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What about "Target Retirement Funds", don't they do the same thing? My 401k offers a "Rebalancing" service, would this work? What Day Is Best to Invest? The Market is In Turmoil, Isn't This a Good Time To Wait Until Things Get Better? I Can't Invest In a Retirement Account. How Can I Minimize Taxes? What If I Miss My Adjustment Day? My Adjustment Day is Here but the Percentages Haven't Changed My 401k/403b Has a Large Annuity That Keeps Me From Having a 60/40 Ratio Should I Add Money Gradually or Once a Year? I'm Close to Retirement. Should I Change the 60/40 Ratio? How Do I Make Additional Investments? Whenever you want to throw some cash into your investment portfolio, try to use the Lazy Ratio of 60/40: 60% in stocks, 40% in Bonds. With the Simple Portfolio that's easy. But for the Advanced Portfolios you want to be lazy but also want your money to start working from day one. Just invest 60% into your largest Stock Fund (like an S&P 500 Fund) and 40% in your largest Bond Fund. Even better, make automatic deposits. If you can't have your employer set aside your monthly 10% directly into your 401k/403b, have your mutual fund make an automatic withdrawal from your checking account each payday. Then make adjustments on your yearly adjustment day. What about "Target Retirement Funds", don't they do the same thing? Not really. They change percentages over time and may become more conservative than we really want. Also, many Target funds don't change their contents which negates the advantage of the "mountains" and "valleys". My 401k offers a "Rebalancing" service, would this work? Yes. But for this to work, most of your assets need to be in the 401k. When they aren't, the profits from one account don't directly take advantage of the losses in another. This is a good reason to keep your retirement assets in one 401k or 403b account. Most IRA's don't offer this service. What Day Is Best to Invest? Any day is a good day to get started. And, unless you have some special insight into the stock market, your "readjustment" day should be followed without wavering. If you wait a day, one market may go down, but another may go up. The peaks and valleys can happen any time, but your adjustment will take care of those variables automatically. The Market is In Turmoil, Isn't This a Good Time To Wait Until Things Get Better? Just the opposite! The Mountain Method takes advantage of the "valleys" you might be seeing now. It makes the "mountains" that much larger. But even more important, over the last 10 years, the stock market had only 20 days with significant advances. Miss one by waiting and you miss a big chance to profit. I Can't Invest In a Retirement Account. How Can I Minimize Taxes? The best way to invest in The Mountain Method outside of a tax-deferred Retirement account is to set up a stock trading account with really low fees and buy and sell ETF's (Exchange Traded Funds). These are just like Stock and Bond mutual funds, but you buy and sell them like stocks. You will only pay tax on the appreciated amount of what you actually sell. And if you make your Adjustment every year plus one day, your gains are Long Term and are taxed at a lower rate. At least for now. There will be a commission when you readjust, but the cost should be $10 or less, each, and if you follow the Lazy Readjustment, there will only be a few charges each time. What If I Miss My Adjustment Day? It's not a problem. Just make the adjustment on the next day you can. This is a Lazy Portfolio designed so you don't need to worry about it. But you must not avoid making the Adjustment. When prices look really out of whack, that's normally when they will benefit you most. My Adjustment Day is Here but the Percentages Haven't Changed. What Do I Do? It could happen, but it rarely does, unless you're using the Lazy Readjustment. The good news is that this is a Lazy portfolio. And no changes are needed this year, the all the Lazier. Remember, by not making a trade in a wishy-washy market, you're also not making any mistakes. My 401k Has a Large Annuity That Keeps Me From Having a 60/40 Ratio. Stop having your employer contribute any money to the annuity. Instead have them place it all into a stock fund and eventually the Stock Fund will bring that ratio closer to ideal. Some funds will allow you to remove money from that annuity over time, but the hassle may not be worth it. Take the Lazy Way and let the stock fund build. If your fund doesn't offer a Stock Fund, ask them to add one. or, set up a Stock Fund in an IRA and make contributions to it AND your 401k. You will be ahead even if your IRA isn't deductible. Should I Add Money Gradually or Once a Year? Add the money as soon as you get it. First, you get the benefits of compound interest. Second, Dollar Cost Averaging helps you buy stocks and bonds at a more beneficial price: adding money gradually evens out your investment cost. And third, once it starts going in automatically, you don't need to think out it. It's the Lazy Way. I'm Close to Retirement. Should I Change the 60/40 Ratio? Not yet. You still need your money to grow and keeping a good chunk in stocks helps. However, you may need to start withdrawing funds from your retirement and non-retirement accounts, so you'll need to consider the tax consequences of what funds to use first. After age 75, you'll need to consider taxes first and the ratio should start leaning more toward cash and bonds. Of course, personal circumstances, like large medical expenses, may require the rules to be changed. Some people prefer the ratio based on your age: the percentage of Bonds equals your age, example: 50 years old = 50% in bonds. We think that's too conservative. |
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