r2i - asset allocation plans
Posted: Mon Feb 05, 2007 6:01 pm
Thread moved from MSN forum:
r2i - asset allocation plans
From: RRK (Original Message)Sent: 1/9/2003 11:37 AM
Folks,
I would like to seriously consider the asset allocation as the most serious thing in your financial planning. If you get this right, everything will fall in place automatically. You get this wrong, your whole financial planning is screwed up. Consider this as making the foundation for your house.
Now looking at Gujju's thread and TMUS thread, I see lot of similarities in the situation. Hence this post to integrate the planning.
[LIST=1]
First decide Equity allocation in AAP. If you are young, go for higher equities. Time is on your side and will work out to your advantage. Have the disciplince to invest regularly without looking the WSJ or prices of your holdings everyday.
If you have unstable job, unhealthy life style, bas savings habits, reduce your risk in equities.
Dont invest the money you plan to withdraw within 5 years in equities.
If you have firm plan to r2i, reduce your stock portion in AAP.
If you wish to leave the money here even after r2i, go up to 70% and not more than that.
If you are paranoid, would like to move all your money to India on return, never exceed 50% of stocks. Also follow rule #3
If you are in between (5) and (6), go for 60% or something between 50%-70% as your risk tolerance, investment horizon allows.
If you are not sure, follow Bogle's rule. start with 50:50 and adjust it in the direction you like most.
Once you decide the decide your stock allocation, decide cash allocation.
Cash allocation will be your emergency fund+your day to day account balance. If you have Ultra short term needs, ( money reqd within a year), put that in cash too.
Now you will have C:B:S like 10:40:50 or 20:20:60 etc. This is key. You only can do that. Sit with your spouse and agree on this number.
Rest goes to bond portion.
Now look at your entire portfolio as % of ret funds and taxable account.
First decide 401k funds. You dont have all the choices there. So, it is important you choose good funds from your options. Rest you can adjust in taxable account.
Fill up your ret fund using bond/cash allocation first. This is like putting big blocks first, then going for smaller blocks.
Keep emergency funds outside ret-accts.
Stocks are best in taxable account. They give you opportunity to harvest CG losses and reduce taxes. Also allow 0% tax for r2i-NRA. Since they dividend yield is lower they are tax efficient.
After you filled up the bond/cash in 401k, if you still find room, go for stocks. Choose the best stocks funds available in your choices. Choose the funds in following order in your stock portion inside 401k
(1) REIT (2) Value (3) Small cap (4) Mid cap (5) Large cap
Always choose index funds where available, keep an eye on expense ratios. These are the only choices you can control. You dont know what stocks your fund manager is buying while you are working or sleeping. It could be next Enron or World Com. You cann't do anything about that.
Once your 401k is filled up, go for IRA and then taxable account.
If you are running out of room for bonds, even before your 401k is covered, consider savings bonds first, they are tax efficient, and offer other advantages. No expense to maintain. Invest in all type of bonds. I already wrote about how to choose bonds. refer to http://rrkind.tripod.com/articles/rrk_cur_20910.htm
Always review your portfolio in line with your r2i plan and what you want to do after that. Keep your AAP even after r2i. So, it is very important to decide what is good for you for long time. Otherwise, when you need money urgently, it may not be there.
Sleeping well is important, but remember to sleep well, you must eat good. So, eating is also important as well as sleeping. Because some folks, decide higher Fixed Income/Bond/Cash allocation and have less in stocks. These folks can sleep for some time very well and even can laugh at others for a while. But at old age, there is not much left for eating, also empty stomach does not sleep very well. The point here is only stock provides money to last after taxes and inflation, and other asset classes dont. Remember this when you are deciding your Asset Allocation.
Saving and prudent living is more important than your investments. They are the brick stones of your house.
The goal for Financial planning is to be happy and enjoy the life. So, be aware, all the time, that you are enjoying the life and make sure you enjoy all the moments.[/LIST]Good Luck !
