Comments on: More On Why I Sold My Vanguard Target Retirement 2050

By: Keith

Keith — Mon, 27 Aug 2007 13:02:51 +0000

Sorry, one more link that may be easier to understand from JPMorgan. Click on “How they work” then click on “Launch Product Simulation” then Principal Protected Note. It has a nice animation on possible outcomes.

http://www.jpmorgan.com/pages/jpmorgan/investbk/institutionalequities/structuredinvestments/structurednotes

By: Keith

Keith — Mon, 27 Aug 2007 12:51:15 +0000

Something relatively new that you might consider trying is called “Structured Notes” I’m not too familiar with them yet (just heard about them).

I’ll see if I can give a simple explanation. Basically, you buy a CD from a bank and set up a structured note. The interest you earn from the CD is reinvested in derivatives. The potential upside is unlimited, and the downside risk is 0. If it makes money, you get more money than you normally would with a CD, if it loses money, you still get back your principal in the CD. So, the only loss would be the opportunity cost of putting it into something else. Check out this PDF from the Chicago Fed I found that gives a little more detail. I’m not sure how this whole credit crunch will affect it however as it is somewhat exotic.

http://www.chicagofed.org/publications/capitalmarketnews/structn.pdf

By: Kurt

Kurt — Sat, 25 Aug 2007 20:28:39 +0000

“Everything else I don’t need in that timeframe goes right in the stock market in REITs.”
Interesting. Do you own a house? That appears to be all the real estate exposure anyone really needs.

By: The Digerati Life

The Digerati Life — Sat, 25 Aug 2007 18:04:34 +0000

I tend to be on the conservative side due to my age but I have the funds I need in the next five years purely in tax free money market funds and bonds (short term, intermediate term and GNMA). Everything else I don’t need in that timeframe goes right in the stock market in REITs.

By: Eric

Eric — Sat, 25 Aug 2007 17:05:27 +0000

Don’t worry about being called a market timer – what do you think 90% of the individual investors do?

By: fivecentnickel.com

fivecentnickel.com — Sat, 25 Aug 2007 15:04:54 +0000

You should look into laddering treasuries, since they’re state income tax free. Of course, the extent of this advantage depends on your marginal state tax rate.

By: Lazy Man

Lazy Man — Sat, 25 Aug 2007 00:06:43 +0000

I’m weird (and crazy), but I’d probably do a 30-30-30-10 split. 30% in US equities, something like Vanguard Total Index. 30% in non-US equities, like the Vanguard ex-US fund or ETF. 30% in something safe like CDs or high-interest banks, and 10% in Prosper. Okay scratch the Prosper, and maybe up the high-interest account. With this kind of mix, you should be able to net a 7% gain, which isn’t bad, and you have access to money if you need it. Your downside risk should not be too high as I can’t imagine the US and the whole world’s equity markets go to nothing.

By: Kurt

Kurt — Fri, 24 Aug 2007 22:47:02 +0000

“Should I put it in laddered certificates of deposit (though honestly their returns are not much better than the 5%+ available through Emigrant Direct) or is there another mechanism?”
Laddered CDs will provide higher returns in a falling rate environment (if we’re headed into a demand driven recession, for instance).

“On the topic of panic selling or market timing”
If the market had been going up recently, you wouldn’t have sold. You panic sold and are trying to market time. Nothing wrong with that — we’re all human.

“On the topic of how subprime was too small to really affect anything”
Subprime is a media generated buzz word. True, it was part of (and indicative of) a general loosening of credit terms. But it was that general loosening, not the specific issue of sub prime, that should be the story (just ask Henry Kravis and his bankers).

By: pcooper

pcooper — Fri, 24 Aug 2007 21:03:34 +0000

If the only thing you’re sure of is that you won’t need it for a year, I would invest as though you needed it in a year, putting it in your short-term instruments of choice (like CDs or a high-yield checking or savings account).

By: Brian

Brian — Fri, 24 Aug 2007 20:21:36 +0000

I’m glad you followed up on your previous post to give more insight into your decision. This clears a lot of it up.

As for the question about what investments should you be in if your time horizon is less than 5 years, just throw it in something liquid that will give you 5-6% with little risk and I think you are fine. Your idea of laddered CDs is ok if you don’t have the discipline to have all the money available to you, but I know you do have good financial discipline from your previous posts. So, if it were me, I would throw the money in a high-yield online savings account like ING or HSBC Direct.

I’ll update the post I wrote on your previous thread to reflect these updated thoughts.