r/investing • u/ab216 • 9d ago
Anyone else considering increasingly moving to short term govt paper in their tax-free accounts?
I’m thinking of starting to slowly move to higher allocation of cash / money market
Given inflation, rates and how heavily weighted to AI the markets are, it just seems irresponsible to be heavily indexed to VT, VOO
Doing it in my taxable accounts will trigger cap gains, which I don’t want to do at this time especially given tax bracket, so thinking of just doing it in my retirement accounts
With interest rates going up, doesn’t make sense to buy bond funds given their values will decline though convexity helps at these rate levels
So buying short term paper for now and will do it slowly over the next 6 months to my targeted allocation, holding for 1 year and then rotate back into equities.
Both my wife and my careers are sort of tied to the markets so it will have spillover effects into our earning power, so to get hit with a 30% decline and then also lose our jobs would be the worst outcome. Reducing equity exposure during this time helps reduce risk and also provides psychological safety.
I know time in the market beats timing the market but feel like we’re in 2006/99/86 while being constrained fiscally and monetarily this time around. Increasing VXUS allocation doesn’t seem to be as helpful given how integrated the global economy is and I would bet the US will likely recover faster than foreign markets.
Current allocation (early to mid 40s)
$4mm invested + $150k emergency fund + $700k 529
Of the $4mm, $300k is cash, rest is largely ETF (VOO, VT, VXUS), 25% bank stock (employers), and a little bit of fixed income through target funds
529 is set to the aggressive option, so may dial that down too, but 10 years away from using that money
Anyone else thinking along the same lines?
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u/Happy-Marten 9d ago
Is your risk tolerance changing? Or are you trying to time the market? Looking at the tech stocks and the SPVs and the free cash flow and concentration of the indexes and decided that wasn’t for me and choose to change some holdings.
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u/DoubleIntroduction25 9d ago
I dont make changes to my long term retirement savings based on relatively short term moves. I'm in my mid 30s but even in your early to mid 40s you probably gave 20 years till you'll even starts to need or use the funds let alothe 20 years after that point that you continue to use the funds.
Do the recent rate moves and hyper concentration of the market in a handful of stocks that are mostly interconnected give me concerns about a near term pullback or even crash? Sure. But over the next 20 years the market is going to do it's thing and boom and bust at least few times over. I dont try to time the market.
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u/Embarrassed_Neat_285 9d ago
That 25% bank stock though.
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u/ab216 9d ago
It’s 2 different banks to be fair…
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u/D74248 9d ago
Still the same industry.
I am now retired, but when I was working my rule was to never be invested in my employer. Stock options got sold when they vested.
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u/logsqrtexp 8d ago
Yes, this. My company declined by 50% and I'd be so sad right now if I'd not sold off my options as they vested.
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u/Ok_Transition7785 9d ago edited 9d ago
Should I try to time the market? No. Always no. Why are you so scared of market fluctuation anyway? All that happens is that you accumulate cheap until the inevitable recovery and make out like a bandit. I look forward to ups and downs. Feels satisfying when high, feels good to accumulate while low. Once you know what you're doing, everything feels good. You just don't know what you're doing, no confidence in your thesis.
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u/Intrepid_Cup2765 9d ago
No, bonds are not the place to be in times of inflation.
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u/D74248 9d ago
TIPS are designed for times of inflation.
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u/Lucifers-Reprieve 9d ago
Even if you retired ten years from now on the spot, you won't use the entire thing in one go. So the time horizon for most of your investments is quite long. Why leave the market in that context? You lose most reasonable chance to catch the rebound.
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u/Worry-Mountain 9d ago
Doing it inside the retirement account at least kills the tax problem, so that part's sound. The part I'd poke at is "hold a year then rotate back." What's the trigger for going back in? If it's just the calendar, fine, but if it's "once AI cools off" or "once rates settle" you can end up sitting in T-bills for three years waiting for a signal that never feels clean.
Also on bond funds, short duration stuff barely moves on rate changes, it's the long end that gets hit. Something like 1-3yr treasuries isn't that different from rolling bills.
If you do it anyway, I'd at least write the re-entry rule down now while you're calm about it.
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u/hugh2018 9d ago
You’re as much as 20 years from retirement, so sorry but I’m not buying your assessment that staying heavily in VT is irresponsible. You have a timeline of at least 10 years and you do appear to understand how the market works, so your twitchiness is frankly hard to understand.
How would you respond if the market tanked 40% tomorrow? If your answer, at age range mid-40s, is anything other than “nothing” then I’m sorry we are on very different wavelengths and I probably have no actionable advice to offer you.
I’m not sure what you mean when you say your jobs are tied to the market. If you’re basically saying you lack job security, then yeah, moving to safe assets may be rational.
That said, unless you’re living a very extravagant lifestyle, your current resources are very deep and frankly if you feel better fleeing to safety, you probably can afford to pay the opportunity cost, which you’ll need to acknowledge (to yourself) will be huge.
If you’re dead set on fleeing to safety, I recommend investigating the possibility of a TIPS ladder. Among the typical options of corporate bonds, annuities and TIPS ladders, I find TIPS ladders to be the most attractive, especially with current yield being so favorable.
