3) Disaster (natural)
5) Debt She observes that three of the five Ds can be covered by enough insurance. Divorce is almost always a nasty wealth destroying nightmare, but sometimes it happens. She views debt as the silent killer of a family’s finances. “The younger wives don’t want to know and the older ones are petrified to know.” (The Thin Green Line by Paul Sullivan) I made it. I retired on the first working day after my 62nd birthday. A little over two years into retirement it is steady as she goes. Since I am worried about the possibility of a market crash in the early years of my retirement, I have decided to hold a rather more conservative position than most advisors might recommend for someone of my age. Once a few years have passed, I can see that I am going to have to ask the question, “And so then what?” I look forward to taking some trips and finding opportunities to be a blessing in this unhappy world, but what am I saving for when I am no longer saving for a particular time sensitive goal? I have a number of relatives who have lived long lives. I am assuming a thirty year retirement, but who can say? I may die tomorrow. I may live to 104 like my grandmother. I certainly want to be a blessing to others long after I shuffle off this mortal coil. I can see that at some point in the future, I will need to plan for a future that I will not live to see. As I grow older and as I have learned more, my opinion of low cost “target date” or “life cycle” funds has increased. For some time I have suggested Vanguard target date funds as a good option for people who don’t want to learn anything about managing money. The target date refers to your planned date of retirement. Feed that one data point to Vanguard and they will take care of the rest, maintaining an age appropriate mix of low cost index funds that will be automatically rebalanced without any further oversight or action required by the customer. Auto-debit additional deposits to this account on a monthly basis and let the miracle of compound interest work in your favor. Recently, Schwab has offered a competing product, Schwab Intelligent Portfolios. As I messed around with their website, I realized the key component that I could no longer provide was the target date. There was no target date. I will need to tap money throughout my remaining years, but if I wish to plan for a future I will not live to see, at least a small portion of that money will need to be treated as though I was a thirty year old man planning to retire at age 65. I will need to create a sub-portfolio that contains a large percentage of international and small cap stocks. Normally someone my age should be looking at a portfolio based on a foundation of full faith and credit instruments like Ginnie Maes combined with intermediate term investment grade bonds. As I pondered the question of multiple sub-portfolios designed for different purposes, I came up with the idea “laddering” target date funds in much the same way as bonds are laddered to smooth out fluctuations in interest rates. I share this idea with an Internet community of investors. They understood the problem, but several of the members pointed out that, since the target date funds use different proportions of the same products, multiple holdings would dilute the effect of several different target date funds into one fund with some intermediate target date. Instead, they proposed thinking in terms of “buckets,” constructed to provide cash for today, conservative investments for tomorrow, and a third bucket containing something akin to a portfolio for a man in the latter years of middle age to provide the possibility of capital gains for the more distant future. One of the contributors in this discussion shared an article that enjoyed a good reception from most of the participants.