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Author: telegraph Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Re: Rip Van Winkle Portfolio Date: 3/22/2004 11:56 AM
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Nick: Asset allocation depends drastically on one's age and years to retirement. With almost half its assets in bonds, this portfolio would be appropriate for a retiree, but not a 40 year old (assuming this is retirement money) who has 20 years of new money to contribute before retirement.

Ah, but if you are smart, you'll retire at 50.

Actually, the 50/50 Couch Potato portfolio, 50% in Vanguard Total Stock Market Index, 50% in Vanguard Int. Bond fund, has done very well, with little volatility.

The 'bond fund' went up 30-40% to offset the 30-40% in the stock index fund...giving you essentially very little loss during the 2001 drop.

You might wish to stay 60/40 or 70/30 at age 40, if you plan to work another 20 years. or 38 years to age 68 or 69 when you'll get SS, maybe.

Further, you'd want to move the bonds in the taxable account to the IRA, and the IRA stocks to the taxable account. Stocks lose their preferential cap gains treatment if left in an IRA. At that point you'd no longer need tax exempt bonds.

I think the original post was EITHER taxable or tax deferred, not a combination of both.....

Some folks arrived at age 40 with no company 401K, and only a small ability to stash funds in an IRA (maybe only $1000/year for 15 years). So maybe they have a lot of taxable money from selling a house, or inherited $300,000 and need to invest it for retirement.

He put the right kind of bond funds in the right places.

You can mix/match if you have both, holding tax efficient items outside the 401K/IRA, and not worrying so much about it inside the 401K/IRA.


I'd also mix a CD ladder in with the bond funds, since CDs have more favorable risk/return characteristics at the moment.

That is your call. If taxable, you pay up to 36% (?) plus state tax on CD yields, maybe 10% state tax too, taking 46% of your income. You can have CDs inside your 401K/IRA if you want, if allowed.

I got some of both.

What you worry about in the 401K is diversification and long term growth. It matters not about cap gains rate, because you have no idea whether it will still be 15% or 28% in ten or 20 years from now....or even next year if Kerry gets elected.....

t.


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