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Conference nyoss1::market_investing

Title:Market Investing
Moderator:2155::michaud
Created:Thu Jan 23 1992
Last Modified:Thu Jun 05 1997
Last Successful Update:Fri Jun 06 1997
Number of topics:1060
Total number of notes:10477

124.0. "Help SERP people make decisions" by MCIS2::SCHULMAN (SANFORD) Wed Mar 25 1992 11:22

    There are many of us in DEC who are considering accepting DEC's early
    retirement plan (SERP). One of the questions is what to do with the two
    sets of money's we will receive.
    
    	1. 26 weeks of pay
    	2. The lump sum pension (if one elects the lump sum). 
    
    What advice would the contributers of this conference have for the
    SEREP group.	Example: Given a lump sum at age 55 or 60 and
    wanting to invest, what should that portfolio look like. What % where,
    how many fund families to use, how many funds etc etc.
    
    	I will refer the readers of noted::serp to tune in this conference
    for help in making a real critical and tough decision, and let them
    post their own questions.
    
    	Thanks in advance ========== SANFORD==========
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124.1Take the time to figure it out!MINAR::BISHOPWed Mar 25 1992 15:2441
    Money magazine and so all often do this kind of stuff.  What you
    really want to do is put it all in a money-market fund and then
    go read a bunch of books and articles so you can make a reasoned
    and careful decision. Lacking that, here's a sketch:
    
    If you need current income from this money
    then
    	(
    	Allocate 40% bond fund, 30% large stock fund, 30% growth stock fund
    	by dollar-cost averaging over the next five years.
    	)
    
    else
    	(
    	If you can roll this into an IRA
    	then
    	    (
    	    Roll into an IRA
    	    Allocate 40% index fund, 30% growth funds, 10% high-yield bond
    	    fund, 10% international fund by dollar-cost averaging over the
    	    next ten years
            )
    
       else
    	   (
    	   Allocate 40% index fund, 50% growth funds, 10% international fund
    	   by dollar-cost averaging over the next ten years
           )
    	)
    
    In real life you'd want to scale the relative weights by your age and
    expected death date, as well as by whether you wanted to leave a large
    estate, etc.
    
    Personally, if I were suddenly twenty years older and was looking at
    SERP, I'd take the lump sum and use Vanguard's 500 Index, T. Rowe
    Price's International Stock, and split the growth between 20th Century
    Growth and Nicholas.  I haven't researched bonds funds and so can't
    say what I would do--but I'd be looking for no-load and low fees!
    
    		-John Bishop
124.2Defining a conservative/moderate positionMCIS2::SCHULMANSANFORDWed Mar 25 1992 16:318
    John-- many of the books advise 25-35% as conservative/money market.
    Yet, you don't seem to see it that way. 
    Also, you imply that you wouldn't use more than 3-4 funds fom 2-3 fund
    families. That's also a piece of the puzzle. Don't want to have my eggs
    in one basket, but also don't think I want to have 400000 different
    funds. Disscussion warranted.
    
    	Your nickel========SANFORD======
124.3If you've read the books, you should be able to answer this!MINAR::BISHOPWed Mar 25 1992 19:2327
    What with inflation and taxes, money-markets or conservative bond
    funds don't produce any real return to live on--though _you_ may
    choose to live off capital if you like!  Given my expectation that
    I'll live several decades past retirement, I'm planning not to
    consume capital if I can help it, and would like to pass some money
    on to children, etc.
    
    Further, you'll note that I had you dollar-cost average out of a
    money-market fund for several years, so that you start out with
    everything in that fund.  You may also note my serious advice
    to learn as much as you can during those years, rather than take
    some random set of numbers and names and use them blindly.
    
    Finally, the growth-oriented portfolios were for people who were _not_
    living on the income or dividends.
    
    Historically you can't assume more than about two percent as a
    long-term real return (Consols paid three, I believe, but that was
    before income taxes) for low-risk investments.  I think putting some
    fraction at a slightly larger hazard for a better return is thus wise.
    
    I might go for a few more funds if I had many year's income to invest,
    but I think I'd be tempted to supplement the "big company/vanilla
    growth" stuff with ten percent or so in things like emerging markets
    and gold rather than load up with six more growth funds.
    
    			-John Bishop
124.4BAGELS::REEDFri Apr 17 1992 14:0510
    
    
    	If one were to take DECs early retirement offering, but had 
    	little knowledge of the proper/better/wiser methods of investing.....
    
    	Would it be a great/good/fair/dumb decision to roll it (all?) 
    	into SAVE's Plan A and draw 8+% interest while becoming financially 
    	better educated?
    
    	
124.5One answer...HABS11::MASONExplaining is not understandingFri Apr 17 1992 14:135
    At one of the Prudentioal seminars, that question was raised. The
    answer given by the pro was YES. He believed (as do I - does anyone
    KNOW?) that one could roll the SAVE contents elsewhere at any time.
    
    Cheers...Gary
124.6one roll per year!!!MCIS1::PIACENZAFri Apr 17 1992 15:353
    One rollover per IRA per year. Also, the 8% is subject to change (oct?)
    up or down?
    Tom
124.7Six month's delay won't kill youMINAR::BISHOPFri Apr 17 1992 16:024
    Yes, parking everything in cash at market rates while you learn
    is a great policy.
    
