or capable to.
Having said that, equities and bonds took a beating in 2022, which is very unusual for bonds to go down that much, but that was expected when interest rates went from zero to 5 1/4. Take care
I am a widow, age 78. I am fine with my portfolio in T-bills, bonds, gold and some cypto.
My concern is the devaluation of the USD over the next 10 years and inflation.
This advisor is not the right one for them. "Felicity" has good instincts, and is doing a great job and accomplishing something building her own bond ladders on her own to complement the other (pension etc.) so go with that. Don't let others bully you with their own leanings.
It appears to me that the Roth conversion question is a lot more salient and consequential to Felicity & Husband than a mere 5% difference in asset allocation. Make sure your advisor is well-versed on conversions, not only the tax and financial aspects, but the legal and emotional implications as well. Of course, Jen's comments on what to do with the advisor's asset allocation advice is spot-on. Why keep playing the game, if you've already won? Unless you enjoy playing, just. stop. Great video!
If the 2008 recession taught me anything, it's I'm not comfortable having that much in the stock market. I don't have a burning desire to be rich. Having enough to be comfortable in retirement is fine by me.
Well said.
Bingo. That was about as ugly an event that I ever want to participate in again. No thanks.
The only ones I hold to maturity are short-term TBills (1 month to 1 year). Right now, before interest rates drop another 100bps, I plan to buy 3-to-5 year bonds. If interest rates drop as much as I expect, I can sell the bonds later (before maturity) at a higher price. If I'm wrong, and interest rates rise from here, I can still hold until maturity. And a drop of 100bps in interest rates, if it happens, may cause stock to drop for fear of recession.
Thanks! It was reassuring to hear your take on this, Jennifer.
Dumb me - I locked up a 4.65 3 year bond this week when the rate cuts came. 5% of my portfolio
Still waiting to load up on stocks when they are on fire sale. Buy when others are panicking
I'm 66 and have a relatively conservative allocation at 30% equity and 70% fixed income. With this large allocation to fixed income, I feel comfortable taking extra risk on the equity side owning high flyers such as the "mag 7" (less Meta and GOOG), GLP-1's (LLY and NVO) and retailers for the cost conscious (COST and WM), which increases my "bang for the buck"!
Stay diversified to meet your comfort level. And forget about what everyone else is doing.
I do short term treasury.Pays better than fidelity money market.
I am in 70s and my husband is 80.
Home cars paid off.
Children independent and doing well
I strongly believe market will come down after election.Yellen is keeping it propped up
I do some swing trading in IRA.
All my treasury bills will mature in sept and oct.That time will be appropriate for investing.
Stay the course you are on. Fire the advisor.
It is, after all, *your* money, not theirs.
The question at this point in your life is "What is the value of more money"? If that value is low, then IMO taking on higher risk is an unsatisfactory trade-off. You can still buy long treasuries for 4% +/-) that just keep on turning out money while you sleep well at night. They are vulnerable to interest rate changes so plan on holding until maturity infrates go against the portfolio.
Simple answer for Felicity: Fire your advisor immediately! You have done and will continue to do better on your own!
If comfortable with what you have, stand pat.
I'm retired, have 50% of my portfolio in Bonds. I might drop it to 40 once the market shows more signs of stability. For now I'm sitting tight until well after the Nov election.
Felicity, The first thing to consider is the "size" the impact of the decision you are asked to make. Here is how to size your decision: (Expected return on stocks - expected return on bonds) * Change in portfolio allocation. Here is an example: future stock return 9% - bond return 4.75% = 4.25% times your change in allocation 5% = .21%. The potential impact of your decision (.21%) is smaller than the ability of you or your advisor to estimate future returns. Whatever you chose, the impact will be small, so make a choice and get a good nights sleep. Another approach is to phase in your decision: 60% this year to stocks, then 61% next year and so on until you reach the 65% allocation. Given the high multiples in the stock market currently, you may want to wait for a correction say greater than 15% then start increasing your allocation to stocks, that is if you ultimately want a higher allocation to stocks. If you don't then there is nothing you need to do. You should discuss these opinions with your financial advisor.
They seem to be comfortable with what they have now and I agree with it. 60/40 portfolio is a good approach, especially now that interest rates will be coming down as the price of bonds will go up and the yield will go down. Now if they will not need the money they have saved for the next 20 years, then I see why the advisor is telling them to invest more on equities and less on bonds, be careful with the advisor, as he might be trying to sell you his product which may have high fees. Historically tough, bonds tend to outperform for a 16 year period, but as always, performance is no guarantee of future results. In the end it’s their choice and can sleep well at night. Having a second opinion, is good advice. Take care.
1. When in doubt, wait; and while waiting do research, research and more research until a decision is more clear.
2. If Felicity is 60/40 stocks/bonds, then the advisor's suggestion is pretty small. Going to 65/35 really isn't a huge step, but I think he knew that and wanted to suggest something small that Felicity could stomache and he could still collect his fees.
