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Thoughts on a strategy
Old 03-10-2013, 06:44 AM   #1
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Thoughts on a strategy


I'm retiring June 1. My wife and have pensions to cover our basic needs. Currently have about 275k in Vangaurd with an AA of 60 stock and 40 bonds: an allocation I would like to maintain. Another 625k in stable employee accounts (principle protected/tax deferred) which are earning about 1.75% and 3% respectively. Money available for transfer to Vanguard accounts after I retire. We plan to withdraw about 2% a year for the purpose of travelling . I also maintain about 40k in cash savings.

With the concerns about bonds, it occurred to me if - rather than move 40% of that additional 625k into bonds, I left that percentage in the 3% account, it would be earning a similar (better?) yield than bonds without the risk of losing principle when the QEs end and interest rates began rising. The other 60% would go into stock funds.

I could make withdrawals from the taax deferred accounts as needed, if stocks dropped. If appropriate, down the road, I could transfer that money into bond funds when bond futures did not look so dismal.

I'd like to ask everyone's thoughts on this strategy. Any negative points I might be missing?

All thoughts appreciated.

(current funds are VTSAX, VTIAX and Vanguards total bond fund)

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Old 03-10-2013, 08:23 AM   #2
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This seem like a reasonable approach over the next few years due to interest rates possibly moving higher. My current 401K has a good stable value fund that I will probably maintain as a piece of my fixed income side vs moving it to some other bond or CD vehicle when I retire next month, although its not as large as what you are dealing with.

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Old 03-10-2013, 08:35 AM   #3
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I don't see why you would move any of the $625K at all.

If you move some to equities, then you are increasing your risk. That is, you are changing your asset allocation. You could do almost the same thing by moving some of your Vanguard bond funds into your Vanguard stock funds in that other $275K you have.

Stable value funds paying 1.75% or 3% are very rare nowadays, so I would not want to give them up.

I guess I am saying that you should look at your portfolio as a whole and not as 2 or 3 separate accounts.
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Old 03-10-2013, 11:06 AM   #4
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My only concern is how secure the "stable value" fund really is. These are frequently insurance company contracts that may or may not have any backing other than the insurance company itself. I have known people to have these funds "bust the buck" in their 401k.
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Old 03-10-2013, 11:21 AM   #5
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Wow, no easy answer. My "cash" is earning 0.90% (mostly) and 1.6% (not enough of it), so I have a lot of my AA in shorter duration bonds. I believe the NAV hit on bond funds is at least a few years off, and I hope I'll be able to reduce my holdings to avoid some of the hit, though I realize that may be foolhardy.

If I had 3.0% and 1.75% locked in right now, I'm not sure I'd be in any rush to convert it to bond/funds. Frankly I probably wouldn't especially the 3.0% part. The good thing is you don't have to decide right away.

As many have said, there's just no (good) place to hide right now. Stay diversified to your comfort level and trust the market will reward in the long term as it always has...
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Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
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Old 03-10-2013, 12:32 PM   #6
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I suppose SV funds have their risks as mentioned, but it's nice to have one fund which always goes "up", even if it isn't a lot. I actually have a good chunk of my stash in such a fund. It was nice when the stock market crashed as my overall stash didn't take much of a hit with my low allocation to stocks. Right now, bonds seem iffy and the stack market has been on a tear, so something "stable" is nice to have, even if it's as boring as watching paint dry. At my age, boring is good! YMMV
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Old 03-10-2013, 01:51 PM   #7
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Thank you for the thoughts - it is interesting to see from different POVs.

The larger account - 440k - had been earningfixed 5% until last April. The board then changed the rate to match the 10 year treasury bond. Both accounts are through state retirement boards.

At 57 yoa, I see the opportunity for the portfolio to increase, even though I would be making WDs of about 2% - hence the allocation (60s/40b) I chose. i planned that as the final allocation for the entire portfolio. I don't mind the volatility of stocks, as I have other sources to draw from, and I can meet my needs without withdrawing at all .

DW is also receiving $14k a year for the next 5 years into Oppenhemier funds as a separation package. Not keen on Oppenheimer, but really had no choice. Chose C shares so I can remove the money after a year without penalty and put it it elsewhere. That's not ncluded in the above total.

It would be nice to leave a bit of a trust for my son.

If I sold bond funds right now, I'd be taking 1.5% loss, so I'm inclined to let that fund ride through the years. I know it's going to get will one day get better, or be my son's problem lol.

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