UnThreaded | Threaded | Whole Thread (8) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: yttire Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75661  
Subject: 3 stage plan for retirement Date: 10/14/2003 9:33 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0

I have been asking myself what percentage of a portfolio belongs in aggressive small caps, or even stocks for that matter. And the best answer I can come up with is:

Have a three stage plan.

Stage 1: assume the absolute worst, and that you are going to have negative overall stock market returns, and that you are going to retire fairly late (late 60's or early 70's), so have an investment plan outside of stocks which will allow you to retire at that point.- pay down your mortgage early, (or invest in bonds if you trust them) and then when your mortgage is through get an investment property (or more bonds) and whittle that one away. You can plan on living on social security to supplement this modest portfolio such as it is. Plan a minimal consumption for this plan so you don't have to sink too much money into it. However, it gives you guaranteed food, even if pototatoes, on the table.

Stage 2: Have a stock portfolio which will allow you to bring in the time horizon of stage 1. This will hopefully draw you down into your early 60's for retirement, and is aggressive. (read- completely in stock market, but in indexed funds or diversified large caps)

Stage 3: Any extra money you have to play with. You could dump it all in HG or other small caps. This will ideally draw down the date even further than stage 2.

Now this stage 3 comes with a disclaimer. Any money you are putting in may fail to shorten your stage 2 plan. Thus, you have to balance your stage 2 and stage 3.. if you are really interested in pushing down your retirement age, GUARANTEED, then you actually should put the money in stage 2. If you are interested in POSSIBLY bringing in that date a lot, but willing to wait for your normal stage 2 date, then put it all in stage 3 investments.

So lets say your stage 3 investments perform really well for a couple years and expand as a percentage of your portfolio.. you have to decide whether you want to "lock in" your reduced date, or continue to play the odds with it.. this could be a yearly or quarterly decision based on your current attitude and mood.

Now the really tricky part is: given a particular amount of savings and a particular age - how do you figure out how much money belongs in each part? I haven't figured that out yet but I think some simple financial calculators can do the trick.

(I am going to post this on another board as well since I typed it all up)
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (8) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Apple

Apple and Ninety Years Ago
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement