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Wed Sep 11, 2013, 02:01 AM

Thoughts on when to shift investments

Hi everybody. I'm looking for opinions on whether to shift my 401K investments as I get closer to retirement, and ideas on where to put then if I do move them.

General info:
I am 57, and am looking to retire at 62. I have several retirement income sources, but I am hoping to get about 1/3 of my income from my 401K. Currently it is invested in growth funds, which have done well for me. However, I don't think I should leave it in stock-based funds all the way up to retirement.

Are there any common-sense rules of thumb on this subject? Any ideas? Also, assuming I were to move them, what would be a good type of fund to go to? Any words on Fidelity freedom funds? (I'm limited to Fidelity funds, and a limited subset of those)

Thanks for any advice, thoughts, recommendations, etc. I understand this is not professional advice, and I won't gamble my life savings...honest!

8 replies, 2087 views

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Arrow 8 replies Author Time Post
Reply Thoughts on when to shift investments (Original post)
tortoise1956 Sep 2013 OP
lastlib Sep 2013 #1
elleng Sep 2013 #2
SheilaT Sep 2013 #3
A HERETIC I AM Sep 2013 #4
David Zephyr Jan 2014 #8
tortoise1956 Sep 2013 #5
tortoise1956 Sep 2013 #6
jeffrey_pdx Oct 2013 #7

Response to tortoise1956 (Original post)

Wed Sep 11, 2013, 08:43 AM

1. Some guidelines here:

http://www.401khelpcenter.com/allocation.html#.UjBwq3_TO_I

Within five years of retirement, I would suggest moving your asset allocation to a maximum of 60%/40% stock/bonds ratio. I'm a little farther away from retirement than you, but am currently at 100% stock allocation for growth. My strategy, beginning at five years from retirement, is to each year move all of my gains into fixed income, along with a set portion of the rest of my assets, until I get to that 60/40 ratio. After retirement, my plan is to draw down the stock portion until it's down to 33%, then maintain that 33/67 ratio for the remainder.

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Response to tortoise1956 (Original post)

Wed Sep 11, 2013, 10:27 AM

2. Diversify.

Other reply has good suggestions.

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Response to tortoise1956 (Original post)

Wed Sep 11, 2013, 03:47 PM

3. Five years from retirement is a good place to start locking

 

in the income you'll need from investments.

Read lots and lots. Take a look at annuities. There are many different kinds and perhaps one will be right for you.

One piece of advice I read a while back that seemed quite useful was to make sure that your guaranteed income stream from Social Security, Pensions, 401k and the like absolutely covers your basic expenses. Whatever isn't needed to produce that income stream can at least partially be ear-marked for growth.

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Response to tortoise1956 (Original post)

Fri Sep 13, 2013, 06:23 PM

4. A couple things to keep in mind about bonds in the current environment.

Yields are near historic LOWS.

What that means is that bonds have been in high demand for their perceived safety for quite a while and as a result, their prices have been bid UP.

As prices rise, new issues are able to be offered at lower rates. In 2006, the coupon rate for a recently issued 30 year, US Treasury was 5%. Today it is 3.625. ( It got as high as 12% in the 80's! ) ( Source. ) It has rebounded from a low of 2.75 back in 2012

That means for every $1000 face value bond owned, the US Government will pay $36.25 in interest per year, split into two payments 6 months apart. When the bonds mature, you get your $1000 back.

If you were to buy a bond at current rates today and rates rise in the coming years, the value of your bond will FALL, meaning you will get less than you paid for it, should you wish to sell. You will still get the specified coupon rate regardless, it's just that the fall in prices makes your portfolio value shrink. This is the effect of changes in yield. Why would I pay you a grand for a bond that pays $36.50 when I might be able to buy one that pays $50 a year for the same amount? The price of your bond MUST fall because of the demands of the market.

I went into some detail on this subject in this post back on DU 2. It gives a bit more info on the mechanics as well as how a bond mutual fund works. I hope it may give you some more insight.

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Response to A HERETIC I AM (Reply #4)

Sat Jan 18, 2014, 12:51 AM

8. Good advice. I wouldn't touch bonds now.

.

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Response to tortoise1956 (Original post)


Response to tortoise1956 (Original post)

Mon Sep 16, 2013, 11:09 PM

6. Thanks!

I appreciate all the responses to my query. I especially enjoyed the short dissertation on bonds.

I have rebalanced my 401(k) to 90% stocks in 3 funds, 5% in a blended fund and 5% in a high income bond fund. All future investments are going to the last 2 funds. I'll probably rebalance again in 6 months or so, dropping the stocks to 75%, increasing the bond fund to 15% and the blended fund to 10%. All, of course, subject to change without reason...and all of this could change completely if the market decides to jump off a cliff.


In any event, thank you once again for taking the time to answer my questions. I really do appreciate it.

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Response to tortoise1956 (Original post)

Fri Oct 4, 2013, 11:36 PM

7. I know you posted this a while ago. But my 2 cents.

Generally, the closer you get to retirement, the more you want to focus on bonds rather than stocks. Bonds, historically, don't give you the growth, but they are safer. First of all, mutual funds are safer (no hard and fast rules) than individual stocks or bonds. Stock funds can go up and down a lot with much more potential gain or loss, bonds tend to vary less but don't earn or lose as much. That's why bonds are safer as you approach retirement, they're less risky. That's not to say that you don't want any stock or stock-heavy funds, it all depends on your level of risk. My opinion (and only my opinion, not professional advice), maybe put more into stocks after the market falls due to the debt ceiling debacle, get them "on sale", but generally, you want to mostly be in bonds.

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