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I’m 69 and will have $6,000 a month in retirement income. The bulk of my $3.6 million is equities. Is that OK?
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 MarketWatch in 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.
More columns from Quentin Fottrell:
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The habits of millionaires are a topic of interest when it comes to financial advice. After all, unless they received a large chunk of money as an inheritance or gift, most millionaires had to be smart with their money to get where they are.
Learning how millionaires accumulate wealth — and where they keep it — can provide valuable insights for anyone focused on growing their money. One common question is whether or not millionaires keep money in checking accounts.
Studies show that in recent years, millionaires are keeping a significant portion of their wealth in cash. According to CNBC’s , that portion was about 24% in 2023. While this doesn’t necessarily mean a quarter of a millionaire’s wealth is sitting in a checking account, it does indicate the importance of maintaining liquid assets. And a checking account can be a helpful tool for doing so — whether or not you’re a millionaire.
Anyone, regardless of net worth, can find value in a checking account. Checking accounts allow unlimited deposits and withdrawals, check writing, bill pay, and other features to help you manage your money day-to-day.
While millionaires may keep large portions of their wealth in other deposit accounts and investments, some may use a checking account to manage daily spending. Millionaires also recognize the importance of having liquid assets, like funds in checking and savings accounts. Accessible cash lets you cover unexpected expenses without needing to sell off investments, borrow money, or pay a penalty for tapping your retirement savings early.
The amount of money a millionaire keeps in their checking account is highly personal and depends on preference. However, because checking accounts rarely earn competitive — if any — interest, some millionaires intentionally limit their checking account balance. Some may choose to keep the bare minimum, such as a couple of months’ worth of essential expenses, in their checking accounts, keeping the rest of their wealth in more lucrative assets.
Regardless of preference, it would be surprising for a millionaire to keep more than $250,000 in a single checking account. That’s because the Federal Deposit Insurance Corp. (FDIC) only insures up to $250,000 in deposits per institution, per account holder.
While millionaires may use checking accounts for day-to-day financial transactions, they may also use some of the following accounts in addition to, or in place of, a checking account:
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Savings accounts: Like checking accounts, savings accounts provide a high degree of liquidity, allowing you to access your money as needed for regular or unexpected expenses. High-yield savings accounts, in particular, give millionaires an extra bang for their buck. Some of the best accounts currently offer rates upwards of 4% versus the national average savings account rate of 0.46%.
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Cash management accounts: Cash management accounts (CMAs) pay competitive interest rates while maintaining more accessibility than a savings account. Some CMAs come with a debit card and ATM access, and many provide extended FDIC coverage limits by “sweeping” additional deposits into partner banks. CMAs are available at brokerages, not banks, facilitating easy transfers between investment and cash accounts.
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Money market accounts: Similar to CMAs, money market accounts combine features of checking and savings accounts, often paying competitive interest rates and providing check writing and ATM access. Banks and credit unions offer these accounts, which are federally insured. Minimum opening deposit and minimum balance requirements are often higher than those for standard savings accounts.
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Retirement and tax-advantaged accounts: Millionaires understand the importance of investing for their later years, and retirement accounts such as 401(k)s and IRAs allow them to do so in a tax-advantaged way. Some retirement accounts, like 401(k)s, are offered by certain employers. Others, such as traditional and Roth IRAs, are available to anyone.
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Brokerage accounts: The IRS limits contributions to tax-advantaged accounts, and millionaires typically invest beyond these limits. They do so with taxable brokerage accounts, which can hold investments such as stocks, bonds, and mutual funds without contribution limits.
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Other investments, like real estate, commodities, and art: Some millionaires may decide to diversify their portfolio with other investment types. These could include real estate investments, such as investment properties or real estate investment trusts (REITs); commodities, such as metals or energy products; art; and more.
The amount of money millionaires keep in their checking accounts depends on personal preference. While some millionaires may keep six figures in their checking account to maintain a comfortable cash cushion, others may choose to keep the bare minimum in checking. You wouldn’t expect millionaires to keep more than $250,000 in a checking account, however, because balances over this threshold aren’t typically insured.
There’s no single bank that’s a favorite among millionaires; it’s another matter of preference. However, millionaires are likely to bank with institutions that offer private banking to those who meet specific financial requirements. Private banking may include wealth planning services, waived fees, dedicated bankers, and additional perks. J.P. Morgan Private Bank, Citi Private Bank, and Bank of America Private Bank are among some of the most popular banks for millionaires.
Billionaires may have checking accounts, but they likely use accounts that cater to ultra-high-net-worth individuals. These accounts may come with perks such as a dedicated banker, waived fees, and competitive interest rates. Alternatively, billionaires may opt for a cash management account with higher FDIC insurance coverage limits and checking account features.
No rule says you can’t have a million dollars in a checking account, but FDIC insurance typically only covers up to $250,000. Plus, you can get a bigger return on your investment by keeping $1 million elsewhere. One alternative is a cash management account, which acts like a checking account but generally earns higher interest. Plus, many cash management accounts insure more than the standard $250,000 by sweeping funds into multiple partner banks.
Lumen Technologies, Inc. (NYSE:LUMN) shares are trading higher on Monday after the company announced it is partnering with Meta Platforms, Inc. (NASDAQ:META) to significantly increase Meta’s network capacity and help drive its AI ambitions.
Lumen’s partnership offers Meta enhanced flexibility with secure, on-demand bandwidth, supporting its complex computing requirements and enabling it to serve billions daily.
Ashley Haynes-Gaspar, Lumen’s EVP and chief revenue officer, said, “We’ve transformed our company to meet this demand. As Meta’s customers use more AI services across its platforms, we’re helping provide Meta with a seamless, effortless, and flexible network that will meet its growing needs.”
Lumen Technologies said its Private Connectivity Fabric enables long-term network capacity for Meta’s AI.
Alex-Handrah Aimé, director of Meta’s Network Investments stated, “Our AI tools are performing increasingly more complex tasks including enabling conversations in a variety of languages and translating text to images in real time, while helping people interact with the world around them in new, immersive ways.”
Lumen will report third quarter 2024 results on November 5, 2024.
Investors can gain exposure to the stock via Invesco S&P SmallCap Utilities & Communication Services ETF (NASDAQ:PSCU) and First Trust Cloud Computing ETF (NASDAQ:SKYY).
Price Action: LUMN shares are up 9.50% at $7.38 at the last check Monday.
Image via Shutterstock
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