Saturday, October 9, 2010


According to the "rule of thumb" our portfolio should be about 60% in bond and 40% in equities.  This is something I have worried about. We are heavily in the market right now- about 55%. Where are my bonds? I just don't understand bonds well.
David Laibson spoke at a Merrill Lynch round table on retirement.  He and others hit several things that should be taken into consideration need.

Social Security is a bond
Yes, 75% of the money that is collected by payroll taxes goes straight to the people now retired. What we don't consider is that 25% goes into a lending structure- a bond- for the US government to borrow. At this point the fund has several trillion dollars in waiting.
Thinking of the bond of social security helps me balance out my portfolio.

Is your house a RIET?
We own our home. At this point we are seriously considering lending money to our son for his home and letting him pay his "mortgage" to us.  That is a balance in a portfolio. We actually own the land instead of owning a piece of a an office building.   Yes, we have to have someplace to live. My thoughts are take the lowest price that the houses in the area are selling for and use that as a base. Check Zillow for some assessments.

Look overseas for investment
We are checking our portfolio this weekend.  What is the mix of US and overseas investments? After living in China, we are very skeptical about investing in Chinese companies. US citizens are very nieve about what other government can do.  In my childhood Mexico "reclaimed" all land as their own. That left many Arizona residents without their second home.  It was a shock. They simply said, "It is ours now."  

The same is true with companies.  China is a communist state. If the middle class gets out of alignment, will the government choose to reign them in.  This is not as far fetched as one may think. Many countries could care less about foreign investors.  

What to do? When we look at our portfolio we will be looking at companies who serve overseas.  It ends up that most of those companies are "large cap" companies.  We are heavily invested in the large cap.  We will seriously look at those large caps to make sure they are invested overseas as well as at home.

My final assessment is that our portfolio is much more diverse than we originally thought. Not considering social security or house, here is our real balance:
equities 53%
cash 35%
bonds through retirement plans 12%
With the house the mix turns more like:
 48% house, 27% stocks, 17%cash and 6% bonds. 

My real worry should be more about the cash than stocks. Thinking of our Social Security as a bond helps.

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