I'll Show You Mine If You Show Me Yours

[Bob_Smith]

I believe the initial Retire Early safe withdrawal study mentioned an optimal stock allocation of around 75% for 30-40 year periods:

http://www.retireearlyhomepage.com/restud1.html

That may be where that number originated.

[wabmester]

Bob_Smith nailed it -- 75% stocks is close to optimal for most of us, but you can safely lower that percentage by using TIPS instead of other bonds. * This comes with the risk of a lower terminal value, of course.

Here's intercst's TIPS study:

http://www.retireearlyhomepage.com/safetips.html

(Note that his study was done when the TIPS real yield was 3.92%, though.)

In the spirit of this thread, I invite you folks to comment on this. My lowest yield on anything I own currently is 5% on a government backed note. 26 year maturity. I will not touch it, just cash the interest checks (this is currently in an IRA).
No COLA, but the APY goes to 6% after 5 years, 7%
after 6 years, and 8% after 7 years, callable any time after 2008, so there is some ramp up if it is not called.
My thinking was it was as safe as a CD, paid about 1% more than the banks (for a 5 yr.CD) and worst case I get the higher interest at the end of the 5 years.
Comments? Be candid, I can take it. BTW, I forget
the yield to maturity but you financial types can compute
it easily.

John Galt

[ShokWaveRider]

Well, You all will laugh at us:

Total: $1.5m USD

Wifes 401k Bond Fund Paying 4%
My 401K Bond Fund Paying 4%
CD $1.1m Paying 2.3 - 2.5%

GIC $15k Paying 3% (Canada)

We have NO Pensions, Or will ever get much. At the moment we are travelling and have no permanent home. We do not deplete capital and do not use all our interest to live. We have basic health care in Ontario Canada.

SWR.

[unclemick]

Looks fine to me - no need to rush. Remember the Terhorst's started out with fixed income instruments and gradually changed over time.

[haha]

Quote:

Mikey, Been there done that! - I am a lousy stock picker! - Guess what - Most pros are too! Why should I think I can beat the index funds, if the pros can't? I take it you have not read the 4 pillars of investing?

Cut-Throat, In another thread you stated that you achieved 13-14% over a long period of time. Isn't that an index beating return?

Re: Four Pilllars, I have read it. Just feel that there are flaws, not in the data but in the reasoning from it.

Mikey

[db]

I thought I had responded to this, but guess not. Age 67; all in Vanguard IRAs.

40% Total Stock Market Index
20% Total International Stock Index
10% REIT Index
20% Short-Term Bond Index
5% High-Yield Bond Index
5% Cash

Plus two currently insignificant holdings in tech stocks, Cisco & Nuance, to be moved to a Roth IRA this year. Plan to move from short-term to intermediate or total bond fund perhaps near end of year.

db

[Bob_Smith]

Quote:

My thinking was it was as safe as a CD, paid about 1% more than the banks (for a 5 yr.CD) and worst case I get the higher interest at the end of the 5 years. Comments?

But with a 5 year CD, at the end of five years you can get off the train if things get ugly (inflation takes off and rates rise significantly). It would appear the primary risk you face is that inflation will swamp the return built into that bond while long rates trample the price. Not likely in the short term. Long term I'm not so sure.

Quote:

Cut-Throat, In another thread you stated that you achieved 13-14% over a long period of time. Isn't that an index beating return?

I'm not sure what a 100% s&P 500 idex returned over that time. I was almost 100% in stocks during my accumulation phase.

Also, my returns were bolstered by being able to purchase company stock at a 15% discount. My wife is still puchasing stock at her company at a 15% discount. This gives that investment a immediate 15% return for the first year.

But the money I invested outside of these programs, I am sure did not fare as well as a Index Fund. And since I did not have a 'plan' in place, I usually traded at the wrong time. Not to mention all the grief worrying about when to buy/sell etc.

Like Unclemick my best moves have been to do nothing.

[wabmester]

Quote:

My lowest yield on anything I own currently is 5% on a government backed note. *26 year maturity. *I will not touch it, just cash the interest checks (this is currently in an IRA). No COLA, but the APY goes to 6% after 5 years, 7% after 6 years, and 8% after 7 years, callable any time after 2008, so there is some ramp up if it is not called. My thinking was it was as safe as a CD, paid about 1% more than the banks (for a 5 yr.CD) and worst case I get the higher interest at the end of the 5 years.

Sounds like a slightly weird CMO to me. *Do you have a CUSIP so I can look it up?

It should be fine assuming you plan to hold it till it's called (which it almost certainly will be if market rates stay below 6%). * So, assuming you paid no fees or mark-up for it, then worst-case is that it acts like a CD, as you said.

I know that FNMA and GNMA are perceived as government entities, but they're private companies, and I honestly don't know if there's a formal backing by the government or if it's just assumed that the government wouldn't let them fail.

It does seem to me that home lenders are taking more risk than I can recall them ever taking before, and if we start seeing failures, a bailout could be very costly. * So, it may come down to the risk that something changes in how FNMA/GNMA operate in the next 26 years (the term of your note, and again assuming it's a CMO).

