Date: Sat, 27 Nov 2004 05:31:35 CST
From: referencestaff4@yahoo.com (sand)
Newsgroups: misc.invest.financial-plan
Subject: Re: Early retirement now
iQBVAwUAQahlmvl/I4+O31e5AQFo9QH/b51aeL5BFkGguX1BPRW81ucvVzQYGOfo
AeQykfRHvVvb8OqtfVDzhfQkS8IvjoM+JVLjco/dIQyj4nD66pscGw==
=Kuts
snip the first half
> > I plan to make Vang.Tot.Stk.Mkt.Idx. about 45% of my US Stock
> > holdings,
> > make TRP Equity Inc. about 20% of my US stock holdings, make Vang.
> > Health about 8 percent.
>
> Why bother with health care? As a sector it's already well represented
> in the Total-mkt or '500 fund.
YES, IT WAS ONE OF THE FIRST THINGS I BOUGHT AND I'M STUCK WITH IT
ANYWAY FOR AT LEAST 5 YEARS...THAT'S OK, BUT I'M NOT GOING TO ADD
ANYTHING TO IT.
You might also look at the overlap b/t
> TRP Equity Income & the market, are you getting something much different
> and if so what is it, and is that what you want? Rhetorical question.
YES, QUITE A BIT OF OVERLAP, BUT NOT WORTH SELLING ANYTHING TO REDUCE
THE OVERLAP...JUST A BIT MORE PAPERWORK TO DEAL WITH AT TAX TIME, ETC.
I DO LIKE TRP EQUITY INCOME, WHICH HAS DONE MUCH BETTER THAN THE
TOTAL MARKET INDEX OVER THE PAST TEN YEARS...SO I'LL KEEP BOTH OF
THOSE.
>
> > I plan to sell Vang. sp500 as soon as it makes a decent profit and as
> > soon as it's at least one year after I bought it (for tax reasons)...I
> > initially bought it and soon realized I made a mistake and really
> > wanted VangTotStockMarketIndex. Obviously, I'm over-weighted in
> > big companies...I need small or mid caps
>
> If that's the goal you could instead add one of the
> S&P-500-complementary funds that is the "rest of the market." One
> benefit of that approach is it would allow you to periodically shift
> money from one to the other, rebalancing from larger to smaller & vice
> versa. That rebalancing should help your returns long-term and in the
> total-market fund it's not happening the same way - the mix is adjusting
> daily really instead of having those times that you sell off your small
> caps when they're up a lot, shifting $ to large-caps.
>
YES, THAT'S PROBABLY WHAT I'LL DO.
> And keep in mind that Total-market and S&P500 funds are very highly
> correlated because the '500 is a big part of the market. So this is a
> tweak really, not a major shift. Even in the total-market fund you won't
> have all that much in mid/small.
>
> If it were my client I'd make the pitch for value-weighting the
> portfolio instead of sticking with total-market funds, even through
> something as simple as adding in Vanguard's value fund. Bogle isn't so
> sold on that though. The TRP fund might have a decent value weighting to
> it, I don't know.
>
I'M PRETTY SURE TRP EQUITY INCOME IS HEAVILY VALUE-ORIENTED.
> > Int'l Stock:
> > Currently own: Vanguard Tot. Int'l. Stk Index, and TRowePrice
> > International stock. I plan to sell the latter, and replace it with
> > something else
>
> There's some research suggesting that you're better with Value &
> small-cap stocks for your international allocations, because something
> like the Total-Int'l is too correlated to the S&P 500. Big
> multinationals are big multinationals regardless of where the stock is
> listed - or so goes the argument.
YES, I PLAN TO ADD MID/SMALL INT'L. I WAS HOPING TO BUY VANUARD
INTERNATIONAL DISCOVERY BUT ITS CLOSED TO NEW INVESTORS...MAYBE I'LL
GO WITH TRP INTERNATIONAL EXPLORER (BUT MUCH MORE EXPENSIVE THAN THE
FORMER).
>
> > Bonds:
> > Currently own: Vanguard total bond market index (and I plan for it to
> > be about 35% of my bond holdings), vanguard short-term investment
> > grade (plan for 35%), vang high-yield (plan for 20%), and then 10% of
> > the bonds will be something to be determined (international?). I've
> > been DCA'ing into these bond funds, but I'm not sure if I should do
> > that, or just put in a lump sum (i know their prices will be going
> > down though).
>
> Some people stick only with short-term bond funds because the additional
> returns on the others aren't worth it.