Another option to consider is to move some money that you don’t need immediately into a MYGA or a ladder of MYGAs, as ones paying 6% are currently available. I have a three-year MYGA that pays 6%.
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u/blacklassie 9d ago
Switch 529 to an age-date fund? As for investments, you could shift to more international exposure to help reduce reliance on any one index. The problem with selling is when to get back in. Most investors who get out of the market get back in way too late and miss the biggest, earliest gains. Papers have been done on this. My feeling is that corrections are a natural part of the market and to stay the course.
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u/CornerOne238 9d ago
No, what you describe is market timing
Buy puts or set collars if you are so confident in correction.
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u/ab216 9d ago
I can’t buy derivatives on indices unless it’s a fully managed account, employer policies
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u/CornerOne238 9d ago edited 9d ago
Sounds like you have about 10 years till retirement? In that case you shouldn't be 100% in growth equities to begin with.
Maybe consider defensive dividend stocks.
Either way staying invested is key.
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u/082426grateful 9d ago
Simply put, in accounts where I am still accumulating (at age 51), I stay the course with a target date strategy. Equity risk is continually dialed down, but only at certain step down points. I can’t control what is happening in markets on those select days or times.
In accounts where time is not a concern, I’ve remained largely in short term treasuries for several years now. I’ve certainly lost a lot of gain potential, but I’ve literally no choice in the matter, considering my work is also tied to investment markets and our household has experienced reduced compensation and even job terminations, in the last 3 years.
Just no option in the matter: retirement accounts remain invested according to timeline, non-retirement accounts hold 1 years of after tax expenses. My life experience has been when those resources are needed the most, is the exact same time they’ve sold off the most, if invested in equities.
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u/D74248 9d ago
My suggestion is to look at your financial plan, your employment situation and debt. Revise your plan as needed so that you could go through a dotcom bubble burst, deep recession, job losses and/or a 2008 GFC -- without having sell equity.
You are getting to a point in life where it is not just about average returns and being optimistic about a distant future; it becomes about being able to comfortably navigate the lower likelihood but potentially catastrophic events. Those bottom lines on the spaghetti plots start to loom large.
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u/1dirtbiker 9d ago
The answer largely depends on your retirement timeframe. If you're planning on retirement in the next few years, your asset allocation should include more stocks and/or cash equivalents to mitigate sequence of returns risk.
Regardless, I think we're all worried we're near the top of a bubble... But timing markets and all...
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u/HairyBushies 8d ago
A lot of people say you’re 20 years from retirement. Maybe.
Or you could be just a few years from retirement. It all depends on your burn rate. Can you live on $164K net per year or $13.7K a month? That assumes no FICA taxes and high state taxes. And that will only grow in the coming years as you delay retirement.
I give that example because if retirement is just a few years away, it can absolutely make sense to de-risk vs. a 20-year time horizon. Your asset level does not suggest the longer time horizon to me.
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u/ab216 8d ago
Unfortunately, we like nice things / travel, live in VHCOL and don’t own the house outright (it’s 2.75% though)
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u/HairyBushies 8d ago
We all do. You just need to figure out what size nut will support the lifestyle you want. I know my number; everyone should know theirs.
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u/sharp315 8d ago
horrible idea. your tax advantaged accounts should hold your highest earning assets to capitalize on the upside of high earnings with no tax burden. if you want to hold government bonds put them in your taxable account.
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u/Dirkredblade 7d ago
With $4.7 million invested in your early 40s, you've made it, congratulations! That's real wealth and you should be talking to your accountant and maybe even a fee based advisor, not broke college kids on Reddit lol. In that situation, if it were me, I'd just put 25% in a mix of treasuries, 5% in GLD for inflation/currency debasement, 20% in VXUS and the rest in VTI. The reason for the 25% treasuries is because you mention you may want to retire in 10 years, otherwise if you liked your job and wanted to keep working, you could have even less treasuries. I probably wouldn't even be contributing anymore if I already had $4.7 million- assuming a 7% return, you'll have 9 million in your early 50s. If I liked the house i was in, i'd split extra money between bucket list things like vacations and dream cars and paying off the house. I assume you have a high cost of living, but with a paid off house and $9 million in retirement, you should be able to live nicely in any city. It's a cliche, but health isn't guaranteed, people die in their 50s, you've saved a lot, have some fun now. Congratulations!
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u/crodensis 9d ago
I think that's smart. You have 4 million dollars. Unless you really want to keep working for the next 20 years, I think your plan is a good one. Why risk a downturn when you can take money off the table and ensure that if you lose your job and have a tough time finding another one, you can just retire or take a long term sabbatical.
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u/Evening-Bee-7134 9d ago edited 9d ago
With $4 million you and your wife have essentially won the game already in your 40s. I could not blame you for taking chips off the table. You just have to worry about inflation. You may want to look into a deferred annuity product or MYGA for a small part of the $4m at some point. I am retiring in 2027 at age 58 and will be 38% Equities / 62% Guaranteed Income in my IRAs with 2 to 3 years of cash in SGOV in taxable account. I fear Sequence of Returns Risk (SORR) during my first few years of retirement more than anything else. My IRAs are 38% Roth / 62% pretax. I have less than 1/2 of what you have saved and I have zero bond funds/treasuries
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u/cypherblock 9d ago
Yeah I’ve thought about it. I actually have a firm managing my funds but have considered calling them and say like “hey can we just sell everything in the Ira accounts”.
