Too Many Stocks: Bad Idea?

Are you a retiree with most of your retirement investments in stocks? Good idea? No: Even as the markets near or notch records every day, stay conscious of risks of not diversifying between classes of assets.

A recent Wall Street Journal article discussed how retirement savers are putting more money into stocks. Two excerpts:

Why the Market Hasn’t Peaked

Has the stock market, which continues to reach new highs, topped out? Not yet. Here are four reasons I believe the stock market hasn’t reached its peak.

Boomers Won’t Unload Stocks

So baby boomers, heading into retirement and leery of risk, will unload their stocks – and deflate the equities market for a long time, right? Don’t bet on that. For reasons ranging from low bond yields to estate planning, they’ll likely stick with stocks, especially those paying nice dividends.

Anatomy of Low Interest Rates

Interest rates, against all predictions, are still low. Given the dynamics of U.S. and international economics, they likely will stay that way for a while. Here’s why.

When the fixed-income benchmark yield on 10-year Treasury notes jumped to 3% at the end of 2013, forecasters postulated that interest rates would continue to rise. Since bond values move inversely to bond yields, conventional wisdom indicated an exit from bonds and bond funds.

Countering Bonds’ Rate Drop

If your portfolio depends heavily on bonds, you may be on an investing path to financial shortfall in retirement. Here’s what you can do about that.

Bond returns over the next 30 years will probably come in substantially less than such returns over the past 30 years. Given changes in the direction of interest rates and current yields at historical lows, bonds face a strong headwind to generate much return – even in a nominal, non-inflation-adjusted sense. Bonds may actually show net negative returns, depending on interest rates and inflation.

High Markets and High Risk

Easy money policy has its share of side effects. The stock market continues to hit new highs, thanks to the Federal Reserve. But the level of risk that investors and taxpayers are exposed to also may be close to new highs. 

Ignoring the Global Market?

Imagine you can only invest in stocks of American companies that are west of the Mississippi River. Expand this example globally and you appreciate the narrow vision that many investors happily accept. You need a good slug of overseas exposure. How much? About 30% of your stock holdings. Here’s the thinking behind that.

How to Invest in Bonds Now

Bonds are a familiar asset to most investors. Maybe you’re one of the many who took advantage of the declining interest rates that fueled bond funds in the past few years. Rates always fluctuate, though, and our clients frequently ask, “What’s the best way to invest in bonds today?”

First, you need to know how bonds work. Your investment essentially lends money to a government or corporate entity that agrees to pay the investment back to you after a set time (the bond’s “maturity”) plus interest.

Decent Bond Yields: In 5 Years

Will interest rates ever return to a level where they provide a decent return? Sure, in about five years. In the meantime, that leaves fixed-income investors scrambling.

Many investors watch the daily close of major stock indexes as an indicator as to where market winds are blowing. It also pays to watch the direction of interest rates as a portent of trends. Interest rates are likely to remain constrained. For asset allocators, that bodes positives and negatives as they evaluate various asset classes.

The Fed’s Monetary Misfires

For decades, the Federal Reserve has manipulated the money supply, often in response to political concerns. The better policy would be for it to adjust monetary policy using a simple formula based on movements of inflation and economic growth.


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