Q. I just read Suze Orman. She said that you should “put your age” in bonds. I am 53 and have only 10 percent in bond index funds. Everything else is in stock index funds in my IRAs. ; ;Fifty percent seems extremely conservative ;at my age. What do you think of this formula? ; ; ---K.F., by email from Austin, TX
A. There are a variety of age-related portfolio formulas. The one Suze Orman is using has long standing as a rough rule-of-thumb. We don’t, however, live in a one-size-fits-all world. How you invest your financial assets depends very much on circumstances that are completely unrelated to your investments.
If you have a secure job (think tenured university professor, federal employee, etc.)
With some adjustment for these factors, most people will do best when they hold a portfolio that has 50 percent to 75 percent equities. Over the last 15 years, for instance, the Vanguard Balanced Index fund (60 percent total domestic equity market, 40 percent total domestic bond market) has provided an annualized return of 6.45 percent. During the same period the Vanguard Index 500 fund provided a return of 6.37 percent.
I don’t have to tell you which portfolio was better for your sleep. Over the same 15-year period, the 500 index provided a better performance than 73 percent of the surviving competing managed equity funds.
Q. I am retired and receive a Social Security check of $2,232 per month. My wife will work for another seven years and earns about $120,000 a year. ;We own our home and, last year, we had about $185,000 of equity. ;I estimate we have now lost about $37,000, ;so we are now down to ;about $148,000.
We have little debt. What we have, we ;manage very well. We have about $50,000 cash on hand. My question is about my wife's 401(k).
It seems pretty clear that Obama is not going to help us regarding the money that people have in their retirement funds. Last year her 401(k) ;was worth about $150,000. Today it is down to about $98,000 and still dropping.
I cannot stand by and watch it continue to lose money. I am considering pulling out a large part of it, paying the penalty and taxes, and safeguarding the money until things improve. Like many, I have no faith in our ;politicians or our banking system. I would rather have cash in ;hand that earns nothing than watch it slip away. I don't believe we are at the bottom, and I fear we will see a huge amount of public unrest in the near future.
What should we do? ---J.H., by email from Austin, TX ;
A. You can reduce your risk without taking money out of the 401(k) account and paying penalties and taxes. Simply reduce the percentage of the account that is invested in equities. Redeem the equity holdings inside the account. Reinvest the proceeds in a short-term U.S. government securities fund if one is available on the 401(k) plan “menu.” Otherwise, there is surely a money market fund.
Going to cash that you personally hold simply isn’t a good idea.
And lighten up. Our saving grace is humor. The best reader response to my question about an appropriate punishment for Bernard Madoff arrived in the mail the other day. It was a picture of Madoff applied to a flexible rubber mat, the kind made for men’s urinals. This could be the beginning of a whole new industry!
Money comes and goes. Everyone else has lost money, too. So we’ll all be adjusting our expectations. It will be annoying. It will be bothersome. But remember that the people who are truly desperate in America didn’t become desperate because the stock market fell. They became desperate because they had never saved any money in the first place. They have never had anything to lose.
The best indication of your security is that you’re worrying about what you’ve lost.