Critical Mass - Care and Feeding For Once Attained

Top 802. May 29, 2005 5:54 PM

» Normxxx - Re: Re: Re: Re: Hard to believe

In response to Re: Re: Re: Hard to believe posted by bob90245:

That's still just over $123k in real (1932) dollars!

-- posted by Normxxx

Top 803. May 29, 2005 6:53 PM

» bob90245 - Re: 1932

In response to Re: Re: Re: Re: Hard to believe posted by Normxxx:

You may be correct. But just look around your house and tell me the price of what the following items would have cost in 1932:

1) Your computer running on
2) an Intel microprocessor while viewing your
3) monitor connected to the
4) internet via your
5) telephone.

Except for your telephone, you wouldn't be able to buy any of those things because your Woolworths store in 1932 didn't have an electronics section. The transistor wasn't even invented until 1947.

-- posted by bob90245

Top 804. May 29, 2005 8:36 PM

» Normxxx - Re: Re: 1932

In response to Re: 1932 posted by bob90245:

Right-- so in 1932, the horrible disease of information overload, aka, 'data poisoning,' was as yet unknown. My family was too poor to afford a telephone in the '30s. Besides, who would we talk to? The telephone was only for dire emergencies, like a death in the family.

The transistor wasn't even invented until 1947.
But we had vacuum tubes; and just about everyone had a RADIO. --And there were talking pictures and technicolor (for the really top class films, like "Gone With The Wind") in all the movie houses (many of which were AIR CONDITIONED!) And most everyone had a gramaphone or phonograph.

But I'm not complaining (too much). (We didn't even have any antibiotics then-- doctors were there mostly to describe to you in excrutiating detail how you were about to die. There were no root canals-- dentists just yanked your tooth out if it was too far gone to fill.)

Just trying to keep things in perspective. Today's millionaire is a pseudo-(feel good)-millionaire. I believe it would take around $12,151,037 of today's dollars to match a millionaire of 1932-- and taxes were really low then.

Well, if you can't beat them-- why not just join them and enjoy it while it lasts. In a crazy world, the sane man goes broke!

-- posted by Normxxx

Top 805. Jun 11, 2005 1:24 PM

» Normxxx - Model Portfolios for Retirees, Part II

Model Portfolios for Retirees, Part II
Five allocation options, from preservation to aggressive growth.

By Sue Stevens, CFA, CFP, CPA | 7 June 2005

Balanced Portfolio

Is your life expectancy at least 15 more years? Do you want to beat inflation by at least three percentage points per year? Could you tolerate it if your portfolio value declined in some years? Will you have other sources of retirement income, like a pension? If this describes your situation, a Balanced Portfolio might be right for you.

Balanced Portfolio
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=105>	<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=55>
Allocation	%
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>
Stock Total	50
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Large Value	10
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Large Blend	7
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Large Growth	10
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Mid/Small Cap	10
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Foreign	8
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Real Estate	5
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>
Bond Total	45
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Short to Intermediate Term	20
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Inflation Indexed	15
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
High Yield or Multisector	5
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Foreign	5
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>
Cash and Cash Equivalents	5
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>

Any of the funds mentioned above in either the Preservation Portfolio or the Conservative Portfolio will also work well here—you'll just hold different proportions. For large-cap growth funds, consider Fidelity Contrafund (Nasdaq:FCNTX) or T. Rowe Price Growth Stock (Nasdaq:PRGFX).

For greater diversification within the bond portion of your portfolio, consider adding just a touch of high-yield exposure. Understand that these are junk-bond funds and they are riskier. But in smaller proportions, they can add diversification value. Consider Vanguard High-Yield Corporate (Nasdaq:VWEHX). If you want a tax-exempt fund, consider T. Rowe Price Tax-Free High-Yield (Nasdaq:PRFHX). You might also want to add a small stake in a multisector-bond fund such as Loomis Sayles Bond (Nasdaq:LSBRX).

Growth Portfolio

Like the Balanced Portfolio, this mix is appropriate for people with a life expectancy of at least 15 years. Ask yourself if you want to beat inflation by at least 4% per year. Could you tolerate it if your portfolio lost money for a year or more? Will you have other sources of retirement income, like a pension? Younger retirees or retirees with considerable wealth might find the Growth Portfolio appropriate for their goals.

