If you’re less than a decade from retirement — or already in its early stages — what should your portfolio look like?
You already may have a short-term pile of cash to get you through the first few years, or an annuity to take care of some expenses.
But chances are, whatever investments are left have taken a beating in the stock market, even if you had been lightening up on stocks in preparation for retirement.
Many Americans are responding by putting off retirement or going back to work. Others are delaying Social Security payments to boost benefits down the road.
Some experts are looking at annuities to lock up at least a portion of retirement income as a safety net.
But what about the rest of the retirement portfolio, the money that’s supposed to keep you ahead of inflation?
Financial advisers are divided over where to put retired clients’ investments these days because of the downdraft in the markets since late 2007, as long-held diversification strategies didn’t work.
Some have pulled to the sidelines, ratcheting down stock exposure as investors grapple with the notion that it may take many years for the stock market to recover. Others believe recent events have proven buy-and-hold to be flawed and are trying to pick winning market trends to ride.
Research firm Morningstar Inc., however, is recommending investors stick with broad diversification, said Christine Benz, its director of personal finance.
“There’s one great thing investors can do in this market, and that is to make sure every one of their holdings is top quality,” she said. That means sticking to your previous allocation of stocks and bonds, but using the down market as a time to switch into lower-cost or better-managed funds in the same categories, she said.
Using allocation methods from its Ibbotson Associates unit, Morningstar has developed benchmarks for the target-date category of mutual funds, which are designed to invest with a particular retirement date in mind.
The most conservative benchmark for retirement in 2010 calls for a portfolio with 62 percent bonds, 28 percent stocks and the remainder in cash and other investments.
To create a retirement portfolio using that as a guide and Morningstar fund picks to round it out, Benz suggested this mix:
*Harbor Bond (HABDX), 25 percent.
*Vanguard Total Bond Market Index (VBMFX), 15 percent.
*Harbor Commodity Real Return (HACMX), 5 percent.
*Tweedy Browne Global Value (TBGVX), 5 percent.
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*Dodge & Cox Stock (DODGX), 9 percent.
*Vanguard Primecap Core (VPCCX), 5 percent.
*Vanguard Total Stock Market Index (VTSMX), 7 percent.
*Royce Total Return (RYTRX), 3 percent.
*Vanguard Explorer (VEXPX), 3 percent.
*Vanguard Short-term Bond Index (VBISX), 9 percent.
*Vanguard Inflation-Protected Securities (VIPSX), 14 percent.
Benz noted this portfolio actually has a higher cash allocation than called for in the mix, largely because several funds are sitting on a higher proportion of cash than they normally would.
Michael Hatch, a financial planner and principal with the Sterling Group in Pasadena, Calif., has a similar stock/bond allocation for clients who may need their money within four to seven years. But he boosts stock exposure and adds managed futures and structured notes for the money that people won’t need to touch for at least seven years.
His current stock-fund holdings include American Funds Growth Fund of America (GFFFX), BlackRock U.S. Opportunities (BMCIX), Cohen & Steers Dividend Value (DVFAX), Artisan Mid-Cap Value (ARTQX), Baron Growth (BGRFX), and Thornburg International Value I (TGVIX).
Hatch said he sees a big opportunity in high-yield corporate bonds, though he’s staying near the higher-quality end of those products. Investors will reap strong returns while getting income, he believes.
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