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Asset allocation--any ideas?

October 5th, 2008 at 11:54 am

Hi, and hugs to everyone who left a comment for me last week.

SCFR mentioned how some older folks may be in trouble because they never changed their asset allocation as their situation changed:
http://scfr.savingadvice.com/2008/10/02/still-around_43742/

I think that hits the nail on the head for me, also. When we had two incomes, a higher total income, and cheaper health insurance, it wouldn't have been so painful to see the balance in my IRA drop over $800 in one day. I could have just saved harder for a couple of months and made up the loss. But the way things are right now, it could take me a year or more of scrimping to make it up, if it's possible to do at all.

Maybe it isn't just fear that makes me want to lessen my exposure to stocks, but good common sense. I've heard you shouldn't invest what you can't afford to lose--and right now I don't feel like we can afford to lose ANY of it.

Here's our asset allocation right now,
roughly:

Cash 46%
Bonds 36%
Stocks 17%

Only $6487 is easily accessible, i.e., cash and not in IRAs. Most of the bonds are non-IRA, but it's not like I can count on the values holding up if I needed to sell them. I have a GMAC thing that's lost 2/3 of its original value, although it's still paying me interest.

Honestly, I think I could sleep a lot better at night if I cashed it all in and just paid off our house!

Even if I sold the rest of the stock, it still wouldn't be accessible because it's all in my IRA. But at least I'd know for sure how much I had. I did sell my S&P 500 index fund last week, and I don't regret it. It only went down from where I sold it, and then I read that more S&P 500 companies cut their dividends in Sept. than ever before. That doesn't bode well.

Any thoughts?

2 Responses to “Asset allocation--any ideas?”

  1. Broken Arrow Says:

    Weeeell, I don't really recommend it....

    But if you really want to pull out of stocks, and if you really want to pay off your house, then sure. Why not? There are people out there who have done a lot worse things with money than what you're proposing here.

  2. scfr Says:

    Really tough question, and as you probably know, it's one that only you can answer for yourself. Having said that, here are a couple thoughts:

    - On the stocks, without knowing all of the specifics of your situation, my initial gut reaction is to say "just ride it out" ... don't touch them right now. It's no secret that I am a conservative investor and have a low tolerance for risk (not zero tolerance, but fairly low), and I'm not changing my portfolio right now. But then again, I can take the losses and not have my survival in doubt. My decision to fix a date in the future when I would start gradually pulling all of my money out of the stock market was an effort on my part to both make sure my asset allocation appropriate for my age, and to remove my emotions from the equation a bit. I'll be selling because of the date (and my age), not becaue of how the market is doing.

    - The one comment you made that caused my "alert radar" go up was this: "I have a GMAC thing that's lost 2/3 of its original value ..." I'm not sure if you referred to it as a "GMAC thing" because you did not want to go in to details, or if you really don't understand what it is. I do get concerned when people are invested in things they either don't understand or don't remember why they invested in it in the first place. If that is the case, and you feel like dumping it, I guess I'd say "Why not? Dump the sucker."

    - As far as where to put the money if you do sell something, are you able to make additional contributions to your HSA now? If so, that's one thing to think about beeing up, both because of the tax advantages and because it is savings for future medical expenses which in my book is on par with an emergency fund.

    - As Broken Arrow said, there are worst things to do than paying down the house early! Just please think about holding off on that if you don't feel you have a sufficient emergency fund.

    Good luck to you with whatever you decide to do!

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