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$200K US close to retirement, what to do?

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  • Jan 31st, 2018 7:15 pm
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[OP]
Sr. Member
Nov 21, 2007
568 posts
71 upvotes

$200K US close to retirement, what to do?

Looking for low-mid risk option to invest for 5-7 years.
Any recommendation?


TIA
17 replies
Deal Expert
Jan 27, 2006
16461 posts
9261 upvotes
Vancouver, BC
Diversify using US denominated securities so you won't have to pay the foreign exchange. As for what, it really depends on your current financial situation (ie. what else do you have), how much money do you need to live on (ie. what is your spend rate), risk tolerance....
Deal Expert
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Jan 27, 2004
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T.O. Lotto Captain
The by the book strategy is to change up the asset classes in your portfolio.
Many do this by having a higher percentage of their portfolio in fixed income/bonds. Because if you have higher ratio in equities you run the risk of being stuck in a situation where you have to realize a loss to pull out your money.

And like above mentioned... keeping it in USD will help you bc then later on you can convert as you see fit. Butttt the usd is strong right now. So if you wanna take a chance and convert to CAD... you could. Thats assuming you have ties in Canada.

You got a shorter time horizon now. So switch it up and take it ez so you can grow your monies (not as much as an agressive strategy) , but maintain principal.

Unless you live life on the edge... and go all the way!
Deal Expert
Jan 27, 2006
16461 posts
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Of course, in the current rising interest rate environment, most fixed income/bonds will continue to go down as rates rise so if you want to stay in fixed income, I would use very short term securities (ie. T-bills) in order to protect the principle and get some returns. Once rates get higher, you can move over to longer term fixed income as most of the price drops would have ended by then.
Deal Guru
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Dec 7, 2009
13841 posts
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Throw it into an ICO presale. Live off $1 million.
In a perfect system, corporations would fear the government and the government would fear the people. - David Wong

Check out caRpetbomBer's picks in this thread.
Penalty Box
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Jul 11, 2008
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Away from RFD idiots
Syne wrote: Throw it into an ICO presale. Live off $1 million.
Yolo...
..
Deal Guru
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Dec 7, 2009
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I got 50eth for Tier 1 of insights.network presale. Give me $80,000 and I'll give you back $200,000 and keep the change.

The funniest part is that there's a 90% chance I could pull that off.
In a perfect system, corporations would fear the government and the government would fear the people. - David Wong

Check out caRpetbomBer's picks in this thread.
Deal Addict
Jan 20, 2016
2028 posts
1010 upvotes
Houston, TX
craftsman wrote: Of course, in the current rising interest rate environment, most fixed income/bonds will continue to go down as rates rise so if you want to stay in fixed income, I would use very short term securities (ie. T-bills) in order to protect the principle and get some returns. Once rates get higher, you can move over to longer term fixed income as most of the price drops would have ended by then.
In 2017 long term bonds overperform short term ones (despite common believe in contrary), with rising interest , for long run thus could be even more crucial.
Make the face great again
Deal Addict
Jul 3, 2006
1963 posts
584 upvotes
Syne wrote: I got 50eth for Tier 1 of insights.network presale. Give me $80,000 and I'll give you back $200,000 and keep the change.

The funniest part is that there's a 90% chance I could pull that off.
How many ICOs have you been successful in?
Deal Expert
Jan 27, 2006
16461 posts
9261 upvotes
Vancouver, BC
asa1973 wrote: In 2017 long term bonds overperform short term ones (despite common believe in contrary), with rising interest , for long run thus could be even more crucial.
2017 was an anomaly in the fact that longer term rates stayed relatively low - probably due to the fact that they are about as low as you can go at least for government bonds. In the past few months, the longer term 10 year rate for Canadian government 10 year bonds have moved upwards (from just over 1% at the end of the September 2016 to the current 2.25%). If you apply basic logic, who in their right mind would buy a 1% bond if you can get a 2.25% bond for the same price? The seller of the 1% bond will need to sell it at a discount for it to be appealing compared to the 2.25% bond. Lower yielding bonds will drop in price as higher yield bonds are available - it's basic economics.
[OP]
Sr. Member
Nov 21, 2007
568 posts
71 upvotes
Thanks everyone for all your input.

I’m being persuaded by a TD wealth “advisor” to switch over to them...hmmm

Always invested in MF via the branch, however I’m being told I will do better at TD WM...

MF today are expensive, but I don’t know if that’s a relative term if they go up or down.

Maybe I’ll move 50% over and let them manage it and rest do myself to see which will do better.

Also, in both cases have a 2% mgmt fee.

Still undecided...
Deal Expert
Jan 27, 2006
16461 posts
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Vancouver, BC
Navon01 wrote: Thanks everyone for all your input.

I’m being persuaded by a TD wealth “advisor” to switch over to them...hmmm

Always invested in MF via the branch, however I’m being told I will do better at TD WM...

