5 to 7 years to retirement. Proper investment mix?

[Sam]

Hi all,

I'm 5* to 7 years from retirement.* Most of my saving's in the Fidelity 401k.* Here's my current mix.* I would appreciate any comment you have.* The goal is to maximize the return with reasonable risk.

35% PIM HIGH YIELD INST
20% FID REAL ESTATE INVS
19% MFS INTL NEW DISC I
17% FID CONTRAFUND
09% Company stock

Thank you,
Sam

[cute fuzzy bunny]

Holy crap thats a lot of junk bonds.

Holy crap thats a lot of junk bonds.

I might say it a third time.

[Enuff2Eat]

what's wrong with junk bond?

enuff

[mb]

Sam,

Ditto CFB comments!

Also a lot of RE and I assume small cap international.

It seems that you are making some very concentrated bets on certain market sectors, two of which have had high returns during the last couple of years, and almost ignoring others.

I think that this is contrary to the investment philosophy of most on this board. I don't know about the specific funds but it looks like a pretty high risk portfolio to me.

If you are right you'll make a lot of money if not you could significantly under perform the market.

MB

[yakers]

Gotta agree about this being a concentrated AA. I think its fine to favor a sector with a higher % thhat its current market proportion but that would only slightly overweight some area like REITs, EMs, SV or something like that. Adding about 50% immediately to a total market index would be a good start.

[cute fuzzy bunny]

Wow thats a lot of junk bonds.

And a lot of REITS.

I'm about 8% junk and in a nearly all equity portfolio and with brass balls the size of nebraska, that feels like a lot to me...

[brewer12345]

Sam, you have a portfolio that is concentrated in some pretty high risk, high potential reward sectors. That may be appropriate or it may not; we don't have enough information to know either way. But I would ask myself a question if I were you:

- Do I need to be making a shoot-the-moon bet with my portfolio in order to reach my goals?
- Would I still be able to retire in 5 to 7 years with a more diversified portfolio that might offer slightly lower returns, but much less risk?
- Would I still be able to retire if one of the asset classes I am invested in had a 5 year bad run?

I gave this a lot of thought about 18 months ago and started diversifying. I am relatively young, adding steadily to my portfolio, and pretty risk tolerant, but I realized that I could meet my goals without taking on a ton of risk.

Personally, I think you have a very risky portfolio.

[Sam]

Thank you all for the replies, concerns. I'm listening. Please keep them coming with more details, analysis, and specific suggestions.

Sam

[mb]

Sam,

Yakers suggestion is excellent,

Adding about 50% immediately to a total market index would be a good start.

If you are willing to do the homework and understand the risks I think that it is ok to over weight certain sectors or stocks but you might want to look into a "mixed active/passive" portfolio.* As an example something like this might be appropriate for someone a few years from retirement but with a moderately high risk tolerance and who wanted to TRY to "goose" their portfolio a bit by over-weighting certain sectors or investing in individual stocks

1 - 35% Total US Market Index
2 - 20% EAFE Index
3 - 20% Bond ladder or bond fund (not junk)
4 - 5% REIT Index
5 - 20% Sector funds or individual stocks (ind stocks, more REITs, junk, small int'l, tech, metals, etc. depending on what you like going forward)

I suppose that I do something like this (with a few more asset classes) but #5 is < 5% of my portfolio which says something about my confidence in being able to beat the market.* (I really consider it "fun money.")

William Bernstein's book "The Four Pillars of Investing" discusses asset allocation and should be required reading for all investors and anything by John Bogle is worth reading.* I think that the "Pie Shop" and the "Coffee House" web sites (Is this right? Someone help me here?) have also been recommended here but I haven't looked at them in detail so I can't really comment on them.* Maybe someone else can?

MB

[Ed_The_Gypsy]

http://www.coffeehouseinvestor.com/

Simple, basic, excellent place to start or just keep. Conservative diversification, couch potato portfolio. Can't go wrong. Read the web site. OK, go ahead and buy his little book, too. (The first one. I have not read the latest one yet.) It could all be summarized on one page, but he is entertaining and you get a pie recipe, too.

Dunno about Pie Shop (must look that one up!).

Also, just my opinion, unless your company is something REALLY special, I don't like company stock.

I agree with the above comments on concentration of your assets. If they have been good to you, celebrate--then diversify as suggested.

Me, I am about 50/50 US/international (but diversified!!), but I shouldn't recommend that to everybody. I am happy with the risk, but I grew into it. Still, I think it is less risky than your present positions.

[mb]

I second Ed_The_Gypsy's comment

Quote:

Also, just my opinion, unless your company is something REALLY special, I don't like company stock.

A couple of years ago I was with a start up. (Before the dot coms.) We IPOed and the stock to really well for a while. A colleague put a big chunk of his net worth into the stock in addition to his stock options. Well we ran into some problems. The stock dropped by about 90%, he lost most of his investment before he could get out, his options became worthless and he got layed off.

MB

[Sam]

Guys,

Thanks again for your inputs.* I will read and re-read each suggestion several times to make sure that I understand them fully.* May be I'll come back for additional clarifications.

Sam

[rs0460a]

Quote:

Originally Posted by Ed_The_Gypsy Dunno about Pie Shop (must look that one up!).

Actually Bob's Financial Website, at:

http://bobsfiles.home.att.net/finance.html

[Ed_The_Gypsy]

Quote:

Actually Bob's Financial Website, at: http://bobsfiles.home.att.net/finance.html

Great site! I have seen his retire at the coffee house article serialized on an investment board (which link was given here a while back). I tried to save it page by page without success. Here it is, all in one save-able piece! He also has more graphs I can wave at my kids for instructional purposes.

Thanks very much, so'jer!

Ed
RA, '66-'69

[ESRBob]

Sam,
I know (from your other posts) that you like risk and after your experiences leaving Vietnam everything might seem low risk after that.

But have a look at some of the junk bond prices -- what is happening to GMAC bonds these days. They are high yield for a reason.

You seem to have a yearning for things that pay a lot of interest. Why? You pay tax on it now and you don't need the income because you are still working.

Better to have things which will crank out capital gains that you don't have to pay taxes on until you realize those gains -- maybe never, or many years from now, and dividends and capgains are taxed less than interest and income. A lot less.

You have no large US stocks, it appears. We may all love to hate the S&P megacaps but they aren't that toxic. In fact they may be ready for a run now.

You could treat your current savings from your job as if they were a bond coupon, and add that in as if you held bonds in your portfolio in the equivalent amount, and then maybe go for a 50% stock 50% "bond" blend.

In other words, if you save 20k per year and your job is secure and you like it, consider that is like earning 20k of interest on a bond that earns, say 5%. That would imply a bond position worth 400k. If your other savings are 600k, then you could argue, for asset allocations' sake, that you have a 1million portfolio, Then allocate out 50-50 or 40-40-20 (with the 20% being 'other' - Reits, Commodities, Oil/Gas, private company investments etc) In that case, you might then go to 400k of Stocks, 200k of Reits/other and the bond position is covered by your job that is reliably paying your 20k a year in savings. That would mean zero other bonds -- and in your case give you an excuse to dump the junk.

It may not suit everyone but it is worth considering.

For your stocks side, though, my advice would be 50% in US, 50% in foreign, split roughly into 2/3 large cap, 1/3 small cap in each. Low fees, reliable fund companies.

[mjarzoms]

I have to agree on the junk bonds. Pimco high yield is around 6.7% right now. Compared to 1 year CD's yielding almost 5%+ I can't see the value in taking extra risk.

You are getting pretty close to retirement. I don't think it is a bad time to start building positions in CD's or money markets.