I do not believe their is a formal agreement for the
gov. to bail out FNMA/GNMA. However, I view the
likelihood as virtually 100%. I also agree that home lenders are taking more risk than ever, which seems to be a part of an overall plan to make everyone in this
country a homeowner. A "policy" I am strongly opposed to.

John Galt

[nfs]

Quote:

I'm not sure what a 100% s&P 500 idex returned over that time. I was almost 100% in stocks during my accumulation phase. Also, my returns were bolstered by being able to purchase company stock at a 15% discount. My wife is still puchasing stock at her company at a 15% discount. This gives that investment a immediate 15% return for the first year. But the money I invested outside of these programs, I am sure did not fare as well as a Index Fund. And since I did not have a 'plan' in place, I usually traded at the wrong time. Not to mention all the grief worrying about when to buy/sell etc. Like Unclemick my best moves have been to do nothing.

FYI the compounded 25 year S&P 500 total return from end of 1978 to end of 2003 was 13.8%.

[SDY888]

We are in our 'accummulation' phase so our allocations are (hopefully) geared more to growth than income.

Overall, we are:

Property - 60%
Individual Stocks - 15%
Funds / Trusts - 12%
Gold / Commodities - 3%
Cash - 10%

Total - 100%

Removing the Property factor, the split on the Non-Property assets is:

Individual Stocks - 37.5%
Funds / Trusts - 30% (Even spilt among US Index, global Growth and Asian)
Gold / Commodities - 7.5%
Cash - 25% (equal split US$ / Euro / Basket of Asian Currencies)

Total (Excluding Property) - 100%

The above exclude our emergency cash fund, art / collectibles and jewellery.

Simon888

[eytonxav]

Quote:

I know that FNMA and GNMA are perceived as government entities, but they're private companies, and I honestly don't know if there's a formal backing by the government or if it's just assumed that the government wouldn't let them fail.

To clarify the above question, I just received my Ginnie Mae CMO prospectus and it states: "Ginnie Mae will guarantee the timely payment of principal and interest on securities. The Ginnie Mae Guaranty is backed by the full faith and credit of the United States of America." I have a fairly large portion of my portfolio in these Gov't backed CMOs and I am not concerned about default.

Doug

[Nords]

DFW_M5,

Treasuries are backed by the U.S. government. Congress will raise taxes as high as necessary to pay off the debt.

GNMA & FNMA are government-sponsored organizations. They're insured (as long as the insurer can pay for it) but they're not backed by Congress' taxing power.

You might not have to be concerned about default. But a GNMA CMO has more default risk than a Treasury. Hopefully GNMA hasn't been hiring the guys that used to work at Long-Term Capital Management...

http://www.investopedia.com/terms/g/ginniemae.asp

http://www.investopedia.com/terms/f/fanniemae.asp

[eytonxav]

Nords, I am not sure what your point is, seems to be splitting hairs when saying it has more risk than a treasury. The point I was trying to make is that the risk in owning such securities is mininscule. The full faith and credit guaranty of the United States Gov't goes a long way towards making these low risk investments, regardless of whether treasury guarantees are higher in the pecking order. If there is an issue with these we are all in trouble!

This is straight from the Ginnie Mae site:

"Ginnie Mae does not buy or sell loans or issue mortgage-backed securities (MBS). Therefore, Ginnie Mae's balance sheet doesn't use derivatives to hedge or carry long term debt.

What Ginnie Mae does is guarantee investors the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans — mainly loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Other guarantors or issuers of loans eligible as collateral for Ginnie Mae MBS include the Department of Agriculture's Rural Housing Service (RHS) and the Department of Housing and Urban Development's Office of Public and Indian Housing (PIH).

Ginnie Mae securities are the only MBS to carry the full faith and credit guaranty of the United States government, which means that even in difficult times an investment in Ginnie Mae MBS is one of the safest an investor can make."

Doug

[cute fuzzy bunny]

About the only scenario that might endanger this sort of investment would be one in which massive mortgage defaults occurred.

Like a whole mess of people with 100% equity variable mortgages and HELOC'd up the wazoo that get squeezed on one side by a rapid interest rate rise and a severe recession/depresson on the other, all defaulting en masse.

Possible, but such a scenario would create enough other 'problems' in the investment world that taxpayers having to foot up to 2 trillion in GNMA guarantees would be the least of it...

[wabmester]

GNMA is fully backed by our government. FNMA is a government sponsored corporation with no explicit backing by the government, but it's assumed that we tax-payers would bail them out if things got ugly.

[Nords]

... I just finished reading Frank Partnoy's "F.I.A.S.C.O.", and even 10 years ago there was a lot of finagling involved with packaging & selling CMOs. Ah, but no doubt the SEC & Spitzer will keep things clean!

The "MX" chapter was the most illuminating, especially discussing FNMA "Interest Only" and "Principal Only" CMOs. It was also pretty frightening to see how the S&P bond-rating process is manipulated, I mean accessed. "Full faith & credit guaranty of the U.S. Govt" doesn't always mean what we think it says...

This was a great discussion. I'm bumping it back up to the top.

Roth
33% Vanguard 500
33% Vanguard REIT
33% Vanguard Small-Cap Index

401(k)
Vanguard (Coffeehouse)

Cash
6 months in ING Direct

Stocks
Indy Mac Bank DSP
GE DSP
Toyota DSP