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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 08:06 AM   #61
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Re: Maximizing portfolio return with very low risk

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Here's the only single family house available for less than $600K in Cupertino - one of the towns in Silicon Valley (it's all just one big suburbia now but these used to be separate individual towns at one time).

It's a real upper class villa with an astounding 814 sq ft and two bedrooms. *Enjoy.
What's someone (hypothetically) living in silicon valley with less than 1million portfolio at 48 doing on this website? *This is the Retire early forum, not the consumerism maxima. *

I value retiring early, not living it up. *Clearly, we differ Hyper.

If you come on this forum with less than 1 mil, and live in Silicon valley and want my help on how to retire now, then you either move, or i cant help you. *If any part of that is unclear, please indicate which part.

I think some of you are on the wrong website.
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 08:08 AM   #62
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Re: Maximizing portfolio return with very low risk

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As a potential RE at 48 with wife and 3rd grader son, here is a way that I am thinking of structuring my portfolio to maximize income and minimize risk. Equity in the house is $0.6M, debt is less than $0.2M. Portfolio size is $1.1M, 85% in taxable, 15% in tax-deferred. The objective is to extract $40K of passive income with some amount of risk.

1. 100K 5 yr CD at 5%
2. 100K 4 yr CD at 4%
3. 350K Moneymarket at 3%
4. 60K I-Bonds @3.67%
5. 125K Dividend paying stocks, 5-6 @ 8%
6. 125K Preferred Shares and REIT * @7%
7. 100K Vanguard HY Corporate & ST Bond @4%
8. 100K Vanguard Wellington@4%

Comments?
Dante:

What I get from your posts is that you would like to downshift from a very taxing corporate job to something less strenuous, and you want to structure your portfolio to throw off enough income to ease the transition.

I think that the portfolio part won't be that hard. The way I read it, you already have a portfolio that throws off roughtly 4%, so getting actual income won't be much of a problem. The main problem is that you are likely to be exposed to inflation over time. The most likely way to avoid that problem is to increase your exposure to equities and possibly add some international bonds/equity and perhaps a small exposure to commodities (very good inflation hedge). This stuff isn't that hard. You already have soe money in Vanguard Wellington, which is a fine choice. If you move a chunk of your portfolio into this fund and add some international exposure you are basically done. Since you have a lot of cash sitting around, that plus the junk bond fund is probably what I would use to get there.

However, I think other considerations amy be more important. As others have sugested, paying off the mortgage would probably make a lot of sense from a cash flow standpoint. I would also encourage you to come up with the best crack at a budget that you can and see how it stacks up against portfolio income and whatever you expect to generate from a less taxing job/small business. Also, I would suggest that you think a bit about where you will get health insurance and how much you will pay for it.

Unlike azanon, I think you are in reasonable shape. Make some modest portfolio changes to shield you from inflation and you are probably OK on that front. Do some budgeting, planning and analysis and you should be in good shape to downshift to a less tough gig. It might be helpful for you to figure out what you need to generate ver and above your portfolio income and then use that as a target/goal for your new gig.
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 08:16 AM   #63
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Re: Maximizing portfolio return with very low risk

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I value retiring early, not living it up. *Clearly, we differ Hyper.
This is interesting - I thought that you've told us before that retiring early was interesting but that you loved your job and would be there until 65 or so.

Quote:
If you come on this forum with less than 1 mil, and live in Silicon valley and want my help on how to retire now, then you either move, or i cant help you. *If any part of that is unclear, please indicate which part..
The bolded part is definitely unclear - I don't recall asking. This whole "discussion" came about because you are unwilling to realize that people outside of Arkansas have to spend more than $100K to live in anything but an Arkansas tarpaper shack.

For myself, living and working in Silicon Valley will actually accelerate my retirement but that's because you are forgetting the other side of the equation - income. Good engineers here make a lot more than the top scale government employees do. I checked out the chart provided by another poster on another thread and the amount made by a top GS-15 even with regional extras is well below what good engineers here make.
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 08:17 AM   #64
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Re: Maximizing portfolio return with very low risk

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Unlike azanon, I think you are in reasonable shape.
For an excellent example of how to take someone out of context, and misquote them, see brewer's post above.

