“If the retiree’s withdrawal rate is lower, then their investment allocation can be more conservative. At retirement, you will be at 60/40.” –B. As long as the stock market stays high, I like to reduce risk by 10% a year for four years. At around five years out, it is time to start the de-risk. “Go as close to 100% equities as you can before retirement. These days I am recommending T-bill ETFs and floating rate investment grade bond ETFs.” –George Gagliardi, CFP, Lexington, MA Clients need to estimate what cash needs are likely to be for the next three to five years over and above pensions, annuities and Social Security, and these assets need to be held in very low-volatility funds. “I like to implement something akin to a ‘bucket strategy’ that ensures that clients won’t need to liquidate their more volatile assets after a substantial market correction.

For funds needed within five years, less equities are used, and more than 50% would be invested in a combo of cash, short-term bond funds, and muni-bond funds.” –Theresa Rosen, CFP, Sudbury, MA In most cases I find that if the need is for five years or more, it is best to be more aggressive and be in a primarily diversified equity portfolio. “My experience has been that it is best to divide these goals into time frames of when funds will be needed. Part of that is to see how your portfolio strategy and holdings would perform under historical volatile situations.” –Scott Bishop, CFP, Houston, TX Then I suggest they perform a Portfolio Stress Test. “Since late last year, I have been talking on the radio about reviewing and updating your financial plan to determine your ‘Hurdle Rate’ – seeing the minimum returns you need to reach your goals without running out of money. “By having two years of income needs in cash and short-term bonds, with the rest of the portfolio containing stocks and some intermediate term bonds, we are able to take the income from the fixed investments for up to five to seven years, if needed, while waiting for the market to come back.” –Edward Snyder, CFP, Carmel, IN That said, there is no guarantee that future returns won’t differ from what we’ve seen over the last 65 years.” –Michael Ciccone, CFP, Summit, NJ Some interesting stats show that from 1950 to 2015, an example 50% stock and 50% bond portfolio has never finished with negative returns over a rolling five-year period. Portfolio diversification is the golden rule of investing.įor example, in 1987, the market fell by 34% in 33 calendar days and in the other hand, earlier this year, the S&P 500 more than 65%.“Most clients should consider stepping down their risk as they approach five years to retirement.

ii However, if the price of that one stock falls suddenly, the investor will incur a substantial loss. The returns from a diversified portfolio tend to be lower than what an investor might earn if they were to pick a potential single winning stock. Why is portfolio diversification important? It all stems from the thinking of not putting all your investment eggs in one basket because while some stocks are rising, others might be falling. i A diversified portfolio can include individual stocks from different industries as well as bonds, mutual funds, ETFs, global stocks - and more. Designed to manage volatility and risk, portfolio diversification is the strategy of owning investments in different asset classes so your exposure to any one type of asset is limited, and your overall risk profile is also reduced.

Reduce risk inshort time investments