Q. I am a recent retiree. What is wrong in putting everything or most everything I have in my 401(k) and taxable account in a single mutual fund, the Vanguard Balanced Index Fund (ticker: VBINX)? It meets most criteria I like such as 60% stock 40% bond allocation, automatic rebalancing, index investing, low-cost and very little time to be spent.

---S.B., Sugar Land, Texas.


A. For a deeply committed Couch Potato investor Vanguard Balanced Index may be a good choice. It commits 60 percent of your nest egg to Vanguard Total Market Index Fund and 40 percent to Vanguard Total Bond Market Index Fund. Over the last 5 and 10 years ending November 30, according to Morningstar, it did better than 71 percent of all domestic balanced funds. Over the last three years it wasn't as good, ranking in the 52nd percentile. It also provides a dividend yield of 3.4 percent.

This fund has a traditional pension fund asset allocation. It is likely to continue delivering above average results because of its low costs. You can get a report from Morningstar by going to www.morningstar.com, clicking on "funds", and entering its ticker, VBINX.

If it has a problem it is this: when you redeem shares you are redeeming shares of the entire fund portfolio. This means you are selling 60 cents in equity for every 40 cents in fixed income investments.

A good case can be made for investing in equities and fixed income separately. This would allow you to redeem fixed income shares when stock prices are down, reducing the impact of bear markets.


Q.   I'm retired and looking for income. I'm thinking of splitting my income portfolio 3 ways, i.e. 25% in Vanguard short-term corporate fund, 25% in Vanguard High Yield corporate fund and 50% in the Vanguard GNMA fund to achieve about a 6% income from current yields. However, I'm concerned about the risk in the Hi-Yield fund. I'd appreciate your comments and advice.

---D.D., by e-mail


A. Yes, you should be concerned about the risk in high-yield bonds. While the default rate has risen substantially over the last few years, further defaults could be coming if the economy doesn't turn up quite soon. Beyond that, high-yield bonds are really equities in disguise, but without the upside potential.

There are several things you should do. First, reexamine your spending in an effort to get your withdrawal rate down to 4.5 percent or less. The higher your withdrawal rate, the greater the odds you will outlive your money. You don't want to do that.

Second, think about a near-Couch Potato Portfolio. It would be 25 percent Vanguard Inflation Protected Bonds, 25 percent Vanguard GNMA, and 50 percent Vanguard Total Stock Market. (I am assuming your savings are in a tax-deferred account. If they aren't, you'll need to substitute I Savings Bonds for the Vanguard Inflation Protected Bond fund.)

It is possible to withdraw more money from your nest egg than it actually produces in dividends and interest--- but your chances of outliving your money rise rapidly as your withdrawal rate increases. You can learn a lot more about this on John Greaney's website, http://www.retireearlyhomepage.com.


Q. My wife and I bought a home in July 2000. At first, we thought it would be the last house; the one we would retire in. It sits on a  ¾ acre lot, it's picturesque, has a pool, and is in a well-established neighborhood. It has everything you'd think you'd want for the rest of your life.

But now our minds have changed about living there. The house is a bit too high maintenance for us and my wife has never really felt 'comfortable.' We've talked about the possibility of moving, perhaps to a garden home or townhouse.

We haven't had the house appraised but we feel we're either 'upside down' or have very little equity. We could sell and rent. There are so many options. What would you do?

---R.B., San Antonio, TX


A. If you're sure about your feelings about the house, sell it and move on. You may have a loss and that will be a shame. But you are also losing money each month to "high maintenance." You can put a stop to that by moving to a place that costs less.

If you are serious about moving to a rental or switching to a town house, there is a good chance that your monthly shelter expenses could decline dramatically. You might recover your lost money in a year or two simply by spending less on your new place.