asset allocation

[eddie]

hi all,
i'm about to retire in two months , and in need of advise. i'm 60 years old and my wife is 59.we would like to rollover our 401k and lumpsum to fidelity.
we will need 4% plus inflation each year. how can we allocate our funds so we can live comfortable. fidelity has given us a plan but i'd like to get other opinions. any advise will be greaty appreciated
thanks,

 

[Rich_by_the_Bay]

Eddie,

Welcome to the board.

Asset allocation is a widely discussed topic here and elsewhere. Might try a search under the keyword "allocation."

Also, I found Bob Clyatt's book to have a very useful chapter on that, as does Merriman's "Live it up without outliving your money." Browse them at your local megabookstore to see if these work for you.

Vanguard has LifeStrategy funds (I like moderately conservative) which do most of the work for you.

Hope that helps.

 

[mb]

Eddie,

A couple of comments:

First, R_in_T gives good advice as far as educating youself.

Second, many on this forum will give advice on asset allocation but they will need a lot more information, e.g. your risk tolerance, how much effort and time you want to spend, etc?  Do you want something simple like a single Life Strategy fund mentioned above?  Are you comfortable with the "slice and dice" approach and a dozen or so funds that you pick youself or do you want somebody like Fidelity determining it?

Third, a rule of thumb that some use is that % bonds in your AA should be equal to your age and the rest should be in equities.  That would put you at 40% equities and 60% bonds.  But that is just a very gross generalization and should only be used as a starting point.  Many in your situation will have more in equities while some that are less risk tolerant and are willing to accept lower long term returns will have more in bonds.

Fourth (if I recall correctly) historically equities have a real return of 6-7% and bonds have a real return of 3-4% and cash is about 1% so you could use those number to construct and AA that gives your 4% requirement.  The problem with that is of couse that these are historical numbers and you can't count on them being the same going forward.

Since this is a 401k and you can move it around at any time without tax consequence my advice would be to "park it" in something like the Vanguard Conservative Growth Lifestyle Fund.  It is 50/30/20 stocks/bonds/cash which reading between the lines might be a pretty good place for you to be while you figure out exactly what you want to do.  I think that Fidelity has something similar.

You also might want to look at the Vanguard Target Retirement Funds or similar offering from Fidelity.  They automatically adjust the AA as you age.

MB

 

[eddie]

my problem is ,am i over thinking our situation, i'd like a 50/50 stock vs equity situation. i don't want an index fund or life styles funds. i'd like to manage the ira myself. i'm thinking i'd like 25% large cap, 25 % small/ mid cap, 25% foreign, and 25% gold, gas, real estate, and other. that would be on the equity side. my real problem is on the fixed income side. right now i'm just about all in the money market. am i doing the right thing.
thanks again

 

[frayne]

Don't know if this is of any help but should be a start.
http://www.geocities.com/finplan825/ModelPortfolios-Data.html?200513

I'd also suggest some background reading by Bogle or Bernstein to give you some good investing fundamentals.

 

[perinova]

retireearlyhomepage has some links on the subject.
most would agree that the simplest solution is to put all your fixed income allocation in Vang. Tot. Bond Ix.
(if the interest rate goes higher you will trade immediate return for higher yield. not necessariliy a bad thing)

most ER books have info on the subject including Bob Clyatt's and Gilette Edmunds'

 

[Rich_by_the_Bay]

my problem is ,am i over thinking our situation, i'd like a 50/50 stock vs equity situation. i don't want an index fund or life styles funds. i'd like to manage the ira myself. i'm thinking i'd like 25% large cap, 25 % small/ mid cap, 25% foreign, and 25% gold, gas, real estate, and other. that would be on the equity side. my real problem is on the fixed income side. right now i'm just about all in the money market. am i doing the right thing.

http://flagship4.vanguard.com/VGApp/hnw/FundsSnapshot?FundId=0084&FundIntExt=INT

Pretty much as diverse as you can get re: domestic bonds; add an intn'l bond fund if you wish.

Can't say if you are over-thinking this or not since that is such a personal call, but these suggestions would be a great place to park your funds while you take your time doing your homework.

I've gone from over analyzing to now looking for simplicity. In the end, I suspect I will have about 6-8 equity mutual funds, and maybe just one bond fund, one cash fund.

A point to consider: there is no "right" or "wrong" allocation, though most around here favor lots of diversification, a healthy dollop of foreign stocks, and disciplined rebalancing if you are not with a strategy type fund.

Stand by for more advice... I can just feel it coming .

 

[Ed_The_Gypsy]

A point to consider: there is no "right" or "wrong" allocation...

Only if you are realistic about returns on investment vs. inflation. You ain't gonna get 4% per annum, adjusted for inflation, for 30 years out of CDs. But, you know that. Good.

"Gold" I don't like. I want equities that pay dividends. I do not understand commodities, even oil (and I work in the business). REITs, I understand. Extractive industries, I understand. Oil, I would have to do a bunch of research to choose good companies. There are bad oil companies. I use index funds for that purpose. Consider allocating half of your assets 60/40 or 70/30 with the equity part 50/50 US/foreign equities and the fixed income part to laddered TIPS in a discount brokerage. Then you can play with the other half.

Me, for the moment, I consider my future SS to be my bond/fixed income part. I am fully invested 50/50 US/international for equities.

Disclaimer: I am not living off my investments. I am still working for a living.

You appear to be in good shape.

Good luck,

Be well.

Another Ed, from a universe far, far away

 

[astromeria]

I used to keep my fixed income investments mostly in individual bonds and bond funds, but since the rates are so low these days, I've mostly switched to CDs and money market accounts. When bond rates go back up, ah'll be back. My AA:

-- 30% US equities (diversified across large, mid, small, and microcap, and growth, blend, and value funds)

-- 20% foreign equities (diversified across developed & emerging markets and large & small, value, blend, and growth funds)...I'd like to reduce US stock and add foreign stock, but doggone it, it keeps going up

-- 10% real assets, including REITs, a natural resources (mostly energy) fund, a precious metals fund, a water fund, and a timberland stock

-- 40% fixed income, mostly CDs and money market accounts, a few individual bonds, and some balanced/hybrid funds (such as OAKBX)

We're just a little younger than you (57 and 56), I'm retired, and DH is working at a downscaled job that makes enough to live on (a little over 4% of our portfolio as it happens), but not really enough to add to savings. We're "coasting." I rolled over my last 401k to Fidelity (that's where the 401k was), no problem. I kept a little of the Contrafund (FCNTX) and Low-Priced Fund (FLPSX) and all of the Diversified International (FDIVX) leftover from my working days, and with the proceeds from sales of FCNTX and FLPSX, I added classes we didn't have in my 401k: Foreign Small Opportunities (FSCOX), Natural Resources fund (FNARX), and foreign REITs (FIREX). I'm up 16.5% in this account since the rollover 8 months ago.