Re: Balanced portfolio with index funds

I don't like any rule based entirely on age.  You may live 30 years
after you retire.

My rule 1 is you should be comfortable with what ever risk level you
choose for your portfolio.

My rule 2 is to have 3 - 5 years of needed funds in cash and near
cash.  Everything else, subject to rule 1, should be in equities.

Frank



Tad Borek <[EMAIL PROTECTED]> wrote in message news:<[EMAIL PROTECTED]>...
> Anoop Ghanwani wrote:
> > Are there rules of thumb for building a balanced retirement
> > portfolio with index funds such as the S&P 500 and the total
> > bond market index fund?  For example, would it make sense
> > to allocate funds as follows:
> > 
> > Age     S&P 500   Total Bond Market
> > <30     100%      0%
> > 30-40   80%       20%
> > 40-50   60%       40%
> > 50-60   40%       60%
> 
> It really depends on what you're investing for. If the plan is to get 
> ready for withdrawing assets beginning at retirement age, and depleting 
> them over your retirement years, then most people will want to gradually 
> reduce the volatility of their investments as they age (ie shift to 
> bonds, esp. shorter-term bonds). Doing so makes it more likely that your 
> money will last, even if the stock market tanks early in your 
> retirement. I think that's why generic asset allocation models show the 
> gradual shift, they assume you retire and start taking money out, and 
> increase the money you take year by year.
> 
> In practice there's a lot of variation and it seems people who plan 
> their savings well in advance don't follow that kind of withdrawal 
> program. So your age brackets for different allocations might be a lot 
> different. By age 70 you could have say 30% invested in bonds and cash, 
> and with social security factored in, still have more than enough income 
> to live off of, and enough accessible dollars for any conceivable need, 
> even factoring in stock volatility. Or maybe you have a fixed annuity 
> providing regular cash so it adjusts the investment allocation. Point 
> being it really depends on what that number at the end of the pipe looks 
> like, and what sort of spending you have in mind for the assets. The 
> more %-wise you'll spend, the more you'll want to shift to 
> short/intermediate bonds and cash. This isn't just for retirement, it 
> applies really to any savings goal.
> 
> If you think of your retirement funds as a personal pension fund: a lot 
> of pension funds seem to hover around a 60/40 equities/bonds allocation. 
> Typically they're funding a lot of longer-term needs, as well as current 
> liabilities, so it's a bit different, but not all that different from 
> what a lot of people end up doing with their retirement savings (spend 
> some, pass the rest on).
> 
> > Is this too simplistic a plan?  I'm basically looking 
> > for a long-term investment strategy that is known to work
> > reasonably well in all market conditions so that one 
> > doesn't have to keep watching what the fund manager is
> > up to.
> 
> You could do a lot worse than some kind of rote combination of asset 
> classes, using strictly index funds. Gibson's "Asset Allocation" gives 
> some direction on how to do this. You might read it and end up doing an 
> elaborate analysis to pick the mix, but it might also give you 
> confidence in something relatively simple.
> 
> -Tad