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Subject:  Re: Help! 403b ---benefit or error? Date:  9/21/2008  10:04 AM
Author:  SirTas Number:  63905 of 75340

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.
http://en.wikipedia.org/wiki/Cognitive_bias
http://www.sciencedaily.com/articles/l/list_of_cognitive_bia...

--SirTas
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