Asset Allocation for Near and Active Retirees

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As you near retirement, your allocation should reflect your shorter investing horizon. In retirement you’ll begin to spend some of the income from your investments, and financial advisers generally recommend changes to your asset allocation to reflect this short term need for cash. As a result, the allocation to bonds typically increases while your allocation to stocks declines. As we’ve discussed in earlier articles in this series, there is no one-size-fits-all portfolio. We have been looking at Richard Ferri’s recommendations in his book, All About Asset Allocation, which offers some good guidance.

In his book, Ferri suggests holding anywhere from 60% in stocks (aggressive) to 35% (conservative). The moderate portfolio, according to Ferri, would hold 50% in stocks. For Ferri’s two recommended portfolios, he takes the moderate approach. The first of these two portfolios is his basic portfolio, which uses six mutual funds and ETFs. Here it is:

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if you want a little more control over your asset allocation, Ferri also recommends a multiple asset portfolio. It includes 14 mutual funds and ETFs, and will require more time to manage. Here it is:

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Now, if you are really paying attention, you’ll notice a problem with the multiple asset allocation. Give up? When you add up the allocations, it only gets you to 95%! Well, nobody’s perfect, and I’m pretty sure Ferri would add the other 5% into the Fixed Income category, and my guess would be to put it in the Investment-grade fund. Otherwise, sit back, relax, and enjoy retirement.

Published or updated July 15, 2008.