What IS the Norweigan Widow anyway?

[Jane_Doe]

Hi!

This question is basically to Uncle Mick, who is always touting the "Norweigan Widow" portfolio.

I have been reading/lurking here for several months and have figured out that Norweigan Widow basically seems to be receiving your income via dividends. However, can you shed a little more light onto this type of investing as you practice/see it? I would really appreciate it.

Background: DH is 52, I'm 44 and plan on ER within next two years (love it to be next summer but that's unlikely). Anyway, we have always done well in Real Estate, but pretty terrible in anything to do with stock market investing. We are especially "good" at picking out individual stocks that tank right after we buy them.

We have plans on selling off our rental real estate and should be able to live comfortably off a 2-3% SWR. I also plan on having a separate stash/back-up funds not incl in the portfolio as a cushion in bad times. We intend to try to invest our port as 20/80. (DH doesn't like trust stock market a bit!) No other income sources.

So ..... Can you point me towards mutual funds and/or index funds that will work for us? I am thinking of TIPS, maybe muni's and/or muni funds for most of the 80% bond side, but hoping to not tie anything up to long term to avoid a real loss to inflation. Again, input from you all would be appreciated.

I thank you all for your help and wisdom!

Jane

[Outtahere]

Thanks for asking that question Jane, I was wondering the same thing.

C___

[. . . Yrs to Go]

Originally Posted by Jane_Doe

We are especially "good" at picking out individual stocks that tank right after we buy them.*

Please post your best stock picks - the portfolio can always use a few good short ideas.

[Brat]

I am recommending to my brother, who has a similar risk profile, Vanguard's global fund VHGEX. *At the moment it is 60% US, 40% international.

You might take a look at FinancialEngines.com. *The last time I looked it was available at a discount to Vanguard customers.

Given your comfort level with equities I would leave the stock picking to others.

[uncledrz]

Originally Posted by Jane_Doe

Hi!


Background: DH is 52, I'm 44 and plan on ER within next two years (love it to be next summer but that's unlikely).* Anyway, we have always done well in Real Estate, but pretty terrible in anything to do with stock market investing.* We are especially "good" at picking out individual stocks that tank right after we buy them.*

We have plans on selling off our rental real estate and should be able to live comfortably off a 2-3% SWR.* I also plan on having a separate stash/back-up funds not incl in the portfolio as a cushion in bad times.* We intend to try to invest our port as 20/80. (DH doesn't like trust stock market a bit!) No other income sources.

So ..... Can you point me towards mutual funds* and/or index funds that will work for us?* I am thinking of TIPS, maybe muni's and/or muni funds for most of* the 80% bond side, but hoping to not tie anything up to long term to avoid a real loss to inflation.* Again, input from you all would be appreciated.

I thank you all for your help and wisdom!

Jane

No financial expert here, so take everything for what its worth. Run firecalc with an 80%bond portfolio and see where that gets you, historical, but informative nonetheless.
You've got 50 years in front of you, inflation may well be with us again, and while bonds do provide a steady income stream, avoiding all risk may be undertaking the inflation risk.

Not to say no to bonds. They have a part in a withdrawal portfolio. OTOH, don't have to go with stocks. Might want to keep some of the real estate (is management a possiblity?) or look at inflation resistant assets (commodities, I bonds or the like).

Some on this board have retired with bonds and real estate, but I don't recall any with as many years in the future so heavily in bonds.
Just MHO
Uncledrz

[justin]

Originally Posted by Brat

I am recommending to my brother, who has a similar risk profile, Vanguard's global fund VHGEX. At the moment it is 60% US, 40% international.

VHGEX has performed very well, but check out the expense ratio. 0.90%! Pretty high if you're looking for low expense ration funds.

[Martha]

I'll give a shot at describing the UncleMick theory of investing:

1. Bogle/Norwegian Widow.

Most important--do nothing. Invest in Vanguard funds like Wellesley or Target retirement income fund and collect dividends and interest.

If you need to satisfy your male urge to do better than Vanguard, pick some dividend paying stocks you like, but don't make it a big part of the portfolio.

2. Charles deGaulle.

God protects fools, drunkards and the US of A. Inotherwords, don't worry too much. Live life. Let the good times roll.

Somewhere, Bear Bryant and being agile, mobile and hostile fits in too, but I'm not sure where.

[Brat]

Justin has a point, however, this is a managed fund with a lot of international content.

This couple is risk averse in equities and don't understand the risks in bonds.

I agree with others who say the bond % is way to high, that is why I suggested they try FinancialEngines.com through Vanguard. *

One approach could be that they effectively ladder Vanguard's target retirement funds. *Put 5 years worth of $ in Target Retirement, *5 in their 2005 fund, 10 each in 15, 25, 35 and 45. *Draw down in that order.

I think like my GG, a Norwegian widow.

