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Re: How should I invest my savings?
Old 07-11-2004, 01:21 PM   #61
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Re: How should I invest my savings?

Wab mentioned that the only good reason for holding
a TIPS fund is for liquidity. Otherwise, holding individual TIPS to maturity is better. My question is this:

What if you are in the withdrawal stage and need
4% withdrawal rate for living expenses? At current
real rates, it looks like you can't get there from
here, with 100% allocated to TIPS, unless you buy a ladder of TIPS and cash them as they mature. That
seems awkward at best to me, but doable.

Bob_Smith, you recently bought long term TIPS at 2.5%
and I believe you plan to hold them to maturity. Would
you share your withdrawal strategy with us?

Thanks and Cheers,

Charlie
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Re: How should I invest my savings?
Old 07-11-2004, 01:46 PM   #62
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Re: How should I invest my savings?

Charlie, I've got a 10-year ladder that's a combination of CDs, TIPS, and other bonds. That takes care of about half of my income requirements for the next decade.

I also have longer term bonds, and like Bob_Smith I picked up a big chunk of 2.5% TIPS with maturities of 25+ years. The long-term bonds on the secondary market have high coupons (close to 4%), so you could directly live off of the coupon even though the effective yield is 2.5% (based on the price you'd pay for the bonds).
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Re: How should I invest my savings?
Old 07-11-2004, 02:20 PM   #63
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Re: How should I invest my savings?

Where is a good place to park money that you probably won't need for 1 to 3 years, but ya may ?
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Re: How should I invest my savings?
Old 07-11-2004, 02:56 PM   #64
 
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Re: How should I invest my savings?

Quote:
Charlie, I've got a 10-year ladder that's a combination of CDs, TIPS, and other bonds. That takes care of about half of my income requirements for the next decade.
Wab,

What would you guess your ladder is besting a Short term bond index fund? In terms of a percent over the 10 years?
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Re: How should I invest my savings?
Old 07-11-2004, 03:50 PM   #65
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Re: How should I invest my savings?

Quote:
What would you guess your ladder is besting a Short term bond index fund? In terms of *a percent over the 10 years?
Excluding TIPS, my weighted average coupon is just over 7%. Vanguard's short-term bond index fund yields just over 3%.

I only exclude TIPS because I don't know their total yield until I know what inflation will do, but if you assume inflation will be in the 2-5% range, 10-year TIPS will yield between 4-7%, which doesn't look too bad compared to other bonds.

I also own a chunk of short-term corporate, which I use like a money market. While the quoted yield is over 3%, there have been capital losses this year due to rising interest rates, so the return has been about zero YTD, which is very close to money market rates.
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Re: How should I invest my savings?
Old 07-11-2004, 05:19 PM   #66
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Re: How should I invest my savings?

Quote:
What if you are in the withdrawal stage and need 4% withdrawal rate for living expenses? *At current real rates, it looks like you can't get there from here, with 100% allocated to TIPS, *unless you buy a ladder of TIPS and cash them as they mature. *That seems awkward at best to me, but doable. *

Bob_Smith, you *recently bought long term TIPS at 2.5% and I believe you plan to hold them to maturity. Would you share your withdrawal strategy with us?
Charlie, since LT TIPS on the secondary market have coupons close to 4% real, you could conceivably spend down your assets without liquidating as you go and without laddering. That's one of the advantages I see in the older LT TIPS. I do plan to hold until maturity and will spend the coupon. But I'm not 100% in TIPS and I don't plan to be.
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Re: How should I invest my savings?
Old 07-11-2004, 06:41 PM   #67
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Re: How should I invest my savings?

Dante,

Have you looked at what it is going to take to double your $1.0M? You can model your future contributions and use the "rule of 72" to get a rough idea of when your $1.0M turns into $2.0M. It may be easier to keep your existing house (and purchase health benefits) with $2.0M.

I have a goal to have $1.0M in investments and $500K in home equity by age 47. My plan is to turn the $1.0M into $2.0M/$2.5M by age 55 and retire. I will also have a pension at age 55 with Health Benefits.

You are an inspiration to us young dreamers.
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Re: How should I invest my savings?
Old 07-11-2004, 09:10 PM   #68
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Re: How should I invest my savings?

Quote:
Where is a good place to park money that you probably won't need for 1 to 3 years, but ya may ?
Assuming you want to preserve capital, your choices are basically:

1) money market, and you can get up to 2.5% by using a corportate money market (Ford, GM, credit card companies, etc).

2) CDs, and you should be able to get something like 3% and an option to cash out early if you need to (hint: buy multiple CDs instead of one big one so you can cash out part of your funds if you need to).

3) i-bonds, currently paying over 3%, but limited to $60K a year per SSN
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Re: How should I invest my savings?
Old 07-11-2004, 11:21 PM   #69
 
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Re: How should I invest my savings?

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Dante, *

Have you looked at what it is going to take to double your $1.0M? *You can model your future contributions and use the "rule of 72" to get a rough idea of when your $1.0M turns into $2.0M. *It may be easier to keep your existing house (and purchase health benefits) with $2.0M. *

I have a goal to have $1.0M in investments and $500K in home equity by age 47. *My plan is to turn the $1.0M into $2.0M/$2.5M by age 55 and retire. *I will also have a pension at age 55 with Health Benefits. *

You are an inspiration to us young dreamers. *
Trace,

I have not actually thought about doubling the $1.0M in the next 8 years - I am assuming you mean through investment gains and savings - but now that you have mentioned it, I will.

If I continue to be employed the way I have been in the past, its probably possible to get to the $2.0M, but work-life balance would continue to suffer and I would not be able to free myself of this corporate bondage ever.

The other way to do it is to get a 9% annual return on my investments, and then in 8 years, I would be at $2M. To do this, I would have to get very aggressive with my asset allocation and I am not sure how to do that yet.

I never thought I would be an inspiration to the young dreamers but thanks.

What kind of steps are you considering to take to go from $1M to $2-2.5M?

Its terrific that you can get a pension and health benefits at 55. Is it a Fortune 500 company or a private firm that is still offering those kinds of benefits?

Dante


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Re: How should I invest my savings?
Old 07-12-2004, 03:46 PM   #70
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Re: How should I invest my savings?

Dante,

I have worked for the same Fortune 500 company since graduating from College. I feel very fortunate to have a pension plan in addition to an employer match on the 401K.

My plan at age 47 is to have a 53% / 47% asset allocation and adjust this once a year (using the 100 - age rule). 53% would be the Vanguard Total Stock Market Index Fund. 47% Total Bond Market Index Fund (I would probably use the Short Term index fund instead at this point in time to lower the interest rate risk). I will probably make some minor tweaks to the asset allocation to gain some exposure to International and REIT.

I certainly understand that it may be more difficult to make this decision once you already have $1.0M in the bank :-)
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