Chris Cowles wrote:
- quote -


"Cash" is really "very short term bonds" when you get down to it so it's
not the end of the world that part of your bond allocation is in that
employer-directed (GIC?) fund. Especially at the moment, because there's
little difference in yield between cash and even intermediate-term
bonds. Only if interest rates drop will you see a true drag on your
investment returns, by having that money in a cash/GIC kind of bucket
instead of a bond fund. If rates rise significantly you'll see a benefit.

RE: high-yield bonds - is the risk worth the relatively low additional
yield? Junk bonds are paying one of the leanest premiums over
investment-grade bonds in history. It would not surprise me to see that
shake out at some point - they're called junk bonds for a reason!

-Tad

"Elle" <honda.lioness[at]nospam.earthlink.net> wrote in message
news:BApTf.6645$Bj7.5340[at]newsread2.news.pas.earthlink.net...
- quote -

Thanks for your insights.

I am aware of Piazza's breakdown but simplified it for illustrative
purposes. In addition, another portion of my wife's portfolio is outside her
control and a small piece of it (~4% of total) is already in bonds. So that
doesn't allow much tweaking, either.

If 'option B' were more desirable, I'd have room to manipulate it a bit
more. In that case, I'll put more in a HY bond fund.

The cash is non-contributory on my part, and outside my control. Other
components are within my control. I'm trying to use those within my control
to compensate for the large proportion in cash.
--
Chris Cowles
Gainesville, FL

Chris, did you notice that Piazza specifically says to break
that 25% down to the following?
15% = "multi-sector bond fund" E.g. VBMFX (responsive to
interest rate changes)
10% = high yield bond (generally not responsive to interest
rate changes)

With the yield curve as flat as it is, I would count your
cash as fulfilling the 15% multi-sector requirement, but
somewhat conservatively for the long run. Adding the
additional 5 points in cash means overall your portfolio is
even more conservative. This argues for being more
aggressive where possible. But the problem is, of the
remaining categories, I would hesitate to say which is more
aggressive. I would just change the 5% in bonds to 5% in
high yield bonds, let the rest of Option A's large, mid,
small, and foreign allocations stand as the more aggressive
stance in total, and then not lose sleep over this for the
next two years.

After two years, the yield curve may change enough to
warrant lowering large caps (which some argue are less risky
than the other stock choices) and putting more in a "multi
sector bond fund."

I don't think option A or B are going to produce
dramatically different results.

In sum, I would do the following:
- quote -

Final comment: That's an awful lot in cash that your
employer plan requires. I hope you're reviewing how much you
put into this plan. If it's a 401(k), I wouldn't put more
than the limit to achieve the employer's match.

Chris Cowles wrote:
- quote -

The only time you care about negative correlation is when stocks are
moving down, right? So when they're moving down, wouldn't your
guaranteed return investment be negatively correlated to stocks?

Just a thought,
-Will

I'm revising my current allocation plan to match that of Jack Piazza's
'Established Earner', found here: http://www.seninvest.com/estabearner.htm.
My goal would be to use the aggressive portfolio mix for portfolios $100,000. It's not radically different from my current strategy but allows
for a finer degree of allocation in sub-categories. I'm comfortable choosing
that as a target.

For the purposes of this question, I'll combine growth, value and blend
categories to describe the target mix as 25% large, 20% mid, 15% small, 15%
foreign, and 25% bonds. I have to adapt that to my own situation. I have
~20% of my portfolio in cash, a guaranteed interest fund currently earning
4%. That investment is directed by my employer and is outside my control.

My question is, how do I make that adjustment? Do I reduce the bond portion
to 5% (Option A)? Or do I reduce all categories proportionately (Option B)?
If I reduce all proportionately, non-performance by the cash fund will be a
drag on the rest. However, if I reduce the bonds to 5%, won't I lose the
principal protection of negative correlation between stocks and bonds?

Comments? Thanks in advance.

==Target==
Large 25%
Mid 20%
Small 15%
Foreign 15%
Bonds 25%
Cash 0%

==Option A==
Large 25%
Mid 20%
Small 15%
Foreign 15%
Bonds 5%
Cash 20%

==Option B==
Large 20%
Mid 16%
Small 12%
Foreign 12%
Bonds 20%
Cash 20%