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What would you do in this scenario?
Old 04-11-2009, 05:51 AM   #1
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What would you do in this scenario?

Assume you have $140,000.
You want to spend it down in 9 years.
You want the maximum amount of income possible over the 9 years knowing it will be gone after the 9 years.
If you spend too much and it only lasts 7-8 years it will not be any big catastrophe but will be disappointing.

How would you invest the money and how much would you draw and spend per year?
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Old 04-11-2009, 06:53 AM   #2
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Any tolerance for risk? Off the top of my head, if it were me I'd put maybe 1/3 in equities and 2/3 in something insured and safe (or at least safe from everything but inflation) like a 4-5 yr CD ladder or maybe some high grade munis or corporates. I'd plan on spending, say 90k+interest over 4 or 5 years and then let the equity performance (on the other 50k) determine how I fare in the second half of the 9 years.

I'm not sure when the market will recover but I'd be willing to bet that 4-5 years hence it will have done so.
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Old 04-11-2009, 11:06 AM   #3
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What Maurice said.
But then I am an optimist.
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Old 04-11-2009, 11:19 AM   #4
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VWEHX: Summary for VANGUARD HIGH YIELD CORPORATE F - Yahoo! Finance
Put it all in Vanguard High yield bond fund - Current yield 9.86%
there is a function in excel to figure out the rest.
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Old 04-11-2009, 12:50 PM   #5
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Quote:
Assume you have $140,000.


Please return my assumed money ASAP.
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Old 04-11-2009, 01:11 PM   #6
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I'd probably seriously consider looking into a payout annuity period certain vs. other alternatives.
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Old 04-11-2009, 03:37 PM   #7
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Quote:
Originally Posted by dex View Post
VWEHX: Summary for VANGUARD HIGH YIELD CORPORATE F - Yahoo! Finance
Put it all in Vanguard High yield bond fund - Current yield 9.86%
there is a function in excel to figure out the rest.
PMT function in Excel
Each payment
($24,174.56)

I think I just convinced my self to put the little money I have set aside to put into the market into Vang HYC.
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Old 04-11-2009, 03:53 PM   #8
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What do you think the HY default rate will be this year? I've heard some credible analysts say 12-15%, even higher. The market is assuming ~18%, based on spreads over treasurys.

At any rate, you should have a view on this before you put a lot of money into HY bonds.
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Old 04-11-2009, 07:46 PM   #9
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Originally Posted by Maurice View Post
What do you think the HY default rate will be this year? I've heard some credible analysts say 12-15%, even higher. The market is assuming ~18%, based on spreads over treasurys.

At any rate, you should have a view on this before you put a lot of money into HY bonds.
Check out Vang. HYCB Vs others; its rate is lower because of the quality of its bonds.
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Old 04-11-2009, 09:17 PM   #10
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Avoid locking into anything fixed like it was the plague. In a future rising interest rate environment, it's just not smart. So that Xs out bonds, CDs, (most)treasuries.

First of all, rate hunt on high yield reward checking accounts the best right now are offering 5.25% and they are a family of three banks in Wichita, Kansas(accessible online)--Advantage, Redneck(no lie), and AmericaNet Banks. If you do a good job hunting you should be able to keep up with the rising interest rates pretty well. Second, I would buy a significant amount of TIPS with the intention of selling 5-7 years down the road. In this case you bank on coupon rate + inflation protection + capital gain from selling a higher yielding coupon rate at a time when the coupon rate will be low--due to their tax properties I would buy them in a tax sheltered vehicle, assuming the individual was old enough to access them penalty free at the time. I would then put a large portion of money in stocks weighted heavily towards commodities(or a company that is very early in the supply chain), that would suffice for all of the money, but if you had some balls and knew enough to do your due diligence, I'd take a portion of the money and move it to emerging markets. And I would bet on countries like Kuwait, China, Brazil, and the gulf states(like Abu Dhabi). The bet would be that the gulf states will step up their transition towards their own currency and drop the dollar as its only reserve. In that case you bank on the market increase as well as the appreciation against the dollar.

Edit approximate numbers: Approximately equal portions in each if you don't do emerging. If you do, I'd still put a 1/3 in high yield and then 22% in the remaining 3.
P.S. I don't give out my 2 best ideas.
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