Quote:
Originally Posted by Scanner
I agree with JimOhio. . .I should keep this on notebook since I post it so much here but you can use my system, not as a template, but just to get the idea of one person's "system." Your system will be different because I'm not you and you are not me, of course.
TIER 1: $0-14,999 1 Mutual Fund/ETF
TIER 2: $15-$49,999 2 Mutual Funds/ETF's
TIER 3: $50,000- 99,999 3 Mutual Funds/ETF's
TIER 4: $100,000-499,999 4 Mutual Funds/ETF's
TIER 5: $500,000+ 5 Mutual funds/ETF's
I am nearly close from crossing from Tier 3 into Tier 4.
(If I have a gain this year, I will cross)
IMO, a Target Fund isn't necessary at amounts lower than 20K or so, unless you are talking college.
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The spirit of the above is GREAT advice (add more investments as you accumulate more money). General financial planning suggests when preservation is the goal (as opposed to growth), then more assets are needed.
So use the amounts on left as a variable where 500k represents final amount of money needed. In my portfolio I would need 7-12 mutual funds to properly preserve assets.
1 Large Cap stocks
2 Mid Cap stocks
3 Small Cap Stocks
4 International Large Cap
5 International Small Cap
6 REITs
7 Domestic government bonds
8 Inflation bonds
9 Corportate bonds
10 Foreign bonds
11 emerging market bonds
12 commodities
where as when growing I would only use:
1 Large Cap stocks
2 Mid Cap stocks
3 Small Cap Stocks
4 International Large Cap
5 International Small Cap
and when I needed to get more conservative I would add two more
6 diversified bond fund
7 commodities
some people might use one fund for 1-3 (total market index) and another fund for 7-8-9 (total bond market index). I have a fund which is 6-7-8-9-10-11 and another fund which is 1-7-10-12.
My advice would be 1 fund when under 5k
2 funds under 10k
3 funds under 15k
3-5 funds under 25k (logic here is based on fund minimums and account fees).
keep 5 funds until you hit point where you want to protect some gains, then add 1-2 more.
Keep 5-7 funds until you start drawing down, then add a few more asset classes.
I have 160k now, with 5 core funds plus a 6th temporary fund (fund only exists until mortgage is paid off). I need growth to see 160k turn into $2 M.
I read an article earlier this year that draw down should be measured in 3 year increments- if you can prevent portfolio from losing value over a 3 year period when drawing down, the withdraw rate you started with can be constant with inflation adjustments and last the amount of time you predicted it would (when you started the draw down).
The issue is avoiding losses over 3 year periods. The easiest way to do that is to use a portfolio of large caps, small caps, international stocks, bonds, cash, commodities, REITs. The article used equal weightings of these classes.
If you tried to use same 7 classes to grow money, it lagged returns of equity based investing or standard stock-bonds asset allocation. But using only a stock-bond asset allocation, there are too many periods in history where portfolio lost value over 3 years (while also drawing down principal) which made it tough to recover using same withdraw rate as the starting value.