Looking at an Investment Strategy for Retirement

January 4, 2006

DISCLAIMER: This post is not meant to be a recommendation. If you choose to implement this idea, it will be at your own risk.

In the past, I have talked about a possible retirement investment strategy utilizing exchange-traded funds (ETFs). I wanted to show in more detail just how this strategy would have worked, had it been implemented last year. For this example we will assume the following:

  • A beginning account value of $1,000,000.
  • A 5% withdrawal taken at the beginning of the first year. So, for this example $50,000 is withdrawn and the remainder ($950,000) is invested in the portfolio.
  • Dividends are left in the cash account
  • Fees (.277% FOLIOfn + .55% management fee = .827% Total) are based on the average account value for the year ($1,007,817 + $950,000)/2 = $978,908. In addition, each ETF has an internal management fee.
  • All ETFs are iShares


Ticker
Symbol

%
Alloc.

12/31/04
Value

12/30/05
Value

+ Dividends

Total
Ending
Value

IYM

4

$38,000

$38,890

$653

$39,544

IYC

4

$38,000

$37,019

$94

$37,113

IYK

4

$38,000

$37,957

$614

$38,572

IYE

4

$38,000

$50,682

$470

$51,152

IYF

4

$38,000

$39,327

$798

$40,125

IYH

4

$38,000

$40,609

$295

$40,904

IYJ

4

$38,000

$39,101

$428

$39,529

IYW

4

$38,000

$38,988

$58

$39,046

IYZ

4

$38,000

$35,748

$1,273

$37,021

IDU

4

$38,000

$42,292

$1,210

$43,502

EFA

20

$190,000

$211,376

$3,948

$215,324

AGG

20

$190,000

$186,642

$7,587

$194,229

LQD

20

$190,000

$183,458

$8,734

$192,193

Totals

$950,000

$982,090

$26,163

$1,008,253

– Fees

$8,097

Total Ending Value

$1,000,156

The total return after fees on this portfolio was 5.28%( ($1,000,156 – $950,000)/$950,000 = .0528). Coincidentally, the return for the iShares Dow Jones Total Market Index (IYY) was 5.40% (including dividends).

This is a work in progress so please feel free to post any questions or comments.

4 responses to Looking at an Investment Strategy for Retirement

  1. I like your mix, but you might consider using a few of the new Wisdom Tree ETFs specifically targeting dividend paying stocks. http://www.wisdomtree.com/

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