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Author: duquince Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: portfolio allocation Date: 11/25/1998 4:47 PM
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Can anyone suggest proper portfolio allocation for a 58-year-old retired FIT with about $600,000 to invest. It's currently with an advisor who charges 1.25% and has averaged about 21% gain after 1994. I take about $20,000 annually from earnings.
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Author: slwjpw Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6775 of 76418
Subject: Re: portfolio allocation Date: 11/25/1998 5:50 PM
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Can anyone suggest proper portfolio allocation for a 58-year-old retired FIT with about $600,000 to invest. It's currently with an advisor who charges 1.25% and has averaged about 21% gain after 1994. I take about
$20,000 annually from earnings.
*****************************************************

I think you can do much better on your own.

IMHO - I would take $100,000 and layer it in CDs and MM accounts. 5 years at $20,000 each. The remaining $500,000 could be split 60% in Value Model RP4, 40% Growth Models like Cash King (5 stocks) and Keystone 5. This would only be a 14 stock portfolio and may be riskier than you would like.

BTW - What is a retired FIT ?

Phil

.02 for SOS

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Author: zgriner Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6777 of 76418
Subject: Re: portfolio allocation Date: 11/25/1998 8:35 PM
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BTW - What is a retired FIT ?
Fool-In-Training.

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Author: zgriner Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6778 of 76418
Subject: Re: portfolio allocation Date: 11/25/1998 9:10 PM
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Can anyone suggest proper portfolio allocation...about $600,000 to invest...I take about $20,000 annually from earnings.

You did not say if this stash is your primary source of income, or just a boost to your pension. You are not drawing SS yet. For example, your 20K could be covered by the current FF dividend.

Assuming that you want to decide and control your own investments now, consider the following rules-of-thumb:
Rule #1: If you want your stash to provide a perpetual income (and a legacy), never draw more than 5-7% of its value, per year, regardless of its return. This assumes an average yearly 3-5% inflation and 8-12% return. Keep your assumptions conservative.
Rule #2: Keep at least one year's draw in cash & CDs/Ts (some Fools say 3-5 years' worth, laddered, to ride out bad markets).
Rule #3: Once established, as stipulated in Rule #1, always draw the same amount, per year, adjusted for inflation. Don't get greedy during good years and use your cash during bad years.

If you follow the above rules, then investing in the FF, Keystone, & CashKing portfolios is reasonable. You would replenish/adjust your cash yearly, when you rebalance your portfolios. This will also keep your trading costs down.

Zev

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6792 of 76418
Subject: Re: portfolio allocation Date: 11/26/1998 11:41 AM
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Greetings, Duquince, and welcome. You asked:

<<Can anyone suggest proper portfolio allocation for a 58-year-old retired FIT with about $600,000 to invest. It's currently with an advisor who charges 1.25% and has averaged about 21% gain after 1994. I take about $20,000 annually from earnings.>>

There are many theories as to the "appropriate" allocation for those already retired. I personally don't want any money I know I will spend within five years in the stock market, but I want 100% of that which won't be used for five or more years in stock.

Phil aka slwjpw and Zev aka zgriner gave you their takes. You can find more in the 23 posts on this board starting at http://boards.fool.com/registered/Message.asp?id=1040013000079000&sort=postdate . The bottom line is it all rests with your comfort level and your need. One thing for sure -- Were I you, I would certainly try to avoid using a service that costs me 1.25% per year unless I was totally uncomfortable with doing the investing on my own.

Regards….Pixy


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Author: PeterLong Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6797 of 76418
Subject: Re: portfolio allocation Date: 11/26/1998 11:56 AM
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It does not sound rational to me to keep all the funds you will need in the next 5 years in Money Market/CD, with virtually zero risk and zero return after inflation and taxes, and then for 6 years and more out to jump to the relatively risky and high FF return of +/- 20%. Isn't there some intermediate route for say years 3, 4, 5 and 6 with gradually increasing risk and return?