Growth Portfolio
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=105>	<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=55>
Allocation	%
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>
Stock Total	60
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Large Value	10
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Large Blend	8
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Large Growth	12
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Mid/Small Cap	15
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Foreign	10
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Real Estate	5
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>
Bond Total	35
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Short to Intermediate Term	15
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Inflation Indexed	10
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
High Yield or Multisector	5
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Foreign	5
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>
Cash and Cash Equivalents	5
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>

With more of your portfolio allocated to stocks, you can afford to branch out a little in your security selection. Besides the funds listed in the above portfolios, you might also consider PIMCO All Asset (Nasdaq:PASDX). This is a fund of funds, but with a unique twist: It invests in hedging types of asset classes such as TIPS, commodities, and real estate.

[Normxxx Here: But as would be expected, the overhead is high for PASDX ]

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

Top 806. Jun 11, 2005 1:27 PM

» Normxxx - Model Portfolios for Retirees, Part III

Model Portfolios for Retirees, Part III
Five allocation options, from preservation to aggressive growth.

By Sue Stevens, CFA, CFP, CPA | 7 June 2005

Aggressive Growth Portfolio

Do you expect to live for at least 20 more years? Could you tolerate it if your portfolio declined for at least two consecutive years? Will you have other sources of retirement income, like a pension? If you answered yes to these questions, you may be a candidate for the Aggressive Growth Portfolio.

Aggressive Growth Portfolio
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=105>	<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=55>
Allocation	%
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>
Stock Total	75
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Large Value	7
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Large Blend	5
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Large Growth	15
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Mid/Small Cap	25
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Foreign	15
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Real Estate	8
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>
Bond Total	20
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Short to Intermediate Term	5
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Inflation Indexed	5
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
High Yield or Multisector	5
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Foreign	5
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>
Cash and Cash Equivalents	5
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>

You'll notice that even the most aggressive retirement portfolio does not include 100% stocks. Although this may not apply to all cases, the vast majority of retirees should not be risking their entire nest eggs in the stock market.

[Normxxx Here: Not only that, but over extended periods, a mix invariably outperforms stocks alone! ] For example, all bonds would have outperformed all stocks over the last 7 years or so.

Any of these portfolios may also hold a small percentage in a precious-metals fund such as Vanguard Precious Metals and Mining (Nasdaq:VGPMX). This can broaden your diversification. It may also help protect you against unexpected geopolitical events.

A version of this article appeared in the March 2005 issue of Morningstar Practical Finance

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 807. Jun 11, 2005 6:03 PM

» Normxxx - Model Portfolios for Retirees, Part I

Model Portfolios for Retirees, Part I
Five allocation options, from preservation to aggressive growth.

By Sue Stevens, CFA, CFP, CPA | 7 June 2005

Many of you who have been loyal Morningstar readers for some time are at least somewhat comfortable with choosing funds. What you need more help with is creating an appropriate portfolio that incorporates your fund choices.

We're going to take a closer look at five model portfolios specifically designed for retirees. What makes them different from portfolios appropriate for those of you who are still employed is that preservation of principal plays a key role in the investment strategy. So you'll see a heavier allocation to cash and fixed income.

Each person's retirement situation is unique. One size really doesn't fit all when it comes to retirement investing. You need to consider all sources of income—Social Security, pensions, dividend income, annuity payouts, etc. You also need to think carefully about how much risk you can tolerate. Use the following model portfolios to jump-start your investing strategy for retirement. But make sure you tailor these portfolios to fit your own individual circumstances.

Preservation Portfolio

If you are having trouble sleeping at night and you constantly worry about losing money in the stock market, then the Preservation Portfolio may be for you. This portfolio may be appropriate for those of you with shorter time horizons—say, less than 10 years. (By "time horizon," I generally mean life expectancy, not years until you retire.) If you don't have any other sources of income, then this portfolio may help you preserve your nest egg. Of course, even this very conservative portfolio has some risk. For example, when interest rates go up, you may lose principal if you are invested in bond mutual funds. If that's a concern, you can always use CDs (certificates of deposit) or individual bonds (but plan on holding them to maturity) instead of a bond fund.