** RRK
r2i - asset allocation plans
From: RRK (Original Message)Sent: 1/9/2003 11:37 AM
Folks,
I would like to seriously consider the asset allocation as the most serious thing in your financial planning. If you get this right, everything will fall in place automatically. You get this wrong, your whole financial planning is screwed up. Consider this as making the foundation for your house.
Now looking at Gujju's thread and TMUS thread, I see lot of similarities in the situation. Hence this post to integrate the planning.
[LIST=1]
First decide Equity allocation in AAP. If you are young, go for higher equities. Time is on your side and will work out to your advantage. Have the disciplince to invest regularly without looking the WSJ or prices of your holdings everyday.
If you have unstable job, unhealthy life style, bas savings habits, reduce your risk in equities.
Dont invest the money you plan to withdraw within 5 years in equities.
If you have firm plan to r2i, reduce your stock portion in AAP.
If you wish to leave the money here even after r2i, go up to 70% and not more than that.
If you are paranoid, would like to move all your money to India on return, never exceed 50% of stocks. Also follow rule #3
If you are in between (5) and (6), go for 60% or something between 50%-70% as your risk tolerance, investment horizon allows.
If you are not sure, follow Bogle's rule. start with 50:50 and adjust it in the direction you like most.
Once you decide the decide your stock allocation, decide cash allocation.
Cash allocation will be your emergency fund+your day to day account balance. If you have Ultra short term needs, ( money reqd within a year), put that in cash too.
Now you will have C:B:S like 10:40:50 or 20:20:60 etc. This is key. You only can do that. Sit with your spouse and agree on this number.
Rest goes to bond portion.
Now look at your entire portfolio as % of ret funds and taxable account.
First decide 401k funds. You dont have all the choices there. So, it is important you choose good funds from your options. Rest you can adjust in taxable account.
Fill up your ret fund using bond/cash allocation first. This is like putting big blocks first, then going for smaller blocks.
Keep emergency funds outside ret-accts.
Stocks are best in taxable account. They give you opportunity to harvest CG losses and reduce taxes. Also allow 0% tax for r2i-NRA. Since they dividend yield is lower they are tax efficient.
After you filled up the bond/cash in 401k, if you still find room, go for stocks. Choose the best stocks funds available in your choices. Choose the funds in following order in your stock portion inside 401k
(1) REIT (2) Value (3) Small cap (4) Mid cap (5) Large cap
Always choose index funds where available, keep an eye on expense ratios. These are the only choices you can control. You dont know what stocks your fund manager is buying while you are working or sleeping. It could be next Enron or World Com. You cann't do anything about that.
Once your 401k is filled up, go for IRA and then taxable account.
If you are running out of room for bonds, even before your 401k is covered, consider savings bonds first, they are tax efficient, and offer other advantages. No expense to maintain. Invest in all type of bonds. I already wrote about how to choose bonds. refer to http://rrkind.tripod.com/articles/rrk_cur_20910.htm
Always review your portfolio in line with your r2i plan and what you want to do after that. Keep your AAP even after r2i. So, it is very important to decide what is good for you for long time. Otherwise, when you need money urgently, it may not be there.
Sleeping well is important, but remember to sleep well, you must eat good. So, eating is also important as well as sleeping. Because some folks, decide higher Fixed Income/Bond/Cash allocation and have less in stocks. These folks can sleep for some time very well and even can laugh at others for a while. But at old age, there is not much left for eating, also empty stomach does not sleep very well. The point here is only stock provides money to last after taxes and inflation, and other asset classes dont. Remember this when you are deciding your Asset Allocation.
Saving and prudent living is more important than your investments. They are the brick stones of your house.
The goal for Financial planning is to be happy and enjoy the life. So, be aware, all the time, that you are enjoying the life and make sure you enjoy all the moments.[/LIST]Good Luck !
** RRK
