Assembling a Sturdy Retirement Portfolio
Her efforts have paid off. Unlike the portfolios of many of her peers, Klonowski's investments have already recovered from their losses in 2008 and early 2009, partly because she started buying the stocks of large, dividend-paying companies including
Klonowski's strategy of managing her own investments is unusual among retirees. Many of her peers turn their money over to professionals or stick with funds designed to automatically become more conservative as they age.
"I think they're horrible. I don't recommend them at all," says
"In the '80s and '90s, when people retired, they'd get an asset allocation developed and then forget about it because everything did so well," says Barber. But in today's volatile market, he says, if people don't regularly rebalance their portfolios, they're at risk for being too heavily weighted in stocks or bonds. If investors have too much money in stocks, they can lose a lot when the market drops. If too much is in bonds, they might not be able to keep up with inflation. Retirees are particularly likely to fall out of balance because they're no longer adding money to their accounts, Barber says. That's why he recommends reviewing retirement investments at least three times a year.
Retirees who want to become more involved in managing their portfolios should first decide how much money they will need to take out of their investments, advises
Even retirees who actively manage their investments will want the bulk of their portfolio in a diverse set of investments that don't require much daily monitoring. "You should be setting up your portfolio in a way so you're not making constant changes," says Courtney. Adjustments and rebalancing, yes, but frequent stock and fund trades, no. "If you're very active in buying and selling asset classes, the odds are against you being able to time those right to make money [consistently]," he adds.
Courtney recommends that investors establish a core of investments that will keep their portfolios relatively stable as the economy fluctuates, diversifying through index funds with low management fees and steering clear of more complicated strategies such as funds that bet against, or "short," the market. Then, if investors are drawn to a specific sector of the market or to a particular fund, they can add that to their portfolio without threatening its overall diversification.
Monthly income funds, which aim to generate a consistent payout each month through a mix of stock and bond investments, can also be a smart choice for retirees, says
In addition, Schwab recommends income-oriented funds on its Income Mutual Fund Select List, including the
Retirees should also plan for emergency cash needs, Williams says, so they won't be forced to sell assets at a low point in the market. "If they have a dental [expense] or other large unexpected expense, then they might sell their stock portfolio and it's not the best time. They're letting the market control them as opposed to actively managing their portfolio so they have money that's there if they need it," he says. Williams recommends that investors determine how much to keep readily accessible in cash when making portfolio allocations.
As a money manager, Barber tries to look forward on behalf of his clients instead of dwelling on the past performances of funds, a common mistake people managing their own money tend to make. In 2008, for example, he began the year by focusing his clients' bond portfolios on inflation-protected treasury notes. But as it became apparent that inflation was less of a concern, he began to shift their investments into ultra-short treasury mutual funds, such as Vanguard's Short-Term Federal Funds. Then, as his team began to see an opportunity to make money in corporate bonds, he shifted investments into Fidelity's
One temptation that retirees managing their own money need to resist is fleeing to safety. Even retirees in their 70s, who could live to be 100, should put 30 to 50 percent of their money in stocks, advises
Klonowski, the retired computer systems analyst, managed to move past that fear, and she believes that's why her portfolio recovered as quickly as it did. "Everyone was trying to get to a safe place for money," she says. "I got a little lucky by taking on a little more risk than was comfortable." That kind of nerve might come more easily if you're at the controls.
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