Preservation Portfolio
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=105>	<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=55>
Allocation	%
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>
Stock Total	20
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Large Value or Large Blend	10
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Foreign	5
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Real Estate	5
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>
Bond Total	55
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Short to Intermediate Term	35
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Inflation Indexed	15
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Foreign	5
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>
Cash and Cash Equivalents	25
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>

For your stock exposure, consider using T. Rowe Price Capital Appreciation (Nasdaq:PRWCX), Vanguard Total Stock Market VIPERs (Toronto:VTI.TO), or iShares Russell 1000 Value Index (AMEX:IWD). The last two recommendations are exchange-traded funds (ETFs). They act like funds, but trade like stocks.

If you're looking for a real estate fund, consider using Third Avenue Real Estate Value (Nasdaq:TAREX) or Vanguard REIT Index (Nasdaq:VGSIX). If you want to add international exposure, consider Dodge & Cox International Stock (Nasdaq:DODFX).

If you want to hold funds that combine stocks and bonds, consider T. Rowe Price Personal Strategy Balanced (Nasdaq:TRPBX) or Vanguard Wellesley Income (Nasdaq:VWINX). T. Rowe Price Capital Appreciation (mentioned above) also holds some bonds, but I would consider it more of a large-cap value fund than a balanced fund.

For your core bond holding, put most of your money in high-quality short- to intermediate-term bonds or bond funds. When interest rates go up, in general you'll preserve more principal if you're invested in shorter-term bond funds. Consider Vanguard Short-Term Bond Index (Nasdaq:VBISX) or Vanguard Short-Term Investment Grade (Nasdaq:VFSTX). If you want a tax-exempt fund, consider Vanguard Limited-Term Tax-Exempt (Nasdaq:VMLTX) or Fidelity Spartan Short-Intermediate Municipal Income (Nasdaq:FSTFX).

To add further diversification, consider holding a portion of your fixed-income holdings in inflation-indexed bonds. These bonds have longer maturities, so keep in mind their values may drop further than shorter-term bonds as (real) interest rates rise (especially if their "inflation" adjustment significantly lags actual inflation). That aside, inflation-linked bonds offer a terrific diversification value. A component of their total return increases with inflation, which could be particularly valuable if inflation edges up over the coming months and years.

In taxable accounts, I'd use I-Bonds (a type of U.S. savings bond) for inflation protection. For more information, check out TreasuryDirect.gov on the Web. For tax-deferred accounts, you can buy individual Treasury Inflation Protected Securities (TIPS) or a fund like Vanguard Inflation-Protected Securities (Nasdaq:VIPSX). You may also benefit from a small amount of foreign bonds in your portfolio. Consider a fund like T. Rowe Price International Bond (Nasdaq:RPIBX).

Finally, make sure you have a comfortable liquidity cushion. You should have enough in cash and cash equivalents (money markets, savings accounts, CDs, and very short-term bond funds) to cover two to five years' expenses.

Conservative Portfolio

If your life expectancy is at least 10 more years, you don't like taking a lot of risk, and you want modest growth over inflation, the Conservative Portfolio may be for you.

Conservative Portfolio
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=105>	<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=55>
Allocation	%
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>
Stock Total	35
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Large Value or Large Blend	15
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Mid/Small Cap	8
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Foreign	8
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Real Estate	4
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>
Bond Total	55
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Short to Intermediate Term	30
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Inflation Indexed	20
<img height=3 src="http://im.morningstar.com/im/dot_clear.g..." width=210>
Foreign	5
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>
Cash and Cash Equivalents	10
<img height=9 src="http://im.morningstar.com/im/210x9rule.g..." width=210>

Investments that might be appropriate for the conservative crowd include any of the funds listed under the Preservation Portfolio and mid- to small-cap funds like Vanguard Selected Value (Nasdaq:VASVX) or Royce Premier (Nasdaq:RYPRX).

