Peter, depending upon your risk tolerance we have most individuals between 8 and 12%
Francine, you can take this one from Bill
Bill: Please allow me to jump in here. Although I wouldn't go so far as to say "should," nevertheless I very much like PAAIX and PAUIX (the lower-cost institutional-class shares) and use these funds regularly in client accounts to further diversify stock-and-bond portfolios. Certainly a reasonable thing to do.
Bill, I'm not real familiar with that fund of funds but I think that it has a lot of bonds in it. I'm a fan of Mr. Arnott, though. If it's 70% bonds, then I would consider that 70% toward your bond allocation. Hope this helps.
Alright, looks like we have on more question from BUD
BUD, I'm sure you have heard a lot of opinions about bonds, whether there is a bond "bubble" or not, and what the impact would be on bond funds in a rising interest rate environment. For the long term bond funds provide portfolio stability, but as Peter Lynch once observed, "If everything in your portfolio is going up, then there is something wrong with your portfolio." Bonds could be the "bad boy" in a portfolio in the next few years, yet at that point, it's possible that equity investments could do well and would be the assets to move the total portfolio forward, just as bonds saved a lot of portfolios from the worst results during our last bear market. Investing should be a long term project, with your particular needs in mind, with an understanding that each type of investment has a role to play in your portfolio and that those roles rotate around - even a star baseball player can hit a slump, but the team can still do well. All that said, it would not be possible to recommend a percentage, without knowing more about your risk tolerance. Common wisdom these days seems to opine that intermediate term bond funds a bit less interest rate risk, RELATIVE TO RETURN. Some short term bond funds are doing some strange things to boost yield, so I wouldn't go there particularly. Hope this helps.
Alright, looks like we have time for two more questions today from MM and JEB
MM. the only mutual funds that I can think of that return equity are closed end funds that were set up with maturity dates (called "term trusts"). If a mutual fund is returning equity, that could be a sign that it is shutting down, and returning funds to investors, in which case you would simply use those proceeds to invest in a different fund. A return of equity is not taxable, so it does not make sense to put a fund making those payments into a tax deferred account such as an IRA or a Roth IRA, if that is your basic question - and that would be why folks are telling you not to use such a fund in a Roth, since the return of equity is not taxable so does not need to be sheltered in a retirement account.
Jeb, It's hard to make specific recommendations without knowing a LOT about you... clearly not what we have in this venue. I suggest that you see a fee-only planner for more specific advise.
Alright, does anyone have any other questions for today?
Unfortunately, we are out of time for today's chat. If you did not receive an answer to your question, or have other questions to ask, we will be back again next Tuesday, February 12. Same time, same place. If you submitted a question and didn't receive an answer, we will re-submit it for you during next Tuesday's chat -- and you will be first up!
This is Steve Johnson, CFP(r), Chairman of Johnson Lyman Wealth Advisors in Palo Alto, CA signing off. Thanks for the oppportunity to participate in this worthwhile program!
Signing off. Thanks for doing this. Chad
This is Francine Duke, CFP(r) signing off. I've enjoyed participating in this program once again.
Thank you so much for your time today, Steve, Pat, Francine and Chad. We sure appreciate it!
A big thank you to all who submitted such wonderful questions
And a special thanks to all of the NAPFA planners who helped out today
Thanks, all! See you Tuesday!