In contrast to being misinterpreted, Dante, ... *I think you're in pretty good shape today at 48 assuming you'll continue working. (though you'd miserably fail the what you should be worth formula quoted in "The Millionairre Next Door")*I think you're in poor shape to retire today as you proposed. *Brewer, for clarification, he was proposing to quit all together, not reduce his hours. *If he's still going to produce some earned income, we're talking about a completely different situation. *Just an extra 30K of earned income might make semi-retirement possible now, even in his fancy, paid-for luxury house.
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 08:27 AM   #65
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Re: Maximizing portfolio return with very low risk

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This is interesting - I thought that you've told us before that retiring early was interesting but that you loved your job and would be there until 65 or so.
The first part's right, second parts wrong. *My current plan is to retire at 58 actually, the age i will be eligible for full retirement, unreduced pension, and SS suppliment. *Question is, will i love the job 20 years from now? *Like anyone, i cant know that for sure, so i'm preparing to pull the trigger early should my work conditions change.

Quote:
The bolded part is definitely unclear - I don't recall asking. *This whole "discussion" came about because you are unwilling to realize that people outside of Arkansas have to spend more than $100K to live in anything but an Arkansas tarpaper shack.
Now we're going from a 500K to 1M home, to saying I promoted living in a shack. *I didnt say that, you know it, I know it, and it is clearly suggesting you're getting despirate because you're being owned in this discussion. *

I listed the median cost of a house in LA. *Does Dante live in Silicon Valley? *If not, why the heck are we talking about such an outlier example. *You guys are really grasping here to not lose to a 33 year old.

Quote:
For myself, living and working in Silicon Valley will actually accelerate my retirement but that's because you are forgetting the other side of the equation - income. *Good engineers here make a lot more than the top scale government employees do. *I checked out the chart provided by another poster on another thread and the amount made by a top GS-15 even with regional extras is well below what good engineers here make.
Again, you're completely changing the scenario from Dante's, I assume because you're losing the discussion at hand. *His scenario is RETIRING (that means, not making any earned income). * Yes, if you change the scenario as you just did to you're living there BECAUSE your making 250K a year or more, then by all means live there. *Dante's talking about retiring. *Please stay on subject. *If he lived in said area before cause he made big bucks, fine. *Retiring early at only 48 with a very modest portfolio? *Its time to move!

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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 08:36 AM   #66
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Re: Maximizing portfolio return with very low risk

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For an excellent example of how to take someone out of context, and misquote them, see brewer's post above.

In contrast to being misinterpreted, Dante, ... *I think you're in pretty good shape today at 48 assuming you'll continue working. (though you'd miserably fail the what you should be worth formula quoted in "The Millionairre Next Door")*I think you're in poor shape to retire today as you proposed. *Brewer, for clarification, he was proposing to quit all together, not reduce his hours. *If he's still going to produce some earned income, we're talking about a completely different situation. *Just an extra 30K of earned income might make semi-retirement possible now, even in his fancy, paid-for luxury house.
Hey, dude, you can take the attitude and go chat with consejo. I indicated a diference of opinion with you, not that I thought you were a loon (although I must admit to edging in that direction).

Take it easy. You don't have the perfect solution and neither do I. Not worth getting your panties in a twist, IMO.
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 08:37 AM   #67
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Re: Maximizing portfolio return with very low risk

LOL, as an aside, i didn't realize I had the market cornered on moving out of a high cost of living house and demographis as a very effective means to retire early.

I live in Arkansas, so this item is already checked for me, but if i lived where some of you guys do, that'd be #1 on my list as to how to knock off several years of work. He could move next to me, and immediately pocket 450K dollars!

Yes, we have streets and cars, best buys, home depots, malls, contrary to how we're protrayed on TV sometime.
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 08:39 AM   #68
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Re: Maximizing portfolio return with very low risk

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Hey, dude, you can take the attitude and go chat with consejo. *I indicated a diference of opinion with you, not that I thought you were a loon (although I must admit to edging in that direction).

Take it easy. *You don't have the perfect solution and neither do I. *Not worth getting your panties in a twist, IMO.
Sorry, i didnt realize not being intentionally misquoted was an unreasonable expectation. *If anyone's due an apology, you owe me one AFAIK.

Quote:
I indicated a diference of opinion with you, not that I thought you were a loon (although I must admit to edging in that direction).
Care to substantiate that with anything?
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 10:08 AM   #69
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Re: Maximizing portfolio return with very low risk

I'm feeling queezy. This must be what the rest of you feel like when TH and I get started on mortgages. . .

