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Seeking advise with Mix Portfolio
Old 06-23-2007, 11:55 AM   #1
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Seeking advise with Mix Portfolio

I need some help with Mix Portfolio Allocation, specifically with non tax deffered accounts. As you know on a previous post, I have 2 mutual funds with USAA and some people think that is not smart putting my money into Precious Metals and Emerging Markets.

I will give you a quick overview of my financial situation and what my objectives and goals are.

I am 32 and the DW is 34. no kids

Currently we are bringing home around $135k a year

No credit card debt, no students loans, no HELOC, and no car payment

401k- $70k contribution of $10k a year
ROTH IRA- $9757 contribution of $4k a year
Emergency Fund $11000
Mutual Funds- $3500

I own 2 investment properties and both rental payments are producing positive cashflow and the mortgages are at 5.75% and 6.25% 30 yr fixed. I started a small business of translation/intepretation services and all positive cashflow will be invested in retirement accounts, stocks or mutual funds.

I want to purchase diligently 3 more properties and pay all 5 off within 20 years and get an income of $60k to live off from 52-59 1/2 when I can start withdrawing money from the ROTH and 401K without any penalties.

We want to invest the extra money we have in some type of investments that would allow us to retire at 52 &54. Basically, the money we decide to invest now on non tax deffered accounts would have to last for at least 7 years. If I stick to the plan with the real estate investment properties, I would have a rental income of approximately $5000 a month/$60,000 a year alone. At the same time I want my taxable accounts to bring some money into the pot.

I've been thinking on moving the balance on both mutual funds and open Vanguard Target Retirement 2025 Fund (low expense ratio, 79.5 stocks/20.5 bonds).

Send your suggestions my way!
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Old 06-24-2007, 12:00 PM   #2
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Originally Posted by xmanz3 View Post
We want to invest the extra money we have in some type of investments that would allow us to retire at 52 &54. Basically, the money we decide to invest now on non tax deffered accounts would have to last for at least 7 years. If I stick to the plan with the real estate investment properties, I would have a rental income of approximately $5000 a month/$60,000 a year alone. At the same time I want my taxable accounts to bring some money into the pot.
You give the specific goal for a seven year period twenty years from now, but it would serve you well to double-check that you can make it through the rest of your years on the planet as well (viz., post-retirement).

Have you used the Vanguard life expectancy calculator (https://flagship.vanguard.com/VGApp/hnw/planningeducation/retirement/PEdRetPicLongRetireContent.jsp )? It estimates that there's a ~33% chance that at least one of you will require 41 years or more of retirement money if you retire at ages 52 and 54, respectively.

Quote:
Originally Posted by xmanz3 View Post
I've been thinking on moving the balance on both mutual funds and open Vanguard Target Retirement 2025 Fund (low expense ratio, 79.5 stocks/20.5 bonds).
Right now it's 80%/20%, but by 2025 + 10 = 2035, it will be 30%/70% and you could require another 30 years of income at that point. Will that asset allocation address the risk of inflation over those 30 years?

IMHO, the Target Retirement Funds are underexposed to US mid- and small-cap and international stocks. They are appropriate, however, if you're concerned about short-term risk.

Also, be careful of "fund-of-fund"-type mutual funds. They generally impose fees on top of their underlying holdings, though that does not appear to be the case with VTTVX.
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Old 06-24-2007, 12:31 PM   #3
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Originally Posted by Lagrange Multiplier View Post
You give the specific goal for a seven year period twenty years from now, but it would serve you well to double-check that you can make it through the rest of your years on the planet as well (viz., post-retirement).

Have you used the Vanguard life expectancy calculator (https://flagship.vanguard.com/VGApp/hnw/planningeducation/retirement/PEdRetPicLongRetireContent.jsp )? It estimates that there's a ~33% chance that at least one of you will require 41 years or more of retirement money if you retire at ages 52 and 54, respectively.



Right now it's 80%/20%, but by 2025 + 10 = 2035, it will be 30%/70% and you could require another 30 years of income at that point. Will that asset allocation address the risk of inflation over those 30 years?

IMHO, the Target Retirement Funds are underexposed to US mid- and small-cap and international stocks. They are appropriate, however, if you're concerned about short-term risk.

Also, be careful of "fund-of-fund"-type mutual funds. They generally impose fees on top of their underlying holdings, though that does not appear to be the case with VTTVX.
Thanks for your advise.

After the 7 year period, my retirement income will come first from my 5 rental properties (roughly $5k a month) unless I make a decision of not being a landlord any longer. At that point I could sell all 5 properties and put all my money on a CD or some other secured investment tool.

Second, I will also have another income from my 401k and ROTH IRA. Currently I have a balance of $80k. If I put the max contribution towards my 401k and ROTH IRA until I reach 59 1/2 and with a 10% returned I will have $3.972M. If inflation is 4%, then it will be 1.3M. If I withdraw 4% a year, my income from the ROTH and 401k will be approximately $52k a year. All of those figures were given to me by a Financial Advisor at USAA. If anyone think that those figures are incorrect please let me know.