MF today are expensive, but I don’t know if that’s a relative term if they go up or down.

Maybe I’ll move 50% over and let them manage it and rest do myself to see which will do better.

Also, in both cases have a 2% mgmt fee.

Still undecided...
Don't think of fees... think of results. Investors these days concentrate too much of 'how expensive it is' and not enough on 'how much am I actually making after all expenses are paid'.

Since you are with TD and using their MFs, look their e-series of funds which is basically their lower fee versions of their funds. They will giver you a slightly higher return (in the neighbourhood of a few percent) at the end of the day on your current investments.
Deal Addict
Jan 20, 2016
2028 posts
1010 upvotes
Houston, TX
craftsman wrote: Don't think of fees... think of results. Investors these days concentrate too much of 'how expensive it is' and not enough on 'how much am I actually making after all expenses are paid'.

Since you are with TD and using their MFs, look their e-series of funds which is basically their lower fee versions of their funds. They will giver you a slightly higher return (in the neighbourhood of a few percent) at the end of the day on your current investments.
I'd rather disagree with "don't think of fees... think of results". In current environment, higher fees = lower results. 99.99%. MOST (I'd say ALL) "active" management funds charging 10x fees (1-2%) compared to index funds, just failed even to MATCH returns, not saying to overperform (see Buffet experiment). Thus paying ANY fee on top of underlaying funds just DRAG your returns down, not lift it up. Another question about some smart ass doing tax optimization for you, which COULD increase your REAL, AFTRER TAX returns...but that NOT the case of bank advisor anyway. Even Gart braving about his investment genius, while selling a bit modified CCP for 1% on top, do not provide that.
Make the face great again
Deal Addict
Jan 20, 2016
2028 posts
1010 upvotes
Houston, TX
Navon01 wrote: Looking for low-mid risk option to invest for 5-7 years.
Any recommendation?


TIA
I had half of what you have, but I'd go with 3 funds portfolio, adjusted with your tolerance to the risk. Granting quite short time frame I'd suggest 60% equities 40% bonds. Yes, bonds PRICE could go down with rates increase (however NO one knows how far rates will go), but their total return would be quiet stable imo.

https://www.bogleheads.org/forum/viewto ... b0689ff070

regarding bonds see http://www.etf.com/sections/index-inves ... nopaging=1
Lesson 3: Even if the Fed is raising rates, it doesn’t mean you should stay in short-term bonds.

As we entered 2017, many investors were sure the Federal Reserve would continue to raise interest rates. That led many gurus to recommend investors limit their bond holdings to the shortest maturities. In late 2016, economist Jeremy Siegel even warned that bonds were “dangerous.”

On March 15, 2017, the Federal Reserve raised interest rates by 0.25 percentage points. It did so again on June 14, 2017, and once more on December 13, 2017.

However, despite the prediction that interest rates would rise having actually come to pass, the Vanguard Long-Term Treasury Index ETF (VGLT) returned 8.6%, outperforming Vanguard’s Intermediate-Term Treasury Index ETF (VGIT), which returned 1.7%, and the Vanguard Short-Term Treasury Index ETF (VGSH), which returned 0.0%.
Make the face great again
Deal Addict
Jan 20, 2016
2028 posts
1010 upvotes
Houston, TX
craftsman wrote: 2017 was an anomaly in the fact that longer term rates stayed relatively low - probably due to the fact that they are about as low as you can go at least for government bonds. In the past few months, the longer term 10 year rate for Canadian government 10 year bonds have moved upwards (from just over 1% at the end of the September 2016 to the current 2.25%). If you apply basic logic, who in their right mind would buy a 1% bond if you can get a 2.25% bond for the same price? The seller of the 1% bond will need to sell it at a discount for it to be appealing compared to the 2.25% bond. Lower yielding bonds will drop in price as higher yield bonds are available - it's basic economics.
that's just one more example when crystall ball predictions failed
http://www.etf.com/sections/index-inves ... nopaging=1
Lesson 3: Even if the Fed is raising rates, it doesn’t mean you should stay in short-term bonds.

As we entered 2017, many investors were sure the Federal Reserve would continue to raise interest rates. That led many gurus to recommend investors limit their bond holdings to the shortest maturities. In late 2016, economist Jeremy Siegel even warned that bonds were “dangerous.”

On March 15, 2017, the Federal Reserve raised interest rates by 0.25 percentage points. It did so again on June 14, 2017, and once more on December 13, 2017.

However, despite the prediction that interest rates would rise having actually come to pass, the Vanguard Long-Term Treasury Index ETF (VGLT) returned 8.6%, outperforming Vanguard’s Intermediate-Term Treasury Index ETF (VGIT), which returned 1.7%, and the Vanguard Short-Term Treasury Index ETF (VGSH), which returned 0.0%.

