Dear Quentin,
I appreciate and enjoy your column and advice.
I am 69, single, female and in good health. I’ve worked extremely hard. I saved money and lived frugally. I retired earlier than planned, in April 2022, because our elderly mother needed more care. She lived to be 91, but suffered from dementia and poor mobility in her final years, eventually requiring 24/7 care. Fortunately, she had lived modestly and invested wisely, which meant that home care could be paid for, supplemented by the labor of my sisters and me.
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My house is fully paid for, as is my modest five-year-old car, which I bought certified pre-owned with a lump sum payout of accumulated vacation hours. I have a great federal pension of $3,000 a month after taxes and health insurance, great federal health insurance, and $3 million invested after my self-managed stock portfolio exploded over the past three years. I don’t trade much, just to invest extra money or move here and there if it makes tax sense.
My inheritance increases that to about $3.6 million. My current investments are in $600,000 worth of Roth IRAs, including an inherited $85,000 Roth, so that has 10 years to grow tax-free. The rest is in stocks, exchange-traded funds and deferred Thrift Savings Plan funds. There are approximately 60/40 deferred/taxable accounts allocated, excluding approximately $100,000 in CDs and cash. My non-TSP accounts are tech heavy, while the non-tech stocks are well diversified.
The common wisdom is to hold less in stocks as we get older. But my pension, Social Security benefits – which I’ll receive at age 70 and which will amount to about $3,000 a month after taxes – and health insurance are all backed by the federal government, so that’s all more like government bonds. Even if Social Security benefits decline after 2035, I’ll be fine. I’m saving the last of the inheritance money – about $90,000 – in cash and CDs to make major repairs to my small house.
Do I have too much money in stocks?
Single retired investor
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Dear investor,
I think it’s great that you bought your car with the money you saved on your vacation.
I found myself cheering you on as I read your letter because of your open, balanced approach to the story of your financial life. You were not grandiose, nor did you express any lingering resentment or complaint about the years you spent caring for your elderly mother. In other words, you did all this while climbing some pretty steep virtual mountains, and you did it with no one around but your good self.
Asset allocation should be based on a person’s income and expenses, not just his or her age, says Jesica Ray, principal advisor at Brighton Jones, a Seattle-based registered investment advisor. “Portfolio immunization is an asset allocation strategy aimed at ensuring that an individual only takes on the amount of risk they can afford,” she says. “The aim is mainly to secure the financing of obligations. The rest can then be put into the growth engine of the portfolio.”
You’re going against conventional wisdom by keeping most of your wealth in stocks, but you’ve made smart decisions, including betting heavily on technology stocks, even though the group of technology stocks known as the Magnificent Seven may be letting you down. not seeing as much growth in the sector. in the coming years, as they have done recently. At age 70, most advisors would say to invest 30% in stocks and the rest in bonds and safer havens. But you have an appetite for risk and success. You also have a pension and social security to spread that risk.
During 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 first time since the last quarter of 2022. Arone, chief investment strategist at State Street Global Advisors, said in an interview with MarketWatch in early October, “A few myths have been debunked.” Chief among them: the stock market can rise without them.
You have $190,000 in cash and CDs, which is a smart move and gives you a de facto emergency fund, and I fully support your intention to spend a little money here and there. You’ve worked incredibly hard and given your mother your time and love, and now it’s time to see a part of the world, have an adventure and enjoy life. This is what good planning gives you: peace, freedom and the opportunity to take trips to keep the cobwebs at bay.
Nate Ahlberg, senior wealth advisor at wealth management firm Prosperity in Minneapolis, Minnesota, suggests moving on to the next 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 believe you have some concentrated investments,” he says. “That probably helped you create significant wealth.”
Diversification now can help preserve your wealth, in whatever form it takes. “Diversification doesn’t necessarily mean significantly adjusting your stock allocation,” says Ahlberg. “If your risk tolerance remains aggressive, consider diversifying within your stock allocation: growth versus value, large cap versus mid cap versus small cap, domestic versus international.”
And if there is a stock market crisis? It would probably take you less than ten years to become black again. But for the most part, you’ll have enough money to get you through it. After the crash of 1929, when the stock market lost roughly 90% of its value, it took more than 25 years for the Dow Jones Industrial Average DJIA (until November 23, 1954) to close above the level it closed at on that fateful day. . But analysts say it actually took five to 10 years, which takes deflation into account.
You lived through the 2007-2009 recession, so I don’t need to tell you that it took more than five years for the market to recover from that financial crisis, which was caused in part by predatory and subprime lending in the mortgage industry. market and a lack of financial regulation. Keep in mind that diversification is also key to weathering such unexpected storms: many companies survived the financial crashes of 1929 and 2008, but some did not.
If you can live comfortably on your existing income, I think you should stay the course.
Related: My mother is giving away my late grandmother’s jewelry. Is it okay to accept a piece from her collection and then sell it?
More columns from Quentin Fottrell:
‘I want the calls and letters to stop’: My mother died owing $17,000 in credit card debt. The creditors want their money. Should I sell her house?
“We’re Happily Married, Mediocre Gay Men”: We’re 58, make $160,000 and have saved $2.2 million. We grew up poor. Our families treat us like ATMs. Are we okay?
‘I’m tired of dating losers’: Are single Americans looking for love online – or money? The difference is difficult to see.
