Looking for advise as to how to deploy cash

Dex

I was recommended here by another poster and have been reading the site. So, I thought I would put this out there.

Basics
58
No debt
Own home
Single
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Not working
Currently paying all expenses out of savings.
Small pension at 61 that should pay 40% of expense budget
SS and pension at 62 or 63 should pay close to 100% of expense budget
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40% of $ in IRA
60% of $ outside of IRA
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Risk adverse
Prefers income over capital gains.
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Currently 100% in cash - yes I know - let's not go there.
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What I'm considering:
50% of cash - Over the next 6 months or so average into a High Yield Bond Fund - FAGIX
Remaining 50% - after 6 months or so see what to do.
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My concern is that if I"m thinking of doing this is, that we are at a top, and at the wrong time to get back in. I'm not into trading in and out of the markets or doing a lot of trading.
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I had a good mix of Vanguard funds but got scared out of them.
Value Index
Wellesley Income
Emerging Markets
High Yield Corp
Reit Index Fund
FTSE all world Ex Us
Mid Cap Value Indes
Small Cap Value
Convertibles
Emerging Bonds


What would you recommend to invest in and when to do it?

Thanks

Junkster

Hi Dex, will be interesting to see what the others here have to say. Junk bonds are seriously overbought albeit they can stay that way for a period of time. My concern is with just about all the major averages at all time highs if the inevitable correction comes (whenever that may be) would you get shaken out again like before?

TSP_Transfer

Reply to @Junkster:
Junk bonds are seriously overbought
“Yes, high yield is attractive right now, but there are also significant risks when your starting point is low interest rates and narrow spreads,” said Steve Blumenthal, chief executive of CMG Capital Management Group Inc., a firm that helps advisers manage bond portfolios.

The average junk bond yield is hovering around 6%, which is only 350 basis points higher than the yield on the 10-year Treasury bond.

That spread compares with a historical average of 500 basis points, which should remind investors of the potential for radical yield adjustments.

Junk bonds offer more upside potential while Fed's QE continues

By Jeff Benjamin | October 24, 2013 - 1:30 pm EST
http://www.investmentnews.com/article/20131024/FREE/131029934?template=printart

SlowLane

From the article:
“When there's one big buyer that everyone knows is going away, you run the risk of a bunch of big trades getting in your way as you're trying to get out of high yield,” Mr. Blumenthal said.

My comment is that there has been no indication that the Fed has ever bought junk bonds as part of QE. Please correct me if I am wrong.

scott

They're richly/over valued at this point, but - and some will likely disagree - I continue to like consumer staples for a PORTION of one's portfolio. These are companies that everyone has to use (tp, shampoo, whatever) and they can often raise prices over time (and/or lower the quantity in package: http://www.zerohedge.com/news/2013-10-22/kimberly-clark-contains-leaks-while-hiding-inflation-diaper-trim) given the need. These are also companies that everyone is familiar with and encounters often. A staples ETF is never going to be a home run and it's probably something that is overvalued at this point given the demand for "safety", but the Nestles, P & G's and Unilevers of the world are something you're likely not going to be scared off of over time and provide a nice div. Something you can buy and pretty much forget (and you can get a handle on the products, given that you probably see them all the time.)

The staples ETF also includes things like Costco, Walgreens and CVS.

I'd consider a balanced REIT fund, such as Fidelity's Real Estate Income (FRIFX) fund.

It's had a significant run already this year, but you could look at a healthcare fund, such as T Rowe's popular fund, or, HQH/HQL, two more aggressive closed-end funds that have thrown off significant dividends.

While markets have run a lot, is there a name that you could see owning for years - something you like and are familiar with? (the Peter Lynch "buy what you know")

Ted

Dear Dex: If you still have a Vanguard account, get back in and stay the course. Being out of the market the last three years has cost you a lot of money !
Regards,
Ted
Vanguard Fund Recommendations:
VGHCX
VASVX
VHCOX
VWELX

Dex

Thanks for the replies so far - let's not get sidetracked on the High Yield Corp issue - but the high valuation at this point does concern me.


Ted - I wish I stayed the course and just kept my eyes closed! Now when I open them it looks like I'm at the top of a mountain and there is only one way to go.