>
> > Finally, I own TRowePrice Real Estate (in a taxable account like all
> > of the above).
>
> Vanguard has a low-expense REIT fund you might want to check out.
>
YES, THAT'S MAYBE WHERE I'LL MOVE MY IRA'S TO. OR MAYBE TO FIDELITY
REAL ESTATE (MORE EXPENSIVE THOUGH).
> > (1) I don't know what to do for current income.
> I've been assuming I would just invest most of my money and
> > then withdraw about 4% annually (monthly or quarterly), but from what
> > funds?
>
> The studies you've seen showing 4% being sustainable assume you'll be a
> dope about the withdrawals, blindly following some methodology from the
> start. Generally you would keep your asset allocation in balance and
> base withdrawal sources accoringly, but some common sense rules help
> things quite a bit. Don't lock yourself into spending requiring 4%
> withdrawals, so you have a cushion. If the stock market just tanked, you
> don't sell off your stocks, and maybe you cut back on withdrawals. In
> the rough spots tap into bonds first, even if your allocation goes out
> of whack. Get a job and/or reduce your spending a lot if things look
> really bleak. And if you have the flexibility to do those things 4% is low.
THANKS, THATS THE KIND OF INFO I WS LOOKING FOR.
>
> But more generally: I think you're onto the right approach...don't focus
> on a 4% income return (as in 4% dividends and interest) from your
> investments, think more in terms of withdrawals from your funds. As a
> simple model imagine all your money in the Vanguard balanced index fund,
> and you withdraw $1000 a month or whatever, and reinvest dividends &
> interest. Vanguard is keeping that portfolio in balance (stocks/bonds)
> and feeding withdrawals which might sometimes be solely from income,
> sometimes are tapping into principal. You essentially do the same thing
> with your mix of funds, adjusting the balance less frequently.
>
> > (2) About half my money is in bank accounts (2% interest)...I've just
> > been living off that money while I invest over the past year, not
> > seeing any better place to put that money.
>
> Then again the REITs would have done well over the past year,
> international is going through the roof as the dollar tanks, and the
> cash had a negative return after inflation & taxes...
>
I'M GLAD I BOUGHT TRP REAL ESTATE LAST MARCH, EVEN THOUGH MANY PEOPLE
SAID IT WAS A BAD TIME...SO FAR, IT'S SHOT UP....(MAYBE IT'LL CRASH
SOON THOUGH). BUT, I JUST DON'T KNOW WHAT TO DO WITH THE 40% OF MY
MONEY THAT'S SITTING IN THE BANK EARNING 2%, WHILE I CONTINUE TO LEARN
AND SLOWLY INVEST INTO MORE FUNDS AND ADD TO EXISTING FUNDS. SHOULD
I PUT MORE OF IT IN MY SHORT-TERM CORPORATE (NOW CALLED
"INVESTMENT-GRADE") BOND FUND...it SEEMS VERY LOW RISK, AND HAD NEVER
REALLY DROPPED IN THE PAST...AND SEEMS "SEMI-LIQUID" (IS IT??). I KNOW
I SHOULD KEEP A FEW YEARS OF LIQUID MONEY, TO USE IF I DON'T WANT TO
WITHDRAW FROM ANY FUNDS THAT MAY BE WAY DOWN...BUT NOT SURE WHERE...
> > (3) Since I want to own more REIT funds (I currently own about half my
> > target), should I roll my IRA over into a REIT fund (since they are
> > very tax-inefficient).? And since I need to buy small or mid-size
> > cap stock funds, should't I use IRA's for those too (many of them seem
> > to be tax-inefficient, at least according to Bernstein's Four
> > Pillars...).
>
> An IRA is a good place for REITs, for the reasons you mention. But if
> you're in the "15% or lower" tax bracket that's a minor concern
> really...could be a wash when you factor in the higher tax rate that
> will be applied to your long-term gains in those funds. Long-term REIT
> returns aren't all dividends, it's a mix of divs and capital gains.
>
INTERESTING.
> > I also inherited (i'm beneficiary) a bank IRA (CD earning 2
> > percent)...I already did the transfer to myself (correctly, with no
> > tax penalty). I was told I can create a "beneficiary" mutual fund
> > account and roll it over (maybe that's not the right word) with no tax
> > penalty.
>
> Make sure you're not supposed to be taking withdrawals from that IRA!
> Check the IRS publication on IRAs (www.irs.gov) if you're in doubt.
>
> -Tad
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