I definitely can live with $100k a year during retirement.
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Old 06-24-2007, 01:46 PM   #4
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I gave a recommendation for the TR2025, based on a 20 year horizon before retiring, extensive other sources of income, and other investments besides the TR2025.

His USAA FA currently has his funds split between the precious metals and emerging markets fund.

The full recommendation on this taxable account was for 60-70% into a "core" holding of TR2025 or Lifestrategy growth (with an explanation of the difference) and the rest allocated to some racier "explore" options.

I can possibly think of financially worse ideas than a FA suggesting a two way split into two of the most volatile asset classes that have both had huge runups...but I'd have to think about it for a while...
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Old 06-25-2007, 01:58 AM   #5
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I can possibly think of financially worse ideas than a FA suggesting a two way split into two of the most volatile asset classes that have both had huge runups...but I'd have to think about it for a while...
... comprising the core of a commodities/EM-indexed annuity inside an IRA?

Gee, I think that'd require a pretty hefty commission and a long-term exit fee commitment.
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Old 06-25-2007, 08:52 AM   #6
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I think I just had a small aneurysm.
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Old 06-25-2007, 09:43 AM   #7
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Quote:
Originally Posted by xmanz3 View Post
I need some help with Mix Portfolio Allocation, specifically with non tax deffered accounts. As you know on a previous post, I have 2 mutual funds with USAA and some people think that is not smart putting my money into Precious Metals and Emerging Markets.

I will give you a quick overview of my financial situation and what my objectives and goals are.

I am 32 and the DW is 34. no kids

Currently we are bringing home around $135k a year

No credit card debt, no students loans, no HELOC, and no car payment

401k- $70k contribution of $10k a year
ROTH IRA- $9757 contribution of $4k a year
Emergency Fund $11000
Mutual Funds- $3500

I own 2 investment properties and both rental payments are producing positive cashflow and the mortgages are at 5.75% and 6.25% 30 yr fixed. I started a small business of translation/intepretation services and all positive cashflow will be invested in retirement accounts, stocks or mutual funds.

I want to purchase diligently 3 more properties and pay all 5 off within 20 years and get an income of $60k to live off from 52-59 1/2 when I can start withdrawing money from the ROTH and 401K without any penalties.

We want to invest the extra money we have in some type of investments that would allow us to retire at 52 &54. Basically, the money we decide to invest now on non tax deffered accounts would have to last for at least 7 years. If I stick to the plan with the real estate investment properties, I would have a rental income of approximately $5000 a month/$60,000 a year alone. At the same time I want my taxable accounts to bring some money into the pot.

I've been thinking on moving the balance on both mutual funds and open Vanguard Target Retirement 2025 Fund (low expense ratio, 79.5 stocks/20.5 bonds).

Send your suggestions my way!
If you want to own 5 properties, and only own 2 now, why not use the profit to pay down the two properties, then borrow against the property to buy #3, #4 and #5.

I understand the desire to use the rental income to fund early retirement, consider there might be less risk in owning only 2-3 properties, and selling one to fund retirement for a couple years, then selling another to fund the next two, then selling the third to fund the last few (until age 60). By doing this you also keep yourself in a real low (ZERO??) tax bracket the 2nd/3rd year after selling any given property. This could help Roth conversions on other monies.
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Old 06-26-2007, 01:26 PM   #8
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I
I can possibly think of financially worse ideas than a FA suggesting a two way split into two of the most volatile asset classes that have both had huge runups...but I'd have to think about it for a while...
Wow............what have you come up with??
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Old 06-26-2007, 01:27 PM   #9
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... comprising the core of a commodities/EM-indexed annuity inside an IRA?

Gee, I think that'd require a pretty hefty commission and a long-term exit fee commitment.
How many folks do you personally know who have such things in their IRA? Because I don't know ANY.........
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Old 06-26-2007, 02:01 PM   #10
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Wow............what have you come up with??
Nothing...but I'd still like to keep this in second place in case something comes along. I hate having to reorder prioritized lists.


About all I can think of to rationalize this is maybe the planner saw the pensions and real estate holdings/planned holdings and decided that a little bit of something racier was in order. But a 50/50 allocation of all contributions to their pretax account?
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Old 06-28-2007, 11:05 PM   #11
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Wow............what have you come up with??
How about a Variable Annuity, with a 50/50 Split into precious metals and the Venezuela Fund?
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Old 06-29-2007, 09:26 AM   #12
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Come on, that hugo chavez is a good looking guy. Lets give him 60%. And fix him up with hillary.
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Old 06-29-2007, 01:43 PM   #13
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How about a Variable Annuity, with a 50/50 Split into precious metals and the Venezuela Fund?
I'll pass..........but I'll bet the local insurance guy is all over it.............
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