5 Resources to Help You Allocate Your Retirement Assets

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This article is a companion piece to the podcast on how much of your retirement nest egg you should invest in stocks. Here I’ll share some resources that can help you make this important decision.

1. Target Date Retirement Funds

Vanguard (among other companies) offers target date retirement funds. These fund of funds, as they are called, divide up your retirement investment into U.S. and foreign stock and bond funds. As you get closeer to retirement, the funds automatically start making your portfolio more conservative by investing in more bonds.

Even if you don’t decide to use these target date retirement funds, they’re a good option for conducting research. They’ll give you an idea of how Vanguard or other mutual fund companies views asset allocation, particularly when it comes to the division between stocks and bonds. It’s worth going to Vanguard’s website to see just how they allocate investments between stocks and bonds.

As an example, here is the asset allocation for Vanguard’s target date retirement fund designed for those in their late 20′s:

Vanguard Target Retirement 2050 Fund

If you go to the Vanguard site, you can actually use the slider in the horizontal chart to see how your asset allocation would change as year near retirement.

2. Warren Buffet

Warren Buffet recently talked about asset allocation and the advice he’s giving to the trustee who will manage the money he plans to leave to his wife in his will. Buffet advice was to invest 90% in stocks and 10% in bonds.

This doesn’t mean that 90% stocks is right for you. Mr. Buffett is no doubt leaving his wife a substantial sum of money. Buffett’s asset allocation, however, underscores the importance of stocks in any portfolio seeking growth that exceeds inflation. You can hear more about Buffet’s advice to the trustee and his asset allocation advice in Podcast 41.

3. Rick Ferri

Rick Ferri is an excellent resource who has written some great books. One of my favorites is All About Asset Allocation. If you don’t know about Rick, he manages over a billion dollars in assets, and he’s a big believer in low-cost index funds from Vanguard and other sources.

I’ve known Rick for years, and I interviewed him in a podcast recently. In his book All About Asset Allocation, Rick suggests a couple of different portfolios, depending on your risk tolerance. I think, roughly, they fall into the range of 60% stocks/40% bonds up to about 80% stocks/20% bonds. In my podcast interview of Rick, he also talks about his children’s investments. They’re in their 20s, and they’re actually at 100% stocks. Regardless, that podcast and Rick’s books are good resources.

4. Bogleheads

These guys are named after the founder of Vanguard, and they have some model portfolios that they call The Lazy Portfolios. They offer a two-fund porfolio, a three-fund portfolio, and some that are more complicated.

These model portfolios not only give you some idea as to the allocation between stocks, bonds, and other asset classes, but they also suggests the specific Vanguard funds you could use to implement these asset allocation plans. And for our purposes, it’ll give you some really great ideas on how much to put in stocks vs. bonds.

5. Morningstar Lifetime Allocation Index

Finally, we have the Morningstar Lifetime Allocation Index. This index is a single page that breaks down three different investing styles: aggressive, moderate, and conservative. For each of these styles, the index suggests allocations between stocks and bonds, depending on how long you have until you retire.

(Click on the image to enlarge.)

Morningstar Lifetime Asset Allocation

The longest retirement age on the chart is about 41 years, retiring in 2055. The index goes all the way back to retirement in 2000, for folks who retired 14 years ago.

For those retiring 40 years from now, the aggressive portfolio has 92% in stocks. The moderate portfolio has 88% in stocks, and the conservative portfolio has 79.92% in stocks. So you can see that Morningstar is a big believer in a heavy weight towards stocks.

Now, this is for those who are far from retirement. But it gives you other portfolio breakdowns for those who are getting closer and closer to retirement. It’s a great resource – a single page that’s very easy to understand.

Each of these five resources gives you information that you should use and learn from, but don’t follow any of it blindly. Instead, be sure to do your own research on asset allocation and, specifically, stocks vs. bonds. Then, make the choice that’s best for you and your family.

Published or Updated: April 2, 2014
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Chris Dowling says:

    Stocks and Bonds- aren’t there other options? Real Estate, commodities, private lending (e.g., Lending Club)?

    • Rob Berger says:

      Chris, absolutely. Although stocks and bonds are the key asset classes. Lending Club is effectively a bond type investment, although one with high risk. I put REITs in a separate class, but I don’t think it’s critical to have in a portfolio (although I allocate 10% to REITs).

  2. Kenneth says:

    Rob, just like Stephen King, you are PROLIFIC! That’s a good thing. You are finding stuff I never knew about before, in so many aspects of financial life. I’m retiring soon, yet many of your readers in other stages of life are finding great value here because you cover the broad spectrum from paying off debt to investing to getting ready for retirement.

    One of the most valuable things you do, for me, is what you call show notes. I love links and references to materials you are talking about so I can dig in deeper and get more information. Thank you for everything you are doing here.

    I’ve been at 60/40 stocks/bonds for over a month now at Betterment. This podcast explains why this makes sense for someone my age (64). Younger people should be more aggressive with their retirement funds, like 70, 80, 90 percent stock allocations. They just have to steel themselves that 30, 40, 50 percent stock downturns will come, but as long as they keep contributing and don’t sell, they are buying stock very cheaply during these downturns. It’s called dollar cost averaging and works wonders. Older people like myself need a smoother ride as we move into withdrawal phase. Jim Collins has one suggestion of 88 percent invested, 12 percent cash, which would be 3 years of 4 percent withdrawals sitting in savings or short term CDs. After a normal market year, take a 4 percent withdrawal and replenish your cash fund. For a 1 or 2 year period of a bad market, don’t take any withdrawals, just keep using your 12 percent fund.

    • Rob Berger says:

      Kenneth, thanks for the kind words and its good to hear you’re finding the podcasts helpful. And great advice on asset allocation. Your experience is invaluable, and let’s hope the younger generation listens!

      • Kenneth says:

        Have you ever run into a calculator that would simulate say $1,000 invested on the first of every month, from Jan 1, 2000 to present, including dividend reinvesting, into an S&P 500 index fund? That period of time would have seen 2 big drawdowns, the Y2K and 9/11 crisis, and the big Kahuna 2008/2009 crunch. I think it would prove the point that staying the course, keeping on investing, is the way to go. You would have invested $172,000 thru April 1, i’d love to see what would be in your account today, and the implied ROI.

        We may never find such a calculator, it would require a lengthy and detailed database to work with. I would venture to say that the results would be very encouraging however.

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