My wife and I are saving for our retirement by investing in Roth IRA's. The problem I am having is in order to build our retirement portfolios do we invest in the same funds in lock-step? For example, if she invests in a Value fund should I do the same or invest in a Growth fund? In short should both of our portfolios be of the same funds or of different funds? In trying to guide our retirement future we have the following additional questions: 1) Do we manage each of our separate IRA portfolios individually or separately?;2)In chosing future index funds to invest in should we buy funds that benefit a one portfolio concept or a two portfolio concept?; and 3)Because we will be retiring at different times, she is 50 and Iam 56 how does this impact our retirement withdrawal rates if we treat both of our portfolios as one retiremnt fund? At the present time my wife and I have the following asset allocation: 1) S&P 500 index Fund in a tavable account; 2)She has a Total Bond Market Index Fund in a Roth; and 3)I have a Small CAp Value Index Fund in a Roth. Ultimately we would like a 65% to 35% stock to bond allocation. This year we are considering a REIT for her and a Short Term Corporate Bond Index for me. Any thoughts or ideas regarding our problems and questions would greatly be appreciated. Thanks in advance for your time and consideration in this matter. UETZ

Here's my take...

Do we invest in the same funds in lock-step?

No. If you do, then if you pick a bad fund, your wife loses too. Best to diversify - she may have a different investment strategy, such as more risk or fewer stocks.

1) Do we manage each of our separate IRA portfolios individually or separately?

What is the difference? Roths are individual (not co-owned), so they have to be separate accounts. But they can be with the same institution.

In chosing future index funds to invest in should we buy funds that benefit a one portfolio concept or a two portfolio concept?

If you strongly feel you will stay together until the end, create a strategy in which each account is a part of the whole (like your marriage). If there is a possibility that you may go your separate ways, then treat each account as a complete strategy.

Because we will be retiring at different times, she is 50 and Iam 56 how does this impact our retirement withdrawal rates if we treat both of our portfolios as one retiremnt fund?

This will depend on how each account is performing, I guess. You want your in-fund reserves to continue appreciating in your retirement years. You will probably switch to a more conservative approach before your wife does, but eventually you will be focusing on preservation and appreciation rather than growth.

At the present time my wife and I have the following asset allocation: 1) S&P 500 index Fund in a tavable account; 2)She has a Total Bond Market Index Fund in a Roth; and 3)I have a Small CAp Value Index Fund in a Roth. Ultimately we would like a 65% to 35% stock to bond allocation. This year we are considering a REIT for her and a Short Term Corporate Bond Index for me. Any thoughts or ideas regarding our problems and questions would greatly be appreciated. Thanks in advance for your time and consideration in this matter.

Maybe it is just me but at your age, with retirement less than 20 years away, you may want to consider a less agressive approach. As far as bonds go, I would persue proven high yield funds. As far as stock go, I would avoid large cap and growth stocks and focus on value stocks that will catch the wave of a market rebound.

I applaud your efforts to get advice but IMHO some of your questions can only be answered after the fact. No one knows what will do well over the next 10 to 20 years. Historically diversification has proven to limit both the downs and ups. If one could know in advance the one or two best stocks you would invest only in them and forget diversification. Whether or not you consider your two accounts as if they were one account may depend more on individual personalities. If you make them different then you can be sure that one will do better than the other. If yours does better than your wifes or vice versa will that cause emotional problems for the marriage, particularly if you end up steering your wife into second place in this race. Legally this money is, and must be, in separate IRA accounts but in reality you two can choose to consider it as one combined account if you so choose; it's your choice.

As to what to invest in, no one anywhere knows that answer. You pays your money and you takes your chances. History is on your side over the long run but there have been and will continue to be those who do better than average and those who do worse than the average. Buying index funds gets you whatever the index gets less the management fee. Buying individual stocks gets you whatever the stock you choose gets. This is not a trivial or cute answer, it is reality. Nobody is hiding the truth from you. We all do what we hope will work out well for us and none of us knows the result until after the fact. Consider what you do carefully and educate yourselves as best you can re investing. It will help but not guarantee you anything.