3. The advisor basically confirmed Felicity's allocation is solid, not only by the stress test, but also by his minor tweaking suggestion. That amount of change is really in the "noise" category and confirms she isn't drastically out of whack.
4. Definitely learn Roth strategy inside and out. It's not rocket science and is critical to minimize the potential tax bomb in their future. Don't delay as Felicity may want to start doing conversions asap depending on the math.
Congratulations Felicity
You did one heck of a job saving all that money don't let anyone else change your mind
I had a money manager that bought stock and bond mutual funds. The problem was the money manager’s only answer to bond funds going down was to buy equity mutual funds. He wouldn’t buy individual treasuries. But I agree everyone’s financial journey is different. For us we did not change our percentage of equities vs. bonds other than rebalancing…for us it’s based on our age and risk tolerance. Good luck. ❤️❤️❤️
Im 70 & have 80% of my savings in wealth preservation ( fixed income, CD's, bonds, ) . I have 20% in equities. Do not worry about the stock market. As a matter of fact, I bought some more equities during last weeks crash!
Nothing beats sleeping well at night! Advice is interesting to consider, but you know yourself, so stay within your comfort zone.
Yeah it really depends how much the pension is/how much she has in savings. However, I personally think both of those asset allocations are not foolish. Do whatever you are comfortable with as long as you feel informed.
Equity = Tolerable Loss x 2 . The rest goes into ultra safe short and intermediate term Treasury ETFs.
those people in their 70's and 80's should not be in the stock market. A real bear market can wipe 20% of their savings from their net worth for years.
Sequence of return risk could be devastating.
Well said, AK. At that age, wealth maintenance is more important than risking a big hit in hopes of adding to personal wealth.
"A fool and his money are soon parted" is a well known phrase for a reason. And greed swallows people whole.
Too much FOMO thanks to thr plethora of financial media on TV & the web.
The point is, if they don’t need that money for their expenses anyway, like really, really don’t, then their capital could earn them more money to gift to family or charity. It’s tough to know where that line is, though. Inflation rates, global instability, and insane increases in long term care costs all have the potential to unravel any financial forecast.
65% of $4M is $2,600,000. If the market dropped 30%, their portfolio would drop by $780,000. When you have a portfolio of $4M, along with a generous pension and two social security checks that start at age 70 (which will probably be a goodly amount) you should have a high tolerance for risk. I agree with the financial advisor, but if they feel uncomfortable with the recommendation they can do what they want.
My advisor wanted us to have an allocation of 85-15 stocks and bonds. We said no and wanted to keep our 70-30. I am 69 and my wife is 65. We both have generous pensions and social security.
Congratulations to the couple who have achieved that degree of financial freedom and enjoyment in their work.
1st. The advisor should have focused on the ROTH conversion strategy.
2nd. They have established the nest egg to provide them comfort, security AND options.
3rd. The answer to the shifting of 5% of their assets has to consider the bonds vs stock picks. It can be a good move if it doesn't affect your mental or physical well being.
4th. Consider the "bucket" strategy and get another opinion.
5th work on withdrawals to enhance other area's of your life... security=good family and friends relationships, good medical and health habits, etc.
LASTLY, the advice given in the video is good.
If you don't need to change anything to succeed then do not change if you are not comfortable! If the financial advisor is trying to push their product, RUN! However, when the Fed begins an interest rate cutting cycle, equities become more attractive because they will perform better. You can always put a tiny amount into in equity index over time whether it be ETF or Mutual Fund. Perhaps allocate $1,000 per month into an S&P 500 index, which isn't very much at all, yet you should still get a better return.
We are in a very similar situation. We have always been conservative with our finances. Both retired and Monte Carlo 500 scenario stress test shows we have enough savings to last. Husband about to take SS at 70. Our financial advisor has recommended that we move from 60/40 to 70/30. We have declined because we don’t want any additional risk and sleep better with our conservative plan.
Thanks for sharing Joanie :-)
No one should do anything they aren't comfortable with. Peace of mind, especially as we get older is the most important. I love what Jen is saying here. At this point in their life,a good tax advisor/planner is critical to be part of their planning as taxes are going to play a bigger part going forward than 60/40 vs. 65/35.
Thank you so much Jenn. You actually answered a question I had. You do such a nice job showing us how to invest in fixed income and wasn't sure whether it was necessary to seek a fee based CFP but I see that you do recommend it.
Not going to jump into the ponzi scheme at all time highs.
💯 %
Same here. I have my long-time equity holds that I'm fine on. Not dumping most of my money back into stocks because analysts, who make more money on trading stocks (surprise), say we should now go back to stocks. Then they pull the rug on the market 6 months from now after everyone has piled back in.