    		-John Bishop
124.8Vanguard variable annuityMINAR::BISHOPMon Apr 27 1992 18:1231
    This looks like a reasonable note to put this in.
    
    I've been advising my parents, who are close to retirement,
    on their options.  In the process I came across something
    which looked interesting enough that some of you might want
    to check it out:  Vanguard sells a variable annuity which
    
    o	is tax-advantaged like an IRA (and has similiar
    	restrictions on withdrawals),
    
    o	can have IRA and 401(k) plan funds rolled into it,
    
    o	whose principal can be invested in various amounts in
    	four funds including equities,
    
    o	is no-load, and
    
    o	has expenses on the order of 1.5 percent (pretty low for
    	a variable annuity).
    
    They have various options for pay out: lump-sum, or various 
    flavors of annuities.  I'm not clear on how the annuities work
    (i.e. does one buy an annuity with the stated terms using the
    lump sum, or does one do a pay-out from the sum with the possibility
    of left-over money if one dies early), but I may call and ask.
    
    The prospectus clearly says it is intended to be a long-term
    retirement-oriented investment for those who are currently
    maxed-out on IRA or 401(k), etc. contributions.
    
    		-John Bishop
124.9Still waitingQETOO::PREVIDIFri May 01 1992 15:2922
                       <<< Note 124.8 by MINAR::BISHOP >>>
                         -< Vanguard variable annuity >-

>    This looks like a reasonable note to put this in.
    
>    I've been advising my parents, who are close to retirement,
>    on their options.  In the process I came across something
>    which looked interesting enough that some of you might want
>    to check it out:  Vanguard sells a variable annuity which

    It looked good to me too, but I have been waiting for six months
    for the Assachusetts regulatory turkeys to approve it
    for sale here.

    I call Vanguard every 5 or six weeks, and they tell me
    I'm on their mailing list and as soon as they get approval,
    I'll get the prospectus.

    Jack (Who is sick and tired of being protected by government sphincters.)



124.10Watch out for tax law changesMINAR::BISHOPFri May 01 1992 18:3617
    I called and asked about the annuity pay-outs.  Both fixed and
    variable annuities are traditional annuities in that they do not
    leave a residue at the end (i.e. you trade all your money for
    an annuity).  The variation in the variable annuity is in the
    amount of the monthly pay-out, which is based on one of their
    indexes (which would make it hard to calculate how valuable
    it actually is...).
    
    One caveat: the folder includes warnings that there are proposed
    bills which could change the tax treatment; in particular, 
    President Bush has proposed only allowing tax-free compounding
    if there is a "substantial life contingency", which _I_ interpret
    to mean no lump-sum pay-out.
    
    re .9: It's available in NH; move!
    
    		-John Bishop
124.11Annuitize Salary Lump Sum?BAGELS::REEDMon May 04 1992 16:4912
    
    
    	To maximize my 26-week Salary Lump Sum settlement I'd like 
    	to annuitize it for immediate payback.  That is, buy some 
    	form of an annuity that would disburse a monthly check 
    	within 30-45 days and continue doing so until it consumed 
    	itself.  I understand that can be done using a combo of 
    	funds, bonds, notes, etc.  I'm told that I'd get a higher 
    	return than Bank or CDs.
    
    	Does anyone know what rate of return I might expect to see?
    
124.12Asset Allocation AdviceCGOOA::DURNINTue May 05 1992 20:1045
Hi,

I am currently in the process of advising my 66 year old father on
his retirement asset allocation.  He has been retired for 8 years and
has always utilized some type of fixed income vehicle to provide his
income (mostly money market instruments/ GIC's/ T Bills)

This has worked somewhat allright in the past as interest rates were high and 
he didn't think much about asset erosion.  Now, with interest rates low 
(although not as low as in the US) he is starting to think differently.
There is however a tremodous block in regards to "not knowing exactly"
how much he will be making or losing over any short period of time.

As you know there is gradual asset erosion and standard of living erosion
from the effects of inflation (inflation is not dead with the types of 
budget deficits run in North America).  Some exposure to Growth oriented
Assets is essential!!!! in order to protect your standard of living over
the 15-40 years that you could be retired. 

My recommended asset allocation mix is for retirement or 0-5 yr timeframes
to date (if I can get him to invest anything at all) is:

     15% Short Term - Cash
     55% Income - Bond Funds, Mortgage Funds
     30% Growth/Growth and Income

The 30% G/G&I area should go into International Funds of Proven Track record 
and stable management/ manager.

Dollar Cost Averaging is good, use it but put some 20% in today and DCA
over 3-5 yrs.  Use 3-5 funds or fund groups.  The goal here is to 
average 13-16% per year on the Growth portion.  Perhaps 8-12% a year on
the bond portion and whatever you can safely get on the Cash portion (4-8%).
Canada's rates are higher than the U.S.

I am not pressuring my Dad and expect he will not invest this % but I am
hoping that he will get started by putting 5-10% of his assets into 
the above.  It is important for the individual to be able to sleep at 
night and not aggravate or start an ulcer because he/she thinks his life's
assets are at risk.  Your health and therefore comfort level are important
Enjoy your retirement or semi-retirement.

Good Luck and Regards,

JD