Vanguard funds

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Vanguard funds

Postby Lynxville » Sun May 01, 2011 10:13 am

Would like to invest 150K for about 5 years, I am retired, then start to withdraw monthly.

Whats your opinion on:
28% Total Stock Market Indes Fund
12% Total International Stock Index Fund
60% Total Bond Market Index Fund

Very risk intolerant

Thanks
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Postby retcaveman » Sun May 01, 2011 10:18 am

Would need more info to give an informed response (age, other sources of income, total portfolio), but it doesn't seem unreasonable. You may also wish to consider Target Retirement Income.
"The wants of mortals are containers that can never be filled." (Socrates)
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Re: Vanguard funds

Postby DA » Sun May 01, 2011 10:24 am

Lynxville wrote:Very risk intolerant

You don't provide us enough information to assess your situation.

This I will say ... In my opinion, 40% equities is too much for someone who describes himself as "very risk intolerant".
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Re: Vanguard funds

Postby dbr » Sun May 01, 2011 10:30 am

Lynxville wrote:Would like to invest 150K for about 5 years, I am retired, then start to withdraw monthly.

Whats your opinion on:
28% Total Stock Market Indes Fund
12% Total International Stock Index Fund
60% Total Bond Market Index Fund

Very risk intolerant

Thanks


Your suggestion does not meet the condition of being suitable for a very risk intolerant investor. If you really are very risk intolerant and you want preservation of capital for five years, this money should be in CD's or something similar. A 40/60 stock/bond allocation is moderately risky and even Total Bond Market is not free of risk to decline of principal.

As to whether you really should be very risk intolerant and what your best match to your actual objectives might be, that would need more information to address. Your suggested portfolio might be appropriate for long term support of retirement withdrawals, but needs to be considered together with all your other financial situation.

For better advice you may want to repost following this format:

viewtopic.php?t=6212
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Postby Lynxville » Mon May 02, 2011 8:18 am

Thanks for the replys, I am 62, have SS and good retirement, married, have other good cash reserves, stocks, too many cd's, no debt.

My 150K is parked because of my consertive attitude, had it invested in aggressive account and got out before I had a big loss.It now pays .08% interest, which sucks. Just wanted to find something that's relatively safe and I could withdraw let's say 5% per year at age 70 and on.
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Postby livesoft » Mon May 02, 2011 8:32 am

You should make it clear what you mean by "withdraw ... 5% per year". You can do that with any investment if you accept that you will also withdraw some principal.

You may wish to consider purchasing a deferred single premium immediate annuity (SPIA) with this money.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Postby retcaveman » Mon May 02, 2011 9:18 am

Some additional thoughts:

While opinions vary, one guideline for evaluating investment options is to keep any funds (money) targeted for use within 2 years to be in cash, from 2-5 years, bonds and 10+ years stocks. By that definition at least, stocks may not be the best place for your money.

However, there is another axiom that says one should never have less than 25% in stock, even during retirement.

Still another says, whatever amount you choose to invest in stocks, you should be prepared to lose 50% during one of our periodic declines. So if you are ok with a $25k loss (a paper loss ie you don't book the loss until you sell), you shouldn't have more than $50k committed to stock.

Re risk, anything other than FDIC insured vehicles eg CD's and Treasuries carry risk of loss of principal. But even those have risks eg inflation risk, interest rate risk, etc.

Have you considered TIPS? Or again, I suggest you consider Target Retirement Income with 30% stock, including International, 65% bonds, including some TIPS and 5% cash (this last component seems unnecessary, but causes little harm). It's a fixed allocation ie the amount allocated to stocks/bonds doesn't change. And the stock and bond funds are indexed ie Total Stock Market, Total International and Total Bond. It was specifically designed for people already in retirement. It carries a .17% expense ratio. It also is a little less risky (10% less stock) than what your initial post described, but all in one fund. The rebalancing is automatically done for you.

DW has some of her IRA money allocated to it and, so far, we have been pleased. We continue to watch, but have discussed putting more there. She too has some cash sitting idle.

Good luck.
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Postby pkcrafter » Mon May 02, 2011 10:01 am

Lynxville, welcome to the forum
you wrote:
Thanks for the replies, I am 62, have SS and good retirement, married, have other good cash reserves, stocks, too many cd's, no debt.

You need to clarify a bit. Is the 5% withdraw only from the 150k, or from the total portfolio, which is the way you need to look at things. Also, the AA on the 150k doesn't mean much, it the AA of the overall portfolio that matters. To receive meaningful replies you need to provide a full picture of all assets and overall asset allocation.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Postby nisiprius » Mon May 02, 2011 10:25 am

Your suggested allocation is certainly within the range of the sane, and I agree with others that the most important thing is to understand a) your own risk tolerance, and b) the actual risk characteristics of your investment.

Since you have suggested 40% stocks, 60% bonds, what I think you should do is spend some time digging into growth charts for mutual funds that use that kind of allocation. A growth chart shows how much money you'd have if you put $10,000 into a mutual fund and left it there, no more contributions or withdrawals, with dividends reinvested.

Here are three. Wellesley is 37% stocks, LifeStrategy Income is only about 25% stocks, LifeStrategy Conservative Growth is about 45%. (Those are current allocations; unfortunately all three of these shift allocations over time, but I don't think they're ever very far from 40/60). I am not recommending these and I did not pick these as the "best," I think the three-index-fund approach you plan to follow is better. I am using these three because they show the behavior of a 40ish/60ish blend, and because they are all funds that have been around for long enough to show long term behavior. I'm going to show the chart, but if the link below works for you, and try clicking on the chart and sliding the pointer back and forth and reading out actual dollar numbers, and dragging at the bottom of the chart to look at different time periods.

The semilog scale makes big changes look small, so be sure to pay attention to the scale at the left.

Don't use this to decide "which fund is best." Use it to decide how you feel about the risk involved. Use five-year periods. Ask yourself "how would I feel if I put money in 2004, saw nice robust growth for four years, and then lost, not all my money, but all the growth--dropping just about back to where I started, maybe even less?

Don't kid yourself: 40% stocks isn't 100% stocks, but even with 40% stocks, 2008-2009 would have really hurt. And in 2009 you didn't know what would happen by 2011.

Keep in mind: 1) no risk, no reward. 2) You really have to take the risk. It's not risk unless there's a real, serious chance of disappointment--doing worse than if you'd used safe investments. 3) It would be pessimistic to expect something like 2008-2009 to happen soon. It would be optimistic to assume that it couldn't possibly happen. For example, Just seven years after 1929, when people thought the market had recovered, it crashed again.

I don't think 40% stocks is crazy, but I'm a risk-averse semi-retiree and it's a little more than I'm comfortable with. There's no right or wrong here. You need to know your risk tolerance. The most important thing is to understand the actual risks. You need to dig into those for yourself, don't accept vague descriptions like "high" or "low" or "about right for your age."

Here's the chart:
Image

Here's the link: http://quote.morningstar.com/fund/chart ... %2C0%22%7D
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Postby larmewar » Mon May 02, 2011 10:03 pm

Consider substituting CDs with laddered maturities for some of the bonds; bonds will loose value when interest rates rise. I agree with recommendations for inflation protected securities, but consider whether TIPS or I-bonds are better at current conditions.

Lar
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Postby Lynxville » Tue May 03, 2011 10:14 am

I appreciate the help, I must include the fact that this money is tax defffered, in a retirement account that pays peanuts. I am also concerned about bonds losing value, because interest rates must go up someday. Never saw them so low so long.
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