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Subject:  Re: Help! 403b ---benefit or error? Date:  9/21/2008  10:04 AM
Author:  SirTas Number:  63905 of 88825

I am currently investing the max ($15.5K) These are my allocations: Metlife Mid Cap 20%, Metlife Stock Index 25%, Russell 2000 20%, Morgan EAFE index 25% and Lehmman Index 10%.

I am concerned that I am not diversified enough, and that even though these are pre-tax contributions, it may be better in the long run to invest outside of the 403b. I'm also worried about diversification because I realize some of these indices are related to others in the big picture.

We are also close to the cap for IRA's so I'm not sure I can invest in other tax sheltered options.

Any thoughts or ideas?

My thoughts are that this sounds like a well-thought-out plan, and the diversification is good. I wouldn't worry about some of these things being related to others in the big picture ... in a big enough picture everything's related. (In a big enough picture of people, they're all related too!)

If $15.5K is the max for you, then I see you are not yet old enough to use the additional $5K "catch-up" money. OK. But as you do approach 50 and 60, you'll want to move a bit out of stocks and into fixed income. (I like CD's myself. The money's there, and it'll be there when I need it, but it's not liquid enough that I might rationalize using it now).

This also suggests that you have time on your side. It would be good to re-balance this portfolio, I think, as you go forward. And the way I think of re-balancing is by directing your annual contributions into the area that has grown the LEAST. This seems counter-intuitive, since we human beings want to ride the fast growers, not the plodders, but it's a good long-term plan. In retirement, I would reverse that, and draw from the areas that have grown the most. You end up buying low and selling high -- without having to try to "time" the market.

I really like the 403b idea; it's a good example of "paying yourself first." You don't have to fight to save the money and then invest it. It comes right off the top of your take-home pay, so you never see it and you never miss it.

In my view, the biggest obstacle to good investing lies in the individual investor: it lies in our human attraction to trying to time the market, score big by riding fast movers, etc. And it lies in the interference we all have from cognitive biases.

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