Soon-To-Be Retirees Reassess Their Portfolios

Peter and Claire are a married, dual-income couple. Soon after their youngest child’s wedding, a realization hit them: Retirement wasn’t far off. What’s more, though they’d kept an eye on their retirement plan and investment portfolios, the couple hadn’t made many changes recently. They sat down with their financial advisor to discuss the matter.

Their advisor began by noting that, as she was wont to mention, it’s important to consider rebalancing one’s retirement plan and investment allocations at least annually. Plus, with the volatile stock market of late, Peter and Claire’s allocations may have deviated from their goals. And, as the couple suspected, the appropriate allocation usually changes as a person gets closer to retirement.

Check the foundation

Their advisor suggested they begin their annual review with a close look at their “core holdings.” These are the investments chosen to give their portfolios steady, long-term results that get them as close as possible to their financial goals.

Their core holdings need not — and, often, should not — be the couple’s best or worst performers. But older investors, such as Peter and Claire, who are becoming more focused on preserving their assets (rather than only growing them), would probably favor an even more conservative mix of investments at their portfolios’ core.

So, their advisor said, it wouldn’t hurt to check and see whether any changes (for example, moving some money into a diversified high-quality bond fund) are needed.

Review the amenities

At this point, the couple’s advisor tried out a metaphor. If their core holdings are the foundation of their retirement house, their “noncore holdings” are the amenities — the investments that, by enhancing their return potential and reducing their overall risk, make it a place worth living in.

Their advisor suggested the couple review whether their noncore holdings are fulfilling needs that, otherwise, would go unfulfilled. More specifically, many investment types in this category take on more risk to, ideally, drive up the portfolio’s value in a manner that the core holdings can’t.

For example, their advisor noted, commodities tend not to follow the general rhythms of the wider stock or bond markets. Although this does make them volatile, commodities can also provide a boost when more mainstream investments aren’t doing so hot.

No reminder necessary

Upon leaving their financial advisor’s office, Peter and Claire had another realization: Staying on top of their retirement plan and investment allocations was more important than ever now that they were on the brink of retirement. They wouldn’t need a reminder to check into it next year.

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