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Author: TexasCoffee Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 6722  
Subject: Re: Asset Alloction For Buckets Date: 10/21/2013 9:41 AM
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Hi Andrew,

I'll apologize in advance. I tend to talk on paper and I can go on a little much. So feel free to forego this, but I did want to answer your questions the best I know how, for better or worse.

Thanks for writing. I suspect you would not follow my definition of asset allocation. I'll admit it may not be for many others.

First our difference in age probably is a strong factor. I am 68 and receiving social security but it's an add on income for me as I am still involved in full time work. I understand the logic of social security as it relates to social security. It IS an investment but for me that investment has already been made with my efforts of 50 years of labor. I suspect you are younger and probably more concerned whether or not social security as we know it will remain viable. It's hard for me to imagine the political football SS would be if our congressmen and senators introduced a bill to eliminate or at least serious amend or cut back its benefits. The backlash among those in retirement would devastate a career of someone so foolish to pick up the ball and try to run that kind of legislation down our throats. I always loathe when social security is lumped together as 'entitlement' with food stamps and other social services that benefit people who need or want that income. When you are born into a world where social security already exists and you pay social security tax for FIFTY YEARS and are told that your benefit will be there in the end, that's what I call entitlement. One could understand a young person who is in the early stages of having to support the funding of others decades older. As one who has far less invested in the retirement dream it's easy to understand their misgivings.

In any case I consider social security house money. From my 68 year old perspective I have the luxury of thinking its probably going to be there for me until I reach the great beyond. I don't have to make decisions about it, it just gets wired to my account and I use it for regular bill paying, just like I would write a check for personal use from our little small business. I don't worry about.

What I do worry about is what I am investing. My wife are typical boomers who spend hard early in life and have been scrambling to boost the nest egg at warp speed the last ten years. Hopefully you have been smarter than us. In any case we are in good position now. Along the way I thought It was wise to acknowledge my general lack of knowledge about investing so we hired a certified financial planning group with a good reputation. Our goal was to retire at 70 (wife at 60) and to get there we received the same old tired 'moderate risk' asset allocation model. Over the years we learned two things; one, CFP's are in the sales business. There is nothing wrong with this in that we all sell our services or products and why should CFP's be any different? Still, we found all the energy they spent on the front end seriously wanting on the back end. I should have realized a strong indicator from them with their wanting to meet twice a year to review and rebalance if necessary. All of our money was put into mutual funds, mostly equities but some bonds, maybe 70/30, then slightly closing that gap as the years advanced. In three or four years the reviews became annual. We would go in, and they would give their little talk with charts and things and tell us why we should sell this and buy that. Being too busy with our regular lives we acquiesced. The growth of our funds, all the while being fed larger chunks of catch up money, fed the kitty, and not much happened. If there was any interaction it was because I called. Otherwise they would just call annually.

So at some point, as we were left wanting with marginal profit, we left this firm and went to another who promised much more hands on help. That was what we wanted to hear, but it was a repeat experience without beating this to death, like I already have done.

At some point four years ago I pledged to my wife that I would take two years to train myself in investing, utilizing everthing available. I signed up with Investools with Ameritrade which was useful. I subscribed to Morningstar, Motley Fool, three or four Stansbury and Associate programs, a blue chip advisor here, an MLP expert there. I went to a local options school to learn about that. After two years I knew just enough to be dangerous, and so I plunged in.

I found by staying involved daily when I woke up, doing a half hour or hour to keep up with what was going on, I could manage very well. I', not the brightest card in the deck, but I am okay. I'm pretty confident and our nest egg has pretty much quadrupled in the last ten years. Some of this you and everyone else has done and we've been the beneficiary of the general success of the market over that time.

Having said that, I have found, for us at least, I have a heavy prejudice towards equities. Indeed we are like every one else, we lost 40% of our portfolio in '08 before I learned about trailing stops and other methods for bailing out quickly. And we've come back strong just as I'm sure you and most folks have.

My two chinks in the armor are my disdain for bonds in the current market. Investing in bonds or cd's or 'staying liquid' is in my mind the very definition of agreeing to give money away. I realize I am probably a lone voice crying out in the wilderness on that one, but that's how I feel. If you put any credence in history nothing performs like the stock market. I've owned real estate and made a little money. I've invested in gold coins for years strictly for 'Armageddon insurance' but divested myself from that since I can't ignore the wild fluctuation with that although I went in with a 'buy and forget' mentality.

I tried options and they work if you are willing to be more vigilant than I already am. I can do covered calls all day, but it still causes me additional worry I don't want.

So the bucket strategy came along and I suppose it is a simple enough theory to put a very large hook in my mouth. I buy it. Over time I have used a three or four bucket system and as I learned more about where the MLP's should go, and when GE out to be and where ESLT ought to be, etc.. I am getting better at it.

My original question here on asset allocation for buckets (aren't you glad I got back to the subject - lol), was intended to simplify what I do. I treat each bucket as a separate entity, fully allocated for our four buckets. I understand I could simplify by reducing four buckets to three, but I prefer the 1 (1-3 years), 2 (4-10, etc) approach because the kinds of investments I use for the early three years are not like the ones I use for 4-10. In any case, I'm looking for support to simplify once again, and turn the whole bucket system into one allocation and feel good about it. That's why I'm here.

If ever an answer to a question went around your elbow to get to your backside, this is it. I apologize if you took the time to read this.

I appreciate your response.

Jay
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