Published February 10, 2013
What investment mix is best for retirement plan for a 6-year-old?
This week, Tony Bell of Bell & Co. Private Wealth Management in Sacramento, Calif., answers readers’ investing questions. Q: I am 69 and have $400,000 to set up a retirement plan for a monthly income of about $1,500. What bond funds, mutual funds and ETFs would be good? A: Creating income during retirement can be challenging and time-consuming. Generally speaking, the ideal retirement portfolio has a combination of bonds, which provide predictable fixed income; equities, which provide appreciation potential and dividend payments; alternatives, meaning real estate, commodities, etc., that hedge inflation; and cash, the safest option. Prior to determining which fit best in a retiree’s portfolio, the investor should first assess his/her risk tolerance in order to determine the proper allocation among bonds, stocks, alternatives and cash. In addition, the allocation should consider the current economic cycle, political climate, market performance and inflationary trends. Another challenge when creating retirement income from your “nest egg” involves income consistency. For example, typical bonds make interest payments semiannually. This leaves the retiree with no income for 10 months a year and requires budgeting. One way around this is to create a “bond ladder,” which is a portfolio of fixed-income securities where each security has a significantly different maturity date. The benefits of this type of investment structure are twofold. Not only is the investor afforded income “smoothing,” but by purchasing several smaller bonds with different maturity dates (rather than one large bond with a single maturity date), the investor minimizes interest-rate risk and increases liquidity. The goal is to position your investment portfolio so that it generates responsible income, preserves principal and maintains risk equilibrium. Investors should either utilize the advice of a professional or spend time educating themselves. Annette Thau wrote a fantastic book, “The Bond Book: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds and More.” As the title suggests, it’s a great resource for most investors. Claudia Buck writes for The Sacramento Bee