By Henry K. (Bud) Hebeler

My own feelings about this subject are simple and old fashioned. There is no perfect allocation formula. Just use some reasonable diversification. Here are some things that have served me well:

Leave your home out of your assets for retirement planning and asset allocation-unless you are already in retirement and plan on downsizing shortly or getting a reverse mortgage. Either way, only part of your home equity (sales value minus debt) is a retirement asset. Roughly 40% of the equity is about tops.

If highly taxed, calculate allocations on an after-tax basis. $500,000 stock in an IRA is worth only $350,000 with a 30% tax rate, i.e., $500,000 minus $150,000 tax = $350,000. Use low cost tax-managed funds when practical or adhere to some tax management disciplines.

Keep your stock and investment real estate equity between 100 minus your age (e.g., 40% at age 60) and 110 minus your age (e.g., 50% at age 60) as a percent of your retirement assets if that's practical. Don't change distributions till you get outside these limits. Then sell/buy enough to put you back in the middle of the range again. Generally, you will have to rebalance infrequently, perhaps only every other year. Keep less in stock if you can't accommodate a 20% drop in stock prices in one year. Deposit all taxable dividends and interest in a money market so you'll have a convenient source of funds for rebalancing. This will save you a lot of bookkeeping at tax time.

The amount in money markets should be the larger or (1) 10% of your investments or (2) the amount you need from investments for two years' expenses not otherwise covered by Social Security and pensions. Also look ahead for about five years and ensure you have enough liquid assets to provide funds without having to sell highly illiquid investments and/or leveraged investments such as real estate. Stick to these money market and liquidity rules even if you must violate the stock/age relation above.

Consider low cost stock funds such as one index fund for the total market, or split funds between S&P 500, mid caps, and small caps, or divide into growth/value and US/foreign, but complexity is a headache.

Put any funds not needed to meet your stock and money market allocations in bonds or equivalent fixed income investments. Buy quality bonds (aa or better) to mature in different years if you have over $100,000 for bonds. For smaller bond values, look into GNMA funds, or "I" Bonds which have some attractive features for many people, or CDs if you comparison shop. Maturity dates should coincide with your need for cash.

A good alternative for people who don't want to worry about the market and/or buying bonds is a low cost, low turnover balanced fund. Fixed annuities are costly, but OK for aged, less competent, people.

For most people, it's better to have stocks in deferred-tax accounts than taxable accounts. However, if you have substantial taxable investments, I believe that it's better to have the stocks in the taxable accounts and bonds in deferred-tax accounts. But be aware that rebalancing taxable accounts is usually not tax efficient unless you have some losses or are into gifting stock either to charities or heirs.

Select your highest risk investments for charitable gift funds, trusts for heirs' future retirement, or funds you won't need for many years. That's good personal protection for severe market declines.

And I like my father's advice: "Don't invest in anything that eats or takes maintenance." I'd also be very careful before getting into any kind of a partnership, trust or insurance investment. Your lawyer, agent, accountant, and taxes may get more than you intend. Investment complexity is seldom in your own best interests, but it certainly will help those who purport to help you.

This material is presented AS IS. There is no warranty expressed or implied. No one can predict the future, so no one can determine in advance the best investments. Seek professional help.