Comments on: Asset Allocation Pyramid

By: Mike

Mike — Wed, 20 Jan 2010 18:44:48 +0000

Hi Kenboe. Great question. I wouldn't exactly count a pension as a fixed-income asset, as it has several important differences. (For example, it can't be sold.) Here's a post of mine on how I'd incorporate a pension or social security into the asset allocation question.

By: Kenboe

Kenboe — Wed, 20 Jan 2010 18:33:10 +0000

Hi Mike,
I’m a new reader of your blog. I think you have an excellent site with a well-informed readership, (based on comments I’ve read.) Thanks for the free unbiased information. Here’s my question: My wife and I are among the fortunate few who have retired recently with the help of 2 solid state pensions. (The state is Wisconsin which has a fully funded system.) When figuring our allocation, in terms of stocks versus bonds, shouldn’t we count the pensions in the bond column? And if so what percentage of bonds do the pensions comprise? I realize you’ll have to give a general answer without knowing our specific situation. Still a stab at this would be greatly appreciated.
Kenboe

By: Mike

Mike — Wed, 14 Jan 2009 19:17:38 +0000

Hi Kitty.

There’s absolutely nothing wrong with individual bonds.

I would caution, however, that they often carry unreasonably high broker commissions.

Also, individual bonds are subject to the same price fluctuations that bond funds are. Functionally, owning a bond fund is the same as regularly buying individual bonds. The only difference is cost (fund operating expense as compared to commission on individual bonds).

By: kitty

kitty — Wed, 14 Jan 2009 18:31:29 +0000

Why bond funds and not individual bonds? Individual bonds are fixed income investments that you can hold to maturity to get your money back; in the meantime you can collect fixed interest. Bond funds go up and down in value. When interest rates go up as they will eventually, ALL bonds in your bond funds will lose value. With individual bonds you’ll have an option of holding to maturity.

By: Mike

Mike — Tue, 13 Jan 2009 13:19:29 +0000

Hi BGP.

I’d suggest opening a Roth IRA with an online brokerage firm, then investing in ETF shares. (ETFs are essentially index funds that are bought and sold like stocks, so the minimum investment is likely to be far lower than with mutual funds.)

As far as I know, etrade’s Roth IRAs have no account fees, so that might be a good way to go. Then as far as choosing which ETF, I’d simply go for one that tracks a very broad index. (For instance, Vanguard’s “Total Stock Market” ETF might be a good choice.)

By: BGP

BGP — Tue, 13 Jan 2009 07:33:02 +0000

So how does a 20-something relatively poor guy get started investing in diversified stock?

By: Debbi

Debbi — Sat, 10 Jan 2009 07:29:37 +0000

Now that’s speaking my language!

By: Mike

Mike — Thu, 08 Jan 2009 14:43:58 +0000

@Miranda: Thank you.

@Monevator: Hehe, indeed. If only we’d all bought paintings and beanie babies instead of investing in the market…

By: Monevator

Monevator — Thu, 08 Jan 2009 14:37:50 +0000

Ah, but where would we be without our great art and collectibles.

(Seriously, good idea. Like it.)

By: Miranda

Miranda — Thu, 08 Jan 2009 13:20:59 +0000

Great illustration! I love it.