Age 65 plus, networth, enough to live comfortably without SS, portfolio mix 60 bonds, 30 equities, 10 liquid...have considered a 40:40:20 portfolio mix, but not seriously, I don't feel FOMO pressure and I don't need to...young brokers can be good, have skills, but seem short on repititions and wisdom IMHO.
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You run a great show, thank you for what you do for the senior citizens community. Regards.
I LOVE the T-bill rates and I'll stick with the over 5% return. I prefer safe and predictable
Excellent video. I read Warren Buffet has $280 billion in cash and most of that is in T-Bills.
It really depends on many factors including age, goals, net worth, income, etc. -- everyone's financial journey is different, right? 😊
I think the question should not be how much safety do they need. The question should be how much risk do they need. In my opinion, they've already won the game.
Speaking about Financial Advisors...remember they are human and most (actually 68%) are average advisors. a few are above average and a few are below average. So it's likely that the advisor in this case is one of the 68%. Once one has enough money to meet all goals...then lowering the risk (or maintaining the current risk level in this case) is appropriate. Remember "Money Doesn't Grow on Fees".
I would stay where they are, fire the advisor, and continue to protect their principal by slowing moving to a 50/50 allocation after they retire.
A basic senior approach: Stick with a fixed income/capital preservation/conservative growth strategy. Also, focus on low management fees. The exact ratios depend on your risk tolerance which appears to be low.
Two concerns I must handle for my situation, and perhaps yours are:
1. How much money will I need in the future? I cannot use what I spend now to predict what I need when I am more elderly.
Having seen my mother age till 102, living can cost more when you are elderly.
I would make these funds non-negotiable - subject to the minimum risk.
2. What does the "stress testing" really prove? I cannot assume the advisor even knows what stress model is used,
and how the software applies it. Investing is probabilistic, not deterministic. I generally need my own track record
to trust the results that new advice stress model provide.
If I felt the analysis was credible, and my finances were stable,
I would apply any new approach or asset allocation to part of my portfolio,
and monitor performance. I would invest the remainder of the portfolio more
conservatively to compensate.
You might be able to trust the model with back testing,
but I am not sure I would risk my financial stability to rely on that.
I am in tax deferred Annuity and no fee was charged by fidelity.3 yr annuity at 5% in taxable account.I do have few stocks which pay dividends
Im also in that position except I have 2.5 million. Same scenario and I value my peace and mind during my retirement years. I'll stick to the first plan. I also currently receiving 55k in dividends.
If it doesn’t feel like a clear “Yes!” then maybe it’s best to simply wait & reevaluate later.
We all have different risk tolerance AND different time lines. Significant equity positions work well for 25 year old investors, maybe not as well for a 75 year old retiree :)
60% stocks is plenty. I'd sell a bit of stocks and buy some precious metals for insurance as well.
This is not about optimal outcome, this is about the person’s tolerance for risk and their emotional response to adverse market events, only you know how much stress you will likely experience and what’s the price tag on that.
Great advice, as always. Risk tolerance is personal and they have been successful so far.
Curious why the adviser wants them to take more risk if it has already been determined that they have enough. Unless there is a satisfactory answer, I'd file a complaint against the adviser given their age and risk adverse nature which should have been clearly documented in their file. It appears clear that Felicity has already indicated no thank you but the adviser continues to push? Why?
Fidelity used to tell me that I should have more equity exposure. Probably still do. I just ignore it. My understanding of a fee-only financial planner is that they get a percentage of AUM so it sounds like the reason that the financial planner wants more risk is an attempt to get more fees.
Why am I not hearing where you talk about "how safe are treasuries?" did I miss it twice? thanks
The right mix is when you can sleep at night. For some of us it is having lots of cash and fixed income, for others it is more growth oriented investments. How much risk tolerance is individual. If the advisor’s advice makes you so uncomfortable you cannot sleep, don’t do it.
I have no idea for Felicity. I'm 80, haven't worked for over 15 years. My financial advisor is me. I'm 11th generation American I have lived longer than all the men on my fathers side except Charles who lived to 110. I've got enough money. I've taught my daughter my way of making money, she's doing OK. So my question for Felicity. is what do you need the money for? And how much?
A good night sleep is priceless. If a conservative approach allows you to hit your financial goals, stay the course.
Why not put it all in bonds, why take any risk if you are keeping ahead of inflation. Whatever happened to taking your age minus 100 to arrive at the equity/bond ratio?
If I overshoot my target by 65 or earlier, I'm putting all my excess investment capital in safe places like bond and CD ladders. The rest will probably be in 70/30 index fund/bond fund.
Seems to me that Felicity has doubts about her adviser's advice and that's why she reached out to Jen for her opinion. I agree with everything Jen said. Trust your own judgement, Felicity. It sounds like you have done fine so far. If you do decide to convert any of your retirement funds to a Roth, you should choose investments that suit your risk/reward profile and time horizon. Good luck!
