Tags: Retirement | stock | retirement | portfolio | allocation

MarketWatch: 4 Stock Allocations for Risk Level, Stage of Life

MarketWatch: 4 Stock Allocations for Risk Level, Stage of Life

By    |   Tuesday, 10 May 2016 06:00 AM

Deciding how much of a retirement portfolio to put into stocks is a key decision as the market struggles to reach record highs set almost a year ago.

“There is no universal prescription for equity allocation, of course. Much depends on a portfolio’s size, an investor’s age and how soon he or she wishes to retire,” reports Jane Hodges of MarketWatch. “Expectations for annual stock returns have ratcheted back since the stock market recovery began in 2009, with many financial planners modeling for annual returns in the 4 percent or 5 percent range, down from as much as twice that before the 2008-09 recession.”

The strong performance of the stock market in past seven years may mean that an investor is too heavily weighted in stocks compared with bonds, and that may mean it’s time to rebalance a retirement portfolio to avoid an overconcentration in one kind of security.

MarketWatch provides four scenarios of what percentage of a portfolio is in stocks:
  1. 0 percent: No stocks. Who is using this approach: The very rich, those with low required rates of return. For some investors who have saved carefully or who are able to live frugally, the required return can be low, which means the assets used to achieve it don’t have to deliver anything resembling stocklike returns.”
  2. 30 percent: Nearly out of the market. Who is using it: Investors with short-term market concerns and those near retirement who want to reduce their risk.
  3. 50 percent: The middle way. Who is using it: Middle-aged investors seeking to preserve some of their portfolio after the bull run. “Doug Bellfy, a fee-only adviser with Synergy Financial Planning in South Gastonbury, Conn., says that for clients nearing retirement, rebalancing along the way should keep them protected from overexposure to stocks,” MarketWatch reports. “He typically reduces near-retirees’ stock exposure by 2 percent annually in the five years leading to retirement, moving from a 60 percent stock and 40 percent fixed-income mix to a 50 percent stock, 40 percent fixed income and 10 percent cash portfolio.”
  4. 100 percent: All in. Who is using it: Some young investors, and the “undersaved.” “There are always people who do it, including entrepreneurs with cash on hand,” MarketWatch says. “Younger savers might place all (or nearly all) their retirement eggs in the equities basket, given their long time horizon before retirement, and thus the ability to ride out market cycles.”

Investment advisers generally don’t advise allocating 100 percent of a retirement portfolio to stocks, but some investors may consider taking on higher risk if they haven’t saved enough, according to MarketWatch.

The Government Accountability Office found about 60 percent of all U.S. households have no savings in an individual retirement account (IRA) or in a 401(k)-style account, according to a recent study.

“In working households–those where a person has a job and isn’t self-employed–some 56 percent have at least a little money set aside in a plan or IRA,” Bloomberg reports. “For those in the second-lowest quartile of workers, only 50 percent have savings in an IRA or 401(k). Among the lowest earners, that number drops to 25 percent.”

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Deciding how much of a retirement portfolio to put into stocks is a key decision as the market struggles to reach record highs set almost a year ago.
stock, retirement, portfolio, allocation
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2016-00-10
Tuesday, 10 May 2016 06:00 AM
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