[wabmester]

Originally Posted by Martha

I'll give a shot at describing the UncleMick theory of investing:

Hey, this could be fun. * Let's see who gets closest to interpreting UncleMick correctly.

1) Norwegian Widow. * She's all about collecting dividend checks. * Unfortunately, she's probably dead by now. * The average dividend yield is around 1.6%, which isn't enough for most people to live on. * And, in theory, dividend growth should be about the same as earnings growth, so it shouldn't really matter whether you take your income as dividends or cap gains.

2) Bogle. * He has two things to say: *A) Your stock allocation should be about 100-age (rest in bonds), and B) your stock allocation should come from the Total Stock Market index. * He believes in efficient markets, and a cap-weighted index represents the way the market has efficiently allocated capital. * He's a big fan of "don't just do something, stand there!"

3) Martha got deGaulle right.

4) Be agile, mobile, and hostile. * Be prepared to adapt to your changing enviroment. * If we hit hard times, learn to be frugal.

[Martha]

Ah yes, play a good defense: agile, mobile and hostile.

Like collecting social security early.

And fend off the women.

[MRGALT2U]

Originally Posted by uncledrz

Some on this board have retired with bonds and real estate, but I don't recall any with as many years in the future so heavily in bonds.
Just MHO
Uncledrz

I did it, and I don't think I would have used common stocks even if I had been a
lot younger. Maybe. We'll never know now. Most of the older
retirees I know (older than me - where I have a sense of their
finances) still have stocks in their portfolio. I think I sense
(very small sample group) stock avoidance tendencies in people who went through the Depression, and heavy stock investment by younger "traditional age" retirees
who hire or listen to financial planners and their ilk.

JG

[MooreBonds]

Originally Posted by Jane_Doe

Hi!

This question is basically to Uncle Mick, who is always touting the "Norweigan Widow" portfolio.

I have been reading/lurking here for several months and have figured out that Norweigan Widow basically seems to be receiving your income via dividends. However, can you shed a little more light onto this type of investing as you practice/see it? I would really appreciate it.

Background: DH is 52, I'm 44 and plan on ER within next two years (love it to be next summer but that's unlikely). Anyway, we have always done well in Real Estate, but pretty terrible in anything to do with stock market investing. We are especially "good" at picking out individual stocks that tank right after we buy them.

We have plans on selling off our rental real estate and should be able to live comfortably off a 2-3% SWR. I also plan on having a separate stash/back-up funds not incl in the portfolio as a cushion in bad times. We intend to try to invest our port as 20/80. (DH doesn't like trust stock market a bit!) No other income sources.

So ..... Can you point me towards mutual funds and/or index funds that will work for us? I am thinking of TIPS, maybe muni's and/or muni funds for most of the 80% bond side, but hoping to not tie anything up to long term to avoid a real loss to inflation. Again, input from you all would be appreciated.

Jane

Welcome to the forum Jane.

One bit of my advice (for whatever it's worth): While the younger folk may make sense to add Munis to their portfolios, check out what your expected highest marginal tax bracket will be once you retire...if you're highest bracket (once you take into account ALL deductions/exemptions/etc) is only going to be 15%, then the tax-advantage of Munis may not make sense. However, if you're going to be in the 25%+ bracket, it may be more attractive.

Don't forget that Treasury securities are exempt from state tax...so Munis may not offer that much additional tax benefits compared to Federal debt. But, as with all investing situations, particular details do apply, and you may come across a decent-yielding Muni that may make sense.

Although I don't have any Wellesley or Wellington from Vanguard (just 28 years old), if I were twice as old I'd definitely have a good chunk in it for both decent capital appreciation and a 3% +/- yield.

--Peter

[Jane_Doe]

Wow guys!

Just got up (late night last night) and logged on with my coffee to find all these great replies!

First thanks for clarifying the NW port, and I couldn't remember the DeGaulle thing but KNEW I was forgetting one part of Uncle Mick's strategy! (Thanks Martha!)

As to diversifying with real estate, we are planning on keeping a waterfront condo, probably another piece of property condo somwhere warm, and our house will be paid off - so we will have all that as a back up that I'm not including anywhere as far as in the "port" picture, since I don't consider that touchable (although we have always considered we would sell property if/when needed to stay afloat) . That's how we made out over the years - socking away into mortgages while receiving rents - instant non-accessable savings! Out of sight, out of mind.

Can't find where someone replied about what if we manage our real estate - we have always done this! The property we will be selling needs a good amount of general maintenance on a daily basis (including a good amount of snow shoveling in the winter last year!) so it does get old after awhile. Yes, we could pay someone, but truly if we are going to retire and travel or spend a couple of months in the winter elsewhere, we don't need to worry about what's going on up here. Besides the property value on this property is nice right now, but in the next year or two there are some major developments going on that will should positively impact it, making it crazy not to sell out. FYI,I have already taken capital gains tax on the sale into account.