I sleep very well with all my retirement money in Treasuries and CD's. No interest in higher risk investments.
High quality problem. At this point its what risk shall we mitigate most. With SS + Pension + 4M portfolio Felicity could build a high income. In the edge cases, stocks could crash, but we could also have hyperinflation and exposure to assets protects against that. In the end I like the Buffet quote about don't risk what you already have for what you don't need.
What are your annual expenses? How much of these expenses would not be covered by pension and social security annually? Multiply that amount by 25 (if in your sixties). That is how much you will need to pull from your portfolio during the 25 years of your retirement. Conservatively, keep 10 years of those expenses in fixed income and the rest in equities. Probably, Felicity and husband (with a pension, two Social Security checks) will not need more that $1M from their portfolio over the course of their retirement (unless their annual expenses are much greater than $150K). So their advisor is probably correct, but the advisor is a crappy communicator and as such is a bad advisor. In the end, Felicity and husband are allowed to not maximize the monies left to their heirs if that is not their priority, and the advisor should meet them where they are at.
I'm 67 and hold 775K in short-term T-Bills and 750K in Equities. I'm not inclined to do anything right now, as I think I have enough risk in the market.
If you had to invest all that money today would you still out 1/2 of it into equities?
@@Dave-cf4xq - I'd take the 775K and put in into another income-producing instrument.
@@Last_one_before_I_goCan you please give an example or two? Thank you.
@@SicilyJo - To be honest, I haven't thought that far ahead. But at my age, I cannot tolerate any more risk than what I have taken. I have been incredibly lucky in life to have made this amount. Whatever I do, I'll protect it as well as I can.
@@Dave-cf4xq Interesting, Dave's response was only about the 775K . Where your question was also about the 750K in equities and investing it Today in equities. I know my answer at 68, No not at today's all time highs. But I'm sure Dave got in when prices were lower which makes a difference.
A 5% deviation from what they are already comfortable with is fairly negligible. Sounds to me like they are fine on their pensions and future social security and don't need to worry about the extra risk. That said, the market is at or near all time highs now so it might be bad timing to add to sticks. Interest rates will be dropping which should boost their fixed income holdings.
It appears their savings are sufficient to not need a financial advisor at all! However, lot's of my friends need an advisor to give them the confidence to sleep at night. Assuming they want an advisor no matter what, with their portfolio, pension, etc., I would want someone who is a tax expert first and investment advisor second. Having said all that I don't think it's bad advice from the advisor at all. Did they talk about wanting to leave more money for the kids? Then that's solid advice! In the end though changing the mix 5% doesn't make much sense to me if it made the client uncomfortable. That's not the sort of shift that will make a massive difference, even over a relatively long time (20 years?).
It’s clear that for Felicity she should just keep her current portfolio at 60/40 and not get more aggressive since she is not comfortable. There is no right or wrong answer as it all depends on your risk tolerance.
There is the subjective psychology of money (Felicity) and then there is the objective optimization of money (her advisor). You have to respect both and find a balance that works for you.
Since Felicity has enough, she will be fine either way. I used to sleep better with mostly fixed income but now it keeps me up at night (due to opportunity cost) so I plan to get much more aggressive with low cost index fund (like 80/20) as I feel happier and more joyful to dream bigger and take on greater challenge. I plan to retire in 2 years.
Better question is why assume more risk than is necessary? If stress test shows they have enough, no need to assume greater risk. The FA doesn’t seem to understand this basic concept. Need a new FA.
Stock market recessions/stagnations can last 10-12 years. It is a good idea to have enough bonds and treasury bills to cover the expenses that period of time that are not covered by SS and pensions. If their expenses (in addition to SS and pensions) are $120k/year or less, the safe amount that needs to be in bonds is around $1.4M which is exactly 35% of $4 million. Unless they spend more than that, the advisor's suggestion makes sense, in my opinion.
Good advice Jen. My only additional thought is... isn't the difference between 60% and 65% stocks somewhat splitting hairs, given all the uncertainty in financial planning? If the advisor were saying to go from 40% to 60%, I'd understand the potential concern. Regardless, if Felicity and her husband think 60% is the right number... it's the right number.
4 million is well more than enough. Anything over 2 million you should feel safe to do whatever you want with the rest
Buffet disagrees. He sits on treasury bills. Stocks are very expensive.😅
I suggest the working spouse continue to buy equities regularly with every paycheck, with any extra new monthly saving that paycheck generates, but keep your fixed assets as is, since having those makes you comfortable
Right on Jen. And I love your sense of humor.
I'm 64 and I have everything if fixed income. I'm not going back!
Go with your gut....stay doing what you're doing. 65- 35 is too risky for old people.