Retirement money is definitely something you shouldn’t be gambling with. But hey, it’s only your future on the line… what could go wrong?
I admit it – I love gambling. That’s not something you’d expect to hear from a blogger in the personal finance community, but it’s true.
I’m not an avid gambler – I just enjoy some table games or video poker at a casino every now and again. Sometimes I’ll even throw a little bit at a periodic game of Keno at the bar (worst odds ever!).
Of course, I like it more when I’m winning, but I only play with money I’m prepared to lose.
And please don’t take this as me being a casino regular with a major gambling problem. We’ve lived a mere one mile from a Hard Rock casino for the past 5 years and I think I’ve been there four times – mostly because people in town wanted to go check it out.
So why would I gamble with just shy of $700,000 in my IRA?
Here’s the scoop…
401(k) to rollover IRA
As you guys know, I was able to retire from my career at the end of 2018, which has been wonderful so far.
You might also be aware that part of our drawdown plan is to utilize the retirement money in our former 401(k) plans to fund our lifestyle. We’ll be doing Roth conversions to get access to our money before the “official” retirement age. Doing the conversions correctly will help us avoid any penalties along the way.
With me no longer at my former employer, I can now take control of my 401(k). We had recently changed 401(k) providers at work and the expense ratios actually went up in some areas, so I’ve been looking forward to getting my money out of there anyway.
Once my profit sharing posted into my account, I pulled the trigger on the rollover. I opened a new Rollover IRA at Vanguard where we have most of our other accounts.
The process is simple enough and one I was familiar with from rolling over Mrs. R2R’s account a couple of years ago. You answer a few questions and – boom – you’re account is ready for the rollover. Here are some screenshots on the process with Vanguard if you’re interested…
After some personal info questions, they’ll give you instructions on how to inform your current institution of the rollover. Once you make that happen, the current institution will “color you up”, so to speak, and sell off everything in your account.
Sometimes this can take a few days. I got lucky that the market was at a pretty good peak on the day they sold, but you really never know because it’s completely out of your control.
Instead of sending the funds to the new company, they’ll likely mail you a check for the full amount of your account (minus any transfer fees… bastards!). The most important piece though is that the check is made out to Vanguard (or whoever you’re rolling it over to) and not to you.
Once you get it, you turn around and mail the check to Vanguard. It’s stupid that you play middle-man on this process, but that’s the way it goes. So then you pace back and forth in worry with the fear that the check got lost in the mail until you actually see the funds show up in your new account.
When Vanguard has everything processed, they shoot you an email to let you know you’re good to go.
I sat down in front of my computer and logged into my Vanguard. All my money from the rollover was there ready to trade… $691,298.37.
My plan was simple… we have things allocated the way I want ’em across our accounts and this account is just going to be all Vanguard Total Stock Market ETF (VTI). As a reminder, I’m not your advisor so don’t just blindly follow what I do… talk to someone a little smarter than the guy telling you about gambling with his money.
So I was just about to pull the trigger on buying all the shares of VTI I could… but then I hesitated.
This is a lot of money – like a lot. This one transaction can have a decent effect on our future.
What if I buy it all and the market tanks tomorrow? I would have just overpaid for the bulk of the wealth in our account.
The logical part of my mind knows that I should just go for it and be done with it. If you’re not familiar with Jim Collins, he wrote a phenomenal series of posts called the Stock Series that can put the entire market into perspective (fantastic read!). He even addressed what I’m talking about right here.
Sure, but… That “but” is usually a bad idea brewing.
There’s the part of me that thinks:
- The market’s been bouncing all over the place lately – this can work to my advantage.
- There’s no rule that says you can’t sit on a pile of cash for a little bit. A week or two – or even a couple months – isn’t likely going to cause you to miss out on a ton of growth.
- Even a small move in the market would make a substantial difference in how many shares I could buy.
I hear you. You’re already thinking, “Jim, quit trying to time the market and just buy now!”
Well, that last bullet point got me thinking. On 3/1/19 (the day I was ready to buy), shares of VTI were a little over $144 per share. Just a couple weeks earlier, shares were at $138 and a couple of months earlier on Christmas Eve, they hit a low of $119.70.
Now, I don’t want to do a lot of gambling with the bulk of our retirement money, but I also don’t want to just shoot the j and buy at the peak.
I ended up doing some quick math and set $140 as a nice even number that was still reasonable. If I could get the shares at $140 each instead of $144, that would be a pretty good deal:
$691,298.37 / $144 = 4800.683125 shares
$691,298.37 / $140 = 4937.8455 shares
In other words, I would be able to get an additional 137.162375 shares by getting it for $4 less per share. At the $144 price, that would end up being worth a $19,751.38 difference… that’s a hefty sum of money!
I talked with Mrs. R2R to get her thoughts. We decided it was worth a shot, but only for a short period of time. If after a few weeks, the price didn’t drop, we’d buy regardless – either all of it or incrementally over another few months.
We also knew that this was a gamble. If the price goes up, that $19,751 difference could be a swing in the other direction… and I would cry.
Ah, what the hell – you only live once! I put a limit order in for $140 per share for everything I had as a good ’til canceled (GTC) order.
Come on, lady luck – baby needs a new pair of shoes!!
Can you really call this a retirement money gamble?
Yeah, this is definitely a gamble – any kind of market timing is.
It’s possible that if I had simply purchased the stock and called it a day, the price could just continue to rise. I could be missing out on some big potential gains by this little waiting experiment.
On the other side of the spectrum, I have the potential for a fantastic gain as well.
It really is a toss of the dice. So, yeah, this is a gamble.
But if I didn’t do this, I wouldn’t have this fun post for you guys to read!
And I think this is a kind of a controlled gamble to a point. I’m watching the market closely. If the price starts to take too steady of a climb, I might just call this off, accept my loss and buy in.
This just in…
My retirement gamble ended before I even got to finish this post.
My order got triggered on 3/8/19 – one week after I put the limit order in. I got an email and got the whole lot of my shares at $140.
I watched the market for the rest of the day and the price slowly went up after that. That made me feel good.
You were probably hoping that I lost all our retirement money and had to go back to work. I mean gambling is bad and should end badly, right? Yeah, well, not this time and I’m happy things went well.
However, in all reality – this doesn’t mean much. It’s very possible that the @#$% hits the fan tomorrow and the shares drop to $120 each or $100 each. Will that mean my gamble was a win or a loss?
You could look at this in a few ways:
- Smart move, Jim! You made your portfolio more valuable than it would have been if you hadn’t waited. Well, thank you, thank you very much.
- Thumbs down! You should have waited longer for the price to drop even further. Then you could have made some real retirement money!
- What the what?!! Why would you have even tinkered with your retirement money? You’re an idiot. The best idea would have been to not gamble with your money and sensibly do one of two things:
- Just pull the trigger immediately and buy it for whatever the market price is. If you’re holding for the long run, today’s price isn’t going to matter that much.
- Spread out your risk out over a set amount of time (maybe a year or two) and buy a smaller amount of shares at market price every month… dollar cost averaging.
Don’t do what I do – although things went well enough for me, this could have easily gone the opposite direction. And then this would have been a completely different post filled with some tears and heartache.
Let ‘er rip… why, in your right mind, would you take any chances on your hard-earned retirement money?
Thanks for reading!!