The fact that rates are likely to rise doesn’t tell you anything about what bond maturity will produce the best return. The reason is quite simple. The markets are forward-looking—they incorporate all available information into current prices. With bonds, that means the yield curve already reflected the expectation of the Fed raising rates. Thus, unless rates rose even faster than expected, there would be no benefit to staying short as long as the yield curve was positively sloped, which it was throughout 2017.

Finally, the evidence shows there are no good forecasters when it comes to interest rates. We can see this each time S&P Dow Jones Indices produces its SPIVA scorecards. The following results are from the midyear 2017 scorecard, the latest available, and cover the 15-year period ending June 2017:

Just 2% of actively managed long-term government bond funds, long-term investment-grade bond funds and high-yield funds beat their respective benchmarks.
For domestic bond funds, the least poor performance was in intermediate- and short-term investment-grade funds, where 76% and 71% of active funds underperformed, respectively.
Active municipal bond funds also fared poorly, with between 84% and 92% of them underperforming.
Emerging market bond funds fared poorly as well, as 67% of them underperformed.
Takeout is simple - nobody knows the future. Stay YOUR course.
Make the face great again
Deal Expert
Jan 27, 2006
16461 posts
9261 upvotes
Vancouver, BC
asa1973 wrote: I'd rather disagree with "don't think of fees... think of results". In current environment, higher fees = lower results. 99.99%. MOST (I'd say ALL) "active" management funds charging 10x fees (1-2%) compared to index funds, just failed even to MATCH returns, not saying to overperform (see Buffet experiment). Thus paying ANY fee on top of underlaying funds just DRAG your returns down, not lift it up.
Those 'facts' that you brought up even with Buffet's endorsement doesn't match the actual facts. Even the most passionate passive investor states only 90% of actively managed funds don't beat their benchmark index as proven by a recent study of US mutual funds. That means that 10% of all actively managed funds beat their benchmark (simple math 100% - 90% = 10%) so people have a 1 in 10 chance of their fund beating the underlying benchmark.

Now if you look at the low fee passive ETF world, by the very design of the product (ie the ETF mirrors the benchmark index), an ETF can NEVER beat the underlying benchmark index as the ETF is the index even if the ETF matches the benchmark perfectly (which is the whole point of the ETF...). In addition, those low fees still need to be subtracted from the ETF's performance. Since the ETF can't beat the benchmark index and the fees still need to be subtracted, the ETF will ALWAYS underperform the underlying benchmark. In other words, you have exactly 0% chance of out performing the index and a 100% chance of under performing the index.

And you are missing the whole point of an actively managed fund... a well managed actively managed fund isn't supposed to mirror the index. It's only suppose to select securities that they think will out perform the market and of course sometimes they are wrong. If you are buying an actively managed index fund (and they exist as most banks have them), then that's a different story as the investor is getting no value from an actively managed index fund when you the can buy an index ETF.
asa1973 wrote: Another question about some smart ass doing tax optimization for you, which COULD increase your REAL, AFTRER TAX returns...but that NOT the case of bank advisor anyway. Even Gart braving about his investment genius, while selling a bit modified CCP for 1% on top, do not provide that.
I have no idea of what you are trying to say or ask.
Deal Expert
Jan 27, 2006
16461 posts
9261 upvotes
Vancouver, BC
asa1973 wrote: that's just one more example when crystall ball predictions failed
http://www.etf.com/sections/index-inves ... nopaging=1


Takeout is simple - nobody knows the future. Stay YOUR course.
Don't blindly look at the returns from the funds but understand how the bond market works.

Here's a graph of the US 10 year bond yield from early 2013 to about 2 days ago.

Image

If you look at the period in question (basically most of the 2017), longer term interest rates tended to trade within a narrow band of 2% and 2.5%. US Fed interest rates started to increase in March of 2017. It's generally accepted that interest rate changes take 6 months to work their way through the economic system before they start have an effect on the economy. So, if you take that March 2017 date and move it forward 6 months to when the rate increase starts hitting the economy, it would be approx September of 2017. Look at the graph, you can clearly see the downward trend being broken right about September 2017 with a sharp increase in the 10 year rate. The second increase came in June of 2017... if you move that date forward 6 months (November, 2017), you'll see another increase in rates coming into the new year.

In other words, the US Fed's interest rate hikes are having an effect on the 10 year bond yields (they are going up) which means that existing bonds with a lower yield will be priced to compensate for their lower yield. If you don't believe that bonds existing lower yield bonds will go down in price, I'm sure that a lot of bond traders will be more than happy to sell you their older lower yielding bonds at the same price as the newer higher yielding bonds.

It's true that no-one knows the future but you can prepare for the higher probably paths by understanding the fundamentals and what has happened in the past during similar situations.
Deal Fanatic
Mar 24, 2008
6052 posts
2304 upvotes
Toronto
$200K US close to retirement, what to do?
Pray!

Facetiousness aside, if your time horizon is 5-7 years, pay off your debts and buy a GIC for the rest.
Illegitimi non carborundum

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