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6800 of 76418
Subject: Re: portfolio allocation Date: 11/26/1998 12:25 PM
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Greetings, PeterLong, and welcome. You asked:

<<It does not sound rational to me to keep all the funds you will need in the next 5 years in Money Market/CD, with virtually zero risk and zero return after inflation and taxes, and then for 6 years and more out to jump to the relatively risky and high FF return of +/- 20%. Isn't there some intermediate route for say years 3, 4, 5 and 6 with gradually increasing risk and return?>>

So who said five years of income has to be in a money market fund or CD? I might keep one year's spending money in a money market fund, but the other four would be in short-term to intermediate-term bonds, treasuries, etc., to garner the relative safety with a slightly higher return. All I'm saying is I don't want the risk that stocks can give in less than five years. See the 23 posts starting at http://boards.fool.com/registered/Message.asp?id=1040013000079000&sort=postdate for some discussion on the matter.

Regards….Pixy


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Author: BillStanley Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6801 of 76418
Subject: Re: portfolio allocation Date: 11/26/1998 12:35 PM
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<< Can anyone suggest proper portfolio allocation for a 58-year-old retired FIT with about $600,000 to invest. It's currently with an advisor who charges 1.25% and has averaged about 21% gain after 1994. I take about $20,000 annually from earnings. >>

The first and most important issue is to get out from under the 1.25% fee or the $7,500 per year. There is probably $2,000 additional in trading costs based on other accounts I have observed. If the advisor is investing in funds the numbers are much worse.

Round that to 10 k per year. Ask yourself if you can and would like to spend some effort to learn and save the 10 k. My answer would be yes but yours might be different. Learning and developing the mental attitude to deal with the market volatility can consume two to three hours each day. If you can have fun and save or earn ($10,000 / 500 hr's. per year) $20 per hour then maybe your answer might be yes.

By being here you probably already know more about investing than 75% of the population.

S&P index have been beating your advisor. My Dow4 whose year ended in October 98 beat your advisor.

There might be a way to gradually slip away from your advisor while developing your own confidence and comfort level.

Bill Stanley


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Author: BillStanley Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6807 of 76418
Subject: Re: portfolio allocation Date: 11/26/1998 11:07 PM
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Pixy writes.

<< There are many theories as to the "appropriate" allocation for those already retired. I personally don't want any money I know I will spend within five years in the stock market, but I want 100% of that which won't be used for five or more years in stock. >>

<< So who said five years of income has to be in a money market fund or CD? I might keep one year's spending money in a money market fund, but the other four would be in short-term to intermediate-term bonds, treasuries, etc., to garner the relative safety with a slightly higher return. >>

At Dow dividend rates 12 k to 15 k will be thrown off in dividends. Additional filler of 5 to 8 k means almost nothing is mandatory in money markets or treasuries. I'm betting the account mix is already throwing off more than 20 k cash in dividends and interest each year.

I do believe in maintaining plenty of dry powder in the form of money market cash but it is primarily in hopes of a market decline or crash that will present opportunities to purchase.

Bill Stanley


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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6815 of 76418
Subject: Re: portfolio allocation Date: 11/27/1998 12:25 PM
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Bill Stanley sez:

Pixy writes.

<< There are many theories as to the "appropriate" allocation for those already retired. I personally don't want any money I know I will spend within five years in the stock market, but I want 100% of that which won't be used for five or more years in stock. >>

<< So who said five years of income has to be in a money market fund or CD? I might keep one year's spending money in a money market fund, but the other four would be in short-term to intermediate-term bonds, treasuries, etc., to garner the relative safety with a slightly higher return. >>

At Dow dividend rates 12 k to 15 k will be thrown off in dividends. Additional filler of 5 to 8 k means almost nothing is mandatory in money markets or treasuries. I'm betting the account mix is already throwing off more than 20 k cash in dividends and interest each year.

I do believe in maintaining plenty of dry powder in the form of money market cash but it is primarily in hopes of a market decline or crash that will present opportunities to purchase.


For each of us it really all boils down to my favorite saying: "Ya makes your choices and ya lives with the results."

Each to his own, whatever works, caveat emptor and all that stuff.

Regards….Pixy


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