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Many of you have been asking what we will do with our money now that we are debt free minus the house.

This is also something I've asked myself.

In the short term, I plan on saving every penny to build up an emergency fund of three to six months of living expenses. This will also allow me to see what plays out in the European debt crisis this year. Also, I will be changing jobs and could use the emergency fund in case I am left unemployed or underemployed.


After that…

It is past time for me to begin investing for retirement, and I'm hoping that my large monthly contributions to a personal pension plan will help me eventually catch up to where I need to be.

I've written before about the Permanent Portfolio, and at this time I am giving serious consideration to following Harry Browne's famous asset allocation plan.

If you recall, the Permanent Portfolio is simply placing the money you can't afford to lose, the money you will need for retirement, into four asset classes for proper diversification during all types of markets: 25% in stocks, 25% in cash, 25% in gold and 25% in bonds (Treasuries).

This type of portfolio needs no broker and only requires a yearly rebalancing. I've seen charts and studies that showed the Permanent Portfolio returned over a 20 year period between 8 and 10 percent. That's more than enough to satisfy me. The truth is, you  have to be disciplined and happy with measured returns rather than jumping to the next big thing in hopes of large returns.

For the stock portion of the portfolio, I'd do a low-cost no load index fund from Vanguard, either the Vanguard 500 or their Total Stock Market fund. I'd also buy another fund to give international exposure, maybe fifteen percent of the stock portion.

The cash portion might as well be kept in your bank savings account where you can get it, and along with the gold, keep a portion at home in case the power is out and the banks are closed.

I believe that US government bonds can be purchased for a low-cost directly from Vanguard.

The gold would most certainly be in the form of bullion coins, whatever is the best price. In the event of domestic turmoil, a large sum of internationally-recognized money could be easily carried to a safer country.

I would also like to keep a small “casino account” for the purposes of speculating with short-term trades. This would be money that I could afford to lose. This is not a priority for me, and in fact, it is more likely that I will enjoy the autopilot approach of the Permanent Portfolio enough to not even want to speculate.


A Boglehead's Approach to Investing

I'm currently reading the Bogleheads Guide to Investing. The Bogleheads are an online community of people who follow Vanguard founder John Bogle's approach and advice for saving, which advocates the use of no-load, low fee funds that track the performance of an index, like the Standard and Poor 500 stock market index.

I admire their do-it-yourself ethos and willingness to be helpful to new investors. I will definitely be lurking about in their forums for months to come.

In the meantime, I'll be acquiring cash and acquiring knowledge.