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URL:  http://boards.fool.com/check-out-the-various-discussions-of-allocation-26886942.aspx

Subject:  Re: Info needed Date:  8/8/2008  10:25 PM
Author:  pauleckler Number:  13859 of 19224

Check out the various discussions of Allocation you will find on the many boards, but probably especially Retirement Investing.

You need to work out an appropriate bond allocation for your funds. Most Fools recommend a laddered maturity bond portfolio consisting of 5 years of your retirement living expenses. You set them up so one bond matures each year. You live off of the interest on the bonds and the maturing bond. Then you sell equities to replace the matured bond with a new five year bond each year. If the market tanks, you defer replacing the matured bond until stocks recover. This gives you a five year buffer from the stock market that keeps you from being forced to sell in a down market.

Most people wind up investing 30 to 50% of their funds in bonds during retirement as practical matter. That varies somewhat with your own preferences and risk tolerance.

You want most of your funds in equities, because they have the best potential to keep up with inflation and maintain your buying power over a 30 yr or more retirement. Most people use an S&P 500 Index or Total Market fund as their core equity investment. But the allocation formulas get more sophisticated in chosing between basic index funds (usually for half or so), international funds, growth funds, hot sector funds, blue chip stocks, individual stocks, etc.

As your investments likely will be in taxable accounts (rather than an IRA or 401K which are tax deferred) you probably want to invest in ways to minimize taxes. Long term buy and hold (LTBH) is a logical way to go. By selecting investments that pay little in distributions you pay taxes only when you sell and then at capital gains rates. You may also want to consider tax free muni bonds for your bond ladder (depending on your income tax situation).
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