You’ve spent decades working hard. Now you are ready to slow down and live off your Social Security payments, your pension and other income sources such as an inheritance. You are also counting on that portfolio of stocks, bonds and funds to keep your current lifestyle a reality. You read about the benefits of “balanced” or “60/40” portfolios, which describes the percentage split between stocks and bonds, and you feel confident that you will live the way you want in your retirement.
But it turns out, the 60/40 portfolio is not the slam-dunk that some financial advisors would have you believe. Why? Because this entire strategy is based on a dubious reading of history, a misrepresentation of the facts and a fair amount of assumptions and guess work. The reality is that the 60/40 portfolio of stocks and bonds comes with no guarantees.
Research done by Sungarden® Investment Research showed that a balanced portfolio only produced a positive three-year return 78% of the time. That may sound OK, and it is … unless you are part of the 22% and expected to make money, not lose it, during your first three years in retirement.
But wait, there’s more. The bond side of the balanced portfolio (40% of its total) is expected to disappoint. During the next 15 years, it is more likely that bonds will be a moderate to severe drag on balanced-portfolio returns, as rising interest rates create negative returns that the low rate of bond interest income cannot offset. And the stock market has been cyclical, but generally upward moving as well. So keep in mind that what you see here is in many ways the best of times for balanced investors.
If you recently retired or are considering it, you need to consider strategies beyond the classic stock/bond only mix. Box Financial Advisors has many ideas to enhance the standard balanced portfolio by adding tangible assets or alternative investments that aim to further diversify major stock-market risks of that traditional stock/bond portfolio. Whatever you do, we encourage you to not sit still and settle for the typical Wall Street answer for moderate risk investors. This is a time for thinking outside the box, and your advisor at Box Financial can help you make the right choices to make your retirement years enjoyable.