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Strategies & Market Trends : Dividend investing for retirement
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To: Max Fletcher who wrote (4256)3/28/2010 7:33:34 PM
From: Kip S1 Recommendation   of 34328
 
Max, I do not personally agree with the 60/40 stock/bond allocation. Nor am I a fan at all of bonds for individual investors (except as a means of speculating on interest rates). Although I cannot cite it, there is some evidence that a portfolio of 90% (presumably something like S&P 500) equities and 10% cash results in about the same level of volatility as the traditional 60/40 stock/bond allocation.

Also important to remember that Social Security and pension benefits are bond-like, and should be treated as such in your allocation decision.

My approach, both in retirement and before, is to invest in equities and keep a level of cash that makes you feel comfortable. When I am working, my cash level is between about 2% and 4%, depending on expenses, options activity, and other factors. When I retire, I will probably raise that to something higher--whatever makes me comfortable. Another way of thinking about this is to invest in stocks and use some of that extra return you get over time to hold cash--both to dampen volatility and to serve as a cushion so you do not need to liquidate your investments at an inopportune time.

Another reason I am not a bond fan is that interest is taxed as ordinary income. You get neither preferential dividend taxation nor any real ability to generate capital gains.
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