Vert

Dex, you and I are in practically the same circumstances. You might think about adding some stock exposure by way of your IRA. I firmly adhere to Benjamin Graham's suggestion that no one should have any less than 25% of their investable funds in stocks no matter how pessimistic they were, nor should anyone have more than 75% in stock no matter how optimistic they found the current situation. It's simply impossible to really know the future.

On the theory that if you're going to have active management you ought to give them maximum leeway to make their decisions, you might look into global funds like TWEBX, FPRAX or JGVAX; or possibly global allocation funds like SGHIX or RPGAX. None of these are too big for the manager to handle (a couple are very small), turnover and expenses are reasonable, the fund families are good, and they all appear to have relatively low risks. That latter consideration makes is far more palatable to consider investing in them immediately.

To produce income, I think short term junk bonds might be considerably less risky than longer term junk. Funds like OSTIX, DHSTX or WHGHX pay out something like 4 1/2% - 5 1/4 %. Much more aggressive might be closed-end funds like BGH or BLW which would pay out something like 8% and sell at nice discounts at the moment (but both are also highly leveraged). Maybe combine the junk with something like FPNIX. RPHYX seems the perfect place for cash but unfortunately is closed to new investment (fortunate for Observer readers who got into it, however).

Just some ideas to think about. Good luck.

JoeNoEskimo

How about just cost-averaging into VWELX? Keep it simple.

I am the king of conservative, and as Vert mentioned, RPHYX is closed. And so is my other favorite fund, MFLDX.

I consider MERFX a quasi-cash substitute fund. Nothing exciting, but you won't get burned.

scott

Forgot about the ALFA etf. ETF made up of top fund/institutional holdings. However, it actually hedges if the S & P 500 falls below 200 day MA at the end of a given month.

Old_Skeet

In short words ...

At these recent all time market highs ... for many of the indexes ... I'd do it slowly and average into the positions selected for investment over an extended period of time and especially on market pull backs. My thoughts are that both stocks and high vield bonds are mostly overbought at this time. Again, I'd be very careful and average into my position targets very slowly. In this way, you could back off if you felt it was warranted.

Skeeter

fundalarm

Dear Dex, the only way to avoid "plunging" due to high valuation is to invest in generally little correlated assets. vanguard high qual investment grade bonds and good quality large caps are combined in wellesley in the proportion that should match your risk profile. if equities indeed correct due to some sort of panic, the high quality fixed income will most likely go up or stay put to limt the downside. if interest rates climb to punish fixed income, (and provided it climes due to improving economy), the equity portion will bail you out. this kind of fund will be fine as a large portion of your portfolio -- about 25%. another 10% can go into a high yield fund. additionally, 5-10% of ACWX non-US index fund will not kill you either and will provide the necessary currency diversification. you can maintain the rest in cash -- for now. but should the market significantly adjust DOWN, you should not be selling, but on the contrary, plow more cash in the market. until you're no more than 25% cash.

now, all is well with the internet advice of course.. but for the obvious reasons, you should hire a professional who will set your asset allocation and will be available to hold your hand during the inevitable market correction.

best wishes, FA

TSP_Transfer

You could do worse!
Almost No One Makes Money From The Stock Market Alone
About a year old ,but it is still one of my favorite investing perspectives.
http://seekingalpha.com/article/949001-almost-no-one-makes-money-from-the-stock-market-alone?source=email_the_daily_dispatch&ifp=0
http://performance.morningstar.com/fund/performance-return.action?t=PRPFX&region=USA&culture=en-US

Dex

Again, thanks for the replies.
My plan is coming together in my mind - investment vehicles and time - it isn't finalized.
I'm thinking in terms of phases.

Phase 1 - now - start with low amount income averaging into income funds 6/8/10 months? - I just need to get off the mark and get started - these funds are just an example.
wellesley
Emerging market bond fund
Vang Total Int'l bond
From my looking at the markets for Int'l bonds they have taken a hit and off their highs - more downside is possible of course.

