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Nearing retirement? Here’s how to allocate your portfolio right now, according to the pros


It’s a tricky time for those nearing retirement: markets are persistently volatile and inflation is eating away at cash. Despite the uncertainty, asset managers and analysts says it’s important to remain invested if you’re nearing retirement or are already retired. So how should one allocate funds, bearing in mind the unsettled markets, a shorter investing horizon and the need for retirees to have some liquidity? CNBC Pro asks the experts for their views. Look beyond a traditional stock/bond split The traditional 60/40 portfolio — comprised of 60% stocks and 40% bonds — has not performed well this year, with high inflation being typically bad news for bonds. “Looking beyond a traditional stock/bond split could be prudent,” said Veronica Willis, investment strategy analyst at Wells Fargo Investment Institute. “We recommend including diversifiers, like commodities, because they do not move in the same direction as either stocks or bonds, which can help mitigate losses and reduce volatility.” Historically, when stocks lost ground, bonds gained, but that hasn’t been the case this year. However, the recent surge in bond yields presents an opportunity for retirement investors, said Willis. “For investors who are close to retirement, the current rise in bond yields has provided an opportunity to lock in higher yields than we’ve seen in the last several years that can provide a higher income stream for the same level of bond investment than before rates rose,” she said. Proportion of stocks to bonds For Thomas Poullaouec, head of multi-asset solutions, APAC, at T. Rowe Price, stocks should comprise between 40% to 50% — sometimes up to 55% — of a portfolio at the time of retirement, with the rest mostly in bonds. He said that at the other end of the spectrum — when investors are late in retirement, they should target about 20% to 30% in stocks. Holding a “reasonable” amount in stocks helps to protect against inflation and longevity risks, Poullaouec said. “Being in cash is even more risky than being in equities if you want to achieve a decent life in retirement.” But retirees should focus on “low beta, minimum volatility” type of stocks, he added. Choose stocks wisely Wells Fargo Investment Institute’s Willis agreed that instead of completely abandoning stocks, the key for those nearing retirement might be a tweak in strategy. “At times when volatility is elevated, it may be prudent to shift away from higher-risk equities like small caps to large caps, and away from high-yield fixed income to investment-grade fixed income as the time horizon shortens,” she said. Buy cheap, focus on dividends Retirees should look to stocks with dividends to give them some income, said Nick Ferres, chief investment officer at Vantage Point Asset Management. “For investors at or nearing retirement there should be a focus on companies that have above average dividends for income, but [also] focus on balance sheet strength, cash flow and growth or the capacity to sustain the dividends,” he said He added that it’s possible to construct a diversified portfolio of such stocks in Asia-Pacific that can sustain a 5% yield, as well as between 5-10% growth. But the price you pay for any asset matters most for your future return, Ferres stressed. “It usually pays to buy an asset cheap,” he said. “Tactically there could be a counter trend rally in global equities under way from the September low right now in October.” However, he warned that equities may not have fully priced in an expected earnings recession in the U.S. and said the “major low” in stocks could lie in the first quarter of next year.

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