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Investment Strategy. New Forum Needed??
Old 06-25-2002, 02:35 AM   #1
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Investment Strategy. New Forum Needed??

I would like to find out what investment strategies people are looking into. We may need another forum for this. I am looking into a "sliding" 25/75 fixed income/equity portfolio. The equity portion will be a mix of small-cap value/international/total market while the fixed income will consist of TIPS/Treasuries (maybe)/CDs/cash. By sliding, I mean I am going to increase my Fixed Income holding proportionally as I get older.
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Re: Investment Strategy. New Forum Needed??
Old 06-25-2002, 04:34 AM   #2
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Re: Investment Strategy. New Forum Needed??

Done!
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Re: Investment Strategy. New Forum Needed??
Old 06-25-2002, 04:38 AM   #3
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Re: Investment Strategy. New Forum Needed??

Super! I will start a new thread in the new forum.
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Re: Investment Strategy. New Forum Needed??
Old 06-26-2002, 03:12 PM   #4
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Re: Investment Strategy. New Forum Needed??

As long as we have a thread advocating for new forums... perhaps we should have one for posting quotes and websites (Scott Burns columns, WPO and NYT articles, etc.)? Not sure if you would rather these go under the subject forums or not, just a thought....


fg
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Re: Investment Strategy. New Forum Needed??
Old 06-26-2002, 05:23 PM   #5
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Re: Investment Strategy. New Forum Needed??

Good idea FG -- see the new section "You gotta see this..."
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Re: Investment Strategy
Old 06-12-2003, 09:00 PM   #6
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Re: Investment Strategy

My strategy is to diversify my holdings among various asset classes, such as: 1) large, mid, and small cap value and growth stock mutual funds with an emphasis on value/dividend paying funds; 2) International stock funds; 3) REITs; 4) commodities (basic feed/fuel for industry such as oil, gas, and timber; 5) higher quality corporate bonds, gov't. bonds, and International bonds; and 6) in various cash equivalents, such as CDs, money market funds, and ultra-short bond funds. These funds will specialize in low cost/fees, reasonable performance, and less volatility than average. Further, I would move money into bonds if interest rates were high and the economy slowing in anticipation of interest rate cuts and bond cap gains. I would also sell off the commodity type things in a slowing economy and try to pick them up later as the economy bottoms out. The bonds would be sold off after interest rate cuts and repurchased later on when rates were high again.

Aside from this, the next thing is to manage expenses and not change my rather frugal (some would say cheap!) spending habits. Retirement money may have to last a long time, so it is important that it be managed carefully. It's better to have smaller gains and losses than bigger ones, as it is very difficult to replace money that has been lost at a time when our income stream is at a reduced level compared to our best working years.

A bundle of cash is a good thing to have around. True, it's not working very hard these days but then, as they say, "a 2% gain beats a 20% loss every time"!


Ed_B
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Re: Investment Strategy
Old 06-12-2003, 09:07 PM   #7
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Re: Investment Strategy

Hi, All:

One thing that has complicated my retirement planning is how to account for my wife's pension. She has a very good pension that is larger than our current living costs. It is fixed, however, and will not increase in size over her retired years. We pretty much figure that as SS benefits become available, their addition to the pot will serve as our inflation protection. Still, how should we consider this life-time pension income? As an annuity? As a longterm bond ladder? Equivalent to savings? The reason that I am asking this is that I am interested in keeping our investment portfolio balanced and it is difficult to do when 40% of our retirement income is in this form. All suggestions appreciated.


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Re: Investment Strategy
Old 06-13-2003, 05:50 AM   #8
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Re: Investment Strategy

I too struggled with how to account for my pension, both from an asset allocation point of view as well as safe withdrawal strategy. In the end, I decided to look at both my pension and probable social security benefits as a bond asset. I have estimated a NPV for an income stream from the pension + social security through age 84, and add that value to my investments. This estimated "net worth" is then used to derive my budget for the current year. At this time, the pension+social security NPV makes up about 30% of our "net worth" .

I'm sure not everyone would agree with this strategy, but at the moment I feel comfortable with it. My fixed value pension currently provides for our lifestyle needs. Eventually though, we will need to start taking money from savings and investments as inflation erodes our buying power.

Red
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Re: Investment Strategy. New Forum Needed??
Old 06-14-2003, 07:23 AM   #9
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Re: Investment Strategy. New Forum Needed??

Procedurally, it makes sense to convert the future payments of a pension to a present value, and to consider that in the same category as a "bond." In doing so, it is necessary to select a particular discount rate. For a pension having fixed payments, I would use the current rate on long-term corporate bonds, which is about 5.5%.

If you assume that future social security payments will grow with inflation, then these can be discounted using the "real rate of return" of 5.5% minus the inflation rate.
(I'd use 5.5% minus 1% as a "conservative" assumption that social security payments won't increase as fast as the overall inflation rate.)

If a person really wants to include all of their assets in the "standard" stock/bond/cash allocation model, they could also treat the equity in their house as a "bond." If you have cash value in a life insurance policy, that's also like a "bond."

This all may be pushing the usefulness of the standard allocation model a bit too far (and would tend to induce a person to allocate too much of their net worth to stocks).

If you use FIRECalc as a guide for asset allocation, there is no need for you to first convert future income streams to present values. Simply run FIRECalc to determine what mix of stock and fixed income investments is most appropriate to sustain spending BEYOND what your future pension and social security payments will support.
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Re: Investment Strategy. New Forum Needed??
Old 06-14-2003, 04:22 PM   #10
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Re: Investment Strategy. New Forum Needed??

Hi, Red & Ted:

You both make some good points regarding how to consider a pension when doing financial planning. In fact, my two choices were to consider the pension as if it were a US Treasury bond or to only worry about asset allocation above and beyond the current income stream created by the pension. Since both of you have come up with the same alternatives, it seems as if a good case could be made for either one. Perhaps I should consider it as a "zero principal" bond... instead of a zero coupon bond. In this case, it is a bond that has a coupon that is payable monthly but is not redeemable for cash at any time. I may try to split the difference on this and consider half of it as a bond with the other half not considered in terms of asset allocation. This will give some of the benefits of either calc without confusing the issue too much and it will help to keep the actual stock/bond allocation closer to what I really want.

Thannks, guys...

Ed_B


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