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Asset allocation in retirement


How to set your asset allocation as a retiree

In today’s low-yield environment many retirees are assuming greater risk in their investment portfolio for the potential of a higher return. Christine Benz of Morningstar and Vanguard retirement expert Maria Bruno talk about what retirees should consider when setting their asset allocation.

Other highlights from this webcast:

Notes:
All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.
© 2016 The Vanguard Group, Inc. All rights reserved.

 
Amy Chain: Peg is asking what a reasonable asset allocation in retirement should be. I know there’s a lot of variables here, but let’s get started on what that might be. Christine, why don’t you kick us off there.

Christine Benz:Well it does vary quite a bit based on the retiree’s own situation. I would say that probably the equity allocation is higher than many retirees might have thought it would be, in part, because when you’re looking at the raw materials from bonds in terms of returns that we might expect, yes, you need them in your portfolio as a stabilizer. Absolutely. But current yields are a pretty good predictor of what we can expect from our bond portfolios over the next decade. So you’re lucky to get 2% on a high-quality bond portfolio today. Two percent is not enough for most retirees. My view is that most retirees do need healthy equity allocations and there are no one-size-fits-all answers, but I think certainly folks entering retirement ought to be thinking of upwards of 50% in many cases.

Amy Chain: Retirement’s a long game, right?

Christine Benz: It is. It’s 30 years or more for many retirees.

Maria Bruno:And I would agree. As you think about the long horizon, equities really provide that inflation protection that investors need at that stage. Bonds will help balance out that market volatility. Cash, you really need to think about cash as a short-term liquidity vehicle. Having that in a long-term portfolio is probably not a good idea because of you’re really not getting growth on that asset on a real or inflation-adjusted basis. So cash plays a role but not necessarily as part of a long-term portfolio.

Amy Chain: Or is not as a significant or core component of this long-term portfolio that needs to accomplish growth.

Maria Bruno: Right, I mean because there’s this notion of playing it safe. But yes, yields are very, very low right now, but you also need to think about the inflation-adjusted growth and that’s where bonds and stocks and a combination comes into play. Most of the spending rules, as Christine had mentioned earlier, in terms of spending rules, it’s all predicated upon a balanced portfolio. And we see that with, and you may see it as well too in your conversations, but we see it with our investors who are in our IRAs. And we can map this to industry data as well. Investors seem to be balanced within their IRA accounts. So it is enriching to see that, in general, this balanced allocation is being embraced and embraced throughout retirement.

Notes:
  • All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
  • This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.
© 2016 The Vanguard Group, Inc. All rights reserved.

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