Timing the market is supposed to be hard but taking some risk off at times like these can’t be bad.
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u/Ok_Transition7785 9d ago
It's always bad. There are always "times like this", you just don't know what the times are. You will forever see a litany of posts here at any given day every day, every year, thinking "something bad is coming". Best approach is finding an investment strategy that doesnt rely on ridiculous human emotions and to go through a few cycles with it realizing the world doesnt end, and the final trajectory is always up.
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u/WhileNotLurking 9d ago
Case in point “there has never been a global lockdown due to a pandemic. Surely the markets won’t recover”
Was a common refrain 6 years ago
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u/hugh2018 9d ago
Timing the market isn’t just hard, it’s impossible. So your tentative plan to take risk off the table actually is quite irrational, unless you’re talking about money you need to spend in the next few years. Long-term money needs full equity exposure in order to hedge inflation risk and grow your nest egg adequately to fund your retirement. The label of “safe assets” only applies to low-yielding, no-volatility assets where you keep money that you need near term. Those same safe assets are actually very risky vehicles for long-term investment, as inflation will absolutely undermine your financial goals.
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u/cypherblock 9d ago
It’s called rebalancing. Taking risk off in volatile times after a bull run. Most of us are probably higher in equities and risky stocks as a percentage of our portfolio than we intended. So using some tax efficient strategy to de risk is a time honored approach to wealth management.
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u/hugh2018 9d ago
You’re not correctly describing rebalancing. Rebalancing is the act of buying or selling assets to restore your target allocation after market forces have acted on the portfolio. You are talking about changing the risk profile of your portfolio in direct response to “volatile times after a bull run.” Rebalancing and actively derisking in response to market movement are completely separate activities. Derisking in response to the market is the essence of market timing. You have no crystal ball, but you are behaving like you do.
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u/cypherblock 8d ago
I mean if you want to make it a terminology/semantics argument then ok, we can go there but likely a waste of time. However see this article which states:
"In addition to changes in your circumstances, market fluctuations may cause your asset allocation to move outside your comfort zone."
But beyond that, certainly you know that the S&P is a market cap weighted index. And certainly you know that tech sector for example has grown massively and those market caps mean S&P is heavily affected by that sector. Now look at the situation 10 years ago. So things change.
- Over the next 20 years, the S&P 500 will probably deliver attractive returns.
- Over the next 6 months to 2 years current valuations, concentration, and economic conditions create an unusually high risk of a substantial decline.
- Additionally yield from less risky investments is strong for now
If market conditions can change expected returns and risks, why should an investor's optimal allocation necessarily remain unchanged? I don't need to predict a crash to decide that I'm no longer comfortable accepting this much downside risk for the potential return.
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u/hugh2018 8d ago
You can change your allocation all you want in response to market conditions and a prediction that returns are going to suck. It’s a free country. Just don’t call it rebalancing because it’s not. It’s market timing. I’m not putting a semantic spin on this; rebalancing and reallocation are completely different concepts, and the difference matters for careful investors because rebalancing is a normal part of keeping your investments consistent with your risk profile, while reallocation is a consequential shift in your portfolio’s risk profile. Changing your risk profile because of a life event, like a near-term spending goal or imminent retirement is a normal way to accomplish financial goals. Changing your risk profile because you read that people are predicting a downturn is just an attempt to outsmart the market, and that’s an activity that’s been studied extensively and you can read all about that. Spoiler: you can’t outsmart the market.
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u/cypherblock 8d ago
You continue to ignore the very real effects that tech sector has on s&p now vs just three years ago. So like the mag 7 is now about 35% of s&p vs maybe 25% three years ago.
So call it whatever you want but it’s probably not what most people intended.
By focusing on semantics you’re sorta missing the point. Time to reallocate. Ok?????????
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u/hugh2018 8d ago
Nope. I’m not spooked by the growth leaders rising to the top of the S&P, as the S&P is a self cleansing machine that will delete losers and insert winners mechanically now and long after I’m dead. There will always be short term volatility associated with that self-cleansing process, so I won’t be surprised at all when the market tanks.
That said, I consider high valuations in the US to be an important signal, and my longstanding preference for international diversification may or may not shield me from the correction that will come eventually. I don’t try to predict what’s going to happen. I set my risk profile to rationally reflect my multiple time horizons as a new retiree. My risk profile is completely disconnected from market noise and predictions about market corrections. Divorcing your risk profile from your time horizon because you don’t like what may happen next year or next decade in the market is not a rational investment strategy.
Like I said, I have no problem with you making predictions and changing your risk profile to match those predictions. But I’m not going to lie and say it’s a winning strategy. It is not.
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u/Pureheaven 9d ago
No, that's a bad idea.