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How Are We Doing?

Richard Quinn

FRANKLY, I DIDN’T KNOW how wise or prudent our investments are, so I decided to take a closer look.

Turns out my wife and I are fairly well diversified, but is it the right mix? Our investment goals are preservation of capital, generating income and modest growth. To achieve these goals, we have a mix of money market funds, dividend-paying individual stocks, and bond and stock mutual funds—mostly stock-index funds. The stock funds include large-cap and small-cap, and a bit of international as well.

In our brokerage account, two utility stocks account for 40% of the total balance, stock mutual funds 13%, municipal bond funds 44% and money market funds 3%. Meanwhile, my rollover IRA—which is my old 401(k)—is invested 67% in stock mutual funds, 23% bond funds and 10% money market funds.

Overall, that means we’re 23% in individual stocks, 37% stock funds, 34% bond funds and 6% money market funds. Currently, all capital gains and income are reinvested. We can turn any and all of those automatic reinvestments on or off at any time. Dividends are paid quarterly, tax-free interest monthly and capital gains generally annually.

Clearly, we could have done better during the recent bull market—but the higher stock allocation would have meant we’d have done much worse in this year’s downturn. Based on our goals, I’ve been told that we should take a longer-term view and be more aggressive. Yeah, I’m not feeling aggressive.

Given that we live off my pension and our Social Security income, our primary goals are to leave a legacy for our children and to withdraw from investment earnings should we need additional income—or, if I die first, should my wife need additional survivor income.

Do we have the right mix for maximum return? Probably not. Do we have the right mix to meet our goals while minimizing stress? I think so. I hope so.

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CJ
CJ
4 months ago

Honestly, I can’t see how a 60% equity AA for a long time retiree is not considered aggressive enough. It’s majority equity.

Brent Wilson
Brent Wilson
4 months ago

Since you’ve noted you primarily live off your pension and Social Security income, it would seem you could take a higher degree of risk in your portfolio. But in the end I agree with Richard’s comment that it’s whatever makes you feel comfortable. I would maybe push yourself to challenge why you feel uncomfortable but if you’ve done that and you’re still satisfied with your mix, then you should stick with it.

Michael1
Michael1
4 months ago

Nothing wrong with looking per se. I look almost daily, but very rarely do I do anything besides look. If looking leads to feeling a need to do something, then yes, better to set a schedule for doing so and otherwise avoid it.

  • meant to be posted in the below discussion about looking.
Last edited 4 months ago by Michael1
Richard Gore
Richard Gore
4 months ago
Reply to  Michael1

Of course you are right, there is no trouble with looking per se. However, the trouble with looking is that psychologically losses are more powerful than gains. Thus, even though the market usually goes up over time, the overall psychological toll of looking can be painful. If looking causes someone to worry unnecessarily then it might be a good idea to modify their behavior.

Michael1
Michael1
4 months ago
Reply to  Richard Gore

Indeed, even if looking doesn’t lead to too much action, leading to too much worry is also a good reason to avoid it.

mytimetotravel
mytimetotravel
4 months ago

Do you really think that 23% in two individual stocks in the same industry means that you are well diversified? Looks pretty aggressive and not particularly diversified to me. Why would you not have that money in a stock index mutual fund? If you really believe you need dividend income rather than total return there are funds for that. No guarantee that a stock paying a high dividend today will be doing so tomorrow.

Michael1
Michael1
4 months ago
Reply to  mytimetotravel

I also wouldn’t have 23% of my holdings in two stocks. But, I don’t find it all that aggressive in this case.

If they sit in the context of an otherwise diversified portfolio, and they’re presumably good utilities (or if one stock were say Berkshire with own diversification), the 23% isn’t so striking. And importantly, it sounds like if one were to cut its dividend, it wouldn’t be a big deal – note all dividends in the portfolio are currently being reinvested.

Of course bad things can happen to good utilities too (or to BRK). So, while I wouldn’t feel anxious to sell just to lower that 23%, I’d be directing these dividends elsewhere.

Richard Gore
Richard Gore
4 months ago

It seems like you have already answered your question. If you think you have the right investment mix for you then you probably do. No one else can measure your stress level from fluctuating stock prices. I suggest you stop watching your investments so closely and enjoy your remaining years. When you are dead this won’t mean a hill of beans to you.

R Quinn
R Quinn
4 months ago
Reply to  Richard Gore

Good point. Now if I can just convince myself to stop looking. At least now I only have to look in one place. It took me 12 years to convert my 401k and consolidate all the investments on one platform with Fidelity.

Richard Gore
Richard Gore
4 months ago
Reply to  R Quinn

I know it is hard not to look or obsess over your investment portfolio, but you have earned a stressed free retirement. Take advantage of it.

Here is an idea: You might ask yourself if your portfolio changed + / – by 20% would you make any changes. If not, there is no reason to look.

Last edited 4 months ago by Richard Gore

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