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Opinions On This Allocation Requested
Old 12-21-2003, 12:58 PM   #1
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Opinions On This Allocation Requested

I've been pondering a significant shift in assets in preparation for ER in about 10 months. I would appreciate any comments. I'll be 52 when I leave the job, with 7 years before I can tap retirement funds. I have enough taxable money to carry me the distance without SEPP. I've examined cash flow over a 40 year period using Quicken Financial Planner based on a 6% return and 3.5% inflation, and that checks out OK. FIRECalc checks out OK too - although I used 35% stocks and 65% TIPS, which isn't quite what I plan to have, and I don't know how to work around the two-asset limit. So does anyone see any problems with this allocation going into the first year of ER? Thanks.

..................... The Three Major Asset Classes ..........................

7% - Cash
58% - Bonds
35% - Stocks

............................ Broken Down This Way .................................

7% - Vanguard Prime MM Fund

13% - Vanguard Short Term Corp. Fund
11% - 6 - 10 YR TIPS
34% - 25-27 year TIPS - (I'm waiting for 2.5%)

27% - Vanguard Total Stock Mkt. Fund
8% - Vanguard International Growth Fund

............................ Breakdown By Account Type .................................

7% - Vanguard Prime MM Fund
13% - Vanguard Short Term Corp. Fund
(These two provide approx. 6 years of liquidity for withdrawals)
11% - 6 - 10 YR TIPS
12% - Vanguard Total Stock Mkt. Fund

15% - Vanguard Total Stock Mkt. Fund
8% - Vanguard International Growth Fund
34% - 25-27 year TIPS (I'm waiting for 2.5%)

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Re: Opinions On This Allocation Requested
Old 12-22-2003, 04:13 AM   #2
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Posts: 398
Re: Opinions On This Allocation Requested

I can't see anything wrong with this, but here are a few ideas on fine tuning it a bit.

1. *I regard a short term bond fund the same category as "cash" for purposes of asset allocation. *In general, the only "cash" that I hold is for normal transactions and large planned purchases within a year or so, because over the long term the return on "cash" barely matches inflation. *However, if you are holding some cash in anticipation of buying longer term TIPs or other long term bonds when interest rates go up, that is OK. *Also, Vanguard's Short Term Corporate Fund is an excellent way to hold cash beyond what is in a checking account.

2. *You might increase your "effective" allocation to stocks to about 45% by putting about 10% of your cash and/or bonds into Vanguard's REIT Index, and another 10% into one or more high yield bond funds. *TIAA-CREF and T. Rowe Price have ones that are equivalent, and Fidelity has two that are riskier but are likely to continue producing a somewhat higher return as the result.
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