Opinions On This Allocation Requested

[Bob_Smith]

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 .................................

CASH:
7% - Vanguard Prime MM Fund

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

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


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

TAXABLE ACCOUNT:
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

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

 

[Ted]

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.