That's a good point, Elizabeth.
Can you talk a little bit about asset allocation, particularly for those close to retirement age like Leigh?
The rule of thumb is to put your age in bonds/fixed income and the rest in stocks. So if you're 60, you'd be 60/40 in fixed income and stocks. But you tweak that rule depending on whether you're conservative or aggressive.
AA is such a personal matter. So much has to do with your tolerance for risk (and, of course, your age and/or time horizon). I'm a fairly aggressive investor, so even though I'm 62, I have 70% of my investments in stocks and most of the rest in the riskier segments of the bond market--junk bonds, emerging markets bonds, other foreign bonds and floating-rate bank loan funds. Kathy, you've written about target date funds. They're all over the place, right?
Yes. Target date funds will have anywhere from 55% to 5% of your assets in stocks at the retirement date. There's a wide range of normal...
I'm looking at Vanguard Target Retirement 2015, aimed for people who are expecting to retire in 2 or 3 years. Its mix is 55% in stocks and most of the rest in bonds with a smidgen in cash. The reason these funds are higher than you might think in stocks is cause they assume, as you should, that you'll live 15, 20, 30 years or more after retirement
I would say it also depends on what the rest of your financial picture looks like, such as whether you have a traditional pension to fall back on, and whether you own your home.
I also think that's worth mentioning because there's no right answer. There are many good ways to allocate your assets. The best strategy is what makes you feel most comfortable while still producing a return that's good enough to address your goals
Another good point, Elizabeth. Thanks
While we're on the topic of asset allocation, let's take this question from Josh. Curious to see what you all think.
As long as you have an emergency fund and you have no other short-term goals, go for it.
I agree -- I think it's completely acceptable.
Bond yields are so low right now anyway -- it seems very likely they will be poor performers over the next 10 or so years. Just make sure you *are* diversified among many stocks.
It's not your age but your time horizon for putting the money to work that should rule, Josh. If you're saving for retirement in 60 years (just kidding, make that 40 years), you should be substantially in stocks--if you can tolerate the volatility. But you should build a well-diversified portfolio with the stock allocation--US stocks, foreign stocks, small caps, big caps, etc
Or just look at the simple portfolios in our Nov issue :)
Good point about diversifying among stocks, Manny and Elizabeth.
Speaking of portfolios, that might be a good segue into our next question from Kino.
Hi Kino - Congratulations - it sounds like you're off to a great start as a saver!
If you have no immediate need for this money, but just want to get started in something that might earn more than a savings account, you might want to start with a diversified fund like Vanguard's Star, Wellington or Windsor. That gives you a mixture of investments and professional management that's good enough that you probably don't have to worry too much.
Alright, let's move on to this question from GOGO
Maybe I should take the gold question, eh, Kathy? :)
I was just typing that...
I personally own IAU, which tracks the price of bullion (it's cheaper than its larger rival, GLD). But I think mining stocks are a better deal than bullion today and am planning to buy a gold mining stock fund. After a time, when our conflict of interest rules permit me to buy stocks mentioned in this story, I may buy some Barrick, the biggest miner
So, sounds like you're bullish on gold right now, Manny and Kathy?
I'm a reporter on this...and will say that many of the experts I talked to are bullish. I have difficulty figuring out the right price to pay for bullion.
I'm moderately bullish. World has a lot of economic problems and investors have a lot of reason to worry
Personally I think gold bullion is an acceptable long-term hedge to hold in smallish (say 5%) quantities. I wouldn't try to speculate on short-term price movements, however.
That's definitely true, Manny and Elizabeth. Gold is typically used as an insurance policy against economic calamity, of which there are many to choose from.
Byron Wien, a hedge fund manager who used to be Morgan Stanley's chief US strategist, made bullish comments on gold in Barron's a couple of weeks ago. I wouldn't make gold more than a 5% position.
Sounds like you're all in agreement on the 5%
If you have $100K portfolio, sure, $5K in gold seems reasonable
Alright, we're down to the final 15 minutes, so let's move on to our next question from Cosmic
If you're in the highest tax bracket and are careful about the funds, they can make some sense. But default risk is higher than it's been in the past, particularly in states like California where a mixture of high public pension costs and overbuilding has led to some serious credit quality issues. So, step carefully
Hi Cosmic - Just to clarify, you're saying you're thinking of buying intermediate muni bonds now, with an aim of holding until 2015?
Also understand that intermediate-duration bonds may not perform well if interest rates rise between now and 2015.
But overall I would say it depends on what your plan is for this money, what your tax considerations are, and what alternatives you're considering.