Good luck to you and all the rest of us.

Jim Sullivan aka 8128

Whether or not you consider your two accounts as if they were one account may depend more on individual personalities.

A problem with treating them as seperate portfolios is that implementing your chosen asset mix can get expensive in fees for small purchases or low balance levels. The more complex (sliced & diced) your plan is the higher the level in those funds needs to be to avoid those costs.

In my own case, my wife's IRA is too small to reasonably do much with beyond putting it in one fund. The amount in that fund is taken into account within our overall portfolio (including 401k, rollover IRA, taxable investment account) and any rebalancing needed is done using other accounts. The fund in that IRA is one of the more tax inefficient ones to take advantage of the tax deferral.

Hyperborea

Here's my take, some from personal experience and the rest from reading.

Manage your IRAs as individual portfolios and not really trying to compliment each other. My wife and I tried to do that, run certain investments in my IRA and others in hers. Bottom line, didn't get things diversified enough within the individual IRAs although together it made for a diversified portfolio. As an example, 10 stocks together but 5 in each IRA. One craters it can make a big hole. If I had 10 stocks in the IRA, the one wouldn't have hurt as much.

I would worry about individual stocks until you had $50,000 in an account. Until then and S&P 500 Index fund would suffice. I personally don't do bonds nor bond funds. You can loose your principle just like in stocks or equity funds. To get a fixed rate of return I simply buy CDs. Rates might currently be low but I know what I'll have when I'll get it.

JLC

You can loose your principle just like in stocks or equity funds. To get a fixed rate of return I simply buy CDs. Rates might currently be low but I know what I'll have when I'll get it.

Of course, you could always get a fixed rate of return on a bond by holding to maturity (assuming that the issuer doesn't default).

<<<You can loose your principle just like in stocks or equity funds. To get a fixed rate of return I simply buy CDs. Rates might currently be low but I know what I'll have when I'll get it.

Of course, you could always get a fixed rate of return on a bond by holding to maturity (assuming that the issuer doesn't default>>>

Yes, if you hold individual bonds. Bond funds you can easily lose capital. At one point I was considering buying individual bonds for that little higher interest. Then Enron, Quest, and WorldCom hit the fan. I imagine their bonds went from AAA to junk overnight. Thus, I'm sticking with CDs for that fixed rate of return.

JLC

Then Enron, Quest, and WorldCom hit the fan. I imagine their bonds went from AAA to junk overnight. Thus, I'm sticking with CDs for that fixed rate of return.

Nope, they certainly weren't AAA. I know the point you are trying to make though (although an intelligent investor would have noticed that these companies weren't generating cash flow commensurate with their supposed earnings).

In any case, Treasury bonds are guaranteed by the government. Most CD's only go out to 5 years, but Treasury bonds go out to 10 years and provide a higher rate of return.

You *do* have alternatives. You are of course free to ignore them.

MadCapitalist writes,

<<<Then Enron, Quest, and WorldCom hit the fan. I imagine their bonds went from AAA to junk overnight. Thus, I'm sticking with CDs for that fixed rate of return.>>>

Nope, they certainly weren't AAA. I know the point you are trying to make though (although an intelligent investor would have noticed that these companies weren't generating cash flow commensurate with their supposed earnings).

In any case, Treasury bonds are guaranteed by the government. Most CD's only go out to 5 years, but Treasury bonds go out to 10 years and provide a higher rate of return.

Actually most "intelligent investors" know that's not true. The current yield on the 5-Year Treasury note is 2.89% and 3.95% on the 10-Year Treasury note. The highest yielding 5-Year CD at www.bankrate.com has a yield of 4.35%, see link:

http://www.bankrate.com/brm/rate/high_ratehome.asp?web=brm&prodtype=high&sort=2&product=5&Submit1=GO

FDIC insurance offers essentially the same gauranty as the "full faith and credit" promise attached to US Treasury debt.

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