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williamsjim, you asked:

<< I am 43 and about to retire for awhile with a significant portfolio for income and a cash cushion for 2-3 years expenses. I'm new to these MF boards which I'm greatly enjoying, but I do have a question about how to split up investments in a recently purchased VUL policy. I want to invest for the long-term and take a moderately aggressive approach with 95% stocks and 5% cash (to pay cost of insurance). Any suggestions for splitting the investment between large cap, mid cap, small cap and international mutual funds? How much of the large cap should be S&P 500 index? If you're not comfortable with making a specific recommendation, could you please direct me to some reading sources? >>

When you look at your asset allocation for your VUL it's not a good idea to just look at it isolated from your total asset allocation model. Just as with any other investment vehicle (401(k), IRA, Roth IRA, etc., you can duplicate your overall asset allocation within each of these, or you can carve out parts of your allocation in each to take advantage of particular investment choice(s) that are better in one than the other while stall maintaining your particular allocation balance.

The latter tends to be my preference, as I like to look at the individual choices available. For example, the small camp and international choices within the VUL may not be as good as the one you can get outside and therefore I would tend to put those allocations outside of the VUL. Since the S&P index choice has low expense, I would tend to want to use that one in a VUL allowing more to be investing producing more tax deferred growth. However, you may have tax issues to be considered too that may influence whether this particular idea is really a good one for you or not.

You might also consider keeping any cash position inside of a VUL to avoid paying tax on interest earned. Then, if a need for some quick cash arises, you can always pull the principle out of the VUL on a FIFO basis and pay no taxes.

So, just what kind of allocation to use within your VUL really depends on what your overall asset allocation model is like and the details of just what choices you have . . . . and, what YOUR preferences are in handling your allocation model. If you have an agent/broker (hopefully a good experience one) who sold you this policy, I would suggest you review this in detail with him/her as they are trained, educated, and have resources to help you figure this all out. After all, that's why you pay them (referring to the commission they get).

I know this isn't the kind of answer you were looking for, but I hope it is still of some help. Good Luck.
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