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AA Plan
Old 06-17-2009, 09:39 AM   #1
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AA Plan

Hi to the great minds.

I finally fired my investment advisor earlier this year and took over myself. I'm working on a plan now for asset allocation, and finding funds to implement the plan. I have about 10 years before FIRE. My DW and I are both retired military, at about $45K/yr. My DW also is covered by a defined benefit plan from the county that should pay about $9,600/yr in 5 years. So...that is my fixed income part of my investments. Both are adjusted for CPI. Social security will provide some income, but I want to plan to not have it and be surprised when we get something. I'm 53, DW is 56. We have an rental property. Rent pays close to the house note. We plan to sell our current home and move into this property when we retire.


My AA plan is:

50% total market index fund
10% large cap - Fidelity Contra (FCNTX)
10% mid cap - Fidelity low priced mid cap (FLPSX)
5% small cap
20% developing or non-us international - Currently Fidelity Intl Discovery (FIGRX)
5% individual stocks I pick poorly

Questions need some help or advice with:

1) since we have the defined benefit plans, is it reasonable to keep my others mostly in equity?

2) Any comments on the AA plan ? I want to keep is simple as possible

3) For the total market index fund, I've been looking at Vanguard (VTSMX) and Fidelity Spartan (FSTMX). Both seem to have similiar expenses, performance, and Morning Star ratings (only 3 stars ?) So is there any real reason to pick one over the other ? I know Vanguard is the home team here, but since my accounts are with Fidelity...

4) Any comments on the other funds? they are Morning star 4/5* funds

5) Any suggestions for Small Cap funds ?
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Old 06-17-2009, 10:45 AM   #2
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Forget about the M* ratings. It is common knowledge that the ratings are worthless.

For personal investment help -- especially with asset allocation -- I always recommend folks go here:Bogleheads :: View Forum - Investing - Help with Personal Investments

I'll give you a hint though: Forget about actively managed funds and funds with expense ratios higher than 0.4%.
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Old 06-17-2009, 04:58 PM   #3
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Hi RetireBy90, it does make sense to me to be pretty heavily invested in equities with your pension income. But there is something to think about -- something that became painfully clear to many of us in the last 18 months or so. If you'll be tapping investments regularly, you really want a portion of them in something that you can use when the market drops 40% and you don't want to sell equities at a loss. I fear that it could be a few years before I can sell equities without taking a beating.

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Old 06-17-2009, 09:09 PM   #4
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Quote:
Originally Posted by Coach View Post
Hi RetireBy90, it does make sense to me to be pretty heavily invested in equities with your pension income. But there is something to think about -- something that became painfully clear to many of us in the last 18 months or so. If you'll be tapping investments regularly, you really want a portion of them in something that you can use when the market drops 40% and you don't want to sell equities at a loss. I fear that it could be a few years before I can sell equities without taking a beating.
To paraphrase what Coach says, a lot depends on what your costs will be when you retire. If you aren't going to need to draw down a lot from your equity portion on a regular basis, IMO you can be pretty much 100% in equities. But if it was me, I would keep it at about 80%, just to reduce the possibility of heart attack.

Any good index fund should pretty much never have anything but a 3 star rating. Index funds don't beat the market in the short term. For the small cap fund you might want to look at ishares S&P SmallCap 600.

Since you have the nice defined benefits packages, you could probably diversify a bit more within your equities. A 3-5% in a commercial REIT, maybe another 3-5% in a commodities fund. And I would definitely increase my international exposure. Maybe up to 40% of your total stocks, split between emerging markets and developed markets. Or if you want to keep it simple you could use the Vanguard FTSE All World ex-US fund.

My only suggestion on the 5% of hand-picked stocks is, don't listen to my advice! Good luck. I'll be following your example soon...someday...maybe.
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