How To Balance Retirement Portfolio


What Is A Growth Portfolio

Balancing a Retirement Portfolio with Asset Allocation

A growth portfolio aims to increase the value of your retirement savings. It generally favors stocks, which though potentially volatile have historically delivered higher returns than bonds over long periods of time.

How to build a growth portfolio

If youre looking to build a growth portfolio, consider the following strategies:

Purchase Rental Real Estate

Rental property, which is sometimes called investment property, can provide a stable source of income for retirement.

Investment property is a business, not a get-rich-quick affair. For those with real estate experience or who want to invest time to make it a business, rental real estate can make an excellent retirement investment.

Of course, there will be maintenance costs and unexpected expenses to account for. Before you buy a rental property, you should calculate all the potential costs you may incur over the expected time frame you plan to own the property for. You also need to factor in vacancy ratesno property will be rented 100% of the time.

If youre unsure where to start, there are many outlets you can turn to for advice. Consider reading books on real estate investing, talking to current homeowners who rent out their property, and joining a real estate investment club.

Dont go out and start investing in real estate without doing your homework. It’s a risky way to incur an income, and you need to be completely prepared before investing in real estate.

So What Is The Retiree To Do

Following this, I determined how much I can withdraw from my portfolio until age 100 at 2% interest rates. I figured 70% of my portfolio would be sufficient.

In other words, 70% of my portfolio I would allocate to bonds and cash-like instruments. This was the amount in todays dollars I needed to live on no risk. The remainder 30% I would invest in risk assets.

The risk assets should have provided the protection I needed against inflation and sequence of return. So I looked at the following table:

Asset Mix
70/30 split 33%

In this phase of my life, I do not want to stomach more than a 10% loss, so I thought a 30/70 split was the appropriate target. But the nagging question was: Will that 30% be able to keep up with inflation and still give my children a sufficient legacy?

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Ways To Minimize Taxes When Rebalancing

To minimize the potential tax consequences of rebalancing in a brokerage account, you have a few options. Tax-loss harvesting or adding new contributions to your account can both help minimize the impact of your rebalancing strategy.

Avoid capital gains taxes by using new cash contributions to purchase assets that bring your allocation into balance. This lets you decrease the percentage of one asset by investing a disproportionate amount into another asset until balance is restored. You can also use stock dividend or bond interest payments from your existing investments for rebalancing.

You may also choose to take advantage of any capital losses through a process called tax-loss harvesting to decrease the amount you may owe on gains you sell to rebalance the portfolio. This involves selling assets at a loss in order to offset capital gains tax liabilities.

You may not be able to completely rid yourself of capital gains taxes using these techniques. But they should help somewhat reduce your capital gains tax liability from rebalancing.

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Structuring Your Retirement Portfolio

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Examples Of Balanced Portfolios In Canada

There are many options available to investors for balanced portfolios in Canada. Thats because most if not all of the big financial providers have medium-risk, balanced portfolio offerings. Examples of these include:

This low-to-medium risk portfolio mainly invests in global equities to help provide growth, along with some fixed income 30% to 50% fixed income and 50% to 70% equity.

Things To Think About

  • Dont forget about the impact of inflation on your savings. As time goes by, your money will probably buy less and less unless your portfolio at least keeps pace with the inflation rate. Even if you think of yourself as a conservative investor, your asset allocation should take long-term inflation into account.
  • Your asset allocation should balance your financial goals with your emotional needs. If the way your money is invested keeps you awake worrying at night, you may need to rethink your investing goals and whether the strategy youre pursuing is worth the lost sleep.
  • Your tax status might affect your asset allocation, though your decisions shouldnt be based solely on tax concerns.

Even if your asset allocation was right for you when you chose it, it may not be appropriate for you now. It should change as your circumstances do and as new ways to invest are introduced. A piece of clothing you wore 10 years ago may not fit now you just might need to update your asset allocation, too.

Asset allocation and diversification cannot guarantee a profit or ensure against a loss. There is no guarantee that any investment strategy will be successful all investing involves risk, including the possible loss of principal. There is no assurance that working with a financial professional will improve investment results.

Broadridge Investor Communication Solutions, Inc.


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Maintain A Healthy Exposure To Stocks

With more than a decade or two of working years left until retirement, its important to maintain the growth potential of your portfolio through an appropriate allocation to stocks. In your 50s, you may want to consider adding an allocation to bonds.

