[this is a ymoyl update.]

since treasury securities continue at their dismal lows (though the 30-year bond seems to be on its way back), i spent some time this spring reading books and websites and researching alternative investments.

i have so much stored in bonds and other guaranteed and liquidizable investments now that i feel comfortable about taking on more risk by investing in equities. i’m following all the common wisdom about limiting risk while having a reasonable expectation of reasonable returns:

  1. making a strategy and committing to it for the long term (i’d say at least fifteen years).
  2. making small, regular investments instead of single large ones, taking advantage of dollar cost averaging.
  3. regularly (annually) re-balancing the accounts to their original ratios (selling what went up to buy what went down).
  4. using no-load, low cost index mutual funds instead of individual stocks.
  5. diversifying broadly both across industries and across the globe.

specifically, i’m dividing my money between vanguard‘s total stock market index (vtsmx, tracking all the u.s. markets) and total international stock index (vgtsx, tracking all the markets of the rest of the world). i’m using their tips fund (vipsx) for ballast and as a place to shift cash out of harm’s way as i approach retirement.

i also fully funded a roth ira (for last year, just before april 15th) in the same way, and will continue with it. it can’t hurt to have a tax-free cash bump when i hit 59.5.

i feel good about getting into the markets at this time. i think the u.s. has pretty well bottomed out for now, so it’s a good time to be making the first investments. about the only thing that’s going to drive it lower is another large-scale terrorist attack and subsequent war on whomever is chosen to pay for it, and that will provide us all with a lot more to worry about than the dow. and if al qaeda can sucker the u.s. into throwing all its money into a land war in asia, that’s all the more reason to have money in the rest of the world. we may even see the day when those “safest investments in the world” are no more sacrosanct than social security.

these aren’t socially-screened funds like the domini fund in which i used to invest, but i feel comfortable about their holdings, and tend to think these days that direct political involvement is more likely to do good than sifting and filtering my equity portfolio. paying my taxes funds the american war machine far more than my investments ever will.

i’ve changed the way i compute the investment income line one more time. it’s now 4% of my total investments (except the roth ira), so it will swing up and down with the equity portion of my portfolio.

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