The dominant early retirement personality (INTJ) is not known for their abilities/inclinations to be compromising or open minded. Couple this with dramatically different levels of financial/mathematical sophistication and with very different risk/return goals, widely dispersed geographical locations . . . Well -- you get the picture.

There is no debate to win here. Lots of people retire successfully with lots of different strategies. There is no right and wrong except for purely mathematical calculations . . . and that is often the least important factor in your decisions.
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 10:21 AM   #70
 
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Re: Maximizing portfolio return with very low risk

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If you come on this forum with less than 1 mil, and live in Silicon valley and want my help on how to retire now, then you either move, or i cant help you. If any part of that is unclear, please indicate which part.

I think some of you are on the wrong website.
You seem to have an awfully inflated sense of what your opinion is worth....correct me if I am wrong, but aren't you a 33 year old government employee that *hopes* to be able to retire in 20-25 years with a government pension? clearly your life experience is not your main qualification for doling out such strong opinions...do you have other expertise besides having read the millionaire next door?

Oh, and where exactly does it say that people came to this website to get "your help" on retiring early?

People that come to this site are best to take advice from those that have already er'ed or those that are very close to it...i.e. people that know what they are talking about....not people that read about it in a book and proclaimed themselve an expert.

I once read "The Perfect Storm"...saw the movie too in fact...anyone need any fishing advice?


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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 10:50 AM   #71
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Re: Maximizing portfolio return with very low risk

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Now we're going from a 500K to 1M home, to saying I promoted living in a shack. *I didnt say that, you know it, I know it, and it is clearly suggesting you're getting despirate because you're being owned in this discussion.
Look, the point of all this (if there is a point anymore) is that it is entirely possible in many areas of the US (except for flyover country apparently) to need more than $150K to buy a decent home.

Quote:
I listed the median cost of a house in LA. *Does Dante live in Silicon Valley? *If not, why the heck are we talking about such an outlier example.
It's an outlier if we are comparing home values as averaged by land area of the US. *Most of the land area of the US has very inexpensive homes. *The reason for that is that most of the population doesn't want to live there possibly for good reasons. *If you are able to look past those reasons then more power to you. *Most of the people in the US live in smaller geographic areas which have higher home costs but apparently enough other attributes to more than balance out the cost.

I used Silicon Valley examples because I'm most familiar with the area having lived here and shopped the housing market here. *L.A. has quite high prices too but the area covered by the designation "L.A." is huge so comparing averages for "L.A." is a little like comparing averages for New York state and wondering why you can't even buy a parking space in New York city for the state wide home price average.

Quote:
Again, you're completely changing the scenario from Dante's, I assume because you're losing the discussion at hand. *His scenario is RETIRING (that means, not making any earned income).
No it wasn't changing the topic but it was a side issue that we got into because you seem unable to believe that homes cost more for most of the people in the US than they do in rural Arkansas.

As I said a few posts ago, if my home was paid off here in Silicon Valley (or similarly if I were in L.A.) then I could easily "get by" on $40K per year. *It's very doable. *Besides, the original poster was talking about taking on some part time work.


Quote:
If he lived in said area before cause he made big bucks, fine. *Retiring early at only 48 with a very modest portfolio? *Its time to move!
I don't think that it's a given requirement. *It might make things easier - I sure plan on leaving this area when I retire. *I'll sell my home and travel but when I settle down again it will be to a place less expensive than here (Silicon Valley) but more expensive than rural Arkansas.

Does the OP need to sell and move? *Not neccesarily. *He can't fully retire with his portfolio total and planned allocation though. *He can take some yearly supplement from it and semi-retire (which seems to be his plan). *I would still suggest that he needs to be bit more aggressive with his allocation though - perhaps Vanguard's Wellington or Wellesley funds.