Asset Allocation in Your 40s and 50s

Since you have many working years left, you should still prioritize stocks long-term growth potential.

Use Retirement Income Funds

How re-balancing your retirement portfolio works and why to do it.

Retirement income funds are a unique type of mutual fund. You place capital in the fund, and it is managed for you. In this case, the managers allocate your money across a diversified portfolio of stocks and bonds for you. You place a minimum amount of capital into the account, and the fund managers will do the rest, letting it grow in value. Retirement income funds are great if you prefer to have someone else manage your money and you have a few decades to let it grow.

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Invest In Income Producing Closed

A closed-end fund is an investment company that offered shares in an initial public offering . After raising funds, they buy securities with them. The company then offers shares on the market for trade.

Money doesn’t flow in and out of the fund. Instead, closed-end funds are designed to produce monthly or quarterly income. This income can come from interest, dividends, or in some cases, a return of principal.

Each fund has a different objective: Some own stocks, others own bonds, and others use something called a dividend capture strategy. Be sure to do your research before buying.

Some closed-end funds use leveragemeaning they borrow against the securities in the fund to buy more income-producing securitiesand are thus able to pay a higher yield. Leverage means additional risk. Expect the principal value of all closed-end funds to be volatile.

Experienced investors may find closed-end funds to be an appropriate investment for a portion of their retirement money. Less experienced investors should avoid them or own them by using a portfolio manager who specializes in closed-end funds.

Into Your Pot Goes A Dash Of This And A Splash Of That

A typical pension portfolio invests in assets through investment funds. These funds can be invested into a mix of equities , bonds and cash investments in different ratios, but they can also be invested into other things, such as raw materials , commercial property and foreign currencies. In the market, all these investments or asset classes as theyre referred to perform differently in terms of risk and potential for growth. Lets look at some of the main asset classes:

Equities Share values align with a companys performance and are typically amongst the more ‘volatile’ types of investment, meaning theyre at a higher risk of falling sharply and suddenly. However, they do have the potential to achieve better returns over a longer period.

Bonds These are loans to governments or companies that provide a set rate of interest over a set period. These investments generally produce more stable returns and work well in a portfolio with shares to balance out the day-to-day market risks that shares face.

Cash Investments in cash or cash equivalents are seen as pretty safe and unlikely to suffer dramatic losses. Their downside is they dont make high returns and their growth may not keep pace with inflation, meaning they may lose value in real terms over time.

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Buy And Sell Shares To Balance Your Portfolio

This is where things get complicated, and one of the aforementioned apps can come in handy.

Basically, in order to bring your asset allocation in alignment with your idea, youll need to sell off investments that are overweighted in assets you want to reduce and buy investments in asset classes you want to increase.

To use a simple example, lets say you own two index funds, both with balances of $5,000.

Vanguard Total Stock Market Fund$5,000Vanguard Total Bond Market Fund$5,000Total: $10,000

So you have a 50/50 asset allocation. Youve decided you want to be more aggressive and increase your asset allocation to 80% stocks and 20% bonds. To do that, you need to sell $3,000 of the Total Bond Market Fund and buy $3,000 of the Total Stock Market Fund, so that your resulting portfolio looks like this:

Vanguard Total Stock Market Fund$8,000 Vanguard Total Bond Market Fund$2,000 Total: $10,000

Retirement May Not Seem Like A Time To Introduce More Risk Into Your Investments But A Healthy Balance May Actually Benefit You

The Lazy Man

As a retiree, you need your retirement and investment portfolios as your source of income, so it makes sense that you would want to reduce risk and protect against losses . However, as the average retirement lasts longer, it can be more important than ever to keep a portion of your portfolio allocated to growth.

Income Versus Growth: Striking a Balance

Most people start investing in order to grow their savings before retirement. They look for investments such as stocks that they hope will increase in value. These are considered growth portfolios. But there is another type of investing portfolio an income portfolio which is designed to preserve capital and pay a semi-regular income.

Many retirees switch to income portfolios because they hope to live off their nest egg. Ideally, theyve saved enough to retire comfortably and they tend to be less concerned with growth while more focused on capital preservation and potential income.

However, you never know what the future holds. It can be smart to keep a portion of your portfolio invested in assets you hope will grow over time by combining the principles of growth and income portfolios.

On the other hand, an older investor who plans to live off retirement savings may focus the majority of his portfolio on income and less on growth. This offers some protection if he lives a long life or incurs any unexpected expenses.

