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Old 09-29-2007, 01:57 AM   #21
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Someone said annuity. I was thinking self-funded pension fund without any insurance.

They have 3,5, and 7% payout fund options. It does strike a nice balance between managing the assets for a payout (kinda like a pension), yet the funds are also available if you need to take more for an emergency.


It is interesting. There are probably even more options that will be made available over the next several years.
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Old 10-31-2007, 08:31 PM   #22
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Rich, why are you thinking to burn through cash and bonds first and then stocks? Why not try to maintain target AA?
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Old 10-31-2007, 08:47 PM   #23
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Rich, why are you thinking to burn through cash and bonds first and then stocks? Why not try to maintain target AA?
This, for example:
Spitzer and Singh, Is Rebalancing a Portfolio During
Retirement Necessary? J of Financial Planning, June 2007

Executive Summary:
The study investigates six different allocations of stock and five different harvesting rules, only one of which rebalances the portfolio annually. The methods are tested using five different withdrawals rates (37 percent). The results look at shortfalls over 30 year s, as well as shorter periods.

The study uses two analysis methods: bootstrap and historical inflation-adjusted rates of return in their true temporal order. Both methods find that rebalancing provides no significant protection on por tfolio longevity, and this holds for all withdrawal periods. In fact, in some cases, rebalancing increases the number of shortfalls.

Withdrawing bonds first, over stocks, performs the best of all the methods, though the resulting stock-heavy portfolio may make some investors uneasy. This method also is most apt to leave a larger remaining balance at the end of 30 years, while rebalancing leaves the smallest amount.

Withdrawing stocks first leaves more shortfalls than withdrawing low first or high first.

Confirming previous research, the larger the propor tion of stocks to bonds, the longer the portfolio lasts; the higher the withdrawal rate, the more shortfalls.

The results suggest that the use of life- cycle funds or a life-cycle strategy that decreases stock proportions as one grows older needs empirical justification.

Lucia has a similar philosophy. But I wouldn't take it too literally; if stocks are coming off a great year, I would probably sweep some earnings into cash, though only enough to bring stocks back down to what would still be a good year's balance. Otherwise you end up in a nearly all-stock situation after 10-1 years (which may or may not be OK).
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Old 10-31-2007, 09:28 PM   #24
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Rich, Thanks and Wow. Just a knucklehead trying to get by. Layman thoughts if stocks deliver best overall returms most portfolio's most of the time will do better with more stocks. Unfortunately for us individuals the fickle finger of fate can #%@ us if we make choices in the wrong year. So it seems continuing on the Layman path that a reasonable hedge would be to draw off stocks following an up year to hold closer or return to AA and to draw off bonds/cash in down years to do the same and or allow stocks to rebound. It appears I may have oversimplified or as occasionally happens just blown it.
Any suggested reading to get my mind right?
By the way many thanks to the folks that promoted Four Pillars, the millionaire next door, work less live more, the perfect business, your money or your life and the richest man in babylon (oops that last one was me).
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Old 10-31-2007, 09:43 PM   #25
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Sounds like virtually a no-brainer to me. Takes all of the work out of the equation:

When to rebalance?
Where to generate the distributions from?
Which asset classes might be over/undervalued at any given time?

Their list of asset classes is also quite impressive - adding both commodities and market-neutral. Reading the prospectus, they don't define what % will be allocated to each class - just a range for each class. So once again, there will be some reliance on active management to determine how to place money.

My current plan (not implemented yet) has 16 asset classes...yes I know...way too much slice and dice. If the total expense ratio is really going to be 0.34%, I highly doubt I could keep the expenses below the 0.34% after ETF trading fees and the underlying expense ratios.

So it seems to me that they are covering all the bases:

1) Well diversified portfolio - including commodities and market-neutral
2) Low costs
3) Active management to allocate resources (lets hope the active management knows what they're doing)
4) Monthly distributions that are guaranteed for a given year
5) With the monthly distributions, the additional money that would typically be taken out and placed in a MM (as in a usual DIY case) would stay at work in the fund. Not an issue if you want to rebalance/fund your living expenses 12 times/year
6) The stated objectives of the funds (at least the 3% and 5% funds) are to at least maintain principal and purchasing power over time

Put your money in, let them invest it at low cost, and get a known monthly check for a whole year. To be reset at a new level each year, based on performance.

Couldn't be any easier. And it is Vanguard, after all.

Still, all that said, I think I'll still DCA in over the next number of years. I'd hate to take the big plunge with markets at all time highs virtually across the world...
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Old 10-31-2007, 09:55 PM   #26
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Rich's approach isnt too far from what I'm doing at this point. Lots of 6.25% cd's, a lot of wellesley and a bit of high yield up front, with a lot of TSM, reits and SCV on the back end. When the first bucket gets low and rates reasonable, we'll start converting some of the long term equities into cash and bonds.

Keeps your long money long and your short money short.

Once I understand how they do distributions, these new funds might be contenders. Take a bucket of 3% return for 5 years worth, a bucket of 5% return for the next 15 and a bucket of 7% for the rest. Maybe just the 5% and 7%...i'm not that conservative.
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Old 11-01-2007, 07:50 AM   #27
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Once I understand how they do distributions, these new funds might be contenders.
Exactly. If the distributions are just pro rata share sales after dividend reinvestment it may not be as interesting as if they distribute from cash only and rebalance opportunistically. FWIW, on their usual strategy synopsis Vg and other big fund families seem to be pretty opaque at that level of detail.

Let us know if you learn anything as this thing unfolds. I wish they had a fund with similar AA but stocks only. I'd use that for long term and do the bond/cash part myself.
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Old 11-01-2007, 10:00 AM   #28
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I'd be pretty surprised if they werent taking distributions that were already taxable and dispersing from those first. What happens after that is the good question.

Although these are supposed to be run by their quant group who also does the asset allocation fund, which values equities bonds and cash and adjusts to suit their relative valuations. So one could presume they'd sell off the overvalued stuff to meet distributions and then rebalance the rest also from overvalued classes. The fun part is that they'll be doing this monthly to make distributions...the 3% fund probably can get everything from dividends/interest, but the 5 and 7% funds will need to take some bites out of the portfolio every month to write "the paycheck".
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