Should Retirees sell stocks and move money into safe, interest-bearing investments like CD treasury bills or high-yield savings accounts?

Should Retirees Sell Stocks?

Full transcript:

SPEAKERS

Alex Okugawa & Anthony Saffer

Alex Okugawa 0:00
Some retirees want to know, should I sell my stocks? And should I move into something safe an interest-bearing account like a CD, treasury bills, or even a high-yield savings account? After all, interest rates have gone up significantly this year, and the stock market has been a roller coaster. Hey there, it’s Alex and Anthony, from One Degree Advisors, we are Certified Financial Planners who help folks with all things tax retirement, and investment-related stocks and bonds are down pretty big so far here in 2022. And a big driver of that is interest rates have gone up so much so quickly. Now, the silver lining in all of this is that folks can earn some decent interest in their savings at the bank, and they can also earn a pretty good yield on things like treasury bonds, which you know, maybe pay three to 4% on the type of bond you get a couple of years ago, that wasn’t even possible. So a question people are asking themselves is, why should I not just sell out of my stocks? They’re super risky. It’s been a roller coaster ride? And why shouldn’t I pile money into these more safe investments that are guaranteeing me three to 4%? interest? If not more? Yeah, it’s

Anthony Saffer 1:12
a good question. And no one was asking this in 2021 when stocks were up over 20%, bank savings was essentially paying your zero. But times have changed. And so it becomes a valid question. I would say first that everyone needs to evaluate these types of questions on their own unique goals, your timeline. So what I want to do is basically show you a simple plan that incorporates cash-type investments, but can also include growth investments, like stocks, and hopefully help you sleep better at night.

Alex Okugawa 1:43
Okay. But before we get into that, I think it’s important. Let’s look at why completely selling out of your stocks and growth investments is not a good idea for most people.

Anthony Saffer 1:55
Yeah, the recent inflation numbers were still at 7.7%. Okay, and they’ve been over 8%. So if you’re only invested in cash, and we’re going to take a look at this, this graph here. And essentially, the blue line is what you see very much at the bottom, there is inflation over the long term, the green line, which essentially matches it is cash investments, which goes back over 25 years, and the orange line, which significantly outpaces both stocks. And what we have to conclude is that historically, cash barely keeps up with inflation, if at all.

Alex Okugawa 2:33
When you take a look at the short periods, it can seem difficult, right? Because, yeah, it’s easy when I look at this big long chart, but once I condense this down into right here, right now, it can seem tough. But that’s where good planning can come into play. And there is a better way, a lot of people are just making investment decisions without a plan and your money needs to be aligned with your plan, your timeline, your objectives, your overall retirement plan, like all these things are so important.

Anthony Saffer 3:02
Yeah, that’s right. Let’s take a look here. So this is like a way to typically structure it’s just very general. But down at the bottom here, you have cash. And so that is your savings, maybe it has CDs, you mentioned treasury bills. This is essentially short-term money that you may need in the near term, whether it’s an emergency that comes up you’re saving for a home remodel, it’s just money to help you sleep better at night, perhaps it’s providing a regular income stream to you. You want it to be stable, and not fluctuate in value. Now maybe in the middle here is where you have bonds and other intermediate-type investments, there is going to be some fluctuation, but you can earn a higher return than cash over time. And then at the top is where you have your equity investments. So we’re talking about stocks here, primarily. But this can also include things like real estate and business interests, generally, where you have ownership where you’re going to get the growth over the long term, but there’s going to be significant fluctuation in the near term. Now, keep in mind, this is not money that you want for cash for income here, and now it’s money for later significantly further down the road.

Alex Okugawa 4:11
And look, we’re not saying that cash in the bank is not important. We’re saying it’s incredibly important, but people need to be aware of what their bank is paying. A lot of people are not understanding that their traditional bank, their traditional brick, and mortar is not paying them the interest that they probably should be getting. And there are alternatives to getting those higher interest rates. We recently posted a video, people should check that out. Once again, this is Alex Ogawa with One Degree Advisors. And if you’re interested in learning how we help retirees build a long-term plan and balance that with their short-term needs that can help reduce worry, visit our website at one degree advisors.com

Transcribed by https://otter.ai

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This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. Disclosures: https://onedegreeadvisors.com/solutions/#disclosures