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 808. Jun 14, 2005 10:45 AM

» bob90245 - Re: Newbie question on IRA withdrawals to fund Roth

In response to Newbie question on IRA withdrawals to fund Roth posted by Dick_Y:

I hesitate to answer. (I don't want to give the wrong information.) But I have just enough information to be dangerous. <img src=http://www.suite101.com/images/emoteicon...>

Here is what I found from Jonathan Clements' article:

If you are married filing jointly and take the standard deduction, you could have gross income of as much as $75,800 in 2005 and still be in the 15 percent bracket. Meanwhile, if you are single, the figure would be $37,900. If you are age 65 or older, both amounts would be modestly higher, because you qualify for a larger standard deduction.

And later in the article, he does mention that Social Security is taxable income. So if you receive $24,312 from Social Security, that means you can have up to $51,488 income ( $75,800 - $24,312 ) from other sources and still be in the 15 percent bracket. So you will likely be able to withdraw up to $51,488 from your IRA rollover and still be in the 15 percent bracket.

I'd be interested in getting confirmation on the above answer from other more knowledgeable posters on this board. Barring that, you can try posing your question to Lita, who's a tax expert, on her message board: Ask Lita

-- posted by bob90245

Top 809. Jun 14, 2005 1:54 PM

» allancoleman - Re: Newbie question on IRA withdrawals to fund Roth

In response to Newbie question on IRA withdrawals to fund Roth posted by Dick_Y:

Dick_Y ,

your question is excellent . an easier solution to your problem than a spreadsheet is to purchase a tax software program and learn to use it for your tax planning .

i use Turbotax and use it every year to determine my ROTH conversion for that year . the tax code is very complex and various parts of your income are taxed differently . the better question to be asking yourself is what is your " effective " tax rate rather than your 15% tax bracket you have chosen . my effective ( tax paid on EVERY dollar earned ) tax rate has been as low as 14.64% & 16.50% and as high as 22.44% . i personally use the 25% tax bracket as a starting point to calculate my income and ROTH conversions . ROTH conversions are NOT subject to required minimum distributions at age 70 1/2 and is the most effective way i know to deal with that issue .

the 2005 15% tax bracket ( Married filing jointly ) ends at $59,400 . so if your social security income is $24,312 that leaves you $35,088 for a ROTH conversion ( NOT counting your standard deduction & exemptions ) to stay within that 15% tax bracket . AND don't forget to count the $9,700 standard deduction & the $6,200 exemption in that income calculation . this allows you more room for a ROTH conversion .

one of the reasons i like a tax software program as compared to a spreadsheet is i can change one item line in my tax software program - hit ' enter ' and get an instant calculation for a bottom line figure and a different effective tax rate . it's fun to play with and figure out your own best personal strategy . i used to purchase my tax software after the beginning of the next year ( january / february ) but have since learned that the sooner you purchase the software , the sooner you can have an effect on that tax year . for tax year 2004 , i purchased my software in november and was able to make some " fine tuning " of my income durning december before the close of that tax year .

this doesn't deal with the issue of what money to use to pay for your ROTH conversions but i can say that NOTHING ( or very little - AAII has done some studies on using deferred money to pay for ROTH conversions ) i've read suggests using dollars within your deferred accounts to pay for the conversion . i won't also answer this question on Lita's forum as i don't want to step on her toes and bob90245 is correct in steering you in that direction as she is good and has written several books on tax subjects . my answer is just the way i personally deal with ROTH conversions ( i have been doing ROTH conversions every year since they been allowed ) and tax planning .

-- posted by allancoleman

Top 810. Jun 14, 2005 2:49 PM

» allancoleman - Re: Newbie question on IRA withdrawals to fund Roth

In response to Re: Re: Newbie question on IRA withdrawals to fund Roth posted by Dick_Y:

you're more than welcome Dick_Y . i have found tax planning to be a very effective part of maintaining critical mass . there is no way i would entrust this to anyone else cause it's far too complicated for the usual advisor and everyone's situation is really different .

i'm lucky that i'm only 60 and have personal money from real estate sales to pay for the conversions and jumped on the ROTH conversion bandwagen from day one cause i'm very likely to entirely convert my deferred accounts to ROTHs before i'm 70 1/2 .

and you are wise to deal with the RMD situation BEFORE you're 70 1/2 cause after that date , your hands are pretty much hand cuffed with your required distribution . especially if your critical mass total is high enough . good luck in figuring out the IRS tax code . that's the main reason i use tax software now .

-- posted by allancoleman