Is It Time to Change Up My Retirement Portfolio?

If you believe at all in the January Barometer (financial-folk-lore that if markets do well in January, the year will be good), then we’re in for a great year! The S&P 500 is up approximately 8% this year and most of the economic reports seem to be more upbeat than they have been in recent years.

So what is there to worry about? Well, in the words of Warren Buffett:

• “Be fearful when others are greedy, and be greedy when others are fearful”.

Looking for Safety:

When my 401k dropped nearly 50% during the Great Recession, I decided it was time to stop playing offense and beef up my defense when it came to how I invest my money.

So I read about a half a dozen books seeking the magic formula for building a safe portfolio. Among them were “Higher Returns from Safe Investments” by Marvin Appel and “Your Money Ratios” by Charles Farrell. Although there was no “right answer”, each of them seemed to suggest one central theme:

• You need to increase your exposure to bonds.

“Bonds, who wants to invest in those boring things?” was my attitude before the Great Recession. My portfolio was mostly Mid and Small cap funds. Why? Because although those types of funds had the most amount of fluctuation, they also had the highest returns over time. If you’ve got years ahead of you to save for retirement, isn’t that the route you want to take?

Experience is the Greatest Lesson:

The Great Recession redefined the TRUE meaning of “risk” when it came to investing. Never again was I going to take on riskier funds without remembering just how LOW your investments can go.

So I’ve since changed my attitude about bonds. In fact, from the two books above, I’ve learned:

• Stocks return about 8% over time and bonds return about 6%.

• However, bonds offer much more stability and are less vulnerable to market fluctuations than stocks.

What Am I Waiting For?

Well all of that may be fine and good. But let us not forget the first rule of investing:

• Buy low, sell high

Unfortunately, the lowest-low of the Great Recession is not the time to “sell” your investments and lock into safe and slow investments. Although I don’t believe in timing the markets, the smarter thing to do would be to ride out the Recession and wait until my share values have come back to the prices they use to be before the crash. That way, I didn’t “lose” any money (although I realize there’s a lot more that goes into that statement than just share price). And so I’ve waited … And waited …

Lately the DOW is inching closer to its pre-market crash levels, which would be the highest it was ever recorded. This gets me thinking:

• If I want my portfolio to become more conservative, is now the time to switch it up?

What do you think? Was it wise to ride out the Recession without changing my asset allocation and locking into safer investments? Should I have just changed my investment strategy regardless? Is the current financial run-up just a temporary rise or will it soon evaporate? Please feel free to share.


Related Posts:

1) Are We Fools for Saving Our Money?

2) A Strategy for Maxing Out Your Retirement Savings

3) Retiring on the One-Million Dollar Myth

Photo Credit: Microsoft Clip Art


  1. says

    I’m no investment expert, but I’d also be tempted to try to ride out those existing investments until they are in better shape to sell. It still exposes you to risk in the short term, but at least you have a plan to get out of that risk when it is more financially feasible. The difficulty is maintaining that plan as you see those existing investments picking up steam.

    • MMD says

      Jeremy, I agree. So far, I’ve made no knee-jerk moves and am tempted to just ride this year out, especially if my gut feeling is that we’re going to have a good year. But isn’t this the trap? I’m sure a lot of people said the same thing back in 2007 going into 2008, and look at how that turned out. Who really knows? Speculation aside, I guess the important thing is that the plan to go defensive is in the works.

  2. says

    Ahhh time and again I realize I am not bonds, stocks, and other financial high risk product guy. Maybe because I am Libra it’s hard for me to decide. But I like your tight and lean posts about this topic as it helps me at least to get exposed to the lingo in just enough amounts I can handle 😉

    • MMD says

      I’m glad to see that I am giving you some encouragement. Without getting too much into your personal financial business, what do you invest your money? Have you tried mutual funds? Are you using more traditional banking products like money market accounts or CD’s

  3. Hunter - Financially Consumed says

    I like the way you have expressed your thought process here. I think it’s smart to be thinking about how to improve the allocation of our investments, and a mix of stocks, bonds, and cash are all useful parts of a balanced portfolio. Although, if you have lots of time before you need to draw on your retirement assets then I wouldn’t stress too much over the market volatility.

    • MMD says

      Thanks for the compliment. You are right that ultimately in the long run there is little to worry about. I’m just thinking more cautiously now with the recent run-ups in stock prices and the periodic predictions of a double-dip recession.

  4. BusyExecutiveMoneyBlog says

    I have maintained a set asset allocation. It is now time for me to rebalance and i’m asking myself the same questions you are posing. My gut tells me that that my current strategy of index ETF investing vs. individual stocks is where i want to stay. The biggest question for me now is what to do with my current allocation of bonds. They probably present the greatest risk when interest rates eventually rise as they will lose value. The problem is everytime something seems obvious, theres a surprise. I will likely rebalance into consistent allocation of 60% stocks, 30% bonds 5% Gold and 5% REITs and not try to get too smart.

    • MMD says

      Good point about interest rates and the effect on bonds. Yes, eventually interest rates will have to go back up. Otherwise, the world will not want to buy our debt. But on stocks, do you also think the current run-up with stocks will continue, or will they pull back? Although no one really knows, I like the defensive nature of your portfolio with the 30% investment in bonds and 10% investment in alternatives. May I ask what kind of (ballpark) average annual yield you see with a mixture like that?


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    […] presents Is It Time to Change Up My Retirement Portfolio? posted at MyMoneyDesign , saying, “With the current economic prosperity, my retirement […]

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