If you are young enough--- and I mean really young--- every market is a buying opportunity.

For the rest of us, market declines can be a problem.

Among those already retired a set back like this year can spell an immediate decline in standard of living. For others, committed to 7 and 8 percent annual rates of withdrawal from their investment portfolios, it can mean the start of a slowly unraveling economic security.

Those still working but close to retirement have to be wondering how many additional years they will need to work.

For all these people, there is a solution. I call it the Omega Portfolio, the last portfolio you will ever need. It's the one portfolio designed to insulate you from market ups and downs while providing you with the cash needed, each year, to pay your expenses if you are retired. It will insulate you from a devastating change if you are approaching retirement.

Like the Couch Potato Portfolio, the Omega Portfolio is very simple. Like the Couch Potato Portfolio, the fundamental idea is to reduce risk, reduce portfolio turnover, and reduce expenses.

What makes it different is time.

The Omega Portfolio uses securities that guarantee an inflation-adjusted rate of return to allow you to build income security into the distant future. The further into the future you build that income security, the greater the odds you will be able to achieve the historical high returns of common stocks on the remainder of your portfolio. To get the high returns on common stocks, all money not committed to an inflation protected fixed income return is invested in a single broad index such as the Vanguard Index 500 fund or the Russell 1000 exchange traded funds.

Suppose, for instance, that you have just retired and want assurance that the ups and downs of the stock market won't affect how you live. Instead of trying to select the perfect balance of stocks and bonds, you estimate how much money you will need from your investments each year for the next ten years. Then you put enough into an inflation-adjusted security to provide the amount needed when it is needed, something you can now do with inflation adjusted Savings Bonds, Treasury Inflation Protected Securities (TIPS), or with a mutual fund that invests in TIPS.

The operating principle here is not new. The Omega Portfolio uses a technique corporate pension funds have used for decades. Its called "immunization."

To avoid the need to sell stocks in their portfolio in a down market, pension managers estimate how many workers will be retiring each year and how much they will need, in cash, to buy each workers' pension annuity. Then they buy fixed income securities to match each date, "immunizing" their portfolio against market risk.

You can start building your Omega Portfolio before retirement. You could, for instance, start ten years before your anticipated retirement and invest an amount that will grow to the amount of cash you will need in the first year of retirement. Each year you add another year. By the time you actually retire, you will have a 10-year ladder of securities that will provide for the next 10 years. Your portfolio will become more conservative each year as you approach retirement.

Here's a specific example. Suppose you're a two-earner couple and you expect Social Security benefits of $30,000 a year, half of the $60,000 a year, adjusted for inflation, that you will need in retirement.

Furthermore, you expect to have $540,000 in your company 401k plan by the time you retire.

You can provide the necessary inflation-adjusted $30,000 a year by committing $260,000 to Savings Bonds (outside your 401k rollover) or a slightly smaller amount to Treasury Inflation Protected Securities or a fund that invests in them (in your 401k rollover). Each year, you withdraw enough to cover your previously estimated expenses.

The remainder of your portfolio, about 52 percent, is invested in an equity index product. With a ten-year investment period, your investment would double to your original TOTAL investment with a return of 7.0 percent. In all but 10 of the fifty-one 10 year periods since 1941, Ibbotson Associates figures show that large company stocks have provided compound annual returns of at least 7.5 percent.

You can achieve still greater security by extending your horizon to 15 or 20 years.

Immunizing for 17 years, for instance, would require $360,000 in inflation-protected securities or 66 percent of your nest egg. The remaining nest egg, invested in an equity index, would likely grow to over $900,000 over the period. In the forty-six 15 year investing periods since 1941, large stocks have returned at least 10 percent in thirty-three periods. That's 72 percent of the time. Even at the lowest return of all 46 periods, 4.31 percent a year, the equity portfolio would be worth $370,000.

To put all this in a bracing perspective, 17 years is the life expectancy of a 65 year-old--- so while you've got a 72 percent chance of growing your nest egg, you've only got a 50 percent chance of still being alive.

Tuesday: Using Inflation Protected Securities