Cashing Out

Most experts I listen to say the stock market is overheated. Plus, there's enormous chaos in the US and in the world. That said, the worst mistake an investor can make is to try to time markets - e.g. sell twitchily out of suspicions and intuitions. Here's the main thinking:

1. Your intuition probably isn't better than the billionaires who set the prices with their own moves. And you don't just need to be "right", you also need to beat them. Good luck!

2. You'll never time it just right, so you'll lose upside (if the market keeps climbing after you sell) or suffer downside (if the market dips before you sell)

3. The long term economic trend has always been upward, but you need to be "in it to win it". If you keep nervously jumping off the train—hoping to reboard at just the right moment—you will almost surely wind up short.

But there are exceptions to every rule. My health is poor enough that I doubt I face many more market cycles. And I don't see myself taking fancy vacations or buying sports cars into my 70s and 80s (I'm not even doing that now!). As I wrote last month, Spending Is Non-Linear (with age)

Shiny things begin to lose their luster, and savings become propositional. Abstract. While your bank balance might once have conjured fantasies of blowing it all on speed boats or vacations in Aruba or weekend cabins, at the point where you notice your transformation into a bag of broken sticks, those fantasies become more remote. They never quite die, but it's like watching kids playing hopscotch. Regardless of any nostalgic impulses, it feels viscerally not-for-you.

So here's the counterintuitive observation: when you're doing financial planning, realize that spending won't be linear. You will absolutely want clean clothes and healthy food and a roof over your head when you're 85, but there will be vastly less interest in gadgets and vacations and fine copper cookware. Some stay "vibrant" longer, but they're edge cases, and it's largely genetic. Look to your parents and aunts and uncles to augur your likely time frame. Mine were decrepit and foggy by 70.

So: spending is non-linear. And I'm therefore letting myself spend more, to enjoy a last hurrah. But I'm a bit late. It already feels tinny. A bit "not-for-me". By the time I'm 70 (perhaps sooner), the door will be closed. And my point is that you should budget for this. Maybe have more fun in your 50s (adjusting all these numbers to fit your family's decrepitude pattern, plus your own health situation).

So, all in all, this is a good moment for me to cash in my chips. A high point to freeze-frame, sharply reducing potential risk.

Easier said than done! First, one must consider inflation, the primary concern in any fixed income situation. But living in a country with a modest economy means extremely low expenses, even though I'm heedless about signing up for streaming channels, enjoying tons of restaurant meals (they average €15 here!), and staying atop gadget upgrade cycles. My Apple and Siga investments did well, and a few others hit, too, so, given that 70 year-old me won't be splurging on champagne and fancy watches, I can ride out low to moderate inflation via belt tightening (e.g. save circa €100/month by cancelling streaming channels!). I will, however, hedge against severe inflation (see below).

As I write this, I realize I probably described a unicorn. "Investing success" + "very low spending" is surely a rare combination (though I'm no miser; I just had a bunch of matcha sent in from Japan!). So this regimen isn't for everyone—hell, it might not even turn out to be right for me!—but perhaps you'll find some chunk of it useful. Here's how I'm proceeding:

SWVXX—Schwab's Prime Money Market 25% of assets
Money market from Schwab. Strong yield, great liquidity.

Certificates of Deposits 30% of assets
FDIC protection, unlike the money market account. I will "ladder" them so they overlap, yielding cascading redemptions for purposes of liquidity and the chance to capture higher rates if they arise.

SCHP—Schwab's U.S. TIPS ETF 10% of assets
Treasury bonds. I'm paying a negligible fee for professional management and full liquidity rather than holding TIPS directly. Normally, this would occupy a much higher percentage in my mix, but political instability leaves me cautious about placing too much faith in US government credit. So I'm going easy on them. Also: I can tap into this pool for emergencies if needed.

FLOT—iShares' Floating Rate Bond ETF 5% of assets
This hedges rising rates, balancing my TIPS.

PIRMX—PIMCO's Inflation Response Multi-Asset Fund 15% of assets
My one (possibly) clever move. This is an expensive (steep 1.95% net expense ratio) but deeply tactical mutual fund. They do terribly smart and complicated things to hedge against inflation. This is not my airtight defense against any/all inflation, it's my catastrophic insurance policy in case of severe inflation, hopefully staving off the worst-case prospect of grubbing around for bugs and berries. Do not touch, ever!

Speculative Moonshot Stocks (biotechs and such)
Currently 15% of my assets. I'll gradually reduce it to 10%. These hedge against both inflation and market decline, because, if any hit, they'll hit hard regardless. They will also help keep things lively. If I'm going to have the portfolio of a decrepit old man, at least I'll also hold some lottery tickets.