3 Replies Latest reply on Mar 16, 2011 8:33 PM by JerryD

    Investment Choices/Rebalancing


      How are those of you nearing retirement age (or, like me, have reached it, but are till working full-time) structuring your investment account allocations?  I know that TIAA/CREF professionals will give advice on this, but I'm curious about what "real" people are doing -- how much in stocks? foreign stocks? bonds? real estate? money market? TIAA?

      I'm reluctant to take the commonly-offered conservative advice (drop stocks by 10% every year beginning with age 65) because that strategy is unlike to make my account grow very much.  A decade ago I seemed to be easily on track to retire, perhaps as early as 62, with a $1M+ in my account.  Now (two market disasters and one divorce later), I need to build up my account more.  So, what sorts of risk/reward strategies are people employing?

      Also, does it bother anyone else that CREF is not making available a stock fund that taps where the most growth is likely to come -- in the big, developing economies of China, India, Brazil, etc.???

        • Re: Investment Choices/Rebalancing

          I don't think there is anything stopping you from putting a portion of your portfolio into a non TIAA-CREF fund or ETF that specializes in investing in the BRIC countries.

          You also need to check on the holdings of the funds you are currently invested in. Many US companies get a sizable percentage of their profits from overseas growth, and you benefit from instances where the corporations have hedged against rising commodity prices or currency fluctuations.

          Your portfolio allocation is going to depend on your risk profile. This is not only how much risk you are comfortable with, it is going to be an estimate of how much you can afford to risk without putting your long-term goals in danger. That 'magic number' is not only individual, it is going to depend upon your overall financial picture and how well you have mitigated risk in other areas, such as long term care, debt threshold, estate planning, etc.

          Good planning can get derailed by unforeseen happenings, such as yours. So you'll need to work a little longer, contribute more if possible. You might want to check out this article, which details an interesting investment/distribution 'bucket' method:

          "A new money-for-life retirement plan"
          Forget the recommended 4% annual drawdown of your nest egg. This strategy creates both guaranteed income and growth potential.
          Kiplinger to MSN Money, 10/19/2010
          Full article at: http://money.msn.com/retirement-investment/the-new-money-for-life-retirement-plan.aspx?page=2


          (excerpt) In the midst of the stock-market meltdown in October 2008, Arthur Szu-tu, a relatively new retiree at 60, was gripped with fear and anxiety. He had no pension, he was too young to collect Social Security benefits, and he was relying completely on his savings.


          ....He decided he would rest easier if he mentally separated his investments into two groups: cash and bonds that could sustain him through his initial years of retirement, and stock funds that he would leave untouched until they could recover and grow.


          Without realizing it, Szu-tu had stumbled on an alternative income model that has been kicking around in some retirement-planning sectors for more than 20 years but attracted little attention until recently. As long as the stock market was booming -- and bonds performed well when stocks tanked -- the so-called 4% rule for systematically withdrawing retirement income from an investment portfolio worked well." (end of excerpt)


          We are retired and restricted to the funds offered by our pension fund manager. As these are 'cream of the crop' funds, I don't feel unduly restricted. We're currently in a 60% bonds/40% equities allocation. I'm normally an 'aggressive-moderate" investor, but am comfortable right now with this mix. The equity allocation is evenly distributed between value and growth, small/mid-cap and large-cap. The bonds are all short- and intermediate-term; I have no interest in long-term bonds with interest rates sure to rise.


          I don't care for the equity holdings in the current and sole international fund; they are heavily weighted towards the EU and I think their growth prospects are very poor. The Balanced Funds, OTOH, have a decent percentage in BRIC corporate bonds, which I think is fine. The REIT fund has done very well but it doesn't tempt me right now - that's just me, I've seldom had any money in it over the decades. Yes, I've missed some run-ups, but that's the way it goes.


          We suffered losses in the 2008 market chaos, but held firm and the account is pretty much back to where it was before the slump. We're fortunate that we don't need to draw on it, so our allocation is geared towards mid- and long-term results.

          • Re: Investment Choices/Rebalancing

            I have a market strategy that is uniquely my own (as far as I know), but it works for me. When I was young, I followed the traditional advice of investing for the long term. Your basic "invest it and forget it" method. Two thing happened over the years to change my approach: 1) programmed trading started creating large market swings (+ or- 2% per day) that never used to happen and 2) investment companies like TIAA allowed us to move our money into and out of the market at will (within limits, of course).

            So now I move all of our money into stocks and watch carefully (NYtimes. com has a great portfolio feature). I aim for a gain of 3-4% at a time and a total of 10% per year. Once I gain that 10% I get out for the year. If I gain 5 or 6 % early in the year, I might get out and wait for the market to cool. Whenever the market starts to swing wildly or when the news is bad (like the rebellions in Egypt, Lybia, etc), I move all the money into a money market. When stocks go down (which they always do) and start to come back a month or two or three later, I move our money back into the market.

            Since we now have the ability to move our own money, I see no reason to sit there and watch my investments fall by 5 or 6 or 8%. I get out. However, I don't fret if the market goes up 5 or 6% without me. As long as I get my 10% per year, I'm satisfied. That's how I define "conservative investing".

            Using this method, we were completely out of the market when it crashed in 2008. We also got out a month ago when the Egypt/Lybia thing started, and the market is down 6% since then. Our TIAA account has quadrupled in value in the last 14 years without any additional contributions. So I guess you could say that I am moderately aggressive, have pre-defined investment goals, a clearly defined loss limit, and do not leave my money in an unstable market. It works for me.

              • Re: Investment Choices/Rebalancing
                Crysalis, I think they call your strategy, "market timing". Has TIAA-CREF complained at you ever?

                But don't get me wrong. I totally believe in "do not leave my money in an unstable market" and it works for me too. I just think that I have a longer horizon than in and out a few times a year. Right now I have a portion (relatively modest) in a strategy that looks for 80-100% gain over 4-5 years. This is a time period and past performance that has occurred in the stock market over several bad downs and recovery. So far it seems to work in the current cycle. This opportunity is in stock. If I was more comfortable with bonds, there were several  longer term opportunities there when the Fed cut interest rates drastically. But IMO now is not the time for bonds since rates will go up and principal value will go down due to the Fed's actions and inflation.  There has also been a very nice long term opportunity in Real Estate recently.

                But overall since I have retired I set a personal goal of investing for 5% real gain over my assumed inflation rate which I have set at 3.5%. So my modest goal is year in and year out to get 8.5% - not a barn burner but also not an ulcer generator. My chacing performance days are over and it feel a lot better day to day.