This doesn’t chart a stock, or ETF. And it doesn’t chart interest rates. It’s important to remember the emotions investors may experience during the economic cycle. Just knowing these stages may help you during periods of economic uncertainty. How do you feel about the markets? Where do you place yourself?
Some interesting observations / news about a possible U.S. default:
A case for the bulls and a case for the bears
By using just the two asset classes listed above, investors can put together one of the most common, all purpose allocation portfolios consisting of 60% stocks and 40% bonds. For decades, it has the recommended allocation for just about any age group. But, like the “4% withdrawal” rule of thumb, even these tried-and-true strategies may not be as relevant as they once were.
For the past few years, investors have experienced very unusual situations that have left them looking for new investment strategies and new asset allocation mixes. Three factors that have reduced the effectiveness of a 60/40 allocation are:
It has even been suggested that 60/40 portfolio has 80% of the volatility of a 100% stock portfolio. That comes as a shock to many investors who thought they were more diversified than they really were.
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Great 30 minute video explaining how the economy works by Ray Dalio of Bridgewater. For those who follow him, it will come at no surprise that the focus is on one of the most misunderstood components of the economy… Credit and debt.
There are four ways to determine an appropriate asset allocation. Each one with pros and cons.
Bottom line, there is no single solution on how to arrive at an appropriate asset allocation. A combination of some or all may be appropriate. Maybe an investor uses the Stage of Life Approach and tilts it more aggressive or conservative depending on their specific risk tolerance.
Contact us for a free consultation to help you build your asset allocation.
When it comes to retirement planning, there are only two outcomes. You will either outlive your savings or your savings will outlive you. It’s that simple. Unfortunately, it’s not easy. Below are a few strategies to consider during your transition years.
Around age 50, investors should begin to plan more specifically for their retirement. It’s important for investors to remember that even though they are approaching retirement, they should still maintain a strong holding of stocks. An investor will retire and may not touch some of their assets for a few decades. Those funds should be invested a little more aggressively than the funds they will need early in retirement.
As an investor enters retirement, they transition from acquiring assets and saving to spending. The asset allocation should not have a sudden change. Rather, a phased approach can offer a smooth transition into retirement. We work with clients to solve this dilemma by using a bucketing strategy. In a sense, investors split their portfolio in four buckets, with each bucket designed to provide income for 7 to 8 years at a time, and focused on using an appropriate asset allocation for each bucket based on the timeframe.
It used to be that the average American male had reached his life expectancy by age 65. In fact, when Social Security first started, it was designed to help people that had lived longer than the life expectancy at the time (age 65). Now, with changing retirement trends, many people are still working at age 70 and beyond. Not to mention living longer… a lot longer.
If an investor is healthy and there is longevity in the family history, it’s important to review the portfolio to make sure it is not being depleted early. If the investor is unhealthy, or does not expect to live much longer, it’s important to check that beneficiaries are up to date or develop a strategy for gifting the account to a loved one.