My Comments: This question has been asked every years for the almost 30 years that I’ve called myself a financial professional. Unfortunately, there is no best answer. Human nature, in the form of doubts, confidence, expectations, past experience, impatience, timing and fear, all conspire to force our hand when attempting to make intelligent decisions. Good luck!
May 7, 2016 – Jane Hodges – MarketWatch
It has been seven years since the start of this bull market for stocks in the U.S. Is it time for investors to adjust the equity allocations in their retirement portfolios?
Many financial advisers say yes. But that is where the consensus seems to end. Some believe that investors should start to reduce the amount of money they have in stocks. Others, however, argue for sustaining the stock allocation. What they do have in common is that they believe it is time to tinker with the models, while weighing different reasons to move the stock needle up or down.
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. 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% or 5% range, down from as much as twice that before the 2008-09 recession.
Meanwhile, the reduced outlook for equities still exceeds expected returns for other asset classes. But for many, all of the volatility of late makes the near-term risk/reward proposition for stocks less appealing.
“Returns expectations have ratcheted down, but the expectation of short-term volatility in the market continues,” says Christine Benz, director of personal finance at fund researchers Morningstar Inc. MORN, -0.04%
Other factors affect allocation decisions, too, such as whether an investor’s portfolio has been rebalanced along the way, or whether it has passively wandered into an inappropriate asset mix for the person’s risk tolerance or goals.
Benz notes than an investor with $10,000 invested in a 50% stock, 50% bond-related portfolio in 2009 would have seen—if the portfolio were left unchecked—a transition to a 70% stock and 30% bond allocation by the end of 2015.
The good news? The investor’s money would have grown substantially. The bad news? So would the risk exposure.
Here is a look at four percentages of stock allocation for an investor to consider, and the types of investors that might want to consider each of the levels. (To see all four examples, click the palm trees below)