1. Risk Tolerance: Stocks

2. Risk Tolerance: Bonds

3. Outlook

4. Life expectancy

Content Type: Article

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Why You Can Trust Bankrate

Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.

Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.

Our reporters and editors focus on the points consumers care about most how to save for retirement, understanding the types of accounts, how to choose investments and more so you can feel confident when planning for your future.

What You Can Do If Your Portfolio Is Too Aggressive

Investors who find their portfolio is too aggressive have potential fixes for this issue that range from simple one-time moves to an overhaul of your financial plan with a financial advisor.

The first step is to take down the risk in your portfolio by moving some exposure in stock funds into bond funds or even cash, depending on when you need the money.

One good path is to find an asset allocation between stocks, bonds and cash that meets your needs and temperament. A more aggressive allocation might have 70 percent or more in stocks, while a more conservative one might have that much in bonds. Then stick with this allocation and rebalance it when it moves too far away from your target allocation.

This means that often a market correction is a good time to shift more to stocks, not less, says Carver. The key is sticking with a target allocation which eliminates the need to make decisions based on market behavior or predictions.

If youre managing the portfolio yourself, Johnson recommends starting the risk reduction perhaps as much as five years before youll want to access the portfolio. That doesnt mean you need to go all cash and bonds, but rather gradually move the portfolio toward lower total risk.

Another good option is to meet with your own advisor and your companys 401 advisor each January, says Paul Miller, managing partner at accountancy Miller & Co. in the New York City area.

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Focus On What You Can Control

If you took a more balanced approach and invested roughly 50% in stocks and 50% in bonds/cash, we estimate the odds that this portfolio will last 25 years is about 90%.1

So what should you do? Remember that even though you cant control the market, you can control your investment strategy decisions. We believe there are quite a few actions you can take.

What Is Portfolio Rebalancing

Using ETFs for a balance retirement fund

When you start investing, you begin by outlining your goals and choosing an asset allocation strategy to guide your purchases. This strategy balances the potential for high returns against the amount of risk youre comfortable with. Youll likely be buying both stocks to fuel growth and high returns, plus bonds for stability and income.

A long-term investment portfolio for retirement, for example, might have an asset allocation of 80% stocks and 20% bonds. But not all stocks are the same: The 80% in stocks might be subdivided into U.S. large company stocks, U.S. small company stocks and international stocks. Likewise, bonds may be divided between U.S. government bonds and corporate bonds.

As the investments that make up the portfolio change in value, the portfolio can drift away from your chosen asset allocation. While the plan might have been to invest 80% in stocks and 20% in bonds, for instance, that allocation made drift to 85% stocks and 15% bonds based on market returns, as the bonds youve purchased lose value and the stocks gain in value.

Rebalancing involves buying and selling mutual funds, exchange-traded funds or other investments to bring a portfolio back to its planned asset allocation. Continuing the example above, you would sell 5% of your portfolios value in stock holdings and use the proceeds to purchase bonds. This would bring the portfolio back in line with the planned asset allocation of 80% stocks and 20% bonds.

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What Are The Benefits Of A Retirement Portfolio

  • A retirement portfolio can create a more stable basis for your future. The returns from your retirement portfolio will supplement your Social Security benefits, and can possibly prevent you from having to live on a fixed income.
  • Because a retirement portfolio is diversified, it can protect you from market volatility by balancing different income classes. If one asset class drops in value, others can pick up the slack.

Life Changesso Should Your Risk Level

There are a lot of reasons you might need to rethink the amount of risk you’re taking.

If something significant has changed with your overall goal or with your life circumstances, you should check your asset mix and see if it still works for you.

For example, your timeline is always growing shorter. An asset mix that worked for a goal that was originally 20 years away might not be appropriate when your goal is now only 5 years away.

The amount you’re shooting for may change too, if you find out you need less or more than expected.

Or you could discover that your risk tolerance isn’t as high as you thought it was. Seeing your balance drop significantly might not be too scary in theorybut the reality often is harder to take. If you find that you can’t stomach the ups and downs, it’s time to change your plan.


Trying to increase returns by jumping in and out of specific asset classes, rather than following a specific plan, has proven challenging even for professionals.

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. Bond funds are subject to the risk that an issuer will fail to make payments on time and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments. Investments in bonds are subject to interest rate, credit, and inflation risk.

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