Through our working lifetime, saving forces battle the ‘live 
life’ forces.  In our family sometimes saving won and sometimes 
spending won.  As retirement approached we had equity in our 
home, a small nest egg, and no consumer debt.

Through our working lifetime, the conservative asset allocation 
forces battled the aggressive asset allocation forces.  In our 
family, we mostly allocated and diversified with random financial 
transactions.  There was no written or even spoken plan. 
Individual transactions were analyzed as discrete events loomed, 
not as part of a total plan.  Thankfully we weren’t living beyond 
our means or wildly aggressive investors.  As retirement 
approached our nest egg was split 50/50 between common stock and 
money market funds.

Finally, I retired and only then began studying our financial 
life from a big picture point of view.  

Most of my early reading reinforced the common perception that 
asset allocation between asset classes reduces risk.  The theory 
is that prices in different asset classes inflate and deflate at 
different rates.  Rising bond prices might offset falling stock 
prices.  Rising real estate prices might offset falling commodity 
prices.  One of the champions of asset allocation is Burton G. 
Malkiel, PhD.   In A Random Walk Down Wall Street he popularized 
a life-cycle approach to asset allocation.  He proposed that 
retirees should shift more of their nest egg into bonds or other 
fixed income securities.  The theory is that when salaries/wages 
stop and projected years to live decrease we can tolerate less 
risk. 

Along the way I started looking at ways to access the equity in 
our home.  I looked at reverse mortgages and discovered what 
reverses is the mortgage balance.  In a conventional mortgage the 
balance decreases with each payment you make to the bank.  With a 
reverse mortgage the balance increases with each payment the bank 
makes to you.  The balance grows, but at some point the bank has 
to be paid off.  Often cash is raised to pay the bank by selling 
the home.  

Jeremy Siegel, PhD. studied more than 200 years of US stock 
market data.  He determined on average the stock market returns a 
real return of 6.8% per year.  He found that on average the stock 
market out yields other equity classes, and says “stocks remain 
the best bet in the long run for US investors.”

In mid 2002, these ideas were swirling around in my retired head. 
Diversifying asset classes reduces risk.  Stock market has 
greatest average return.  Interest rates, mortgage rates are at a 
fifty year low.  I also knew from financial theory that pursuit 
of greater return requires acceptance of more risk.  Conversely, 
avoidance of risk limits return.  Some Excel spreadsheets with 
random number generators convinced me that the average annual 
draw from a retirement nestegg 100% in equities would exceed that 
of any mix of bonds and equities.  Average draw would be more, 
but in individual years the draws possible for a bond portfolio 
are sometimes greater.

In July of 2002, we refinanced our mortgage and invested the 
proceeds in the stock market.  The account is also my checking 
account.  The plan was to keep the account balance at about the 
mortgage balance.  The balance would be maintained by spending 
less if the account fell below the mortgage, and spending more if 
the account climbed above the mortgage.  The account started with 
$128,175.86.  Since then I’ve withdrawn $34,921.17 more than I 
have deposited, the investment value has grown by $35,782.19 and 
the account is at $129,036.87.  The withdrawals include all 
interest and principle payments and closing cost for the first 
refinance and for a second refinance along the way.  The mortgage 
balance is $127,766.97.  

This strategy is working for us.  I like the idea of staying 
flexible, slowing spending when the market is down and spending 
more when the market is up.  Last year I spent $10,000 on 
reflooring and painting our condo.  This year I’m spending the 
same on a 1990 Mustang Convertible.  These are flexible projects. 
The market gave a little extra so we spent it.  This strategy is 
probably not appropriate for everyone.  There is always the 
chance that a bad year in the market will coincide with large 
inflexible expense.

In retrospect, I wish I had figured out at the start of my 
working life that diligent investment into a diversified equity 
portfolio would have made me wealthy.  I wish I’d figured out 
borrowing for an investment was probably a better use of credit 
than borrowing for a new car.  But, when you are in your 
twenties, who thinks deferred consumption is good.  I’m happy now 
with more than 100% of my equity in the stock market.

In a future article I’ll discuss my Excel retirement draw models, 
and point out a website that goes far beyond.  The website lets 
you play with asset allocation, funding amounts, and your 
expected longevity to see what your monthly withdrawal will be. 

Lyle Wilkinson, investor, trader, author, MBA
Helps individuals learn to self direct their stock portfolios.
Book, e-book, PowerPoint "DIY Portfolio Management”
http://www.diyportfoliomanagement.com
mailto:joe@diyportfoliomanagement.com