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Subject:  Re: Mechanical Investing & Retirement Date:  8/9/1999  12:46 PM
Author:  GrayWulff Number:  42 of 178

<<Since you have 5 years of living expenses, why not consider this a hedge against a down market and not sell stocks if the market is down?>>
Some people do just that and there is nothing wrong with it. The question here is would that be a better strategy that just a strictly mechanical withdrawal one?

Sure seems to me that the only reason for holding five year's worth of money market funds is to use it as a hedge against a down market. Otherwise you get no benefit from it unless short term bonds out-perform stocks. Not a bet I'd care to make.

Here's another approach:

Construct a "bond ladder". Buy five years worth of individual bonds (T-bills or any other BBB or better bonds); spread out the maturity dates over every quarter for the next five years. This lets you get slightly better returns, without introducing the fluctuation risk of an intermediate term bond fund.

As the quarters fly by (my do they fly by) the lower rungs on your bond latter will mature and give you the cash you need to enjoy life. Watch the market for an opportune time to replace the higher rungs. If the market is down, wait a year or two.

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