Diversifying A Retirement Portfolio

The Idea

Holding different kinds of assets, such as stocks, bonds, cash, and sometimes alternatives, can reduce the damage if one falls sharply. It doesn't remove risk.

Common Building Blocks

• Stock funds across regions and company sizes
• Bond funds of different maturities
• Cash for near-term needs
• Inflation-linked bonds
• Alternatives, which can include precious metals

Where Gold May Fit

Some investors hold a modest position in gold for its different price behavior. It pays no income and costs more to hold than a fund. See pros and cons and the ways to hold it.

Next Step

A fee-only financial adviser can design an allocation to your age, goals, and risk tolerance. We can't.

Asset Classes And The Role Each Plays

Rebalancing

Over time, winners grow to a larger share of a portfolio than you intended. Rebalancing means trimming those and adding to others to return to your targets. It enforces discipline, but it can have tax consequences in taxable accounts, so many people rebalance inside IRAs where trades are not taxed.

How Much Is Too Much In One Thing?

There is no universal rule. Some advisers suggest keeping any single alternative asset to a small share of a portfolio, because a concentrated bet can dominate results either way. Ask a planner what fits your age, income needs, and tolerance for losses.

Costs And Taxes Of Diversifying

• Funds charge ongoing expense ratios, which are usually low for broad index funds.
• Physical metals in an IRA add setup, custodian, storage, and spread costs.
• Selling in a taxable account can trigger capital gains tax.

Common Mistakes

• Mistaking owning many funds for being diversified when they hold the same things.
• Letting fear or a headline drive a big shift.
• Ignoring costs.

Gold's pros and cons cover where metals can fit.

A Rebalancing Example

This is hypothetical. Suppose you hold $100,000, with 60% in stocks and 40% in bonds. Stocks rise 20% and bonds stay flat. Your stocks are now worth $72,000 and your bonds $40,000, so you have $112,000 and stocks make up about 64% of the total. To return to 60/40, you would target $67,200 in stocks, so you sell about $4,800 of stocks and buy $4,800 of bonds. The idea works in either direction and in any account.