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Author: hjg0989 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5056  
Subject: Re: 8 years till ER Date: 10/11/2004 3:59 PM
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"From the information you provided in your post, you can plan to have an annual income of something like $32,000 from your portfolio, something like $20,000 from your pension, and I'll guess something like $15,000 from your Social Security retirement benefits. Your gross annual income will be in the neighborhood of $67,000. This money is mostly taxable, so you should plan to have a net annual income in the neighborhood of $36,000."

Yikes - that's a 54% tax bracket ...


"I would suggest that as you approach five to seven years from retirement, you SLOWLY adjust your portfolio allocation so that at retirement you have a 50/50 mix of stocks and bonds. Since you chose to invest with mutual funds, I would suggest that you could implement this asset allocation strategy by adding a bond index mutual fund that tracks the Lehman Brothers Composite Bond Index. Since you chose to invest with Vanguard, I would suggest you should chose Vanguard's Total Bond Index Fund (ticker symbol VBMFX)."

I'm counting the pension portion of my portfolio as my bond fund. My plan is to have 5 years living expenses in laddered CDs and the rest 100% in equities. If the market is down I will not sell any stock that year, instead I will live off a CD. The five years worth of CDs will give me a cushion against the down years and will guarentee the income I need for the short term. At the same time it will allow me to stay invested in the asset that has historically had the best returns. Why do you think a 50/50 stock/bond mix is a better idea than that ?

"As you read about asset allocation strategies, you might conclude that you want to invest in many sectors, including large stocks, small stocks, international stocks, bonds, and real estate. Since we're talking about Vanguard, you could implement a sophisticated asset allocation strategy using Vanguard's index mutual funds:
- large stocks - 500 Index Fund (VFINX)
- small stocks - Small-Cap Index Fund (NAESX)
- international stocks - Total International Stock Index Fund (VGTSX)
- bonds - Total Bond Market Index Fund (VBMFX)
- real estate - REIT Index Fund (VGSIX)"

I am using VTSMX for my after tax account because it is tax efficient and spreads my money accross a large number of companies. I would not want to put NAESX, VGTSX, VBMFX or VGSIX into a taxable account. I have my small caps and international funds in my 401k/403b. As I stated I don't want to use bonds. I don't have a option of putting REITs into my 401k and I don't want it in a taxable account, so I am going with out that asset class.

"Well-performing portfolios have low costs. Low costs are more important than asset allocation, and they are much more important than individual securities selection."

I couldn't agree more. I did a cost benefit break down of my partner's 403b and found it financially better to use an after tax account. They have since lowered their fees so we are now contributing. My 401k is the Government's TSP which is the best run 401k plan around. As I also mentioned I am using Vanguard because of their low costs funds.

"I have one final thought. TMF was founded on the idea that if you're smart enough to read, write, and do simple sums, then you're smart enough to make your own investing decisions."

I have been studying this stuff intensely for a long time. The thing I like about managing my own money is that the mistakes I made are my own and not someone elses.

"If you think you might benefit by having someone with experience working with you, rather than against you, then you may find this reply to another post helpful:
http://boards.fool.com/Message.asp?mid=20070678"

I remember a time not so long ago when the MF talked about stock valuations being meaningless. AOL, Amazon, etc. It was all different this time. I tend to ignore the MF advice anymore and pay attention to the board members who have actually accomplished ER and those like myself who are working hard at it. I also have a CPA/CFP who I use on occassion for an hourly fee.

Thanks for your post,

-helen
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