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Dr. Don, I'm now at age 56 and plan to retire in five to six years. I will get retirement equaling approx 30% of my annual income and will also qualify for Social Security benefits. I want to have $55,000 to $60,000 in annual income in retirement. I lightened up on my equity investments early on in 2000 because of what I felt were excessive market valuations. I would now like to increase my equity exposure, probably in either the S&P 500 or a total market index and perhaps in the mid-cap area. Because of my pension, I feel I could get equities back to 50% to 60% of my income in a more normal market. All of my investments are held in either a 401(k) or an individual retirement account. I contribute $10,500 annually to my 401(k) account and my employer matches 1% of my salary. Thanks, JP


I can put you in touch with a few mutual fund managers who may be interested in hiring you as a consultant. Acting on your convictions about the stock market in the past year preserved some wealth in your portfolio. A portfolio of your current holdings would have been worth about the same amount of money 12 months ago. Over that same period, the


lost 54% and the S&P 500 lost 8.5 %, while the

Dow Jones Industrial Average

earned about 6%.

One of the problems with being a market timer is that it's next to impossible to be consistently right about when to be where in the market. You're struggling with that now as you look to reallocate investments from bonds back to stocks. With almost 60% of your portfolio in cash and bonds, it's a good idea to think through how you want to reinvest in the stock market. I think you should reverse that ratio and take stocks back to roughly a 60% weighting in your portfolio.

With all of your holdings in tax-deferred retirement accounts, you have more flexibility in how you reinvest than the investor who has to consider the tax ramifications of every trade in a taxable account. I agree with you that you should pump up your exposure to large-cap growth stocks. An S&P 500 index fund is a way to do that with low annual expenses and broad-based diversification.

Your investment in the


Fidelity Spartan Extended Market Index tracks the

Wilshire 4500

(that's the

Wilshire 5000

less the S&P 500 stocks). This fund has faced tough sledding over the past year-and-a-half, since technology stocks represent almost 43% of the Wilshire 4500. Adding the S&P 500 component to the Wilshire 4500 brings you back to the Wilshire 5000. I recommend that you own a Wilshire 5000 fund and not the two separate funds, because of the single fund's ability to weight the investments by capitalization over the entire index.

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Looking at your holdings, your investments are overweighted in the financial and health sectors. Reallocating from your cash and bond investments allows you the opportunity to reduce those weightings. Energy, utilities and retail are underweighted sectors, and you should consider increasing your investments in those areas.


(TBGVX) - Get Tweedy Browne International Value Report

Tweedy, Browne Global Value Fund is an interesting choice for foreign stocks. The fund is one of the few foreign stock funds that fully hedges its foreign currency exposure. By hedging the currency risk, the return on the fund's investments drives the fund's return, and not swings in the value of the euro, yen or drachma. It's a nice complement to the

(JAOSX) - Get Janus Henderson Overseas T Report

Janus Overseas fund.

Individual stock holdings represent about 11% of your portfolio. The only individual holding that isn't doing well in the first quarter is

Johnson & Johnson

(JNJ) - Get Johnson & Johnson Report


Annaly Mortgage Management

(NLY) - Get Annaly Capital Management, Inc. Report

, a REIT that invests in mortgage-backed securities, is having a great 2001. View the Annaly investment as part of your bond allocation when deciding how to reallocate investments from cash and bonds to stocks.

To help you estimate your income needs in retirement, you'll need to use a retirement calculator. There are dozens of such calculators on the Web; you can try one of them on

our site.

As for your retirement income, six more years of contributing to your 401(k) and receiving the company's matching contributions will help you meet your income needs. The

Social Security Administration

sends you an annual statement of benefits. Use that in conjunction with their

Web site to find out how much you can start receiving at age 62.

Keep in mind that your pension, Social Security and retirement account distributions will be your sources of income in retirement. Budgeting the Social Security and pension components should be fairly straightforward, especially if the pension is a defined benefits plan. Work with your firm's employee benefits manager to gain an understanding of what you can expect to receive from your pension plan.

Dr. Don Taylor has been an investment professional for nearly 15 years, most recently as the treasurer for a nonprofit organization where he managed more than $300 million in assets. He is a chartered financial analyst, holds a Ph.D. in finance and has taught investment and personal finance courses at the University of Wisconsin and at Florida Atlantic University. At the time of publication, he owned shares of Fidelity Spartan Extended Market Index, though positions can change at any time. Dr. Don's Portfolio Rx aims to provide general investing information. Under no circumstances does the information in this column represent a recommendation to buy or sell. Dr. Don welcomes your inquiries and feedback at