There can be plenty of reasons to decide to stay where he is. *There are school district reasons - keep the kids in a good school district where they have friends and are settled. *The OP may need to consider the moving from that area after the kids are out of school if he wishes to fully retire though as his portfolio size and asset allocation won't support full retirement. *Tradeoffs need to be made but which way to go - leave L.A. for rural Arkansas and fully retire there or stay in L.A. and partially retire (or cut back on his work hours) - is a personal choice for the OP.
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 11:24 AM   #72
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Re: Maximizing portfolio return with very low risk

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The dominant early retirement personality (INTJ) is not known for their abilities/inclinations to be compromising or open minded.
Ha, well for what its worth, i score very strongly INTJ on myers-briggs.
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 11:35 AM   #73
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Re: Maximizing portfolio return with very low risk

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You seem to have an awfully inflated sense of what your opinion is worth....correct me if I am wrong, but aren't you a 33 year old government employee that *hopes* to be able to retire in 20-25 years with a government pension? clearly your life experience is not your main qualification for doling out such strong opinions...do you have other expertise besides having read the millionaire next door?
I do? Are you familiar with my resume? If you insist, its impressive enough. And what's wrong with government employees? You think I should be ashamed for making 30/hr as a biologist doing something fun with all my benefits? I have one of the best jobs in the state of Arkansas, my friend, i assure you. Salary isnt everything. I should have the least trouble convincing folks of that truth here.

Every bit of advise I gave here in this thread i think is sound and would be reiterated by any professional financial advisor. I'm confident 9 out of 10 advisors would not recommend he retire early, I'm confident most financial advisors would think a diversified portfolio that includes stocks and bonds is sound, and i'm confident 9 out of 10 americans would consider a 600K dollar house as extravegent.

How bout you and others stop personally attacking me? Or is that also expecting too much?
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 11:46 AM   #74
 
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Re: Maximizing portfolio return with very low risk

>>I do? Are you familiar with my resume? If you insist, its impressive enough.

Again with the inflated sense of importance.

No, I don't care what your resume is, unless of course somewhere on it it shows me how you are ER'ed or just about to pull the trigger; Other than that, your main qualification seems to be the fact that you read "The Millionaire next door".

Whats wrong with government employees? For a starters, how many posts have you made today? from where? A work computer would be my guess, while you are getting paid to do something I suppose...probably with no fear of being fired for it either....I guess you really do have a great govt job. Get paid a guaranteed salary and spend all day posting opinons on messages boards on subjects you have no practical experience on.

So do you want the fishing advice or not?

I also offer mountain climbing advice: I read "Into Thin Air" not once, but Twice.
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 11:48 AM   #75
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Re: Maximizing portfolio return with very low risk

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It's an outlier if we are comparing home values as averaged by land area of the US. *Most of the land area of the US has very inexpensive homes. *The reason for that is that most of the population doesn't want to live there possibly for good reasons. *If you are able to look past those reasons then more power to you. *Most of the people in the US live in smaller geographic areas which have higher home costs but apparently enough other attributes to more than balance out the cost.
I think this plays exactly to my point, which i attempted to make. *"We're" not most people, are we? *Maybe i misunderstood this website. *ER comes before all because we're tired of being slaves to the wheel. *My only point in this is one has a hard time convincing me that they're really tired of it if they still insist on endulging in heavy consumerism. * I personally would include in that VERY high cost of living areas.

Look i'm even open to regular LA as not being too extravegent. *That's a little over twice my home cost, per my stats above. *I'm just saying if someone wants to settle down on Fiji island, Silicon Valley, Downtown Manhatten, then maybe, just maybe, they're really not all that interested in ER. * OR they're really rich. *But he's not.

It just comes down to how bad you want it. *I personally would want it bad enough to live in a low cost of living area. *That's all i'm saying. *

Quote:
Does the OP need to sell and move? *Not neccesarily. *He can't fully retire with his portfolio total and planned allocation though. *He can take some yearly supplement from it and semi-retire (which seems to be his plan). *I would still suggest that he needs to be bit more aggressive with his allocation though - perhaps Vanguard's Wellington or Wellesley funds.
This falls in line with exactly what I said. *I got upset initially because your initial writeup was very similar to mine though you said i was in contrast to you. *I think he has some great options as you just described which was actually a reiteration of things ive already said. *I agree with your assessment as quoted fully.

Quote:
There can be plenty of reasons to decide to stay where he is. *There are school district reasons - keep the kids in a good school district where they have friends and are settled. *The OP may need to consider the moving from that area after the kids are out of school if he wishes to fully retire though as his portfolio size and asset allocation won't support full retirement. *Tradeoffs need to be made but which way to go - leave L.A. for rural Arkansas and fully retire there or stay in L.A. and partially retire (or cut back on his work hours) - is a personal choice for the OP.
Again, I agree fully. *All i said from the very beginning is i dont think he can afford to 1. stay where he is *2. yet retire now, completely, just based on what he has accumulated. * * We're on the same page here I genuinely think.

