BOSTON (CBS) – Question: I just got my annual statement from my mutual fund company. They had a pie chart showing me what I am invested in. It’s 100% stock. My wife thinks I am too aggressive. What do you think? Oh, and I turn 65 this year and I hope to work for another five years.
Answer: Short answer: I agree with her. It is too aggressive for someone who is in their 6th decade.
Longer answer: As one approaches retirement, which I assume is the ultimate goal for this money, an investor needs to think more conservatively. A 30-year-old is fine with an aggressive portfolio for they have time in their investing career to make up any losses that could occur in a market downturn.
But at 65 and possibly needing the money sooner than later, you probably won’t have the time to make up losses in your portfolio. You might want to consider a portfolio that is 60-70% stock and 30-40% bonds and cash.
Last October, those days when the market was taking wild swings in a day, all of them downward, had many investors jumping ship. With a more balanced portfolio, you will not worry so much.
Even though interest rates are very low you can still make money in bonds. Last year the S&P 500 returned 2% but the Barclay Capital Aggregate Bond Index returned 7.8%. The year before (2010), the S&P did return 15% but the bond index plodded along at 6.5%.
If you check the Callan Periodic Table of Investment Returns you will find in any one year a different segment of the market up or down. Several years ago Emerging Markets was not very hot with a -53% in 2008 but then it had a 79% return the next year, up 19% in 2010 and last year negative at -18%. That kind of volatility causes heartburn.
I know you are proud of how well you have done investing on your own over the years but you do need to start planning for the next 30 years, most of which will be spent in retirement. You may want to work forever but your health may prevent you from working 40 plus hours a week.
Your mutual fund company should be able to help with rebalancing your portfolio. Nobody likes to sell their winners, but at times we need to take the profit and re-invest the dollars in something less aggressive. Your mutual fund company offers lots of help. They have offices all over Massachusetts, telephone reps to answer questions, and a very good website. Take advantage of the resources they offer.