5 New Retirement Investing Rules

January 20th, 2009  |  Published in Investing  |  Comments Off on 5 New Retirement Investing Rules

Hmmm… I guess it’s about time that someone wrote about “new” rules to investing, so why not Katy Marquardt of U.S. News & World Report? In citing the classic risks retirees face, Marquardt talked to some experts and came up with five new rules for retirement.

Separate investments into different time horizons

Rather than treat your investments as one big pot that you will draw down, they recommend that you treat it as three post – short-term funds, intermediate-term funds, and long-term investments. The short-term should be in low risk investments like high quality bonds, the intermediate-term funds should live in a 50-50 or 60-40 mix of stocks/bonds, while the long-term investments, which a time horizon of 5+ years, should be heavy on stocks. It’s an interesting idea that I think many people were already doing. If you plan to live for 20 years after retirement (into your 80s), I can’t imagine you treating the dollars you plan to spend in your 70s the same way you are treating those you will spend tomorrow.

Don’t reach too far for yield

For your safe investments, don’t try to get too good of a yield by taking on too much risk. I believe in the same mantra, you’ll want a safe return on your short term funds because the risk of something falling tremendously is simply too great. If you’re retired, you can’t afford to lose the money you will need to spend in the next five years so just keep it in a safe high yield savings account or buy a high quality bond.

Munis, dividends

Rule three and four are similar to rule two in that they talk about income generating investments. Rule two points you towards government bonds, or municipal bonds (muni), and rule three says you should look towards stocks with a dividend. One warning I’d have about stock dividends is that they are an indicator but they’re not 100% reliable, companies cut dividends all the time.


This one I liked the least because we start getting into “how should I invest” rather than “how should I be changing my investing plan to account for a new era.”

The five rules weren’t really five rules, it was two rules and then three investment suggestions. That being said, it’s not a bad article, just a little misleading.

Don’t Use Tax Advantaged Investments in 401K, IRA

May 30th, 2008  |  Published in Investing  |  Comments Off on Don’t Use Tax Advantaged Investments in 401K, IRA

Given the recent Supreme Court ruling that upheld the tax advantaged status of investments such as municipal bonds, you may be tempted to begin investing in these instruments. If you do, don’t invest in them through a 401K or an IRA (either Roth or Traditional). You want to take full advantage of their tax advantaged status by investing in them in a fully taxable brokerage account.

The benefit of municipal bonds is that they are exempt from federal, state and local income taxes if they meet certain qualifications. If you live in Maryland and purchase a Maryland municipal bond, then those earnings are exempt from federal, state, and local income taxes – thus pushing up its yield (because you’d be paying taxes on the earnings of any other investment).

If you invest in those types of securities in a 401K, you lose the tax exempt status because you ultimately pay taxes on distributions in the 401K (the same for a Traditional IRA). If you invested in a Roth IRA, you are still exempt but all appreciation in a Roth IRA is exempt from taxes. You are essentially no longer getting the same advantage and thus not maximizing your yield.