Do You Have the Right Investments for Retirement?

Here are four questions from Money magazine that will help you determine whether or not you have the right investments for retirement:

1. Do you have the right stock and bond mix?
2. Are you holding the line on fees?
3. Do you ignore hot investing trends?
4. Do you rebalance once a year?

Here's how I do on these:

1. Right now, I have 20-25 years before retirement (unless I retire early), so I'm almost totally in stocks. I think that's right for me based on the time I have left as well as my tolerance for risk (which is moderate to high.)

2. I certainly am holding fees down. That's one reason I love index funds -- low costs.

3. Index funds are the opposite of hot investing trends. ;-)

4. With my allocation so heavily weighted in stocks, there's not much rebalancing to do. But I am trying to consolidate all my investments into a handful of accounts and a handful of funds. It's taking some time as I'd accumulated several funds over the years before I got into index investing. So now I'm moving them around slowly, trying to minimize capital gains taxes. here's one way I'm going this.

For more of my thoughts on investing, see these posts:

• Illustration of How Costs Can Greatly Hamper Your Investment Returns (And Why Index Funds Do So Well)

• Investment Smackdown: Index Funds Versus Actively Managed Funds

• Key to Investing: Start Early

Comments

[Kirk Kinder]

FMF,

Rebalancing is important even if you are in an all stock portfolio. Even within stocks, correlations differ. For instance, large cap U.S. stocks have a low correlation with international small cap. Even within the U.S., small, mid, large and micro cap stocks do not move together in lock step. And then there are differences between growth and value stocks.

By rebalancing, you create a systematic process to take advantage of these independent movements. If small cap value is trouncing large cap growth, which has been the case for the past four years, then you will be selling small value and buying large growth...selling high, buying low. Rebalancing, even for all equtiy portfolios, has shown to increase returns while keeping your portfolio risk constant.

Of course, I like to see younger investors who are able to handle all stock portfolios add other equity asset classes to their portfolio like REITs and commodities. These assets have an even lower correlation to stocks.

[Aaron]

I believe that index funds serve as a good tool to use for some of a mutual fund portfolio, but I like to try to have some other funds who have consistently outperformed the overall averages as well. I know that index funds beat most mutual funds, but some funds do consistently outpace the major averages.

[FMF]

Aaron --

If you have a list of mutual funds that will consistently outperform index funds in the future (not in the past), I'd love to see a list of them. ;-)

[JimmyDaGeek]

Search Google for 'lazy portfolio' to find suggested index fund portfolios.

Try this link:
http://www.marketwatch.com/news/story/eight-lazy-portfolios-sure-to-volatile-fourth/story.aspx?guid=%7B6F51DDEF%2D5E28%2D4A82%2D8E09%2DDD7066D476A4%7D