Dear Quentin,
I appreciate and enjoy your column and advice.
I am 69, single, female and in good health. I worked extremely hard. I saved money and lived frugally. I retired earlier 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 wisely, which paid for in-home care, supplemented by my sisters’ and my labor.
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My house is fully paid for, as is my modest five-year-old car, which I bought certified used using a lump payout from saved-up 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 that much, just to invest extra money or move a bit here and there when it makes sense for taxes.
My inheritance raises that to about $3.6 million. My current investments are in Roth IRAs worth $600,000, which includes an $85,000 inherited Roth, so that has 10 years to grow tax-free. The rest is in stocks, exchange-traded funds and tax-deferred Thrift Savings Plan funds. It’s allocated about 60/40 tax-deferred/taxable accounts, except for about $100,000 in CDs and cash. My non-TSP accounts are tech-heavy, with the nontech stocks well diversified.
The common wisdom is to keep less in equities as we age. However, my pension, Social Security benefits — which I’ll draw at 70 and which will amount to about $3,000 per month after taxes — and health insurance are all federally backed, so those are all more like a Treasury bond. Even if Social Security payments decrease after 2035, I should be fine. I’ll keep the final inheritance money — about $90,000 — in cash and CDs in order to make significant repairs to my small house.
Do I have too much money in equities?
Single Retired Investor
Related: ‘This was a money grab’: My uncle took over the family business — and left my father out in the cold. Can I claim our inheritance?
Dear Investor,
I love that you bought your car using money saved from vacation time.
I found myself cheering you on as I read your letter because of your open, evenhanded approach to the story of your financial life. You weren’t grandstanding, nor did you express any lingering resentments or lamentations about the years you spent taking care of your elderly mother. In other words, you did all of this while climbing some pretty steep virtual mountains, and you did it by not having anyone to rely on but your good self.
Asset allocation should be based on a person’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 a person is only taking the amount of risk they can afford,” she says. “The goal primarily is to safeguard the funding of liabilities. Then the rest can be put into the growth engine of the portfolio.”
You’re going against conventional wisdom by holding the bulk of your assets in equities, but you have made smart decisions, including going heavy on tech stocks, even if the group of tech stocks known as the Magnificent Seven may not show as much growth in the years ahead as they have recently. At age 70, most advisers 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 out 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 final quarter of 2022. But as Michael Arone, chief investment strategist for State Street Global Advisors, said in an interview with MarketWatchin early October, “A few myths have been busted.” 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 do a bit of splurging here and there. You’ve worked extremely hard and given your mother your time and love, and now is the time for you to see a bit of the world, have an adventure and enjoy life. This is what good planning gives you: peace of mind, freedom and the opportunity to take trips to keep the cobwebs from the door.
Nate Ahlberg, a senior wealth adviser at wealth-management company Prosperity in Minneapolis, Minn., 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 suspect that you have 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. “If your risk tolerance remains aggressive, you could consider diversifying within your equity allocation — growth versus value, large cap versus mid cap versus small cap, domestic versus international.”
And if there is a stock-market bust? It would probably take you less than a decade to get back to black. But you have, for the most part, enough cash to see you through. After the 1929 crash, when the stock market lost roughly 90% of its value, the Dow Jones Industrial Average DJIA took more than 25 years — until Nov. 23, 1954 — before it closed above the level 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 you don’t need me 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 market and a lack of financial regulation. Keep in mind that diversification is also key to weathering such unexpected storms: Many companies survived the 1929 and 2008 financial crashes, but some did not.
If you can live comfortably on your existing income, I think you should stay the course.
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