Crane Asset Management LLC
Chief Investment Officer
Crane Asset Management LLC is a full-service investment counseling firm providing investment management services to private individuals, retirement plans, endowments, and charitable foundations. All accounts are managed on a discretionary basis. John Frye founded the firm in 2003, with a partner who remains Chief Operating Officer. They work with all of their clients to formulate a long-term investment strategy that will meet their investment objectives while addressing their risk profiles. Understanding their clients in this way enables them to develop unique plans based upon each of their clients’ needs to help them achieve their financial goals.
Before co-founding Crane Asset Management LLC, John served as Executive Vice President and Portfolio Manager at Renberg & Associates in Beverly Hills. He began his career with E. F. Hutton & Company in New York and subsequently worked with Alex. Brown & Sons in Baltimore. He received his Bachelor of Arts in Politics from Princeton University in 1977 and his M.B.A. from Columbia University Graduate School of Business. John holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Los Angeles.
BA, Politics, Princeton University
MBA, Finance, Columbia Graduate School of Business
Assets Under Management:
Crane Asset Management is registered with the State of California. A copy of Crane's Form ADV filing (Parts 2A and 2B) can be accessed here. In addition, Crane's Form ADV (Part 1) can be downloaded from the SEC's website. (Type in Crane's name in the field provided and follow the instructions on the site to download the information required.)
First of all, I must assume (since you don't mention it) that you have no meaningful savings put away outside of your retirement account. If this is true, it looks as though you are able to cover expenses with pension income plus $18,000 per year (pretax) in withdrawals from the 401(k). $18,000 is 4.4% of the value of your account, so the withdrawal rate is sustainable, more or less.
If you do have a savings account, take the $1,500 per month from it and not your 401(k) (which you should roll over to an IRA at some point). 401(k) withdrawals are taxable and withdrawals from savings are not. Let the assets in the retirement account grow as long as possible, and take them only when you have to -- at age 70-1/2 and after.
But I have to mention that I think 60% bonds is too much. You are subject to "the risk of safety" in that your retirement assets may feel safe, but are unlikely to grow much. Even an extra 2% per year, over the next 20 years, can make a big difference in your lifestyle. I know markets are at highs and that has everyone worried, but I think a 66-year-old who needs less than 5% of his assets in any given year can consider himself a long term investor. I would hold 65-70% equities. Also, consider preferred stocks as an alternative to bonds. I can give you more information on this if you are interested.
Now, don't go changing all at once. We are bound to get a selloff and when it comes you should consider it a buying opportunity.
Any time you sell an investment in a brokerage account you automatically get cash on settlement. Most brokerage firms have a default vehicle for the cash -- usually a money market fund of some kind. They type of money market fund is not important because they all yield zero, more or less.
Is it a good idea? Look at it this way: if you move to cash you have a 50% chance of missing a downdraft in the market and a 50% chance of missing a rally in the market. You also have a 100% chance of getting a zero return before inflation, and thus a negative real return. You are more likely to be worse off if you do this than if you do not do this.
An investor would "move to cash" if he felt fearful. To be a successful investor you have to learn how to manage your fears. You have to realize that there has never been a time when there wasn't something to be afraid of. You must also realize that every buying opportunity came at a time when investors in general were fearful. If the market is going through a time when investors are panicky and selling without regard to value, that is exactly the time to manage your fears, overcome them, and get in.
If selling today turns out to have been a good move, will you have the courage to buy at such a time? And if it turns out to be a bad move, how many years will you sit on the sidelines before giving up, admitting your error, and buying back in at higher prices? NO -- stay fully invested. You are a long term investor and it just doesn't pay to try to avoid short term moves in the market.
A successful investor researches the companies he buys and chooses companies that are well-managed, growing, well-positioned competitively, and financially sound. An investment is not a casino chip. It is a part-ownership interest in a business that does not really fluctuate in value even if its stock price does. This is the most important lesson an investor can learn.
Maybe and maybe not. This is a rate-of return question. You should always hold on to a loan if doing so allows you to make more on an investment you have than you pay on the loan. You presumably know the interest rate on your loan; what is the total return you are getting on your condo? To get your total return, take the annual net income, add in your tax benefit from depreciation and any other tax writeoffs, and divide that figure into the EQUITY (not the market value) of the condo. Remember that if you sell the condo you will have to pay a broker 6% of market value, so subtract that from the equity. If your answer is higher than the student loan interest rate, don't sell the condo.
Example: Say you have a $50,000 mortgage on the condo, so your equity is 50%. Ater interest, taxes, management fees, HOA dues and maintenance, you clear about $200 per month. But depreciation makes that $2,400 essentially tax free, so the net benefit to you (in the 15% bracket) is $2,800 per year. If you sell the condo your realtor will collect $6,000 in commission so you stand to realize $44,000 after all is done. If you can earn $2,800 per year on an investment whose value is $44,000, your net return is 6.4%. Is your student loan rate higher than that? If so, consider selling (and obviously, don't sell if it's not.)
You ask about capital gains without telling us your cost. The gain is your net sales price (after commissions) minus your cost. In the 15% bracket there is a chance that most of the gain will not be taxed. Talk to your CPA, please.
Notice I don't ask you to factor in the potential future appreciation on the condo's market value. You should still consider it, since it will disappear if you sell.
I think this question points up the uselessness of applying the same formula to everyone of a certain age. There are so many 51-year-olds in this country that have no appreciable savings and it is they who will have to work until 70 (or past). If you have saved, you can retire comfortably. (Is everyone else reading this? Now, do it!)
I usually tell clients that they have enough to retire if, after subtracting all predictable retirement income (such as Social Security, corporate or government pensions, or net income from property you own) the annual amount you need to fund your lifestyle, including taxes, is 1/20 or less of your liquid invested assets.
If you have $2.3 million now, and if you intend to let it compound untouched for the next 9 years, then if you average 5% over the next 9 years you will have about $3.6 million. (More, if you add regularly to savings between now and then.) Thus if your living needs after SS etc. are less than $15,000 per month you can afford to retire. The only reason for you to work to age 70 is if you love doing what you do and could be happy being semi-retired.
By the way, everyone should also avoid "target date funds" for this reason. You are not like everyone your age, so you should not all invest alike.
This is a Finance 101 question about comparative rates of return. Here is how I would calculate it. I assume you own the inherited home free-and-clear (no mortgage).
Make a careful calculation of your net annual return from the house. Take the gross rent; subtract property taxes, insurance, management fees, any utilities not passed along to tenants, and all maintenance costs. In addition to repairs and ongoing expenses like landscaping, subtract a fraction of the major maintenance you know will be necessary some day. (For example, if you think the house will need paint every 10 years, use 1/10 of the cost of painting as your annual cost. Ditto 1/20 the cost of a new roof, etc.) After all estimated expenses are totaled and subtracted from gross rent, you'll have a number. That is the net return on your $200,000 investment.
Let's say that number is $8,000. This is the return, before income tax, that you can expect annually. Notice that it's 4%. In addition to current income, project how much the value of the house will appreciate (a guess: 3%?). Then, take into account your risks -- vacancy, deadbeat tenants, fire, tornado, what-have-you -- and decide if you are cut out for being a landlord.
If you can do better than 7% with equal or less risk, sell the house and invest the $200,000 elsewhere.