I'm not sure about the tax bracket issue, since it will be totally different from where we are at now. We have an excellent accountant who will help me figure all that out if I need a heads-up. Right now it's all up in the air till we sell, but I guess I ccould start looking at the hypotheticals (sounds like more homework to me!)

Run firecalc with an 80%bond portfolio and see where that gets you, historical, but informative nonetheless.

Actually, I did run firecalc back a few months ago - it came out fine (over 95%). We have plenty of "fluff" in our spending which could be cut in lean years (we've been through a few of those before!)

I am thinking actually of drawing a % (probably 2.5-3%) of portfolio - same each year (good or bad), with a backup fund (cash of some sort not "incl." in my investment port. - available just in case we hit a really bad period.) We can cut back if necessary on the withdrawal in need be. The only problem on that is that even if I set some extra money aside, I have a strong feeling my DH will want to buy more RE with it .... then here we go again (totally unavailable funds, but does grow nicely....)

Meanwhile, Wellesley and maybe some Berkshire-Hathaway or similar strong, SAFE stock funds are what I am thinking of. I know Wellesley has (60%?) bonds and I will have to figure that into our mix. I would love to figure up something where the money we need for spending just goes into a money market account monthly or quarterly, and the rest just compounds itself. Less messing around (hence my interest in the Norweigan Widow!). And I do know we need to have some of our stock funds in international I'm thinking about 30-40%) as a hedge.

I don't understand the difference between TIPS and I-bonds, or how they compare to regular Treasuries (besides the inflation coverage on the TIPS and I-bonds).

I guess I have a lot on my plate to figure out. I am glad I am starting early and that I have access to this great board!

Thanks everyone!

Jane

Oh, forgot to add:

Please post your best stock picks - the portfolio can always use a few good short ideas.

All I can say, is that twice we have been mailed the paper certificates - seems that once the stocks hit a certain low spot the broker washes their hands of it?!

[unclemick]

Heh heh heh

I don't issue grades: However I post this for perusal -

75% Vanguard Lifestategy mod (IRA)
10% REIT Index (IRA)
15% DRIP dividend stocks - the usual suspects - utes, oils, telephone, a few drugs and REITs.

Lost everything in Katrina(no flood insurance) - relocated in NW Missouri - bought a house(20% down) and restarting with trusty emergency reserve funds.

Pretty much the same portfolio since 1998 - when I added REITS - the % varies with the market - I generally don't rebalance.

Parting thoughts - dividends and interest are real money, Bogle's CMH cost matters hypothesis are two thoughts in addition to those already expressed.

More than one way to skin a cat.

Heh heh heh.

P.S. - my misty memory - the Norwegian widow was an ancient obscure newspaper article about 'waiting by the mailbox for the deceased hubby's stock dividend checks' - in the Pac NW.

[Brat]

the difference between TIPS and I-bonds

Brewer is THE expert in this area but I will share with you some of the differences I have identified.*

Buy & sell:
You can purchase $30T I-Savings bonds through treasury direct each year (per SSN), and another $30T per year from a bank per SSN.

You can buy I-bonds through treasury direct or a brokerage.* There are I-bond mutual funds.

I-bonds are sold on the market if you wish to sell them before the expiration date, which means you have trading costs (I don't know what happens if they are in a treasury direct account).* I-Savings bonds are available in smaller denominations, you can redeam after 12 months, you will take a hit if it is within 5 years but the cost is less than what a broker charges for bonds.

Interest:
I-bond interest is posted and reported each year,* I-Savings bonds at redemption.* Many recommend that an I-bond be tucked in your IRA.

[wabmester]

Originally Posted by Jane_Doe

I don't understand the difference between TIPS and I-bonds, or how they compare to regular Treasuries (besides the inflation coverage on the TIPS and I-bonds).

I-bonds (which are the same as Series-I savings bonds) are sort of the consumer version of TIPS.* * TIPS are standard treasury-issued bonds, and the treasury wants to issue more of them in the future instead of traditional nominal bonds because they think they will pay less of a term premium.* *TIPS are available in 5-, 10-,* and 20-year maturities.

I-bonds are close to 5-year TIPS, but you are limited to $60K/year ($30K paper, $30K electronic) per SSN, you can cash them in with penalty after 1 year, and if you use them to pay for educational expenses, the interest can be tax-free.

Some more info from intercst here:

TIPS vs i-bonds

Edit: Brat, your description was good, but I think your nomenclature is off. You described "i-bonds" as TIPS, but i-bonds are just short for Series-I Savings Bonds.

[Brat]

Wabmester, you are correct. I didin't write as precisely as I should.

[rmark]

Didn't NW Missouri have a massive earthquake about 200 yrs ago?