.......

Sorry for my aggressive opinions, cause i know i can be aggressive. *Do i believe in my opinion? *Well of course I do and i'm not going to apologize for that. *The alternative to that I think is being indecisive, flaky, and subject to the flow of the wind.
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 11:55 AM   #76
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Re: Maximizing portfolio return with very low risk

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Again with the inflated sense of importance.
Again, what makes you so sure i'm overestimating? You think they hand out GS-12 jobs to high school graduates? Would you like me to fax you a copy of my masters degree in Biology? I'm as qualified as a lot of people here to state my opinion.

Quote:
Whats wrong with government employees? For a starters, how many posts have you made today? from where? A work computer would be my guess, while you are getting paid to do something I suppose...probably with no fear of being fired for it either....I guess you really do have a great govt job. Get paid a guaranteed salary and spend all day posting opinons on messages boards on subjects you have no practical experience on.
LOL, who's side are you own now? How is that a bad thing from my perspective?

To answer your accusuals though, look at the date. Yes, you get an award! Its thanksgiving eve. Guess how many consultants and clients want to do business today? Yes, you get another award! None. Gosh you're good!
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 12:04 PM   #77
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Re: Maximizing portfolio return with very low risk

Note to azanon: pride goeth before a fall.

Get over yourself, mister gummint biologist. Most qualified financial planners didn't do a stint in the Arkansas State Fish & Game Dept. earlier in their careers.
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 12:33 PM   #78
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Re: Maximizing portfolio return with very low risk

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Jeez. I agree with retire@40, i.e to get that 7% + today
you need equities, junk/near junk bonds or real estate.
I avoid equities so I am going with the real estate and junk mostly. I average over 7% not counting the real estate. I am quite satisfied with this based on my
options at this time.

John Galt
John,

Agreed. GMAC 7% was the best bond offering that I could find. Thanks for the suggestion. Happy Turkey Day.

dante
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 12:36 PM   #79
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Re: Maximizing portfolio return with very low risk

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Dante, I sort of like unclemick's suggestion. You
might consider Vanguard's Wellesley Income
which currently pays about 3.5% dividend. It
has 35% dividend paying stocks and 65% intermediate
term bonds. YTD return is 6+% last time I looked.

Cheers,

Charlie
Charlie,

Thanks for suggesting the Wellesley Income Fund. I will look at it. Happy Thanksgiving.

Dante
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Re: Maximizing portfolio return with very low risk
Old 11-24-2004, 12:40 PM   #80
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Re: Maximizing portfolio return with very low risk

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Dante:

What I get from your posts is that you would like to downshift from a very taxing corporate job to something less strenuous, and you want to structure your portfolio to throw off enough income to ease the transition.

I think that the portfolio part won't be that hard. The way I read it, you already have a portfolio that throws off roughtly 4%, so getting actual income won't be much of a problem. The main problem is that you are likely to be exposed to inflation over time. The most likely way to avoid that problem is to increase your exposure to equities and possibly add some international bonds/equity and perhaps a small exposure to commodities (very good inflation hedge). This stuff isn't that hard. You already have soe money in Vanguard Wellington, which is a fine choice. If you move a chunk of your portfolio into this fund and add some international exposure you are basically done. Since you have a lot of cash sitting around, that plus the junk bond fund is probably what I would use to get there.

However, I think other considerations amy be more important. As others have sugested, paying off the mortgage would probably make a lot of sense from a cash flow standpoint. I would also encourage you to come up with the best crack at a budget that you can and see how it stacks up against portfolio income and whatever you expect to generate from a less taxing job/small business. Also, I would suggest that you think a bit about where you will get health insurance and how much you will pay for it.

Unlike azanon, I think you are in reasonable shape. Make some modest portfolio changes to shield you from inflation and you are probably OK on that front. Do some budgeting, planning and analysis and you should be in good shape to downshift to a less tough gig. It might be helpful for you to figure out what you need to generate ver and above your portfolio income and then use that as a target/goal for your new gig.
Brewer,

Excellent suggestions. I hadn't thought of international bonds but will now.

Health insurance is key - just read another poster say that Minnesota is the best state for individual coverage. Need to look into my state - quite a change from being always covered at work.

Dante
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