Dear Quentin,
I appreciate and luxuriate in your column and advice.
I’m 69, single, female and in good health. I worked extremely hard. I saved money and lived frugally. I retired sooner than planned, in April 2022, because our elderly mom required more care. She lived to 91, but in her final years had dementia and poor mobility, eventually needing 24/7 care. Luckily, she had lived modestly and invested correctly, which paid for in-home care, supplemented by my sisters’ and my labor.
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My home is fully paid for, as is my modest five-year-old automotive, which I purchased certified used using a lump payout from saved-up vacation hours. I actually have a terrific federal pension of $3,000 a month after taxes and medical health insurance, great federal medical health insurance, and $3 million invested after my self-managed stock portfolio exploded over the past three years. I don’t trade that much, just to take a position extra cash or move a bit here and there when it is smart for taxes.
My inheritance raises that to about $3.6 million. My current investments are in Roth IRAs value $600,000, which incorporates an $85,000 inherited Roth, in order that has 10 years to grow tax-free. The remaining is in stocks, exchange-traded funds and tax-deferred Thrift Savings Plan funds. It’s allocated about 60/40 tax-deferred/taxable accounts, aside from about $100,000 in CDs and money. My non-TSP accounts are tech-heavy, with the nontech stocks well diversified.
The common wisdom is to maintain less in equities as we age. Nonetheless, my pension, Social Security advantages — which I’ll draw at 70 and which is able to amount to about $3,000 monthly after taxes — and medical health insurance are all federally backed, so those are all more like a Treasury bond. Even when Social Security payments decrease after 2035, I must be nice. I’ll keep the ultimate inheritance money — about $90,000 — in money and CDs with a view to make significant repairs to my small house.
Do I actually have an excessive amount of money in equities?
Single Retired Investor
Dear Investor,
I like that to procure your automotive using money saved from vacation time.
I discovered myself cheering you on as I read your letter due to your open, evenhanded approach to the story of your financial life. You weren’t grandstanding, nor did you express any lingering resentments or lamentations concerning the years you spent caring for your elderly mother. In other words, you probably did all of this while climbing some pretty steep virtual mountains, and you probably did it by not having anyone to depend on but your good self.
Asset allocation must be based on an individual’s income and expenses, not their age alone, says Jesica Ray, lead adviser at Brighton Jones, a Seattle-based registered investment adviser. “Portfolio immunization is an asset-allocation strategy that focuses on ensuring that an individual is simply taking the quantity of risk they’ll afford,” she says. “The goal primarily is to safeguard the funding of liabilities. Then the remaining will be put into the expansion engine of the portfolio.”
You’re going against conventional wisdom by holding the majority of your assets in equities, but you have got made smart decisions, including going heavy on tech stocks, even when the group of tech stocks often called the Magnificent Seven may not show as much growth within the years ahead as they’ve recently. At age 70, most advisers would say to take a position 30% in stocks and the remaining in bonds and safer havens. But you have got an appetite for risk and success. You furthermore mght have a pension and Social Security to unfolded that risk.
Throughout the third quarter of 2024, the Magnificent Seven — Nvidia NVDA, Apple AAPL, Microsoft MSFT, Alphabet GOOGL, Tesla TSLA, Meta META and Amazon AMZN — underperformed the broader index for the primary time for the reason that final quarter of 2022. But as Michael Arone, chief investment strategist for State Street Global Advisors, said in an interview with MarketWatch in early October, “A couple of myths have been busted.” Chief amongst them: The stock market can rise without them.
You have got $190,000 in money and CDs, which is a brilliant move and offers you a de facto emergency fund, and I fully support your intention to do a little bit of splurging here and there. You’ve worked extremely hard and given your mother your time and love, and now could be the time so that you can see a little bit of the world, have an adventure and luxuriate in life. That is what good planning gives you: peace of mind, freedom and the chance to take trips to maintain the cobwebs from the door.
Nate Ahlberg, a senior wealth adviser at wealth-management company Prosperity in Minneapolis, Minn., suggests moving on to the subsequent phase of your wealth-management plan. “Your reference to your self-managed portfolio exploding’ over the past three years and that your non-TSP accounts are ‘tech-heavy’ leads me to suspect that you have got some concentrated holdings,” he says. “That has likely helped you create significant wealth.”
Diversification can now help preserve your wealth, in whatever form that takes. “Diversification doesn’t necessarily mean making significant adjustments to your equity allocation,” Ahlberg says. “In case your risk tolerance stays aggressive, you might consider diversifying inside your equity allocation — growth versus value, large cap versus mid cap versus small cap, domestic versus international.”
And if there’s a stock-market bust? It will probably take you lower than a decade to get back to black. But you have got, for essentially the most part, enough money to see you thru. After the 1929 crash, when the stock market lost roughly 90% of its value, the Dow Jones Industrial Average DJIA took greater than 25 years — until Nov. 23, 1954 — before it closed above the extent at which it closed on that fateful day. But analysts say it actually took five to 10 years, accounting for deflation.
You lived through the recession of 2007-09, so that you don’t need me to let you know that it took greater than five years for the market to get better from that financial crisis, which was caused partly by predatory and subprime lending within the mortgage market and a lack of monetary regulation. Take note that diversification can be key to weathering such unexpected storms: Many firms survived the 1929 and 2008 financial crashes, but some didn’t.
In the event you can live comfortably in your existing income, I feel it is best to stay the course.
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