Drygulch,
What I have heard and makes sense to me, is to subtract your age from 100 and invest that percentage of your nest egg in growth investments. The remaining percent (your age) should be invested in fixed income securities.
Using your asset classes, the real estate and investments (stocks, but not bonds) would be the growth investments. Applying this formula, you would want about 42% of your nest egg invested in those asset classes. The other 58 percent you would want to have invested in fixed income securities (Savings, CDs, Bonds, etc).
Using this method, your $100K of annual expenses would come first from the income generated by your fixed income investments. The remainder would come from either selling some of your growth investments or removing some of the principle from the fixed income securities. You determine where the money comes from by rebalancing your portfolio at the end of each year according to your age.
A bond ladder is one good way to allocate your fixed income securities and help protect against inflation. It also makes it easier to rebalance your portfolio every year.
Along with inflation, another concern is the value of the dollar. Since so many of the products that we buy come from overseas, a falling dollar will accentuate the rate of inflation. Several years ago I read about an investment strategy that consisted of buying CDs in several different currencies. Obviously if you apply this strategy you assume the risk of the losing some principal if the value of the dollar rises. On the other hand, if you are completely invested in the US dollar you run the risk of that dollar losing purchasing power if it falls in value. I bring this up because it is an investment strategy that I have started to apply to my investments. I just don’t have a lot of confidence in the continued long-term strength of the US dollar.
A professional financial can also help you work out a plan that is customized to fit your particular needs.
B.K. |
