Investing for Retirement Requires a Disciplined Approach
by Jerome Clark
Over the past decade, equity investors have been blindsided by two severe bear markets, a global financial crisis, and the worst recession since the 1930s. As a result, they have seen generally meager investment returns.
So it is not surprising that many had been fleeing stocks and equity mutual funds. Since the stock market peaked in October 2007, industry-wide net outflows from equity mutual funds totaled several hundred billion dollars through 2010.
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Historically, investors often have abandoned the stock market during steep downturns, missing out on subsequent recoveries. This time, the bulk of the outflows occurred in 2008, before the S&P 500 index skyrocketed 93% (from March 9, 2009, through the end of 2010).
Moreover, an annual survey by the Investment Company Institute shows that the percentage of investors willing to take above-average or substantial risk has declined steadily over the past decade through 2009, especially among young investors.
Those saving for long-term goals such as retirement, however, should consider the implications of reacting to recent events by reducing their equity allocations—and therefore reducing the growth potential of their portfolios.
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Discussion
What are your thoughts about moving your bond allocation into tips
with the prospect of an inflation cycle starting?
posted about 1 year ago by Robert from Georgia
Robert,
We published an article about TIPS and inflation last year. Here is a link to it:
http://www.aaii.com/journal/article/tips-and-the-nature-of-inflation-protection
-Charles
posted about 1 year ago by Charles Rotblut from Illinois
With 3 years away from retirement - where is non retirement monies (not needed for 5-10 years)best allocated?
posted about 1 year ago by Clifford from Pennsylvania
It seems like every allocation scheme is the same. Some of us have other sources of income and don't have to dip into our investments to live on. I am 70 yrs old, retired, and have about 10% in bonds. Most of the equities I have are dividend paying, boring blue chips. What kind of allocation would you recommend for someone like me?
posted about 1 year ago by Paul from Illinois
Given the 35 year olds lack of the need for income and the ability to withstand the downward movement of stocks, why does that individual have any fixed income exposure?
posted about 1 year ago by Henry from New York
Paul
If I were your financial advisor I wouldn't have you change your allocation.
posted about 1 year ago by Henry from New York
Equities have a flat performance curve over the last ten years--dividends have been high. High yield bonds have outperformed equities by far over the last ten years. Yet, the potential for a "100 bagger" only exists in equities. This plus inflation means almost every portifolio needs equities.
The per centage of equities in a portfolio will differ with individual circumstances and risk tolerance acceptance. The 35year old may need money now; the retired 70 year old may not need money at all--like Paul.
Age performance charts are interesting, but only about 80% accurate, and their data entry and exit points are critical to their performance.
posted about 1 year ago by Warren from Florida
Equities have a flat performance curve over the last ten years--dividends have been high. High yield bonds have outperformed equities by far over the last ten years. Yet, the potential for a "100 bagger" only exists in equities. This plus inflation means almost every portifolio needs equities.
The per centage of equities in a portfolio will differ with individual circumstances and risk tolerance acceptance. The 35year old may need money now; the retired 70 year old may not need money at all--like Paul.
Age performance charts are interesting, but only about 80% accurate, and their data entry and exit points are critical to their performance.
posted about 1 year ago by Warren from Florida
I think our economy and our country is falling apart. It is moral problem that cannot be fixed by government or business. Forget stocks. Europe is already falling apart.
posted about 1 year ago by William from Ohio
At 86 long retired. Most still in stocks, however about 20% in Annuity fund, not yet drawn on. And Maybe 10% bond and/or bond funds.
So far working, only real problem is inflation.
Drawing all of income from investments and last few years going into 'nest egg.' I charge most expenses, pay once a month all. Noted mostly same purchases, about 30% more charge each month this year than three years or so ago.
Andy
posted 6 months ago by A Brown from California
Very True with disiplined hindsight. Will a individual investor with only forsight be able to practice what hindsignt dictates? Who knows.
posted 6 months ago by Larry Felder from Florida
I started my financial career in 1936 detasseling corn for 25 cents/hour. US 1st class postage was 3 cents. Postage is up a
multiple of 15 times. Had I not started an inflation strategy then I would have never finished college, or retired in 1986 with a respectable nest egg and income. In the subsequent 26 years, I have chosen to deal with inflation by drawing the needed supplementary funds from fixed income investments, and letting the equities grow. I suggest that the allocations in your 10-20-30 year retirement estate building plans are not sufficiently related to future currency inflation.
posted 6 months ago by W Schwandt from Washington
My view is that all three of your examples still should be planning for a longer term than assumed and should have more in stocks than. You should set your stock percentage by looking at what income you have or will have outside of investments (relative to you living expenses) and how much cash it will take to keep you from selling stocks. If you have any significant income outside of your investment, I would move all of the allocations to a 10 year older age. I believe the main risk going forward is inflation due to a government that spends far more than it brings in, cannot control entitlements , and keeps printing money. Personally, I find that dividends from stocks make me fell better when stock prices go down which allows me to keep more money in stocks.
posted 6 months ago by Richard from Maryland
My view is that as the retiree approaches retirement, he or she should try to ladder his fixed investments to suppply most of his monthly reirement distribution requirements in addition to having equities. I would suggest a use of a Fexible Mix Strategy (equities/fixed investmewnts) that is changed depending on the investing economy-market such that when investing environment is declining significantly the mix is changed toward a 10/90 gradually and visa versa when the investing environment is increasing significantly. If there is tax problem with retirement distributions some considerations should be given to fixed investment minis. Website lifetimestrategies2009.com discusses this method in more detail for self-managed retirement Portfolios'
posted 6 months ago by Vern Andrews from California