Phase 2 - Stock funds - on hold
Vang Total stock mkt
Vang FTSE all world Ex Us
High Yield Corp bonds

Allocation goal?
18% - wellesley
15% - Emerging market bond fund
10% - Vang Total Int'l bond
18% -Vang Total stock mkt
19% - Vang FTSE all world Ex Us
20% - High Yield Corp bonds

I might add Wellington into the mix.

davidrmoran

Your present and future needs are so low and well-covered (but why plan on taking SS at 62 instead of later?), and you got scared out of a bunch of good funds, meaning we know something about your temperament as well as your projections. So why not keep a third or half your cash as is and, with the rest, dollar-cost-average (maybe monthly) your way into AOA and AOK, 50/50 but choosing according to which one is cheaper at the time?

Do not dive into FAGIX except for a small handful (5% max) just to satisfy that itch.

Mark

Dex, I'm thinking along the same lines as davidrmoran. Rather than trying to decide which investment you should choose, when to invest in it and how much, I think you might be better off figuring out what exactly you want that investment to do for you. In other words define your goal(s) first and then choose the safest vehicle based on your risk tolerance to get get you there whether it be by hiking or supersonic jet. As others have mentioned, invest in what you know and go ahead and scratch the high-yield itch but no way would I advise you to do so with 100% of your available cash.

Dex

Mark,
I'm mostly interested in income (vs capital gains) but I understand the need to have stocks and those gains. In the coming years 5+ years I think outside the US will have good potential for growth - weaker $, stronger economies outside the USA.
In the past, while working, I selected funds, set up automatic investment and forgot about them.

In some ways, I view myself as my own contrary indicator - if I want to get in - it probably a TOP! That is why I also asked about when to average into the recommendations.

I looked at davidrmoran's suggestions and I don't think they fit my goals - but I'll look at them again.

Mark

Reply to @Dex: Just to be clear, I'm not talking about the specific funds he suggested but rather the fact that your needs seem to be low and currently well attended to and that you don't seem to have a steady temperament regarding your investments. With that in mind, re-read my post and see if there's any help to be gained there.

davidrmoran

I mentioned the very handy AO_ choice of four blended ETFs cuz of what you listed in your response yesterday, that's all. They are single vehicles that have good allocations all by themselves. You can always use them as I have sometimes, core, and add around the edges. Of course there are other ways to achieve a nice big indexed blend; those just happen to be really helpfully constructed (imo) ETFs. Now, if you're truly contrarian (= bonds not the devil), dump a lot into AOM or AOK for now. Then swing into AOR and especially AOA after the next big slump. I concur in the take that things look okay ahead at the moment. (It helps that I can trade ETFs for free at ML.) To see confirmation of their efficacy, just look at their growth of 10k over their lifetime compared with whatever more individuated index or actively managed fund in their niche that you're considering. True, they do not fit your goals if, say, your firm phase 1 thinking is to go dump a bunch into internatl bond funds.

hank

Can certainly understand how one could be scared or pushed into 100% cash watching markets and CNBC over time. Like many of the above, I recommend broad diversification. Here's a few conservative-moderate funds I've used that might meet your risk appetite. The most striking feature of most (except for two of the bond funds) is that they diversify broadly. I've graded them on risk - "1" being the least risky and "10" the riskiest. Consider the "4-7" area as "moderate" risk funds for which you might be suited.

--- PRWBX 2
--- DODIX 4
--- RPSIX 5
--- PRFRX 5
--- TRRIX 6
--- TRRFX 6
--- OAKBX 7
--- PRWCX 7
--- PRPFX 7

--- Higher than 7 would apply to most equity and high yield bond funds (including emerging market) which would not seem suitable for you. And, if you currently have money at Vanguard, consider VWELX - about a "7" in terms of risk. Regards

MourningStars

Few of us know the date that our will matures, so if you are physically able to work my investment advice is to go back to work doing something you kind of enjoy ( but at least is not drudgery.) A part or full time job reduces what will surely be a rising need for income from investments for most people. You can then average into a portfolio matching your low risk tolerance by working with a fee only, trusted financial advisor. If a job or financial advisor is not in your future , I would keep three years of expenses plus an amount to cover unforeseen expenses in ultra safe, cash like investments. With the balance of the funds, you can average into a low cost conservative allocation fund such as VWINX ( there are other funds but watch for expense ratios ,allocation to high yield and/or government bonds, and tax liability.) Until you are 62 , I would avoid totally any asset class that tanked this past May when interest rate began to rise. Good luck to you.